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S. Res. 315






FEBRUARY 13 TO 28, 1933

Printed for the use of the Committee on Finance



R E E D SMOOT» Utah,, Chairman
5 A M E S E. WATSON, Indiana.
PAT HARRISON, Mississippi.
D A V I D A. REED, Pennsylvania.
J A M E S COUZENS, Michigan.
DAVID I. WALSH, Massachusetts.
H E N R Y W. KEYES, New Hampshire.
H I R A M BINGHAM, Connecticut.
R O B E R T M. LA FOLLETTE, JE., Wisconsin.
THOMAS P. GORE, Oklahoma.
E D W A R D P. COSTIGAN, Colorado.
CORDELL HULL, Tennessee.
JESSE H. METCALF, Rhode Island.
D A N I E L 0 . HASTINGS, Delaware.


statement of—
Aldrich, Winthrop W., chairman of the Governing Board and president Chase National Bank of New York
Anderson, S. W., New York City
Anderson, W. J., Macon, Ga. (letter)
Arendtz, Dr. Herman F., Boston, Mass
Armstrong, George W., president Texas Steel Co., Ft. Worth, Texas,
and Natchez, Miss
Atterbury, W. W., president of the Pennsylvania Tlailroad, Philadelphia, Pa^
Baldus, S. A., Managing Editor Extension Magazine, Chicago, 111
Barker, Lewellys, M.D., Baltimore, Md
Baruch, B. M., New York City
Beck, Thomas H., New York City (letter)
Beinecke, Frederick W., New York City (brief)
Bell, James F., Minneapolis, Minn, (brief)
Benjamin, Edward B., President Maginnis Cotton Mills, New Orleans,
Block, Paul, New York City
Brown, Harry G., University of Missouri, Columbia, Mo
Bullock. John G., Los Angeles, Calif, (letter)
Butler, Nicholas Murray, President Columbia University, New York
City (letter)
Clark, Victor S., Washington, D.C. (letter and brief)
Clayton, W. L., Houston, Tex. (letter)
Cochran, Lamont M., Long Island, N.Y. (letter and statement)
C5one, Julius W., Greensboro, N.O
Cook, Frank B.. Salt Lake City, Utah (article)
Copeland, Morris A.. Ann Arbor, Mich, (letter and brief)
Coyle, David Cushman, consulting engineer, New York CIty__».
Davis, George H., President Davis-Noland-Merrill Grain Co., Kansas
City, Mo
Davis, John W., New York City (telegram)
Delai)enha, B. U., New York City (letter and report)
Dennis, Lawrence, New York City
Dennison, Harry S., Framington, Mass
Dewey, John., Washington, D.C. (letter)
Dickinson, Dr. H. 0., President of the Society of Automotive Engineers, Washington, D.C
Dodge, Martin, New York City (radio address)
Donham, Wallace B., Dean Harvard Business School, Cambridge,
Draper. Ernest G., New York City
Duffield, Edward D., President of the Prudential Life Insurance Co.,
South Orange, N.J
Durant. Will, Great Neck, N.Y
Eccles. M. S.. President First Security Corporation, Ogden, Utah
Ezickson. Dr. William J., Philadelphia, Pa
Fairchild, Fred R.. political economist, Yale University, New Haven,
Ferguson, Homer L., Newport News, Va
Ferry, W. Mont, Vice President and managing director of the Silver
King Coalition Mines Co.. Salt Lake City, Utah
Figart, David M., New York City
Filene, Edward A., Boston, Mass
Fisher, Irving, New Haven, Conn




Statement of—Continued.
Flanders, Ralph E., President Jones & Lamson Machine Co., Springfield, Vt
Flick, Franklin, New York City
Foster, Dr. William T., Newton, Mass
Frank, Glenn, President of the University of Wisconsin, Madison,
Garrison, Flint, Director General of the Wholesale Drygoods Institute,
New York
Oarvan, Francis P., President Chemical Foundation, New York City_
Oephart, W. F., St. Louis, Mo. (brief)
Oraham, Benjnmin, New York City
Graham, M. K., Graham, Tex. (letter and brief)
Grimes, Edward J., Vice President Cargill Elevator Co., Minneapolis,
Harvey, Edward F., Gwynedd Valley, Pa
Haskell, Henry J., Editor of the Kansas City Star
Hillnian, Sidney, 15 Union Square, New York City
Hogan, T. S., Midland, Tex
Holderby, Rev. AVilliam Matthew, Washington, D.C
Houston, David F., President of the Mutual Life Insurance Co. of
New York, New York City
Hylan, Hon. John F., former Mayor of New York City
Ise, John, Lawrence, Kans. (letter)
Keezer, Dexter M., economist and associate editor Baltimore Sun,
Baltimore, Md
Kemmerer, E. W., Princeton University, Princeton, N.J
King, Willford I., New Yoi'k City (letter and statement)
Kingsley, Charles F., Brooklyn, N.Y. (report)
Kiwanis Club of Elizabeth, N.J. (brief)
Knapp, Joseph P., New York City (brief)
Kunnecke, F. J., University of Dayton, Dayton, Ohio
Legge, Alexander, President International Harvester Co., Chicago, 111504
Leon, Rene, New York City
Lewis, John L., President United Mine Workers of America
Lieberkind, Max, New York City (letter and statement)
Litchfield, P. W., President the Goodyear Tire & Rubber Co., Akron,
Lombard, Norman, New York City (brief)
Loree, L. F., President the Delaware & Hudson Railroad Corporation,
New York City
JNIerkle, Frederick B., Brooklyn, N. Y. (letter)
Morrison, Rev. H. C., D.D., Louisville, Ky. (letter)
Noyes, A. D., journalist, New York Time.s
Norvell, Saundei-s, New York City (letter and article)
O'Neal, Edward A., President American Farm Bureau Federation,
Munsey Building. Washington, D.C
Peek, George N., Moline, 111
Pelley, J. J., President New York, New Haven & Hartford Railroad
Co., New Haven, Conn
Persons, Warren M., New York City
Peters, A. C., World Trade League of United States, New York City— 119T
Rand, James H., chairman
Remington Rand, Inc., New York City (letter and brief)
Reynolds, Jackson, New York City
Rogers, James Harvey, of Yale University
Richberg, Donald R. (brief)
Royster, W . W., chairman Railroad Employees National Pension
Association, Chicago, 111
itomfh, E. C., President First National Bank, Miami, Florida
Sexton, Robert H., New York City
Silberling, Dr. Norman J., San Francisco, Calif, (letter and brief)—
Simonds, A. T., Fitchbiirg, Mass
Simonds, Frank H
Simpson, John A., President National Farmers Union, Washington,



Statement of—Continued.
Smith, Alfred E., New York City
83G, 1219
Smith, Dick, managing editor Kansas City Journal-Post, Kansas
City, Mo
Stearns, W . D., Ph.D., Washington, D.C. (magazine article and
Stern, J. David, editor and publisher Philadelphia Record and Cambridge Courier-Post
Taber, L. J., Columbus, Ohio, master the National Grange
Taylor, A. B., Stanford University, Calif, (letter and brief)
Taylor, Myron C., chairman United States Steel Corporation, New
York City
Teague, C. C., Santa Paula, Calif
Tippets, Charles S., Buffalo, N.Y. (letter and articles)
Trimble, South
Turner, D. Walter
Van Kleeck, Mary, director department of industrial studies, Russell
Sage Foundation
Waldeck, Herman, Chicago, 111
Waller, John R
Weber, Orlando F., ?s'ew York City (letter)
Weir, E. T., chairman National Steel Corporation, Pittsburgh, Pa-_
Willard, Daniel, President Baltimore & Ohio Railroad, Baltimore,
Willis, H. A., Chicago, 111. (letter and article)
WoU, Mattliew, Vice President American Federation of Labor
Wilson, Dr. Walter L., Kansas City, Mo
Wright, Dr. Ivan, University of Illinois, Urban, III
York, George W., Albuquerque, N.Mex

M O N D A Y , FBBRITARY 13, 1 9 8 3

Washington, D. C,

The committee met at 10 o'clock a. m., pm^uant to call, in Room
335 Senate Office Building, Senator Reed Smoot presiding.
Present: Senators Smoot (chairman), Watson, Reed, Shortridge,
Couzens, Keyes, Bingham, La Follette, Thomas of Idaho, Harrison,
King, George, Walsh of Massachusetts, Barkley, Connally, Gore, and
The CHAIRMAN. The committee will come to order. The committee
have met this morning for consideration of S. Res. 315, introduced
by Senator Hamson on January 4, 1933. At this point I shall ask
that the resolution be placed in the record:
Resolvedf That the Committee on Finance, or any duly authorized subcommittee

thereof, is authorized and directed to make an investigation and study of the
present economic problems of the United States with the particular object of
obtaining the views of such economists, financiers, and other persons as in the
opinion of the committee may be able to offer constructive suggestions with
respect to the solution of such problems.

We have with us as our fii-st witness Hon. B. M. Baruch, of New
York, The committee will be pleased to hear Mr. Baruch.

Mr. BARUCH. Mr. Chairman, may I say that I have placed at the
disposal of each member of the committee a copy of my remarks, and
I should like veiy much if I would not be interrupted in the midst of
the story, but that each member of the committee should mark the
place at which he would like to ask questions, and I wiU be pleased to
submit to any examination or questions any member of the committee
may feel like asking at the conclusion of my statement.
The CHAIRMAN. That request will be granted.

Mr. BARUCH. The objective in the mind of every thoughtful man
is to restore to distressed humanity the opportunity to earn its daily
bread—to get people back to work again. We wish this for the whole
world, but our primary duty is to put our own house in order. Our
troubles come from four effects of war: Inflation, debt and taxes,
national self-containment, and excess productive capacity.

The war cost the belligerents about $147,000,000,000—but in the
purchasing power of 1913, to which level the dollar has about returned,


that cost would have been S46,000,000,000. Thus, more than
$100,000,000,000 was pure "inflation," due to the destructive demands
of war. It tripled the terrible aftermath which we now suffer. I
have proposed a prevention of future recurrence of this evil which
your War Policies Commission has recommended to the Congress.
Inflation did not end with the war. The peak of prices came later
and only now, 14 years after the war, wholesale prices are reaching
what appears to be a normal or at least a long-time pre-war level. As
a result of both the Civil and the Napoleonic Wars similar inflations
occurred. It took about 14 years in each case for prices to recede
to former levels, which they did as surely as water runs downhill. The
wreckage due to these inflationary illusions had to be cleared away
before normal processes appeared. It is so with us now and the chief
barrier to returning prosperity now is the debris of World War inflation.
We must courageously clear it away and stop our vain attempts to
restore or preserve vanished values. That is the first step to recovery.

The bulk of the vast war cost (tripled by inflation) was paid in
money borrowed from the people. It left a colossal load of public
debt. Government costs rise during inflation and are hard to get
down. Both of these causes produced high taxes. No matter what
may be said in politics, taxes are paid in the sweat of every man who
labors and in no other way. The fanner or the worker may never
see a tax collector, but, either by deduction from his receipts or by
increase in his expenses, the producer pays the cost of government.
Prosperity only exists when all who work can freel}^ and fairly exchange the products of their labor for the products of others. It
seems to be agreed that costs of government have risen to about 33K
per cent of national income; in other words, that one-third of what our
[)eople now produce goes, not to exchange for the fruits of each other's
abor, but to divide with nonproducers and thus to curtail the producing and consuming capacity of the coimtry. That is the second
principal cause of continuing distress.
Nearly every time a legislature votes an apjjropriation, or refuses
to vote an economy, it is adding a new brick in the barrier against
prosperity. Every debt we forgive to other nations lifts a burden
from their distressed business and adds it to our more distressed business, thus doubling our handicap. Surely, it would be a fair rule to
refuse relief unless the burden of a debtor's taxes on his income is as
heavy as our own. It is a difficult figure to determine and it may be
in error but I am told that this test would rule out every present claim
on us for debt revision. So much for public debt. Reduction in
public expense is indispensable to recovery.
Business is also borne down by private debts contracted at high
prices which must be paid in low prices. But the decline in prices
of itself is not the trouble. It makes little difference whether prices
are high or lo\v if they w^ould only rise and fall together. It is profits,
not prices, which make prosperity. The real troubles are that prices
do not fall uniformly and that debt and taxes do not seem to fall
at all. For example: It is the disparity (not the lowness) of farm prices
which almost destroys the consuming power of the agrarian half of
our population. And thus, because the burdens of debt and taxes



are higher and higher while incomes are cut in half, there is little left
to any man to buy the necessaries of life. These disparities are a
third cause of continued distress.


Before 1914, nations were content to rely on other countries for
things which could be produced better and cheaper abroad. This
mutual exchange constituted the commerce of the world. But the
World War was an economic war. The Central Powers, ringed by
fire and steel, turned perforce to self-containment. England and
France, threatened with starvation by the submarine, learned the
fear of economic strangulation. It was thus that the world became
honeycombed into trade-tight economic compartments. Everywhere
nations are now arming, but because" of the lessons of the war they
now arm on two fronts—military and economic. Tariffs, import
quotas, domestic subsidies, and other trade barriers are symptoms of
a universal fear of the imminence of war. They are ultramodern
bulwarks of national defense, and the quicker we recognize that, the
more competent we shall be to deal with them.
National defense is a first duty of government. It rises in direct
ratio with the sense of danger. It is difficult for us, in our geographical isolation, to comprehend the thoughts of a nation such as France,
which lives athwart a path of conquest like the defile of Verdun and
the plains of Picard;f, where milHons have fallen in a series of struggles
that began before history.
As long as the causes of conflict survive, we shall not be able to
" b u y " these barriers down by debt or any^ other economic concession.
The movement towar'd national self-containment is defensive and not
retaliatory. To the extent that we depend on world trade, it is a
continuing cause of our depression. We must recogmze its true nature
to the end that, even if we can not whoUjf control it, at least we can
shape our own economic policy to avoid deluding ourselves into
making further vain sacrifices at the expense of our people.




During the World War we learned to produce more things with
fewer men. It was as much a war of materials as a war of men, and
its capacious maw gaped for all that the nations could produce.
Labor-saving machinery was only one of many expedients. We
transformed our country into a unitary production machine. The
whole of our industry was mobilized. The lessons learned in war
were not forgotten in peace and they have changed the essential
character of our economics. So engrossed were we on production
that we neglected altogether the problems of distribution, especially
the maintenance of equally distributed buying power throughout our
own population. We must recognize, also, that demoralization of
national currencies (whether forced or voluntary) have an effect,
just now, to intensify the race for self-containment.
I am not speaking of ''overproduction" which is a mere corelative
of "tmderconsumption." I mean excess productive capacity. I
mean the vast plants which, though idle now, sometimes seem to me
like naasked batteries of machine guns waiting to lay down a new
barrage of production whenever buying reappears. We must find


means to control production, especially of farm and mineral output.
It is a stupendous development throughout the whole world—sugar,
silk, rayon, wheat, rubber, coffee, tin, iron, and copper. I know of no


The world seems to be subject to curious brainstorms—the crusades,
the Mississippi scheme, and the south sea bubble, are examples.
Let me quote from Mackay's Popular Delusions, referring to what he
calls the Tulipomania of the seventeenth century:
Everyone imagined that the passion for tulips would last forever. * • •
The riches of Europe would be concentrated on the shores of the Zuyder Zee, and
poverty banished from the favored clime of Holland. People of all grades
converted their property into cash and invested it in flowers. Foreigners became
smitten with the same'frenzy and money poured into Holland from all directions. • » • Holland seemed the very antechamber of Plutus.

You will recognize some of these expressions. It seems incredible
that so solid a nation as the Dutch should nearly ruin itself on such a
thought, but is it any more credible than that we would go into debt
to pay thirty times earning power, and even more, for common
stocks of the "New Economic Era" on the theory that we also were
going to ''banish" poverty by selling bilhons in manufactures to an
almost bankrupt world by the expedient of continually lending our
customers more money?
We built up a tinsel tower of paper prosperity out of debts and
speculative hopes and such other things as dreams are made of.
It lies in ruins, but the debts remain. What shall we do? Are we to
try to put, or keep, substance in things which had no substance in
the beginning, or shall we clear away the wreck? I think our duty
is clear, and that in taking it we must remember that delusions swing
between extremes, like pendulums. Delusions of OTandeur and
unending wealth give place to delusions of unending gloom. One is
as unreal as the other.


We can not oppose lerislation to natural laws. But legislation can
aid and hasten and gxiide their effect. In this crisis, the golden rule
should be;
Reject all plans which oppose or postpone the working of natural
processes. Aid and accelerate the effect of curative economic influence. It is a simple rule, but it is a right one. We have overlooked
simple things too long. The artificialities of the great delusion were
plain. We closed our eyes and went on loaning two billion dollars a
year to finance sales to "crippled*' countries, because we were persuaded to disregard arithmetic. On this artificial expansion of our
world trade we built a dream of boundless wealth. Based on that
alone, individuals, in seven years increased their debts by 50 per cent,
and corporations by 75 per cent—all to build that tinsel structure.
Nothing had happened to lift real values to such dizzy heights above
the slow sweep of progress. The collapse of 1929 was inevitable. No
return to normal living is possible until we clear away the vestiges of
that wreck. Natural processes are working to cure every evil, but
what have done to aid that cure?



For four years we have treated the inevitable collapse of our folly as
a mere interruption of a dream. We have maintained the boom-time
costs of Government and incurred destructive deficits solely on the
argument that the (beam would come again. No other assumption
could justify our policy. We have set every legislative force against
the economics of cure. We have used Federal credit in a vain attempt
to reconstruct or preserve the ruins of phantom values. We have
tried to avoid paying for our folly. We have not yet taken one really
constructive step. I doubt if we have even recognized the true evils.
And what is now proposed? The farm crisis comes from overproduction. Yet we propose^ to reward production by a billion-dollar
bounty. The only remaining safeguard is the Federal credit. Yet it
is slowly being undermined by deficits and recent methods of Federal
financing and we are preparing to assault it now by many inventions.
There are before the Congress a dozen projects that might involve it
in repudiation and ruin, but I know of none that can be relied upon to
preserve it.
This is not progress. This is opposition to progress. The single
project to aid, and not to oppose, naturd cure is to be found in the
principles of the LaGuardia bankruptcy bill. It is high time that our
affairs should by taking an upward turn, and I believe that we are delaying rather than advancing it.
I hasten to add that I blame nobody. Congress reflects a public
opinion which is leaderless, bewildered, and confused. But fundamentals are becoming clearer with experience and it is time to state
right principles.
There are many who say that there can be no hope until world distress is cured. There is, of course, an interdependence of nations.
But ours is a country of boundless resources and of continental dimensions, extending across half of the temperate zone and providing
a unitary market of 125,000,000 people, and the world's most advanced
economic development. Surely we have within ourselves the materials
for at least a moderate prosperity. The most important retarding
influences are withm our own control.
There is but a limited human capacity of both time and ability.
As we had to do in the war, let us give "priority" to a definite few of
the most effective forces at our own command in a limited program
and then let us concentrate on that plan, leaving to one side action
which depends on agreements with other nations and plans of a longer
range. Some of these, like war debts, will intrude in spite of our
plans, but let us take them in our stride.
If I were writing such a program it would be: First and foremost,
make adequate provision against human suffering; second, put
Federal credit beyond per adventure of doubt; third, aids to rapid
liquidation of debt; fourth, plans to encour^e rapid consxmption of
commodity surpluses and to control productive capacity; fifth determination of policy on world economics, disarmament and debt.


I wish I could make clear to our millions of sufferers their absolute
dependence on the Federal credit. If our people only knew the dangers
which our present inertia incurs, there would be a demand for instant
action so great that no one could resist it. It takes money to relieve




suffering, and we shall need billions. We think of money as, coin and
bills. But there are less than six billions of that land of money in
the coimtry. The Federal Government alone has spent more than
that in a single year. Most of our money is what the man in the
street calls ''money in the bank.'* But the banks do not keep coin
and bills to pay their depositors. They keep securities, issued for
goods or some other form of wealth, which the}'' can sell to pay
depositors. But securities of that kind are growing scarce and
doubtful. The only kind of securities in which we have absolute confidence ai-e the obligations of the United States Government. In the
Federal reserve and so-called "reporting member banks'' alone there
are about 17 billion dollars of this "money in the bank/' and more
than one-third of it is backed by Government securities. These
securities have no specific goods or wealth behind them. The onlv
worth they have is the world's belief that this Government, at all
times, can and vdW keep the letter of its promise instantly. If anything happens to shake our confidence in these, the loss will fall immediately on this "money in the bank." The only defenses between
this country and ruin are these Government secunties.
More than 90 per cent of our business is done, not in coins or bills,
but in "money in the bank" (depositors check-book balances). You
may own other securities or wheat or land, but when you want to sell
these things to pay your taxes or your grocery bill, the buyer will rive
you this kind of "money in the bank" in the form of a check. But
every bit of it depends for its value on the Federal credit because so
much of it is backed by the banks' ownership of Government securities.
We do not have accurate figures on the total of bank deposits but it
is probably about $45,000,000,000. Newspapers recently quoted the
Assistant Secretary of the Treasury as saying that all banks owned
about ten billion dollars in Government obligations. Every bank,
every insurance policy, the solvency and continued operation of
every corporation, employing men, the wages of labor, the wherewithal to pay the farmer, and, above all, the resources to feed the
hungry and relieve distress, they all hang by a single tliread, the credit
of the United States.
We have kept that credit above reproach for so long that people
think it can stand any abuse. But this is an era of broken precedents.
It is too painful to relate all those things which we are accustoned to
say "couJd never happen" but wliich, unfortunately, are happening
before our very eyes. Wo are witnessing the disintegration of the
institutions of an era.
\Miat maintains the credit of any government? It always stands
on two supports; its gold reserve, and its power to meet its current
obligations tl)TOugh taxes. Of these two, the essential one is the
latter. Gold is only a sort of conventional restriction on the temptation of governments to extravagance. The real test of government
credit is the same as the test of individual credit. Is it living wdthin
its income with something left over to pay its debt? Allien, as in the
Confederacy, or in the revolted American colonies, or in Germany, or
Russia, a nation loses both these props, the value of its money and its
bonds goes down to absolute zero and notliing can restore it except to
recreate one or both of these supports of national credit.
There are intermediate cases, such as that of England. Her gold
reserve is so scant that she suspends specie payments, but her revenue



is near enough in balance with her expenses to give a fairly stable, if,
considerably reduced, value to the pound. Even without much gold
England's credit is maintained by a balanced budget. France was
in an intermediate case when she was devaluating the franc. Her
gold reserve was not sufficient and she had a large deficit. The value
of the franc went from 20 cents to less than two. The French credit
stood on half a leg, but both by accumulating gold, and by bringing
her budget into balance, France stabilized the franc.
In what category do we fall? We present a unique case because we
have the largest deficit and the largest gold reserve in peace-time
history. Decidedly, we rely on only one support, our gold reserve.
But suppose we should lose that. Because of our monstrous deficit,
we would be in a worse case than England and nearly as badly off as
Germany or Russia when the basis of the wealth of these countries
vanished like a drop of water on a red hot stove. Do we dare continue in such danger? There is one way out, and every day's delay
invites sudden consequences which I hesitate even to mention.
Our fiscal circumstances are unpleasantly like those preceding a
run on a bank* Our ''cash money" is redeemable in gold on demand.
Also, the entire pool of ''money in the bank'' is convertible into money
redeemable in gold. The total of potential demands is many times
the gold reserve and could exhaust it in 24 hours. If we resolutely
balance the budget, there will not be the slightest danger of this and
even if it happened we would be in no worse fix than England is to-day.
But we now have a deficit of over two billions a year and the suspicion
is growing that we do not really intend to balance it.
With the gold reserve gone, this Government would have no recourse except the issue of irredeemable currency, money unsupported
by any value, not even by the prospect of revenue. We would not
be as strong as many contemporary nations which are off the gold
standard because no nation ever dared to incur deficits as large as
ours. The demands on our Government for all forms of relief are
stupendous. In event of such a collapse, we would be helpless to
aid om* people at the very moment when the need for aid is greatest.
It is the weak who need a solvent government most. The strong
are better able to take care of themselves.
Between our present status and the disaster just described, there
is only a thin veU of popular complacency and there are projects before you now which might destroy that slender protection in one day.
The most dangerous are the projects to inflate the currency.


There are many people who earnestly believe that we can make
conamodity prices higher by the simple process of issuing more money.
It is a complex question but what does our experience show? In
December, 1932, we had outstanding nearly 5.7 billions of money
and Dun's Commodity Index stood at 133.9. The highest commodity
prices since 1921 were in May, 1928. Dun*s price index then stood
at 199.2, but the amoimt of issued money was then only 4.7 billions.
Since September, 1930, the amount of money issued has risen about
$1,000,000,000 while commodity prices have steadily fallen. There
is no such thing as arithmetically relating prices as to the quantity of
issued money.



Quite apart from any figures, the fact that the great bulk of our
business is not done in issued money but in ''money in the bank"
should be enough to suggest that an increase in ''cash money'* alone
could produce no such effect. The fact is that there is no lack of
money—either of "money in the bank'' or "cash money." In other
words, all the money of both classes in 1932 would have financed
much more business at prices current then, than all the money of
both classes in 1928 would have financed at the height of 1928 activity
at prices current then. Yet, in spite of all this excess stagnant pool
of money in 1932, business activity was about half what it was in 1928.
For three years we have conducted a vast but vain experiment in
inflation. Not being willing to sacrifice for a balanced budget, we
have been selling Uncle Sam's duebills—^not to people who have
"money in the bank" which already exists and is backed by securities
representing economic goods—but mostly to the banks themselves.
The Government was saying in effect to a bank: Put this Treasury
duebUl for $1,000,000 in your vault and write on your books a credit
to the Government of $1,000,000. After this transaction, the Government wrote checks for its expenses for that $1,000,000 and, by that
process, without anything representing economic wealth having been
deposited in that bank, but only a Treasury promise representing a
deficit, the Government added $1,000,000 to the sum of all the
"money in the bank."
We have coined our deficit to pay our expenses. I can see no
fundamental difference between what we have done and the proposal
to issue Federal reserve notes or other currency to pay for our deficits,
which our inflationists now propose as a sure-fire method of raising
prices, except that the inflationists do not propose to go half as far
as our Treasury has already gone.
Out of more than five and one-half billions of dollars of deficit
which we have piled up during the depression, nearly five billions is
represented by increases in the holdings of Government securities
by Federal reserve and member banks alone, and, as I read the news
reports, the Assistant Secretary of the Treasury thinks total holdings
of Government securities by all banks is as much as ten billions of
dollars. Be that as it may, Government has added at least five
billions and probably the whole deficit to "money in the bank."
But it has produced no such beneficent effect on prices as the inflationists thinly would come from issuing a much lesser amount in Federal
reserve notes to pay expenses.
Those notes, if issued, would be "money in the bank" just as quick
as the recipients could deposit them in their bank accounts. Both
plans come to the same thing in the end, but I fear that we have gone
to the limits of prudence already in this method of Federal financing,
and I doubt if we can continue to get money in that way. It has
clogged our pools of bank credit. It has obscured the whole question
of Federal credit by creating an artificial market for Federal securities.
It is this method of financmg that has lulled the country into complacency on the effects of deficits. Nobody can say with confidence
that, in this condition, we can borrow in the ordinaiy way by seUing
long-term bonds. The outgoing administration will leave the cash
balances at a low point and present us with a dangerous and totaUy
obscure fiscal problem at the very outset. Delay in balancing the
Budget is trifling with disaster.



I note that the Secretary of the Treasury said on Saturday:
Ultimately the point might be reached where central bank credit has to be
invoked to support the credit of the Government, and when that point is reached
we have entered the field of destructive inflation.

You gentlemen know that we long ago reached the point where
central bank credit was invoked to support the credit of the Government.
What is the matter with this theory that more money will make prices
go up? To answer that you must ask: What is it that makes the
prices of things go up? It is the fact that a prospective buyer would
rather have the thing than the money. In booms, people prefer
things to money because they hope the price of things will go up and
they Imow that the price of money will not. If, at such a time as that,
we make credit easy or issue more money, people will borrow to buy.
So^ many people do that at the same time that their buying makes
things scarce and sends prices higher. The higher prices go, the more
pepple are able to borrow on the collateral of thmgs, to buy more
things and to send prices still higher. At such a time, if the Federal
reserve "buys Government bonds" (which is what I think the
Secretary of the T r e a s u p r means when he speaks about invoking
central bank credit), or if the Government issues still more money
and does other things to make speculative buying easier, it can precipitate a boom as it did in 1920.
But when nobody has confidence, nobody wants to buy things,
which fall in price. Everybody wants to sell things to get money,
which does not fall in price. In the scramble to exchange things for
money, prices drop and that restricts credit stiU more because it
reduces the collateral of loans. That forces more selling to protect
loans and that forced selling sends prices still lower. At such a time,
government can not force prices up by issuing more money because
nobody will use credit to buy things because nobody wants to buy
In other words, confidence is the basis of higher prices. If there is
no confidence, no amount of tinkering with the currency can raise the
price level. On the contrary, and tms is the yery heart of the whole
problem of the depression, deficits and thefinancingof them by "bank
money" inflation (or even the mere talk of monetary inflation) impair confidence still more and drive money deejjer into hiding.
I am aware of the rejoinder: "If you think inflation will have no
effect on prices, why do you object to trying it?'^ The first answer is
one I have just made, that the mere talk about proposals of inflation
prevents confidence and bars recovery. That is the essence of our
present trouble. It is not lack of money or credit. , Men can not go
back to work imtil money goes back to work. Men risk their money
in commerce because they expect to get it back with a profit, but
nobody will risk doUars which the Government threatens to devaluate. Business moves on faith in promises. Money itself is a promise. Every sale and every employment is a promise to do something
and to pay something. Money will not go to work in the presence of
any such desperately dangerous fiscal policy as we have piu-sued and
are stiU pursuing—^much less in an atmog)here full of talk of the
repudiation of money and debts by both men and government®.
That is why I say with such confidence, that until we make the money
and the credit of the United States safe beyond peradventure no



amount of economic mustard plasters will cure our pains. That is
why the Reconstruction Finance Corporation plan has failed of full
effect, and that is why other Federal aids to business are frustrated.
I am not given to prophecy but I am willing to hazard on this
subject. From the moment that we honestly balance the Federal
Budget and return to an orthodox Treasury policy, money will flow
here from all the world and out of every cautious domestic hoard,
seeking safety and employment, and we shall have reached the end
of out downward path. There will be more sound money available
than all the inflationists propose to print. That is the only way to
restore to our people the means to earn their daily bread, and that
will do it, in my opinion, with ^eat rapidity. There is no magic in
this conclusion. It is the sim]^e arithmetic of the oldest axioms in
the world.
Men who oppose this step are unwittingly opposing recovery.
But men who iasist on inflation are courting a greater danger. There
is a way to iuflate prices. It is possible to make people prefer things
to money, not by increasing their confidence in things but by absolutely destroying their confidence in money so that they will ''flee
from the dollar" to buy things because they fear the future of money.
The vast ''bank money'' inflation of the past two x>r three years has
failed to frighten people to this extent for three reasons: The size of
the gold reserve, their failure to understand what was going on, and
the constant promise of our Government that it was about to balance
the Budget. If you want to raise prices by destroying the Federal
credit, you must go further than this. You must cast actual and
widespread doubt on the Government's ability to perform its promises or on its good faith in making them.
The danger of this in our country is that when you have raised a
s ^ c i e n t doubt, people may not scramble to buy things. If a suflicient number got the same ide at the same time, the gold reserve would
vanish overnight and then this Government would be helpless to do
anything for anybody. That would make prices rise instantly and
like a sky-rocket. It would do as it did in Germany when it took a
valise full of paper marks to buy a sack of flour. With our present
hordes of people out of employment, it would precipitate general
starvation. The most enthusiastic inflationist contemplates no such
residt as this, but they do not see that we have reached a stage where
any further tinkering with fundamentals is playing with dynamite at
the heart of human welfare.
I want to talk at length about inflation and I ask for your patience
because there is so much confusion. I shall use the proiect to cut the
gold content of the dollar for illustration because, while other plans
are admittedly indefinite, this one is specific. There are now approximately 26 grains of gold in the dollar. If we cut that by 25 per cent
to about 20 grains, we at least have a mathematical formula. Other
plans present some differences in result, but, so far as their effect on
prices is concerned, they all propose similar results. To whatever
extent other plans prove to be effective, all that I shall say about this
plan applies to the others.
If the public foresaw the move, there would be an instant rush to
redeem present money in gold, and the whole project would fail
because there would be no gold left in the reserve. This is certain
because, if we put the plan into effect to-morrow, every man who



redeems to-day would be 3Z% per cent richer to-morrow than the man
who did not, as I have shown.
But let us suppose that by some magic, we could get by this danger,
and that to-morrow, with $4,000,000,000 of gold, we should have
reduced the redeemable value of the dollar 25 per cent. Will that
inflate domestic prices? Not unless the move causes people to prefer
things to dollars because their confidence in dollars has been destroyed.
The new dollars would have more than 100 per cent gold coverage
because of reduction in the redeemable value of all the dollars now
issued. It seems extremely doubtful that there would be any
domestic effect to raise prices. Of course, there would be a tremendous shock to confidence in such a wholesale act of outright repudiation and the feeling that it might be repeated at any time. But,
passing over these conjectures and assuming that the attempt would
act as its proponents hope, there are some probable results.
The domestic prices of surplus export commodities are made
abroad by world competition. To make it simple, let us suppose
that a shilling is now worth 25 cents and that the Liverpool price of
wheat is $1 a bushel. An Englishman must spend four of his shillings
to buy a bushel of wheat. But after a dollar is worth only about 20,
and not 26, grains of gold, his shilling would exchange for 33K cents
of the new money instead of 25 cents of the old. While it would still
take 4s. to buy a bushel of wheat, when these shillings were changed
into dollars to pay the American farmer, they would be $1.33 in the
new money. In other words, theoretically, the price of wheat at
Liverpool, expressed in sterling, would still be 4s., but expressed in
dollars, it would increase 33^ per cent. And since the Chicago price
generally follows Liverpool the argument is that the domestic price
of wheat would also rise, and so, theoretically, would the price of
cotton and other export products.
It is wrong to suppose that this would increase the'buying power
of foreign countries for our surplus export commodities. It would
still take 4s. to buy a bushel of wheat, because the price of wheat is
made abroad in sMllings and by world competition. Devaluation
of the dollar would not change these competitive conditions.
But there would certainly be a decrease in our buying power abroad.
For example, the British price of smoked rubber sheets would remain
the same in shillings and pence. But it would take 33K per cent more
of the new dollars to buy rubber. In other words, this is a proposal
(without any compensation to him whatever) to increase to the
American consumer by 3 3 p e r cent the cost of his sugar, coffee, tea,
rubber, silk, imported wools, and other imported commodities, and
also the price of his cotton and wheat, and all other export commodities, of which the price is made in foreign markets.
There would be an instantaneous harmful effect on our international
creditor position. The world owes us upwards of $20,000,000,000 on
which the interest payment of more than $1,000,000,000 is one of the
strongest elements of our economy. Foreign debtors pay that charge
in enough of their money to buy 26 grains of gold to the dollar or the
equivalent of that in goods. After a 25 per cent devaluation they
would pay only enough to buy 20 grains of gold. For instance, a present debt charge of 25 francs would be reduced to less than 19 francs.
In other words, this proposal would certainly and instantly reduce all
debt payments to us by 25 per cent. But our citizens owe biUions



abroad. If we suppose that $1 will now buy 4s. with which to pay an
obligation due in English currency, instantly, after a 25 per cent devaluation, it will take $1.33}^ to pay the same debt. In other words,
this proposal would certainly and instantly increase the cost of American debts due in foreign currencies by 33% per cent.
The Department of Commerce reports, for 1930, American
receipts of $838,000,000 and expenditures of $227,000,000 on longterm international investment account, a net balance of $611,000,000.
We do not know how much of the sums sent abroad were for debts
in foreign currencies, but, if all were, and if devaluation were in
effect, that net balance would reduce to $325,000,000. It seems a
shocking proposal, to the benefit of nobody but foreign nations.
In the case of American manufactures where the price is made
in this country, as distinguished from export commodities where the
price is made abroad, there is an apparent benefit in export trade.
If an American plow is made to sell to the Argentine for $100 and
it now requires ^400 to pay for it in New York, then after a 25 per
cent devaluation it wiU take ^300 and the Argentine can buy more
plows. Why is this true? Starting from the raw material, the bulk
of cost of that plow is the wages of labor and the reason it can be
sold for fewer pesos is that such devaluation has an insidious but
instant effect to cut those wages 25 per cent. To whatever degree
inflation by any plan increases e^^ort trade, it does so by the sacrifice
of our labor conditions and dissipation overseas of American assets.
A country can continue this sort of thing for only a limited time. I
cite the case of Russia, which has recently conscripted thousands of
working men to the northern forests for the purpose of producing
lumber to sell abroad to create export credit out of the very lives of
her people.
But the effect of devaluation to reduce our creditor position is
urged as rehet to foreign customers to permit them to buy more
of our goods. It is true that a creditor nation, especially one who
declines imports, can not expect continued vast export expansion.
For 10 years we neglected this fundamental and staged a fantastic
boom on the basis of an increased export financed entirely by unwise
foreign loans. The present argument for increasing exports by
relieving burdens on debtors at the expense of American labor is a
repetition of the same blind folly in a different guise. It would be
far better to cultivate our domestic market by increasing the buying
power of our own people.
So much for the wholly destructive effect of inflation on our international relations. Let us examine the effect at home. The producers
of surplus export commodities would probably receive a higher price
in a lower dollar, and the price of imported products, principally food,
clothing, and other necessaries, would rise. But the price of other
things would not rise nearly so fast nor so far. Indeed, it is not certain
that they would rise at all, except in the panic event I have discussed.
When England went off the gold standard and the pound declined
more than 25 per cent, prices rose very little, and promptly declined
again and after nearly two years there is no marked effect on domestic
prices. Even suppose prices went up exactly as the inflationists hope,
who would be aflected? Only a relatively small part would at once
feel any benefit. Some, but by no means all, farmers would get a
benefit and also some manufacturers. But wages are fixed by contract



and not in the open market. They would rise slowly if at all. The
laborer's dollar, which yesterday bought 26 gold grains* worth of
necessaries, would to-day buy only 20 grains' worth. Labor, which
has already suffered a 40 per cent to 50 per cent reduction in income,
would suddenly find itself the victim of a new and greater cut, not by
its employers, but by the very Government upon which it relies for
protection. And not labor alone. The same thing would happen to
every man who works for a salary, every professional man, and the
whole ''white-collar" class, and also to every insurance policy, savings
and bank account, investment, trust fund and endowment of colleges,
hospitals, and other public institutions. If a man has a $3,000 life
insurance policy which promises his widow about 78,000 grains of
gold, instantly about $750 of this protection would be whisked away as
effectively as though purloined from his widow's pocketbook.
It is said that the effect would be to lighten debt and taxes by 25 per
cent. But, with the exception of a very limited class, the effect would
be greatly to increase the burden of both. Thus, while the farmer
might be able to pay taxes with fewer pounds of wheat, the wage or
salary earner would have to pay a greater share of his wages for necessaries and would have less to pay rent, debts, and taxes.
These things are true of every one of the inflation plans to whatever extent they prove effective. They pass a plane of cleavage
through our population and oppose class against class on the most
vital issue of present human existence—the wherewithal to live^ and
support a family. On one side of that plane are the beneficiaries—
chiefly foreign nations (for whom alone is the benefit certain), and
the producers of some export products. But on the other side are
all those who work for wages and salaries, all pensioners, public
servants and employees, professional men and all those who still
retain any money or fixed-income securities from the wreckage of
this four years of national blundering.
It is said that this is a capital levy to redistribute wealth. Until
we can get buying power into the brands of our people we can not
expect recoveiy. But this proposal, by inflation, to clip salaries
and wages wherever they can be found will greatly curtail buying
power. It is not a levy at all because it does not appropriate anything to the Government or to anybody else. It merely destroys
whatever it touches and puts it to no new ownership or use.
^ I regard the condition of this country as the most serious in its
history. It has been said to be like war. It is worse than war. In
war there is a definite enemy. We know what and where he is and
how to fight him. We can measure the necessary sacrifices and make
them with certainty in their effect. But this enemy wears no uniform
and takes no position on any front. He is everywhere, even within
us. So far as I am concerned, there is no sacrifice I would not be
willing to make to fight this terror, no plan, however revolutionary
and bold, that I would not try if I could see in it an even chance of
success. If I did not know that there was nothing but destruction
to be derived from the project of inflation, I would be the first to
advocate its trial. But I am as certain as that we are sitting here
that the path proposed is the road to ruin.




T H E F U N D A M E N T A L OF R E C O V E R Y — ^ B A L A N C E D B U D G E T S

What are we then to do? To my mind the road is wide and certain.
There is one essential thing—to get people back to work. To do that,
we must make money work. To make money work, we must balance
the Budget. That should be accomphshed first by reducing expenses.
If we can bring the expenditures in our National Budget under
$3,000,000,000 that in itself would result in a return of confidence and
therefore an increase in business and employment. That increase of
business would bring the Budget into full balance without further
taxation. A balanced budget and a soimd money policy go hand in
hand. If those two things are done, there would be more sound money
flowing into activity than all the unsound money our inflationist
friends propose to coin.
Immediately the Government would be able to fund its already
unwieldy short-term obligations into long-term investments, which
would free the banks to take care of the business that must increase.
Balancing the Budget does not mean that there will not be plenty
of money for relief purposes of all kinds. Indeed, it means there will
be more money available. The credit of the Government would be
increased and bonds could be issued and sold to almost any reasonable
extent for the purposes of relief for the needy and such public works
as would be deemed wise to undertake. But accompanying the issue
of those bonds there must be assessed sufficient taxation to take care
of the interest and amortization of the bonds issued for the above
As a part of the general tax system, I think the ^'beer tax*' should
be included in order to bring the Budget nearer balance before you
assess new taxes for relief purposes. We should move immediately
toward repeal of the eighteenth amendment, not alone for relief of its
abuses but for the purpose of obtaining taxation which can be substituted for more onerous levies. The people of the country wll
bear any tax burdens provided they can see hope of relief from them in
the future. We must preserve personal initiative. Taxation should
not be levied beyond the point where men wiU cease to work because
the tolls become too great and the profits too little.
With the Budget balanced, we can approach other problems with
more assurance of success. Without it, all must fail. That has been,
in my opinion, the reason why beneficent results have not flowed from
the Reconstruction Finance Corporation. We must reahze that, if
our Budget had^ been balanced in the last three years, the Government of the United States would not have accumulated a deficit of
five and one-half billion dollars, the interest upon which, at 4 per cent,
is $220,000,000 per year, and with a sinkmg fund of 1 per cent is
two hundred and seventy-five millions—a very large proportion of
our total cost of government. This can not go on, because there is a
limit even to the credit of the United States.
Finally, I think the Government should stop advancing money
to pay interest and principal on private debts of a doubtful nature.
It is a postponement and frustration of economic cure. I realize the
danger of wholesale receiverships and crash sales on sterile markets
but the way to avoid that is being blazed by the principles of the
La Guardia bill. After debts and capital structures are scaled do\Mi



to a realistic basis, I think the Government could aid—not by itself
assuming direct liability and not on any plan that requires it to raise
money, but by assuming only a contingent liability in guarantees of
interest to support the value of reorganized and scaled-down securities
in a manner which I shall definitely explain in the discussion of farm
debt. I.have not yet worked out the extension of this plan to other
debts and do not know that I can do so, but I am quite sure that this
principle marks the limit to which we should go in the use of Government credit in this field.
To sum up this suggestion of fiscal pohcy: (a) $800,000,000 of
actual and certain saving; (b) $150,000,000 of new revenue from beer;
(c) all emergency appropriations to be covered by new revenue
sufficient for sinking fund and interest thereon; (d) abandonment of
the present Treasury method of financing the deficit; (e) restriction of
Government aid to debtors to immediate revision of the bankruptcy
act and to a contingent liability on a guarantee of interest on scaleddowTi debts to be applied only on prudent risks.



I began the study of the farm price problem in 1921 and have
devoted my thought and attention to this serious difficulty ever since.
I have studied every project that I have heard of for the stabilization
of farm prices because I regard the effect of our tariff system on our
agriculture as one of the most serious lapses in our domestic economy.
While I am in the fullest sympathy with the purposes of the farm
bill now before Congress, I believe that there is a better way to get at
them which I shall propose later. In order to discuss that way, it
wiU be necessary to criticize this bill. I always dislike very much to
criticize anybody unless I have something to offer. In doing that I
shall try, in what I shall propose, to offer a constructive suggestion for
every critcism.
The plan seeks to reduce production by curtailing acreage. Yet,
instead of subsidizing nonproduction, it pays a bounty on a certain
percentage of all included products which are marketed. This will
increase production per acre. The methods for doing this are many
and effective and unless the actual curtailment of acreage is both
<irastic and certain, these methods could frustrate the plan. The
incentive created by the bill is also to overstate the acreage previously
planted—and thus to upset the mathematical basis of curtailment—
and also to understate the acreage harvested and thus to avoid curtailment. Since the bounty is to be paid on a percentage of each
man^s marketing, and since price plus bounty is nearly double price
alone and boimty is paid regardless of grade, the result will be to
bring in all seed and feed and farm-consumed product and also waste
grades even if farm requirements are at once repurchased. On wheat
alone this might be sufficient to fi*ustrate the purpose of curtailment.
No matter what may be the price on grades full of sand, dirt, chaff,
stalks, and defects, the bounty is the same.
The plan assumes that the fund collected from the tax will be the
exact equivalent of the amounts earUer paid out as bounty. Every
human incentive of the taxed is to pay less—of the recipient of the
bounty to get more. The result will be a deficit charged to the
Treasury and it could run to very large figures. The percentage of




each farmer's marketed production, which is to receive bounty, is
the ratio of the estimated domestic consumption to the estimated
total crop. But because of all the reasons just stated, the sum of the
parts of each farmer's crop on which bounty is paid is sure to be larger
than the estimated total domestic consumption of the whole crop.
Also, the higher price of the favored crop will reduce the experienced
domestic consumption of it.
The plan is not self-policing because there is no quota to be apportioned among each group. After the domestic percentage is once
estimated, every farmer gets a bounty on that percentage of all that
he sells. The mcentive is not for the members of a community to
police each other; it is to abet each other.
Blanket authority is given the Secretary of Agriculture to set up
an organization and we can not say what the cost will be because the
bill does not visualize what the action will be. The plan also proposes
to put determination of a tax in the aggregate of nearly $1,000,000,000—or perhaps 40 per cent as much as the entire present Federal
revenue—in the discretion of a single administrative officer, and it is
a sales tax of as much as 100 per cent on necessaries of life. Finally,
it does not sufficiently consider the harm it will do to certain established industries.
I shall submit my constructive suggestions at the end of my statement.



Out of the depths of this gloom the hojje of humanity is being
beckoned by two great councils of the coming year—on world economics and disarmament. Though disillusioned by repeated failure
and bewildered by obscurity of purpose and principle, people will still
take from them the eternal human comfort that "all may yet be well.''
The current talk of agenda and protocol and similar abracadabra may
savor of priestly mummerj;, but the proper purpose here is as plain as
a pikestaff and the controlling principle is clear. With these attained^
all t W g s are possible. Trifle with them, obscure them, try to get
by without them, and the world would better save its breath to cool
its scanty porridge.
What is it that men hope? A chance to earn their daily bread?
The commerce of the world is dying. The hope is to revive it.
Problems of prices, debts, employment, prosperity, and of stark
existence for some great governments all come to this—that the
nations shall trade again. This and nothing else is the proper
purpose in both of these conventions.
The controlling principle is no less clear. Why does commerce
languish? Notwithstanding a vast and dreary literature, there is not
a multifiplicity of reasons, there are not six nor two—there is only
one. You can't buy goods with chaff.
Much of the money now proffered in the world's markets in exchange
for things is like the fairy gold in children's books—^it may be coin
to-night and a handful of autumn leaves to-morrow. That is the
mahgn center of this blight. Economic barriers and armaments and
debts—all these are surface stigmata. Unsound money is the evil
to be crushed.



When is a nation's money unsound? Is a great deal of gold a
guaranty of soundness? There is not a tithe enough gold above
ground to support the monies of the world on that theory. There is
no mystery. A nation's money is unsound when it continually spends
much more than it receives in revenue and makes up the difference
by using its debts for money—no matter how adroitly. This has been
true since the world began—not some of the time, not now and then,
not here and there, but everywhere, and all of the time, and without
one single exception.
We have reached a perilous point where triflers with these verities
in every nation have become enemies of their people. We can not
escape by palliatives. A nation's money is simply its promise to pay.
No sophistry can change the rule that neither the paper promise of a
repudiator, nor the note-of-hand of a spendthrift living beyond his
means, nor sophisticated entries showing credits on the self-kept
ledgers of a desperate debtor, will ever pass at par in the markets of
the world.
No nation is living within its income now and the money of all is
unsound or suspect. That is the effective cause of continued misery,
and cure of that is the controlling principle for any council among
nations. There is no need for long agenda or complicated plans.
The program for both talk and action can be written on a calling
card. "Balance the budgets of the world." That is the bed-rock
purpose of these councils. The economic conference will say that
commerce is the exchange of money for goods. But sound commerce
can never be restored on unsound money. Why should we talk there
of forcing up commodity prices when the money to pay for them
remains unstable? Why should we then consider trade barriers when,
as obstacles to commerce, the most formidable of them compare as
molehills to mountains agamst the present demoralization of exchange? Money is the medium of trade and the very essence of the
economic problem is to make it usable again. If that is omitted, all
else is wasted effort. If that prevails, little more is needed.
At Geneva, men will talk of clipping the power of offensive armament, of limiting the calibre of movable guns and the tonnage of airbombs, thus hoping to aggrandize defensive works. Geographically
we are not in a position of offense. We have no aggressive arms to lay
down. The chief reason we confer is our hope that there may be a
greater tendency toward peace and less toward war and thus Europe
may spend less on armament. Here again the avowed purpose—at
least it should be—^is to persuade frugality in aid of balanced budgets.
Finally the debts: As I have saM before, if we reduce eveiy single
substantial argument for modification to its essence, we find it running
not to the injustice or even the expediency of the long-time burden,
but solely to the present difficulty in the transfer of funds, which is
to say to the unsoundness of the money of the debtor nations.
Thus at the heart of every subject for world conference, no matter
what form the surface takes, we find one single evil—that governments
refuse to balance budgets, and, as I have tried to show, it is no less
true with us.
Until these causes are frankly addressed and fairly settled, the
nations will arm on both the military and economic fronts and nothing
that we can do by way of debt concessions or sacrifices of the best
interests of our people will change the essential result. We may get




some superficial change in form but whenever T hear talk of a reduction in the size of bombing planes or the calibre of a mobile gun, on the
theory that thus the power of the offensive may be reduced and defensive arms lightened, I recall how we mounted heavy naval and even
seacoast artillery on railroad cars in preparation for the bombardment
of Metz. Nobody can foresee the kind of armament in the next war
any more than anybody foresaw the tanks and flames and mines
and gas and stabilized trench fighting of the World W p .
Napoleon Bonaparte attempted to disarm Prussia and thought
he had done so but, by the simple expedient of running classes of
recruits rapidly through the skeletonized standing army, Schamhorst
and Stein created the legions which overwhelmed and sent the
Emperor to St. Helena.
You can not disarm a nation by shortening the length of its sword.
The real power of a nation is its resources of men, materials, money,
and morale. Armament is merely a facility for mobilization. Its
reduction is a worthy expedient for the reduction of expenses, but it is
not a means of reducing the probability of war or of making war less
horrible. The only way you can do that is to remove the case of war.
We should concentrate our infleunce on that. For disarmament plus
amelioration of the cause of war we could afford great sacrifice but we
would be foolish to make any sacrifice at all for promises of disarmament alone.
There is one alternative to world disaster. The nations must hve
within their income. That achieved, all conferences may succeed
brilliantly. That failing, no amount of scenic bargaining and solemn
parley on superficial projects will avail. With the monotony and
persistence of old Cato, we should make one single and invariable
dictum the theme of every discourse:
" Balance budgets. Stop spending money we haven't got. Sacrifice for frugality and revenue. Cut governmental spending—cut it as
rations are cut in a siege. Tax—tax everybody for everything. But
take hungry men off the world's pavements and let people smile again."
If we can not enter these discussions with that as our purpose and
our guiding principle, we ought not to enter them at all.
In the economic conference there is only one other subject worth
considering—some international agreement on silver.
^ As to disarmament, both military and economic, the sole constructive possibility seems to me to be the removal of the age-old causes for
world conflict. The Peace of Versailles was a peace dictated at the
point of a gun. Its sanctions are failing. The questions of the Silesian Frontier, the Polish Corridor, the Saar, the Cordon Sanitaire
which France has negotiated around Germany, and many boundary
and ethnic questions left unsettled or badly settled at Versailles are
the real cause of the heavy armament under which the world is groaning and, in my judgment, they are also the cause of most of the artificial trade barriers about which so much has been said.
I divide the farm problem into two things. One, the relief of the
huge debt that is crushing the workers on the farm and depriving
them of their homes, and the other is some definite, long-range plan
that will give them a larger profit in the production from their farms.
I proceed first to the farm debt relief. I understand that a bill
something sinular to this is now under discussion. I do not know in
what committee.



Let me say this, that in every suggestion that I have seen, no
matter from what source it has come, it always has led back to the
public treasury—and a burden upon the taxpayer. Even the suggested plan was made in New York to put up $10,000,000 on which
it was proposed to borrow $100,000,000 from the Reconstruction
Finance Corporation, and that goes back to the Government. And
one of the ablest Senators has just introduced a bill for $500,000,000
from the Government. And so have many other bills made such
proposals. I am prefacing my remarks because I propose to use the
credit of the Government because I think we have to, because everything leads back to that. If these farmers are permitted to lose their
farms and go upon the highways of the country they become charges
upon the people and the States can not help them. We must help
them—the pubhc treasury.
Another thing I think is important, not alone for the great social
question involved, of which you gentlemen aU know better than I,
but I think it is important that we should keep a satisfied agriculture,
because every country which has permitted that to die has died itself.
And there may come a time, not far distant, if you permit the laissez
faire policy to go too far, as some want it to, when this coimtry might
be faced with an under production—I mean the nation might be in
a position where it would have less to live on and less with which to
clothe itself.

We have between nine and ten billions of farm mortgages, created
largely on the land values of the Great Delusion. It is a waste of
money (which we do not have) to undertake the payment by Government of interest or maturities on existing mortgages. There must be
a realistic reorganization of this structure. The principles of the
LaGuardia bill are the first step but that alone will not solve this
Let us crelate a corporation which shall be authorized to issue its
3 per cent tax-exempt, 30-year sinldng fund bonds, callable by lot at
par. The interest only on these bonds will be unconditionally
guaranteed by the Government. This corporation will then offer to
exchange its bonds for existing farm mortgages at not to exceed 60 per
cent of the par of such mortgages and for as much less than 60 per
cent as the circimastances of individual cases seem to require. It will
then proceed to reform all the mortgages thus received in exchange for
its bonds on a basis of 3% per cent interest on the scaled-down principal, plus a graduated amortization charge which starts at zero the
first year, one-fourth of 1 per cent the second year, one-half of 1 per
cent the third year, IK of 1 per cent the fourth year, and 2 per cent for
the fifth year.
The effect of this plan will be to write down existing farm mortgages by a minimum of 40 per cent or an average of perhaps 50 per
cent. It will write down the interest by a probable minimum of
about 66?^ per cent. Farmers receiving this very great aid should be
willing to agree in the new mortgage contract to comply with such
requirements of reduction in croppage as may from time to time be
prescribed by the government until their mortgage is repaid.
As a means of offsetting the possibility of loss to the Government, I
propose that there be collected under the provisions of the farm price




relief plan (which I am about to propose) an annual fund of $30,000,000, which shall be paid into this corporation and any amount not
needed to offset the guaranty allowed to accumulate together with
the profits which I think will accrue for the purpose of the purchase
of marginal and other farm lands and their retirement from production as may from time to time be required in the working out of a
permanent agrarian policj^ for the United States.
This plan should be limited to present, not future mortgages. This
plan does not mean that mortgages will be forced to take this new
bond. It is only a way out for the unsalable mortgages. Nothing
connected with this plan should infringe the right of foreclosure.
I am going into a little more detail here while we are on the subject.
The way this would work would be this. Just as a convenient form
we will say that the farmer had a mortgage for $10,000. Upon that
now he probably pays not less than $800 a year. The man who has
that mortgage can not sell it; even if he wants to foreclose it he can
not get any money for it, because nobody wants to buy the farm. So
he has got a dead asset on his hands, or it is held up by some governmental action to suspend foreclosure, but he has got a dead asset on
his hands.
Now, if we could use this as, if I inay use the term, as a kind of currency whereby negotiations depending upon the particular instance,
the assessed value of the land, the condition of the mortgage, we could
negotiate with the mortgagee $5,000 of these bonds. That would
clear him out. The farm mortgage would then be $5,000. His other
$5,000 was wiped off. Upon that $5,000 he pays 3 per cent. It is really
per cent, but for the purpose of convenience of figuring it mathematically let us use the figure 3 per cent. We will say he would pay
3 per cent on that, plus an amortization charge, which would be, of
course, lessening the principal amount of his debt which has been cut
in half^—an amortization charge of
per cent, making 5K per cent
on $5,000. That makes $275 a year against $800 a year.
Now, that is a use of the Government credit, but the Govenmient
does not go out and unbalance its budget by selling a bond against
current issues in the market. What it is doing is, it is replacing an
inflated mortgage with this deflated mortgage, which goes to the
benefit of the mortgagor. It benefits the mortgagee also because he
has got something, whereas before he had nothing.
Now that is in essence the plan, and we will come back to that later
for such questions as you wish to ask.
I want to add to the top of this first paragraph of postscript No. 2,
farm surplus control, at the beginning of the paragraph, the following:
" I f it IS deemed absolutely necessary for the Government to curtail
surplus,'' and then proceed with the paragraph, ' ' I propose,^' and so
forth. And I must say I have taken the idea from the allotment
plan and rather made it different or reversed its proposals, and no
doubt there are many objections can be made to this plan, but I give
it to you for w^hat it is worth.

If it is deemed absolutely essential for the Government to curtail
surplus, I propose that the Secretary of Agriculture shall determine
the amount by which total acreage of com, cotton, wheat, and tobacco



shall be reduced, and, for the first year that the reduction be drastic
to consume the present overwhelming surplus.
Quotas of reduction should be allotted to States and then to counties
and greater reductions should be made in surplus-producing States
than in States where production is not equal to the State consumption.
Then the Government should actually lease, from each farmer
who wishes to participate in the plan, not to exceed the percentage of
his acreage which has been allotted to liis county, on condition that
he does not crop more than his now planted or last harvested acreage,
minus the total acreage reduced from each crop in respect of which
acreage is to be reduced. This is for the purpose of insuring that
production of substitute crops is not increased. The rental to be paid
should be an amount slightly larger than the profit that could be made
on the reduced crops at farm prices in their pre-war relations to
general commodity prices. Rough computations indicate that the
average rental would be somewhere around $3 an acre, being higher
near primary markets and lower in more distant places.
The cost of this plan has been estimated at around $160,000,000,
but in order to provide the $30,000,000 I have mentioned as a guaranty fund in the farm mortgage plan, we should figure on raising
about $200,000,000. That amount can be raised by a tax on the processing not of wheat alone but on all processed cereals, not on cotton
alone but on all textiles, not on hoga alone but on all meat products.
Unless this is done we will reduce the consumption of the particular
product and frustrate the plan.
By substituting this plan for the plan now before Congress, which I
understand has been changed, the tax would be reduced from the
^resent project to tax wheat 100 per cent of the present price to a tax
between 6 and 7 cents on all processed cereals, the tax on pork would
be reduced from about 3K cents to about one-half a cent on meats,
and the tax on cotton cloth from 6 cents a pound to about one-half a
cent on textiles. Such taxation is bearable and, if assessed in this way,
will not disturb the present relation of consumption of the various
commodities. From such conversations as I have had with leading
processors, we can get their cooperation rather than their opposition.
They recognize, as well as any of the rest of us, the absolute necessity
of affirmative action.
From the farmer's standpoint, while the initial distribution of
money may be smaller, undoubtedly will be, it is the opinion of
commodity experts whom I have consulted that such a plan would be
really effective in reducing production. While I do not wish to
conjecture a definite result, it seems to be quite generally believed
that the effect would be very promptly to raise the price of the
managed crops to the prewar level and to carry other farm prices up
sympathetically. There are obvious objections that may be made to
any plan but in this emergency which is like the emergency of war,
we must take some chances and while I deplore all statutory artificialities, I think we should make this attempt. Many think that all
raw materials can be produced here by American labor and exported
in the shape of manufactured goods, but I have not been able to see
that through to its end.
Gentlemen, I would like to add this statement. I do not know
whether the picture that I presented to you was a gloomy one or not,
but I would like to say this, after most definite thought on this




subject, if we but do these things there will lie before us opportunities
for service, for fame, for fortune, and for the younger md coming
generations, who are more interested in this than theylthink, such as
have not existed at least in my lifetime, and that covers 60 years—
I can not speak before my time—I believe there are great opportunities, and that this is not a time for gloom, if we will but see the stark
necessities and face them.
Now I will be glad to submit to questions, and when we get into the
details of the farm problem I am going to ask General Johnson here
who has been trying to put it down on a drawing board, and who is
more familiar with it than I am, to answer it with respect to the
The C H A I R M A N . Perhaps it would be just as well to have Mr.
Johnson submit what he has to submit at this time.
Mr. BARTJCH. If it is not clear, why we will clarify it.
General JOHNSON. There is not anything more to submit.
The C H A I R M A N . Any questions that may be asked or may b
submitted at this time then.
Senator C O N N A L L Y . Let us take one witness at the time, before we
forget what he says.
The C H A I R M A N . That is what I say; if you have any questions to
ask the present witness.
Senator C O N N A L L Y . Being a junior member of the committee I
will wait until the senior members have interrogated him.
The C H A I R M A N . You may proceed, Senator.
Senator C O N N A L L Y . May I proceed?
The C H A I R M A N . CertaiiUy.
Senator C O N N A L L Y . Mr. Baruch, I want to ask you a few questions
about your views on the so-called inflation, particularly with reference
to the gold content of the dollar. You stated, I believe, that if they
reduced the amount of the gold in the dollar it would not have any
appreciable effect on raising prices, did you not?
Mr. B A R U C H . It would have the effect of cutting the price in the
new dollars, and there would be a flight from the dollar if there was a
loss of confidence.
Senator C O N N A L L Y . What is that?
Mr. B A R U C H . It would have an effect in cutting the price in the
new dollars, and it would also have an effect of raising it very, very
high if there was a reduction in the amount of gold in the dollar and
confidence in the new dollar was lost, because there would be a flight
from the doUar.
Senator C O N N A L L Y . If you are going to predicate everything back
on the confidence, why I can not get very far.
Mr. B A R U C H . What page are you now on?
Senator C O N N A L L Y . I am on page 1 7 . You say: ''There are now
approximately 26 grains of gold in the dollar. If we cut that by 25
per cent to about 20 grains, we at least have a mathematical formula/'
and so on. A httle later you say that there would be a rush for gold.
Of course, if the Government suspended payment in gold there would
probably be a rush for the actual gold. But now you state down
below: *'It seems extremely doubtful that there would be anv domestic effect to raise prices.'' Is that your attitude?
Mr. B A R U C H . I have not followed you, Senator.



Senator C O N N A L L Y . I followed you, and I think you ought to
follow me a little.
Mr. B A R U C H . I am trying to do it, Senator.
Senator C O N N A L L Y . Page 17, about two-thirds down the page.
Mr. BARITCH. Yes, sir. " I T seems extremely doubtful that there
would be any domestic effect to raise prices."
Senator C O N N A L L Y . " I t seems extremely doubtful that there would
be any domestic effect to raise prices." Is that correct?
M r . BARUCH. Y e s , sir.
Senator C O N N A L L Y . All

right. Why do you say a little later that
salaries would fall and wages would fall, if prices do not rise? How
would wages fall and salaries fall?
Mr. BARITCH. Because we are talking in new dollars.
Senator C O N N A L L Y . Oh, 1 know.
Mr. B A R U C H . And the new dollars would not buy as much as they
did before. The prices of products would go up to the percentage of
33K per cent.
Senator C O N N A L L Y . Well, they would go up then, would they not?
Mr. B A R U C H . Yes, they would.
Senator C O N N A L L Y . Well then, your statement that there would
not be any influence in ra^ng prices is not correct, is it?
Mr. B A R U C H . Well, it is doubtful, because it did not happen in
England, but as an arithmetical proposition you are right.
Senator C O N N A L L Y . Well, that is what we are talking about.
Mr. B A R U C H . But it is doubtful from the results; that it has not
Senator C O N N A L L Y . Wait a minute. You say it has not raised
prices in England?
M r . BARUCH. Y e s , sir.
Senator C O N N A L L Y . And

that is because England is on the pound
basis, which is paper money, is it not?
Mr. B A R U C H . Yes, sir. It takes more shillings to buy gold.
Senator C O N N A L L Y . To buy gold.
M r . BARUCH. Y e s .
Senator C O N N A L L Y .

Certainly. And in the world market the
English prices of production have gone down, and the result is that
she is out-selling us all over the world?
Mr. B A R U C H . That is quite true in the export markets of the world.
Senator C O N N A L L Y . In the export markets of the world. If
England, instead of being on the paper standard had devaluated her
pound at the present paper value of the pound, prices would have
risen in the world markets, would they not?
Mr. B A R U C H . If they had done what. Senator?
Senator C O N N A L L Y . If England were now in the gold basis but had
devaluated her pound at the same price that the pound is seUing for,
the paper poimd is selling for, prices would increase in England?
Mr. B A R U C H . Prices would be the same in gold value that they are
Senator C O N N A L L Y . And the price would be in gold, the pound?
M r . BARUCH. Y e s .
Senator C O N N A L L Y . The
Mr. B A R U C H . We would

same would be true in our country?
have a better result in our country if we
balanced our budget and had a gold standard.




Senator O O N N A L L Y . Devaluating the gold dollar keeps you on the
gold standard, no question about that.
Mr. B A R U C H . D O you mean it keeps you on the gold standard if
you devaluate the gold dollar?
Senator C O N N A L L Y . We can take that up when we get to it. We
can certainly suspend gold payments.
Mr. B A R U C H . If you start talking about that you would not have
a nickeFs worth of gold in the Federal reserve system day after
Senator C O N N A L L Y . If the Government did not pay it out it would.
Mr. B A R U C H . It would have to pay that on demand.
Senator C O N N A L L Y , Of coursie we have to pay it on demand.
Mr. B A R U C H . If you start to tak about it or there is any threat
to do so that would be the result.
Senator C O N N A L L Y . Let us get back to these propositions about
M r . BARUCH. Y e s .
Senator C O N N A L L Y .

You say it would then raise the values 3 3
per cent in dollars aU over the countiy? Would it not?
Mr. B A R U C H . Are you talking now about internal prices?
Senator C O N N A L L Y . Yes.
Mr. B A R U C H . Well, export prices in the new dollars would rise,
and domestic prices are doubtful. It might have the effect that you
Senator C O N N A L L Y . Well, do you not think that it would?
Mr. B A R U C H . I have my doubts about it.
Senator C O N N A L L Y . If the export prices would rise why would not
the domestic prices rise?
Mr. B A R U C H . NO, these are export prices in new dollars.
Senator C O N N A L L Y . I know. I am talking about export prices in
new dollars.
Mr. B A R U C H . And if they took enough out they would have that
tendency to raise prices internally. And even, if they took enough
out. Senator, they would rise above present gold prices.
Senator C O N N A L L Y . AU right. No matter what we take out, they
wiU rise in proportion to what we take out, will they not?
Mr. B A R U C H . Not unless you take no more out than you are taking
out now.
Senator C O N N A L L Y . All right. If export prices rise domestic
prices will have to rise with them, will they not?
Mr. B A R U C H . Only if you took enough. Yes; export prices.
Senator C O N N A L L Y . I mean
Mr. B A R U C H . I see what you mean. If export prices rise in the
new dollars they will rise inside?
Senator C O N N A L L Y . Certainly.
Mr.- B A R U C H . I think that is probable; yes.
Senator C O N N A L L Y . I S it not true?
Mr. B A R U C H . They may not rise a great deal, Senator, but they
may rise some.
Senator C O N N A L L Y . If a man can get more abroad for a bale of
cotton he is going to ship his cotton abroad, unless somebody paid
him an equal price internally?



Senator C O N N A L L Y .
will they not?



they wall rise domestically and abroad,

M r . BARUCH. Y e s .
Senator C O N N A L L Y .

All right. You say among the results that
we ought to obtain are those that would be obtained through the
LaGuardia bill.
Mr. BARTJCH. Through what?
Senator CoNNAiiLY. The LaGuardia bill; that is a bankruptcy bill.
Mr. B A R U C H . Well, I am talking about the principle of the
LaGuardia bill, yes.
Senator C O N N A L L Y . All right. Your plan there is to devaluate
all these people that are owed money through the process of bankruptcy, is it not?
M r . BARUCH. Y e s .
Senator C O N N A L L Y .

What is the difference in devaluating them
through the courts and devaluating the money in which they are to
be paid? The effect is the same, is it not?
Mr. B A R U C H . I do not know. I think it is very different, sir.
Senator C O N N A L L Y . Very different?
M r . BARUCH. Y e s .
Senator C O N N A L L Y .

Well, you are depriving the creditor of something when you let the corporation
Mr. B A R U C H (interposing). I am depriving the creditor of something that he can not get anyhow.
Senator C O N N A L L Y . Certainly. And that is what you are trying
to do. The LaGuardia bill would authorize these big corporations
and industrial concerns to seek refuge in the Federal courts and hold
their creditors off their backs until they could effect a reorganization
and a scaling down of their indebtedness. That is what is back of the
LaGuardia bill, is it not?
Mr. B A R U C H . It is a quickening of a process that is going to take
place anyhow.
Senator C O N N A L L Y . Well, is not that process going to take place
with everybody if we do not do something?
Mr. B A R U C H . If you want to go on the road to a place you had
better go there right away.
Senator C O N N A L L Y . I agree with you.
Mr. B A R U C H . But the history of the world has shown this, tibat
whenever we have taken that road we have had to come back and
retrace our steps. I will admit, Senator, we have already gone very
far on it, and the methods that have been adopted and carried on by
the Treasury are not very different from those that have been already
Senator C O N N A L L Y . All right. But the process that you propose
now is to let corporations and industrial concerns scale their debts
by taking refuge in the Federal courts and effecting reorganizations
and pay less on the dollar that they owe. That is right, is it not?
But you object to giving the benefit of that to everybody by devaluating the dollar and letting everybody have the advantage of that?
Mr. B A R U C H . Y O U are doing it by a different method.
Senator C O N N A L L Y . Certainly, but it has the same result, has it not?
Mr. B A R U C H . Well, there would be the same result, but not to
everybody. The only person you are benefiting is the man that has
a mortgage; he can not possibly get it and he is not entitled to it.




Senator C O N N A L L Y . Why is he not? He has got a farm.
Mr. B A R U C H . Well, yes; because he has bought something, a
mortgage or loan, at an unwise time and at a price that is not fair.
Senator C O N N A L L Y . That is why I say that it is fair to put this
dollar down back to the commodity level and let the debtor pay
that creditor in the same relative values as the debt was incurred, and
that is your proposition, is it not?
Mr. BAETTCH. M y proposition under this natural process, yes.
Senator K I N G . Senator, will you pardon me just a moment?
Senator C O N N A L L Y . Yes.
Senator K I N G . I S the LaGuardia bill limited to corporations?
Senator C O N N A L L Y . N O , I do not think so.
Senator K I N G . I think it is extended to farmers as well as the
individuals, so it is not for the benefit of corporations only, but it is
for the liquidation, according to the plan of the bill, of the indebtedness of individuals as well as corporations.
Senator C O N N A L L Y . Well, everybody knows, of course, that they
would put a Uttle tail on for individuals, but you know an in^vidual
when he goes bankrupt comes out with nothing. A corporation that
goes into bankruptcy and reorganizes and scales down its debts, its
stockholders have something left.
Mr. B A R U C H . I do not know the details. I am talldng of the principle of it, and that is to permit debtors and creditors to get together
quickly on some agreement.
Senator C O N N A L L Y . You and I are not really in disagreement as to
results, but we are favoring different methods of reaching the results.
In the farm mortgage situation you say that your plan would be to
make them take 60 per cent?
Mr. B A R U C H . N O , not make them.
Senator C O N N A L L Y . Well, but you are going to persuade them?
Mr. B A R U C H . Here is what I meant by this. That a mortgagee has
got a mortgage for $10,000. He can not foreclose it. If he does go
through and forecloses or sells out he is in the farming business and
the farmers are out on the highway. So I propose that, and I put a
inait of 60 per cent, that if the Government's credit is going to be used
you are going to give the mortgagee something that he can not get
now, and he can put in his books, and have a value.
Senator C O N N A L L Y . Y O U propose that the Government will issue
its own bonds and take up farm mortgages' at 60 per cent of their
Mr. B A R U C H . I am just taking that as a figxu-e.
Senator C O N N A L L Y . What is the difference between doing that and
revaluing the dollar at 60 per cent and letting them pay their mortgages?
Mr. B A R U C H . This is a voluntary agreement between the debtor
and the creditor, and the other is not, when you begin to revalue the
Senator C O N N A L L Y . Your plan would work this way: A man that
had a gold mortgage that was worth 100 per cent would not agree to
this, and he would get his 100 per cent. The fellow that had a
mortgage that was not worth 100 per cent would agree, and get the
benefit of this.



Mr. B A R U C H . The man thcit was rumiijig th6 thing would use
wisdom in running it. I would assume some intelligence would be
Senator C O N N A L L Y . But a man that had a bond worth 100 per
cent would not take 60 per cent?
Senator C O N N A L L Y . Or a mortgage?
Senator C O N N A L L Y . He would get his
M r . BARUCH. Y e s .
Senator C O N N A L L Y . A man that had

100 per cent?

a bond worth 20 per cent
would be glad to exchange it for a Government bond and get 60 per
Mr. B A R U C H . Or whatever it would be worth. I am sure, Senator,
if anybody of inteUigence were running that they would use wisdom
in running it.
Senator C O N N A L L Y . Y O U have already indicated that the Reconstruction Finance Corporation has made a fizzle and used a lot of
guesswork, and it is supposed to have intelligence.
I say, in your statement, Mr. Baruch
Mr. B A R U C H . I heard you the first time, Senator.
Senator C O N N A L L Y . Y O U heard me the first time?
Mr. B A R U C H . It is not necessary for you to make a comment upon
that, I do not think.
Senator C O N N A L L Y . Well, good natured.
Mr. B A R U C H . Certainly; I imderstand that, Senator.
Senator C O N N A L L Y . Y O U talked about revaluation of the dollar,
cutting down the value of it, would ruin all the insurance companies,
the policies, did you not, a while ago?
Mr. B A R U C H . I said that it would affect the holdings of every one
of them, yes.
Senator C O N N A L L Y . H O W about your cutting down farm mortgages
60 per cent, in which all the life insurance companies have got their
money invested?
Mr. B A R U C H . There is a very great difference. Senator.
Senator C O N N A L L Y . Would that not impair them
Mr, B A R U C H . There is a loss there already in that farm mortgage.
Senator C O N N A L L Y . T O be sure, but if the farm mortgage holder
has got a mortgage that he can not collect for 100 per cent, and by
devaluating the dollar you let the debtor pay 60 cents on the dollar,
what is the difference between that and your plan?
Mr. B A R U C H . I will tell you exactly. It is just as plain to me as it
can be. Senator. It apparently is not plain to you.
Senator C O N N A L L Y . NO. I am pretty diunb.
Mr. B A R U C H . NO, you are not. We will take an insurance company which has got a mortgage now of $10,000, and it is an unwise
one; they can keep it if they want to, but if they go to sell out they
will be in the farm business. We will provide a currency in the form
of all these mortgages, something that they can not possibly get
themselves, and it is a voluntary thing with them, and they are only
taking something which is already wiped off from the market. Insurance companies have got those loans, whatever they are, and we can
talk about them as much as we want, they will only buy just so much





in the markets of the world. But those who own the things will buy
less in the markets of the world.
Senator C O N N ALLY. Well, an ounce of gold has an international
value, has it not?
M r . BAEUCH. Y e s , sir.
Senator C O N N A L L Y . And it means the same everywhere?
M r . BARUCH. Y e s , sir.
Senator C O N N A L L Y . Well, if you cut down the content of

the gold
dollar by two-thirds inevitably in gold the values would have to rise,
would they not?
Mr. B A R U C H . Yes; but you are only going to get two-thirds in the
value of the things that you buy.
Senator C O N N A L L Y . That is true, but answer my question: Will it
rise or go down? Will the prices rise? They will rise, will they not?
Mr. B A R U C H . Yes; they will rise, but they will rise to the extent so
that that new dollar will not buy any more*^ things than it did before.
Senator C O N N A L L Y . It will pay more on your farm mortgages and
more on your debts, will it not?
Mr. B A R U C H . That it will do.
Senator C O N N A L L Y . Yes.
Mr. B A R U C H . Senator, without a doubt a farmer who owes money
and has got something to sell will be advantaged.
Senator C O N N A L L Y . Certainly.
Mr. B A R U C H . In the selling side. There is no doubt about that.
You can do even better for him by printing paper.
Senator C O N N A L L Y . Well, let us stay on the gold a while now.
Mr. B A R U C H . All right.
Senator C O N N A L L Y . I am not advocating paper.
Mr. B A R U C H . I understand that.
Senator C O N N A L L Y . I am talking about gold.
M r . BARUCH. Y e s .
Senator C O N N A L L Y . I

am talking about something that you follcs
understand in New York—gold.
Senator K I N G . Well, Senator, does not your proposition contemplate that notwithstanding an obligation may be to pay so many
grains of gold according to the present weight and fineness, that
Congress would have the power to modify or rescind that contract
and compel the contracting parties to change the contract and
accept less grains of gold?
Mr. B A R U C H . Well, that is a legal question.
Senator K I N G . Well, it is a constitutional question.
Senator C O N N A L L Y . Mr. Baruch is not a law^^er and I do not want
to get into a legal discussion with him.
Mr. B A R U C H . I think I can answer that.
Senator C O N N A L L Y . All right.
Mr. B A R U C H . The question is this: If you could find a legal method
or a scheme whereby if a man demanded payment under a contract
which was payable in gold, to tax him a certain percentage. In that
way you could wipe off that debt.
Senator C O N N A L L Y . Your idea then is that by the taxing power
we could stop that?
Mr. B A R U C H . I do not know whether it is constitutional or not,
but you could do that.
Senator C O N N A L L Y . I submit that to the Senator from Utah.



Senator G O R E . Y O U have to do it by the rule of apportionment.
Mr. B A R U C H . I say that is the scheme. I do not know whether it
is constitutional or not.
Senator CONNALLY. Senator Gore, you wish to ask something?
Senator G O R E . I just remarked that it would have to be done by
the rule of apportionment, if done.
Senator CONNALLY. But we would treat them all alike, of course.
Senator G O R E . It would have to be apportioned among the States.
Senator CONNALLY. Let us stay on this gold question, Mr. Baruch.
You are talking about gold. And you know all about it, I imderstand.
Senator R E E D . Mr. chairman, lest that suggestion go by unchallenged—it seems to me very clear that the Supreme Court has held
that our taxing power can not be used to take away from a vested
right of that sort. They held it in the case of the application of income
tax to judicial salaries, for example. I am quite sure that they would
hold the same thing if we tried to tax these gold-standard contracts.
Senator CONNALLY. Mr. chairman, I am not suggesting that.
I am not goin^ to argue it with Mr. Baruch or the Senator from
Pennsylvania either at this time. We are trying to find out the
economic effects of this thing right now, and of course if it comes up
to the legal question that is another proposition. I might suggest,
however, that Senators who are interested might read the legal tender
cases in which the Supreme Court held that contracts made payable
in dollars at the time when there were no other kinds of dollars except
gold and silver dollars, were subsequently under acts of Congress
made payable in paper money that had no redeemability whatever,
but were merely a promise of the Government to pay some time in the
future. That might be persuasive.
Senator B A R K L E Y . But that would not have any bearing on the
actual value of a smaller gold dollar in comparison with one bigger.
Senator G O R E . The Supreme Court held that contracts made
payable in gold dollars are payable in gold dollars.
Senator CONNALLY. It does not say how big.
Senator G O R E . Of the same standard weight and fineness.
Mr. B A R U C H . Gold dollars of the present weight and fineness^
I believe.
Senator CONNALLY. That is why I did not want to discuss thispoint at this time, because I knew it would provoke a good deal of
discussion among us, and I did not want to talk about the legal part
of it at this time because I did not think Mr. Baruch cared to engage
in that. That can be raised when we come to it. There is no case m
which the Supreme Court has ever handed down a decision where
Congress undertook to &k or regulate the weight of money. Consequently the cases that the Senators are referring to are purely dicta.
You said a while ago in your statement, Mr. Baruch, that reducing
the value, or reducing the amount of gold in the dollar would not increase the buymg power of our people. It would in the terms of new
dollars, would it not?
Mr. B A R U C H . Well, you would have more dollars to buy things
with, and if the tilings did not rise why you would be able to buy
more things. If they rose in proportion you would be only able to
buy the same amount of things, vnth the exception of one man, the
farmer who has a debt, or any man who has a debt and produces
something to seU.



Senator C O N N A L L Y . Certainly. That is the fellow I am looking
at now.
Mr. B A R U C H . I believe you are right.
Senator C O N N A L L Y . But it is not confined to the farmer. It applies
to the gentlemen in New York that owe debts too, who would have
the advantage of it.
Mr. B A R U C H . If they owe money they would be in clover.
Senator C O N N A L L Y . Everybody owes debts, do they not?
Mr. B A R U C H . Or the fellow who has many obligations.
Senator C O N N A L L Y . D O you Icnow anybody that has got any actual
gold now?
Mr. B A R U C H . Somebody must have it.
Senator C O N N A L L Y . But you do not know where it is?
M r . BARUCH. N o .
Senator C O N N A L L Y .

Let me ask you this, Mr. Baruch: You talk
about salaries and wages. Salaries are not fixed by law, are they?
M r . B A R U C H . N O , sir.
Senator C O N N A L L Y . They

go up or down according to prosperity,
do they not?
Mr. B A R U C H . They go up slower and down faster.
Senator C O N N A L L Y . Well, do they go up or not with prosperity?
Mr. B A R U C H . They do, sir.
Senator C O N N A L L Y . They go up with prosperity and come DOAVN
with hard times, do they not?
M r . BARUCH. Y e s , sir.
Senator C O N N A L L Y . During

this depression salaries of all kinds
have been radically decreased, have they not?
Mr. B A R U C H . Eight, sir.
Senator C O N N A L L Y . Why? Not because we passed any law, but
because times were hard and people could not make it. Now anything that will have a tendency to improve business and improve
activity will have a tendency to raise wages and raise salaries, will
it not?
Mr. B A R U C H . Unquestionably,
Senator C O N N A L L Y . All right.
Mr. B A R U C H . If there is enough confidence it wiU improve things.
Senator C O N N A L L Y . Did you see a statement a few days ago by a
professor of McGill University advocating the revaluation of the
Canadian dollar, which is exactly our dollar, to 70 cents in the dollar?
Have you had that called to your attention?
M r . BARUCH. N O , sir.
Senator C O N N A L L Y . He

is the economist in McGill University.
I do not recall his name for the moment. I have his name in my
Mr. B A R U C H . There is a heap of them around, Senator.
Senator C O N N A L L Y . What is that?
Mr. B A R U C H . There is a heap of them around. I do not mean to
detract from this gentelman, nor do I want to put my judgment
up against his.
Senator C O N N A L L Y . Y O U said in your testimony here that we had
to scale down debts to get back to prosperity.




Senator C O N N A L L Y . H O W are you going to scale them down any
better way than to get money so people can pay them? How are
you going to force people to scale debt?
Mr. B A R U C H . They will come down themselves, Senator. They
are coming down every day. And all that I am suggesting is not to
interfere with them by any process of law, but in anythmg that is
done a machinery set up that will aid them and accelerate them,
not extend them.
Senator C O N N A L L Y . Y O U will admit that since 1 9 2 9 the price of
practically every commodity in the United States measured in terms
of gold has declined radically, will you not? That is true of your
securities in New York, is it not?
M r . BARUCH. Y e s , sir.
Senator C O N N A L L Y . That is true
M r . BARUCH. Y e s , sir.
Senator C O N N A L L Y . That is true
M r . BARUCH. Y e s , sir.
Senator C O N N A L L Y . That is true
Mr. B A R U C H . Yes, sir. I think

of your farm mortgages, is it not?
of railroads, is it not?

of the farmers' prices, is it not?
the farmers started before that,
but they did decline since 1929; that is quite correct, yes, sir.
Senator C O N N A L L Y . Is it not true that the effect of what you advocate and most other people advocate is to devise some legislative
process whereby you lift these values back up into the neighborhood
of where they were on a gold basis? If that be true, why would it not
be fairer and more reasonable instead of a dozen processes of raising
up the railroads, of raising up the farmer and raising up everybody—
why would it not be better to have one process, to bring the gold dollar
down and put it on a commodity level with other commodities?
Mr. B A R U C H . If I thought you could do it that way I would say
''God bless you; go to it!"
Senator C O N N A L L Y . If it can be done that way will you favor it?
Mr. B A R U C H . Oh, yes; if it can be done that way, yes.
Senator C O N N A L L Y . Well, if we can work out a plan then whereby
we can actually devaluate the doUar and make it level with other
commodities you would favor it?
Mr. B A R U C H . Yes; if you can do it I certainly would.
Senator C O N N A L L Y . Well, we can not do it imless we try, can we?
M r . BARUCH. N O , sir.
Senator R E E D . WiU you permit me to
M r . BARUCH. Y e s , sir.
Senator E E E D . Mr. Baruch, England

ask a question here?

made her decision to go off
the gold standard between Saturday afternoon and Monday morning
in September, 1931. The people woke up on Monday morning to find
that they were off the gold standard. There was not an opportunity
for a panic. But in this country we would require congressional
action to authorize such a step to be taken. And that congressional
action could scarcely be accomplished in less than a week. "RTiat
would happen in commerce during that week?
Mr. B A R U C H . WeU, what would happen is there would not be a
nickers worth of gold left in the Federal reserve system to get behind
the devalued dollar. I said to the Senator if he could do it it is all
right, but I think that if this were discussed, if it was even thought—
I mean if there were discussions today about doing it, that you would




have a run on the gold. Of course if there were such a power somewhere to say this afternoon that before the opening of the Federal
reserve system they would take that gold and impound it and get this
thing rearranged as the Senator suggests, that might be another thing.
But the mere discussion of it I thiiJc would destroy the possibility of
anything being accomplished.
Senator R E E D . In other words, we would have a panic and an
outburst of hoarding that might take eve^ particle of gold available?
Mr. B A B U C H . Yes; or as an old negro is said to have remarked on
an occasion: If you do that you aint seen nothing yet.
Senator C O N N A L L Y . Senator Reed, are you going to examne Mr,
Baruch at length? I was just about through with my questions.
Senator R E E D . I beg pardon, Senator ConnaUy. You may go
ahead. But I am not able to come back this afternoon, and I have
one or two questions I should like to put to Mr. Baruch. However,
I won't do it if you desire to go ahead.
Senator C O N N A L L Y . Oh, no; I just thought if you had a number of
questions to propound maybe I had better conclude mine first.
Senator R E E D . Certainly.
Senator L A F O L L E T T E . Might I ask you. Senator Reed, whether
you do not overlook certain wartime statutes, enacted to protect
certain gold reserves of the United States, which have not been repealed so far as I know.
Senator R E E D . Oh, so far as that is concerned, under the wartime laws we could prohibit the export of gold. But I do not believe
they gave anyone power to suspend specie payment.
Senator L A F O L L E T T E . I have not looked at it recently. And it
is only a vague recollection I have, that there were certain broad
statutory powers given to the President during the World War,
which even went so far as to forbid the issuance of gold, to prohibit
transactions in gold, without a license issued by the executive branch
of the Govemment.^ I may be wrong about that, but I wanted to
inject that thought into the discussion.
Mr. B A R U C H . T O carry out that thought, we also made it so we
could not export gold during war time. But I do not know whether
that could be done in peace time.
Senator R E E D . One more question—and I am responsible for the
unwished business on the floor, and we are in recess, so that I must
be in the Senate at 12 o'clock. Mr. Baruch, there would be a row
between lawyers, evidently,^ as to whether gold-standard contracts
were or were not subject to impairment by congressional action. In
other words, there would likely be a lawsuit as to whether the Government's promise in its bonds to pay in gold coin of the present
standard of value could be changed, whether that obliged the Federal
Government to pay, as its certificates come due, in dollars of the present value or in dollars of depreciated value. And it might take two
or three years to settle that litigation finally. What would happen to
Government credit in the meantime?
Mr. B A R U C H . I do not want to say, Senator Reed. You know what
would happen.
Senator R E E D . Well, I think that is a factor that ought to be borne
in mind.
Mr. B A R U C H . In other words, your credit would disappear.



Senator R E E D . SO that we have these two perils to apprehend:
First, an instant hoarding of gold the moment the country thought
Congress was seriously considering this scheme; and, second, a disappearance of Government credit, certainly during that period when the
value of its promise remained in doubt.
Mr. B A R U C H , Unquestionably.
Senator R E E D . I thank you.
Senator W A T S O N (presiding). Senator King, and other members of
the committee, do you want to continue longer? It is now 12 o'clock.
Senator C O N N A L L Y . I will be through in a minute.
Senator W A T S O N (presiding). AU right.
Senator C O N N A L L Y . Nobody is proposing, so far as I know at least,
repudiating the Federal debt, I will say to the Senator from Pennsylvania. In discussing this matter in the Senate I distinctly said I had
no disposition to interfere with Government bonds abeady contracted;
in fact, I doubt if we could do it legally because it is the Government's
own act. But
Mr. B A R U C H (interposing). Your idea. Senator Connally, as I
Senator C O N N A L L Y . H O W is that?
Mr. B A R U C H . Let me get that clear, because it has a bearing upon
the whole situation. And I will say that
Senator C O N N A L L Y (continuing). As to the outstanding Government bonds, payable in gold at the present standard of weight and
fineness, I would not advocate repudiating those bonds.
Mr. B A R U C H . But what would happen to corporation bonds which
have the equivalent provision written into them, of being payable in
gold coin of the then standard of weight and fineness?
Senator C O N N A L L Y . That is what I waived a while ago. I do not
want to get into that legal discussion. But the contention is that
under the constitutional power of Congress to coin mere money and
to regulate the value thereof.
Mr. B A R U C H . They have that right.
Senator C O N N A L L Y . And what does that power mean but to move
the value of the dollar? It does not mean to stand still forever.
It means to regulate it and change it from time to time. My contention is that any contract that calls for dollars as such can not
be qualified by any such clause as present weight andfineness,because
you are dealing in dollars and the Congress has the right to make
those payable in gold dollars of a new value. As to commodity contracts, if you have a contract calling for so many ounces of gold it
is like so many bales of cotton. But I do not want to argue that.
Mr. B A R U C H . That is a very important part of it.
Senator C O N N A L L Y . T O be sure, that is an important part. But
you are not an attorney, Mr. Baruch, and I am a very poor one, so
I do not think we could get very far on that. But you are afraid
somebody will withdraw all the gold, that they wiU hoard gold. As
far as that is concerned they are hoarding gold to-day, aren't they?
Mr. B A R U C H . Hoarding money and credit.




Senator C O N N E L L Y . It could not be hoarded much more than is
being done now, could it?
M r . BARUCH. O h , yes.
Senator C O N N A L L Y . It could?
M r . BARUCH. Y e s , sir.
Senator C O N N A L L Y . All right.

The Secretary of the Treasury is a
member of the President's Cabinet, and is subject to the President's
orders, is he not?
M r . BARUCH. Y e s , sir.
Senator C O N N A L L Y . If

the President ordered the Secretary of the
Treasury, as has been done in similar cases in the past, to suspend
paying any gold out of the Treasury, do you suppose it would so
happen that he could not stop it instantly?
Mr. B A R U C H . If he were bold enough to try to do that, and could
get the Congress to back him up.
Senator C O N N A L L Y . But you say the present is an emergency^ that
is greater than war. I do not expect to see it cured by Christian
Science or pink piUs. But the President could stop the payment over
night of gold dollars; the Secretaiy of the Treasuiy could suspend the
-paymg of gold dollars over night. And you say that something
radical must be done.
M r . BARUCH. Y e s , sir; b u t
Senator C O N N A L L Y (continuing).

That is all that I am proposing.
One other question and I am through: Mr. Baruch, you are talking
about reducing farm mortgages 60 per cent voluntarily. I just want
to emphasize what I said a while ago: Under that plan a man who had
a farm mortgage that is worth 100 cents would get it aU.
Mr. B A R U C H . But it is not worth 100 cents, and
Senator C O N N A L L Y (continuing). It may be. But to put a hypothetical case, if a man had a farm mortgage that was worth 100
cents on the doUar he would get it all.
M r . BARUCH. Y e s , sir.
Senator C O N N A L L Y . And

if it was worth only 60 cents he might not
get more.
Mr. B A R U C H . He might not get even that much. He might only
get 10 cents on the dollar, and in some cases even less than that.
Senator C O N N A L L Y . That would all have to be voluntary.
M r . BARUCH. Y e s , sir.
Senator C O N N A L L Y . That

is the case now, and we don't need any
law to do that.
Mr. B A R U C H . Y O U do not need any law, but I am trying to show
Senator C O N N A L L Y (continuing). If you have a compromise that
can be done now.
Mr. B A R U C H . But I am trying to provide something that will
induce mortgagees to take a new amount of money.
Senator C O N N A L L Y . I believe that is all.
Senator B A R K L E Y . I should like to ask a question or two along the
Ime of this gold content proposition.
Senator W A L S H of Massachusetts. I do not believe we can conclude with Mr. Baruch this morning.



Senator W A T S O N (presiding). Is it the desire of the committee to
recess at this time?
Mr. B A R U C H . Might I make one statement before you recess, and
that is this: I think too much emphasis on the gold standard is laid
upon its value, and not enough on what I think is the more important one, and that is the restraining influence it has upon the
issuing of money and of credit.
Senator C O N N A L L Y . My plan is just as much a gold standard as
yours. The only difference is in the amount of gold content, isn't it?
Mr. B A E U C H . If you can approach this proposition
Senator W A T S O N , (presiding). Well, the committee desires to rise
at this time. Mr. Baruch, we wiU ask you to come back this afternoon. The committee will now rise until 2 o'clock this afternoon.
(Thereupon, at 12.03 p. m., Monday, Februaiy 13, 1933, the committee recessed until 2 o'clock p. m., the same day.)

The committee resumed at 2 o'clock p, m. at the expiration of the
The C H A I E M A N . The committee will resume, I was not here at
the recess, Mr. Baruch. Had you concluded your statement?
Mr. B A E U C H . Oh, yes; Mr. Chairman. But I understood some
Senators wished to ask me some questions.
The C H A I E M A N . All right.

Senator SHORTRIDGE. Mr. Baruch, I did not have the benefit of
hearing your testimony given this morning. You may have covered
and considered this thought. I will put the question in this form: In
seeking for a solution of what might be called the farm problem may
we assume that you have had in mind the debtor as well as the creditor
Mr. B A R U C H . Are you talking now about the matter of debt?
Senator SHORTRIDGE. Certainly.
M r , BARUCH. Y e s ; I d i d .

^ Senator SHORTRIDGE. The thought has been suggested to me many
times that a local savings bank may be the debtor, and, we \vill say, a
farmer is the creditor.
Mr. B A R U C H . Certainly.
Senator SHORTRIDGE. And we must consider the rights and the
necessities of both.
Mr. B A R U C H . That is quite right, sir.
Senator SHORTRIDGE. Both the debtor and the creditor must be
Mr. B A R U C H . Yes, sir. But the only thing I suggested this
morning, Senator Shortridge, was this: That to try to anticipate the
inevitaWe we must have in mind that the value of the mortgage has
lessened. There is no salability for it. And I suggested a new form
of security, guaranteed by the Government, should be exchanged, on



some basis satisfactory to mortgagor and mortgagee, It does not
remove the man's right to foreclose, and if he wants to foreclose, if he
wants to take the property, he can do so.
Senator SHORTRIDGE. Of course, it is the depressed price of farm
products that has caused the depression, so to speak, in the value of a
given mortgage.
Mr. BARXTCH. Quite right, sir.
Senator SHORTRIDGE. And a rise in farm products, a return to
prosperity in the matter of farm prices, would of course restore the
mortgage, or presumably might do so.
Mr. BARTJCH. It would have that tendency at least.
Senator SHORTRIDGE. The savings bank I take it generally speaking
contains the moneys of the people roundabout.
Mr. B A R U C H . Of you and I and everybody.
Senator SHORTRIDGE. Yes. Very little from me, but that is aU
that I wished to ask. I merely wanted to bring that out.
The CHAIRMAN. Mr. Baruch, I left before you got through at the
morning session. Taking those farm mortgages, or home mortgages,
and having the Government of the United States advance 60 per cent
of the mortgage, would the Government's mortgage be a first lien as
against the original holder's 40 per cent?
M r . BARUCH. Y e s , sir.
The C H A I R M A N . Y O U did

not say so in your testimony this morning,
and I merely wanted to bring that out.
Mr. B A R U C H . All right.
Senator H A R R I S O N . Mr. Baruch, you laid great stress on this
country balancing its budget.
M r . BARUCH. Y e s , sir.
Senator H A R R I S O N . And

stated, of course, the best way to do it
is by cutting down expenditures and coming within a $3,000,000,000
range if possible. Then in further speaking of the matter you talked
of balancing the budgets of other countries, and of stabUizing currencies, exchange, and so forth. Is it your opinion that if England,
France, and other countries, that are not to-day upon balanced budgets, or maybe not to the extent that we are, should really soundly
balance their budgets, that that would have any very appreciable
effect upon the stabilization of exchanges?
Mr. B A R U C H . Unquestionably, provided they would continue to
be balanced.
Senator H A R R I S O N . Yes.
Mr. B A R U C H . But that is the foundation stone of the stabilization
of exchanges, that the money of any particular country can only
remain good as long as it takes in more than it spends, or it has the
credit to go out and borrow the difference. When that ceases and
the budget becomes unbalanced, then much of the coin of to-day
becomes the chaff of to-morrow.
The C H A I R M A N . Mr. Baruch, the answer you have just given to
the Senator from Mississippi, does that take into consideration the
fact that some countries are off the gold standard?
Mr. B A R U C H . Well, the only way that they could get back on the
gold standard would be to balance their budgets.



The C H A I R M A N . Yes. But I wanted to know your views on this.
Unless they get back on the gold standard could they arrive at the
conclusions that you suggested in your answer to the Senator from
M r . BARUCH. N O , sir.
Senator SHORTRIDGE. Frankly,

I do not understand that answer.
Suppose a given nation is on a silver basis, or on a bimetal basis,
couldn't they balance their budget? Couldn't such a nation balance
its budget if it used both gold and silver at a certain ratio?
Mr. B A R U C H . I do not believe any particular nation can have both,
because history has shown that the Gresham law works to the end
that cheap money drives out soimd money.
Senator SHORTRIDGE. What is the current money of India to-day?
Mr. B A R U C H . India is supposed to be on the gold basis.
Senator K I N G . On a gold exchange basis to-day.
Mr. B A R U C H . Yes. And you doubtless know what the situation
is there.
The C H A I R M A N . India uses more silver for ordinary circulation
than any other countiy according to population. ^
Mr. B A R U C H . I think that India's position is a little different in
this respect. It is hard to get them gold-minded after all the centuries of having been silver-minded. It is a rather difficult problem.
I think it is not quite on all fours with other white races. For instance, your question, and I do not know whether I made myself
clear on this question or not, assumes that you propose the Government will advance 60 per cent of the money, yes. But what I meant
was mortgages. My idea is to prevent the Government going out and
selling anything, but just exchanging this new bond for the old mortgage . You have that quite clear, have you?
T h e CHAIRMAN. Y e s ,
Senator K I N G . Mr. Baruch,

in your testimony this morning you
incidentally mentioned silver. Have you any suggestions to make
as to the course which might safely and wisely be taken with respect
to the rehabilitation of silver other than an international agreement,
which might result in the stabilization of silver at a certain ratio with
reference to gold?
Mr. B A R U C H . My theory is that it ought to be done, but I do not
consider myself an expert on the subject; I thinlc it ought to be done
through some international agreement, especially if you were to take
some particular basis like has been discussed.
Senator K I N G . Whsit do you think would be the effect of a measure
something like this: Authorizing the Secretary of the Treasury to
purchase, say, 5 per cent of our gold reserves in silver. That is to
say, in its present value, going into the market and buying silver up
to the amount of 5 per cent of oiu* gold reserves held by the Federal
reserve banks, and then for a law to be enacted authorizing the
utilization of that 5 per cent as a part of our metallic reserves. So
that silver might be given a sort of primary monetary status to the
extent of 5 per cent of our reserves. And may I say before j'OU
answer that question, if you will permit me, the view of some persons




who have given attention to this subject is that it would, first,
relieve the tension of gold; and, secondly, that it would direct attention to the importance of silver as an accretion to our gold reserve'
to our metallic or primary basis; and, third, that it would invite
other nations to give it consideration, or that the psychological effect
would be important in that other nations would say: If the United
States as a gold-standard nation is willing to use silver as a part of
her metallic reserves may we not also do so, and thus relieve the
tension on gold in other countries, increase the demand for silver,
and thus increase the price of silver, until as it goes higher and
higher, it would lead to a period when the nations of the world
would with greater willingness establish a ratio and make silver a
primary money.
Mr. B A R U C H . I should like to answer those questions seriatim if
I may.
Senator K I N G . All right.
Mr. B A R U C H . Your first question would be, what would be the
effect of a purchase of 5 per cent of our gold reserves in silver?
Senator K I N G . Issuing silver certificates for the purchase, of course.
Mr. BARXJCH. But not at a ratio, but at whatever the price may be.
Senator K I N G . Yes.
Mr. B A R U C H . Of course, that is sounder than some ratio. Then it
would always depend on how far you would go. It is just like the
other things we are discussing, the trouble is when you start out on the
road they never stop. And it would depend upon the condition of our
Federal Treasury more than anything else. WTien in sound condition
it could stand almost anything, or at least could stand a good deal.
It is just like the edging of the camel's nose into the door; if a small
amount it would probably have no effect, but at the present I think it
would have a bad effect. My thoughts have always been running
along the line that we ought to do it through some international
agreement. I think we ought to go at it very gently and wisely, because with the great hoards of silver, and every Chinaman has a shoe
of silver, when we come to the place where there is no international
proportionate share we might became the international fat boy.
Senator K I N G . There is one other question I should like to ask you
in view of your testimony of this morning: Do you see any real ground
for analogy or comparison in the matter of issuing bonds, between the
condition during the World War and the present time? You will
recall that when we issued enormous quantities of bonds and unloaded
them upon the public. They were used as the basis of paper credit or
of bank credits, and billions of dollars of bank credit were thus made
avaikble for everyone. That resulted in increased prices of all commodities, labor, and so forth. Suppose the same policy were pursued
now, what about it?
Mr, B A R U C H . Well, I thinly I referred to what I called the evils
of that inflationary method. But you had something then that we
do not have now. The condition of war meant that there was a demand for everything. You had a buyer for everything. There was
no question then of how much there was but how little there was.



Senator K I N G . What I wanted you to explain, Mr. Baruch, is this:
That there could not be a perfect comparison between the situation
then and now.
M r . BARUCH. N O , sir.

But the bonds that were issued during the
war period are good to-day.
M r . BARUCH. Y e s , sir.

Uncle Sam isn't talking about repudiating
those bonds.
Mr. B A R U C H . Not that I have heard.
Senator SHORTRIDGE. Nor of canceling them.
M r . B A R U C H . N O , sir.
Senator K I N G . But the Government could issue
Mr. B A R U C H . But the Senator did not ask me

too many bonds.
that question. I
I wanted to stick to the question in making

kept off that question.
my answer.
Senator K I N G . This morning you made that very clear. But there
mi^ht come a time when a superabundant issue of bonds might mean
a different condition,
Mr. B A R U C H . Yes; and I think Secretary of the Treasury Mills
made that clear.
Senator B A R K L E Y . Mr. Baruch, I should like to get back to your
discussion of this morning of the so-called inflation, with special reference to the revaluation of gold. My association with money has not
been sufficient to make me very intimate with it except theoretically.
But somebody is responsible for the fact that I am getting about a
hundred letters a day, and I thinlc in the last two weeks I have received about 1,200 letters, almost aU from one community, urging a
revaluation of the gold ounce, the gold dollar, and so forth. It has
rather whetted my appetite to learn more about this so-called remedy,
if it is that, and I am not using the term "so-called" as any reflection
on it. I want to find out if it is to be wisely considered for the purpose of helping us. I understand that we have now in circulation
about a billion dollars more than we had in 1929, in money. Theoretically it is in circulation, although as a matter of fact it is not. But
the total amount of money outstanding
Mr. B A R U C H (interposing). Do you mean. Senator Barkley
The C H A I R M A N (interposing). Senator Barkley, do you mean gold?
Senator B A R K L E Y . N O . I am talking about money now.
Mr. B A R U C H . D O you men Federal reserve and bank notes?
Senator B A R K L E Y . I mean all kinds of circulation at this time
amounts to about $5,700,000,000, and in 1929 I think it was about
M r . BARUCH. Y e s , sir.
Senator B A R K L E Y . SO that

we have now a billion dollars more in
circulation than we had in 1929. Of course, that money is not
actually in circulation in the sense that it is working all the time, and
working as you call it. There is a lot of it in banks, and some of it
is hoarded in lock boxes and one place and another. I saw the other




day where more than 50 per cent of all the bank deposits, outside of
savings banks, was now in the vaults of 100 banks of the United States.
If we were to take all the gold that we have, including all the gold
dollars, the gold eagles and $20 gold pieces and all the bullion that we
have, and coin it into money, it would amount to about $4,000,000,000
under the present valuation and the present size of the gold dollar.
If we were to revalue that gold, to evaluate it or revaluate it, so as to
coin about a fourth as much more
Mr. B A R U C H . About a third as much more.
Senator B A R K L E Y . Well, if you reduce it 2 5 per cent.
Mr. B A R U C H . Y O U would then have 1.33.
Senator B A R K L E Y . SO that mstead of having $ 4 , 0 0 0 , 0 0 0 , 0 0 0 gold
actually now in the present gold dollar, say, we would have $ 5 , 0 0 0 , 000,000.

Mr. B A R U C H . It would then be $5,300,000,000.
Senator B A R K L E Y . And if everybody who had any gold dollars
would have to turn them in to the mint and have them melted into
bullion and recoined into this new dollar, we would have a billion
dollars more of them after we got them out than we have now. But
we would not have any more gold. We would have the same amount
of gold that we have now. Under the Federal reserve act and under
the Glass-Steagall bill which we passed a year or so ago, I am informed
there is already the basis for an increase in our circulating medium of
about $4,000,000,000 which is not used now, or is not called for
because of lack of demand, the banks won't loan money in the present
state of confidence. Now, if we were to take all this gold and reduce
the size of the dollar, and coin out of the present supply a billion
dollars more than we have now, would the tendency be, so long as
there is the same lack of confidence and the same lack of business
demand that there is at present, is it probable that that extra billion
dollars would find its way to the same place where the money now is,
in hiding, either in banks or in vaults or in socks or wherever it is,
or would there be an increase in the amount of money actually in
Mr. B A R U C H . Your question is, whether if instead of a reserve of
$4,000,000,000 we would have a reserve of $5,300,000,000 against
currency, and therefore really a larger percentage of gold against the
circulating medium, that would have an effect upon prices?
Senator B A R K L E Y . What efifect would it have upon the workability of the money, the actual circulation of the money in business,
which is necessary m order to expand business?
Mr. B A R U C H . It would depend first of all whether people would
have confidence then in the dollar and in the Government. If they
have confidence, they will proceed to invest it in some enterprise; but
if they haven't got any more confidence then than they have now,
they wouldn't invest it. A mere increase of the medium in my
opinion won't do anything.
Senator B A R K L E Y . That is the thing that has worried me about all
these remedies. If we have a billion dollars more in circulation now
than in 1929, when eveiything was booming, but the most of that
money has been mthdrawn from actual use because of lack of confidence won't the same thing happen to any additional amount that
we might either coin or print?



Mr. B A R U C H . Well, certain things will take place. For instance,
as Senator Connally brought out this morning, a man who is in debt,
like the farmer, and has something to sell, he will benefit. But you
must remember
Senator B A R K L E Y (interposing). He will benefit in the sale of his
wheat, for instance.
Mr, B A R U C H . Yes. And he can pay off his mortgage, perhaps, and
he will then be free of his mortgage.
Senator B A R K L E Y . Well, let us assume that a farmer has 1,000
bushels of wheat now, and that it is worth a dollar a bushel, which
it is not, but let us, for the sake of the argument consider that price.
He will sell that 1,000 bushels of wheat and get $1,000 in the shape
of the present dollar. But suppose we reduce the amount of gold
in a dollar, so that instead of getting $1,000, he will get $1,250.
When he turns around to use that $1,250, instead of $1,000, to
buy machinery or fertilizer or anything else for which he must pay
money, has he obtained really any benefit from the transaction?
Doesn't he have to pay more dollars for what he buys than under
the present situation? So in the long run has he really been
Mr. B A R U C H . I think in the long run he will be benefited if he
gets more dollars for his stuff, unless his mortgage is made payable
in gold of the present weight and fineness and that can be enforced.
But answering the other part of your question, the trouble is that
it will not take effect and cause the rise in prices hoped for, unless
there is a loss of confidence in the dollar, and then you get all the
Senator B A R K L E Y (interposing). I know, but suppose there is no
loss of confidence in the dollar. This remedy has got to work both
ways if it works at all.
Mr. B A R U C H . If people will believe that they won't repeat this
performance, and if you still have your gold reserve, which we take
for granted, I can not see any great evil effect from it. But I think
you will be ruined before you get into it.
Senator B A R K L E Y . Probably you did not get my pomt. Leave
out the question of debt for the moment. I realize if a farmer
has 1,000 bushels of wheat, and instead of getting $1,000 for it
he can get $1,250, and he can pay off $1,250 of debts with that
$1,250, whereas he could only have paid $1,000 of his $1,250 debt
before, he would be benefited. But laying aside any question of
debt, and assuming that he is goiug to take these new dollars and
exchange them for something that he has to buy, what about that?
Mr. B A R U C H . If his wheat goes up then other things will go up.
Senator B A R K L E Y . Exactly. He does not get any more if he takes
his $1,250 and buys something that the original $1,000 would buy.
Mr. B A R U C H . NO. The only question is, if they can go up together, then all right. But if they do not, and for mstance take the
matter of wages, then he is in a bad way.
Senator B A R K L E Y . But you can not figure that a change in the
value of the dollar would produce an increase in the price of two or
three thiags without going all the way along the Une.
M r . BARUCH. N O , sir.




Senator B A R K L E Y . SO that the question is whether after the transaction has occurred, on the theory as they say on the stock market,
for the long pull, the people at large have been benefited.
Mr. B A R U C H . I do not think so.
The C H A I R M A N . And if it would work with 1 0 per cent it ought to
work with 50 per cent.
Senator B A R K L E Y . Mr. Baruch, in your suggestion of a farm bill
a while ago I think you said, and we were talfing about a so-called
moratorium or stopping of foreclosures as I believe it was under your
suggestion, would there be any encouragement in your plan if it were
carried out, to those who now hold mortgages and are not foreclosing
because there is nobody to buy, and because they do not want themselves to buy and take over land, would your scheme produce such a
situation as would make a lot of mortgagees feel that it might nm
the value of land up and therefore they would go ahead and foreclose
and buy the land in during this 2-year period or any other period, in
the hope that they might sell at a profit later on?
Mr. B A R U C H . I think it would have a tendency to stabilize farm
values because there would be some value placed upon it. But it
would not be all of one value, but a value depending upon the assessed
valuation at the time, and other things that would come into the
revaluation of that mortgage.
Senator B A R K L E Y . Of course, an eagerness of somebody to buy
that farm, even the mortgagee, might tend to elevate prices generally
above the present value or present level, I might say, for farm land.
Mr. B A R U C H . Well, it might have that tendency. I know it
would have a tendency to stabilize it. But I think the net result of
it would be that it would help many farmers to retain their farms
under less onerous conditions than they have now. That was the
idea I had back of it. Of course, there are a lot of men who if they
have a good mortgage would not take the new obligation but would
take the land.
Senator B A R K L E Y . Mr. Baruch, with reference to your emphasis
on the question of balancing the budget, which has been, as I happen
to know, one of your themes for some time.
Mr. B A R U C H . And always will be, Senator Barkley, until it is done.
Senator B A R K L E Y . Yes.
Mr. B A R U C H . And I think you have taken too much time to do it.
Senator B A R K L E Y . Let us take the situation as it is. We have
about $ 1 , 2 5 0 , 0 0 0 , 0 0 0 of annual charge on account of the public
debt, interest, and annual payments to the siolcing fund. The only
way we can reduce that is to reduce the interest on these outstandinsr
Liberty bonds, which might be done to the extent of a couple of
hundred million dollars if the bond market were favorable, but under
present conditions we may not be able to do that. So we will put
that $ 1 , 2 5 0 , 0 0 0 , 0 0 0 on the shelf for the moment. Then we have
about $900,000,000 as a charge at the present for veterans, hospitalization, benefits, and all that. That, we will say, is $ 2 , 1 5 0 , 0 0 0 , 0 0 0 ,
Then we have the Army and the Navy costing another $ 7 0 0 , 0 0 0 , 0 0 0 .
There you have about $ 2 , 8 0 0 , 0 0 0 , 0 0 0 , leaving, out of a possible
$ 4 , 0 0 0 , 0 0 0 , 0 0 0 annual expenditures, about $ 1 , 2 0 0 , 0 0 0 , 0 0 0 for the
ordinary running expenses of the Government out of which we can
effect any economies. Are you prepared to make specific recommendations as to how to get the annual expenditures of the Federal



Government down below the $3,000,000,000 that you suggested this
Mr. B A E U O H . Yes, sir. I will say that I have had some figures
made down here at Washington and I have not had time to go over
them in detail. I had them prepared by I think a very able man, with
the idea of showing what we would do if we had to do it. And you
gentlemen understand it is not a question of what we want to do.
Nobody wants to cut down any Government expenditure, and I
myself do not want to do it, but they have got to be cut down unless
we are to have other conditions. If the budget remains unbalanced
we can not pay, and that is all there is to it. If you put down
2,800,000,000 dollars as sacrosanct, and say that you can not touch
that—and I do not care to assume that
Senator B A R K L E Y (interposing). Well, that is for illustrative purposes.
Mr. B A R U C H . When you do that, and then say that we can not
touch the Army or the Navy, or the veterans, and all these other
things, and then if you go on with the fact that on account of this
unbalanced budget we have already accumulated 4 per cent and 1 per
cent amortization, or if you say 3 per cent and 1 per cent amortization,
over $100,000,000 a year that we have to look after, and if you keep
on with that, why, it can not be done. And if you go on with another
$1,000,000,000 or $2,000,000,000, then you will get another million
dollars at 4 per cent. Well, I feel that in this veterans' drive that we
have, to cut out what are generally called the abuses of the Veterans'
Bureau, I think we are laying too much emphasis on that alone.
There are other things that could be done. There are a lot of other
things hiding beliihd that citadel of lettiug the veterans make the
fight. Take the Army and the Navy, and the comparisons of the
sums of money, that if given a dollar to-day it would certainly be
more than the dollar last year. But I know the difficulties of the
situation, and when you lay aside certain amounts as sacrosanct then
you are up against it and the only time when you will change it is
when you go into banlo-uptcy, if you say: "We can not get our
Government expenditures down below a certain amount.'' Last year
I thought we ought not to have had more than $3,500,000,000 and I
do not think this Government can vote more than $3,000,000,000
now. We just haven't got the money.
Senator B A R K L E Y . I appreciate fully that situation, Mr. Baruch.
The other day I offered a few figures over there on the floor, figures
that startled me when one compares them. We have in this country
in the last three years reduced our total net income from about
$85,000,000,000 to $40,000,000,000.
Senator K I N G . It is less than that, really.
Senator B A R K L E Y . Well, I will use $ 4 0 , 0 0 0 , 0 0 0 , 0 0 0

as it is an easj
figure to remember. The total cost of government in this country is
$15,000,000,000. That includes all kinds of government—State,
county, city, and national. The total interest charge on what we
owe in this country is $ 8 , 0 0 0 , 0 0 0 , 0 0 0 , and out of $ 4 0 , 0 0 0 , 0 0 0 , 0 0 0 we
are spending $ 2 3 , 0 0 0 , 0 0 0 , 0 0 0 for government raised by way of taxes,
leaving about $ 1 7 , 0 0 0 , 0 0 0 , 0 0 0 to operate business and agriculture and
the corporate and individual activities of all the people. It is perfectly
apparent that we can not stand that sort of basis. We can not spend
more than 50 per cent of our annual iucome in unproductive enter159450
— 3 3 — 4




prises, which we might say is represented roughly by government and
interest on what we owe. Now, assume that we balance the Budget
of the National Government by lopping off a billion dollars of the
$23,000,000,000 that we are paying out now for government and
interest, how far is that really going toward solving the economic
problem which confronts the whole country?
Mr. BARUCH. In my opinion it goes right to the root of it. I hear
this question asked so many times, not by one person, nor 20 persons,
but by all of the innumerable persons in all walks of life in which I
move: I have some money. TVTiat shall I do with it?
Senator B A R K L E Y . And what do you tell them?
Mr. B A R U C H . I say, I don't know. That is the answer. Some
fellow may say: If you don't know what can I know? I reply: I am
serious, I don't know what to do with it. Then I say; If I could get
everybody who has money—and somebody owns all this money in the
banks, and I do not know what the deposits are—but I say: Our
objective ought to be to get that money to work, and by doing that
we will get people back to work, and then you w ^ have a money
turnover, and then with the turnover, and even with the enormous
debt and taxes, if we can get activity in business, say, of 20 per cent,
we will be over the top of the hill. Therefore, I say confidence goes
to the root of the thing. If you can get the man who has money to
say: I am going to put it into this venture or that venture, I am going
to lend it, I am going to do something because I know my money is
all right, you will have started the wheels going. Things are going
down like this [indicating] now, and you want to stop that, and to
start them going up.
Senator B A R K L E Y . I agree with you, Mr. Baruch, entirely on the
matter of balancing the Budget, but I think it ought to be done by
reducing expenses instead of increasing taxes. But I am not quite
able to go along with you in saying that is the magic wand that will
start things back, that as soon as we quit spending more in the
Government that will of itself turn the wheels.
Mr. B A R U C H . The first thing that will happen if you have your
Budget in balance, of the huge amounts of bonds carried in the banks
to give them a hiding place, they can be sold to the people, to investors,
and that would start the wheels going, and get people to putting money
into investments instead of hiding places. Then, after they are
satisfied with that, they will turn round to something else.
Senator K I N G . Mr. Baruch, isn't this really one of the primary
considerations that would res^t from a balancing of the Budget, or
rather fai^g to do it, if we do not balance the Budget there will be
this continued and increased apprehension that the credit of the
Goveminent itself, including State and municipal governments, will
soon be impaired and Government securities can not be sold? If we
continue to increase deficits and a loading up with bonds, then the
Federal Government itself may be plimged into the abyss, carrjdng
business with it.
Mr. B A R U C H . I think that is what goes to the root of the matter,
and whether justified or not it is still there.
Senator B A R K L E Y . I do not know whether you would want to
answer this question or not: Our total indebtedness in this country
is $154,000,000,000, including all kinds of governmental debts, all
kmds of corporate debts, all agricultural debts, all personal debts;



it amounts to $154,000,000,000, wliich is more than half of our total
wealth. In fact, we do not know what our total wealth is just now.
When we were on the upgrade, two or three years ago, we were estimated to be worth about $350,000,000,000, not net but gross. Would
you want to give an opinion as to whether this country can ever lift
itself out of that enormous burden of debt without a considerable
scaling down? And if you do not want to answer that question, all
Mr. B A R U C H . My personal opinion is that it can not.
Senator K I N G . Might I suggest right there, would the
Mr. B A R U C H (continuing). And already that indebtedness is
really wiped out in the markets. Take railroad bonds, where you have
a market, and you gentleman understand that
Senator K I N G (interposing). Yes; they are scaled down all right,
because the man who bought a bond or a stock at $100 four years
ago may have had to sell it for $25.
Mr. B A R U C H . Yes, Senator King, and you can get a good many
witnesses to that.
Senator K I N G . He scales it do\TO but holds it against the corporation that issued the bonds. That is not a scaling down brought about
by legislation.
M r . BARUCH. NO, sir.
Senator K I N G . It is, of

course, a voluntary scaling down, like all
scaling down must be volimtary, unless it goes through the bankruptcy courts.
Senator G O R E . It is not a scaling down so far as the corporation is
Senator B A R K L E Y . N O . N O W , to get to the farm situation
Senator K I N G (interposing). Isn't it a fact, however, that notwithstanding this large indebtedness to which Senator Barkley referred—
and, by the way, Prof. Irving Fisher says it is $230,000,000,000 instead of $154,000,000,000.
Mr. B A R U C H . Oh, well, what are a few billion dollars as between
Senator K I N G . Isn't it a fact that much of that would wash itself
out if it were in active business? The aggregate may be a maximum
of $230,000,000,000, but if you start $1 out at work, and A gets it,
and A pays it to B, and B pays it to C, the debt being domestic instead of foreign, much of this debt would be wiped out. It would be
a bookkeeping transaction in the course of a year or two if we had
active business.
Mr. B A R U C H . Yes; because earning capacity behind an indebtedness increases the value of the indebtedness.
Senator B A R K L E Y . If we could get our annual income back to
$85,000,000,000 it would be different. Now, Mr. Baruch, let us take
the case of the farmer: Do you think the bankruptcy law offers any
remedy for the farmer?
Mr. B A R U C H . So far as the farmer is concerned I was trying to
apply this if certain processes have set in. If the farmer can not sell
then he can not pay off his mortgage, and the^ fellow who has the
mortgage can not sell it. Now, if he could establish some relationship
whereby there could be an exchange of some new bond for that present
indebtedness, on a basis that gives the use of Government credit, if
we could establish that as a means of reducing his fixed obligation,



and therefore his interest charges, he would be helped, and the man
who holds the mortgage could be helped, because he can not sell it
_ __
Senator BARKLEY. I think you have in mind some agency probably
of a kind of Government set up to bring about accommodation
between debtor and creditor. The word ^'bankrupt" is odious to the
average farmer. Many of them would rather, lose their farms than
to go into a bankrupt court. What I had in mind was: Do you
think farmers as a class, and I am not attempting to put them above
anybody else, but they are not skilled in the intricacies of the bankruptcy law, and it is a last resort, and in the most extreme case at
that when the farmer will go into a bankruptcy court to get relief
from his debts
Mr. BARUCH (interposing). There is no question about that. In
the reconstruction days I lived in South Carolina, when nobody had
anything, but the last thing anyone wanted to do was to leave his
debts unpaid.
Senator BARKLEY. I have thought that any bankruptcy law we
might pass offers to agriculture no remedy or relief. What do you
think about that, Mr. Baruch?
Mr. BARUCH. I think you have two things mixed up a little bit.
What I had in mind about this LaGuardia bJ i was to make it possible
to shorten banlmiptcies and not permit a small amount of private
claims, either against an individual or a corporation, to hold up a
settlement when a large majoritj^ of the claims against an individual,
we ^vill say, agree. That very frequently happens in court. Sometimes you have to pay one man 100 cents on the dollar when the other
75 per cent are willing to ^ve up. That is happening all through the
country. In New York City we have mortgages, and they are maldng
adjustments at, say, 75 per cent, and are reducing the interest to 4
per cent.
Senator L A FOLLETTE. Mr. Chairman, might I now ask a few
questions that occur to me?


Senator L A FOLLETTE. I will try to be as brief as possible.
Baruch, on page 2 of your statement you said:


It seems to be agreed that costs of Government have risen to about 33H per
cent of national income.

Have you in mind what percentage of cost of Government is Federal as distinguished from State and local?
Mr. BARUCH. Senator Barkley just stated that, but his figures are
larger than mine.
The CHAIRMAN. D O you mean of the United States Government, or
the States and cities and counties?
Senator L A FOLLETTE. I asked Mr. Baruch what percentage of the
tothl cost of Government was chargeable to the Federal Government.
The CHAIRMAN. And that includes State, county, and city.
-T .
No; as I understand, you are only asking as to the
Umted States Government.
Senator L A FOLLETTE. Yes.
Senator BARKLEY. About 33K per cent.
Mr. BARUCH. N O ; not for the United States Government.



Senator B A R K L E Y . The annual expenditures of the United States
Government are nearly one-third of the total of the Government
charges of the country.
Senator L A F O L L E T T E . That is higher than the figure I have seen
usually quoted. It is placed somewhere between one-fourth and onefifth of the total cost of Government. The point I wanted to bring
out was this: You coidd not, Mr. Baruch, accomplish the results
which you seek to obtain and hope for as Solving from a balancing of
the budget of the Federal Government, by merely doing that end
stopping there. Balancing budgets is to be the next objective toward
remedying economic conditions, as I took it from your statement you
believe necessary, but the problem does not stop with the balancing of
the Federal Budget. There is also the problem of the larger governmental expenditures of States and counties and cities and municipalities, which in the aggregate is much larger than the Federal
Government's expenditures.
Mr. BARTJCH. That is right, sir.
Senator L A F O L L E T T E . Then also I wish to bring out, or to get
your idea, as to whether or not there is not a great deal of money of
the Federal Government spent for services which we would othermse
have to maintain regardless of whether carried on by the Federal
Government or not. I have in mind such items as national defense,
and the other items which must, I think, or almost anyone would
admit, are necessary in any event, and that statement brings me to
another question: In another part of your statement as I understood
it, Mr. Baruch, you said that $800,000,000 should be cut out of the
Federal Budget. Is that right?
Mr. B A R U C H . If you want to bring it down.
Senator L A F O L L E T T E . Could you tell us where to make the cuts?
Mr. B A R U C H . Well, of course that is a moot question. I can show
you figures that have been made up and which I have not studied
Senator L A F O L L E T T E . I wanted to get your suggestions, if you
had any, as to how that could be accomplished, because that seems
to be where even the most ardent Budget balancers fall into disagreement among themselves when they start in to carry out their
proposition that we should cut and slash.
Mr. B A R U C H . Well, I base that upon this, first: That I believe if
we did that there would be enough revival in business to bring up
the receipts of the Government so that the Budget would be practically in balance. If you did it only to 3K billions of dollars it would
not do that. But if you bring it down by a cut of §800,000,000 it
would bring it to §2,800,000,000. Then I believe there would be
such a restoration of confidence that it would bring up the receipts.
Senator L A F O L L E T T E . That is a mathematical calculation.
M r . BARUCH. Y e s , sir.
Senator L A F O L L E T T E .

But the problem that confronts both the
executive and the legislative branches of the Government is: Where
are you going to start -with those cuts? And when you start with it
then those who have been most ardent about the matter are opposed
to your cutting the thing which they. thinlv, or a particular group
happens to regard, as a particular service of the Government.
Mr. B A R U C H . N O W , let us take the Army and the Navy. I have
from the figures I have had presented to me at different times, and I




believe we could get just as effective ones, that this money if spent
in a different way
Senator SHORTRIDGE (interposing). That is the pomt. W I U it be
as efficient?
„ ^
Mr. BARUCH. Yes; I think it would be. After all, Senator, we
have to cut our cloth accordingly. If you have not the money you
can not do certain things, and then it will be a question of the best
judgment of where that cut ought to be.
Senator L A FOLLETTE. That is where the difficulty comes in. The
minute you start in to find out where to cut $800,000,000 you find a
great divergence of opinion, not only in the Senate, but among the
very groups out in the business world, coming from those who have
been very active in their condemnation, or very vociferous in their
condemnation of Congress because it does not proceed to make cuts.
I am not going to point out any specific example because I think
it is a very haman reaction, but I get letters in one mail from business
men in my own State urging me to join in the economic drive. Then
when the Appropriations Committee cuts off some activity of a bureau,
or some activity that they are interested in, they immediately write
me and tell me to get up and fight that particular proposal. All I
am trying to point out is that it is easy enough to make an arithmetical
calculation as to how much should be cut out of the budget in order
to bring it more nearly into balance, but when you get down to the
practical proposition as to where the cuts are going to fall, it is a much
more difficult problem.
Mr. BARUCH. In other words, a man is willing to cooperate as long
as you do al] the cooperating.
Senator L A FOLLETTE. Yes, sir.
The CHAIRMAN. We can save $ 4 0 0 , 0 0 0 , 0 0 0 here in one place. But
we won't do it. We have not the votes.
Senator SHORTRIDGE. And what is that place?
Senator K I N G . The Veterans' Bureau.
The CHAIRMAN. In the Veterans' Bureau.
Senator SHORTRIDGE. Just for the record I wanted that stated.
The CHAIRMAN. The Veterans' Bureau, where we are paying men
who were thousands of miles from the scene of war, and who never
saw a gun fired, and who are just as healthy as you are, and more so.
Senator SHORTRIDGE, 1 doubt it.
The CHAIRMAN. And they are drawing $ 4 0 0 , 0 0 0 , 0 0 0 from the
Senator L A FOLLETTE. I do not wish to get into anything that is
going to be a miniature Senate debate here. I wanted to bring that
question out. Now, Mr. Baruch, another point: On page 4 of your
statement you say:
I am not speaking of overproduction which is a mere correlative of underconsumption. I mean excess productive capacity.

^ As a matter of fact do you really believe that with very few exceptions taking the world as a whole there is no real overproduction?
Isn't It a matter of inability to consume? You go forward to mention
certain raw materials of which there is an excess of production, but
if we were to envision a high enough standard of living for the peoples
of the world there would not be as a matter of overproduction with
very few exceptions.




Mr. B A R U C H . If we could possibly see in front of us enough demand
to consume all these things, why, you would have a different story.
But we have not yet been able to envision that.
Senator L A FOLLETTE. My only point is that for the long pull
perhaps you can over emphasize an attempt to regulate, curtail and
restrict production to meet the failing ability to consume, whereas
if we were ever to establish economic stability it has always seemed to
me we should not overlook the fact of lifting the capacity to consume
to more nearly equal the capacity to produce.
Mr. B A R U C H . I tried to suggest that thought, that we had gone from
the delusion of grandeur to the delusion of poverty. I think there is
a good deal in the mental condition of the poeple. If it were possible
to lift this up in the way I suggested, that that was the only practical
one. There would be a reconsumption of goods that might change the
whole picture.
Senator L A FOLLETTE. Mr. Baruch, you spoke in one place of
phantom values which we have been struggling to maintain. From
that do you mean present commodity prices and values of real estate,
and other essential values, are now at normal?
Mr. B A R U C H . N O ; my opinion is that it is subnormal. You must
see it is subnormal from what I have been suggesting. Present
values are due not alone to fear of what has been but of what is and
what might happen over this country, and we are coming to feel ourselves hopeless with the reflection of the prices of commodities as you
have referred to them.
Senator La FOLLETTE. On page 8 you said:
First and foremost, make adequate provision against human suflfering.

Of course I agree with you absolutely about that. But it leads me
to ask this question: Do jon believe that the money necessary to
prevent human suffering m this country may be borrowed, either
directly or indirectly, as a means of providmg it rather than attempting
to carry it as a current item of expenditure in the budget?
Mr. BARtrcH. I tried to show you what I thought should be done,
whatever money you need to use there are additional taxes, and you
have a large field, if you have an excise tax, and you can widen that
field, and put on additional taxation. That will be for interest and
amortization of that loan in a certain length of time, and you can use
that money.
Senator L A FOLLETTE. But you see no objection to canying items
of that kind outside the current budget, provided you set up the means
for their amortization and retirement?
Mr. B A R U C H . I do not. I tried to make that plain, Senator.
Senator SHORTRIDGE. Mr. Baruch, for the record
Senator L A FOLLETTE (interposing). One minute, please.
Senator SHORTRIDGE. I beg pardon; I thought you were through.
Senator B A R K L E Y . Mr. Baruch, do you make the same answer to
the inquiry as to whether all this vast construction program of the
Government should be carried as current expense, or would you
charge that to capital investment and provide for its gradual amortization after a period of years instead?
Mr. B A R U C H . Yes; plus this fact, that where you put in a capital
investment on what I term a self-liguidating enterprise. And by that
I mean something that we have, like a bridge in New York City, on
which they will charge tolls, and those tolls ought to be impounded



and come back to the Government and start to pay interest and
amortization, and you would amortize the bonds and draw them d o ^ ,
and as things started to improve your indebtedness would gradually
come down.
i• i P
Senator L A FOLLETTE. Even a budget of a corporation, whicn, ot
course, I do not agree is entirely analogous to a governmental budget
which has the taxing power behind it; even the budget of a corporation
would not charge oS capital expenditures for increased plant capacity
as a current operating item.
Mr. BARXJCH. Yes, sir; they ought to pay it every year.
Senator L A FOLLETTE. Well, you mean to charge off the debt
service on it?
Mr. BARXJCH. Do you mean interest on debt and amortization?
Senator L A FOLLETTE. But you would not find, for instance, in a
statement of the United States Steel Corporation, when they were
going to spend $5,000,000, let us say, this year for new plant, they
would not set that up and try to charge it off out of revenues for the
current year.
Mr. BARITCH. Yes; for depreciation.
Senator L A FOLLETTE. I understand that.
Mr. BARUCH. They must charge that off.
Senator L A FOLLETTE. But we are carrying in this Federal Budget
an item for capital expenditures as though it had to be provided for
out of this year's revenue.
Mr. B A R U C H . A S I said, if you have to spend a biUion dollars for
some purpose, or for reUef; if you would issue a billion of dollars worth
of bonds, and pay interest and amortization through taxation, that
ought to be carried as capital.
Senator L A FOLLETTE. And that apphes, as Senator Barkley suggested, as a capital expenditure, for public works.
Mr. BARUCH. If you provide for interest and amortization, I think
it is sound.
Senator B A R K L E Y . Take all this public buildings program started
here two or three years ago, for which we provided $500,000,000.
Of course those buildings take the place of private buildings upon
which the Government pays enormous rents, and it was of course
inaugurated as employment relief also. Presumably those buildings
are to benefit the people for 50 years. The question in my mind is
whether they ought to be charged off against revenues of one year, as
if they were going to be torn down at the end of the year, or if they
ought to be a capital investment paid for by taxes, of course, but
spread out a period of 15 or 20 years, so that you do not have to consider them in your annual budget, except interest and amortization.
Mr. BARUOH. Interest and amortization to the extent of replacing
the old ones, yes.

Mr. BARUCH. No, and I do not think anybody has that.
Senator L A FOLLETTE. Y O U do not think thosefiguresare available?
Mr. BARUCH. They may be available through the Federal reserve
system, or they might make a good guess at it. But I do not know.
Senator L A FOLLETTE. Have you any idea what the holding of
Amencan securities abroad is?




Mr. B A R U C H . N O ; but the best guess that has been made is that,
including the debts owed by the allied governments, it is over 20
billion dollars. Those are the figures that are generally used, and
I have never heard them disputed.
The C H A I R M A N . Senator La Follette, Mr. Teague is here, and we
would like to get through with him this afternoon.
Senator L A F OLLETTE. One more question. Mr. Baruch, you referred also to the fact that people sold goods to obtain money. As
a matter of fact, they are selling goods in order to exchange goods,
are they not?
Mr. B A R U C H . D O you mean to new barterers?
Senator L A F O L L E T T E . Yes.
M r . BARUCH. Y e s .
Senator L A F O L L E T T E .

Another thing, the most of the business
done to-day is being done at a loss, isn't it?
Mr. B A R U C H . I think so.
Senator L A F O L L E T T E . What causes that?
Mr, B A R U C H . Well, a man has an establishment, and he wants to
keep it up, doesn't want to discharge his employees, and it is always
a case of the hope of to-morrow.
Senator L A F O L L E T T E . Has banldng policy anything to do with it?
Mr. B A R U C H . I do not think so.
Senator L A F O L L E T T E . You do not think that there has been any
pressure upon business from the banking community in order to
become liquid, which has forced the liquidation of goods and their
sale at a loss?
Mr. B A R U C H . I would answer the question this way. Naturally,
if a concern owes money to the bank they are goin^ to sell what they
can if the bank puts pressure upon them. There is no doubt about
Senator L A F O L L E T T E . What I was trying to find out was whether
or not the banking policy had contributed anything to this forced
liquidation of goods and this decline in the price level.
Mr. B A R U C H . I do not think so. I think it did in the beginning, but
I do not think so now. Except the natural pressure of a bank that is
owed money, they want to get the money.
Senator L A F O L L E T T E . That is just the point.
Mr. B A R U C H . That is always happening, Senator. When a concern
owes money to a bank and the bank wants the money, the concern
naturally will try to get the money to pay what it owes. Nobody
wants to go through bankruptcy, and the fellow^ will sell his shirt if
necessary to get the money.
Senator L A F O L L E T T E . There has been a lot of that?
Mr. B A R U C H . Yes; a fellow III scared to death and wants to get out
of debt.
The C H A I R M A N . We notice in the sales that are made, the ones that
are cutting the prices more than any one else and leading in the price
reduction are the large stores that are not in trouble at all, but they
have got to keep up the volume of business in order to pay their expenses, and that is the^ way they are doing it.^
Mr. B A R U C H . That is quite true. I think it is a mixture of eveiything. But I do not think there is an malicious endeavor, Senator,
on the part of



Senator L A FOLLETTE. I am not questioning anybody's motives.
I do not think there is any profit in doing that. I am only interested
in getting your view as a very experienced man of business affairs as
to what some of the contributing factors to the situation are. You
mentioned one of the benefits to be derived from a balanced budget
the influx of gold into the United States. Is it not true that there
has been a considerable influx of gold during the last eight months?
Mr. BABUCH. Yes, sir; but whenever you talk about balancing the
budget it flows in here. If we did this this would be the safest place
in the world for eveiybody and they would put their money here.
Senator L A FOLLETTE. But have not the gold transfers resulted in
an increase over the last eight months, and I merely wish to point out
that it has not yet produced any of the beneficial results that you
Mr. BARUCH. And the only reason it has not is because it has not
come in sufficiently, because there is not sufficient confidence.
Senator B A R K L E Y . It does not stay when it does come?
Mr. B A B U C H . It will stay when we balance our budget. That is my
opinion. I get back to that all the time.
Senator B A R K L E Y . Up to what percentage?
Mr. BARTJCH. The people do not know which way to turn with
their money. They do not know how to put it to work.
Senator SHORTBIDGE. Mr. Baruch, you have mentioned the word
gold and the word silver, and necessarily repeated even the word
money. What is money? Will you for the record give us your
definition? What is money?
Mr. BABITCH. Well, money is the medium which people are willing
to accept for the exchange of goods and services.
Senator SHORTRIDGE. Gold bullion is not money, is it?
Mr. BABITCH. No. But gold is the basis of the
Senator SHORTBIDGE. NO, but
Mr. BABUCH. YOU asked the question and I would like to answer.
Senator SHORTRIDGE. Y O U answered the question. Gold out in
the undeveloped mines of California is not money?
Mr. B A R U C H . NO, sir; not untU you get it out.
Mr. B A R U C H . Neither is anything else of value.
Senator SHORTRIDGE. All right. Silver bullion is not money anywhere, is it?
M r . B A B U C H . N O , sir.
Senator SHORTBIDGE. When

it is in the mines there undeveloped
in Utah, ^ d I dare say they have vast quantities of that metal.
NOW what is the transformation which turns gold bullion or gold in
the mines of Alaska, in the ledge, or in California, or the sUver in
Utah—what is the process that turns the buUion into what we call
Mr. B A R U C H . Take the gold and carry it to the mint and they rive
you $20.67.
Senator SHORTBIDGE. Oh, no, it is Government that makes it, is it
Mr. BARUCH. I say when you take it there and they stamp it $20.67.
benator SHORTRIDGE. Yes. Governments.
Senator W A L S H of Massachusetts. Government action does it.



Senator SHORTRIDGE. I have an idea struggling to emerge. Governments must then pass laws whereby certain metals are called or
turned into and regarded as money for the exchange of products?
M r . BARUCH. Y e s , sir.
Senator SHORTRIDGE. I S that right?
M r . B A R U C H . Y e s , sir.
Senator SHORTRIDGE. From the remotest

periods the metal, gold,
has been by government made into money, has it not? And from
even remoter periods, far back yonder, in Egypt and India and Mesopotamia, governments have turned the metal, silver, into money, have
they not?
M r . BARUCH. Y e s , sir.

Senator SHORTRIDGE. And through the ages, the centuries, the old
gray centuries, governments have turned those two metals into
money, is that right?
M r . BARUCH. Y e s , sir.
Senator SHORTRIDGE. They

could do it tomorrow, could they not,
on a ratio?
Mr. B A R U C H . Well, it all depends on what the ratio is.
Senator SHORTRIDGE. ^Vhy certainly. Certainly.
Mr. B A R U C H . As long as you do not make—you are familiar, of
course, with Gresham's law?
Senator SHORTRIDGE. I have read the book.
Mr. B A R U C H . And as long as there is the cheaper money of course
that will always drive out the other money.
Senator SHORTRIDGE. Well, but that depends on the ratio.
Mr. B A R U C H . Yes. If silver were 2 5 cents as now and you made
it on the basis of 20 cents people would buy silver instead of gold.
Senator SHORTRIDGE. Precisely. But if governments would agree
that we need money—^now we have not really had a definition of
money yet.
Senator K I N G . Purchasing power.
Senator SHORTRIDGE. N O . Well, pardon me. Senator.
Senator K I N G . That is all there is to it. Purchasing gower.
Senator SHORTRIDGE. It is a measure of human labor, is it not? Is
not that the idea of the value of money?
Mr. B A R U C H . Well, something that you wiU exchange for your
Senator SHORTRIDGE. Yes.
Mr. B A R U C H . Instead of using barter, people take something in
exchange for it.
Senator SHORTRIDGE. Yes, truly. Shells in some countries were
used as money, were they not?
Mr. B A R U C H . Wampum was used in this coimtry.
Senator SHORTRIDGE. Yes, certainly. And it represented human
labor, and that was used in lieu of an absolute barter of labor for
labor or coon skin for coon skin.
For future discussion I want to get your view on this further point.
When gold was discovered in the far West it had a very materially
beneficial effect on the business of the coimtry, did it not? When
gold was discovered up in Alaska similarly there were beneficial
results? Is that right? Now if capital could return into the developing of the mines of our own country, the gold mines, that would be
beneficial, would it not? By increasing the volume of what we call




money? And would it not be so—and by putting the question I do
not indicate my views; I want to develop the thought—if a metal as
bullion is not money, if the metal which we call gold or the metal we
call silver is not money in its original state, and if governments can
turn it into money, why would it not be a wise thing to make use of
they metal, silver, since the quantity of gold is more or less hmited?
Mr. BARUCH. Well, of course if they could turn it into money and
the people will take it as money you are right.
Senator SHORTRIDGE. Well, they took it for about 1,900 years.
Mr. BARUCH. Yes, sir. And they might take it again. But look
at the countries on the silver basis as compared with America on the
gold basis. Although that is not naturally a sequatur, I wJH admit
that. My remarks are not naturally a sequatur, I will admit that.
Senator SHORTRIDGE. Of course we call a piece of paper money.
Is it money?
Mr. BARUCH. Well, if you can use it for money.
Senator SHORTRIDGE. Well, is it money?
M r . BARUCH. Y e s , sir.
Senator SHORTRIDGE. Then gold is money?
Mr. BARUCH. That is money as long as people will take
Senator SHORTRIDGE. I might pursue the matter, but I

it as such.
thank you

for your views.
Senator W A L S H of Massachusetts. May I ask you, Mr. Baruch, a
question? Calling your attention to what you said about the destructive effects of devaluation I want to read a sentence.
Mr. BARUCH. What page is this?
Senator WALSH of Massachasetts. Page 20.
Labor, which has already suffered a 40 per cent to 50 per cent reduction in
income, would certainly find itself the victim of a new and greater cut—not by
its employers, but by the very government upon which it relies for protection.
And not labor alone.

Would you care to amplify that?
Mr. BARUCH. Yes. WTiat I mean by that is this, that what has
always occurred would occur. The extremes of this thing result in
this, that wages never move as fast as other things, sir. If the price
of things went up they would not raise the price of labor in proportion
to the other things. If everything rose together that would be all
right, but that is not the history.
Senator WALSH of Massachusetts. You base that on the experience
in the past in inflation movements?
M r . BARUCH. Y e s , sir.
Senator WALSH of Massachusetts.

Vfixat has been the experience in
Mr. BARUCH. In England the things are just about where they
were when they put inflation into effect. That I could not answer,
^ a t I had in mind more, of course, was the experience of a country
lil^e Germany.
Senator WALSH of Massachusetts. T^Tiere labor specially suffered?
Mr. BARUCH. Yes. Finally everybody suffered.
Senator WALSH of Massachusetts. Yes.
Senator LAFOLLETTE. On that very point, Mr. Baruch, you mentioned m your statement, and you fust now mentioned again, the
fact that British prices did not rise after the countiy went off the
gold standard. But as a matter of fact prices fell elsewhere, and



British prices on a weighted index rose about 2 per cent. So that
measured in what happened elsewhere their prices really have risen,
is that not true? For instance, prices here since England went off
the gold standard have fallen, according to the Federal Reserve
Bulletin, about 10 per cent. They have risen in England about 2
per cent. They have fallen in Germany about 14 per cent, and in
France about 13 per cent. So that as compared with what happened
elsewhere their prices have really risen substantially have they not?
Mr. BAETJCH. Well, that is like a good many post hoc arguments.
In the meantime, England has put on the tariff and the Empire
trading, and every one of these countries have shoved up their tariffs.
That complicates it very much.
Senator L A FOLLETTE. I understand that, but it is not quite right
to say that the prices have not
Mr. B A R U C H (interposing). I took thesefigures.''rom—I haven't got
them in front of me, but the statement I made is substantially correct,
Senator K I N G . Well, it is worthy of comment, if I may be pardoned
for interrupting
Senator W A L S H of Massachusetts. Senator Gore wants to say a
Senator G O R E . I want to interject that gold prices have declined in
England 23 per cent since then; gold prices have declined in Germany
since that time 15 per cent, and in France 13 per cent. That is in
gold price*
Senator K I N G . It is worthy of comment, however, that Mr. O'Brien,
the head of the Tariff Commission in the report which was submitted has stated that so far as it affected our trade and commerce
or prices in the United States there was no disadvantage by reason of
England going off the gold standard, and that the imports into the
United States have been substantially the same, relatively, from those
countries operating on the gold standard and those that have gone off
of the gold standard. That is to say, there have been declines, but
the decline has been substantially the same, in the same ratio, whether
they were on the gold standard or off the gold standard. And he has
deduced from that that going off the gold standard has not affected
the imports into the United States.
Senator SHORTRIDGE. Senator, do you not think that depreciated
currency has resulted in increased imports?
Senator K I N G . I do not. Quite the reverse.
Senator L A FOLLETTE. Mr. Baruch, may I ask you one more
Mr. B A R U C H . Certainly.
Senator L A FOLLETTE. You anticipate that balancing the Budget
Avill help to start business in this country?
M r , B A R U C H . Y e s , sir.

Are you relying largely on the psychological factor?
Mr. B A R U C H . Yes, sir, on the psychological factor. The dispelling
of the fear in the man's mind that the dollar is not going to be as good
to-day as it was yesterday.
Senator L A FOLLETTE. It has been in balance some times early in
the depression and it did not seem to stop the depression. I wanted



to bring out whether you felt it was the psychological factor that was
the chief thing.
. ,
• xt.
Mr. B A R U C H . I think it is the thing that has been turning the
thing faster than it should have been.
Senator B A R K L E Y . D O you think the fact that prior to that it was
over-balanced had any effect on business.?
Mr. BARUCH. What is that?
Senator B A R K L E Y . The fact that the Budget was over-balanced?
That we had a surplus every year from $300,000,000 to $900,000,000
for four or five years prior to 1929—did that have a beneficial effect
on business?
Mr. BARUCH. Looldng at the records: Retiring the Government
bonds and taldng those out and making people get into other investments. And that was the period of our highest prices. Not entirely
because of that, but I think it was affected by the great amount of
Senator B A R K L E Y . The reverse effect probabljr would be true?
Mr. BARUCH. Undoubtedly. In my opinion it would be true.
Senator B A R K L E Y . The Government is spending more money than
it takes in. And that fact is from lack of confidence and the decline
in prices and the situation which confronts us. Reversely, the taking
in of more money than the Government spends and the consequent
improvement of its obligations would have the opposite effect.
M r . BARUCH. Y e s .
Senator B A R K L E Y .
Senator G O R E . On

Thank you.
the point that Senator Connally was asking.
You state that if we should reduce the number of grains in the gold
dollar, or should take steps looldng in that direction, it would result in
immediate withdrawal of all gold reserves from the Treasury, and from
the banks too, I take it?
Mr. BARUCH. Yes. From the Federal Reserve System. They would
be the one that would have it taken from them.
Senator G O R E . Would not the withdrawal be from the Federal
Treasury in the case of the greenbacks?
Mr. BARUCH. NO; from the Federal Reserve System.
Senator G O R E . Not of the greenbacks.
Mr. BARUCH. No. I think some of them are only redeemable in
silver, and the bank notes are redeemable in something else. But
the Federal Reserve notes are the only ones redeemable in gold.
Senator G O R E . But the old United States notes are redeemable in
gold at the Treasury.




Senator G O R E . Would that not cause a complete collapse of the
credit structure?
Mr. B A R U C H . Undoubtedly.
Senator G O R E . Would it not also tend to draw gold from other
couhtries into this country and drain the gold reserves?
Mr. BARUCH. D O you mean because people would want to buy it?
Senator G O R E . NO. Let us assume that we divide the number of
grams m the gold dollar half in two. That makes the calculation
easier. That would double the debt-paying power of a given number
of grams of gold?



Senator G O R E . YOU would pay twice as much debts, and we would
assume they would have just as much purchasing power as debt paying power. Now if we double them, we, now having $4,000,000,000
of gold, would then have $8,000,000,000. That would be diminished weight and value, of course. Now that would be a gift to the
people who hoarded their gold of $4,000,000,000 would it not?
M r . BARUCH. Y e s .
Senator G O R E . A few would

get nothing in return. Those that had
hoarded their gold coidd avail themselves of the law and double
their boarded gold, is that not true?
M r . B A R U C H . Y e s , sir.
Senator G O R E . Would

that not tend to draw gold into this country
from other countries, where it could pay twice as much debt as it
could there?
Mr. B A R U C H . Well, if we had any debts like the foreign debts, if
they were not payable in gold, the person that had borrowed would
be able to pay off their debts with the new dollar.
Senator G O R E . Yes. And if foreign gold came in here its debtpaying power and purchasing power would be doubled, when it got
in here? Because a less number of grains of gold would make an
American dollar?
Mr. B A R U C H . If things did not go up, that is the point.
Senator G O R E . Yes. I am coming to that.
Mr. BARUCH. If they did not go up.
Senator G O R E . I am coming to that. It would tend to drain gold
out of foreign countries, and in so far as it would drain the gold out
of foreign countries it would shrink their credit basis, would it not?
Mr. BARUCH. Yes; if they did that, unquestionably.
Senator G O R E . Would that not shrink their purchasing power?
M r . BARUCH. Y e s .
Senator G O R E . Would

that not make them worse markets for our
surplus products than they are now?
M r . BARUCH. Y e s .
Senator B A R K L E Y .

Senator Gore, right on that point let me ask
this question. If this scheme or plan would drain our own gold
supply from the Treasury, from the Federal reserve system and the
places where it is now, and the same thing would drain the other
countries of all their gold, where would it go?
Senator G O R E . T O this country where it pays the debts.
Senator B A R K E L Y . It would come into this country?
Senator G O R E . Yes. It would double its value.
Senator B A R K L E Y . What would happen to it? What becomes of
the gold that is drained from the Treasury and the Federal reserve
system, leaving out all foreign gold? What happens to it if it is
going to be drained from the places where it is?
Mr. B A R U C H . Well, what finally will happen, the gold will be used
to buy something with it.
Senator B A R K L E Y . Yes.
Mr. B A R U C H . I mean, it is not going to disappear. You are not
going to eat it at aU. It is still there.
Senator B A R K L E Y . It might be withdrawn from the Treasury and
the Federal reserve system and hidden.
Senator G O R E . Hidden. Twenty-five grains make a dollar now?




Senator GORE. Suppose 12 and a fraction grains make A dollar
under that scheme; then these foreign countries can come m here
where they can pay with a gold doUar containing 12K grams a doUar
of debt that was contracted when we had the old dollar contammg
25 grains, and they will come in here with the dollars containing
12K grains of gold to pay the debts.
Now I will put the reverse side of it. Any scheme to take grams
of gold out of the gold dollar has reference to some fixed level of prices
at some given penod of time, does it not?
M r . BARUCH. Y e s .
Senator GORE. NOW,

if when prices go down you take grams of gold
out of the gold dollar and they go down below your fixed standard of
price level, then when prices go above your fixed price level you have
got to put more grains in your gold doUar, haven't you?
Mr. BARUCH. YOU have got to pay more gold for it; that is so.
Senator GORE. That works both ways.
Mr. BARUCH. That is if you change your standard, Senator. Is
that what you mean?
Senator GORE. Well, that is what we are doing. That is what we
have under consideration.
Mr. BARUCH. Yes. True.
Senator GORE. When prices go down below our fixed price level,
whatever that may be—we will say it goes down one-half—then we
will say that 12^ grains instead of 25 grains of gold make a doUar.
Now, suppose prices would go twice as high as your fixed level, then
you have got to put 50 grains of gold in your gold dollar. You have
got to work this in both ways.
Mr. BARUCH. Certainly.
Senator GORE. Now, then, suppose you lived at-Buffalo and prices
went up above our fixed and chosen level, and Congress here is going
to put twice as many grains of gold in a dollar as now, do you not
think that anybody that has gold on the border would take it across
to Canada?
Mr. BARUCH. Yes. In the meantime he would be so dizzy that
he would not Imow where he was with aU these changes.
Senator CONNALLY. He would not be any dizzier than he is now.
Mr. BARUCH. He is pretty dizzy now. Senator, but it would make
him dizzier.
Senator GORE. Would not such a plan make it still more difficult
than now to establish and maintain any fixed standard of .value for
international trade?
M r . BARUCH. Y e s ,


Senator GORE. IS not the lack of such a fixed standard one of the
most serious embarrassments now to world trade?
Mr. BARUCH. Unquestionably.
Senator GORE. Nobody knows how to compute it; whether you are
going to gain or lose by contracts, because you can not teU whether
the exchange is going to go up or down. That would obstruct trade
and make recovery more difficult than it is now?
Mr. BARUCH. Unquestionably. I tried to bring that out in my
Senator GORE. I (Kd not hear all your statement. The variable
standard of international currencies discourage trade?
Mr. BARUCH. Absolutely unquestionably.



Senator G O R E . In relation to future contracts?
Mr. BARITCH. Unquestionably.
Senator G O R E . We have got about $ 1 0 0 , 0 0 0 , 0 0 0 , 0 0 0 of indebtedness in this country that carry the gold clause. A great deal of that
is Government bonds. Thirty billion dollars of Government bonds of
some kind or another containing the gold clause, principal and interest
payable in gold.
Senator K I N G . Of the present weight and fineness.
Senator G O R E . Yes. You said this plan would make it easier on
the taxpayer. It would for current expenses. But in order to pay
taxes to pay Government debts, principal and interest, he would have
to pay twice as much gold as he does now if you cut the number of
grains in the gold dollar down to half. He would have to get two of
these new dollars to pay a dollar of the old debt.
Mr. B A R U C H . The old debt. But if your taxes are in the new
dollars he would have to pay the same amount of dollars.
Senator G O R E . N O .
Mr. B A R U C H . But the Government would have to go out and get
twice as many dollars.
Senator G O R E . That is the point.
Mr. B A R U C H . They would have to go out and get twice as many
doUars with which to pay their interest.
Senator G O R E . Yes, to pay the debts that contain the gold clause.
M r . BARUCH. Y e s .
Senator G O R E . The

Government would have to go out and get out
of the taxpayers' pocket twice as many of these new dollars as it
would the old dollars?
Mr. B A R U C H . That is right, sir, because it is payable in gold.
Senator C O N N A L L Y . They would have to get the same amount of
grains of gold, yes.
Senator G O R E . That is the point. They would have to get the
same amount of gold. Now let me give this illustration. A year
ago Congress set aside 4 0 0 , 0 0 0 bales of cotton to manufacture mto
cloth for the unemployed and the distressed and the naked. We just
recently set aside 4 0 0 , 0 0 0 more bales of cotton.
Senator K I N G . 350,000.
Senator GORE. Well, I am taking the figures to keep them even,
Senator K I N G . A U right.
Senator G O R E . We recently set aside 4 0 0 , 0 0 0 more bales of cotton
to manufacture cloth for the unemployed, the distressed of the
nation. Would it not have been better had we cut the yardstick in
half? We would then have had twice as many yards of cloth and
could clothe twice as many people. Does it not come to that?
Mr. B A R U C H . I think so.
Senator C O N N A L L Y . I just want to briefly summarize now.^ I
want to say that this morning I did not know Mr. Baruch was going
to touch on this, and I came in while he was reading a statement
about gold, and some of you know I have been making a little noise
about it, so I was not really prepared to interrogate him as I should,
but during the noon hour I have gone over the matter. I want to
very briefly sum up.
Mr. Baruch, you admit that a rise in commodity values generally
is desirable, do you not?


M r . B A R U C H . Y e s , sir.
Senator C O N N A L L Y . And

when commodity values are going up
people bring their money out and buy and engage in business, and
prosperity returns, does it not?
Mr. BARUCH. Yes; because, I presume, they buy them because
they think they can make money.
Senator CONNALLY. They are going up, and they thmk they can
make. money.
M r BARITCH. Y e s .
Senator CONNALLY. Now on the other hand, is not one of the chief
causes of hoarding a falling commodity market? People hoard their
money because they do not want to spend it because they think
values are going lower, is that not true?
Mr. BARUCH. To some extent, yes. I think maybe we have got the
cart before the horse. I think commodities are falling down because
people will not buy them.
Senator CONNALLY. Certainly. And the reason they will not buy
them is because they do not have any confidence in those values and
think they are probably going lower. It is the reverse of the other
proposition, that when they are going up people buy them because
they think they are going higher. When they are going down they
will hoard their money.
Mr. BARUCH. They will not buy them because they think they can
not make a profit on them.
Senator CONNALLY. I think you and I are in agreement on some
points. I think you admitted this morning, and I agree with you,
that reducing the content of the gold dollar would cause domestic
prices to rise somewhat in the same relation?
Mr. BARUCH. I do not think they vnW rise as iriuch as export
prices. I said in my statement ^'probably."
Senator CONNALLY. All right.
Mr. BARUCH. Probably.
Senator CONNALLY. It would have an effect of raising prices. And
of course it would increase the farmer's purchasing power in terms of
dollars. I am not speaking in terms of gold ounces now but in terms
of increasing his buying power in terms of dollars.
Mr. BARUCH. He would get more dollars.
Senator CONNALLY. And enable him to pay his debts.
Mr. BARUCH. That is right. He would be benefited.
Senator CONNALLY. You agreed awhile ago in answering Senator
Barkley that all values were now subnormal, did you not?
Mr. BARUCH. I do, Senator.
Senator CONNALLY. Y O U mean subnormal in terms of gold, do
you not?
M r . BARUCH. Y e s .

In other words, you mean that the gold dollar
is too high, or any kind of a dollar is too high?
Mr. BARUCH. I think they are subnormal in their relation, sir, to
anything in human activity, and the only thing we have eot to
measure them by is the dollar.
Senator CONNALLY. Yes, the only thing we have got to measure
them by is the dollar; so all other values are now below w^hat they
ought to be in relation to the dollar?



Mr. B A R U C H . Let me add one t ^ G to it. And they are down
there because people with money will not buy them.
Senator C O N N A L L Y . Well, no matter how they are down,
Mr, B A R U C H . That is very important, though.
Senator C O N N A L L Y . N O matter how they got down there you admit
that they are now dow^n below what they ought to be?
M r . BARUCH. Y e s .
Senator C O N N A L L Y .

In other words, you agree to the proposition
that the value of the dollar ought to be decreased if it can be done
Mr. B A R U C H . Well, I can not agree with you there.
Senator C O N N A L L Y . H O W then are you going to get these commodities back up to a level with money if you say money is too high and
too dear?
Mr. B A R U C H . Because I think when the fear is removed from
people about their Government credit and the fear of what is going
to happen with these dollars they will buy things and go into business
Senator C O N N A L L Y . Y O U are simply talking about the process. I
am talking about the fact. You say that the price of the money is
too high and commodities are too low. You think that can be
accomplished by removing fear?
M r . BARUCH. Y e s .
Senator C O N N A L L Y .

Well, if we could pass a law abolishing fear
that would be fine.
Mr. B A R U C H . If you can do that, if you can pass a law abolishing
fear, I am with you.
Senator C O N N A L L Y . I em trying to see If we can find a way to do
that. You have already admitted that commodities are too low and
money is too high. Now you furthermore stated to Senator Barkley
that in view of the present volume of debts that they can not be paid
off unless they are scaled down, did you not?
Mr. B A R U C H . A great many of them; yes, sir.
Senator C O N N A L L Y . AVell now, did you not say that taking the
whole volume?
Mr. B A R U C H . The whole volume; yes. But of course there are
Senator C O N N A L L Y , Well, I can not take up each farm mortgage
and discuss it.
M r . BARUCH. N O .
Senator C O N N A L L Y . I

am talking about the whole debt. Federal,
State, county, and individual; that on the present volume of indebtedness it can not be paid off unless it is scaled down.
Mr. B A R U C H . Unless it is scaled down.
Senator C O N N A L L Y . A U right. Reducing the dollar would scale it
dowm, would it not?
Mr. B A R U C H . It Avould scale it down a lot.
Senator C O N N A L L Y . It would scale it down a lot.
Mr. B A R U C H . It might make it disappear.
Senator C O N N A L L Y . "V^Tiat is the other alternative? If you admit
that the present volume of indebtedness is so great that it can never
be paid without scaling down, the only other alternative to scaling
dow^n is universal liquidation or bankruptcy, is it not?
Mr. B A R U C H . N O ; not universal liquidation.



Senator C O N N A L L Y . It has got to be scaled down, has it not?
Mr. B A R U C H . Senator, I know of no way that any man can pay
any of his debts except to go out and work and save his money. Now,
if he can not pay them the process he has always gone through is
that he has compromised with his creditors.
Senator CONNALLY. If he can not compromise it will mean he is
foreclosed and will have to go out?
Mr. B A R U C H . Yes; it may be that way.
Senator CONNALLY. In other words, he liquidates it either voluntarily or is forced.
Mr. B A R U C H . I think that has already taken place. It is simply
a question of adjusting with his creditors.
Senator CONNALLY. Senator Gore made the statement that we
had $4,000,000,000 in gold, and if we increased that to $8,000,000,000
every man that had any gold in his possession would be given a gift
of double its value. Is it not true that international values are based
not on nominal value of so many grains in a dollar or in a pound
but in the actual weight of the gold?
Mr. B A R U C H . Actual weight of what?
Senator C O N N A L L Y . Actual weight of the gold in ounces?
Mr. B A R U C H . Yes. They are based on gold values.
Senator C O N N A L L Y . An ounce of gold mil buy the same everywhere in the world, will it not?
M r . BARUCH. Y e s .
Senator C O N N A L L Y .

So if a man has actual ^old, by cutting the
value of the dollar in two it would not either increase or decrease
the value of what he has? He would have still so many grains of
gold, would he not?
M r . BARUCH. Y e s .
Senator C O N N A L L Y .

In the nominal increase in the value he would
get $2 for $1 it is true, but those $2 under our whole theory would
still be simply in the same amount, but in doUars it would be twice
as much. He would stiU only get what he has got now—so many
grains of gold, and it would not be a gift to him of a cent. He would
be more fortunate, of course, than a man that had a mortgage that
would have to be discharged in those new dollars, but gold in itself
would still have the same value all over the world that it has got now.
Mr. B A R U C H , That is ture.
Senator C O N N A L L Y . The theory of this is that every other coromodity would always increase, is it not?
Mr. B A R U C H . I do not think that it would increase relatively any
more than gold would.
Senator C O N N A L L Y . Maybe not. If other commodities did increase you would not be giving this man twice as much, because he
could not buy twice as many commodities with the same amount of
gold. But if he has gold, and it is his property, and you would thereby
increase the value of all other property by increasing the commodity
values, why should not the man that got the gold get the same increase in his gold as the man who had silver, or the man who had
copper, or the man who had cotton, or the man who has a farm?
Mr. B A R U C H . The only difference is this, I think, that the man with
gold would be able to buy twice as much, no matter what the price is,
but the man with other commodities would have an inequality with
the other man.



Senator C O N N ALLY. Stop right there, Mr. Baruch. You said the
man with gold would be able to buy twice as much with, his dollars?
Mr. B A R U C H . If we cut them in half.
Senator C O N N A L L Y . Then commodities would double in value,
would they not? That is all I am trying to get you to admit.
Mr. B A R U C H . It would have that tendency.
Senator C O N N A L L Y . N O ; you can not make the statement in one
breath that a man with gold would get twice as many commodities
and then deny that the other commodities would not go up twice.
Mr. B A R U C H . That is right.
Senator C O N N A L L Y . That is right', is it not?
M r . BARUCH. Y e s .
Senator C O N N A L L Y .

It can not be both.


It has got to be hot or cold, one or the other.

Senator C O N N A L L Y . SO according to your formula, then, every other
commodity would double in value.
Senator B A R K L E Y . Senator, this man who gets his double amount
of dollars then could buy just as much with them, whatever it was, as
he could an hour before with the gold dollar.
Senator C O N N A L L Y . Yes, and according to that theory it does not
matter how low it would go, because it would still buy the same
amount of products. That contradicts Mr. Baruch's other statement that it was desirable to lift all commodity values. You want
them to be raised?
Mr. B A R U C H . I think they would have the same relationship as
they had before.
Senator C O N N A L L Y . Increased commodity level is beneficial, is it
not? So it has that effect.
Now, one other point and I am through. After we have gotten
through here, the only difference is that you agreed this morning that
you would favor this process if it could be worked out in a practical
Mr. B A R U C H . SO I would, yes, sir, with any measure.
Senator C O N N A L L Y . Yes; I am trying to help the man who produces and who can not now^ get values for his product. I am trying
to help the man who is in debt and who you say can never pay his
w^y out of debt because the burden is so great. I am trying to speak
for that man in order that w e can scale it down, and in behalf of the
man who is producing at starvation wages and starvation prices at
this time, to try to bring about a liquidation, if you want to call it
that, by Government action rather than to leave him to the mercies
of the strong creditor who has got the advantage in the case where a
man is trying to adjust his debt with that man, the creditor has got
the advantage, he has a strong character and he has an aggressive
force and he is going to come out on top in any sort of adjustment
like that.
Senator K I N G . One question on that. If the theory that has been
suggested by the able Senator from Texas were to prevail and would
be beneficial, why would it not be more beneficial instead of having
one-third go to cut it down to one one-hundredth part?
Senator C O N N A L L Y . Oh, no, we want to get it to the fair figure, the
commodity figure. That is why I proposed it, to get it to the commodity level. One other question. You do not think that Europe



can pay the debts that they on the present value, do you?
Did you say that?
Mr. BARUCH. I do not know that I — —
Senator CONNALLY. IS it not a fact that the depreciation of foreign
money has made it harder for Europe to pay us than it would be
Mr. BARUCH. Yes; her unstabilized currency.
Senator CONNALLY. Her unstabilized currency?
M r . BARUCH. Y e s .

In other words, she would have to pay us two
or three times, measured in her commodities, more money than she
would when she incurred her debt?
Mr. BARUCH. But the same in our own dollars.
Senator CONNALLY. Sir?
Mr. BARUCH. But tlie same in our own dollars.
Senator CONNALLY. Yes; I understand; the same in our own dollars.
Mr. BARUCH. And the same kind of dollars our taxpayers have got
to pay.
Senator CONNALLY. I understand that. I am not arguing that.
Senator Gore brought out that you had to have a fixed amount of
gold to keep international balances on an even keel. Are they on an
even keel now?
Mr. B A R U C H . Are they on an even keel?
Senator CONNALLY. International exchanges and currencies and
their foreign trade, are they on an even keel now with our present
fixed standard of the gold dollar?
The CHAIRMAN. They are wherever gold is involved.
Mr. BARUCH. Y O U can take it with anything, I know it is very
unstabilized and very uncertain.
Senator CONNALLY. Senator Gore, though, seemed to make a point
of the fact that if we changed the gold content of the dollar we would
ruin international exchanges and international trade.
Senator G O R E . My point was that it would disturb it worse than
it is.
Mr. B A R U C H . I tliink it would be a wonderful thing for the other
nations if we do it.
Senator CONNALLY. When England went off the gold standard was
not the effect of her action to devaluate the pound in terms of gold?
It amounted to a devaluation of the pound, did it not?
M r . B A R U C H . Y e s , sir.
Senator CONNALLY, France after the war devaluated the franc.
Mr. B A R U C H . Eighty per cent.
Senator CONNALLY. And paid her debts off, and is she not about

the most prosperous country in Europe to-day?
M r . BARUCH. N o , s i r .

Senator CONNALLY. What is the most prosperous?
Senator K I N G . No, indeed.
Mr. BARUCH. France is almost as badly off with its budget and in
as bad trouble as we are.
Senator CONNALLY. Let us forget the budget.
Mr. B A R U C H . They have just gotten over their inflation.
Senator CONNALLY. I know about the budget.
Mr. B A R U C H . She has just gotten over her inflation.



Senator C O N N A L L Y . IS not France in good condition when compared with other countries?
Senator SHORTRIDGE. Czechoslovakia is in much better condition.
Mr. B A R U C H . Compared with which one, Senator?
Senator C O N N A L L Y . Any one of them.
Mr. B A R U C H . I think Germany is in better condition because she
has repudiated practically everything.
Senator SHORTRIDGE. Senator Connally, if you \vill be good enough
to give me your attention?
Senator C O N N A L L Y : I shall.
Senator SHORTRIDGE. The debts due and to become due us from
England, France, Italy, and 8 or 10 of those European nations are
severally payable in gold of present weight and fineness.
Senator C O N N A L L Y . Yes.
Senator SHORTRIDGE. Or, as you might otherwise express it, of
present value. Now does your plan contemplate by cutting up the
gold dollar that England, for example, or Italy, or Czechoslovalda may
pay us in these cut-up dollars?
Senator C O N N A L L Y . I will say to the Senator
Senator SHORTRIDGE. N O , I am serious, and that is worthy of an
Senator C O N N A L L Y . I know, Senator, and I am going to answer
you if you vnW give me a chance.
Senator SHORTRIDGE. Yes.
Senator C O N N A L L Y . I do not know what those contracts provide for.
Senator SHORTRIDGE. They do provide for the payment in gold,
Senator C O N N A L L Y . Present standard weight?
Senator SHORTRIDGE. Yes.
Senator C O N N A L L Y . If they are, I would treat them like I would
treat every other kind of contract written in those terms. I admit
it is an open legal question. I am not prepared to say what the
Supreme Coiu*t would hold, nor can any other man say what they
would hold. I would treat them in the same way that I would treat
the others.
Mr. B A R U C H . I think the Senator was quite right in the statement
he made in which he said that every one of these contracts was
payable in gold coin of the present weight andfineness,and remained
payable as such.
Senator C O N N A L L Y . I said if it was a dollar contract, it would be
paid in dollars. I think that is all, Mr. Baruch.
Senator W A L S H of Massachusetts. Mr. Baruch, let me ask you
this question: Is it not a fact that commodity prices are controlled
not merely by the volume of money but as well by the volume of
credit? And is it not a fact that a great deal of our volume of credit
has disappeared and our volume of money has somewhat increased
at the present time?


Senator W A L S H of Massachusetts. I ask you, assuming that the
volume of credit is essential to raise commodity prices, what effect
will the inflation such as proposed here have upon increasing the
volume of credit?



Mr. B A R U C H . The first effect—if you can get over the first flush
of this thing—I think the first effect would be bad. Then if the
people get accustomed to it after a while, and we went through all of
the trials and tribulations, and people got confidence that they were
not going to make any other change, why we would work out of it,
because they would accept the conditions.
Senator W A L S H of Massachusetts. The volume of crecHt durmg
our prosperous era was a large factor in increasing commodity prices,
and contributed to our prosperity, did it not?
Mr. B A R U C H . I am not in agreement with that entirely. I do not
care what the volume of credit was. If there is a less supply than demand prices will go up. And I think Senator La FoUette brought out
very carefully that if you could get the demand for higher standards
of living the prices would go up.
Senator W A L S H of Massachusetts. Regardless of the extent and
ease with which credit can be obtained?
Mr. B A R U C H . N O ; I think we have got to have credit to put in
manufacturing and production for the commodities to be produced
and sold to the public.
Senator W A L S H of Massachusetts. Was not one of the chief elements of our prosperity the extent and ease with which credit could
be obtained? .


Senator W A L S H of Massachusetts. And to come back to a period of
prosperity we have got to also have a period of easy credit?
M r . BARUCH. Y e s .

you agree with the statement of one
economist who said that credit was suspicion asleep?
Mr. BARUCH. I think there is a great deal to that.
Senator B A R K L E Y . Will not any artificial remedy that may be devised in the change of our monetary system that affects advantageously the seller, to a corresponding degree affect disadvantageously
the buyer, so as to affect his purchasing power which reversely operates
against the seller?
Mr. B A R U C H . Yes; but Senator Connally was assuming that the
purchasing power will go up with the dollars the same as the selling
Senator B A R K L E Y . Yes; I know that. But it seems to me that if
we were to draw a straight line and put all the sellers on the left and
all the buyers on the right, and say that this artificial increase in
money of the country is going to help the seller, it will correspondingly
injure .the buyer. Because he will have to pay more doUars for what
he buys from the man on the other side of the line.
Mr. B A R U C H . He will be in a bad fix if he does not get many dollars.
Senator B A R K L E Y . The first thing you know his purchasing power
will be reduced to the extent that he can not buy anything from the
man on the other side of the line, and therefore, on the whole, I am
unable to see how it benefits the general situation.
Senator CONNALLY. There is not anybody that is simply a buyer
and a seller. Everybody is both a buyer and a seller.
Senator B A R K L E Y . But you have got to treat the buying and the
selling as a different transaction.
Mr. B A R U C H . If we can get more buyers through any such thing as
Senator La Follette suggested our troubles will disappear.



The CHAIRMAN. We thank you, Mr. Baruch, for your testunony.
Mr. Teague will proceed with his statement. We have about 100
witnesses to appear here, and we will never get through with these
hearings unless we confine ourselves to the subject matter.
Mr. Teague, will you proceed.

Mr. T E A G U E . Mr. Chairman and gentlemen. My name is C. C.
Teague, Santa Paula, Calif. For the purpose of identification, I
am president of the California State Chamber of Commerce, the California Fruit Growers Exchange, and the California Walnut Growers
Senator G O R E . You used to be on the Farm Board, Mr. Teague?
Mr. T E A G U E . Yes, sir. Gentlemen, in common, I presume, with
every good American who loves his country and hopes that our Government will be maintained, I have been thinking some of these problems, and out of my thinking I have evolved some plans which seem
to me might be helpful in the present depressed condition of this
It seems to me that the fundamental cause of the depression is the
complete collapse of the credit structure of this country. Following
the period of inflation we had the stock market crash of 1919, followed
by bank failures, followed by hoarding by the people, followed by
hoarding of the bankers who were afraid there was going to be a line
in front of their banks the next day, and the result is that we had a
fear psychology in the hearts of the people so that no one is operating
These bank failures have undoubtedly affected 10,000,000 of depositors. There are something like 10,000 banks that have failed,
and probably the total number of people that are affected are three
times the number of depositors.
The result of this fear psychology and this breakdown in the credit
structure of the country is that the 45 billion dollars of deposits of
the people are not operating in the credit structure. Confidence has
been completely destroyed. No one is acting normally. All values
are out of their proper relation to the value of the dollar. There is
no bottom to the market.
^ The question is: How can values be restored to their proper relation to the dollar? One school of thought says cirrrency mflation (a)
by decreasing the number of grains of gold in the dollar, and (6)
remonetizing the silver, and (c) the issue of fiat money. In my
opinion all of these proposals are unsound.
The other school of thought says: Inflate or restore credit by
restoring confidence in banks so that 45 billion of deposits will
operate in the credit structure. In my opinion this is the sound
How can this be done? The Reconstruction Finance Corporation
was created for that purpose. It has not accomplished that result. It
has no doubt stopped many failures. It did not release bank credit.
It did not restore the confidence of the public in banks. It did not
restore the confidence of bankers. Many loans to banks by the
Reconstruction Finance Corporation were used to increase the hquidity of banks, but did not release credit.



There can be no return to normalcy, in my opinion, until confidence
ill banks is restored so that there will be a normal operation of credit.
With continuing bank-failures there is no hope for this confidence
^ ^
. . .
How can this confidence be restored? In my opimon it can only
be done in time to meet the present emergency by emergency measures. I can see no hope except through some form of Federal guarantee of bank deposits. If the guarantee were only applicable to 75
per cent of the deposits of all banks it could be pat into effect quickly
without the delays that would probably be necessary if there were a
100 per cent guarantee, as in the latter case it would be necessary to
examine all banks coming imder the guarantee to be sure they were
solvent, and the delays that would be inherent to the reorganization
of banks that could not qualify would be great.
A small tax on banks would create a fund which, plus the 25 per
cent of deposits not under guarantee and plus the capital and surplus
of impaired banks should insure the Government against loss.
To avoid excessive losses through encouragement of imsound banking under the guarantee system there should be more strict limitation
of bank charters. National examination of banks should be tightened.
Branch banking should be extended, thus averaging the loans and
deposits over broader and more diversified industry. Clearing houses
could be used to investigate md make reconmiendation with reference
to complaints of banks practicing unfair competition by soliciting deposits by making unsound loans. If such practice were not corrected
they should be expelled from the guarantee.
If bankers do not set aside their pride of position and consent to
some form of guarantee of deposits we are headed straight for currency
inflation and the only stable thing we have left, the value of the dollar,
will disappear.
The second largest contributing factor to depression is the low
buying power of the 30,000,000 people on the farms due to depressed
prices caused largely by surplus production.
I have a short memorandum here that I would like to read which
is devoted to that phase of the subject.
Senator K I N G . Before you leave that, may I ask one question?
M r . TEAGUE. Y e s .
Senator K I N G . In your

discussion about the guarantee of bank
deposits do you refer to State banks as well as national banks?
Mr. T E A G U E . It seems to me they would all have to come under
the guarantee unless you would put off the time of going into effect
a sufficiently long time to permit of the reorganization of State banks
to come into the Federal structure.
Senator K I N G . Would you favor, assuming it is constitutional, the
compulsion of State banks to come A\ithin the periphery of the Federal,
Mr. T E A G U E . I do not think that compulsion would be necessary,
because I think they would have to come in or close their doors if we
had a Federal guarantee.
Senator H A R R I S O N . The House has already passed a Federal
guarantee bank bill, and there is another biU pending that applies to
time deposits.
Mr. T E A G U E . Yes. That is not law, however.
Senator H A R R I S O N . N O .



Mr. T E A G U E . It is generally conceded that the present depression
in agriculture is primarily due to an overproduction of agricultural
lands brought about by bringing into production, during the high
5rices of the war, most of the agricultural lands capable of crop prouction. There has been much discussion in recent years of some
plan looking to the control of surplus production, among them the
equalization fee plan, the debenture plan, and later, domestic allotment. Practically all of these plans have been condemned for the
reason that they onlj look to dealing with the surpluses on a few specified products in agriculture without looking to the fundamental thing
of removing the total agricultural surplus and because of almost
impossible adininistration features.
There is an increasing school of thought that this question must be
approached from a broader point of view which looks to the control
of the total surplus of agriculture, and bringing up the general level
of all agricultural prices by some method of taMng out of production
the acres of land that are producing the surplus. The most practical
plan in this direction that has been suggested is some plan of leasing
the surplus acres, and it is to that suggestion that this memorandum
is directed.
It is proposed that there shall be by Federal legislation a board or
commission created with power of taxation which would be empowered
to levy either a manufacturers' excise tax or a tax upon the products
of all of the annual crop land that pass through the hands of the original handlers, the amount of this tax to be determined by an investigation as to the number of acres of land that would have to be taken
out of production to raise the general level of agricultural prices to
some predetermined level, and the taxing, therefore, beflexibleenough
to permit of the raising or lowering of the tax so as to take out additional acres or to release them as the need becomes apparent to maintain the level of prices determined upon.
Senator W A L S H of Massachusetts. Would you tax all manufactured
products or only those products that are the result of agriculture?
Mr. T E A G U E . My thought is that the tax should apply to the products of the annual crop lands.
Senator W A L S H of Massachusetts. Such as textiles and cereals, and
so forth?
M r . TEAGUE. Y e s .
Senator K I N G , All

sorts of fruits, tomatoes, peaches, apples, deciduous fruits, oranges?
Mr. T E A G U E . Well, that is a question for determination. I reach
that question a little later when I speak of what is proposed in regard
to orchard lands.
The commission, then, through the established agencies of the
Government would determine the quantity of land that should be
taken out of production in the various States, and allot to the States
for leasing this quantity of land. The commission would then advertise for bids to lease lands from the owners of each State requiring that
every bidder specify under oath the number of acres that he offered
for lease, its location, the crop to which it had been planted, the
average production of said land for the past three years, and the price
at which he would be willing to lease. The commission would then
have in its possession a picture of what this surplus land had been
producing, and then could award leases in such manner as to take



out of production the required number of acres to establish a proper
balance between supply and demand.
Senator W A L S H of Massachusetts. The award would be by mutual
Ivir T E A G U E . Yes, sir.
This plan should be in effect for at least five years. It would probably be advisable to lease a certain percentage of the land for five
years, as there is no probability that all of the products of all of the
agricultural lands will be needed in that length of time. A certain
percentage of the land would be leased on annual leases, so as to permit
of flexibility in the balancing of production, and so that it could be
released if there were evidences of the price structure getting too high.
Advantages of the bidding system are that there would be a natural
grading of the productive value of the lands in the price that the various applicants would place upon their leases. It would not require
a large army of men to contact all of the farmers and bargain for
leases. It would not require policing as the land could be posted,
and no man would dare to plant leased land to crops because he would
know that the crop would be taken away from him.
The advantage of the plan is that it does not look to benefiting
some particular class in agriculture at the expense of other classes.
Assuming that it might be necessary to remove 15 per cent of the
total lands in agricultural production by the lease system it would
only be necessary to contact with that percentage of the producers—
owners of the surplus acres—inasmuch as the sdections of the leased
land would probably be largely made from the large owners, so as to
leave the small producers on the farm, it would only be necessary to
contact a still smaller percentage of the farmers.
Assuming that there are 300,000,000 acres devoted to the production of annual crops, and assuming that it was necessary to withdraw
15 per cent of these acres from production, the number of acres
withdrawn, if they were of average production, would be 45,000,000
acres. This land could probably be leased at from $100 up, based on
its productive value. A tax levy of $150,000,000 to $200,000,000
would probably withdraw all of the land necessary to balance production and demandSenator G O R E . Right at that point let me ask you a question,
Mr. Teague.
M r . TEAGUE. Y e s .
Senator G O R E . Our

textile mills, cotton and woolen mills, are
capable of producing more than the requirements of the country at
present. Would you lease this surplus?
Mr. T E A G U E . Lease the mills?
Senator G O R E . Yes.
Mr. T E A G U E . NO. I am only dealmg with acres of land.
Senator SHORTRIDGE. Mr. Teague, could I interrupt your statement?
Mr. T E A G U E . All right.
Senator SHORTRIDGE. May I ask you this question right here?


Senator SHORTRIDGE. What would become of the land taken out
of production?
Mr. T E A G U E . I will reach that in a moment, Senator.
Senator SHORTRIDGE. Very well.



This 150,000,000 to 200,000,000 is a bagatelle compared with the
present value of agricultural crops of something like $5,000,000,000
and $10,000,000,000 to $12,000,000,000 in normal times, and compared with the enormous sums of money that the Govrernment is
spending in its relief programs.
After the total surplus acres were removed, the producers would be
free to plant the balance of the land to any crop that they desire to
produce, relying on the proper adjustment between producers as to
the crops they would produce, based upon the differential that would,
of course, be inherent upon the higher level of prices established.
It might be advisable to insert a clause in leases pledging the
owner not to increase his production from any other acres from which
he was not then producing. Leases could proviae that owner could
occupy any buildings on the premises; also that the owner would
have the right to fallow land to keep down weeds, and grow no crops.
The C H A I R M A N . Would you make a penalty for violation of that?
Mr. T E A G U E . For growing no crops?
The C H A I R M A N . For growing no more than they had agreed.
Mr. T E A G U E . The land would be under lease to the Government,
and the Government could step in and take the crop at any time.
There would be no need of a penalty.
Senator W A L S H of Massachusetts. Do you think you could get
all this amount of leased land on an average basis of $4.50 an acre?
Mr. T E A G U E . 1 think so, without any question.
Senator W A L S H of Massachusetts. That is about what it would
amount to?
M r . TEAGUE. Y e s .

Of course that could not apply to walnut
Mr. T E A G U E . No; I will reach that in a moment, Senator.
The livestock and dai^ing industry would be benefited because a
large percentage of the livestock and dairy products are produced on
the highly developed lands where the feed comes from the production
of such land, or from the lands under rotation, and the taking out of
surplus acres would probably proportionately reduce the livestock
and dairy cattle on said farms.
This plan, by bringing up the general price level of this large section
of the agricultural producers, should very materially affect the general
economic conditions of the country as every one recognizes that the
depressed condition of agriculture and the low buying power of the
farmer is a very important factor in the present depression. It would
not be feasible to attempt to deal by this plan with the agricultural
lands planted to orchards for the reason that the orchard must be
taken care of, cultivated, sprayed and pruned, and the crop will be
produced in any event; and it would be difficult to police it so as to
keep it but of production. The orchardists could rely upon a very
substantial benefit coming from the general improvement in the
economic situation by reason of the increased buying power of the
farmer and the improved economic condition.
Just two very short suggestions in addition, Mr. Chairman. There
must be a lowering of taxes through severe cuts in the cost of government, Federal, State, coimty, and municipal, and budget plans, along
the lines of that which has been done in the State of Mississippi where



the budget was cut, I understand, about 30 per cent, and the Government operated within the budget.
^ ^
I might add that the tax bill of the farmer is greater than his mterest
bill. So the question of taxation is very imijortant.
Senator SHORTRIDGE. Just say that again, please.
Mr. T E A G U B . The tax bill of the farmer is very much greater than
his interest bill.
Some way should be found of reestablishing foreign trade through
stabilizing foreign exchange on a gold standard basis.
Senators, that is all I have to present.
Senator CONNALLY. Right there; How are you going to do that?
Mr. T E A G U E : I tldnk it would be possible in many ways. By
perhaps some form of international agreement, or perhaps the
formation of some gold pool by the principal countries operating on
the gold standard. It would not take anything like the quantity of
gold under a gold pool and agreement, with the combined gold standards of all participating countries, that it does separately
Senator CONNALLY. I think we have done about as much advancing
of gold to Europe as we want to do.
Senator K I N G . I take it from your last observation that you are
in favor of this means that seems to have a rather continental character, of cutting off our trade with foreign nations. You believe in
international trade?
Mr. T E A G U E . I think, so far as it can be maintained, that it certainly should be. Nevertheless, I do not think it should be maintained at the expense of sacrificing our domestic markets wliich take
90 per cent of all of the tilings we produce.
Senator K I N G . Assume that our exports exceed by between
$300,000,000 and $500,000,000 our imports: Would you favor an
embargo established to keep out the rest of the imports?
Mr. T E A G U E . I do not think an embargo would be necessary, if
you can establish your foreign exchange on a stabilized exchange
Senator K I N G . Y O U do beUeve that we are a part of the world and
that we can profit by shipping our surplus products abroad?
Mr. T E A G U E . I do, certainly, as far as we can do it without opening
up our markets and getting the worst of it in the trade.
Senator K I N G . Y O U do not assume we could ship our goods abroad
imless we received some in return, do you?
Mr. T E A G U E . Oh, no; we certainly would receive some things in
return. It is unthinkable that we would close up our markets entirely
to trade with the whole world. I think it is extremely desirable that
we trade; but I do not see how we can do it unless we do reestablish our
foreign exchange, because we are going to get into a barrier situation
against each other.
Senator SHORTRIDGE. Mr. Teague, I just want to emphasize the
thought tbat you expressed, with which I imquaUfiedly agree. Interstate trade among 48 States, with one hundred and twenty odd millions of people, is far more important than our foreign trade, however
important that may be?


Senator SHORTRIDGE. And we must not surrender our home market
to the cheap goods coming from certain foreign countries?



Mr, T E A G U E . I would not think anybody would quarrel with that
principle, Senator. I do not see how they could.
Senator SHORTRIDGE. There was a time when I was scoffed at and
sneered at and ridiculed by the newspapers of this country because I
stood up for adequate tariff protection. It was said that I was
erecting a barrier around America, a Chinese wall around America.
Now I perceive, however, that certain of my critics and calumniators
are out^eroding Herod—are now demanding that we buy in America,
with which I agree.
Senator H A R R I S O N . I resent the statement that the Senator from
California was ever scoffed at.
Senator SHORTRIDGE. Yes, I was; by some of these unconvicted
newspaper boys. I have defended more of them in the Senate than
any other Senator.
The C H A I R M A N . Have you any further statement to make, Mr.
Mr. T E A G U E . That is all, Mr. Chairman.
Senator G O R E . Oklahoma was the first State to initiate such a
system as you have mentioned, Mr. Teague, but it failed. I do not
think that necessarily condemns the system, however. I have given
it a great deal of thought, and the principle that occurs to me is this,
that there should be some system that will guarantee deposits, that
will not treat the honest and the dishonest bankers as though they
were the same.
Mr. T E A G U E . Of course. Senator, I am not proposing that you
shall guarantee the capital and surplus of a bank; I am merely proposing that you guarantee the deposits of the people in that bank.
Senator G O R E . I understand that.
Mr. T E A G U E . D O you want the people to suffer because of some
banker that you say is dishonest in his conducting of banking?
Check him in another way.
Senator G O R E . Here is what I am getting at. A dishonest bank
fails. The banker defrauds his depositors. The honest banker has
got to guarantee the dishonest banker. That is the point that occurs
to me. There are 45,000,000,000 bank deposits in this country to-day?
M r . TEAGUE. Y e s .
Senator G O R E . That

to their depositors?

means that the banks owe


M r . TEAGUE. Y e s . sir.
Senator G O R E . The system

of guaranteeiug deposits takes the
president of each bank by the hand and makes him ''sign on the
dotted line'' and say, ''I undertake to pay $45,000,000,000 of other
banks' debts.'' That is the thing that gives me pause.
Mr. T E A G U E . Y O U spoke of these experiments in other States. I
do not think that they necessarily form a precedent, for the reason
Senator G O R E . I do not think so either.
Mr. T E A G U E . It covers one particular territory, and it probably
was established after the banks had gotten unsound.
Senator G O R E . Y O U know that a great many people have gotten
into trouble by going on other people's notes and having them to pay?
M r . TEAGUE. Y e s .
Senator G O R E . Even

when they exercised their own discretion and
judgment as to whether they should go on those notes or not. You



propose passing a law which makes every banker in the Uiuted States
sign a note of every other banker in the United States, just like he
signed his name on a promissory note, agreeing to pay $45,000,000,000
of debts to their depositors.
Mr. TEAGUE. Oh, no; I do not think that.
Senator GORE. Would it make all banks secure or unsecure?
Mr. TEAGUE. N O ; I say we would levy a tax on all banks that
would be estimated to pay any losses that might be incurred
Senator GORE. I understand your proposition.
Mr. TEAGUE. Well, all right.
Senator GORE. In the last two years the deposits in these failed
banks amounted to something lil^e 84,500,000,000. All the capital of
all the national banks in the United States is $1,500,000,000. Their
capital and surplus is $3,000,000,000. The deposits in those failed
banks are about $1,500,000,000 more than the entire capital stock
and surplus of every national bank in the United States.
Mr. TEAGUE. And why did they fail? Because the people all
demanded their money at once; and no banker can meet that condition.
Senator GORE. Oh, no. A good many failed because of the fact
that they had frozen assets and could not carry on.
Senator BARKLEY. One of the biggest banks in western Kentucky
failed, to the surprise of everyone. There had been no run and no
Mr. TEAGUE. I do not think that is an invariable rule. Many of
them have failed, you know, because of runs.
Senator G O R E . There is a large bank in Texas which enjoyed imiversal confidence, and yet it failed, and the president is now in the penitentiary. Are you going to make a banker out in Salt Lake City pay
for his crookedness? It is that point that I want to find some way of
getting aroimd.
The CHAIRMAN. It may be that the bank did not have a run on it,
but you will find it more than likely that there was a steady withdrawal for months and months, and that is what brought about the
Mr. TEAGUE. Yes. If there had been confidence, Senator, and the
people had transacted their business with those banks, they would not
have failed.
Senator G O R E . The president of the bank under the law could have
borrowed $55,000. He had borrowed $300,000 in one way or another.
He was crooked.
Senator SHORTRIDGE. He is in jail now, is he not?
Senator GORE. Yes; but that does not help the depositors. Should
honest bankers be made to pay for his crookedness?
Mr. TEAGUE. Here is what is bothering me, Senator—some way
of protecting the people. There are nearly a third of our population
affected on account of these failed banks, and we are makmg Bolsheviks of them, and if we do not do something to protect them I do
not know where we are going.
Senator G O R E . One third of the banks have failed. I appreciate
the gravity of the problem.
Senator CONNALLY. With regard to this farm matter, you say
they pay a rent on the credit that will be liberated?



Mr. TEAGTJE. I say, what you do would be to lease the land at
a fixed rental basis established by the owners themselves, based upon
their productive value.
Senator C O N N A L L Y . I understood you to say that the remainder
of the land that was leased he could do with as he pleased?
Mr. T E A G U E . The remainder of the land not under lease he could
do what he pleased with.
Senator C O N N A L L Y . That is all.
The CHAXBMAN. The committee will adjourn now until 10 o'clock
to-morrow morning.
(Whereupon, at 4.20 o'clock p. m., the committee adjourned until
to-morrow, Tuesday, February 14, 1933, at 10 o'clock a. m.)








Washington, D, C.
The committee met at 10 o'clock a. m., pursuant to adjournment
on Monday, February 13, 1933, in room 335 Senate OjSice Building,
Senator Reed Smoot presiding.
Present: Senators Smoot (chairman), Reed, Shortridge, Couzens,
La Follette, Harrison, King, George, Walsh of Massachusetts, Barkley,
Connally, and Gore.
Also present: Senator Coolidge.
The C H A I R M A N . The conimittee will come to order. We will first
hear this morning Mr. Paul Block.




The C H A I R M A N . Mr. Block, you may proceed now with whatever
statement you desire to make, but make it as brief as possible.
Mr. B L O C K . Mine will take 10 minutes. Senator.
The C H A I R M A N . Mr. Block, whom do you represent?
Mr. B L O C K . Myself.
The C H A I R M A N . Proceed.
Mr. B L O C K . Mr. Chairman and gentlemen, a §reat deal of study
has been given on how to get out of this depression; what we need
now is prompt but constructive action.
There are some basic things which have been under discussion for
some time, and I wish to express my viewpoints on these.
First in importance is the balancing of our budget. To accomplish
this I favor immediate drastic reduction in the cost of government
and a small manufactuers' sales tax which may be eliminated once
repeal of the Eighteenth Amendment is adopted. We could cut cost
of government very materially if Congress and the President would,
among other things, provide for a reduction in bonus payments now
being made to veterans of the World War. No one has greater
respect or sentiment for our veterans than I have, but our country
can not afford bonuses and pensions to those who either never went
overseas or were not injured in actual service. Congress would be
doing not only its duty in providing for such a reduction, but would
help a vast majority of the people by using this means of cutting down
the terrific burden of taxation. Later I will speak of a method of
providing help for these veterans.
Next in importance, is for the Government to remain on a gold
basis and for the new administration to make it clear to all of our
citizenship, and to the entire world, that we are firm in our determination not to debase our currency, and that there will be no change
from it, because if our people and the peole of the world were to lose
confidnence in the American dollar, the withdrawal of invested money




and the hoarding of gold would be so great it would bring chaos to
our financial system. Credit would be further restricted, deflation
would be accelerated, unemployment would be increased, the standard
of living would be lowered, and such business as still is profitable, in
my opinion, would virtually stop.
Another vital factor, at least according to my views, is the settlement of the foreign debts. Perhaps, as has been suggested, these
debts should be reduced a certain percentage for each million dollars
spent with us by the debtor nations. Possibly a further percentage
of discount should be given for each million dollars of armament
reduction made by the debtor country. We should seek agreements
with foreign nations which are now off the gold standard to return to
it so that all of us would be on a more nearly equal basis in international trade.
I do not pretend to be able to judge just how much further
reduction we should give to our debtor nations for a final settlement;
but whatever agreement is made, I beheve it should definitely include
concessions either in trade or disarmament, or both, and their return
to the gold standard. I do not claim that it is just for our foreign
debtors to request these further reductions, but it is my best judgment
that the great majority of them will never be in any position to
meet their obligations to us in full. I believe that clearing up this
debt situation will, in the long run, be both beneficial and profitable
to us.
The repeal of the eighteenth amendment should be hurried because
of the large excise tax this would bring to our treasury, which would
permit us to reduce many of our present-day taxes, including, perhaps,
the manufacturers' sales tax, if adopted. It is not necessary to add
how much the repeal of this amendment would also mean to the
morale of our entire citizenship.
I would suggest a coalition cabinet, but I fear that our 2-party
political system is in the way of this, and more is the pity. In these
days of anxiety and despair politics should be forgotten. Perhaps an
active advisory board having certain defined power could be appointed
by the President, to include a half a dozen of our leading citizens, no
matter what their political aflSliations may be, but whose names
would bring confidence to our people and who would confer with the
President and the cabiaet, as well as with the chairmen of various
committees in Congress, to devise ways and means to obtain measures
which would be helpful to aU the country.
I regard it as imperative to undertake pubhc works on a large scale
to provide a way for a general revival of business and to expand the
credit of the country. I beheve that the money which thousands of
people are now hoarding and that some of the money which is now
almost overburdening our savings banks, which are unable to employ
it profitably, would be released for the purchase of 10 or 20 year
bonds yielding a moderate interest, possibly
per cent or 3 per cent
at the outside. Such funds would be put into circulation immediately
and they would not, in my opinion, affect investment in good municipal, real estate, or business issues. Further, such a bond issue which
could be sold the same way we marketed Liberty bonds, would help
to stop the agitation for inflation of the currency, which is too dangerous to be attempted. Commercial banking houses, however, should
not have the privilege, if it is possible to withhold it from them, of



purchasing these bonds except for customers. Otherwise, they might
invest in this issue funds which they should loan to business. I
believe the Government is entirely justified in issuing such bonds at
this time. During the war we did not hesitate to float bonds, which
the people bought readily, to pursue the war. I consider the present
emergency just as great as in war time. The Government debt is now
less than it was at the end of the war. Our resources are greater than
they were then. We are, I believe, justified in increasing our national
debt to help regain prosperity for our people.
A way should be provided to help the unemployed veterans, and
I would suggest that this be done through giving them preference on
Federal public works.
I have no doubt that there are some reductions that should be made
in our tariff schedules, but I am very much opposed to changes being
considered except with nations which are definitely on a gold basis.
In fact, I consider it necessary to raise tariffs against the products of
countries which use depreciated currencies.
A way should be found to reduce the number of working days and
working hours. I do not know whether this can or should be
done by Federal action, but until more work is staggered there will
always remain a large percentage of unemployed people, due to
improved methods of machine production.
A plan must, of course, be found to help the farmers; but I do not
believe in a dole system for them or for anyone. I am not enough of a
student of agricultural economics to suggest what particular system
would be best to help the men and women of the agricultural districts.
However, moratoriums for farm mortgages, it seems to me, are
essential. I believe also that the creditors of farmei-s should adjust
their claims on a basis more in keeping with the present value of farm
lands. I believe it will be necessary to fix lower interest rates on farm
mortgages, and the same considerations should be given to small home
owners everywhere.
As to prices of agricultural products, if a legal way could be found
to limit the production of wheat and cotton and to place a minimum
price on them that could be successfully worked out, without Federal
subsidy, and \sdthout too great cost for administration, tliis niay be
the method to pursue. Other farm products would benefit indirectly
if the plan succeeded.
In conclusion, I would like to add just tliis word. These are
desperate and discouraging days. Mere talk and more talk will not
help; only action, prompt action—to-day and not to-morrow—will
meet the situation.
Senator K I N G . Mr. Block, may I ask you a question?
M r . BLOCK. Y e s , sir.
Senator K I N G . Y O U suggested

the importance of getting nations
back on to the gold standard. Evidently you believe that there
should be a metallic base to support the currencies and credits of the
Mr. B L O C K . A gold base.
Senator K I N G . In view of the fact that silver for many years, indeed for centuries, was a part of the metallic base, that it was primary
money the same as gold, do you not think that if the nations by international agreement should remonetize silver or agree upon a ratio
between gold and silver and should coin silver bullion or gold bullion



upon the ratio agreed upon that that might stabilize prices and give
greater stability to the monetary systems of the world?
Mr. B L O C K . Personally I do not think so. Silver is used for so
many purposes, and its value keeps changing so that I fear that it
will all be turned into gold as quickly as gold can be bought with it,
and the gold would be hoarded and we would go into an inflation
which would eventually bring chaos to our monetary and business
system. That is my best viewpoint.
Senator K I N G . When silver was a part of the monetary system of
the world the danger which you presage did not occur.
Mr. BLOCK. The conditions, I do not believe, existed that exist
to-day. I am speaking of the present day and the immediate future
which I see ahead of me.
Senator K I N G . You do not believe, do you, that $ 1 1 , 0 0 0 , 0 0 0 , 0 0 0 of
gold for monetary purposes for all the world is adequate, do you?
Mr. BLOCK. I do, yes. Because it is there as a safeguard, and it is
plenty for the purposes for which it remains in the treasuries of the
Senator K I N G . Would you regard it as a disaster if by some freak
of nature or by some providential act a great gold deposit amounting
to billions of dollars were uncovered and that golden treasury poured
into trade and commerce?
Mr. B L O C K . Well, I would not be able to answer that, Senator, T
can not answer that.
Senator K I N G . Another question. You suggest that additional
bonds might be issued by the Government, i ^ d you refer to the
fact that during the war we issued more bonds than are presently
outstanding. The facts are that we have approximately forty
billion of bonds outstanding, that is Federal, State, and their political
subdivisions. Do you not think that by a persistent or a constant
issue of bonds aggregating billions of dollars we might ultimately
impair the credit of the country and reduce the value of the bonds in'
the market?
Mr. BLOCK. Not for the amount of bonds which I would issue had
I the power to issue them. I do not think three, four, five, six billion
dollars worth of bonds would impair our country. As I say, our
Federal Government is in better condition to-day than it was after
the war.
Senator K I N G , We have issued approximately five billion of bonds
to meet deficits during the past three years, and in addition the cities
and counties and States have issued bonds, and the Federal Government now is the only purchaser of the Reconstruction Finance Corporation debentures which are issued, and is the only purchaser of the
bonds which are issued by the home loan bank and by the Federal
farm bank, so that we are under obligation, apparently, to purchase
from organizations created by the Federal Government not millions
but possibly billions of bonds. Do you not think that with this
tremendous outpouring of bonds, of securities by the Federal Government, by the Reconstruction Finance Corporation, and the other
organizations to which I have referred, that there may be a time when
the credit of the Government may be impaired?
Mr. B L O C K . There is not any question there may come a time, but
I do not think it is here if you will balance your budgets and if you will
cut the cost of administration not only in Federal Government but
in States and counties and cities that you mentioned, and pass the



repeal bill so that we will take in taxes which now the Government
does not get, and in this way reduce other taxes, all of which will be
helpful to business.
Senator K I N G . Y O U regard. it as indispensable, however, for the
maintenance of the credit of the Government in view of this prodigious
bond issue which will continue, that we balance the Budget?
Mr. B L O C K . That we balance the Budget.
Senator K I N G . Yes?
Mr. B L O C K . That should come first.
Senator G E O R G E . Mr. Block, I assume that you hold to what we
know as the quantitative theory of money? I judge you do by insisting on gold and gold alone.
Mr. B L O C K . I do not know that I understand, Senator, the question
of the quantitative money. Meaning that we should all have a lot of
Senator G E O R G E . NO, meaning that we should not have very much
money for fear that the governments may be tempted to overissue.
In other words, that the price of your money is limited necessarily by
the amount of gold in the world; is that your theory?
M r . BLOCK. NO.
Senator G E O R G E .

And as long as that base is maintained that you
can not run to excessive issues?
Mr. B L O C K . You can not run to excessive issues if you do not balance your budget, if you are continuously spending more money than
you are taking in.
Senator G E O R G E . I am speaking of the money theory. You insisted, that there be but one metallic base, and that is gold?
M r . BLOCK. Y e s .
Senator G E O R G E .

Just what is your idea in insisting that you just
have gold?
Mr. B L O C K . Because I fear that an inflation would occur which
w^ould bring chaos.
Senator G E O R G E . In other words, you are looldng for a limited
Mr. B L O C K . WeU, let me call it the present gold limit base.
Senator G E O R G E . Yes. That is what I had in mind.
M r . BLOCK. Y e s .
Senator G E O R G E .

That is what I apprehended was back of your
statement. Of course, you do not think that the Lord made money?
Mr. B L O C K . Some people
Senator G E O R G E . Y O U know it is purely the creature of law?
Mr. B L O C K . Yes; I agree in that.
Senator G E O R G E . Absolutely.
Mr. B L O C K . I believe that.
Senator G E O R G E . And so far as money is concerned, there would
not be any better money than paper money if you always hold that
issue within bounds?
Mr. B L O C K . And if you could not get it through other channels.
Senator G E O R G E . Yes. That is what I mean. If you could not
start the printing presses. So your idea is
Mr. B L O C K (continuing). And could not use it for a million other:
purposes, thereby changing the value all the time.
Senator G E O R G E . Well, you do not think that the value of gold
changes like other commodities also? Not so rapidly?
M r . BLOCK. N O , sir; I d o n o t .



Senator G E O R G E . Not so widely?
Mr. B L O C K . I do not think so; no, sir.
Senator G E O R G E . Y O U do not have an idea at all that perhaps OT^
monetary system may be partially responsible for the value of gold
at this moment?
Mr. B L O C K . I do not think so. I do not pretend to be so wise that
I know it all, but I do not think so.
. i. •
Senator GEORGE. Y O U do not go back to the old theory of the intrinsic value of gold, do you, Mr. Block?
Mr. B L O C K . I have studied it and I am giving you my best judgment
in my statement.
Senator G E O R G E . Yes; I am curious to know, though, just what is
back of it, because everybody that comes, of course, is going to say
that we must not get off the gold standard, and personally I agree with
you, but then I haven't any such idea as a great many other of the
witnesses no doubt are going to express here from time to time. I do
not see any reason for saying that there should be but one metallic
base unless you go farther back and say that you can not have two
standards. But the real value of gold is a base, and as long as you
maintain reserves and have a proper relation to the currency that is
tied to it, that will prevent, of course, any undue inflation. It will
prevent you from just simply setting your printing presses in use and
working if you have got a paper currency altogether.
Mr. B L O C K . The value of silver, according to my mind, will change
no matter what the Government may say about it, because it is used
for so many other purposes besides money.
Senator George. Well, undoubtedly it will change more than gold.
M r . BLOCK.


Senator G E O R G E . I grant you that, because it has a wider commercial use.
Mr. B L O C K . Yes, that is right; and that is the danger.
Senator G E O R G E . Yes.
The CHAIRMAN. We thank 3'OU.
Mr. B L O C K . Thank you.
The CHAIRMAN. Dr. Herman F . Arendtz.

The CHAIRMAN. Y O U may proceed, Doctor.
Doctor A R E N D T Z . In treating the current depression it has been
my belief that we are dealing with two depressions, one superimposed
upon the other.
Senator B A R K L E T . Mr. Chairman, might we know the identity of
the witness?
Senator K I N G . Doctor Arendtz, of Harvard.
Doctor A R E N D T Z . Economist of the United Business Service at
Thefirstis the familiar credit crisis that we have had in this country
again and agam resulting from the collapse of overextended credit.
The second is a long and grinding world depression caused by falling
world pnces. The first struck us in the stock market. When we
seemed to be getting over that in the spring of 1930 the heavy weight
of the world depression bore down on it, and since then we have
suffered in common with the world from that.



As to the first, it is due to the money credit system which we have.
We talk about the United States being on a gold standard. Actually
it is a managed credit system with a gold fagade. The reason I say
that is this, because the chief instruments of conducting transactions
are bank deposits subject to check. Eighty-five to ninety per cent
of all transactions are done with, checks normally. Probably somewhat less now because so many banks have failed that people use more
currency. The question of whether you peel a note off a roll, as they
ao in Europe, and pay a bill, or whether you write a check against
your bank account, is merely a matter of method. The actual volume
of currency includes not only ordinary paper and coin, and so forth,
but bank deposits subject to check.
Now, if you figure that way—and I do—the actual gold cover in
1929 was not the 60 or 70 per cent that the Federal reserve gold ratio
reports, but against the whole of that currency was only 18 and a
fraction per cent. And to-day it is about 21.6 per cent. I do not
think that is too much gold. It is so little that the value of gold does
not determine it. It is the expansion and contraction of credit that
does it and carries the gold with it.
Now we expanded credit steadily in 1927, 1928, and 1929, in fact
really since 1922, and then the thing got so top heavy it just collapsed.
As to the world depression, the whole debt situation was built up
during and following the war to a point where it could not stand any
more debt inflation of any sort. And then we got a series of years
in which the gold output was steadily increased at a steadily smaller
•percentage than the normal volume of goods and services produced
:'QT sale. That would have caused a gradual decline in world prices
if it had not been for the credit expansion here and the tremendous
investments of Americans in foreign securities which overflowed this
credit exp.ansion here out into the rest of the world and filled up the
gap that failing gold production had left. Then when we broke do\vn
and failed the whole thing came down together.
The C H A I R M A N . Approximately $ 1 0 , 0 0 0 , 0 0 0 , 0 0 0 of foreign investments held by Americans.
Doctor A R E N D T Z . Yes; I should say. And as that went on year
by year it filled up the gap that the failing gold production had left
and prevented a decline in world prices which would have come otherwise, and then when we failed, when American investment and credit
expansion collapsed the whole thing came together—crashed at once.
Now, that at least is the theory that I believe to be sound with
regard to the primary underlying causes. I have here, for instance,
Doctor Harwood's book on ''Cause and Control of Business Cycles,"
in which he treats the credit expansion side in the United States
alone. But I do not think that is adequate, because the world
depression arising from the other cause I mentioned ultimately
became more important, and still is.
Remedies one can divide into two or three groups. First is inunediate. Immediate relief is obviously necessary. Relief to prevent
the banks from collapsing, relief to prevent insurance companies from
collapsing, to keep railroads functioning, and to keep people from starving. Those things are absolutely necessary. Apparently the greater
part of that has got to be done on Federal credit, on Federal Government credit one way or another. It would look so.
Senator K I N G . Not State or municipal?





Doctor ARENBTZ. Yes; State too. But I think perhaps the
greater part of it has to be Federal. I may be wrong there, but
certainly a very large part of it has got to be done on Federal Government credit one way or the other.
Senator COUZENS. May I ask a question at that point?
Doctor ARENDTZ. Yes.
Senator COUZENS. D O you believe that in keeping the railroads
functioning and the banks functioning that you have got to maintain an unstable capital structure?
Doctor ARENDTZ. Temporarily maybe you have.
Senator COUZENS. What is the use of doing it temporarily if it
later collapses?
Doctor ARENDTZ. Well, the only hope is that if you do it temporarily
you may in the meantime be able to create better conditions so it will
not collapse.
Senator COUZENS. Well, we have been doing that in Detroit for a
long time and the State of Michigan has collapsed.
Doctor ARENDTZ. Well, that is the danger, but rehef is principally
necessary. Can Federal credit stand it or will that collapse? That
is one way of putting your (question, is it not?
Senator COUZENS. That is what I am asking you.
Doctor ARENDTZ. Yes.
Senator COUZENS. Whether Federal credit can maintain this unsubstantial credit structure that now exists?
Doctor ARENDTZ. Nobody in the world, I think, can answer that.
It depends on how much of it becomes necessary. Ultimately if it
has to go on and on even Federal credit will collapse too, without any
Senator COUZENS. Would you be wiUing to take the hazard of
Federal credit collapsing so as to maintain an imsubstantial credit
that now exists in private concerns and State and railroads, and
Doctor ARENDTZ. I would try to avoid that by every possibility.
Senator COUZENS. Yes. But immediate action is necessary. I am
trying to get your experienced judgment as to how far we should go
in trying to maintain an excessive overcapital structure.
Doctor ARENDTZ. The capital structure has got to be reduced, and
I think that the bankruptcy bill now pending is useful to that end,
and I think that ought to be done to make every effort to make the
Federal relief as small as possible.
Senator COUZENS. Well, assume that that could not be done in the
next few months, would you suggest that the Goverament continue
to extend its credit and hazard its credit to maintain that structure?
Doctor ARENDTZ. What is the alternative? Let them all go?
Senator COUZENS. I am asking you.
Doctor ARENDTZ. The alternative seems to be to let them all go,
and since there is no reasonable hope of reforming the structure and
making it sound without complete chaos and a general collapse, my
answer would be, Yes, I would."
The CHAIRMAN. In other words, if the Government did not assist
at this time the collapse would come quicker than if it did?
Doctor ARENDTZ. Precisely.
Senator COUZENS. What is the use of sustaining it if it is going to
go anyway? The Senator from Utah says that to sustain it you
prevent it from going earlier.



The C H A I R M A N . I said, ''if Senator Couzens. I did not say that
it will. But my question was ''if.'' I did not say that it will go.
But I think perhaps the only way to prevent it from going would
be through the Government assistance. I do not believe it ever will.
Senator C O U Z E N S . D O the Senator and the economist mean that
the Government should sustain it without any plan of reducing the
Doctor A R E N D T Z . NO; I do not mean that by any means.
The C H A I R M A N . NO; I would not think of that at all.
Senator C O U Z E N S . What are you going to do if Congress does not
adopt effective ways of reducing and strenghtening the structure?
-Are you going to take the hazard of jeopardizing Federal credit?
Doctor A R E N D T Z . I see nothing else possible. If the temporary
relief is let ride as that and nothing else, and nothing else is done,
your collapse mil come anyhow.
Senator C O U Z E N S . ^Vhat effect is that going to have on the Federal
credit any differently than a failure to exactly balance the Budget at
this time? In other words, how can the Federal Budget be balanced
if you are going to extend this aid to the present capital structure and
count it in as an effective pressure upon Government credit?
Doctor A R E N D T Z . I was coming to that in just a minute.
Senator C O U Z E N S . All right. I beg your pardon.
Doctor A R E N D T Z . Next to the matter of immediate relief it seems
to me comes the question of balancing budgets, not only Federal but
State, municipal, business, and every land. There has got to be a
readjustment. I do not think there is any reasonable possibility by
any practicable method of restoring the price level all the way. Now
I will speak more about that. But there has got to be a readjustment.
Government is costing the people more than they can afford to pay.
TVith a national income of $85,000,000,000 in 1929 it might be possible,
and was, to support it, but with that cut from $85,000,000,000 to
$37,500,000,000 we can not afford to pay the price for Government
that we paid when we had $85,000,000,000. And that means that
there have got to be cuts. And the budget should be balanced by
cutting expense. Not by putting new taxes on an impoverished people. I think that plan of increasing taxation on an impoverished
people is one that would shame an oriental despotism. I do not
think it is possible.
Senator C O U Z E N S . Have you analyzed the Treasury bookkeeping
Doctor A R E N D T Z . Not closely. I have seen the Budget and those
estimates, but I have not analyzed the bookkeeping system as such.
Senator COUZENS. Then you have not discriminated between the
Government advancing $500,000,000 to the Reconstruction Finance
Corporation and the $125,000,000 more to the Federal land banks
and some more to a liquidating banking corporation being placed in
Government expenditures?
Doctor A R E N D T Z . Yes; I have faced that one.
Senator C O U Z E N S . And you believe that with the present system
of bookkeeping then that should be balanced each year?
Doctor A R E N D T Z . I do not think it is possible to balance it this
year. But we should aim to balance it just as quickly as possible.
Senator C O U Z E N S . Yes. Well, of course everybody agrees with
that. But do you mean that we should attempt to raise out of


taxation or reduce other expenses to the point where we can balance
expenditures like $500,000,000 to the Reconstruction Finance Corporation in one year or two years?
-UI U 4 T
Doctor ARENDTZ. A S I say, I do not think that is possible, but i
think that we should come as near to it as we can, and in every case
should provide in the budget for interest on any new loans sinking
funds on it.
i ij
Senator COUSENS. Yes, and in the meantime you should prefer
to cut wages and dismiss employees and cut expenses so as to pay
interest on the money which we borrow to put into the Reconstruction
Finance Corporation?
Doctor AKENDTZ. I am not very strong for disimssmg too many
employees, but I am for cutting wages and salaries of Government
employees from the President down, well, somewhat in proportion—
perhaps not quite as much, but somewhat in proportion to the extent
to which t h ^ have been slashed in private industry.
Seanator COUSENS. So that in effect we may pay the interest on
some billion dollars that we put into the stock investments to maintain
the capital structure of the country?
Doctor Arendt2. I think that is necessary.
Senator B A R K L E Y . Aside from any money put into the capital
investment for reconstruction, or for the Reconstruction Finance
Corporation, or for any other of these extra governmental activities,
at the present rate of income and outgo we would have to reduce the
expenses about a billion dollars to balance the budget now if we do
not pay out any more for any of these things.
Doctor ARENDTZ. Well, do you want me to suggest possibilities in
that respect?
Senator B A R K L E Y . If you have possibilities.
Doctor ARENDTZ. Well, here is one. It happens that when I was
16 years old I went in the Massachusetts Naval Reserve in the
Spanish War, and as I understand the matter I am entitled to free
hospitalization. All I did was get some good training and have a good
time and paid what I was worth for it. Now I do not see any sense in
that. I think that veterans' remunerations for sickness or injuries
not connected with war service should be cut off. That is one thing.
Then I think that all pensions can properly and should be reduced
in this way. The purchasing power of the dollar is much higher than
it was in 1929. Now if a pension of so many dollars was adequate in
1929 a smaller one will have the same purchasing power to-day and
does not represent any real reduction.
Senator BARKLEY. You are going on the assumption that whatever
allowance was made to veterans was an exact justice to them at the
time and that therefore it is more than justice to them now?
Doctor ARENDTZ. NO. I would not say that. I am going on the
assumption that whatever was made to them at the time was then
considered reasonably adequate—without raising the question of too
precise justice—was considered reasonably adequate. And it would
be equally reasonably adequate if it were reduced.
Senator B A R K L E Y . Those allowances were not based upon the cost
of hymg. They were based upon the proportion of a man's injuries
to his earning capacities, of course assuming that he was normal and
could receive normal wages.
Doctor ARENDTZ. Very weU. His earning capacity has declined.



Senator B A R K L E Y . Of course the earning capacity with everybody
has declined, whether he was in the service or out of it, and regardless
of his degree of disability for any cause.
Senator K I N G . Senator, that would not be true of pensions because
pensions were granted in many instances without any disability at all.
Senator B A R K L E Y . Yes, service pensions.
The C H A I R M A N . There are $ 4 0 0 , 0 0 0 , 0 0 0 of that kind of pensions
paid to-day.
Senator B A R K L E Y . Well, I do not care to go into a detailed discussion of that. But what other item have you?
Doctor A R E N D T Z . General reduction of salaries, as I suggested,
somewhat like the reductions that have been made in private
Senator K I N G . And States and counties?
Doctor A R E N D T Z . I think if the Federal Government set the example the local pressure on the States would make the States and
municipalities follow suit pretty rapidly.
Senator K I N G . D O you not think the States and municipalities are
setting the precedent for the Government?
Doctor A R E N D T Z . In fact they are.
Senator B A R K L E Y . Is it not a fact that public offices of municipalities and counties and States are much closer to the people and are much
more immediately responsive to them than those in the Federal
Government, and if there is any example to be set the States and counties and municipalities should not sit around waiting for the Federal
Government to set the example; they ought to set it themselves?
Doctor A R E N D T Z . Well, they are in some places.
Senator C O U Z E N S . I assume then on your theory that the purchasing
power is much greater, that we ought to cut also all the interest charges
on our securities, because they are getting the same interest rates that
they did previously and they are getting much more purchasing
Doctor A R E N D T Z . IS that possible?
Senator C O U Z E N S . Well, I think it is just as possible as it is to take
the food out of babies' mouths.
Doctor A R E N D T Z . With a lower purchasing power the lower wages
do not do that.
Senator C O U Z E N S . It would not do it with the man who was receiving interest on bonds either, would it?
Doctor A R E N D T Z . Quite so. I am not questioning the matter of
abstract justice in the matter. I think you are right. But practically
it may not be possible, that is all.
Senator K I N G . However, Senator Couzens, interest rates have
fallen during the past years.
Senator C O U Z E N S . I am talking about the securities that were
Senator G E O R G E . Fixed rates.
Senator C O U Z E N S (continiung). During the prosperous periods.
And the securities that the Government now has are drawing 4 and
4H per cent, which were sold at what we might call inflationary
periods, and if those salaries and compensations to veterans were
fixed at that time it is assumed that they were all fixed on the relative value of things. If you are going to take it out of one group
then take it out of all groups.



Senator K I N G . What do you say as to the effect upon the ability
of municipalities, States, and the Government to issue securities and
find a market for them if it is understood that there will be a constant reduction in the interest rates if there should be a decline in
business and in prices?
Senator COUZENS. Why treat dollars different from what you do
Senator K I N G . I am just asking the question.
Senator COUZENS. I do not know. I do not think you can treat
them any different.
The CHAIRMAN. I think, however, that there is hardly a city or
county or a State but what has borrowed up to the limit now. If
they do anything they ought to reduce them rather than increase
Senator COUZENS. The Senator from Utah has said what I have
in mind. That every agency that can come to the F. R. C. is in*
creasing their indebtedness, and I am opposed to it.
Senator K I N G . Hear! Hear!
Senator COUZENS. It is time now for the Federal Government to
stop trying to maintain excessive and ridiculous capital structures
and paying the interest to a special group and at the same time
urging and campaigning with all sorts of propaganda to balance the
Budget out of the hides of veterans and employees. There is no
justice in that. If the Government is going to be just it ought to
treat all alike. You can not do it any other legal way. If you can
not reduce legally, as the witness says, interest on bonds, why, let us
The CHAIRMAN. Proceed.
Doctor ARENDTZ. That covers the first point; that is the matter of
cutting down cost of Government to the price level which exists.
The second line of attack is that of building up the price level more
toward—^it will not be built back to it in any case, but more toward
the level which it was. That is largely a world problem. I mean to
say that to build the price level up in this country alone, if it could
be done, would simply result in making this country a wonderful
place to sell goods in and a very poor place to buy them in, with a
resulting draining out of the gold in payments for a surplus of imports
until the price level was brought down.
The CHAIRMAN. And that would be the natural result.
Doctor ARENDTZ. Yes; the plans for building up the price level are
generally those of inflation IQ some form. Now inflation is wanted
primarily in order to furnish more purchasing power. Purchasing
power is what is do^m. It is not overproduction, it has been pretty
well shown, that lies back of this depression, but decline in demand.
It is not overproduction in the sense of a sudden and great excess of
production. It is overproduction in the sense that more is produced
than can be sold at a profit, but that is because the demand has
fallen, not because the increase in supply is so great.
Senator COUZENS. Does the witness intend to imply that at no
t u ^ during the period around 1929 was there any excess production?
Doctor ARENDTZ. In 1929 there was a comparatively small excess
m production, but nothing that would account for any such collapse
as we have to-dav.



Senator C O U Z E N S . That is perhaps true, but was there not a constant desire on the part of every one to increase production by capital
Doctor A R E N D T Z . Yes; but in spite of that the figures of industrial
production, of crops and so forth, as I brought out in my little book
there, did not show any extraordinair increases. They do in a few
items. There are a few items that do. The rest did not. Rather
steady normal increase, one might say. It is the purchasing power
that collapsed rather than the sudden outburst of supply.
Senator C O U Z E N S . Well, what caused the purchasing power to
Doctor A R E N D T Z . The fundamental reason I believe to be the fact
that gold production proceeded at a rate of less than 2 per cent through
a number of years, while the production of goods and services for
sale increased at the rate of over 3 per cent. Now most economists
agree that is a normal rate.
Senator B A R K L E Y . Is that an annual increase you speak of?
Doctor A R E N D T Z . Yes; and that, most economists agree, is a normal rate. Of course had it been possible to constantly increase the
credit money structure it might have moved them on that, but it was
not done except in this country.
Senator C O U Z E N S . I will a^ree with you that the increase was not
so substantial, but if you will watch the graph of the increase in
manufactures, and then if you compare that with the graph of the
rise in credits and debts you will find it is enormous.
Doctor A R E N D T Z . I am speaking of credit money. Of cdebts you
are right. But of credit money I am speaking.
Senator C O U Z E N S . What I was getting at, though, was this:
What effect do you think the fact that the manufacturing graph shows
along like that, a very gradual increase, and the debts up like this,
almost twice as much? I ask you what effect the increase in the
debt structure had upon the purchasing power and the welfare of the
country as a whole?
Doctor A R E N D T Z . The increase in the debt structure—that is so
far as it was interest-bearing debt—^would not have direct effect
except so far as those securities became the basis for loans which
would go into bank deposits subject to check, and therefore into
actual purchases.
Senator C O U Z E N S . Of course that is a rather complicated answer
for a layman to get.
Doctor A R E N D T Z . I know it. I agree with you.
Senator C O U Z E N S . But at the same time it was certainly taking out
of the purchasing power an enormous amount for interest charges
which went back, if you please, into bank deposits and otherwheres,
but not into consumption.
Doctor A R E N D T Z . I am not so sure about that not going into
Senator C O U Z E N S . Well, I am quite sure about that.
Doctor A R E N D T Z . When people get interest they have to do something with it. They do not bury it in the ground. It works out
Senator C O U Z E N S . Oh, they get it back and put it into more investments, put it into more debts, and more interest is the result.
Doctor A R E N D T Z . All of which creates a very top-heavy speculative





Senator COTJZENS. N O W you have come to the point.
Doctor A R E N D T Z . Quite so.
Senator COTJZENS. That is just what I wanted to develop. So that
in effect the whole situation, at least a great percentage of it> is due
to the absurdity of building up a debt structure such as we did during
the period referred to.
Doctor A R E N D T Z . Well, I ^vill have to come back to my original
distinction between the two depressions, the one characteristically
American, which is what you say, the expansion of speculation on
credit, and the other the long world depression, which is not primarily
connected with that at all. Now so far as this country goes you are
absolutely right. It is that speculative pyramid built on credit that
tipped over. And we have had it before; we have had it time and again
Senator COUZENS. And when that terrible pyramid of DELDTS topples
over what effect does that have on the rest of us? What effect does
it have on commodity prices?
Doctor A R E N D T Z . Well, it results in a lot of liquidation and the
wiping out of bank currency; by that I mean demand deposits subject
to check; and the wiping out of a lot of bank currency helps to bring
down prices.
Senator COUZENS. And of course it curtails purchasing power?
Doctor A R E N D T Z . Because it curtails purchasing power in fact.
Going back to the possibilities of raising the price levels, there are
three ordinaiiy spoken of. One is the reflation of bank credit. Now,
the Federal Reserve for the past year has been trying to effect a
reflation of bank credit by buying Government securities and putting
excess reserves at the banks' disposal hoping that that would expand
their loaning policies. But solvent borrowers have already got as
much money as they need tofinancewhat little business they can do.
And borrowers who merely want to be carried and can not show profitmaking possibilities bankers are not interested in. And so it has
simply failed to expand, that is all. It has been impossible to expand it.
And there I want to call attention to the unsatisfactory character
of our currency system, which I repeat is primarily a bank-managed
currency system. It is bank deposits and checks. What we call
ordinary money currency is only a very small part of it. We will say,
perhaps 20 per cent.
Senator COUZENS. Not that much.
Doctor A R E N D T Z . At the most. I want to be liberal about it.
Senator COUZENS. It will not be 20 per cent.
Doctor A R E N D T Z . Maybe it wiU not. But somewhere between,
anyway, 10 and 20 per cent.
Senator COUZENS. As a matter of fact, the currency question is not
the important factor in this whole collapse, is it?
Doctor A R E N D T Z . Why, I think if it had not been possible to expand
the bank credit currency—^if they had not been able to finally set up
deposits and make loans they never could have flown so high and they
consequently would not have fallen so far.
Senator C O U Z E N S . That is true, but that does not exactly answer
my^ question. I ask you if it is not a fact that the currency question
in itself and by itself has not been the reason for the great crisis?
Doctor ARENDTZ.^ I am not quite sure I understand what you mean
there. It is impossible to disassociate it, pick it away from the rest.



Senator C O U Z E N S . Well, it does not seem to me that it should be so
very difficult when you can reduce it to percentages.
Doctor A R E N D T Z . Percentages of what?
Senator C O U Z E N S . Percentages of the relation to currency and the
kind of credit that you have just been speaking about. In other
words, if you concede that currency had somewhere from a 10 to a
20 per cent relationship to the whole debt structure and the whole
business structure.
Doctor A R E N D T Z . N O ; I do not mean that. I mean to say that of
the actual currency that is used as purchasing power there at are least
$4 in checks—that is, bank credit currency used as money—to $1
in what we call pocket money or paper bills or coin or what have you.
Now that sort of currency we have found expands, and expands too
freely when confidence is high. People want to borrow, and it looks
good. And the banks are willing to lend. And it expands when it
ought not, perhaps. Thenianything that happens to chill confidence,
things turn down, it looks bad, it immediately contracts violently.
The bankers have to in their own defense. I am not blaming them
any. If I were a banker I would do the same thing for my own protection, I would have to.
Senator C O U Z E N S . What is the prevention of that?
Doctor A R E N D T Z . I was going to suggest one thing, and that is
higher bank reserves; and I think all the banks should be brought
under Federal jurisdiction, and every bank taxed out of existence
that does not join the Federal reserve system where it can be controlled, and higher reserve ratios required in the future. That is
looking ahead a ways, but that seems to me necessary. I do not
believe a cover of 18 or 20 per cent is adequate in times when confidence is threatened. Most any cover, or none, will work when
confidence is high. If nobody wants to get gold—^if you substituted
pigs of lead and they did not know the difference it would work just
the same as long as confidence ran high. But the structure has got
to stand the strain and not merely work in good times.
The purpose, as I say, of inflation, is to increase purchasing power—
to go back to that. And tlus expansion of bank credit is apparently not possible until confidence returns.
Senator C O N N A L L Y . Mr. chairman, may I ask the witness a question right there?
The C H A I R M A N . Senator Connally.
Senator C O N N A L L Y . Is it not the purpose of the Federal reserve
law to do that in a measure now through the raising of the rediscount
Doctor A R E N D T Z . They tried to control the credit structure that
way. That is one of the ways. Open market purchases is another.
Senator C O N N A L L Y . Your idea is that either it has not been exercised properly or does not work?
Doctor A R E N D T Z . No;my idea is this: I do not think at the present
time it is possible to reflate bank credit.
Senator C O N N A L L Y . Yes, but I am talking about the other way.
You said you wanted larger reserves?
Doctor A R E N D T Z . Yes.
Senator C O N N A L L Y . SO as to prevent too much inflation in times
of confidence and prosperity?
Doctor A R E N D T Z . Yes.




Senator CONNALLY. Now, Doctor Arendtz, the theory of the
Federal reserve was that in a period of that kind they would reach
the situation by raising the rediscount rate.
Doctor AUENDTZ. That is the theory.
Senator CONNALLY. And you don't think that that has worked, or
is it because the Federal Reserve Board has not exercised that power?
Doctor ARENDTZ. Well, it obviously has not worked, and the
reason is, I take it, that they would not, as I would not want, to stand
before the country in the position of stopping, checldng, reversing
a period of good business. When business is booming and going
strong the Federal Reserve Board—suppose they had put the screws
on, had raised interest rates, sold Government securities, a great
howl would go up from the country, attacking the board for slowing
down business. That is the difficulty always with a managed ciu:rency, the difficulty of management. It is easy enough to expand it.
For instance, if it is paper bills you can print more of them but when
it comes to checking the thing, apparently no human power is ever
wise enough or strong enough, or even willing, to say no to an eager
nation. I could not be, I am quite willing to admit.
Senator CONNALLY. In 1 9 2 9 , when we had the gigantic debauch
in stock-market speculation, if the Federal Reserve Board and the
authorities had put on the interest rate a little earlier that would
have had the tendency of slowing such things down, wouldn't it?
Doctor ARENDTZ. Yes. It would have slowed business down along
with speculation.
Senator CONNALLY. Well, business would have been better off if it
had been slowed down before it went off the cliff, wouldn^t it?
Doctor ARENDTZ. Yes. But at such a time it seems to be humanly
impossible for any board of men to stand up and face the country and
tell theni: No, you shall not. You see, the people will say: We are
on the high road to prosperity. We are in a new era. No, you must
not do it. And so it is that I say: Who will put the brakes on at such
a time? Who can do it?
Senator CONNALLY. weU, they didfinallyput the brakes on, didn't
Doctor ARENDTZ. Yes, but it was after it had got too far. And
not even then, you might say, for all practical purposes. So the
situation is that I have just lost faith in himaanly-managed systems.
Senator CONNALLY. Well, how are you going to get any other kind
of system by legislation?
Doctor ARENDTZ. Well, by miians of more hard money and less
credit. That is the answer. That is the thing I suggest, hard money
for use.
Senator CONNALLY. Well, as to the matter of gold, we certainly
can not make any more gold by law.
Doctor ARENDTZ. NO, but you can add a silver supply to it. You
can remonetize silver. That will help some.
Senator CONNALLY. Possibly.
Doctor ARENDTZ. In connection with the matter of management
may I say this: I feel that we are threatened with something that will
ultimately turn out even more disastrous than what we have had in
the past, and that is this: Is it a conspiracy or what? This plan or
program of a number of economists and international bankers to
create an mtemational facade, a gold base but an internationally



managed credit currency. That is, that you will put certain international bankers and their economists in control at Basle, a bank of
international settlements for example, and they will shuffle and manipulate world credit, and fix prices stable based theoretically on a gold
system. But that gold base is only a gold facade for a managed gold
credit currency. And it will not work. It has not worked.
The C H A I R M A N . Oh, that is only a dream. It has made no headway so far as the governments of the world are concerned.
Doctor A R E N D T Z . Yes, Mr. Chairman, it is a dream. But it is a
dream that wiU be raised in the forthcoming economic conference.
And it will be backed by some verj^ powerful names, and a big effort
will be made to put it across. I think the thing is the most dangerous
we have been faced with at all. What we have to do, and it may not
be nice or easy, is to get back to less managed credit and more hard
money. Every managed credit system so far has turned into a mismanaged system, and I do not believe that with these new people it
would be any different.
Senator K I N G . Doctor Arendtz, your theory, as announced in your
admirable little book, is that nature has furnished approximately 3
per cent accretion to the metal base of the world for an indefinite
period, that production has been substantially between 3 and 4 per
cent. There must be a relation between any increase in metallic
base and the production of the world. And you have shown there in
your little book that the world's gold supply is diminishing—or as it
was for a number of years, although there has been a slight increase I
believe this year, and there is bound to be a fall in price in that case.
And if gold shall continue to diminish in production the prices inevitably must fall, if they rest solely upon a gold basis. Therefore
you suggest that it would be wise to strengthen the metallic base
because gold production is inadequate to furnish the 2 or 3 per cent
necessary for stabilization of prices as measured by production.
Doctor A R E N D T Z . Precisely. There wiU be one of three things:
Either falling prices owing to inadequacy of gold, or a managed credit
to supply a constantly higher credit money base, or else a reinforced
metallic base.
The first we do not want. And the second is bound to be mismanaged and disastrous and cause a collapse. War will break it,
has in the past without any question, and other conditions might.
I do not believe, I have not confidence enough in the wisdom and
inoral strength or whatever you may call it, of any group of men to
sit on a pedestal and manage world credit and currency for us. And
that is so even if the world would put confidence in them, and it won't,
and you won't get international cooperation. When you want central banks to cooperate with this thing what do you get? Even if
there were not the world's fear of it, when it comes to the matter of
the cooperation required it may be considered, by some, contrary to the
national interest, we will say of France, or of Great Britain, or of the
United States, or of somebody else. Central reserve banks can not
cooperate against the. interests of their own nationals. They would
be removed at home if they did it, and they just will not do it.
Senator C O U Z E N S . Isn't it a fact that in 1927 the public reUed very
much on the advice of President Coolidge and Secretary Mellon?
Doctor A R E N D T Z . I suppose so. At any rate, they tried to cooperate in the interest of world welfare and to stop the speculative orgy




that in the main we are now trying to untangle. So far as a reflection
of bank credit demand is concerned it comes only after confidence
returns and it therefore becomes profitable to borrow money for business pui-poses, when one thinks he can make a profit out of it. I do
not believe that confidence can be restored by just saying: Have
confidence; nor by any psychological treatment.
Senator COUZENS. Which means, what guarantee will you have to
put confidence in, is that it?
Doctor ARENDTZ. Well, in 1 9 2 9 business confidence was never
higher. Lack of confidence did not do it. Lack of confidence and
the fear complex came afterwards, when the downward spiral had got
started. Then that stimulated fear and produced lack of confidence.
Some concrete physical cause is going to be necessary, like the primer
in an engine if you will, such a thing as that is necessary in order to
restore confidence.
Senator HARRISON. Doctor Arendtz, won't you elaborate a little on
Doctor ARENDTZ. Say, an influence to bank credit reflation, which
I think is not possible until confidence comes. The paper money
program I thinly is a delusion and a snare. In the first place, paper
money inflation will raise prices in the United States only, and there
has got to be a lot of it to do that. There must be a lot of paper
money issued to do that. And it will not raise world prices because
it does not circulate outside of this country. The only way it would
contribute toward raising world prices, if we are to maintain redemption in gold, would mean just putting out gold in exports constantly,
and gold would do some good in that particular, but it won't last.
Senator HARRISON. YOU say it would take a lot of paper money.
How much would you say?
Doctor ARENDTZ. Oh, not less than $2,000,000,000.
The CHAIRMAN. And that would not do it?
Doctor ARENDTZ. I doubt if it would. I said not less even than
that. And I do not mean to say that that would certainly be enough.
The thing is this: If you start prices up, if you succeed in stopping
the downward trend and start even a small upward trend, the change
in sentiment will do the rest very often. You do not have to produce
it positively. What you need is a primer. Or, in other words, you
do not have to put enough gas in the engine to run it for all time, but
you do have to get it started.
The CHAIRMAN. And do you think that would do it?
Doctor ARENDTZ. That would start it along the road.
Senator HARRISON. In the last three years and a half we have had
an expansion of $3,500,000,000 in circulating money, and at the same
time prices have continued to go down. What has been the cause of
Doctor ARENDTZ. That was because half of that, in management,
has simply replaced bank deposits, which were formerly used. There
are considerable sections of the country now using currency that used
to ^vrite checks.
Senator HARRISON. We would still have to increase it by half a
bilhon dollars.
Doctor ARENDTZ. Yes. The most of that may have gone into,
hoarding as a result of fright.



Senator H A R R I S O N . SO that the amount of money theoretically in
circulation, and the most of it now is theoretically so, because it is
not working or turning over, is that it?
Doctor A R E N D T Z . The most of it is either hoarded or being used to
draw checks on.
Senator H A R R I S O N . And any amount of money, currency, or any
other kind of money, that we printed or coined, probably would find
its way ultimately into the same hoarding places where it is now.
Doctor A R E N D T Z . I think not, not if you put in enough to check
the fall in prices and start a turn upward. As soon as it becomes
evident that the price level has turned up, instead of down, then people
want to buy, and the existing purchasing power would be released.
Senator H A R R I S O N . That will happen in any event after prices start
up, without any increase in money. That is, what money is in existence now would start its daily dozen, so to speak.
Doctor A R E N D T Z . That is true when prices start up. My own
thought about the inflation is what is wanted to make that start, is a
Senator H A R R I S O N . Y O U are against paper inflation?
Doctor A R E N D T Z . I am. And another reason is this: That when
you once put an issue of paper money into circulation you never can
get it out. It stands indefinitely as a liability against the Government. That during Civil War days we had a large crop of greenbacks. The idea was that it would be a noninterest bearing loan
and would save the Government interest, to issue paper money.
The same idea is being advanced now, that it would save interest
on bonds if the Government would print that kind of paper money,
and then retire it at some later time. But you can not retire it,
and for this reason, that when they tried to retire the Civil War
greenbacks, and there were some $70,000,000 retired, a great howl
went up that the Government was making money scarce and injuring
business. And of course it was true to this extent, that they were
taking current purchasing power out of business and putting a pressure
on prices.
And the same thing has been true in the matter of world experience.
Any country that has put a lot of paper into circulation has been
unable to get it out. That was true of France, although it was
controlled to some extent. Italy did the same thing. In Germany
it went down and went out of control. And I would say that that
would happen here. It might be quite possible to control it here,
to restabilize it at some lower level, as France and Italy did. It has
been done at other times, but you can not get it out of circulation.
Senator H A R R I S O N . They only attempted to stabilize it after it
had become so enormous as to be almost worthless, especially in
Doctor A R E N D T Z . Yes; but I am now talldng about France and
Italy, that did stop it on a lower level. But it might get out of control
and go down and out like Germany. But it is not at all sure that
you can do that. It is only fair to assume that it might be stabilized
at a lower level. Nevertheless it does not help world prices at all,
and once it was in circulation you could never get it out. And if
you face a subsequent crisis that paper money circulation is a limit
on your Government credit. It stands there like a sickle, around the
neck of the Treasury always. That is the main trouble with it.



Senator COUZENS. YOU would not recommend that we attempt to
do any tiling like that in this country, would you?
Doctor ARENDTZ. NO. I do not like the idea of puttmg that sort
of thing out if it can possibly be helped. Conditions might come to
the point where it was the only thing that could be done in order to
pay Government expenses, and that was so in the Civil War.
Senator COUZENS. Are you going to make any suggestion as to how
we might somewhat regulate the purchasing power of the dollar?
Doctor ARENDTZ. Well, I don't know. I doubt if
Senator BARKLEY (interposing). Senator Couzens, before he does
that I should like for him to discuss the different plans of inflation.
He started a while ago to discuss seriatim that matter, if I am correct
about it, and I should like to have that discussion preliminary to an
answer to your question.
Senator COUZENS. Then I withdraw my question.
Senator B A R K L E Y . Doctor Arendtz, suppose you answer that preliminary to your answer to Senator Couzen^s question.
Doctor ARENDTZ. The other plan which I have advocated is the
remonetization of silver. Now, the reasons have been to some
extent stated. For centuries the world output of silver and gold
together met the situation in fact. This idea of a single gold standard
is only about 50 years old to all practical purposes. It ignores the
fact that the actual money of half the people of the world is still
silver, although they admit that the market is not as great as their
population by any means, but such is the case nevertheless. We
can not create gold at \vill, and the only way in which metallic money
can be supplied adequately is by a remonetization of silver, which
ought to be an international job.
Senator COUZENS. At what ratio would you suggest?
Doctor ARENDTZ. Well, in my book I have suggested 30 to 1.
But since that was written the price level has gone much lower, the
need for reflation is greater, and I think I would lower the ratio.
Any kind of ratio within reasonable limits, anywhere from 16 to 25,
and it does not make much difference if it is an international job. Just
so it is a reasonable ratio, and a number of the leading countries do
it at the same time.
Senator K I N G . Don't you agree with Mr. Darling of the Bank of
England, that 20 to 1 with the production during the past 300 or 400
years, would not be a sufficient value with regard to gold, but rather
a return to 16 to 1 would be more Hke the natural situation?
Doctor ARENDTZ. Sixteen to one is more in harmony with nature.
But I do not think that is necessarily a determining factor in the case.
Senator L A FOLLET TE. Why do you think a remonetization of silver
would tend to stop the violent price fluctuations. We had them then,
didn't we, when silver was a part of the metallic base of money?
Doctor ARENDTZ. Not as violent by any means.
Senator L A FOLLETTE. Fluctuations were pretty violent during the
Napoleonic period and in 1860 and 1870, were they not?
Doctor ARENDTZ. In the Napoleonic period paper money prices
fluctuated violently. But the matter of credit money expansion
there comes in. Now, the fact, for instance, that China and other
silver standard countries, have not suffered as the so-called gold world
has from depression, is not due to the fact that it is just because it is
silver. But silver has been more stable, a more stable measure of



value, over the past two years. In other words, the purchase value
of an ounce of silver has fluctuated less than an ounce of gold. China
is prosperous where it has not been smashed by war or floods. Anyone who has traveled in China knows that. But the reason is not
that silver is superior to gold as a measure of value. Gold would be
as good if it were not for its top-heavy credit situation. The silver
nations have not raised that top-heavy credit structure, and their
price level has gone along, not absolutely stable, no, but without
violent fluctuations that have characterized ours.
Senator L A F O L L E T T E . H O W are you going to prevent these excesses
of credit structure being superimposed upon your double basis as well
as upon your single base?
Doctor A R E N D T Z . I suggested a while ago that the bank reserve requirements should be higher, and that the banks should be under
the discipline of the Federal reserve system always. And that is
worth something. I do not say it could stand against everything
but it would be worth something. Then another feature of that is
that I would make the reserve requii-ements gold only and not stand
on a bimetallic reserve.
Senator L A F O L L E T T E . That remedy could be applied to the money
now, if it still stood on the gold standard?
Doctor A R E N D T Z . Yes. But what are you going to do for reflation
in that case? In other words, instead of reflecting up and expanding
bank credit that would tend to hold it down. Some reflation that
would be reasonable, but rather than let that go wild again, try to
hold that down and substitute silver for bank credit.
Senator B A R K L E Y . That would not have any effect upon the socalled check credit facilities, would it?
Doctor A R E N D T Z . The banks have to hold a certain amount, a
certain percentage of their deposits.
Senator B A R K L E Y , Then they would have to hold it and not loan
it out to the public.
Doctor A R E N D T Z . Yes. .
Senator B A R K L E Y . But they could not put any restrictions on the
checking power of a man mth money in banlv.
Doctor A R E N D T Z . Bank depositors must rest on loans, to a certain
extent, although they can not loan where they are below the legal
ratio. It would stop the accretion of check deposits through excessive
loans. It seems to me that that method of silver remonetization
offers the only possibility of increasing the metallic base.
Senator T H O M A S of Idaho. Just how would you do that in the
United States in event that other countries of the world would not
Doctor A R E N D T Z . Well, there is only one way it could be done by
the United States alone without endangering the gold standard, at
least so far as I know it is the only one. I have suggested to Mr,
Somers, of the House Coinage Committee, a biU along that line. That
is, if the Treasury were to issue certificates, legal tender, at the market
value. That is, if you have 1,000 ounces of commercial bar silver
99.99 fine, that upon a deposit of that; and suppose the current
price were 25 cents an ounce, you would get 250 silver token dollars, or silver certificate dollars, legal tender, redeemable not in
gold, but in gold dollars' worth of bar sUver at time of redemption. Now, that would mean that deposits could be made at any



time and certificates given at the current market rate, and redeemed
at the current market rate at time of redemption, so that your silver
dollar could never be worth any different than your gold dollar.
The CHAIRMAN. Would you limit this to American production of
Doctor ARENDTZ. NO, sir. Of course, that opens wide the door of
speculation, to form a pool and run the silver up and unload it on
the Treasurv and let the Treasury hold the bag. But the remedy
that I ofi'ered suggested two arrangements: One would be to put a
ceiling on, that is, a certain price per ounce, above which no certificates would be issued. And if you say no certificates would be
issued at any time at a price exceeding that represented by an increase
of one-half of 1 per cent per month, at a 25-cent base at the first of
this year, that would take it out of circulation. That would prevent
Now, that proposition was criticized. I had a talk with Senator
Wheeler, and he criticized that on the ground that while it was economically sound, and might be a desirable way to do it, that it did
not pro\ade a sufficient immediate inflation. I agree to that. The
result would be slow. But it would provide steadily a full weight of
silver currency, standing on its own legs, and not a hard and fast
gold standard. The bank reserves would be the same. It would
not be hurried.
Senator CONNALLY. Of course you want to make that legal tender.
Doctor ARENDTZ. Yes.
Senator CONNALLY. It would not be tenderable on contracts calling
for gold of the present weight and fineness.
Doctor ARENDTZ. NO, sir; not legally so. But suppose you
Senator CONNALLY (interposing). I know what you are going to
say, that you can go to the Treasury and get an ounce of silver or of
gold. But legally it would not be tenderable in payment of obligations calling for gold of the present weight.
Doctor ARENDTZ. No. But all you have to do is to put in an
order to sell enough silver to supply the gold you want on the New
York metal market.
Senator CONNALLY. Oh, I understand what you mean, the same as
any commodity. For instance, if you have a bushel of wheat you can
sell it and get gold and pay your debt.
Doctor ARENDTZ. Yes, sir.
Senator CONNALLY. But it does not meet the objection that has
been urged here to have plans for revaluing the dollar?
Doctor ARENDTZ. NO, sir.
Senator L A FOLLETTE. H O W do you meet the argument of those
who want a remonetization of silver with the fixing of a ratio which is
arbitrary and which is subject to the same human reactions as apply
in the case of managed currency to which you refer.
Doctor ARENDTZ. The fixing of the ratio is of course arbitrary.
But if it is fixed by international agreement I can see no possible
reason why any reasonable ratio could not be maintained indefinitely.
I have heard that the opinion has been given by people high in authority—well, not in authority, but who are authorities on the subject,
that I can not name, that the United States could hold a ratio alone
mdefimtely. But I do not feel convinced of that.



Senator L A F O L L E T T E . Assuming that the United States could
alone hold a ratio, why wouldn't there be the same pressure accompanying fluctuations in the business cycle; I mean, to change the
ratio, that you predict would be the case if we attempted a managed
D O C T O R A R E N D T Z . I think if you simply increased your metallic
base and then put the brakes on credit inflation, you would not get
the violence of cycles.
The C H A I R M A N . In that case how would you limit inflation?
How could it be done?
Doctor A R E N D T Z . I suggested that the bank system be brought
entirely into the Federal reserve, so that there would not be any banks
that were nonmenibers. And, secondly, that the reserve requirements should be raised.
The C H A I R M A N . Supposing that were done, and supposing they
conformed to all the rates necessary, and all the provisions that you
mention now, when that limit was reached then what would happen?
Doctor A R E N D T Z . If they ran up to that limit you would get a
certain amount of inflation. I do not think it is avoidable.
The C H A I R M A N . That is exactly what would happen.
Dr. A R E N D T Z . Yes. You can not keep an absolute level.
The C H A I R M A N . And we would be back into an inflation period at
Senator K I N G . If there should be through some act of providence
an outpouring of gold in the United States, $350,000,000 or $400,000,000 worth to-day, and then, a substantial production new, and
say it should be a $1,000,000,000 a year, there would be a tremendous
inflation in the sense that we are using the word now.
Doctor A R E N D T Z . Quite so.
Senator K I N G . For centuries gold and silver circulated in all
countries of the world, until 1893 practically, at a ratio of 14K to 16
to 1.
Doctor A R E N D T Z . Yes, sir.
Senator K I N G . While there were some differences they were brought
about by paper money issued in the Napoleonic wars and other conditions. But by and large wouldn't there be a proper relation between
the two metals, largely the result of natural laws, the production of
about 14K ounces of silver to 1 ounce of gold, which Has been the
situation ever since the days of the discovery of America in 1492?
Doctor A R E N D T Z . Yes, that is true. But if you take that bimetal
base and then raise a corresponding credit structure higher upon it,
you would have the same trouble again, wouldn't you But if you
held down the credit expansion by increasing bank reserves, keeping
f^old alone as reserve metal, that is required for reserves, silver not
egal, the legal tender in circulation but not permissible for reserve
purposes, then you have a metallic currency upon which you can not
build a top-heavy credit structure, and you have got the possible
limits of credit expansion, setting board reserves. Now, I am not
arguing that you can prevent expansions and contractions of credit.
I am not arguing that at all. I do not think you can prevent or
entirely smooth out business cycles by any one thing at any time, but
I think the violence of them can be greatly curtailed by curtailing



Senator COUZENS. At that point let me ask you: Would it be
possible and would it be effective to increase the reserves necessary
by edict of the Federal Reserve Board, in order to stop an expansion
of credit, instead of changing the rediscount rate?
Doctor ARENDTZ. At the present time I do not understand that the
Federal Reserve Board has authority to do that.
Senator COUZENS. NO. But I am asking you in case they were
given that authority by law, if when an expansion of credit is in
evidence the bank reserves might be increased.
Doctor ARENDTZ. There comes in the same difficulty that* they
had in 1928, when, in order not to hurt business, they refrained from
using the powers they then had of checking credit expansion. Now
you are going to give them some more powers to check credit expansion, and in a like situation will they use it? ^
Senator COUZENS. Is it possible to make it mandatory upon the
Federal Reserve Board when commodity prices reach a certain level
to increase the reserves so as to decrease expansion?
Doctor ARENDTZ. It might be possible to make it manatory, but
it may not be a matter of commodity prices. Commodity prices
do not go up much in such a period. For instance, they were very
stable in the period from 1922 to 1929. The thing would not have
acted at all. It was security prices that went wild. It was the
matter of securities upon which the speculative fervor impinged as it
were, not commodities. So that would not fit the case at all.
Senator COUZENS. Have you any suggestion as to how the Federal
Reserve Board could by law be given a mandate to prevent what
occurred in 1929?
Doctor ARENDTZ. Well, perhaps it might be said that it had a
mandate then, but did not exercise it to a certain extent.
Senator COUZENS. ^Vhat was its mandate then?
Doctor ARENDTZ. For example, it could have raised interest rates
in 1928. It might have sold securities. It might have taken on open
market operations.
Senator COUZENS. A S a matter of fact, we were so mad in 1928 that
anything like a reasonable rediscount rate would not have affected
the situation, would it?
Doctor ARENDTZ. NO, not anything. But when interest ratesgot up
high it turned it. But I think that brings us to the crux of the whole
thing, and that is, when you get into a period where the mentality is
a mentaUty of speculation, a new era, prosperity is going onward and
upward, no powers that you give to human beings will be exercised.
If you have a hard and fast law that a bank can not loan unless it
has 25 per cent, for instance, of reserves against its deposits, it gets
to a limit that it can not pass.
Senator R E E D . Doctor Arendtz, you are telling us how to stop the
next boom. What I want to know is, how to start it.
Doctor ARENDTZ. I spoke of that a while back. We ought first to
cut governmental expenditures down to what the public can afford to
pay, and balance the Budget. Secondly, we ought to make an effort
to hft the price level somewhat.
Senator R E E D . Wouldn't the price level lift itself if we could
restore confidence?
^ Doctor ARENDTZ. Yes, that is true. If you could restore confidence
It would. But, again, wouldn't the very primer that restored con



fidence itself bring about an increase of purchasing power? It would
raise the price level. Could you restore confidence by edict?
Senator R E E D . Y O U can restore confidence by balancing the Budget
and making sure there will be no inflation.
Doctor A R E N D T Z . That would help undoubtedly.
Senator R E E D , It would stop hoarding instantly.
Doctor A R E N D T Z . I think so. But it will not probably be possible
to entirely do it. It would not seem so with the amount that has got
to be spent for relief, it would not seem that in addition to the general
governmental expenditures the giving of this relief would permit of
the Budget being absolutely balanced. You can not let people starve
in the streets.
Senator R E E D . Certainly not, and I am not proposing that.
Doctor A R E N D T Z . That will mean that anyway for the time being
budgets can not be balanced entirely.
Senator C O U Z E N S . Y O U can not go out and' feed crowds of people
and balance the Budget, because these are extraordinary times, and
you can not raise enough money to balance the budgets.
Doctor A R E N D T Z . But if you will cut costs in the way I have suggested you will approach that as nearly as possible.
Senator C O U Z E N S . What confidence are you going to restore whan
the people are undoubtedly terrorized of hav-ing their incomes cut
off? How are you going to get confidence by that procedure?
Doctor A R E N D T Z . Well, as to facing having their incomes cut ofi^, as I
stated before, I do not think the solution lies in firing a lot of people
and keeping the rest at the same salaries. I thinJc it consists in
increasing employment at the expense of lower wages. Now, that is
one thing, and beyond that 1 think a primer is going to be necessary.
Senator R E E D . What primer do you suggest?
Doctor A R E N D T Z . I have suggested the remonetization of silver as
the only practicable one, and that it ought to be done on a fixed ratio
by international agreement.
Senator R E E D . The present ratio of silver to gold is about 80 to 1
on the markets of the world.
Doctor A R E N D T Z . Yes, sir.
Senator R E E D . If we tried to stabilize silver at 16 to 1 or 20 to 1,
what would prevent our becoming the recipient of all the silver in
the world?
Doctor A R E N D T Z . Well, not all of it, but the available surplus,
probably. You understand that China can not send us all the money
they have. That is impossible. And India can not send us the only
money they have. Silver which is in actual use can not be sent over
Senator R E E D . They have 400,000,000 ounces of silver by way of
surplus at this time, haven't they?
Doctor A R E N D T Z . I woidd say that were Senator 'Wheeler's bill
enacted into law, and the United States attempted to remonetize
silver at a ratio of 16 to 1, the result would be something like this:
In the first place, the thought that silver is disastrous has been instilled
into the minds of business men, so much so that you might get a run
on gold to start with. I do not know how far, but it might do some
damage. But firm measures that gold would be paid on demand, and
Avithout limit, would probably stop such a run. But beyond that
the first effect would be to raise the price of silver to $1.28 an ounce




Now, the second effect would be a flood of orders for lumber, wheat,
cotton, and copper from the Orient. That is, oriental trade would
come to the United States. For instance, if lumber is at $12 a thousand
feet, and you translate that into the Chinese silver dollar, which is
now five times that, but if you tell him he can pay for that lumber
with 12 silver dollars in his money, he will order the goods from us.
Now, I do not mean permanently and forever, but there would be a
temporary stimulation, a rush of orders from the Orient. No other
country could get any orders under those conditions, and America
would have them. And we would get their silver for that. And to
what extent, you say?
Senator K E E D . Yes.
Doctor A R E N D T Z . Well, figuring that the Indian government
would take that opportunity to sell some of its silver—and there is
another reason why they could not sell very much—and the surplus
stocks in Shanghai would come, I would figure that perhaps 600
million dollars to 650 million dollars' worth would be dumped on the
United States within a six months' period, or a year anyway. And
it would come at the point of time when there would be new orders
for our goods.
The C H A I R M A N . H O W much did you say?
Doctor A R E N D T Z . I said $ 6 0 0 , 0 0 0 , 0 0 0 to $ 6 5 0 , 0 0 0 , 0 0 0 . That is
only an estimate. The story about huge stocks of silver waiting to
be dumped on the United States is simply a myth. There aren't
any such stocks of silver.
The C H A I R M A N . There are about 1 1 , 0 0 0 , 0 0 0 , 0 0 0 ounces produced
in the world.
Senator K I N G . Not produced, Mr. Chairman, but in existence.
The C H A I R M A N . N O ; that has been produced.
Senator K I N G . That is, in existence to-day?
T h e CHAIRMAN. Y e s .
Senator COUZENS. How
Doctor A R E N D T Z . That

much per annum?
has varied a good deal. At the highest it
was 262,000,000 ounces, and at the present time about 160,000,000
Senator COUZENS. Would it be practicable to put a limit on silver
without putting a limit on production, or the amount of silver
Doctor A R E N D T Z . N O ; I do not think so. The minute you do that
you get a bullion value in your coin out of line with the value outside
and uncoined.
Senator K I N G . Might I interrupt you right there? Isn't it a fact
that in the Pittman bill, when silver was worth $1.38 an ounce, and
in Great Britain $1.72 an ounce, there was no e?q)ort of silver from
China or India? We had no invasion or inundation of silver in this
Doctor A R E N D T Z . No.
Senator K I N G . And isn't it true that when Germany and two or
three European countries, after the discovery of gold in California and
Australia, and they believed that gold was the cheap money, and they
demonitized it, and went to the silver standard, that there was no
great export of silver into those countries that had demonitized gold
and made silver their sole standard?
Doctor A R E N D T Z . When did they make silver their sole standard?
Senator K I N G . In 1 8 5 7 , Great Britain



Doctor A R E N D T Z (interposing). No; not Great Britain.
Senator K I N G . I meant Germany, and one or two countries there,
I think including Belgium.
Doctor A R E N D T Z . A S to the supphes that would come out, that is
the point at issue?
Senator K I N G . Yes.
Doctor A R E N D T Z . The portions that are undoubtedly held in
India and in China in private hoards would not come out. Of that I
feel no doubt whatever, because those savings are the savings of the
poor and middle-class people. They are kept not for speculative
purposes, but, like savings deposits of the poor and middle-class
people here, a man there will accumulate a little silver by way of
ornaments or of silver bullion, against the marriage of his daughter,
or a death in the family, or his own death, or famine, and all experience has shown that that comes out only when the contingencies arise,
and never because of a change in the gold value of the silver they have
hoarded. A price of $1.35 or $1.38 in 1919, which we had, brought no
more than 50,000,000 ounces out of China. I think that shows pretty
clearly that those hoards will not come. They are performing their
function, and it will stay there. You won't get those.
Now, future production would be stimulated, we ^vill say. I have
the figure in that $600,000,000 to $650,000,000 possibly, of Spain
selling a lot of silver, of their saying: Here is a good chance to sell it.
And the Indian Government, although there are good reasons why
they would not, of doing the same thing. Taking the situation all
over probably it would be somewhat less than that figure that has
been mentioned.
Senator COXTZENS. H O W long a time would it take for silver to run
from its present price up to $1.28.
Doctor A R E N D T Z . Well, if it were receivable at the American
mint at that rate I would say it would jump to it almost over night.
Senator C O U Z E N S . In other words, could they bring it out and
make delivery so as to raise it from 25 cents to $1.25 over night?
Doctor A R E N D T Z . Well, over night is a bit exaggerated, but within
a week or two.
The C H A I R M A N . The price would rise over night?
Doctor A R E N D T Z . Yes, sir; but delivery might be postponed. The
question would come as to holding it there.
Senator C O U Z E N S . But what about delivery, which might mean
that it would come out rapidly enough to jump the price from 25
cents to $1.25?
Doctor A R E N D T Z . I think if the United States Mint stood there
offering that price; regardless of the amount that came out the price
would go up, amounts would flow in, in other words. But I can not
see any possible way by which anyone can find such huge silver stocks
as they talk about inundating the country. That is impossible.
Senator C O U Z E N S . It would not make much difference to what
price it went, so far as deliveries were made, how long it took to make
Doctor A R E N D T Z . D O you mean in the matter of the flow of silver
to the United States?
Senator C O U Z E N S . Yes; because it does not make much difference
as long as you do not get a quantity.




Doctor A R E N D T Z . I would say that it would flow in in about a six
months' period. Then you would settle down to taking the surplus
. i ^ ^
Senator COUZENS. And if it did not have a beneficial ettect we
could repeal that law?
Doctor A R E N D T Z . Yes. But if you did you would have that
currency on your hands. It would let it go down.
Senator COTJZENS. N O , if we agreed to buy it at a certain ratio.
Doctor A R E N D T Z . Pardon me. What was that question?
Senator COUZENS. If we bought it from the stocks of silver of the
world, taken over a period of six months when you said the deliveries
might occur.
Doctor ARENDTZ. Suppose you have taken 6 0 0 dollars of silver and
coined it, then you would have 6 0 0 , 0 0 0 , 0 0 0 dollars of silver or of
certificates in circulation.
Senator COUZENS. Yes.
Doctor ARENDTZ. How can you get rid of that except by redeeming
it and selling it in the open market? And if you do you bring the
price down again and injure what you have in service.
Senator COUZENS. I mean retaining the 6 0 0 , 0 0 0 , 0 0 0 dollars of
silver and issuing certificates therefor; so that the 6 0 0 , 0 0 0 , 0 0 0 dollars
of silver would always be on hand with which to redeem the
Doctor ARENDTZ. Yes, but the price would no longer be sustained
once you closed the mints.
Senator COUZENS. If the holders did not cash in the silver certificates it would not be particularly necessary so long as we had the
value of it.
Senator K I N G . We have more than $ 4 0 0 , 0 0 0 , 0 0 0 of certificates
circulating, based upon what we have. In addition to that, we have
$200,000,000 of half dollars, quarter dollars, and dimes, perhaps not
of silver actually coined but the silver certificates are circulating.
Doctor ARENDTZ. The bulhon value is about 2 0 cents.
Senator K I N G . Or 2 5 cents.
Dr. ARENDTZ. N O , I think about 2 0 cents now, to be accurate.
Senator CONNALLY. It gets its value bacause redeemable in gold.
Doctor ARENDTZ. Yes, obviously.
Senator CONNALLY. Doctor Arendtz, how about the relative increase of gold in the world and other wealth. You said gold increased
about 2 per cent annually.
Doctor A R E N D T Z . The figures I have from the World Almanac
show a very small increase. In 1923 it was 17.8, in 1924 it was 19,
in 1 9 2 5 It was 1 9 , in 1 9 2 6 it was 1 9 . 4 , and in 1 9 2 7 it was 1 9 . 5 .
Senator CONNALLY. What do you mean by that?
Doctor A R E N D T Z . Million ounces, these are.
Senator CONNALLY. What percentage of that is over the volume
of gold m existence.
Doctor A R E N D T Z . I can not tell you offhand.
Senator CONNALLY. Has gold been increasing in production in
about the same ratio as other production?
Doctor A R E N D T Z . N O , less.
Senator C O N N A L L Y . Exactly. In other words, one reason why
gold is so dear now is because it has not increased m volume of production m the same ratio as other wealth.



Doctor A R E N D T Z . That is one reason, the reason that started it.
The other reason is that a collapse of credit started a great demand
for it.
Senator C O N N A L L Y . A S long as that goes on in that sort of ratio
gold will get dearer and other commodities will get cheaper.
Doctor A R E N D T Z . If that continues.
Senator C O N N A L L Y . Italy and France did in fact revalue their
money, didn't they?
Doctor A R E N D T Z . Yes.
Senator C O N N A L L Y . You say that gold and silver have been increasing since 1492 on a ration of about 14^ to 1.
Doctor A R E N D T Z . Silver has been more than 14}^ to 1 of gold on
the average, but it has been that average in that period.
Senator C O N N A L L Y . Then the average for the period has been
14/2 to 1?
Doctor A R E N D T Z . Yes.
Senator C O N N A L L Y . Gold to-day is worth out of all proportion to
that relationship, about 80 to 1, although the volume of silver and
gold is about 14K to 1. Now, isn't it true that the reason gold is
worth so much more than silver is because the demand for gold as
money has created an artificial value for gold?
Doctor A R E N D T Z . Yes, sir.
Senator C O N N A L L Y . Otherwise if they were both purely commodities, and neither one had seny money value, it would have some fair
relationship of value in proportion to their volume?
Doctor A R E N D T Z . They might, depending upon the relative demand for both of them.
Senator C O N N A L L Y . To be sure. But I say if in the arts and
sciences they were purely commodities. So that by reason of being
coined by the Government as money gold has obtained a value out
of proportion to silver.
Doctor A R E N D T Z . Yes, sir.
Senator C O N N A L L Y . Your idea in remonetizing silver is to bring
down the value of gold?
Doctor A R E N D T Z . Yes, sir.
Senator C O N N A L L Y . Y O U want to cheapen gold money, and your
plan is to make it, arbitrarily by law, cheaper by lifting up silver.
Doctor A R E N D T Z . Diluting it with silver is a good word.
Senator C O N N A L L Y . Or, bringing in silver means the same thing.
So your idea is that the value of gold ought to be reduced and you
are going to reduce it by saying that instead of its being worth SO to 1
it is 20 to 1, and your purpose is to make the gold dollar cheaper.
Doctor A R E N D T Z . Yes, sir.
Senator C O N N A L L Y . And any other reduction in the value of gold
which would be practicable would have the same effect, wouldn't it?
Doctor A R E N D T Z . Yes, sir.
Senator C O N N A L L Y . But your silver dollar, as you said a while ago,
would not be tenderable in payment of debts wMch had a gold clause,
except on account of their interchangeability with gold.
Doctor A R E N D T Z . Quite so.
Senator C O N N A L L Y . N O W , your idea is to make silver money, but
you want to prevent the. importation of as much of it as possible from
other countries.




Senator C O N N A L L Y . If it is desirable to make silver money why
not have it all?
Doctor A R E N D T Z . Do you mean to attract importations R
Senator C O N N A L L Y . Yes.
Doctor A R E N D T Z . The only reason is this, that ultimately, it we
stand as the only nation maintaining a fixed ratio, that as production
Senator CONNALLY (interposing). But we would bave all the
silver and other countries would have all the gold.
Doctor A R E N D T Z . They might very readily say: Here is a chance
for us to increase our gold reserves at the expense of America, and
proceed to do that.
Senator CONNALLY. If silver is worth 2 5 cents an ounce and by
law you made it worth $ 1 . 2 5 , every country on earth that could get
silver over here would get it over here and swap it for gold.
Doctor A R E N D T Z . I think you exaggerate that.
Senator Connally. Well, if a Chinaman had some tea, and it was
worth only 20 cents a pound in the United States, but we arbitrarily
made it go to $1.29 a pound, he would send all of his tea over here,
wouldn't he?
Doctor A R E N D T Z . A S much as he could.
Senator C O N N A L L Y . Wouldn't he do the same thing with silver?
Doctor A R E N D T Z . A S much as he could, but he cannot send all the
money he has.
Senator C O N N A L L Y . If he swaps it for gold he would then do that?
Doctor A R E N D T Z . They would never do that.
Senator C O N N A L L Y . Well, a Chinaman even knows the difference
between 2 0 cents and $ 1 . 2 9 , doesn't he?
Doctor A R E N D T Z . That is quite true, but when silver is worth
$1.29 there is no benefit in his swapping it for gold. And, besides,
the East will never turn to gold. It is impracticable. Any man who
has lived in the East knows it. But Europe might do it.
Senator C O N N A L L Y . Well, I have never Uved there.
Doctor A R E N D T Z . IS it your idea that he has a dollar worth 2 0 cents
that he can get $1.29 for?
Senator C O N N A L L Y . That is your proposition, that he can bring it
over and have it minted into a dollar.
Doctor A R E N D T Z . Then it becomes a dollar, and he has a dollar,
and why exchange it for gold?
Senator CONNALLY. Because the only way he can get such a value
is to exchange it in this countiy.
Doctor A R E N D T Z . He may use it with which to buy goods.
Senator C O N N A L L Y . To be sure. And he might sell it to buy silver.
Doctor A R E N D T Z . That is true.
Senator CONNALLY. Your idea is that by the recoinage of silver we
would benefit ourselves by making the property and money of other
countries more valuable than it is.
Doctor A R E N D T Z . It would certainly get a sheaf of new orders.
Now, whether the subsequent effect would be undesirable is another
question. But there is no question about its bringing, in my judgment, a temporary rush of new orders.
Senator L A F O L L E T T E . What would happen to prices in China?
Doctor A R E N T D Z . Chinese prices would move slowly. The country
IS so vast, the number of people there so great, the customary scale



of prices prevail, and it is only very slowly they could lower wages
and prices to suit that change in what is to have the price of the
American dollar in their markets. That is quite a complicated
question, international exchange, but the upshot of it I think is this:
That actually it would end by lowering the value of gold really more
than-—that is, the purchasing price, more than it raised the purchasing
power of silver. It is only very slowly that the East could change
its price level.
Senator L A F O L L E T T E . If you had a large stimulation in production
of silver, which is a by-product of other metals mined more largely,
what would happen to prices of the primary product?
Doctor A R E N D T Z . Unquestionably remonetization of silver at a
higher price level would stimulate production. How much I do not
know, nor does anyone know. The highest it has gone was 262,000,000 ounces, no higher. Now, tmder this plan whether it could
be pushed higher I can not say. Probably it might, and how much
1 do not know, nor does anyone else know. But obviously an increase
in production of silver would tend to increase the production of these
metals, largely by-products, and some two-thirds or three-quarters
of the production is a by-product production of silver, and it would
increase their production too, without any doubt.
Senator L A F O L L E T T E . And prices might tend to come down.
Doctor A R E N D T Z . Unquestionably that would tend to influence
the prices of those particular metals. For instance, copper, zinc, and
lead, which are the only ones involved, might go more downward.
The C H A I R M A N . It is now time to recess.
Senator B A R K L E Y . Just one question, Mr. Chairman, before you
recess: Doctor Arendtz, to sum up your suggestions, if I may, your
remedy for this situation is three-fold: First, balance the budget,
second, remonetize silver, and, third, raise the reserve requirements
of banks, and provide that they shall all be compelled to come under
the Federal reserve system.
Doctor A R E N D T Z . Yes. The last is not so much a remedy for this
situation as it is a prevention of a repetition of it.
Senator W A L S H of Massachusetts. A public check on credits?
Doctor A R E N D T Z . Yes.
Senator B A R K L E Y . IS that a fair summation of your suggestions?
Doctor A R E N D T Z . I would say so.
The C H A I R M A N . It is now about 12 o'clock and we must recess.
Doctor A R E N D T Z . I thank you gentlemen.
The C H A I R M A N . The committee will now rise to meet again at 2
o'clock in this same room.
(Thereupon, at 12 o'clock noon the committee recessed to meet at
2 o'clock p. m. the same day.)


The committee reconvened at 2 o'clock p. m. Tuesday, February 14^
1933, at the expiration of the noon recess.
The C H A I R M A N . The committee will come to order. Is Mr. Peek
M r . P E E K . Y e s , sir.







The CHAIRMAN. Give your name and address for the record, Mr.
Mr. P E E K . George N. Peek, Moline, 111.
^ ^
, ^
The CHAIRMAN. Whom do you represent, Mr. Peek?
Mr. P E E K . I represent no organization at the present time.
The CHAIRMAN. YOU are here personally?
M r . PEEK. Y e s , sir.
The CHAIRMAN. YOU may proceed.
Mr. P E E K . In appearing before your

committee in response to your
invitation, I want to say in advance of my regular remarks that I
started my studies of the agricultural question largely from the industrial angle. I was engaged in a line of business, the manufacture of
agricultural implements, depending wholly upon the farmer for its
Senator HARRISON. What firm is that?
Mr. PEEK. Dependent largely upon the American farmer.
Senator HARRISON. I mean what firm are you connected with?
Mr. P E E K . I was president of the Moline Plow Co., at that time,
and previous to that time I had been with Deere & Co., except during
the period of the war when I was a member of the War Industries
Board. My investigations led me very soon to the close relationship
between agriculture and all American business and the importance of
agriculture to our whole social and economic structure. I want to
bring that out because frequently in discussing the farm question a
great many people conclude that that is something off by itself and
more or less unrelated to our national economy.
In discussing the causes of the existing depression and possible
legislative remedies, upon the invitation of your committee, I shall
review primarily the relation of the prolonged agricultural depression
to the general depression which followed, and suggest in some detail
the principles of legislation which I consider necessary to incorporate
into law to relieve the depression in agriculture in so far as prices
are concerned.
If time permits I shall comment briefly also upon some other
agricultural legislation which now seems imperative. Legislation is
1. To correct price disparity and to prevent or minimize its recurrence.
2. To remove some of the burden of debt and interest charges.
3. To restore foreign outlets for American products.
4. To reduce local, State, and Federal expenses, in order that taxes
may be brought into proper relation to reduced earnings and incomes.
5. To provide short-term credit and banking facilities where they
are now lacking.
6. To provide a more adequate and better adapted rural credit
system to remove discrimination between agricultural and other
7. To inflate the currency if the foregoing are insufficient.
In my judgment this unparalleled depression is due in large part
to mistaken national policy throughout the last 12 years. Unfortimately for the Nation, we followed the insular English policy of
three-fourths of a century ago and attempted to become a financial



and commercia] Nation. Apparently this was done without due
regard to agriculture and without a clear conception of the fact that
we are a great continental Nation capable of sustaining a standard of
Hving peculiar to ourselves by maintaining a fair relationship between
our major economic groups. Our banking and industrial leaders
seem to have lost sight of the vastly greater importance to the Nation
of the purchasing power of some 70,000,000 to 80,000,000 of our people
dependent directly and indirectly on the basic industry of agriculture
than the relatively meager foreign trade in industrial commodities we
have enjoyed.
Our national policy for the expansion of foreign trade in industrial
products, without taking into account its effect upon agriculture and
related industries, was a mistaken one. We have been trying to
raaintain our industrial war-time facilities at a capacity above peacetime demands. We have loaned abroad more money than is represented by our entire war debt upon the theory, I assume, that it
would be used particularly to buy our industrial products. We have
put the facilities of our gigantic Department of Commerce behind the
movement to expand foreign trade, just as though we were a debtor
nation as we were before the war, instead of a creditor nation as we
emerged from the war. We had nearly held the gold supply of the
world, so that foreign nations could not pay us in gold, and we prevented their paying us in goods and services by our tariffs, while at
the same time we have insisted upon the payment of war debts. We
have gone further, to the extent that we have captured foreign markets
we have interfered with the normal relations of other countries
between themselves. Under such conditions it is not surprising that
many nations have erected trade barriers aimed to protect their own
This deliberate and urgent expansion of f o r e i ^ trade in industrial
products either consciously or unconsciously ignored the greater
importance of foreign trade to agriculture than to other industry.
It ignored also the greater importance of our domestic trade from
which we obtain 92 per cent of our whole national income. In the
23 years-from 1910 to 1932 the total income from all exports averaged
7.45 per cent of the whole national income, but the proportion of
agricultural income attributable to agricultural exports was 17.86
per cent, while the proportion of industrial income attributable to
industrial exports was only 5.21 per cent. (Details for these figures
are given in Exhibits 1 and 2.)
In the recent national campaign the President elect recognized the
necessity to our general business recovery of restoring the purchasing
power of agriculture. In Atlanta, on October 24, 1932, he said:
. * f * let me make clear in as emphatic words as I can find the fundamental
issue in this campaign. Mr, Hoover believes that farmers and workers must
wait for general recovery, until some miracle occurs by which the factory wheels
revolve again.
No one knows the formula of this miracle.
on the other hand, am saying over and over that I believe that we can restore prosperity here in this country by reestablishing this gigantic purchasing
power of half the people of the country, that when this gigantic market of 50,000,000 people is able to purchase goods, industry \vill start to turn, and the
inulions of jobless men and women now walking the streets will be reemployed.

Again, in Boston, the week before election, he said:





We need to give 50,000,000 people who live directly or indirectly on agriculture
a price for their products in excess of the cost of production. That wiH give them
the buying power to start your mills and mines to work to supply their needs.
They can not buy your goods because they can not get a fair price for their

The C H A I R M A N . I suppose you will tell us in this article how that
can be done, will you not?
Mr. P E E K . I will give you my views; yes, sir.
Let no one .doubt that the results of the election meant general
approval of the views expressed above. Having thus quoted the
President-elect himself defining his position, it is important briefly to
review what has happened to agriculture.

The conscious deflation of agriculture began in 1920 when the
Federal Reserve Board determined to reduce commodity prices.
Congress became disturbed at the severity of the agricultural
depression which immediately resulted, and in June, 1921, appointed
a joint commission of agricultural inquiry to determine the cause of
the agricultural depression.
The commission made its report in October, 1921, but it failed to
report the cause of the agricultural depression. The depression continued and in January, 1922, President Harding called a national
agricultural conference. This conference brought to the attention of
Congress and the President the disparity between the prices of
agricultural and industrial commodities in the following language:

Agriculture is necessary to the life of the Nation; and, whereas the prices of
agricultural products are far below the cost of production, so far below that
relatively they are the lowest in the history of the country; therefore, it is the
sense of this committee that the Congress and the President of the United States
should take such steps as will immediately reestablish a fair exchange value for
all farm products with that of all other commodities. (From H. R. Document,.
No. 195, Report of the National Agricultural Conference, January 23-27, 1922,
p. 171.)

No immediate action was taken either by Congress or by the
President on this unqualified finding and recommendation. In the
spring of 1924, at the instance of Secretary Henry C. Wallace, legislation was introduced in Congress addressing the discriminatory
situation as to farm prices. This legislation was defeated in the
House of Representatives.
The disparity continued in \arying degree, but only in 1925 did the
farm dollar recover as much as 92 per cent of its pre-war purchasing
power. (The detail of that information is given on exhibit No. 3,
column 2.)
^ The fann depression continued despite feverish activity in many
industries and sections of the country. In 1927 and again in 1928
Congrep passed legislation addressing the disparity between agri^iturai and mdustnal prices and aimed to correct this disparity.
1 his legislation was twice vetoed.
In 1929 the agricultural market act, creating the Farm Board,
became a law. It has failed completely to correct this disparity.
1 may say that the sponsors of that act never intended that it should




raise farm prices, and that it was not proposed by leaders of farm
thought. Some farm leaders, however, accepted it on the theory
that a half loaf is better than no bread at all I shall be glad to
supply information on this point in greater detail if it is desired.
^ The farmer did everj^thing in his power to carry on. He increased
his efficiency in every possible way. He bought tractors, combines
and other labor-sa^dng devices to the value of hundreds of millions
of dollars. He doubled his fertilizer purchases. He improved his
crops, livestock, and farming practices, all to meet the ccy of the
business fraternity that he must become a more efficient producer.
His only means of meeting his problem was to produce more units
at a lower unit cost to meet his constantly rising expense in the face
of lower prices.
By 1929 agriculture had practically exhausted its accumulated
resources if it was to continue as a normal purchaser of industrial
Farm income fell from almost $17,000,000,000 in 1919 to $5,240,000,000 in 1932, a drop of 70 per cent. (Details of these figures are
given in exhibit 3, column 1.)
A computation that I have made from Government data indicates
that if the farmer had received for his products only the same relative
prices from 1920 to 1932 mclusive that he received in the prewar
period (1909-1914), which is generally accepted as a normal one, he
would have received $27,500,000,000 more than he did receive. (That
data is given in exhibit 3, column 3.)
This vast sum reflects only the shortage in exchange value of all
agricultural commodities in relation to industrial commodities, computed for the period from 1920 to 1932. It does not reflect the price
relations of particidar commodities within the agricultural group.
(As shown on exhibit 4.)
Some of these have been almost unbelievably low in their returns
(grain and livestock, for example), while others have held up fairly
well. The result of this discrepancy as between different agricultural
commodities is evidenced by the varying depths of the depression in the
different sections of the Nation where they are produced.


In 1910 agriculture received 22.6 per cent of the total national
income. In 1919 this had risen to 27.5 per cent. In 1921 it dropped to
15.3 per cent, while the average for the three years 1930 to 1932 was
13.3 per cent. (The details are given in exhibit 5.)
As an average for the 5-year period 1910 to 1914, agriculture
received 21.5 per cent of the national income. (See exhibit 5, column
3.) In the period from 1920 to 1932, inclusive, the total national
income was $900,685,000,000. Had agriculture received a ratable
share of this income its receipts would have been $193,687,000,000.
They were $135,128,000,000, or $58,519,000,000 less than its ratable
share, had the 21.5 per cent of the pre-war period been preserved.
This comparison assumes a fair relation to have existed in the period
1910 to 1914.

In addition to the great disparity in the exchange value of his commortgage debt increased from $3,320,000,000

modities, the farmer's



in 1910 to $7,858,000,000 in 1920, and to e$9,468,000,000 in 1928.
Then the volume of farm foreclosures began to evidence itself m a
decreasing total mortgage debt which is now estimated to stand at
about $8,500,000,000. In the face of a catastrophic fall in his income,
he has had to pay interest on an enormously increased debt.
The CHAIRMAN. Have you anyfinguresto show what caused that
increase? The cause of the increase from $3,320,000,000 in 1910 to
$7,858,000,000 in 1920?
^ ^
Mr. P E E K . Only as I reflect the figures that show the decreased
income to the farmer.
Senator SHORTRIDGE. NO, the increase of the debt.
The CHAIRMAN. What I want to know is this: Have you analyzed
it and seen just exactly why, and what was the source, and the
reasons for it?
Mr. P E E K . D O VOU refer. Senator, to the possible increased value
of land?
The CHAIRMAN. No. You say ''the farmer's mortgage debt
increased from $3,320,000,000 in 1910 to $7,858,000,000 in 1920.''
Senator R E E D . Because there was a boom in farm land prices.
The CHAIRMAN. I wanted to know whether you have analyzed
that and whether it was on account of purchases that he made, or the
investment in lands.
Senator SHORTRIDGE. Why, of course.
The CHAIRMAN. And whether it came about from change in his
living conditions. I simply ask you whether you have analyzed it
and whether you have the figures to present.
Mr. PEEK. 1 have analyzed it from the standpoint. Senator, of the
decreased relationship of the prices of liis commodities and the prices
that he had to pay.
The CHAIRMAN. NO, that is not what I mean. In other words, was
the standard of living between those years such that it would make the
difference between the figures quoted in your statistics?
Mr. P E E K . Well, I can not give you an exact application of that.
Senator SHORTRIDGE. You allude to that on page 6. You say he
improved liis crops.
Mr. P E E K . If I may complete my analysis. Senator, I \vill be glad
to get any further data that I can which you desire.
The CHAIRMAN. Very weU.
Mr. P E E K . A further measure of the progressive impoverishment of
agriculture is the decrease in the value of its capital assets that has
accompanied the increase in its mortgage debt, as follows:
Relation of capital value to mortgage debt


Value of
plant ($1,000)1 debt ($1,000)

ftni 1^0 R
oUl, 1
c OQ tftAd
D , olD, UfO

I Land and buildings.

2 Approximately.

to, ooft A7n
5o o/y, "i/u
7 on? '7nn

8 8,500,000



The decrease in mortgage debt between 1930 and 1932 is due almost
wholly to wiping out debt and farmer alike by foreclosure. Recourse
to foreclosure proceedings apparently is rapidly coming to an end as
evidenced by recent occurrences in Iowa, Arkansas, and many other
agricultural States.

Farm real estate and personal property taxes alone have increased
from $292,000,000 in 1914 to nearly $777,000,000 in 1930, an increase
of 166 per cent. The average amount of taxes per acre in 26 states
has increased so that in 1930 they stood 245 per cent of 1913, according
to the figures of the Department of Agriculture.
Senator K I N G . Have you any figures showing the valuation per acre
throughout the United States for taxable purposes?
Mr. P E E K . I have no figures here.
Taxes and interest, which amounted to about 20 per cent of farm
production expenses in the pre-war period, had risen to 40 per cent
in 1930.

A great exodus from the farms started with the 1920-1921 agricultural breakdown. For ten years, beginning in 1920, migration was
at the rate of about 2,000,000 people a year. But about one-third
of this number found their way back to the farms after milling around
in the cities looldng for jobs and adding to the army of unemployed.
(The details of that figure are given in Exhigit 6.) Many cities regarded this influx as new population, and built hotels, apartment
houses, office buildings, and homes to take care of it, many of which
now stand nearly empty as a monument to mistaken judgment.

During this period since 1920 while the tide was running so strongly
against the farmer, the cost of the things he had to buy was prevented
from declining proportionately to the things he had to sell. This was
due to the organization of industry and labor which enabled them to
carry on behind successive tariff acts, as follows: The emergency
tariff act of 1921; the Fordney-McCumber Tariff Act of 1922, and
the Hawley-Smoot Tariff Act of 1930. (See exhibit 7.)
Senator S H O R T R I D G E . The farmer was protected by that also, was
he not?
Mr. P E E K . I prefer to discuss that later, please, if you will let me
finish my statement. Senator.
Senator S H O R T R I D G E . Very well.
Mr. P E E K . I will be glad to take it up.
Senator K I N G . Y O U and I will have a controversy over that,
Mr. P E E K . I do not believe I will have so much of a controversy
with you on some angles.
In addition to these general enactments, there were frequent
increases under the flexible provisions of the tariff laws.
It is constantly stated that the things the farmer buys are not
subject to duty. To disprove this we need only to point to the duties
on such basic raw materials as iron, steel, copper, aluminum, lumber,
coal, and petroleum, which in the form of raw, semimanufactured, and

finished products are used in large quantity by the farmer.
Federal Reserve Bank of St. Louis





Other protective devices have been put into effect in the interest
of industry and labor which assisted them in resisting inflation, \vith
the ultimate result that while agricultural prices as of January 15,
1933, stand at 51 per cent of pre-war, prices paid by fanners stand at
105 per cent, according to thefiguresof the Department of Agriculture
on January 30.

There are only two ways of correcting the disparity between
agricultural and industrial prices: (1) Raise agricultural prices, or
(2) reduce industrial prices to the level of agricultural prices. Farm
leaders consistently have urged the first method. Responsible
leaders of labor have supported them. Most of our leaders in big
business and finance have opposed them. If the second method were
adopted, it would mean cutting industrial prices to half or less than
half of their present levels. This would mean complete chaos in
labor, industry, and finance.
May I suggest to your committee that in your deliberations you
give full consideration to the views and motives in the past of those
who now or hereafter appear before you to suggest the way out of our
present difficulties.

Before considering provisions for legislation that are essential to
correct price disparity, let us note certain facts concerning prices of a
few commodities in the United States in different years and in Europe; and in the case of wheat the situation in world markets. These
faQts will throw a good deal of light upon the present situation. My
statements are based on data prepared by the Bureau of Agricultural
Economics, United States Department of Agriculture.

In 1914 No. 2 hard winter wheat sold at Kansas City at $0.93 a
Flour sold at Kansas City at $4.36 a barrel.
Bread sold at Kansas City at $0,061 a pound.
In December, 1932, No. 2 hard winter wheat sold at Kansas City at
SO.423 a bushel; flour sold at Kansas City at $3.40 a barrel; bread
sold at Kansas City at $0,067 a pound.
These comparison for the pre-war and present situations are
highly significant. With a wheat price in 1932 54.5 per cent below
1914, we have a flour price 22.2 per cent below and a bread price
9.8 per cent above. Just these simple facts demonstrate that so far
as wheat is concerned price levels have been brought down at the
expense of the farmer and the consumer. The spread between them
has increased; the farmer gets less, the consumer pays more. Kansas
City bread prices are of particular significance, for both in 1914 and
m December, 1932, they were identical mth the averat?e for the
United States.
A comparison of wheat, flour, and bread prices in foreign countries
has added significance. In making international comparisons of
•Drices, It is obviously impossible to make them absolutely identical
because of different millmg and baking practices. However, they
disclose the general picture with sufficient accuracy.



On September 19, 1932, wheat sold in Paris at $1.24 a bushel,
flour sold in Paris at $5.58 a barrel, bread sold in Paris at $0.04 a pound.
Kansas City figures for December, 1932, compared with the Paris
figures for September 19, 1932, show the more favorable situation in
Paris for both the farmer and the consumer:



That is 4 cents a pound loaf.
Senator R E E D . Mr. Peek, may

3. 40




interrupt you?

M r . PEEK. Yes.
Senator R E E D . In

other words, our farmers are getting less and
our consumers are paying more?
Mr. P E E K . Exactly.
Senator R E E D . Who is getting the greater part of that split?
Mr. P E E K . I thinlv that the spread is absorbed in the general distributive system between the farmer and the consumer.
Senator R E E D . Well, somebody must be making an extortionate
profit there.
Mr. P E E K . I think that the profits are largely expended in the costs
of carrying on the business.
Senator R E E D . In other words, we have a wasteful system of distribution?
M r . P E E K . Y e s , sir.
Senator R E E D . From which nobody profits?
Mr. P E E K . Well, I would not say nobody profits.

I think perhaps
a great many people are employed in that wasteful system of distribution.
Senator R E E D . Well, if the French can distribute so much more
efiiciently, why can not we?
Mr. P E E K . I think that we can come more nearly approximating
their prices.
Senator R E E D . If we did, would we not benefit both the farmer and
the consumer?
Mr. P E E K . It would if the price was reflected to the farmer.
The C H A I R M A N . Well, there is a difference in the wage, of course,
between this country and France.
Mr. P E E K . I say if it were reflected to the farmer; the difference
between the price paid to the farmer and the price paid by the
consumer; the difference in the distribution—the relative difference
between those two.
Senator K I N G . Have you discovered, Mr. Peek, whether or no
there is a monopolistic control in many sections of our country of
the products of wheat—that is, of bread and of flour? The reason
I ask the question is because complaints have come to me that in
this city a number of the bakeries—I do not know whether that is
the proper term—a number of the corporations that have been engaged in the production of bread and other cereal products have



coordinated or cooperated or consolidated, and that has brought
about a sort of a monopolistic control of the bread supply of this
district. And I am told that similar situations exist throughout
the United States, and there is a sort of a baking trust. Have you
made investigations to determine whether that information that has
been brought to my attention is accurate?
Mr, P E E K . No. I have no definite facts on that. I have my own
views of it, Senator, which I shall not hesitate to express when I
complete my paper, if you care to have me do so.
Senator K I N G . Yes; I would be glad to get your views on that.
Senator R E E D . It must be a pretty inefficient trust, because a
number of them have recently gone into receivership.
Mr. P E E K . I did not understand that, Senator.
Senator R E E D . I say a number of these big baking companies have
recently gone into receivership, have they not?
Mr. P E E K . I do not think that proves anytliing necessarily.
Senator K I N G . Senator, some of those trusts, like other corporations where monopolies are formed, have issued an enormous quantity of watered stock and they have paid extortionate prices to
destroy the competing small man. I say they have just pyramided
their stockholdings and their bonds, and have got watered conditions
that w^ere not conducive to economy or to the continued solvency of
the corporation.
Senator R E E D . I am not assuming to defend them, Senator.
Senator K I N G . I know that.
Senator R E E D . But if they have a monopoly and have gone into
receivership they must have been very inefficiently managed.
Senator K I N G . You know many of these monopolies, Senator, have
been very inefficiently managed and the corporation has gone out,
like the Insull Corporation, to acquire all of those engaged in that
activity, and issued watered stock, and the result is they have come
to a precipice and have been pushed over.
Mr. P E E K . Senator, what influence do you think is behind them?
Senator K I N G . Y O U are on the witness stand.
Mr. P E E K . Y O U almost said what I said I would say at the conclusion of my remarks, but you did not finish them.
Few people know the great discrepancy in relative prices of wheat
and bread that have prevailed as between Europe and the United
States for many years. I wish, therefore, to elaborate a little on this
sjibject. The following comparisons are based on data compiled by
the United States Department of Agriculture.
I \\dll ask you if you will follow these tables, because it is a little
easier to follow them than it is to read them.
Senator R E E D . I have already read them.
Mr. P E E K . Following is a table of comparative prices of wheat,




Comparative prices of wheatsflouryand bread

Wheat (bushel).
Flour (barrel)..
Bread ((pound)a



1909-1913 average

$1. 416




J .078






1931 average

1932 average

i Wheat rolls.

The 1909-1913 average. Wlieat in Berlin was $1,355 a bushel. In
Paris it was $1,416. In Kansas City, 95 cents a bushel.
Flour in Berlin was $4.97 a barrel: in Paris, $6.01: in Kansas City,
Senator R E E D . ^Vhat was the German and French tariff on wheat
at that time?
Mr. P E E K . I do not have those figures in this document. I will
undertake to get them for you.
Senator K E E D . All right.
Senator SHORTRIDGE. Have you undertaken to give the reasons for
that so-called disparity of prices?
Senator R E E D . Well, that is evident, Senator. The French and
German wheat s\ipply is not adequate to the demand.
Senator SHORTRIDGE. I, of course, had that in my mind. Due to
the supply and the demand.
Air. P E E K . Well, J w^ould say hardly that. I cover that a httle bit
later in my conclusions.
Senator S H O R T R I D G E . All right.
Mr. P E E K . While bread per pound, the figures were not obtainable
for that period for Berlin, but in Paris they were $0.0558 per pound
loaf, and in Kansas City $0.06. In other words bread was selhng at
less in Paris than it was in Kansas City, when wheat in Paris was $1.41
a bushel and in Kansas City it was 95 cents a bushel.
^ The C H A I R M A N . Of course wages and everything else here were
higher than they were in Paris.
Mr. P E E K . I am not talking about anything except agriculture,
Senator, at this particular juncture. The relation of agriculture to
these particular commodities.
Senator R E E D . It is wwth remembering that our farmers have to
pay higher wages here than the French and German farmers pay
over there.
Senator S H O R T R I D G E . Labor is necessary there and here.
Mr. P E E K . You mean the farm labor?
The C H A I R M A N . The farm labor, and also in the milling of the
wheat, and every time it is touched.
Mr. P E E K . Well, after you leave the farm the rest of the things
are beyond the farmer's control. So w e must look elsew^here. After
Digitized leave the point of local markets we must look elsewhere quite
largely for the difliculty.



Senator R E E D . The price he has to pay for labor on his own farm
is largely beyond his control, too.
M r . PEEK.


Senator R E E D . SO he is being ground between two circumstances
he is not able to correct or control.
. ,,i
Mr. P E E K . It is very largely due to the prices of industrial labor,
Senator, because if they are beyond a certain point there would be
no labor on the farm, if the labor in the city goes too high.
Senator R E E D . Yes.
Mr. P E E K . That was the 1909-1913 average I just read.
In 1931 wheat in Berlin was $1.71 a bushel; in Paris, $1.87 a bushel;
and in Kansas City, 75 cents a bushel.
Flour in 1931 in Berlin was $7.01 a barrel; in Paris, $7.96 a barrel;
and in Kansas City, $4.86.
For bread in 1931 there are no figures for Berlin, but in Paris the
price of bread was $0,042 and in Kansas City it was $0,083.
In other words, wheat in Paris was $1.87 a bushel, in Kansas City,
75 cents; bread in Paris was 4 cents and in Kaiisas City 8 cents.
The 1932 average for wheat in Berlin was $1.52; in Paris, $1.71; and
in Kansas City, 47 cents.
Flour in Berlin was $6.56 a barrel, in Paris it was $6.92, and in
Kansas City it was $3.85.
Bread (wheat rolls), which are not exactly comparable, in Berlin
were $0,078, in Paris bread was $0,039, less than 4 cents, and in
Kansas City, $0,067.
While the pre-war price of wheat in Berlin was $1.35 a bushel, the
1932 average price was $1.52 a bushel, or 13 cents higher. In Paris
the pre-war average price was $1.42, while the 1932 price is practically
$1.72, or 21.1 per cent higher; while in Kansas City the pre-war price
was 95 cents and the 1932 price was practically 47 cents, or 51 per
cent lower.
The average price of bread in Kansas City has increased from 6
cents a pound loaf pre-war to 6.7 cents a pound loaf in 1932, or 9 per
cent higher. In Paris the average price of a pound loaf has dropped
from 5.58 cents to 3.9 cents, a drop of 30 per cent.
When wheat was $1.87 a bushel in Paris in 1931, it was 75 cents a
bushel in Kansas City. But bread was 8.3 cents in Kansas City and
only 4.2 in Paris. (For further details, see Exhibit 8.)
It must be clear that the whole burden of giving justice to the
American wheat farmer need not fall upon the consumer.
Senator HARRISON. Mr. Peek, that price that you stated was
charged in Kansas City, was that pretty general over the country?
Mr. P E E K . I stated before, Senator, that in previous periods I
give the data at two separate dates where the Kansas City price was
the exact average of the whole United States.

A general impression prevails that the world's trade in wheat has
been declinmg and that it has become necessary for the United States
to restrict its production of wheat as a permanent policy.
For many years I have protested against the expressed view of those
who advocate the restriction of agricultural production to the demands



of the domestic market, and I hare pointed out the unfavorable effect
such a policy would have not only upon the farmer but upon our
whole economic structure—commerce, transportation and finance.
The social effects, too, would be far reaching and destructive.
I have pointed out also that the vacuum created in the world's
agricultural market by our withdrawal would be—in fact is b e i n g filled by other exporting countries such as Canada, South America,
and Australia. Such withdrawal would dry up our own resources to
the direct advantage of foreign nations.
Recently the leading boards of trade and produce exchanges published a pamphlet entitled ''A Survey of the Farm Question'' (January
4, 1933), from which I quote:
It may be here pointed out that, contrary to general impression, our loss of a
market for our wheat is not the result of an increased production through a
nationalistic program in importing countries. Actually the world is buying
more wheat, but it is coming from our rival surplus producing countries. During
the two postwar years of our 23 per cent tariff the world export trade in wheat
averaged 675,000,000 bushels, of which we furnished 41 per cent. During the
seven years of our 38 per cent tariff, the international world trade in wheat averaged 791,000,000 bushels and we furnished 21 per cent of it. In the two years
under our 53 per cent tariff, the world wheat trade reached 814,000,000 bushels,
and we supplied only 15 per cent of it. The importing countries of the world
still want wheat in increasing quantities, but they are buying it in countries
where commerce is permitted to flow in both directions.

That is page 17 in the pamphlet to which I have referred, and that
is published under the auspices of the leading boards of trade and
produce exchanges of the country.
The C H A I R M A N . D O you speak for the farm organizations?
Mr. P E E K . D O I speak for them?




Mr. P E E K . I do not. I tried to make that clear in the beginning
of my remarks, that I represent no organization except myself. You
may perhaps recall. Senator, that from 1924 to 1928 I was president
of the American Council of Agriculture, that was an organization of
farm leaders, and during two years of that period I was chairman of
the executive committee of 22, which was made up at the meeting
of governors of 11 States, from 11 Middle Western States, 2 from
each State.
^ The C H A I R M A N . You recognize, do you not, that the farm organizations of the United States had their representatives here at the time
that the tariff bill was under consideration, and that every rate in
that tariff bill was supported by the respresentatives of the farm
organizations in this country?
Mr. P E E K . That has no influence upon my opinion, Senator.
Mr. P E E K . I am merely expressing my views.
The C H A I R M A N . NO, but I ask you whether you were aware of that
Mr. P E E K . Oh, yes. I am aware of the general discussion in a
general way.
Senator K I N G . May I ask my colleague, does he mean by that
broad statement that he just made that the farmers supported every
schedule in that tariff bill?
The C H A I R M A N . Every agricultural schedule.
N G . I thought you were referring to the whole tariff biU.
Senator K I



The CHAIRMAN. NO; I spoke about the agricultural schedules, and
I asked him if he recognized that the farm organizations of the United
States supported them.
. ,, ^
vj x
Senator K I N G . I wanted to state that many of the farmers did not
and do not support many of the schedules in that bill.
The CHAIRMAN. Agricultural?
Senator K I N G . N O . I am not speaking of that.
The CHAIRMAN. I am talking about the agricultural schedules m
the tariff bill.
Senator K I N G . If you limit it to agriculture, that is one thmg.
T h e CHAIRMAN. Y e s .

Before you conclude, do you undertake to
account for the falling off of our foreign wheat trade?
Mr. P E E K . I tliink so; yes.
Senator SHORTRIDGE. Very well.
Mr. P E E K . Time forbids referring in detail to the great body of
facts touching the question of international trade in wheat. However,
in the 8-year fiscal period from 1922-23 to 1929-30 United Kingdom
imported an average of 218,283,000 bushels of wheat from all sections
of the world. Our average proportion of their imports for that period
was 33,991,000 bushels, or 15.6 per cent.
In 1931-32 United Kingdom imported 245,000,000 bushels, or 12.2
Der cent, more than the 8-year average, but took only 18,679,000
)ushels from the United States. In other words, our share of the
wheat trade of United Kingdom fell from an average of 15.6 per cent
to 7.6 per cent.
Senator R E E D . Let me interrupt you. Was not that very largely
due to the dumping in Great Britain by the Soviet?
Mr. P E E K . I thmk not. If I may go on, Senator, I think I will
perhaps answer your question.
Senator SHORTRIDGE. They buy from their own people.
Senator R E E D . Very well.
Mr. P E E K . The total world trade in wheat during the period of the
Fordney-McCumber bill (1922-1930) averaged 735,882,000 bushels
yearly. The average during the period of the Smoot-Hawley bill
(1930-1932) has been 869,263,000 bushels, an increase of 18.1 per cent.
During the same period the United States' share in the world wheat
trade dropped from an 8-year average of 186,193,000 bushels under
the Fordney-McCumber Act to 133,667,000 bushels under the SmootHawley Act, a decrease of 28.2 per cent.
The CHAIRMAN. Is there that difference in the rate of duty in the
two bills?
Mr. P E E K . I beg your pardon?
The CHAIRMAN. Is there a difference in the rate of duty in the two
bills of that percentage? If it is because of the duty then of course
the higher rate has decreased with the importations. Was there 18
per cent difference in the rates? That is what you are trying to
point out, is it not, that the rate of duty w^as what prevented the
exportation of our wheat abroad and the use by foreign countries?
Mr. P E E K . I am merely trying to pomt out the facts in relation
to it and at this juncture not to state the cause of it.
The CHAIRMAN. Well, that is all right. Just so we understand
Senator SHORTRIDGE. That is what I wanted him to develop, if be
has views upon that subject.




The C H A I R M A N . Yes. Because that is very easily explained.
Mr. PEEK. I am merely submitting official data on what has
happened at this point.
The C H A I R M A N . Very well. Proceed.
Mr. P K E K . During the same period the United States' share in
the world wheat trade dropped from an 8-year average of 186,193,000
bushels under the Fordney-McCumber Act to 133,667,000 bushels
under the Smoot-Hawley Act, a decrease of 28.2 per cent. Our
share in world wheat trade, expressed in percentages, has dropped
from 25.3 per cent to 15.4 per cent, despite an increase in total world
wheat trade of 18.1 per cent. (See Exhibit 9.)
A study of our sales of wheat to foreign countries during periods
covered by different tariff acts is very enlightening. During the
Pajrne-Aldrich period of 1909-1913, all importing countries obtained
14.3 per cent of their wheat imports from the United States. \Vliile
the Underwood law was in effect pre-war they obtained 44.5 per cent.
In the postwar period, while the Underwood Act was in force, this
percentage increased to 53.3. In the eight years of the FordneyAlcCumber bill it dropped to an average of 25.3 per cent, and under
the Hawley-Smoot bill it dropped to 15.4 per cent. Obviously due
allowance must be made for the fact that European countries had
not fully reestablished their agriculture during the period of the
Underwood law. Nevertheless, the showing is significant of what has
happened to our wheat export trade. (For further details see Exhibit 10.)
The picture as to our part of international trade is incomplete
without some disclosure as to exports of w^heat from the United
States and other chief exporting countries.
Our export trade dropped from a 2-year average in 1920 and 1921 of
331,646,000 bushels to a 2-year average in 1930-31 and 1931-32 of
133,667,000. Comparing the same paid of 2-year periods, the exports
of all exporting countries rose from an average of 784,889,000 bushels
to an average of 869,263,000, an increase of 10.7 per cent. (For
further detai]is see Exhibit 11.)
For convenience of reference the average exports of the United
States, other important exporting countries, and ail exporting
countries are shown in Exhibit 12.
Senator H A R R I S O N . That gives the percentage of increase from
each of the countries?
M r . PEEK.


, Turning our attention to hogs and hog products, we find similar
discrepancies. So little corn moves from the farm as corn that the
most practical way to increase corn prices is to deal with hogs. A
study of the following prices shows many peculiarities of price behavior after the product leaves the hands of the farmer. December, 1932,
is used for comparison as it is the latest month conveniently available.



Average Chicago prices
Per cent


December, 1932

$8.36 per hundredweight wholesale.
$13.30 per hundredweight wholesale.
$0,198 per pound retail
$0,317 per pound retail
$0,326 per pound retail

$3.05 per hundredweight wholesale.
$5.90 per hundredweight wholesale.


$0,176 per pound retail
$0,216 per pound retail
$0,303 per pound retail



Heavy hogs
Dressed pork
Bacon (sliced)
Ham (sliced)


Available data on European livestock and meat prices are not
complete, but they are very significant.
Price per hundredweight wholesale







„ . do
September, 1932



3 8.60



Price per hundredweight wholesale


Dressed pork
1 Not available."


2 12.30


3 Chicago.



* London.

Now, if you refer to that table, you will see that heavy hogs in 1914
in Chicago, the average price was $8.36 per 100 pounds. In December, 1932, $3.05 per 100 pounds. A percentage of decrease of 63.52
per cent in price.
The CHAIRMAN. Y O U have not got the price for 1929, have you?
Mr. P E E K . Not there. In other places here the prices occur.
The CHAIRMAN. That wiU make quite a different picture, will it
Mr. P E E K . Not so different as you would think. We will turn to
that shortly.
The CHAIRMAN. We will see.
Mr. P E E K . Dressed pork in 1 9 1 4 , $ 1 3 . 3 0 per 1 0 0 at wholesale;
December, 1931% $ 5 . 9 0 , or 5 5 . 6 4 per cent decrease.
Pork chops at retail in 1914 were 19.8 cents per pound, and in 1932,
17^ cents per pound, or a decrease of 11.11 per cent.
The CHAIRMAN. Have you any tables showing what they were in
1910 m companson? This is when the war began, you know.
Mr. P E E K . I have some figures here in just a minute showing the
average of 1909 and 1914; yes.
Sliced bacon in 1914 was 31.7 cents per pound at retail, and in 1932,
21.6 cents per pound, a decline of 31.86 per cent.



Ham (sliced) in 1914 was 32.6 cents, and in December, 1932, 30
cents, or 7.06 per cent decrease.
In other words, hogs declined 63.52 per cent, dressed pork declined
55.64 per cent, pork chops declined 11.11 per cent, bacon (sliced)
declined 31.86 per cent, and ham (sliced) declined 7.06 per cent.
Agam reflecting the fact that the relative decline in the price of the
hog is not reflected in the price of meat to the consumer.
Available data on European livestock and meat prices is not complete, but they are very significant. Hogs in 1913 in the United
States, $8.37; Germany, $12.64.
Pork in 1913 in the United States, $12.60; Germany not available.
Hogs, September, 1932, $4.12 in the United States; in Germany
Pork, September, 1932, Chicago, $8.60; Berlin, $13.89.
Hogs in the United States at wholesale in 1914 were $8.36, and in
England and Wales, $14.48.
Hogs in 1931 in the United States were $6.58, and in England and
Wales, $16.34.
Senator K I N G . That is reduced to the gold values, is it not?
Mr. P E E K . Both expressed in American money, yes, sir.
Dressed pork in 1931, $12.30 in Chicago, and $17.69 in London.
We have available also certain other comparisons of hog .ind pork
prices. The Department does not give figures covering comparable
cuts. The data are averages for 1909-1913, and 1931 ana 1932.
(See bottom of exhibit 8.) Hog prices were as follows:









Clearly, as is the case with wheat, the whole burden of giving
justice to the American hog producer need not fall upon the consumer.
It is apparent that foreign prices for hogs and their products do not
determine our domestic prices. The large export business in hog
products has been in lard, and it is quite probable that accumulating
surpluses of lard in our markets and protection Germany is ^vmg
her agriculture are having a depressing effect upon the pnces for hogs.
This would seem to be borne out by a comparison of price behavior
for a few selected years on lard, as follows:




November, 1932

The spread is greatly increased, as is shown.
The C H A I R M A N . In favor of the United States?
DigitizedMr. P E E K . I would say against the United States. The Chicagofor FRASER
Liverpool spread in 1925 was 0.39; in 1929 was 0.26; and m NovemFederal Reserve Bank of St. Louis



ber, 1932, was 1.07. While the Chicago-Hamburg spread in 1925
was 0.88, in 1929, 0.82 and November, 1932, $2.40.

The expressed theory held by some that we should relinquish our
agricultural export markets and increase our industrial exports at
the same time, overlooks, as has been pointed out, the importance of
agriculture to our whole economic structure—commerce, transportation, and finance.
. i i
In the case of cotton the pursuance of this theory is particularly
murderous as we produce 57.36 per cent of the world crop (19241930 7-year averages; world crop, 25,620,000 bales; United States
crop, 14,700,000 bales). Furthermore, we export 54.43 per cent of
what we produce (1924-1930 7-year averages: production, 14,700,000
bales; exports, 8,002,000). These facts are from Bulletin 169, United
States Bureau of the Census.
Hitherto we have enjoyed practically a world monopoly in production, producing some 57 per cent of the world's supply, and exporting
about 55 per cent of what we produce. We have failed in the matter
of prices, however, to take advantage of our peculiar opportunity to
exercise a proper influence on world prices.
Senator SHORTRIDGE. Have you undertaken to explain that point?
You make a positive statement there which may be correct.
Mr. P E E K . I think I explain a good many of the points that you
raise, Senator, later.
Senator SHORTRIDGE. All right, sir.
Mr. P E E K . We have allowed our cotton producers to remain at
the mercy of the buyers of cotton (foreign nations), while at the same
time these producers, as consumers like the rest of our consumers,
have been compelled to purchase the products of cotton in a highly
protected market.
To force our cotton growers to curtail substantially their production would merely drive them into grain and livestock. The producers of grain and livestock (except lambs) have suffered more
since 1920 than the cotton growers themselves. (See Exhibit 4.)
(See also Exhibit 13.)
Cotton is grown on nearly 2,000,000 farms and is peculiarly a crop
employing a large amount of human labor. If we drive, say 400,000
cotton farms out of production, what can their operators do except
further break down the general farm structure, or migrate to the
cities where we aheady have 12,000,000 unemployed workers?
Senator SHORTRIDGE, Does anybody propose to drive 400,000 cotton farmers out?
Mr. P E E K . What would they do?
Senator SHORTRIDGE. Why do you use those figures and make that
statement about them? I am merely asking for information.
Mr. P E E K . I am giving my view of it. Senator. I think that would
be the effect that they would do one or the other of two things. They
would break down other sections of the farm picture or move away
from the farm. They would have to be employed somewhere.
^nator H A M I S O N . They would have to raise some other stuff.
Mr. P E E K . Yes; or move away—one or the other—or get out.





If the foregoing statements and figures, with the information contained^ in the exhibits, are accepted as substantially reflecting the
facts, it is clear that Ajaerica has neglected her agriculture and that
European countries hold their agriculture in higher esteem than we
hold ours. Practically every important European nation gives special
assistance to its agriculture.
Our farmers can not and will not continue to feed and clothe the
Nation for less than it costs them.
The C H A I R M A N . In this statement of yours, do you tell Congress
what to do in order to remedy that?
Mr. P E E K . I am making some suggestions in order to remedy it.
Senator. I am leading right to that now.
From a purely business standpoint it is folly to ignore the great
purchasing power of one-fourth of our population living on the farms,
and perhaps considerably more who are directly dependent upon them.
Any plans for the restriction of agricultural production to the demands of the domestic market involving substantial curtailment of
acreage, except occasionally in case of great emergency, as in case of
cotton at present, should be considered in the light of om* wholes
national and international economy, and should not be adopted as a
permanent national policy. Our national effort should tend toward
making the farm a satisfactory place for more not less people.
In the past the independent land-owning farmer has been among
the most conservative of our people and our greatest bulwark against
radicalism. With him the capitalistic system is secure. Without
him anything may happen.
^ I wonder if we may not draw an analogy between the present situation in America and Europe about 1780, when Edward Gibbon, in his
third volume of the Decline and Fall of the Roman Empire, wrote
of Europe:
One great republic, whose various inhabitants have attained almost the same
level of politeness and cultivation. The balance of power will continue to fluctuate, and the prosperity of our own and neighboring kingdoms and the prosperity
of our own and neighboring kingdoms may be alternately exalted or depressed;
but these partial events can not essentially injure our general state of happiness,
the system of acts and laws and manners which so advantageously distinguish,
above the rest of mankind, the Europeans and their colonies.

And then came the French Revolution in 1789.
At the outset I indicated my purpose to confine my discussion primarily to the relation of the agricultural depression to the general
depression. The former began in 1920; the latter, generally speaking,
10 years later with the stock-market crash at the end of 1929.
In considering suggestions for legislation, we should keep in mind
the extent and duration of the injustice to which agriculture has been
subjected in different sections, its present condition, and the importance of agriculture in our national economy. Furthermore, we
should consider well the social aspects as affected by legislation which
will be referred to later. Far more than ecomonic justice and business restoration are involved in the restoration of agriculture. The
whole capitalistic system of government now is on trial. The future
of the Nation depends upon a wise solution of the problems now confronting government.

As stated at the outset, legislation is required:





1. To correct price disparity and to prevent or minimize its recurrence.
2. To remove some of the burden of debt and mterest charges.
3. To restore foreign outlets for American products.
4. To reduce local, State, and Federal expenses in order that taxes
may be brought into proper relation to reduced incomes and earnings.
5. To provide short term credit and banking facilities where they
arc now lacking.
6. To provide a more adequate and better adapted rural credit
system to remove discrimiaation between agricultural and other
7. To inflate the currency if the foregomg are insufficient.
The CHAIRMAN. How do you iatend to reduce local and State and
Federal expenses? How would you have Congress do it?
Mr. P E E K . I do not think the National Government can reduce
local taxes, of course. But I think that the action of Congress itself
can set a very good example with respect to that.
The CHAIRMAN. It has not been followed by the States of late.
Senator HARRISON. Some of the States have followed it. I know
my o^\^l State has cut the expenses of the State one-third this last
The CHAIRMAN. Well, I suppose you got into the position where
3^ou had to, did you not?
Senator HARRISON. Yes. They were m a bad state.
Mr. P E E K . Iowa started out to reduce its expenses $25,000,000, to
^effect that saving in its taxes this year.
Senator SHORTRIDGE. Pardon me before you proceed. On page 27
you have suggested some seven different plans or propositions or
suggestions. Do you propose before you get through to point out
how you expect to do that?
Mr. P E E K . Yes; I am coming now to thefirstone, Senator.
Senator SHORTRIDGE. Thank you.
Mr. P E E K . 1. Principles of legislatioa necessary to correct price
disparity and to prevent or minimize its recurrence.
Emergency agricultural legislation is necessary and imperative
pending the development of a comprehensive national program for
agriculture and the opening of normal export markets through international trade agreements, reciprocal tariffs, application of foreign
debt to payment in whole or in part for our exports, stLlilization of
intei-national currencies, and such other important subjects.
Other emergency legislation is necessary pending these other
This emergency legislation should cover only such commodities
(and, if necessary, competitive substitutes therefor) the prices of which
in our domestic markets are influenced largely by the prices in foreign
markets or which are directly affected by the conditions in foreign
coimtries. I should say wheat, cotton, hogs, and possibly tobacco. I
include hogs because that is the only way I know of to reach corn.
Provision should be made to include, if necessary, grains that may
be substituted for wheat and other Uvestock substitutable for hogs.
The period of duration should be one year, subject to extension, in
whole or m part, from year to year, upon proclamation of the President, until a comprehensive national program for agriculture is



Senator S H O R T R I D G E . The President has no power to do that,
has he?
Mr. P E E K . If he had the power given him by Congress he would
have it, would he not?
Senator S H O R T R I D G E . I do not know that Congress has the right
to give such a power.
Mr. P E E K . Perhaps not.
Senator H A R R I S O N . Y O U mean to write some law and in that law
give to the President the right to extend that law by proclamation?
Mr. P E E K . Yes, sir; exactly.
The importance of the processor must be recognized as he performs
a necessary service between the farmer and the consumer.
Agreements should be authorized between the proper governmental
bodies and existing agencies, including processors and associations
of producers. The aim to be accomplished by these agreements
should be to dispose of existing surpluses and to keep the channels of
trade open through every instrumentality at our command; that is,
governmental, producers, processors, and exporters (private or
Prevention of burdensome supply in future should be provided for
by decreasing prospective production before harvest in the areas
where it is excessive, compensating the farmer for so decreasing*
production. Such action can be fully justified as a contribution to
the general welfare.
Eeduced production should be effected in areas of surplus production. Reduction should not take place IQ sections or areas where the
particular products are deficient in supply. To do otherwise would
be wastefiu and uneconomic and would create dissatisfaction and
Senator H A R R I S O N . The House allotment bill does not do that^
does it?
Mr. P E E K . N O . It merely curtails acreage.
Senator H A R R I S O N . Yes; but it curtails acreage everywhere^
whether or not there is a surplus in a particular product for a State.
Mr. P E E K . Yes. Well, I come to it later.
Senator S H O R T R I D G E . I S that made mandatory. Senator, by that?
Senator H A R R I S O N . N O ; the House bill is not mandatory. Is it,
Mr. Peek?
Mr. P E E K . If they participate in the benefits.
Senator H A R R I S O N . Oh, yes. But they do not have to go into it.
Senator S H O R T R I D G E . Yes. Then in a sense it is not mandatory.
Mr. P E E K . For example, why should South Carolina decrease her
com production when she imports com and the surplus of com
originates in the Middle West?
I may say right there, I was in South Carolina the latter part of
November. A gentleman with whom I talked had just shipped in a
carload of corn for which he paid 62 cents a bushel delivered at Georgetown. The farmer in Iowa got 10 cents for that com and the 52
cents was absorbed between the farmer and this man who bought it
for distribution at. 62 cents. Now w^hy ask South Carolina to curtail
its production of com when the Middle West is reducing it?
Senator S H O R T R I D G E . Yes; it is perfectly absurd.
Mr. P E E K . Or why should New York State reduce her wheat pro
duction of 5,000,000 bushels when she is forced to import millions of



additional bushels each year, and the surplus is made in Kansas,
North Dakota, and a limited number of additional States?
For example, in 1931 New York State raised 5,000,000 bushels of
^vheat. Kansas raised 240,000,000 bushels. Kansas raised about
one-third of our total production, and Kansas alone accounted for
our total supply of surplus.
i ^ rr
Senator HARRISON. There would be no reason to make Caliiornia,
for instance, decrease her cotton supply when they do not produce a
surplus out there?
. xi
Senator SHORTRIDGE. But I may add right there, for I know its
great importance appeals to my friend, we raise the best—now notice—
the best long-staple cotton raised in the United States, and I have the
authority of a Senator from the South who is an expert in the matter of
cotton who says that it is better than the Egyptian.
Senator HARRISON. I am not one that will contest that California
can not raise the best of everything.
Senator SHORTRIDGE. That covers the whole field.
Mr. P E E K . I believe that desired results can not be accomplished
by attempting control of acreage planted, because the variation in
yield of all growing crops from year to year depends 75 per cent upon
weather and pests, which are largely beyond human control, and only
25 per cent upon acreage planted. According to figures compiled by
the Department of Agriculture many sections of the country are
deficient all of the time, and many part of the time, in supply of some
crops. (See the first three columns. Exhibit 13, for cotton example.)
Market prices should respond almost immediately to an announced
national policy of restricting supply, if necessary, in order to obtain
fair prices for producers, and a determination of Government to assist
producers equitably to adjust supply to demand.
Funds to cover the cost of giving the farmer a fair return should be
provided by a tax on the processor, as provided by the Jones bill
(H. R. 13991), which has already passed the House.
Not only is this a convenient method of protecting the Treasury,
but it would have the added advantage of stimulating the processors
to pay the farmers a fair price in order to avoid paying an equivalent
amount in taxes added to the price.
If, as a result of agreements authorized to be made with processors
and others, prices do not rise to a fair level then the difference between
such fair-price level and prevailing market prices should be paid to the
farmer by the Government, and the Treasury should be reimbursed
by means of an adequate tax on the processor.
A fair price may be considered an amount which bears to the price
for all commodities bought by producers, during a predetermined
period (say, three months), the same ratio as the price for the commodity paid producers, during the pre-war period (1909-1914) bore
to prices for all commodities bought by producers during such pre-war
At the present time this would mean at local markets a price for
wheat of 93K cents, cotton 12}^ cents, and hogs 7K cents a pound for
the proportion required for domestic consumption.
^ In my opinion these prices are too low, considering the increased
interest burdens and increased taxes, as well as the price injustice to
Avhich the farmer has been subjected at least 12 years. We should
consider adding to such a fair price in future years a percentage (say



10 per cent) as soon as general business conditions improve. Reference to prices of wheat, cotton, corn, and hogs in previous years in
this country is made in Exhibit 14.
That is the information you asked for a few minutes ago, Senator.
In addition to tariffs imposed by existing law and those included in
the Jones bill, duties should be laid also on jute and black strap
molasses.^ That bill should be amended also in other particulars.
The principles that should govern this legislation are well defined in
my mind. If your committee, or any other committee of the
Congress having jurisdiction, desires, I will prepare amendments to
the pending legislation and submit them for consideration. ^
Emergency legislation is essential at the earliest possible date.
The situation has been drifting from bad to worse in recent months.
This is evidenced by the farmers' hohday strilves, by interference
with legal processes and foreclosure proceedings, by tax demonstrations at county courthouses in many sections of the country, by
continuing bank and commercial failures, and in other ways.




Legislation is now under consideration covering the lightening of
the burden of debt, reduction of Federal expenses and hence taxes,
and providing for extending the activity of the Reconstruction Finance Corporation to provide short-term credit.
Your committee understands that many communities are entirely
without banking facihties. Large banks are reluctant to make loans
for the usual conduct of business. Smaller banks are unable to do
so. It would seem, therefore, that there must be given to the Reconstruction Finance Corporation or some other Government agency
authority to extend credit for productive enterprise in order that
business may go on pending general business recovery.
Restoration of foreign outlets for American products must in large
naeasure await announcement of the policies of the new administration and action thereon by the Congress. It is not necessary to
emphasize again the importance of foreign markets for our surplus
agricultural products.
At the earliest possible date consideration shoxdd be given to an
adequate and better adapted rural credit system in order that agriculture may have on as favorable terms as ready access to the credit
resources of the Nation as that enjoyed by other lines of essential

Farming is a mode of living as well as a business. ^ It should be
the most secure of all lines of endeavor so far as it lies within the
power of government to make it. Actually as now conducted it is
one of the most hazardous occupations of man. It is subject not only
to the whims of nature but to the machinations of market speculators
throughout the so-called civilized world.
The rural community should be a haven of refuge for those weary
of the confusion of busy cities. It should be a place to which people
may return with relative security. Wliat industry except agriculture
could absorb in three years 2,000,000 of the surplus population of
cities in such a time of depression?




A vigorous agriculture is the greatest customer for our large
industries. It is our greatest national resource. Cotton alone has
accounted for $20,000,000,000 of the $120,000,000,000 total value of
exports of the past 38 years. Given fair treatment, the independent
land-owing farmer is protection against radicalism of every land. ^
I hope that your committe will invite refutation of these conclusions
by any witness who appears before you.
(The exhibits to Mr. Peek's statement are here printed in the
record in full, as follows:)

1.—Relation of income to export trade^ 1910-193B
Percentage of income attributable
to exports




3-year average.
23-year average


a 47

29. 21




15. 50







5-yeaf average



5-year average


10. 80

5 95

- -

4. 54




15. 33
15. J
2L 14




6 04

5-year average


10 30










Percentages are b ^ d on data from Foreign Commerce and Navigation and on the Statistical Abstract
(agncultural section).



2.—Relation of agricultural to nonagricultural and total ex-porta, 1910-19S2
Total exports 2

Agricultural exports ^

Thousands Thousands
of dollars
of dollars

191 0
191 1
191 2
191 3
191 4

Nonagricultural exports 3

Per cent Thousands
of total
of dollars

Per cent
of total


191 7
191 8
191 9



982, 755
1,215, 710
2, 754,107
















4a 0




5-year average.




193 1
193 2




5-year average.



5-year average.
1921 ,
1922 ,
1923 ,





3-year average-






23-year average






» Year ending June 30.
2 U . S. Department of Agriculture Yearbooks.

3 B y difference.

3.—Actual agricultural income and approximate income had fair exchange

value prevailed



AgriculRatio of
agricultural inprices retural income (mil- ceived to
come (millions of
lions of


193 0
193 1
193 2




11, 741


13, 703





Total 13 years
Average ratio, 1920-1932 (13 years).


of dollars

Total probable income based on fair exchange value
Total actual agricultural income
Accumulated deaciency in agricultural income



» Col. l—col. 2 X 1 0 0 ^ o l . 3.

Source: Col. 1 from U . S bDepartment of Agriculture;
Federal Reserve Bank of St. Louis

col. 2

Agricultural situation " January, 1933, Issue




i.—Relative farm prices for U years, 1921-1932
(August, 1909, to July, 1914=100]
12year 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932

All farm commodities
Prices paid by farmers for commodities bought
Individual farm commodity
Potatoes . . . . . . .
Aooles . . . .
----S h e e p . - - - - — - Eggs - Butter








101 156 218
93 125
91 104
132 117 111
141 104
89 123 139
98 104
149 136 122
175 166 146
101 159 199
108 116
106 104 108
117 114 119
122 164 178
101 132 145
155 133 140
151 140 161
95 163 212
182 167 165








216 179 122 128 '
142 156 109 123
119 112
97 113
89 108
110 116
125 171 153 136
107 138 111 120
129 145 122 116
112 106 110 101
125 163 266 190
133 154 127 129
174 169 124 ; 130
103 152 163 134
108 120 124 139
120 131 143 151
182 208 196 193
149 168 162 169
141 157 147 131
157 161 163 168
209 221 186 174
168 178 192 178











150 143 100
139 136 121
123 111
128 116
129 121
116 145 126
119 134 178
162 145 140
171 159 119
121 130 122
176 177 145
174 180 147
205 202 139
168 166 115
141 149 117
173 173 146
203 176 119
186 196 162



1 Preliminary.
Source: Division of Statistical and Historical Research, U. S. Department of Agriculture.

5.—Relation of agricultural to nonagricultural and total incomej 1910 to

11910-1929 are estimates by National Bureau of Economic Research; 1930-1932 are by National Industrial
Conference Board.
> Estimates by U. S. Department of Agriculture.
» B y difference.






^—Migration to and from farms

To farms



From farms

1 427,000



To farms


From farms


Total, 10 years
193 0
1932 ffirst Smonths'i

2,120, O O
1,723, O O
1,469, ooa

Total farm population
192 1

32,076,960 1924
31,614,269 192 5
31,703,000 192 6
31,768,000 192 7
31,290,000 1928.


193 0
193 1
193 2
193 3

30,257, O O
30,169, 000
31,241, 000

Data from the U . S. Department of Agriculture.

7.—Dutiable and free imports and rates of duty under different tariff laws^
[Emergency act of 1921 omitted]
Average rate of duty
Tariff and date

Payne-Aldrich, Aug. 6, 1909.
Underwood (pre-war) Oct. 4, 1913
Underwood (postwar)
Fordney-McCumber, Sept. 22, 1 9 2 2 . . . .
Hawley-Smoot, June 18,1930

Period selected

1910-1913 (fiscal)
1914-15 (fiscal)
1920-21 (calendar)
1923-1929 (calendar)
1931 (calendar)-.-..

On dutiable
35. 75

On aU


Per cent

52. 55
63. 71

The average rate of duty on the dutiable articles was computed by dividing the
total duties collected for the period by the value of the dutiable goods imported
during the period and multiplying by 100.
The average rate of duty on all goods was determined by dividing the total duty
collected for the period by the total value of goods imported, both free and
dutiable, during the period and multiplying by 100.
The per cent of goods entering free was determined by dividing the total value
of free" goods for the period by the total value of imports for the period and
multiplying by 100.
With the exception of the year 1931, the figures are therefore all weighted averages.
(Compilation based on valuation of imported dutiable and nondutiable goods
and on customs receipts.)



8.—PHces of specified commodities at certain foreign and domestic markets,

6-year average 1909-1913, annual 1931 and 1932
Year beginning July 1

Commodity ana description

Wholesale prices:
No. 1 Northern spring—
No. 2 Hard winter
wheat, family
Hard winter patents

Kansas City.






a 152. 4
® 171.7
3 58.7
2 68.4
2 46.9
2 52.9


Minneapolis- Dollars per barrel.
Kansas City,

5. 36




1 171.6
1 187.1
3 79.9
1 82.8

4 97

Cents per bushel.,

3. 49


Year beginning Jan. 1
"000" duty free
No description
Hetail prices:
Wheat rolls
White, first quality..
No description
Baked weight
"Wholesale prices:
220-265 pounds
Average price, all weights.
Fresh loins
Betail prices:


Dollars per barrel,

U n i t e d
Kansas City.

Cents per pound.



7 5.58






2 8.2


Dollars per 100 pounds..




Cents per pound.

8 16.04


< 12.42





1 July, 1930, to June, 1931.
2 July, 1931, to June, 1932.
s Liverpool parcels, 1930-31 and 1931-32.
< Average for 10 months.
' Average for 9 months.


« Average for 1913-14.
7 Average for July, 1914.
8 Average for 1913.
«Weight not stated.
1" Average for 6 months.



Compiled as follows:
United States prices—Records of the division of statistical and historical
Foreign prices—
WheatBerlin—1900-1913, Viertelahrschafte Zur Statistik des Deutschen
Reichs; 1931-32, Wirtschaft und Statistik. (Continued.)
Paris—190^1913, Statistique Agricole Annule, France, 1914; 193132, Bulletin de la Statistique Generale de la France, quarterly.
Liverpool—1909-1913, Corn Trade News, weekly; 1931-32, Corn
Trade Yearbooks.
FlourBerlin—1909-1913, Vierteljahrschafte Zur Statistik des Deutschen
Reichs, 1914, vol. 1, p. 81; 1931-32, Institut International de
Statistique Bulletin Mensuel de TOffice Permanent.
Paris—1909-1913, Annuaire Statistique, 1931, p. 116*; 1931-32,
Institut International de Statistique Bulletin Mensuel de TOffice
London-~190^1913, The Economist, London; 1931-32, Institut
International de Statistique Bulletin Mensuel.



Compiled as follows—Continued.
Foreign prices—Continued.
BreadBerlin—1913-14, Statistisches Jahrbuch, 1 9 3 2 , p. 2 5 3 ; 1 9 3 1 - 3 2 ,
Wirtschaft und Statistik.
Paris—July, 1 9 1 3 , Annuaire Statistique, 1 9 3 1 ; 1 9 3 1 - 3 2 , Bulletin
de la Statistique General de la France et du Service d'Observation
des Prix.
United Kingdom—1931-32, Ministry of Labour Gazette, Monthly.
(Prices for first of each month.)
Berlin—1909-13, Monatliche Nachweise; 1 9 3 1 - 1 9 3 2 , Cable reports
of weekly averages from Agricultural Attach^ L. V. Steere, Berlin..
PorkBerlin—1913, Statistisches Jahrbuch, 1 9 2 8 ; 1 9 3 1 - 3 2 (wholesale
prices) Wirtschaft und Statistik, Part II (monthly); 1 9 3 1 - 3 2 :
(retail prices), Report of Agricultural Attach^, Berlin, datedl
October 17, 1932, p. 8, as compiled from Institut fur Konjunkturforschung.
9.—Total imports of wheats including flourj by chief importing countries,
and quantity and percentage purchased from the United States under different
tariff acts


IThousands of bushels]


United Kingdom


191 3


United from
States United


States United










2-year average
1921-23 >
1925-2 6
1928-29. .
1929-3 0
8-year average
1930-3 1
1931-32 .
2-year average











2-vear average


4ryear average
191 4




4 60,378
» 70,681


States United
278 ^
























99, 252



































»1910-16 and 1920-21 calendar yea:
a Fiscal years 1920-21 and 1921-22.



Q^—Total imports of wheat, including flour, by chief iviporting courdrie^y
and quantity and percentage purchased from the United States under different
[Thousands of bushels]


United States exports
Year i



Per cent
of world




2-year average.







192 1



2-year average.



4-year average..











^ M c f u f e i & t l ^ ! ^ ' ^ ^ ^ ' ^ ^ ^ ' 1921-22 to 1931^32fiscl years.

the Netherlands exceeded total imports of wheat into the Netherlands.

o F ^ l ^ V r o Z X ^ ^ ^ ^


^^^^^ ^^


™ e actually d S i n e d to



9 . — T o t a l imports of wheat, includingfiovr^by chief importing countries^
and quantity and percentage purchased from the United States under different
tariff' acts—Continued.


[Thousands of bushels]

United States exports
Year i

1921-22 3



Per cent
of world






2-year average








8-year average



11910-15 and 1920-21 calendar years; 1921-22 to 1931-32 fiscal year.
» N o t included In average.
Sources: Total imports b y countries and for the world and United States exports from yearboolc, tJ. S.
Department of Agriculture. Imports of United States wheat compiled b y Bureau of Agricultural Economics, U . S. Department of Agriculture, from Foreign Commerce and Navigation of the United States.

1 0 . — P e r cent of total purchases of United States wheats including flour, by
leading importing countriesj and by all countries during periods covered by different
tariff acts


Tariff act and period

Payne-Aldrich 1909-1913
Underwood pre-war 1914-15
Underwood postwar 1920-21
Fordney-McCumber 1922-23 to 1929-30
Hawley-Smoot 1930-31 to 1931-32



42.0 ' " 4 4 . ' 5 "










1 United States exports to the Netherlands exceeded total imports of wheat into the Netherlands. This
is probably due to the fact that varying quantities of wheat billed to Holland were actually destined ta
Germany and other European countries.
Sources: Total imports by countries and for the world and United States exports from yearbook, U . S.
Department of Agriculture. Imports of United States wheat compiled by Bureau of Agricultural Economics, U . S. Department of Agriculture, from Foreign Commerce and Navigation of the United States.



11.—Exports of wheats includingflour^chief exporting countries
[Thousands of bushels]

191 0
191 1
191 2
191 3
191 4
191 5
192 1

Canada Argentina Australia countries


Year i

343, 781


4-year average,
2-year average.

2-year average.
1921-22 »
1928-29 .
1929-3 0
8-year average.
1930-3 1
1931-3 2
2-year average.

125, 289



111, 550



»1910-1915 and 1920-21 calendar years; 1921-22 to 1931-32fiscalyears.
® Not included in average.
Source: Yearbooks, U. S. Department of Agriculture, 1910-1932.

12.—World wheal exports^ including flour, during periods covered by
different tariff acts
[Thousands of bushels]
TariS act and period



Payne-Aldrich 190&-1913
Underwood prewar 1914-15
Underwood postwar 1920-21
Fordney-McCumber 1922-23 to 1929-30....
Hawley-Smoot 1930-31 to 1931-32









Source: Yearbooks, U. S. Department of Agriculture 1910-1932.

Id.—Cotton: Acreage, production value, exports^ etc., United States,

Calendar year


yield per

IfiOO acres



i Census.






1,000 bales

2 Basis Dec. 15, 1932, price.

Price per
pound received by
Dec. 1

Farm value
basis Dec. 1
farm price

Cents I,QOO dollars









Acreage, produrtion value, exports, etc., United States,

price per
New York

18. 92

Year beginning Aug. 1


1,000 bales
6, 707



States consumption
Net exports

J,000 bales 1,000 bales

4,892, 672

Source: Department of Agriculture and Bureau of the Census.

EXHIBIT 14.—Actual and ratio prices of wheat, cotton, and hogs



Index of
prices paid
by farmers

Calendar year

192 3
192 4
192 5
192 6
192 7
193 0
193 1
193 2




192 6
192 7
193 1
1932 - 1 0
159450-33Federal Reserve Bank of St. Louis

price to

to ratio
actual price
and index
of prices
paid by

Dollars per Dollars per







Cents per

Cents per



U,—Actual and ratio prices of wheats cotton^ and /LO^S—Continued

Calendar year

192 5
192 7
193 0
193 1
193 2

Index of
prices paid
by farmers



price to

to ratio
actual price
and index
of pricGs
paid by

Dollars per Dollars per
11. 27


1 1 10

Source: Bureau of Agricultural Economics, U. S. Department of Agriculture.
Method: Multiply the annual index of prices paid by farmers by the 1910-1914 average of annual actual
prices to producers.
Year, October to November:
1909-1914 average

129 4.

1932 (December)



, 60.2

Senator HARRISON. Mr. Peek, you say that you would offer any
suggested amendments to the Jones bill.
M r . PEEK. Y e s .

Have you offered those suggestions to the
Agricultural Committee that has studied that proposition?
Mr. PEEK. I have not offered them in that form. I have discussed
with the chairman of the Agricultural Committee in the Senate the
general question of this form of legislation, and since that discussion
and since the hearings have been going on I have crystallized my views
a little more definitely in the form of amendments to the pending
legislation which I could present to Congress at any time.
Senator HARRISON. Well, I think that either that committee or
this committee ought to have it, and preferably that committee,
because I understand they are going to bring out some legislation
within the next day or so.
Mr. PEEK. Yes; and, Senator, what they are proposing to do is
beyond comprehension when they eliminate the com and the live



stock areas from consideration and confine the bill to cotton and
wheat. They overlook the areas in which the greatest distress has
occurred, and that is the great livestock belt of the Middle West.
And if you will refer to Table 4 in this statement you will see the relative position of the different commodities over the period of the last
10 years and at present, which is conclusive of the importance of
legislation affecting those great middle-western sections.
Senator SHORTRIDGE. They omit livestock, do they, in the proposed
Mr, P E E K . Yes; the committee omits livestock in the bill.
Senator SHORTRIDGE. .Entirely?
Mr, P E E K . It is confined to wheat and cotton.
Senator H A R R I S O N . Their theory is to experiment with two propositions, I understand. I agree with you that they ought to deal with
the corn proposition. I can understand why they deal with cotton
on a different plan from that with which they would deal with wheat.
M r . PEEK.


Senator H A R R I S O N . But certainly I thinlc they ought to deal with
the corn situation.
Mr. P E E K . Well, if they are going to experiment they had better
err on the other side.
Senator H A R R I S O N . I think they ought to deal with that situation.
Mr. P E E K . I want to give you a picture, if I may
The C H A I R M A N (interposing). Before you do that, Mr. Peek, let me
ask you a question: In your statement you say:
At the present time this would mean at local markets a price for wheat of
93K cents, cotton 12^ cents, and hogs
cents for the proportion required for
domestic consumption. In my opinion these prices are too low, considering
the increateed interest burdens and increased taxes, as well as the price injustice
to which the farmer has been subjected at least 12 years.

How would you support a price for wheat of
Mr. P E E K . How would I get for the farmer that price?


Mr. P E E K . I think, in the first place, that immediately upon the
announcement by the Congress of the United States to the country
that it is hereafter proposed to see that the farmer gets a fair price,
and would remove the necessary proportion of supply so that an
excessive surplus could not break down the market, the market price
for wheat would rise, and the difference between the market price
and that price I would give to the farmer in the form enacted by the
Jones bill
The C H A I R M A N . I have not any question but what the price would
rise if the production were restricted to just what we would use in
this country. But without doing that and so long as we have an
overproduction I don't see how you are ever going to raise the price.
Mr. P E E K . Overproduction of what?
The C H A I R M A N . Of wheat, in this case.
^ Mr. P E E K . I am not willing to say that we have an overproduction of wheat with millions of himgry people in this coimtry, and in
every nation of the world, and even when the export markets imder
these conditions have been taking more than before, and we have
been getting our proportion.
Senator SHORTRIDGE. Are you suggesting a way by which we can

get greater exports of wheat?




Mr. P E E K . I am suggesting reciprocal national agreements, and
an application of foreign debts in part in order that they may purchase some of our surplus supplies, as a means of again stimulating
our export markets.
The CHAIRMAN. Well, Mr. Peek, do you think we ought to cancel
the foreign debts?
Mr. P E E K . No, sir; I do not. Positively, I do not.
Senator SHORTRIDGE. And they are made payable in gold, too,
aren't they?
Mr. P E E K . And perhaps that is a good reason for not canceling
the debt.
Senator H A R R I S O N . Your remarks apply to wheat. They do not
apply in the present situation to cotton.
The CHAIRMAN. Yes, they do.
Mr. P E E K . I say in my remarks except in ^eat emergencies, and
I think you have such a great emergency existing to-day in the case
of cotton.
The CHAIRMAN. In other words, there ought to be a present
curtailment of cotton production until it meets the normal supply
and demand.
Mr. P E E K . Yes; but not necessarily as to the acreage planted.
If you should go out and try to cut the acreage you would get what
the old lady got who bought a horse from a boy, blind and spavined.
Senator SHORTRIDGE. A S a practical farming operation how would
you proceed to restrict the production of cotton?
Mr. P E E K . I would not attempt it. That is my whole point. I
would restrict the supply and not the production. I would go in and
take it out of production. If it were apparent that we were going to
mature an oversupply I would cut it down if necessary, if we could
not get rid of it in any other way, at any kind of price. And if it was
going to cut dowD our whole national economic situation I would take
it out of the market.
The CHAIRMAN. Do you mean you would bum it up?
Mr. P E E K . Yes, or do anything.
Senator SHORTRIDGE, Who would do the cutting down?
Mr. P E E K . The Government would pay for doing it. But the people of the country would pay the Government through a tax on the
|)rocessor. iVnd there is no use of talking about marketing a hog as a
log because you have to market it as pork; nor of marketing wheat
as wheat, because the consumer buys bread and not wheat. The processor is the essential factor in between the farmer and the consumer.
The farmer's product stops at the local market, and the consumer, over
here, eats thefinishedproduct.
Senator SHORTRIDGE. In other words, we will say here is a farmer
who has 200 acres of growing cotton.
M r . PEEK. Y e s , sir.

Senator SHORTRIDGE. Good growing cotton, on fertile soil, and with
climatic conditions satisfactoty, and
The CHAIRMAN (interposing). In California, for instance.
Senator SHORTRIDGE. Yes, you might say that. But the greatest
cotton-producing State is that of the Senator from Mississippi, and
next to ours is the best.
Mr. P E E K . And if there were a Texas man present you would have a
row on your hands at once about that.



Senator SHORTRIDGE. I am sticking to Mississippi now. Here is a
good old honest farmer in Mississippi who has 200 acres of growing
cotton, maturing and which looks fine. Now, somebody says:
There is going to be surplus of cotton, and some one comes to that
farmer and suggests that he destroy or tear up or burn 100 acres of it.
Is that your idea?
M r . PEEK. N o , p a y f o r it.
Senator SHORTRIDGE. Who is going to pay him for it?
Senator H A R R I S O N . The consumer,
Mr. P E E K . The Treasury of the United States in the first

to be reimbursed by a tax on the consumer.
Senator SHORTRIDGE. Very well. I see your point.
Senator H A R R I S O N . But the processor makes the initial payment
and then the Treasury pays, and the consumer in the end.
Mr. P E E K . The Treasury makes the initial payment.
Senator SHORTRIDGE. Does the same Government official go to the
individual, the several farmers, and suggest that a certain acreage be
Air. P E E K . Government officials will go into the areas where the
production is excessive. He might go into Mississippi this year and
into Texas next year, and
Senator SHORTRIDGE (interposing). But supposing the farmer
refused and would say: " I do not want vou to destroy my field of
cotton. What then?''
Mr. P E E K . Y O U will have cases like that, but the farmer will
hardly refuse when he sees it is going to raise the price of his whole
production by remo%'ing a limited proportion of it and that he is
going to be paid for it.
Senator SHORTRIDGE. Yes, if he sees it and gets it.
Mr. P E E K . Well, Senator Shortridge, all my business life had been
put in with the farmer. I do not mind saying that as between groups
of farmers, groups of business men, and groups of bankers, I had
rather leave my interest in posterity to the fairness and consideration
and understanding of the farmer than any of the rest of them.
Senator SHORTRIDGE. Well, that is a good sentence and true. You
were born between two rows of corn, as I understand it.
Mr. P E E K . SO to speak; yes. Now, I want to refer to this banlc
situation for just a minute. My home is in MoUne. That is a part
of the tri-cities (Mohne, Kockland, and Davenport), a community of
150^000 people. On December 31, 1929, we had bank deposits in
the three towns of $114,275,000. On December 31, 1932, we had
bank deposits of $42,000,000. And for four weeks we have been
going along under a hoUday program inaugurated by the mayors on
the Illinois side of the river, with no banking facifities, wth no business
of any kind being conducted. Davenport a few years ago had one
institution, which has since failed, which had the largest savings
deposits per capita of population of any city in the United States.
But that is the condition there to-day.
In the morning paper that I picked up I noticed a bulletin——
Senator SHORTRIDGE [interposing]. We ought not to give publicity
to those facts. That is publicity that ought not to be given.
Mr, P E E K . I contend that pubUcity should be given to those facts,
and that the country should have an understanding of what the real

situation is.




Senator SHORTRIDGE. Well, such publicity given in the newspapers
will wreck the country.
Mr. P E E K . All right. Here is one from the newspaper this morning
saying that a 10-day moratorium has been given for Michigan banks.
I am emphasizing the situation to point out that the banking structure of this country is not performing the function for which it was
created. Somebody somewhere must step into the breach if you are
not to wreck the country, and that somebody must be the Government. There is nobody else. Banking facilities must be extended
through some governmental function in order that the people may live
and exchange their usual commodities and services, as between each
other, pending the period when a national policy can be determined.
Senator HARRISON. Mr. Peek, would you mind giving to this committee those amendments that you suggest in your statement?
Mr. P E E K . I will be very glad to give them to you.
The CHAIRMAN. In relation to the banking business I think it ought
to be said that the action was taken on account of one man.
Mr. P E E K . In Detroit, do you mean?
The CHAIRMAN. Yes, in Detroit.
Senator SHORTRIDGE. That is what they say, and as long as you
have brought up the subject that should be added.
Senator HARRISON. Well, that is a collateral question.
The CHAIRMAN. I do not think it ought to be discussed at all, but
as long as it was I thought I should make that statement.
Mr. P E E K . I mil say that the reason for action in my community
was that we have hardly turned a wheel for three years. People have
withdrawal their savings from banks in order to live. No amount of
money loaned by the R. F. C. will put one man back to work. Nothing vdll put a man back to work except some business coming into
the plants, and the plants there are largely railroad shops and farm
implement factories. Only those men who can go back to work can
again become depositors instead of withdrawing what is left of their
savings. Otherwise we will continue to slide downhill.
Senator L A FOLLETTE. Mr. Peek, I notice in reading over jouv
statement that you do not make any reference to the effect of freight
rates in the matter of discrimination against agriculture.
Mr. P E E K . Not very definitely, but I made extended statements
covering the difference between the price the farmer receives at the
farm and the price the consumer pays. That is a part of it, the
transportation that you refer to.
Senator L A FOLLETTE. It is quite a big part of it, isn't it?
Mr. P E E K . N O . I think if the entire transportation cost was
wped out, so that there was no cost of transportation from farm to
consumer, the farmer would still be at very great disadvantage as
compared with other industries.
Senator L A FOLLETTE. Well, I agree with that. But nevertheless
Mr. P E E K (interposing). It is on important part, of course.
Senator L A FOLLETTE. It is an important factor in the discrimination against agriculture, is it not?
Mr P E E K . That is true, but I do not want to create the impression
tnat 1 consider that the major one by any means.



Senator L A F O L L E T T E . I do not want to create the impression that
I consider it to be the primary factor, either. But in any analysit
of this situation that has confronted agriculture, it seems to me that
you leave out one of the important factors if you do not point ous
the fact that the fanner is the only producer in the United States
who can not add the cost of transportation to the selling price of his
product. On the contrary, it is deducted from the selling price of
his product.
Mr, P E E K . Th it is right.
Senator L A FOLLETTE. To-day a farmer who wants to ship, say,
from Omaha to Chicago, has to pay 5 cents in cash on top of every
bushel of wheat sent into that market.
M r . P E E K . Y e s , sir.

And yet the farmer pays the added freight
cost on everything he buys for the use of his family or on his farm,
M r . PEEK.


The C H A I R M A N . The same thing applies to cattle and sheep.
Senator L A FOLLETTE. I am talking about farmers.
Senator SHORTRIDGE. I fully agree with you, Senator La Follette,
and let me emphasize your thought: For instance, our Government
spent millions of dollars; yes, millions of dollars in encouraging the
The C H A I R M A N (interposing). Well, we ought to get along if we can.
We still have another witness here.
Senator SHORTRIDGE. I want to get this into the record: The
Government spent millions of dollars encouraging farmers of California
horticulturists, and I suppose we will treat them as farmers, in the
planting of grapes, and particularly tirging upon us the planting of
wine grapes, and^ they spent millions of dollars in propaganda, or
rather legitimate information, as to soil, as to type of vine, and then
along came a certain constitutional amendment, which has been mentioned more or less, and what is the upshot, what is the situation as
respects the price a man gets for his grapes? In the old days he sold
them right there, in San Francisco or Los Angeles or at other points,
and they were converted into harmless wine. Now the grapes must
be shipped, those fresh grapes, mind you, must be shipped from Santa
Kosa and other towns in California, 3,000 miles to New York, where
they are disposed of by auction. And a lot of criminals there in that
city have a combination and they will not bid for the grapes, and they
must be sold within a few days or they are ruined. But the price of
transportation there from Sacramento, Calif., in many instances
exceeds the price for which the grapes are sold in New York. That
is one reason perhaps why some people have thought instead of making
the poor and poisonous wine in New York, a harmless beverage might
be made in California, and thereby help the farmer, for we were quite
prosperous in those days and now we are broke.
Mr. P E E K . Well, there is legislation before the Congress now
addressed to your problem, is there not?
Senator SHORTRIDGE. There is.
Mr. P E E K . And I assure you I am in sympathy with its passage.
Senator SHORTRIDGE. I thank you.
The C H A I R M A N . Is there anything else you desire to say, Mr. Peek?
Mr. P E E K . Nothing else, Mr. Chairman.
 M A N . All right. We will excuse you.
The C H A I R


Pursuant to the request of the committee, there are set forth below
amendments to the pending bill H. R. 13991, entitled/'An act to aid
agriculture and relieve the existing national economic emergency,"
as passed by the House of Representatives January 12, 1933.
These amendments have been framed to carry out the principles
set forth in the foregoing statement. In formulating the amendments
it has been borne in mind that by the time legislation can possibly be
enacted the planting season will be so far advanced as to make impractical any general control of acreage planted for the current year.
[H. R. 13991, Seventy-second Congress, second session]
[Omit part struck through and insert part printed in italic]
A N A C T T o aid agriculture and relieve the existing national economic emergency

Be it enacted by the Senate and House of Representatives oj the United
States of America in Congress assembled^ That this Act may be cited
as the '^National Emergency Act/'

SEC. 2. It is hereby declared—
(a) That the depression in prices for that portion of our agricultural
commodities for domestic consumption, and the effect of unsettled
world conditions upon foreign markets for that portion of our agricultural commodities for consumption abroad, and the inequalities
between the prices for agricultural and other commodities, have given
rise in the basic industry of agriculture to conditions that have affected
transactions in agricultural commodities with a national public interest, that have burdened and obstructed the normal currents of commerce in such commodities, and that render imperative the enactment
of this Act for aiding in the relief of the present national economic
emergency in agriciilture and thereby facilitating the recovery of
industry, transportation, employment, and finance.
(b) That is the policy of Congress to encourage agricultural planning and readjustmpt to meet changed world conditions and to aid
in restoring the parity between agriculture and other industries and
in correcting the inequalities between the prices for agricultural and
other commodities.
That tho provisions of thio Ac^ftremadeftpplicablesolely with
rcopcet ^ wheat,-rieeycottony pcanuta, tobaoooy buttcrfat, aed hogs
hf^ reason ef -fehe
-thft^ ^the prices f w these basic eommoditiea ftfe
ft controUuig factor m eotabliahing ^ieee fe? othov domcotie agrioul •
4jural commoditicQ.
(c) That the provisions of Title / , 77, and III of this Act are (subject
to section 3) made applicable solely with respect to wheat, cottony tobacco,
and hogs by reason of the fact that the prices for these basic commodities
are a controlling factor in establishing prices for other domestic agricul146



tural commodities^ that exportable surpluses of these commodities or
products thereof are ordinarily produced^ and that substantially the
entire production oj these commodities is processed prior to ultimate




SEC, 3. If the Secretary of Agriculture at any time finds that the
operations under this Act with respect to wheat or hogs are inefective in
establishing a total return to the producer substantially equal to the
fair exchange value for wheat or hogs^ then the Secretary shall report
such finding to the President, If the President determines that in order
to correct such situation it is necessary to extend the operation of this
Act to other grains or livestock, he shall by proclamation specify the
grains or livestock to be covered. Commencing at such time as shall be
specified in the proclamation, but not later than 30 days after the issuance
thereofy the provisions of Titles I, II, and III shall become applicable
to the grain or livestock specified.



SEC. 4* The fair exchange value for any commodity shall be an amount
which bears to the national average price for all commodities bought by^
producers at local markets during the three preceding calendar monthsy
the same ratio as the national average price received for the commodity
by producers at local markets during the period commencing Augu^^
1909, and terminating July, 1914) bore to the national average price fo^
all commodities bought by producers during such period. Such valu^
shall be determined by the Secretary of Agriculture on the basis of pric
statistics computed and published by the Department of Agriculture,



S b € 7 fry •(€b} ¥he Secretary ef Agriculturo shaK'dotormino ft markot
fep eaefe of ^ folloT\jng commoditica: Wlicaty fieej cotton,
aeanut3j ^baeeo,
^^d marketing
buttcrfat s b ^
period of twelve montho beginning fel^ aed there sfeaH fee


eomme^itg ^feiy^ 4ftys after ^
el^ approva^^"^^^
fti^d terminating ert ^ commencement ef -febe 1033 1034 market
year fe? ^febe reapectivo eommoditieo.

period for wl^at, buttcrfat, rieey cotton; peanuto,
•fch A

hoga, ft^ for

T > n t^T^'^
" -r'^nn-n f n n tt'^Vi n f" n i l ffpT'T n f. Tipr^
J - ^ f j f j X u u t t i i m i i t u u l i - i g ^Tvjttr TCTT TTTxmruj TTxxrrcTjmxrc, TT^XTJ L - u u f u i i ,


tobacco, ftad beg&y ^ d ift ^bo case of butter fat adi uotment cer*"

t j•^'^^"vXTij a u ^ 11 T7t? XooTTCTX lllUXlUU.1 J .
ifinn f'.m ^ m t n

A pf- JA
jt*-*/l ^ ^
^-T-. J UiJtJv>wu
XX Ui-LiiJ TXT7T7 Xa VTVCXJITCt^CT TTXCH •^^nr^-w^it.n'iL

^ tejf^ eommodit^^ fe? fta additional year purauant te proclamation
Preaident under aoction ^
adjuatment oertificatco sfeftH
fee kstted fey -the 1034 1085 marketing yeftf fer ^ commodity.
ie^ Each producer of wheat, buttcrfat, rieey cottony pcanuta^
^obaccQ, er hoga ohall fee entitled, subject ^ -fefee conditions ef -tfeb
adjuatment ccrtificatca covering the
Digitized for4re bftw isaued



demcatio oonoumption pcroontage ef ^ eemmodity ^ feis e r o
duotioa markotod fe^ feft during
poriod lep whioh adjustment
ocrtifioatca may fee issuod w i ^ rcapoot ^ ^ eemmodityi Provided,
fts ootton, ftdjugtmont ocrtifioatoo m&iyy m ^ diaqrotieft ef
^ Scorctar}^; fee igaucd
^ producer wheft ^ ootton is ginned
unginned cotton seldr Pei*
purpose ef ^ subsection ^
demeatio consumption percentage m ^ erne ef buttcrfat sfeftU ftH
tJllilUo litt OT7 Tif-p ^vxrcrcrxnT
TTtj QA tJUl /^piTi t.n T 1

purpoocg ef ^ title ft eemmodity s M fee dcomod ^
fee marketed fey ft producer when seld e^ otherwioe disposed ef fey ef
fer ^ m fef proceooing ef resale,-fetttfeegssfeftB fee deemed ^ fee
marketed when seld ef otherwioo disposed ef ft feeder ef feegs wfee
ie set also ft processor ef feegs;
•(e)adjustment certificate, ef po^ thereof, shall,• whtlo kt ^
tho producer te w^hofit it as issuedj fee subject ^
attachment, I c y j j ef seizure under ftfty legal ef c(][uitablo precess^'
{f} fe adminiatering the provisions ef ^tfeis section m respect ^
buttcrfat tfee Secretary ef Agriculture sfe^ permit cooperative ftsseciationo ef produceroy when m the judgment ef %fee Secretary 9«efe
asQociationo ftfe qualified ^ de 30y actftiSagcitts ef their •
AZX^L •JTnrDTTTXI" TTI v O yVT^ v T T T r TTXUXT THU jk 1 T^TT n T1 f1f^ J
•f'-w/i.-if^ j-i .-lyv f^pt'X TTft^'f.1 f^n" -- h 4 TooTTttTTxTVIv

te iiVhiefe such members arc entitled.



SEeT4T {ft> ¥fee
(l) In the case ef w^hcftt^ K C poanutsand cotton, shall, mthift
T^pfiTin'f'l n n n piA'f'.'f'.n'n •f.fv TTV tvtn'plrf^'fT^f^ onTT'nfy T l i u -yii^-^-t-v^yTZ-TTT^ iixruT»i
TTvv,_ ^vTtiTTtruij, TTXiu ^Tmrcrcrrx ttw JIA IIIMIi^vUVJLL vxLiiixXg j^V*^ xouijuvjuiv u i"mtiin r

marketing periods therefor, -tba^ wffl fee needed fef domestic eeftsumption.
{S)- fe ease ef wheat, fieey peanuts, cotton, ftiid tobacco, ohaHy ft^
lea^ -twe weeks p f ^ ^ %fee commencement ef eaefe marketing y e ^
respect ^ which -tfeis title is m effect fef

fiiftteyftsnearly fts practicable, aed proclaim the percentage ef ^
%etal domestic production ef tte commodit}^ during ^ee ^tfeea current
calendar yeaf ^tfeft% will fee marketed ftftd needed fef domestic eeftoumption.
{S} fe tfee ease ef feegs shall, within thirty days ftftef tfee date ef
AppfeyaJ ef fe ^ ^ estimftteyftsiteariyftspraeticable, af^d pfeeiftHs
tonnage ef fee^ ^ fee marketed during
for hogs that willfeeneeded for domestic
fe e f t s e e f feegs s f e a H y ftt l e e s t t w e w e e k s
p ^
xHCItv OI litLOft fyiO.THrO.rlTIXTfin"P t t ^ t m 1 ij.iiii ,i jTj-t-n. ^viiitJii t i l U i_i_tla. Its t i t tJxrcrcTu
xxj - T -i rtjJ-iio. Liiliu

fts nearly a s
tho percontago ef domestic
tonnage ef fee^ ^ fee i
: dttfiftg Sttefe yeftf
fef domestic conoumptionr
Sftefe percentage proclaimed fef ftfty period sfeaHfeefeased
eft statisties ef -tfee Department ef Agriculture aiid other Federal
agencies a s ^ ^ average domestio eensumption ef tiie commodity
fef tiie five preceding periods ef like duratioar




fftee y a l u o









c o i n m o d i t Y ft^ ' t l i © 4)11110








0T its






l e s s ft










S B € 7 GT ¥fee Secrete
ohall dcoignate ofEcero, em**
of Agriculture {of wtfe ^ e
ployeea, ep agents ef
approval of A e Preoident, of ft^y other department O independent
^^ ^ appropriate State atteotabhshmentj O with
thority^ of ft^y State O ;
viaion thereof) fop -fehe iaauance
of adjuotmcnt certificatea. Suoh certificatca ahall fee isaued upon
application fey -the producer ftnd proof oatiafactory to ^ Secretary
t h ^ the producer is entitled thereto pursuant -to -this fted ti^
regulations thereunder.

S s e r ^ r {-a}



»» V ^lA-A uuj


pftPt of
adjuotmcnt certificate shftU fee tranoferable fey delivery.
One part of
ae adjuotmcnt certificate fee preacntcd fey the bearer
fop redemption ftt ftiiy time during the yeftp eommencing one month
dftep the dftte ^ iaouancc thereof, ajid the other pftpt may fee ppeaented fey the bearer fop redcmptioft at ftiiy time during the
six months of stteh yeapr Certifieateo ohall fee accepted fop redemp •
tiofi ftt the United: States Trcaoury O fi;tstteh fiscal agcncieo of the
United Stateo as the Secretary of -fee Treaour}^ shall designate.
¥he action of aey ofiiccr, employee, O agent iii issuing aed
oSeep thethe
fijdng of value of aiiy adjustment certificate an4 ie redeeming stteh
other than the Secretary of Agriculture.
ocrtifieate shall eot ^ subject to review fey aiiy court O fey aey

S«er &
Nothing m this Aet shall fee construed as affecting O
controlling m aiiy w ^ the frccdoHt of a ^ producer to produce aed
sell as
as i e wishes of aey eomniodity; except that the issuance
^adjuotmcnt certificatCD shall fee subject to the following conditions
^ adjustment certificates shall fee issued iii respect of wheat?
Heey cottony peanuts, O tobacco of asy producer marketed during
1083 lOul markking y ^ foP the commodity, unless the ppoduecr^a acreage of wheat, pieey cottonj peanuto, O tobacco of 1038
production is ^ pep centum
thas his average acreage fop s«eh
preceding period as the Sccretar3= deems rcprcoentative of normal
production conditions i s the apeaf but this papagraph shaM not apply
to acreage planted to wheat m the faH of
Jfo adjuotmcnt certificate shall be issued m respect of any lot
of hfor FRASER producer marketed during the initial marketing period
^ of any




fee ioauod m rcapcot ef begs ef
ftfty produoor marketed during ^ 1033 1031 marketing ^ ^ lep
liegey unlcoa
produoor'o tonnage ef h e ^ fer market during
•.tjtrt-H iQ
V^fv n o TAfvn f prtf 1 irvt lajtn f.nft'n
TiOTinflfffi SeP [jllO PrOQeClmfi?
ytJttr io U1 » 111 U\J i V T X T xJwIlrcrCTTTT XT^oo TUten jxiu Tfvyjj-i-Atx^w j - w u v j^o.

production: is 30
unleoo bis acreage ef corny if €fcft3?7 ef
per oentttiii' lessfeliftiiliis average acrcogc for sueli pre coding period fts
^ Socretar}^ dcomo repreocntativo ef normal production conditiono
ift^beftfea^ Provided, ^ ^ ^ wefde ^^aereago ef eem^ s M ^ be
conGtruod ^ inoludo acreage ef eem harveated before maturity fe?
{!> fe ^ event t b ^ ^ ^ ^ ^ i s y by proclamation ^ ^ Preoidcnt
made purauant ^ ocction SSy extended fe?
additional ymip wife
reapcct -te wheat, rieey cotton, peanuto, tobacco,
e p bogsy no adj U3t~
mcnt certificate ebftH be ioaucd -feeftftyproducer m reopeet ef s^eb
commodity marketed by bim during ^ 103d 1036 marketing yea?
fep fee commodit}^ unlcoa fee produccr'o acreage, m ease ef wheat;
fiee; cotton, j-tpeanuts, Je? ntobacco-, ep m ease ef-Ytrt^n rtrt/^bis(-i^T
hogo,^ -lyi acreage ef
rt -If
•- J l-t t
- ^ ft r^n JT
UUl'll, XT ttTTjTy lllivJ. ef IJUllllll^C \TT TlvTgTTj found neccooary m ovXCTT XTTXnv/Ul-U.v
ft9 fee Secretary-IlilLi ftAgriculture.-F It TTrCsJftXrCTCTl TATCrTTvTvJvT TXTorder It^f> TTTI 01111 Tl
ppe^ adjuotment ccrtificato
be issued m reopcct ef wheat,fieey eotton, pcanuto, hogs,e? tobacco ift anv ease where rcductioH:
ef acrcago is required ^ feis Ae^ if fee iaiid rcpreoenting stteb
^ieft occurs; utilised, production ef aey reopcct ef which hich. rcducef w sueb in the
: is fei» fee during fee yea? m
opinion ef 47be Secretary, feei^ is normally produced ef is likely ^
be produced aa exportable aurpluG, iie? m ease ^ producer during
fea^ pQ^ ef fee initial period eg ^ feeft current j
•F. I 7
- XT PARTIT-TTF\FI 1 T.I" QQ F.NPI ENN.R-. TYITII^RI T^ Trrrrcii ^FT ClUpUUU.,- iillo :
CNN ^TcrrrriirtTxiTU^y, rra " I C i^uou mwy T JIN-RK*^"U xittn ^ V T F N . *

bis production ef milfe ep milfc products fe? sale erof bis fn
thereof fe? sale fe? fee oame period during fee preceding year,
sball be fee dttty ef fee Secretary ef Agriculture ^ determine asd
make pubUc fee commodities feat may be produced m various regions
ttpeft kftd representing acreage reduetiono under feis Aet \\dthout
violathig fee requirements ef feis paragraph.
fe fee event feat feis isy by proclamation ef fee Preaident
made purauant -te ocction ^ extended fep aft additional yea? ^wife
respect te buttcrfat, fte producer wbe producca fe? sale me^e butterfat during a^y month iti fee 1031 1036 marketing yea? feaft was
produced fe? sale by bita during fee corresponding month ef: fee
preceding marketing yea? sbail receive afty adjustment certificate
ttfide?feisAet fe? stteb meftfer
<b> ^ ^ Secretary ef Agriculture sbab by regulation provide fe?
^ application ef fee provisions ef feis seetien wife respect -fee ^peette^
engaged m fee production ef fee commodity pi4e? ^ fee
particular year.


S ^ ^ fe^ ¥be faif e}Lchangc allowance fe? any commodity sbail
be ^ difference between fee priee feceivcd fe? fee commodity by
producers at leeal markets aft4 fee fai? cxchangc ^^^fee fe? fee
^ hcrcinaftCF determined.




•fb)- 5%e fei? cxchangQftHowancc^
fep eaefe
^ proGlaimcd fey ^ Sccrctar}^ ef Agriculture eft ^ day
^ de;^ ef approval ef -fefe Ae^ Thereafter feif oxchango allow"
ftsee sfeaS fee proclaimed
s^efe intervab as ifee Secretary

rt Irf^r^Tt
j^n n l U
• TTn f^ U n TTIxrro vXtTcrTX XlUVJUUBlil J f vt7 IVVJVJJJ TXT LMl L J U ji. -Tft TH U A C i l U l l g U U l11 W U l l U e
vTTTTO •K 'f.T rvi A H pr>Tyi
H ^4-. Tt 11111

which, together wiA ^fee
received fe¥
eemmodity fey pi O"
d u ^ r a ^ local mxri^cto during ^he
three montliG fe? which index

for the commodityt
f€ti¥ exchange allowance sbftll fee determined fey ^ Seeretefy e e ^ feasis ef ^ index numbera fep
priccQ as coni.puted ^nd
: fey -the Department ^ Agriculture. - t h e fe^ _
exchange allowance
under -fefeis Ae^ sbaU ^take
fftftde fey -tfee ^
effect e^^
exchange allowance opeci e d
ftiiy aubsequent proclamation fe^ ^fefee
shall -feake effect ftt ouch date as ie gpecified m -the procla7Y1 n

_ ^ value
^tfea^ sfeail feea? te ^ pi4e6

sfeail fee an


period fef which index numbera are available, fte same p-atio as -the
price ie¥ 4fee eemmodity ^aid produccro a^ local markets during ^the
fee^ period feere to pricca
aH eemmoditica bought fey producers
during such fease period. ¥fee fease period shall fee -the period commcnoing September, j.OQO, aftd terminating Auguot, 1011, except -tfeatr
j- Vt J^ jri
j-vF 4- ^ l-v C ^ ^ ^ T -I- It ? Vv y-v
j-v j-J ^ at t I
V W-fv
^ -wr j-1
^ T^-t tyi

September, 1000, aad terminatmg August, 1010.

X£X ^ErTJl I l l K TXrO XJUllU %VTllg - n r rXwvlo TTTIV i mi r ^ T W i rfVTicrA TrftlTTpi I Ix TjTIT? vTZiov
^ -fV>f\ -P/tllrtTT^^-no^ IJL'l i n H i f l i p - f n r
u I fil^r^ pnQP
on^v >
f^f T% IIUUU, ^ r t
> . i UL71XU L, TTxTCArvTI, J^V^UULL
vTT % T T u . ^ TTtJvSyVU U.i U r > - f - - f^f-wf-fi^n- T^f^n"m7fn— nTIH nAty^ n n n i l Tin nQ TrarrOTTxTTTiS*
TTTTa ITTTg^ oTTim kjkj f n l f t w i —

ease ^ wheat, W eentg a bushel during ^tfee initial
marketing period.
:e ease of i4ee7
centa a bushel during -fefee initial
marketing period.
ease ef buttcrfat^
cento a pound during
initial marketing period.
•(4> fe ^ ease ef cotton, 0 eents a pound during A e initial
marketing period.
fe ^ ease ef peanuto, & cents per pound during ^ initial
inarkcting period.
fe fe ease ef begsy ^ cento a pound dttrieg %he initial marketing

1 T











ploj^ncnt over
indos number therefor ea the d a ^ ef approval of
"this A.ctas pubUohed fe¥ ^ Federal Reserve Beafdr ^m^ stfeb fee
fts %fee faif cxchango value for feegs se computed fet equals s^efe
value as computed under oubaection -(e)t Thereafter ^ faif exchange
value fep hogo ohall fee computed under subsection {e^r







II, and III oj this act shall, in accordance
SEC. 5, (a) Titles
with the terms thereof, apply to wheat, cotton, tobacco, and hogs, commencing on the date of approval of this act; and shall apply to other
grains or livestock specified in any proclamation of the President under
section 3 commencing at such time as is specified in the proclamation,
(6) The Secretary of Agriculture shall determine the marketing year
for each commodity to which Titles I, II, and III have become applicable,



SEC, 6, The Secretary of Agriculture shall within 30 days after the
date of approval of this Act, and may from time to time thereafter as crop
condition reports of the Department become available, estimate as nearly
as practicable and proclaim the percentage of the domestic stocks on handy
plus the domestic production for the current calendar year of each commodity to which this title is applicable, that in his judgment will be
needed for domestic consumption. Any such percentage is hereinafter
rkerred to as the domestic consumption percentage for the commodity.
The amount that will be needed for domestic consumption shall be based
on statistics of the Department of Agriculture and other Federal agencies
as to the average domestic consumption of the commodity for the five preceding years; and the amount of domestic stocks on hand and domestic
production for the current caleridar year shall be based on the best available data of the Department of Agriculture and other Federal agencies,


SEC, 7, (a) Adjustment certificates shall be issuable during the period
commencing 30 days after the date of approval of this act, and terminating
at the expiration of the 1933-34 niarfceting year for the commodity. If
this act is extended with respect to any commodity for an additional year
pursuant to proclamation of the President under section 30, then adjustment certificates shall be issuable for the 1934-35 marketing year for
the commodity.
(6) Each producer of the commodity shall be entitled, subject to the
conditions of this act, to have issued to him adjustment certificates covering the domestic consumption percentage, then in effect, of the commodity
of his production marketed by him during any period for which adjustment certificates may be issued with respect to the commodity,
(c) For the purpose of this title, a commodity shall be deemed to be
marketed by the producer when it is sold or otherwise disposed of by him
forjn-ocessing or resale; but hogs shall not be deemed to be marketed when
sold or otherwise disposed of to a feeder who is not also a processor of hogs,
{d) The face value of an adjustment certificate, per unit of any commodity covered thereby, shall be equal to the benefit payment per unit in
efect with respect to the commodity at the time of its marketing, less a pro
rata share of administrative expenses as estimated and proclaimed by the
Secretary of Agriculture.
(e) The benefit payment with respect to any commodity shall be the
difference between the current national average price received for the



commodity by producers at local markets^ and the fair exchange value of
the commodity^ computed to the nearest one-half cent per pound or bushel.
Such cuirent national average price received by producers shall be determined by the Secretary on the basis of such price for the last three
months for which statistics of the Department of Agriculture are available,
if) The benefit payment shall be proclaimed at such intervals as the
Secretary may from time to time deem necessary to keep in efect a
benefit payment which, together with such current national average price
received by producers, will substantially equal the fair exchange value
for the commodity. The benefit payment specified in any proclamation
shall take ejffect at such date as is specified therein,



SEC, 8, (a) Adjustment certificates shall be imued upon application
by the producer and proof satisfactory to the Secretary of Agriculture
thai the producer is entitled thereto pursuant to this Act and the regulations
thereunder prescribed under section 23,
(6) The Secretary of Agriculture shall designate officers, employees, or
agents of the Department of Agriculture (or, with the approval of the
President, of any other department or independent establishment; or,
with the approval of the appropriate State authority, of any State or
political subdivision thereof) for the issuance of adjustment certificates,
(c) No adjustment certificate, or part thereof, shall, while in the possession of the producer to whom it is issued, be subject to attachment, levy, or
seizure under any legal or equitable process,



Sec, 9, (a) Title to any adjustment certificate shall be transferable
by delivery. Any adjustment certificate, when presented by the bearer
at any time after SO mys and not more than one year from the date of the
issuance thereof, shall be redeemable at its face value. Adjustment certificates shall be accepted for redemption at the United States Treasury
and at such fiscal agencies of the United States as the Secretary of the
Treasury shall designate,
(6) The action of any officer, employee, or agent in issuing and fixing
the value of any adjustment certificate and in redeeming such certificate,
or in making any payment under section ^0, shall not be subject to review
by any court or by any officer of the Government other than the Secretary
of Agriculture or the Secretary of the Treasury,
(c) In administering the provisions of this title the Secretary of Agrimlture shall permit cooperative associations of producers, when in the
judgment of the Secretary such associations are qualified to do so, to
act as agents of their members and patrons in connection with the issuance
and redemption of adjustment certificates to which such members or
patrons are entitled.


SEC. 10. (a) There shall be levied, assessed, and collected an
adjustment charge on the first domestic processing of any wheat,
 pcanuto,- tobacooy buttcrfat, O hoga,- commodity with
rieey cottony





res'ped to which adjustment certificates are issuable, whether of domestic
production or imported, to be paid by the processor. Adjustment
charges shall at any given time be at the same rate per unit of the
commodity as the MB oxchange allowanoe benefit payment then in
effect with respect to the commodity-j except ^thft^ mT-T n ease ef T-VRT4- H
-the ^ V^ 11 feegsy
' " ""
J J - -11-14T - 1
between -the price
markets and ^ following amounta


fer feegs by ^oduocrs


I- J W IT J^ F V
uTTv tTTTTv \7X

/ 1 ^ TPnr i i i A
\ J d: \JX viTvy

approval ef ^to Aei?

TY T I N ..

Jme ^ 10337 4 eeft^ftpound
Pe? -the period eommcncin^ fely 47 1088, ftad ^rminating
cento ft
ftt ^ beginning ef ttie 1088 19; marketing yeafy
¥}ie price rcocivod fe¥ hoga by producers ft^ local markcto shall be
^ Secretary ef Agriculture fieeea
^feime ^ ^tttftey fef ^ purpooco el ^feis ocction, mfiftftybe ncccosary h^
order ^ kee^ ia effect ftsi adjustment charge aubatantially equai -fee
•the difference between stteit price ftfid amounta above QpccificdT
Qfi jiTx

rt n It. j-l rt r - y ^ ^-nn jt t-v-r--\w y
n C n j^-rtn-4- r
tjtrttTt Ty"
LL/JL llllilUvT U^ TTTzV
U iJtll

t-v f^ i
yi nrt^

Adjustment charges shall eemmence ea ^ day following ^
dftie of approval ef %y9 Ael ftfid shall terminate w A rcopcct ^ aey
commodity efte month after -the ead ef -fehe 1033 1081 marketing year
for the commodity; except
if ^this Aet is extended with respect
^ ftiiy commodity fep ftft additional year, pursuant ^ proclamation
ef -the Secretary ef Agriculture under section
then adi ustmcnt
respect -te -the eemmodity ebftH terminate eiie month
d t o ^ eaad ef ^ 1031 1036 marketing year fe^ %ho commoditj.
(6) Adjustment charges with respect to any commodity shall commence
on the day on which adjustment certificatesfirstbecome issuable with
respect to the commodity and shall terminate at such time as the Secretary
of the Treasuryfindsand proclaims that the Treasury has been fully
reimbursed for all expenditures made or to be made pursuant to this Act
with respect to the commodity^ but in no case earlier than the date on which
adjustment certificates cease to be issuable with respect to the commodity.
ocction shftH procureftftdk ^ posted ft certificate'^ registry
m accordance w i ^ regulations preoeribed by -fete Secretary m
proeeooor whe fails %e fegistef e^ ^ k e ^ ^ e s ^ ft^
certificate ef registry ia accordance with such regulations shall, upon
eeftvietieft ti^eFeefy be s t i b j e e i i e ft fine ef B e ^ m e ^ t b f t B S l , O O Q r
•(d)- fe erder ^ protect ^ proccsaors ef cotton against dioadvan^feftges m eompetition, during
period fe? which ftft adjustment
ebfti^ is iB eSee^ with Feseee^ *e eeUeer there shall be le^ied^
ftfid c o I l c G t e d tt^ee ^
domestic p r o c e s s i n g e f silfe e g r a y o n ftft
Qdj^uQtmcn^ c h a r g e

e q u a l %e t h e



charge -feh^ m


T^ R -Try "UTro J j i
jjtcitxJL T^TT'



S t t e h e h f t i ^ s h a l l b e e e l l e e t e d w i t h i - e s ^ e e t t e tPftyeft
p r o c c o o e d e e t t e f t s t t b ^ e e t t e ftB a d j u o t m c n t e h f t f g e w i t h f e s p e e t t e i t f t




(e) Any person delivering any product to the American National Red
Cross (or other organization designated by the American National Red
Cross) for charitable distribution or use, pursuant to Act oi Congress^
shall, if such product is under this Act, subject to tax or processed from
a commodity with respect to which there is in effect an adjustment charge
at the time of processing, be entitled at the time oi delivery to a refund
of the amount of any tax or adjustment charge paid under this Act with
respect to^ such product, or^ the commodity from which it was processed^
as established by conversion factors prescribed by regulations of the
Secretary of the Treasury. The Secretary shall prepare forms for filing
claims for such refunds and shall certify to the Treasury of the United
States claims which have been approved for payment,


SEC. 11. (a) Upon the sale or other disposition of any article processed wholly or in chief value from wheat, rieey cotton, pcanuta, siik^
rayony tobaeoo,- buttcrfat, e? feegs ^feba^ {eft ^ date aft^ adjuotment
inorcaae e? dccrcaoe therein,- takes effect er terminatco)
any commodity with respect to which adjustment certificates are issuable,
that on the date any adjustment charge takes effect with respect to the
commodity, is held for sale or other disposition (including articles in
transit) by any person other than a consumer or a person engaged
solely m retail tra^,^th^e^haU^
es followo:
shall be levied, assessed, and collected a tax to be paid by such person
equivalent to the amount of the adjustment charge ef increaGo which
would be payable with respect to the commodity from wliich processed
if the processing had occurred on such date.
bo f efund e d to stteh pefseft ft tex if ^ te has Bet beeft paidy ^
shall be abated)' ift an amount equivalent te the adjustment charge
{8)- Such ec[uivalent amounts shall be established by conversion
factors prescribed by regulations of the Secretaiy of the Treasury.
(b) The proceeds of all taxes collected imder this section shall be
covered into the Treasury, and there are authorized to be appropriated amounts necessary for the payment of refunds under this
•(e)- Per ^he purpooc ef ^tfeie section the term --retail trade^^ ohall
ft^ be held
busineGg ef aft eotabliohmcnt which ist
^^^^fiedy operated, maintained, ep oontrollcd by -the oame individual,
^ ^ ^ r p o r a t i o n , er aasociation^^^^^^^^^opcm
•fd> (c)^^otwithstanding the provisions of subsection (a) such subsection shall apply to flour in excess of
10 barrels held for sale or
other disposition by any person engaged solely in retail trade.

, SEC. 12. (a) Upon the exportation to any foreign country (include s the Philippine Islands, the Virgin Islands, American Samoa, and
the island of Guam) of any product with respect to which an adjustment FRASER
Digitized forcharge or tax has been paid under this Act, the exporter thereof 11
Federal Reserve Bank of St. Louis


investigation^ of



shall be entitled at the time of exportation to a refund of the amount
of such charge or tax, as established by conversion factors prescribed
by regulations of the Secretary of the Treasury. The Secretary shall
prepare forms for filing claims for such refunds and shall certify to
the Treasurer of the United States claims which have been approved
for payment.
(b) Upon the giving of satisfactory bond for the faithful observance
of the provisions of this Act requiring the payment of adjustment
cliarges or taxes, and of such regulations as may be prescribed thereunder, any person shall be entitled, without payment of the adjustment cliai'ge or tax, to process for such exportation any commodity
witli respcct to wliich an adjustment charge is imposed by this Act,
or to hold for such exportation any article processed wholly or in
chief value therefrom. The Secretary of the Treasury shall prescribe
necessary regulations for such processing or holding in bond or in
such other manner as may be necessary to carry out such provisions.

SEC. 13. No adjustment charge shall be required to be paid on the
processing of any commodity by the producer thereof for consumption by his own family, employees, or householdy ep eai ^ proccooing

V^TT f l-irt
OnV j-ll/^T*/^
f fin aAirt rllTPl-nO*
tjT itvTgtJ Ujr vtTCv JJl UU. LH^V^l UJLIUI UUl, J*"" T-r TTf nT> f U!!U1 Xxl^ i-lLLj jrCOTT IvJr Tmiv>XL
TXTT ocllU \TT n 1 f^ +

stteb charge would otherwioo be payable, if Ms sales ^ ^ee ppedu^
rcaulting i^em mek processing ot tiogs flte^ exceed W O during
sttefe year, op eii ike proccQsing ef buttorfat h^ ft producer
sale -fee eonaumero, during
yea? fef which sHefe charge weeld
otherwioe fee pa3^able, if liis sfti^ ef ^ee products f^n t'^^n'lT^p such
feutterfat de
exceed gW during stteb


SEC. 14. No processor or other person shall be exempt from any
adjustment charge or tax under this Act by reason of the fact that
the products of the processed commodity are purchased by the
United States, or any State, Territory, or insular possession thereof
(except the Philippine Islands, the Virgin Islands, American Samoa,
and the island of Guam), or the District of Columbia, or any agency
or instrumentality thereof.


SEC. 15. (a) If (1) any processor, jobber, or wholesaler has, prior
to the date of approval of this Act, made a bona fide contract of sale
for delivery after such date of any article in respect of which an
adjustment charge or tax is imposed under this Act, and if (2) such
contract does not permit the addition to the amount to be paid thereunder of the whole of such charge or tax, then (unless the contract
proliibits such addition) the vendee shall pay so much of the charge
or ^ x as is not permitted to be added to the contract price,
(b) Charges or taxes payable by the vendee shall be paid to the
vendor at the time the sale is consummated and shall be collected
and paid to the United States by the vendor in the same manner as
other adjustment charges or taxes under this Act. In case of failure



or refusal by the vendee to pay such charges or taxes to the vendor,
the vendor shall report the facts to the Commissioner of Internal
Revenue who shall cause collection of such charges or taxes to be
made from the vendee.

SEC, 16. (a) The adjustment charges and taxes provided in this
Act shall be collected by the Bureau of Internal Revenue under the
direction of the Secretary of the Treasury. Such adjustment charges
shall be paid into the Treasury of the United States.
(b) All provisions of law, including penalties, apphcable with
respect to the taxes imposed by section 600 of the Revenue Act of
1926, and the provisions of section 626 of the Revenue Act of 1932,
shall, in so far as applicable and not inconsistent with the provisions
of this Act, be applicable in respect of adjustment charges and taxes
imposed by this Act: Pj^ovided, That the Secretary of the Treasury
is authorized to permit postponement, for a period not exceeding 60
days, of the payment of adjustment charges covered by any return.
(c) In order that the payment of adjustment charges may not impose
any immediate undue financial burden upon processors^ any processor
subject to such charges shall he eligible for loans from the Reconstruction
Finance Corporation under section 5 of the Reconstruction Finance
Corporation Act.


SEC. 17. If the Secretary of the Treasury and the Secretary of
Agriculture jointly find that any class of products of any commodity
is of such low value compared with the quantity of the commodity
used for their manufacture that the imposition of the adjustment
charge would prevent in whole or in large part the use of the commodity in the manufacture of such products and thereby substantially
reduce consumption and increase the surplus of the commodity,
then the Secretary of the Treasury may abate or refund the adjustment charge with respect to such amount of the commodity as is
used in the manufacture of such products in accordance with regulations prescribed by the Secretary of the Treasury.

SEC. 18. (a) During any period for which an adjustment charge
under this Act is in effect with respect to cotton there shall be levied,
assessed, collected, and paid upon the following articles when imported
from any foreign country into the United States the following duties:
(1) On cotton having a staple of less than one and one-eighth
inches in length, 5 cents per pound; and
(2) On all dutiable articles wholly or in chief value of cotton
having a staple of less than one and one-eighth inches in length,
an additional duty of 5 cents per pound on such cotton contained
therein^ as established by conversion factors prescribed by regulations of the Secretary of the Treasury.
(b) During any period for which an adjustment charge is in effect
with respect to wheat, fieej cotton, peanuto, tobacco, butterfat, e?

hogg, any commodity, there shall be levied, assessed, collected, and




paid upon the importation, from any foreign country into the United
States of goods processed or manufactured from such commodity
which, if domestically processed, would be subject to an adjustment
charge a duty equal to the amount of the adjustment charge which
would be payable with respect to such domestic processing at the
time of importation, as established by conversion factors prescribed
by regulations of the Secretary of the Treasury. Such duty shall be
in addition to any other duty imposed by law.
(c) During any period for which an adjustment charge is in effect
with respect to butterfat, ftftd/e? cotton,-ftftd/e^cotton or hogs, there
shall be levied, assessed, collected, and paid upon the importation
from any foreign country into the United States of animal, marine,
and vegetable oils or fats, and upon the oil content of the raw materials
from which such oils and fats are extracted, a duty of 5 cents per
pound; and upon such importation oj molasses not imported to be com"
mercially usedfor the extraction of sugar orfor human consumption, 6 cents
per gallon. Such dtt^ duties shall be in addition to any other duty
imposed by law.
(d) The duties imposed by this section shall be levied, assessed,
collected, and paid in the same manner as duties imposed by the
Tariff Act of 1930, and shall be treated, for the purposes of all provisions of law relating to the customs revenue, as duties imposed by
such Act.
(e) As used in this section the term ^'United States" means the
United States and its possessions, except the Phihppine Islands, the
Virgin Islands, American Samoa, and the island of Guam,
SEC, 19 (a) To aid in the administration oj this Act, to meet the situation caused by the existence oj abnormal surpluses, and to prevent accumulation oj new or jurther increase oj old surpluses pending the opening
oi normal export markets, the Secretary oj Agriculture, the Attorney
General, and the Secretary oj Commerce are jointly authorized to enter
into marketing agreements with processors, associations oj producers,
and other agencies engaged in the handling oj any commodity to which
Titles I and II have become applicable or in handling the products oj
such commodity. No such agreement shall he entered into unless, in
the judgment oj the Secretaries, the execution oj the terms thereoj will
aid in maintaining jor producers oj the commodity a return therejor at
local markets substantially equal to the jair exchange value jor the commodity, Such agreements shall provide jor the marketing oj the commodity, including the storage or other disposition thereoj, and jor the
disposal oj any net profits arising out oj such marketing operations.
Except as provided in section 30, marketing operations under such agreements shall be applicable only to the 1933 production oj the commodity
and prior accumulated surpluses oj the commodity.
(b) For the purpose oj carrying out any such agreement, the parties
thereto shall he eligible jor loans jrom the Reconstruction Finance Corporation under section 5 oj the Reconstruction Finance Corporation Act,
but not in excess oj such amounts as may be authorized by the agreement,
Sm, 20, (a) Ij the Secretary jinds jrom the crop condition reports oj
the Department oj Agriculture that the domestic stocks on hand oj wheat,



cotton^ or corn plus the prospective production thereof for the current
year are in excess of the estimated consumption requirements of the domestic markets and the potential foreign markets for the commodity, then
the Secretary shall determine and publish the amount by which it is desirable to reduce such production in order not to exceed the requirements
of such markets. The Secretary shall ascertain and proclaim the production areas in which the prospective production will exceed the normal
proportion of the total production of such areas. The Secretary shall proclaim^ in each such production area the percentage by which producers
therein shall^ in order to he entitled to the payments under subsection (6),
reduce their production of the crop theretofore planted,
(6) Under regulations prescribed by the Secretary of Agriculture and
the Secretary of the Treasury, there shall be paid to each producer promptly
upon proof satisfactory to the Secretary of Agriculture that his production
has been so reduced, an amount equal as nearly as possible to the price of
the estimated amount of the commodity so removed from production, less
the cost of completing the production and harvesting of the commodity
and its preparation for and hauling to local markets,
(c) No adjustment certificate shall be issued any producer of wheat or
cotton for the marketing year for any crop with respect to which the producer has failed to reduce his production in accordance with the percentage, if any, prescribed f or his production area under this section,
(d) To assist in the efficient administration of this section, the Secretary of Agriculture is authorized to designate in each State lying wholly
or in part in any production area proclaimed under subsection (a), a
committee composed as follows: The head of the department of agriculture of
the State; the head of the agricultural extension service of the State; and
such person as is recommended to the Secretary by the Governor of the
State to represent the farmers of the State, preferably the executive head of
the leading farm organization of the State,
(e) The payments made to producers under this section shall be paid
out of the Treasury from receipts derived from the duties levied under
section 18,


/ F — G E N E R A L



AS used in this ACF^
(1) In case of wheat or other grain riee, the term ''processing"
means the milling or other processing (except cleaning and drying)
of wheat or other grain fiee for market, including custom milUng for
toll as well as commercial milling, but shall not include the grinding
or cracking thereof not in the form of flour for feed purposes only.
(2) In case of cotton, silk, and rayon, the term ''processing" means
the spinning, manufacturing, or other processing (except ginning) of
cotton, silk, or rayon; and the term "cotton" shall not include cotton
(3) In case of tobacco, the term "processing" means the manufacturing or other processing (except drying) of tobacco.
(4) In case of hogs or other livestock, the term "processing" means
the slaughter of hogs or other livestock for market.
fe eftse ef pcanutsy
^e^Eft "proocsoing" mcano ^ eiead

poliohing, grading, ohclling, eruahing, O other proccooiag thorcofr







'^buttorfat'^ fts «sed horcm meaas ^ amount ef fat
oi" tnilli tind j^rodttcto Ritid.6feoiftHIIIIL. I S ^ho cuoo of bxittofp •
term -'proocooing'- mcanoftHmanufacturing ef milfe e? orcam
i i ^ ^roduQta ftad else ftH ste^ ^akea ia the handling ftfid sale ef
ffiilk ep cream ae s«eh afte? t ^ product Icayca the f a m where
duccdi afeey ift ease ef direct sales by producer te a eonsumer, all
steps hi preparing the product fer market, whether e? ftet taken es




SEC. 30. 22, (a) Amounts appropriated for the payment of administrative expenses under this Act shall be expended by or under the
direction of the Secretary of Agriculture, but the amounts to be
expended for such expenses under this Act shall not exceed in the
ag^egate a sum equal to 2%, per centum of the total amount to be
collected in adjustment charges and taxes under this Act.^
(b) The Secretary of Agriculture is authorized (subject to the
limitations provided in subsection (a) with respect to the amounts
available for the payment of administrative expenses) to transfer to
the Treasury Department and other agencies of the Federal Government, and to any agency of any State or any political subdivision
thereof, such sums as are required to pay the additional expenses
incurred by such agencies in the administration of this Act: Provided,
That a statement of all transfers of appropriations made hereunder
shall be included in the annual Budget for the fiscal year 1936, and a
statement of all transfers of appropriations made hereunder up to the
time of the submission of the annual Budget for the fiscal year 1935,
and all contemplated transfers during the remainder of the fiscal years
1933 and 1934, shall be included in the annual Budget for the fiscal
year 1935.

SEC. SI 23. The Secretary of the Treasury and the Secretary of
Agriculture are authorized to prescribe such regulations as may be
necessary to the efficient administration of the functions vested in them,
respectively, by this Act, including regulations by the Secretary of
Agriculture as to proof which the Secretary will deem satisfactory as
a basis for issuing adjustment certificates or making payments under
section 20. Copies of regulations under this Act shall be pubfished and
distributed without cost to producers and other interested persons.



SEC. SS 24^ AVhenever any agricultural commodity has regional or
market classifications, types, or grades {including classification by
weight, in the case of hogs) which the Secretary of Agriculture finds
are so different from each other in use, grade, or marketing methods
as at any time to require their treatment as separate commodities
under this Act the Secretary may determine upon and designate one
or more such classifications, types, or grades for such treatment,
buch classification, type, or grade shall, so long as such determination
remams m eflect, be treated as a separate commodity under this Act
m accordance with regulations to be prescribed jointly by the Secretary of Agnculture and the Secretary of the Treasury.





25. A^Tien any adjustment charge, or increase or decrease
therein, takes effect in respect of a commodity the Secretaiy of
Agriculture, in order to prevent pyramiding of the adjustment
charge and profiteering in the sale of the products derived from the
commodity, shall make public such information as he deems necessary
regarding (1) the relationship between the adjustment charge and
the price paid to producers of the commodity, (2) the effect of the
adjustment charge upon prices to consumers of products of the commodity, (3) the relationship, in previous periods, between prices to
producers of the commodity and prices to consumers of the products
thereof, and (4) the situation in foreign countries relating to prices
to producers of the commodity and prices to consumers of the products thereof.

SEC. 34 26, The Secretary of Agriculture and the Secretary of the
Treasury may each appoint such experts and, in accordance with the
Classification Act of 1923 and all Acts amendatory thereof, and subject to the civil service laws, such officers and employees as are necessary to execute the functions vested in them, respectively, under
this Act: Provided^ That no salary in excess of S7,500 per annum
shall be paid to additional employees necessary to carry out the
provisions of this Act.

27, (a) Any person who makes any false statement for the
purpose of fraudulently procuring, or shall attempt in any manner
fraudulently to procure, the issuance or redemption of any adjustment certificate or any payinent under section 20, whether for the
benefit of such person or any other person, shall upon con\'iction be
fined not more than $2,000 or imprisonment not more than one year^
or both.
(b) Adjustment certificates issued under authority of this Act shall
be obligations of the United States within the definition in section 147
of the Act entitled ''An Act to codify, revise, and amend the penal
laws of the United States," approved March 4, 1909, as amended.

28, There are hereby authorized to be appropriated such
sums as may be necessary for the purposes of this Act.

SEC. ^ 29, The provisions of this Act, except section 18, shall be
applicable to the United States and its possessions, except the Philippine Islands, the Virgin Islands, American Samoa, and the Island of



, SEC.
30, Prior to the commencement of the planting of wheats
cotton, peanuts, and tobacco, respectively, for production during

the calendar year 1934 and prior to the commencement of the period




for breeding hogs which normally will be sold during such year, ftftd
^ 1031 1035 marketing yeftf
buttorfat the Secretary
of Agriculture shall investigate and report to the President whether
the inequalities between the prices for any such commodity and other
commodities have been, or are likely to be, corrected without extending the provisions of this Act. If the President determines that it is
necessary to place continue any of the provisions of this Act in operation in order to correct any such inequality with respect to wheat,
rieej cotton, ^eanuto, tobacco, buttcrfat, or hogs he shall thereupon
issue a proclamation setting forth such determination. Upon the
issuance of any such proclamation with respect to any commodity,
the provisions of this Act shall be in operation for an additional year
with respect to the commodity covered by the proclamation.
Senator HARRISON. Mr. Chairman, Mr. Rand is next on the calendar, and I understood he wanted to speak confidentially to the
The CHAIRMAN. That is what the calendar says.
Senator HARRISON. There is another gentleman present. Could he
be given 10 minutes, and then we might go into executive session to
hear Mr. Rand?
The CHAIRAIAN. What is his name?
Senator HARRISON. Mr. Anderson. Or he could file a brief.
The CHAIRMAN. Well, he may come around and be heard.
S T A T E M E N T OF S. W . A N D E R S O N , OF THE E Q U I T Y C O R P O R A T I O N ,

The CHAIRMAN. Whom do you represent?
Mr. ANDERSON. I do not represent anybody. Senator. I have just
developed some ideas that I talked to Senator Harrison about.
Senator HARRISON. He talked to me, Mr. Chairman.
The CHAIRMAN. Have you it in the form of a statement to submit?
M r . ANDERSON. Y e s , sir.
Senator HARRISON. Suppose

you try to finish in 10 minutes and
then file it if you can not.
Mr. ANDERSON. It will take about 20 minutes for me to make my
The CHAIRMAN, YOU understand that you are not on the calendar
at all.
M r . ANDERSON. Y e s .
Senator HARRISON. Suppose you just go ahead.
Senator L A FOLLETTE. What is your name?
Mr. ANDERSON. S . W . Anderson.
Senator L A FOLLETTE. Where do you live?
Mr. ANDERSON. I live in New York. I am the

head of an investment trust.
Senator L A FOLLETTE. What is the name of it?
Mr. ANDERSON. The Equity Corporation.
The CHAIRMAN. All right. You may proceed.
Mr. ANDERSON. I term this a plan for raising prices without altering the convertibility of our currency.
In the present situation in the world, I believe that the single, most
desirable end to be achieved is a rise in the commodity price level in



an atmosphere of confidence. I think everyone would agree that
such a rise would make it far easier to solve our many remainmg vexation problems as well as cause a number of our most pressing difficulties to disappear. If prices rise in an atmosphere of confidence,
the burden of our debt structure ^vill be substantialljr reduced, our
Budget can be balanced with comparative ease, credit will begin to
turn out more rapidly and new credit can be created because the
demand for it will appear. In short, the deflation will be stopped.
I believe that the most effective wa^ to accomplish this desired
result would be, if possible, some relatively simple, very dramatic
step which would convince the largest part of the American public
that the value of gold had reached its peak and was about to decline
while assuring them simultaneously that our currency is to continue
to be convertible into gold on demand at the present rate of $20.67
per ounce in minted coins.
How can this be done? I will outline how I believe this combination of events can be accomplished and return in a few moments to a
further consideration of the reasons for believing that the suggested
steps will lead to the broad objections mentioned.
At the moment, aside from that consumed in the arts, the only
buyers of bullion gold are the mints and central banks in the countries
still on a gold base; that is, United States, France, Switzerland,
Holland, Belgium, Italy, Germany, Austria, and now Poland.
England is also a spasmodic buyer.
My plan suggests that all of the countries be induced, in a manner
I will specify in a few moments, to withdraw their bids for gold by
altering their fiscal laws removing the obligation on the part of their
central banks or mints to purchase gold at a given price. For
example, in the United States it would take the form of a simple
amendment to the Federal reserve act—and such other acts as
applied—removing the obligation of the mint and of the reserve
banks to purchase bullion ^old at $20.67 per ounce. The legislation
would not specify when, or if so, at what price the mint or the reserve
banks would resume their purchases of gold bullion.
It should be emphasized that this legislation does not alter in any
manner whatsoever the gold content of the dollar nor does it relieve
the reserve banks, or the central banks of other countries still on a
free gold basis, from the obligation of paying minted gold coins of the
present weight and fineness across their counters to holders of their
notes at all times. It will, in fact, tend to emphasize the continued
convertibility of our currency as will appear later on.
Before considering the reasons in back of the plan, I would like
to suggest a means by which the cooperation of the other countries
involved could be obtained. Austria, Belgium, Czechoslovalda,
France, Italy, and Poland, owe us a total of $6,738,000,000 and
England an additional $4,500,000,000, or a total of over $11,200,000,000. Without raiding the controversy of a settlement of these debts,
I am assuming that we may be able to settle them by some lump-sum
payments partially in dollars and perhaps partially in other currencies.
My suggestion is that we use a settlement for a lump sum as a means
of obtaining from these coimtries and others, cooperation \nth, and
delegation of leadership to, the United States in handling the world's
gold and exchange problems. It is also contemplated that the lump




sum payments obtained in settlement of the debts—say, $2,000,000,000, to $3,000,000,000 or their e q u i v a l e n t Senator SHORTRIDGE. How much did you suggest that we should
settle for?
Mr. ANDERSON. I simply took a figure of, say, $2,000,000,000 to
Senator SHORTRIDGE. And the principal now is $11,000,000,000?
Mr. ANDERSON. Yes; but whatever is the best settlement that can
be developed.
Senator SHORTRIDGE. All right. I just wanted to be sure that I
understood you.
Mr. ANDERSON. It is also contemplated that the lump-sum payments obtained in settlement of the debt—say $2,000,000,000 to
$3,000,000,000 or their equivalent—be placed in a special fund under
the control of an international committee headed by an American
with a veto power, for the purpose of bringing order and stability in
the foreign exchanges of the world. I will return to this phase of the
plan later.
Reasons in back of the plan: With a brief outline of the plan in
mind, let us turn to a consideration of the reasons why it fits the realities of the present tragic situation.
Since the war, the scale on which international payments have been
required has been so large that an unprecedented strain has been
placed upon the gold supply of the world in attempting to take up the
slack of the huge balances of such payments, many of which, such as
reparations and war debts, had no foundation in commercial transactions. In the 1920's there was added to this strain the increase in
demand for gold due to the reestablishment of the gold standard in
England, France, and Central Europe. So long as international
credit flowed freely, the strain on gold was held in check, but when
international credit collapsed with the failure of the Credit Anstalt in
Vienna in 1931, the burden of the world's balance of payments fell
upon gold. It remained the only commodity which was freely
received in creditor countries in payment of Qommitments. There
ensued a ''scramble for gold" carrying with it suspension of specie
payments in practically all debtor nations. The result has been a
practical corner on gold with 68 per cent of the existing monetary
supplies in the vaults of the four central banks of United States^
France, Switzerland, and Holland.
This scramble for gold may perhaps be more aptly designated as
a bull market in gold. Let us think of it as such and see where
we arrive.
The fact that the price of gold in gold standard countries does
not change, should not be allowed to obscure the fact that its value
does change greatly—due, as I see it, to sudden changes in the
demand for it, just as in the case of all other commodities. The
expression of such changes in value, as we all know, is to be found
inversely in the general level of commodity prices, and we are all
keenly aware at this tune that the value of gold has risen steeply in
the last three years in response to the increase in the demand for it,
which I hare described above.
I believe that the largest part of the fundamental cause for the
drastic decline m commodity prices—as well as all other priceshas been the bull market in gold mentioned above. I also believe



that if some means can be found to bring this bull market in gold to
a conclusion, and to initiate a bear market in gold, we wiU have
taken the most important step possible toward an improvement in
commodity prices.
Let us examine the history of past bull markets and corners in other
commodities. We all know that they have been broken in the end
either by the appearance of a large additional supply of the commodity
in question or by the withdrawal of the bids on the part of those who
had established the corner—as in the corner in Northern Pacific stock.
What can we expect from the supply side of the gold equation? Beyond the amounts hoarded in the vaults of central banks in creditor
countries or in countries in which specie payments have been suspended, there is little available. There is perhaps still $1,000,000,000
in private hoards in India, but it has taken 16 months to draw about
$250,000,000 from that source due to sterling depreciation. There
are $478,000,000 of United States gold coins privately hoarded in the
world. There is also new production which in 1932 was less than
$500,000,000, and of which about 40-45 per cent was utilized in the
arts. AU together, in comparison to world supplies of over $11,000,000,000 and in the face of just our o^vn favorable international balance
of about $600,000,000, it seems rather hopeless to expect much help
from the supply side of the equation in breaking the back of the bull
market in gold soon enough to do any good.
There remains available to us, then, the one infallible way to break
any corner. Those who are bidding must stop bidding. This is
precisely what the plan embodies.
Kesults of the plan: The three most important questions to examine
in connection vnth. the operation of the plan are:
1. Would it tend in any way to destroy confidence in our currency—
or any other currency on a gold base?
2. Would it tend to cause commodity and other prices to rise?
3. Would it create an unmanageable problem in the foreign exchanges?
Let us take these in order:
1. I do not see that the plan would in any way cell into question
confidence in our currency. It should perhaps be relocated that
Federal reserve notes and other currency would continue to be
redeemable in minted gold coins, as at present.
The plan would in fact tend to strengthen confidence in our currency by emphasizing that the Government believed that e have now
too much gold, rather than too little, and hence it proposed to cease
buying gold. It should also be pomted out that on the day the legislation became effective, there would spring up an open market in
bullion gold. It would in fact be wise to have tfds market all planned
and ready for action. Gold would, of course, sell in the open gold
market at a price less than the statutory price of $20.67 per ounce.
This fact alone would tend very greatly to discourage anyone who,
through a misunderstanding of the situation, might think that the
currency was being tampered with. He would, of course, observe
that he could actually buy gold more cheaply in the open market
than he could buy it by redeeming his ciu^rency at the reserve banli.
It should also be pointed out that the present restrictions on the
issuance of currency and credit by the reserve banks would continue



in force and no one would be entitled to believe that this step had in
any way lifted the lid upon the creation of central bank credit. I
believe there would also be a tendency for privately hoarded gold coins
to flow back into the banks, because the hoarders would realize that
the metallic content of their hoards is not the fact which gives them
their value, since gold would be selling in the open gold market at
less than $20.67 per ounce, but that the Government imprint making
them legal tender is the factor which keeps gold coins at a parity with
currency. The case of silver dollars illustrates the point. No one
who holds a silver certificate thinks of asking for the silver dollar
behind it, because he knows that the silver contained in a silver
dollar is selling at less than a dollar. As a result, most of the silver
dollars which used to be circulated freely have been turned into the
banks for bills.
In short, 1 have been unable to see any respect in which the plan
would tend to frighten people so far as money is concerned.
2. Let us now consider the most important aspect of all—the main
goal of the plan. Will it tend to increase commodity prices?
The adoption of the legislation itself would not, of course, increase
the amount of outstanding credit or currency at all. The reasons for
my belief that it would tend to increase commodity prices, however,
are on three counts.
First. The plan takes advantage of a psychological phenomenon
which constitutes to-day one of our greatest obstacles, namely, the
reverence for gold as an independent measure of value. It is a very
widely held beUef that whatever may happen in the world, gold has
an independent hard cash value when all else fails. Hoarding of gold
is a manifestation of this. We know, of course, that the root of this
phenomenon lies in the fact that the principal countries of the world
have adopted gold as their standard, and have thereby imparted value
to it by buying it at all times. Reverence for gold, as I term it, is,
nevertheless, a very real thing. Furthermore, so long as money or
currency are convertible into gold at a given rate, as they would continue to be under the plan, there is a very strong popular tendency to
identify money with gold. I believe, therefore, that as soon as visible
evidence appears—and there would be plenty—that gold is not going
to continue to go up in value, a very large number of people in the
world will conclude that commodity prices should rise and they will
seek to protect themselves by ceasing to hoard gold or money and
will buy something else—commodities, real estate, stocks, bonds, and so
forth. This argument is not subject to direct proof, because it is based
on a psychological factor, but it is none the less of the very greatest
The second reason I believe the plan would tend to increase commodity prices is that it embodies a settlement of the war debts on a
basis so that the quid pro quo for the American people, as well as for
the whole world, is definite control and leadership of world monetary
pohcy. In my opinion a settlement of the war debts on some basis
capable of fulfillment would almost in itself turn the tide of confidence
and if such settlement should include a comprehensive program for
monetary reform and rehabihtation of world currencies, it would
unquestionably prove a powerful stunulant to the price level.
Senator H A R R I S O N . D O you think they would sell gold and buy



Mr. A N D E R S O N . I think the hoarders who have gold abroad would
sell it in the open market and buy something else.
Senator SHORTRIDGE. What is the value of gold per once?
Mr. A N D E R S O N . It is $ 2 0 . 6 7 at the mint bid by the Federal Reserve
Senator SHORTRIDGE. And it varies very little from time to time?
M r . ANDERSON. Y e s .
Senator H A R R I S O N . It is fixed by statute.
M r . ANDERSON. Y e s .
Senator SHORTRIDGE. Suppose there should

be a ^eat increase in
the volume of gold at any time resulting from new discoveries.
Mr. ANDERSON. That would do the same thing.
Senator SHORTRIDGE. Would do what?
Mr. A N D E R S O N . That would decrease the value of gold, not the price
but the value, and would thereby in m;^ judgment tend to put commodity prices up. But I see no possibility of that, and therefore I
am looldng at the other side of the equation, the buying side, and
suggesting that we pull that up.
Senator SHORTRIDGE. A few years ago, of course, we did not expect
discoveries of gold in Alaska.
M r . ANDERSON. Y e s .
Mr. A N D E R S O N . Yes.

But they were made.
And I have every hope that some phenomenon like that will turn up. But I do not think we can coimt on it.
Senator SHORTRIDGE. Well, I have in mind certain sections of the
country where I have reason to believe there is a good deal of gold.
Mr. A N D E R S O N . If we should have a major gold discovery, its effect
will be so slow as not to be useful in this particular crisis.
The C H A I R M A N . YOU may go ahead with your statement.
Mr. A N D E R S O N . The third reason why the plan would tend to lift
prices is its effect on the distribution of gold over the next few years.
As the world moves on its road to recovery, it will, wthout doubt,
prove desirable to restore specie payments and adequate gold backing
for many currencies now off gold entirely. We have visualized under
the plan the existence of open gold markets in numerous countries,
as in London now. As gold sinks in price, due to the absence of buyers,
it will become less and less burdensome for countries mth insufficient
reserve to add gradually to their holdings under the guidance of the
international committee. With gold in the r61e I have described,
furthermore, it will be far easier to consider such sound moneta^
doctrine as symmetalism on its merits because gold and silver mil
both command a market value as commodities, and we Avill not havjs
to deal with the fear element which is now present in any discussion
of such policies.
Senator SHORTRIDGE. Harking back to what you said a while
ago, do you mean to officially cancel the foreign debts?
Mr. A N D E R S O N . NO, not to cancel them. But to work out as good
a settlement as we can, and to utilize those funds.
Senator SHORTRIDGE. They would want a substantial reduction, of
Mr. A N D E R S O N . Yes. I am simply taking a realistic view that I
do not think the debts can be paid in full under any circumstances.
Senator SHORTRIDGE. But they could pay them if'they would stop
spending billions of dollars for armies and navies.



Mr. ANDERSON. Well, if we could get the $11,000,000,000, so much
the better.
^ . ^
^ ^
Senator SHORTRIDGE. All right. Pardon me.
The CHAIRMAN. YOU may go ahead.
Mr. ANDERSON. Third, let us now turn to the foreign exchange
picture. If there is no control in the market we would have a foreign
exchange situation just as if all currencies in the world were not
redeemable in gold. The rates, in other words, would simply reflect
the demand and supply of each currency in relation to others. We
know that this is an unsatisfactory situation, but perhaps not necessarily a disastrous one. If the settlement of war debts I have suggested be worked out, however, we would have a large fund of perhaps an equivalent of $3,000,000,000 partly in dollars and partly
in francs, sterling, zloties, and so forth, which would be managed as
a stabilization fund to adjust rates in an orderly manner—to such
levels as would fairly accurately reflect the true balance of payments
with regard to each country. It would, of course, be of the greatest
possible importance to the effective use of such a fund if trade barriers
and restrictions could gradually be done away with, so that the
private credit and national credit could once more be rehabilitated
to take the place ultimately of a controlled exchange market.
The fund would, of course, remain the property of the United
States Government, and it would be brought home when its usefulness had been fiilfiUed, and when it could safely be transferred
entirely into dollars.
The managing committee, as I see it, should consist of one expert
from each country involved, with the American acting as chairman
with an unassailable veto as well as dictatorial powers if the committee
reaches an impasse. I realize this concentration of power is strong
medicine, but it merely reflects the fact that the United States
to-day holds the economic power in the world.

I shall not attempt in this memorandum to discuss or even touch
upon many of the effects of the plan which would occur to anyone
considering it. There are a few points, however, that should be at
least mentioned.
One of the most practical considerations is to examine who would
be damaged by the program. It is obvious that the gold-mining
industry and the holders of gold bars would be seriously hurt by the
amount of discoiint at which gold would sell in the open market from
the statutory price. I do not believe that this is a serious matter
politically or morally. I can not see how any other of the politically
powerful groups in the world would be entitled, in their own selfmterests, to a legitimate protest. A rise in commo^ty prices is
practically universally desired. The chief difficulty with all the
plans for such arise,however, has been the fear on the part of certain
sections of the community that the cure was worse than, the disease,
and that the means proposed to bring about such a rise, such as
currency inflation, greenbackism, and so forth, would cause ultimately difficulties even greater than we now face. I have been unable
to think up any arguments of a similar character w^hich could be
advanced m opposition to this program. It should be borne in mind



that the program does not depreciate, in anything except purchasing
power, the value of the large gold hoards held by the large central
banks of the world, because those central banks have the power to
stamp that gold vnth the appropriate legal tender imprint and to
pass it out as demanded over the counter. In other words, so long
as we do not alter the legal tenderability of gold coins and continue
to honor the Government's stamp thereon as imparting the value to
the coin, we have not in any way depreciated, from a monetary point
of view, the value of our vast gold holdings or that of France!^
The long-range implications of this program are of the most profound importance. If the position I have taken is correct, that the
price level of the world is primarily a reflection of the demand for
and the supply of gold over long periods of time, then we would be
initiating a new monetary philosophy in the world, the focal point
of which would be not controlled currency but a controlled demand
for gold. If out of this plan there could be developed in the end an
international cooperation in bidding for gold, we would, in my judgment, have a world monetary policy which would be of enormous
help in attempting to correct the great swings in the general price
level which have proven so catastrophic ever since modern money
has been in use.
Senator SHORTRIDGE. H O W much gold is there in the world?
Mr. A N D E R S O N . About $ 1 1 , 0 0 0 , 0 0 0 , 0 0 0 .
Senator SHORTRIDGE. IS it all minted?
Mr. A N D E R S O N . No. A great deal of it is in bars.
Senator SHORTRIDGE. About how much has been minted into coins
of different denominations by the nations of the world?
Mr. A N D E R S O N . I could not say as to that. I do not know offhand.
The- C H A I R M A N . Not more than one-third.
Senator SHORTRIDGE. Then about two-thirds of it is in bars?
The C H A I R M A N . Yes. They ship it always in bars, you Imow.
Senator SHORTRIDGE. Yes; but I wanted to know if Mr. Anderson
had the figures how much had been minted.
Mr. A N D E R S O N . Of course each country mints or not as is demanded.
Senator SHORTRIDGE. Certainly.
The C H A I R M A N . We mil now excuse you.
Mr. A N D E R S O N . I thank you.
(Thereupon, at 4 o'clock p,. m., Tuesday, February 14, 1933, the
committee resolved itself into executive session, and after a time
adjourned until 10 o'clock the following morning.)


W E D N E S D A Y , EEBUXTARY 15, 1 9 3 3

Washington^ D, G.
The committee met at 10 o'clock a. m., pursuant to adjournment
on Tuesday, February 14, 1933, in room 335, Senate Office Building,
Senator Reed Smoot presiding.
Present: Senators Smoot (diairman). Reed, Couzens, La Follette,
Harrison, King, George, Walsh of Massachusetts, Barkley, Connally,
Gore, and Costigan.
The C H A I R M A N . The committee will come to order. Mr. Leon, will
you take the stand?

OP R E N E l E O N , N E W Y O R K C I T Y

The C H A I R M A N . Mr. Leon, whom do you represent?
Mr. L E O N . I represent no one but myself, Mr. Chairman.
The C H A I R M A N . What is your business?
Mr. L E O N . I have no occupation. I retired from business about
two years ago.
The C H A I R M A N . What was your former business?
Mr. L E O N . I have been in finance all my life.
The C H A I R M A N . Y O U may proceed, Mr. Leon.
Mr. L E O N . Mr. Chairman, I have prepared a comparatively short
statement covering one point alone on which I feel qualified to
speak, and I respectfully request that I be permitted to complete
the reading of the statement uninterrupted, after which time I will
be glad to answer such questions as occur?
The C H A I R M A N . That will be the course we will follow.
Mr. L E O N . A much greater volume of business has been transacted
in America with a much smaller stock of gold than the present one,
and with much less currency in circulation than is now outstanding.
Hence we have no shortage of currency.
Money market rates for all maturities, quotations for short-term
Government obligations, and large banking reserves, all bear testimony to the fact that credit is superabundant. Hence we have no
shortage of credit.
Having neither currency nor credit problems, it follows that our
dollar needs no alteration. But we have a problem which is basic
and fundamental; one upon which our welfare depends and which
requires immediate solution: it is the problem of prices.




Our well-being depends upon the level and stability of prices,
without which our present system must collapse and give way to a
new order, which may be better or which may be worse, but which
certainly will be different. If reversion to prehistoric barter is an
indication of progress, then we are justified in believing that it will
be better. Many communities have already reverted to barter because their price system had broken down. If this condition
spreads, Government as we conceive it, can no longer function.
Government is purely administrative; upon price .and volume of
taxable units is predicated the income which it derives from taxation,
and which is indispensable to its very life. If we revert to barter,
A e shall have volume without price, so that Government will be
left without a basis for taxation, and, therefore, without income,
unless it undertakes to levy taxes in commodities. Having no in(^ome, how could Government function, let alone meet its obligations?
When mankind supplanted barter by the price system, and
adopted instruments of exchange, it took the longest step forward
in the development of. civilization. Of all price-measuring instruments of exchange ever used by man, there are two which, by common consent, have out-lasted all others. Either or both of them
form the basis of all currency systems, of all credit systems and,
where redeemability still exists, they represent ultimate redeemability for all instruments of credit. Gold and silver are their two
basic price-measuring instruments of exchange.
In the game of trade the world uses yellow and white chips to
figure the prices which measure and regulate every human activity.
In approaching the price problem we can not permit our judgment
to be restricted by the notion that the chips which we use to figure
prices constitute the true values; because if we do, we will merely
continue to waste time " preserving the integrity of gold" or
attempting to " do something for silver," the wltiile prices crumble
about our ears, carrying with them our whole price system.
To-day our prices suffer, from the dollar's position of inequality
or disparity, in its relation with the currencies of over four-fifth's
of the world's population. This disparity between home and alien
currencies also creates a disparity between home and alien prices
which results in our inability sucessfully to compete in the world's
markets with those whose currencies and prices are depreciated, thus
causing our normal exports to back up onto our local market and
depress our prices. It also results in the flooding of our market
debts and taxes which are payable in the dollar proceeds of our
commodities, our labor and our services.
I submit to your committee a chart illustrating the position of the
dollar in the markets of the world.
The C H A I R M A N . It may be put in the record at this point.
(The chart, together with supporting data, is here printed in the
record, as follows:)

D I S P A R I T Y

F R E E :









c o u n T R i E ^

- E X C H A h C E 5
PERc e n r

F C C r t - MK





G-ERnAtt y (i.4..cco,coo





E r e T * rt
aH ^ T

Xtalt C- O O J P-O
^ O NO
' .


. Q0

bRiTAiricDRirtirt IrtHA C»»i.!«
o d, o oo

e U tO —
ri H






tfc.7do.0 0o)

Itdart FnitirArEU-^^-o")
Sit.Tisrt w
Cc-fce- (.».»-*•"•)


Goto Coo»HrR,ieA — RIINT PARITY • loo

Mew ZEai^WOO^^"")


HiMa (••tt.eotf o ^



, C^ao.oooFfc,)




C mii-F C-^j-^-wP-r)-


CoL»«rR.ii Listed -"CHART Rcfftt^enr 677.
WoRwD Po^wuATtort
FtikMAta: LCA4UC
<5T«rt«rKAt. VtAK D K l4lfl1>Z.
BhiTi*m Ctf-rm.ot. DmcCTi.'r T^hoo^h




PT. 2

(Face p . 172.)



JVee Ewcfiange Countries
tion (mil- Mint par of Rate of Jan. per cent
23, 1933
of par
United States
Dutch East Indies
France-French West Africa
French Indo-China
Philippine Islands
El Salvador


Anglo-Egyptian Sudan
Siam,Great Britain
Union of South Africa.
Straits Settlements
Malay States
Rhodesia (North and South),
British India
British West Africa
British West Indies
British East Africa
Nyasaland Protectorate
Irish Free State
New Zealand
Hong Kong

. 039179
. 26798
. 26798
. 26798

. 138992
. 11197
. 039078
. 039078
. 039078
. 169346
«. 25626




» Rates supplied by New York foreign exchange traders.
' Price of silver per fine ounce, 56 cents, equals roughly 1909to 1913 average.



The tabulation of countries with exchange control is based upon the
1. Data released by the United States Department of Commerce.
2. Bulletin of January 19, 1933, on foreign exchange prepared by the Guaranty Trust Co.
3. Review of principal foreign exchange restrictions throughout the world
on December 5, 1932, by the District Bank (Ltd.), Manchester, London, and
4. Verbal Information from foreign exchange traders.



M i n t par of Rate of Jan.
tion (milper cent
23, 1933
of par




- -













. 0526315


. 13973
**. 014036
. 585835



Population figures: Estimate as of Dec. 3l» 1930.

from the Statistical Yearbook of the League o

M i S ^ p a r i t y of exchange: Handbook of Foreign Currency and Exchange, United States Department of
Commerce; Tate's Modern Cambist.
^ . ^^
.. ^
^ t^
•vRate as of Jan. 23; Federal Reserve Bank of N e w York as published in T h e United States Daily, the
London Financial Times of Jan. 24. Rates marked ** are rates supplied verbally b y N e w York foreign
exchange traders.

Great Britain
British West Africa
Union of South Africa
Irish Free State
British West Indies
British East Africa
Anglo-Egyptian Sudan
Nyasaland Protectorate
Straits Settlement
Malay States
Hong Kong



directly through sterling

— 24.6



New Zealand
Denmark —.










9 o

World population
British control, directly through sterling
British control, indirectiy through silver

Per cent of world total






_ _

2 012 800,000
' 527' 800,000
I^I-ZII .468,200,000

Mr. LEON. By their surpluses of imports all nations make their
contribution to the international price level, to which they are thus
tied and which, under natural conditions, should reflect a normal
balance of goods and services between them all. No such condition





now exists. To-day the natural forces are either impeded or unduly
stimulated by a series of local measures designed either to protect
local markets from external competition, or artificialljr to stimulate
exports at the expense of competing nations. Tarifis, quotas, exchange restrictions, and so forth, are merely different expressions
of the same desire to achieve favorable balances at some one's else
The more recent and, let it be recognized, the most effective artificiality devised to achieve favorable balances, is the deliberate depreciation of exchange. Its effectiveness is the more complete because
it is the most insidious and deceptive instrument of price destruction
hitherto conceived. The principle of low exchange as a stimulus
to exports through the reduction of local costs of production would,
if reduced ad absurdum, carry both exchanges and costs to the vanishing point. To establish this principle is to challenge competition
in the same way, and this competition, by seeldng still lower levels
of exchanges and costs, would ultimately drive all concerned to the
zero level. The gold standard countries are particularly vulnerable
to this system because their obligations, which are fixed in gold,
become the more onerous as prices fall.
This system must be broken up at all costs if we are to avoid a
general collapse. It can be terminated by international action, failing which, local measures of protection must at once be adopted.
Sometime prior to December 15, last, the suggestion was put
forth that the British Government pay its debt installment in,
pounds sterling. It was suggested that, by converting these pounds
into dollars as opportunity offered, the problem of transfer would
be facilitated and the exchange market subjected to a minimum of
disturbance. The British demurred on the ground that (1) substantial holdings of pounds sterling by the United States would constitute an interference with British control of exchange and, (2) that
if Britain were to guarantee the dollar equivalent of these pounds
sterling, payment in the latter fashion would be tantamount to a
payment in actual gold. The British objections, which were eminently proper, were sustained and payment in gold effected.
If the American Secretary of the Treasury were to issue $500,000,000 in Treasury notes and, with the proceeds were he, an American
official, to enter the exchange markets and buy pounds sterling, thus
lifting the rate of exchange of British currency, Britain would have
every right to resent our intrusion, because it interfered with British
control of British currency and, through it, with their control of
the British price level. Yet, without so much as a by-your-leave,
Britain has placed at the disposal of the British Treasury a £150,000,000 secret exchange equalization fund (about $500,000,000) through
which Britain, by purchasing gold currencies in the exchange market,
dollars included, gives to England the control of dollar exchange
and, consequently, the control of American prices.
Senator HARRISON. Do you laiow what their status is now with
reference to that 150,000,000 pounds?
Mr. L E O N . I should like to answer the question later, if I may,
Because of their noncommercial character, all exchang^^ transductions for the account of the equalization fimd are artificial in their



influence upon the reciprocal relations of the pound sterling and
the gold currencies, the dollar included, as well as upon the reciprocal relations of prices within the sterling area on the one hand, and
the prices of the gold standard nations on the other. They constitute an artificial interference by Britain with the economy of the
gold standard countries, America included, whose prices are thus
controlled by Britain through exchange.
That which Britain would not for one minute countenance from
America, she practices every minute upon America with disastrous
consequences to every phase of our economy. Every man, woman,
and child in this country is the victim of this ruthless policy.
The control of the dollar exchange and, through it, of American
prices, depends entirely upon Britain's ability to complete these artificial noncommercial exchange operations whereby she realizes her
objectives. It is only by our leave that Britain is enabled to complete them. Because we maintain a free international gold market,
and thus grant her free entry into and free exit from our money
markets, we allow her, together wit\i other aliens, to use the dollar
as a lever for the intensification of this condition of disparity, or
inequality, existing between the depreciated currencies and the gold
standard currencies and, consequently, between their prices and the
prices of the gold standard nations. We thus become a party to the
crime and the coauthors of our own destruction.
It now remains for us to decide whether we shall continue to maintain a free international gold market for the benefit of alien exploiters, at the expense of our prices andj at the sacrifijce of our
economy, or whether, by maintaining a free internal gold market
for Americans, we shall raise American prices, save the American
economic structure, and thus return control of American affairs to
American hands.
It also remains for Great Britain to decide whether she will force
us to adopt defensive measures, or whether she will abandon her attempt at price control and join with us in a common effort to raise
world prices, and thus help to restore international trade. Before
engaging with Britain in a bargain involving trade advantages and
disarmament in return for a readjustment of debts, we might both
usefully bear in mind that the short road to prosperity and to disarmament is the lifting of the economic pressure created by low
prices; because this very pressure, as expressed by punitive and retahatory measures affecting trade, engenders the suspicion which
grows to hatred, and leads to armament and to war.
must foot the bill through future taxes which, thereafter, will have
to be figured m the American cost of production. With this cost of
production thus presently raised, American industry would henceforth be permanently handicapped when competing with British
industry in the world's markets.
If the debt cancellation policy is to succeed, debts must be made to
appear to Americans to be the one insurmountable obstacle in the
way of their prosperity. By way of superinducing this feeling
among Americans, British policy is intensifying the American de




pression by driving dov^n gold (dollar) prices. Gold and silver
being the only two international instruments of exchange, Britain
uses them as her implements of price destruction through the exchange equalization fund in the AVest, and the Indian silver dumping
policy in the East.
The exchange equalization fund was ostensibly created for the
purpose of adjusting the pound sterling to the British price level.
British economy was in need of such adjustment; but the very proportions of the equalization fund are conclusive evidence of a desire
not alone to achieve equilibrium between the British currency and
the British price level, but to control world prices as well, and to
wield that control for political ends. However acute may have been
the pressure of self-preservation it never did and never could justify
Britain's attempt to control world prices. Moreover, Britain's Indian silver dumping policy is absolutely indefensible on any grounds.
The deliberate depreciation of one of the two principal money
metals, by shifting upon the other the whole burden of world finance, has merely succeeded in rarifying it, and has initiated the
mad rush for gold which is still raging, and which is disrupting the
economic structure of the entire world. Times without number
Britain was warned of the consequences of such action. No less
eminentfiguresthan the governors of the two principal central banking institutions of the Empire have issued the warnings. Both Mr.
Montagu Norman, of the Bank of England, and Sir Osborne Smith,
of the Imperial Bank of India, are on record.
I submit to your committee the statements of these two gentlemen.
The C H A I R M A K . They may be placed in the record at this point.
(The statements referred to are as follows:)

The immediate effect of tlie aniiomicement tlmt the Indian Government contemplated the sale of a larjre quantity of silver would be to throw out of gear
the exchange with China and, for a time, to paralyze trade with that country.
There would he a tremendous disturbance of internal prices In China, a shock
to public confidence, I should fear, unwise and panicky attempts to get out
of the difficulty by resort to what, in present circumstances, would, I think,
he unsuitable to China, namely a gold exchange standard. All those things
would react upon this country very seriously. I think that one has also to
bear in mind the interaction between gold and silver prices. There is a reaction
upon gold prices when an extreme rise or fall takes place in the value of
silver, which is none the less serious because it is indirect and not very
apparent on the surface. The consequential changes in prices generally and
in trade conditions, which would- be produced, the disturbance to the world's
economic peace and confidence, the interfering with the long-established social
habits of the people of India in the use of silver, the shock to the reliance
of a great country like China upon silver as a medium of currency and a
common store of value, could not fail to have important effects upon the gold
prices of countries in Europe and indeed in America.






20, 1932






At the fourth ordinary general meeting of the Indian Institute of Bankei*s,
held recently in Bombay, Sir Osborne A. Smith, governor of the Imperial Bank
of India, made the following statement on the silver question:




" Before I close perhaps I may briefly touch on the economic crisis through
which India ana the world is passing. This crisis is engaging the whole-time
attention of the greatest economic leaders of all countries, but there seems
to be no unanimity among these leaders as to the cause or the remedy, though
most agree that maldistribution of the world's standard of value, gold, and
overproduction of commodities have largely contributed to the slump. When
one realizes that the teeming millions of India and Asia are half-starved and
less than half-clad one can scarcely agree that there is any overproduction in
regard to requirements, but there is certainly overproduction relative to purchasing power. If this is conceded, the question then arises as to how purchasing power can be stimulated, and one answer readily presents itself—^by
the rehabilitation of silver, through a reasonable stabilization of its value in
relation to gold. If this could be accomplished, I feel sure the improvement
would be immediate and lasting, and it would not be long before surplus
commoflities were absorbed and some measure of prosperity restored."

Mr. LEON. Added to these are innumerable Britons of distinction
who constantly are calling their Government's attention to the
frightful conditions which it has brought about, and which it persists in perpetuating. Yet not a word is spoken by the responsible
Government officials in justification of their action. Those who
profit by low silver, because they control the China trade, seem
firmly entrenched in the British treasury and in the India office.
There are also British officials who believe that low silver makes for
better control of Indian affairs. Be they interested slave drivers or
misguided politicians, the result is the same. By their action, white
men the world over, Britons and Americans alike, are being subjected to the ruinous competition of the coolie. By injecting into
our price system the powerful factor of price destruction which low
silver constitutes, they are wrecking the world's industrial machinery,
and of the once imaginary yellow peril they are making a reality.
Enlightened America, viewing the plight of a world torn asunder
by retaliation, and realizing that retaliation is a losing game for all
concerned, should be the last to retaliate. But our very existence
demands an immediate correction of these conditions, failing which
we must lose no time in adopting measures of self-protection.
^ The instruments of self-defense are in our lands; were the Executive, in whom power is vested, to exercise his prerogative, one-half
the program of defense would be effectually established within 24
hours. A prohibitive fee on the export of gold would achieve this
result. The President's authority to act is vested in him under
section 5, subdivision (b), title 50, United States Code Annotated,
pages 204 and 205.
I submit to your committee learned counsels' opinion on the
validity of the President's power.
Senator GEORGE. Let this go in, Mr. Chairman.
The C H A I R M A N . It may be made a part of the record.
Senator GORE. Did you say section or page 2 0 4 ?
Mr. L E O N . Pages 2 0 4 and 2 0 5 , Senator.
(The opinion of Evarts, Choate, Sherman & Leon is here printed
in the record in full, as follows:)

RENfi L^ION, Esq., New York


Yorfc, Fehrmry 5, 19SS.

DEAR S I E : TOU have requested our opinion concerning the powers of the
President to regulate or prohibit transactions involving the export of gold
without reference to the existence of a state of war.





There is a provision contained in section 5 of the act of October 6, 1917,
as amended (known as the trading with the enemy act),,the construction of
which will be examined in this memorandum.
Section 5 is entitled " Suspension of provisions relating to ally of enemy;
regulation of transaction in foreign exchange of gold or silver.*' It consists
of two subdivisions (a) and (b). The provisions of subdivision (a) are
not pertinent to the question under discussion. Subdivision (b) begins as
" (b) The President may investigate, regulate, or prohibit, under such rules
and regulations as he may prescribe, by means of licenses or otherwise, any
transactions in foreign exqhange and the export, hoarding, melting, or earmarkings of gold or silver coin or bullion or currency, transfers of credit
in any form (other than credits relating solely to transactions to be executed
wholly within the United States), and transfers of evidences of indebtedness
or of the ownership of property between the United States and any foreign
country, whether enemy, ally of enemy, or otherwise, or between residents
of one or more foreign countries, by any person within the United States."
The question presented is whether the powers conferred upon the President
by the foregoing provision ended with the war or are still vested in him, and
may now be validly exercised.
In construing this first clause, it will be useful to consider in connection
with it the entire remainder of the subdivision whch reads as follows:
" A n d , for the purpose of strengthening, sustaining, and broadening the
market for bonds and certificates of indebtedness of the United States, of
preventing frauds upon the holders thereof, and of protecting such holders,
he may investigate and regulate, by means of licenses or otherwise (until the
expiration of two years after the date of the termination of the present war
with tlie Imperial German Government, as fixed by his proclamation), any
transactions in such bonds or certificates by or between any person or persons:
Provided, Tliat notliing contained in this subdivision (b) shall be construed
to confer any power to prohibit the purchase or sale for cash, or for notes
eligible for discount at any Federal reserve bank, of bonds or certificates of
indel)tedness of the United States; and he may require any person engaged
in any transaction referred to in this subdivision to furnish under oath, complete information relative thereto, including the production of any books ot
account, contracts, letters or other papers, in connection therewith in the
custody or control of such person, either before or after such transaction is
Thus, while transactions in Government bonds or certificates are subject to
regulation within a limited period only, 1. e., until two years after the war,
wo limitation of any kind is specified with reference to the broader powers
conferred in respect to foreign exchange and gold or silver or currency export
transactions including earmarkings, as also transfers of evidences of indebtedness or of the ownership of property between the United States and any
foreign country or between residents of one or more foreign countries or
by any person within the United States.
(Section 2 of the act contains the following definition: " T h e word 'person,'
as used herein, shall be deemed to mean an individual, partnership, association, company, or other unincorporated body of individuals, or corporation or
body politic.")
Reference is made to subsection (b) of the trading with the enemy act in
the act approved April 23, 1918, being chapter G3 United States Statutes at
Large entitled "An act to conserve the gold supply of the United States; to
permit the settlement in silver of trade balances adverse to the United States;
to provide silver for subsidiary coinage and for commercial use; to assist
foreign governments at war with the enemies of the United States; and for
the above purposes to stabilize the piice and encourage the production of
silver." This act authorized the Secretary of the Treasury to melt or break
up and to sell as bullion a maximum of 350,000,000 standard silver dollars
at a price not less than §1 per fine ounce.
The act concludes with section 9 which provides that: " the powei's conferred
upon the President by subsection (b) of section 5 of an act approved October
6, 1917, known as the ' trading with the enemy act' shall, in so far as applicable
to the exportation from or shipment from or taking out of the United States
of silver coin or silver bullion, continue until the net amount of silver required
by section 2 of this act shall have been purchased as therein provided."




This was obviously a precautionary provision, intended to assure the completion of the transaction and forestall any contention that the completion
of the transaction was subject to the continuance of a state of war.
While, as already pointed out, the entire act w^as enacted as a war measure,
there was nothing to prevent Congress from incorporating in it a provision
vesting in the President powers w^hich not only would survive the end of the
war, but continue until abrogated by new legislation.
After the end of the hostilities, a number of cases arose in which the contention was made that the powers conferred upon the President and those
to whom he had delegated them under the trading with the enemy act had
come to an end with the proclamation of peace. This very question was
dealt with by the Supreme Court of the United States in Commercial Trust
Co. V, Miller (262 U. S. 51), as shown by the unanimous opinion of the court,
from which the following is taken:
* The next contention of the trust company is that the act being a provision
for the emergency of war, it ceased with the cessation of war, ceased with the
joint resolution of Congress declaring the state of war between Germany and
the United States at an end, and its approval by the President, July 2, 1921,
and the proclamation of peace by the President August 25, 1921. The contention, however, encounters in opposition the view that the power which
declared tlie necessity is the power to declare its cessation, and what the
Cessation requires. The power is legislative. A court can not estimate the
effects of a great war and pronounce their termination at a particular moment
of time, and that its consequences are so far swallow^ed up that legislation
addressed to its emergency had ceased to have purpose or operation with the
cessation of the conflicts in the field. Many problems would yet remain for
consideration and solution and such was the judgment of Congress, for it
reserved from its legislation tiie trading with the enemy act and amendments
thereto, ^ *
(P. 57.)
Applying the reasoning of the Supreme Court to the question here under discussion, it is plain that when Congress conferred upon the Pi^esident the broad
powers contained in the first clause of subdivision (b), it can not have intended
that these powers should expire immediately upon proclamation of peace.
Thus the act stands to-day as the law of the land and except Avhere the
powers which it confers on the President are expressly limited, he is still enabled
to exercise them. Especially must this be true where the situation which
confronts him arises from great disturbances in world monetary conditions
due to the war. Major disturbances and dislocation of monetary conditions
having their origin in the w^ar have continued and persisted in such a way as
to vitally affect the welfare of the American people. Once the power to deal
with tliem was conferred upon the President, only Congress could decide when,
in respect of some particular situation as to which power is not subject to an
express limitation, the situation no longer justified the retention of the power.
Congress has amended the trading with the enemy act as lately as March
10, 1928. Amendments of that date are contained in a number of sections,
including sections 9, 10, 20, 22, 23, 25, 26, 27, 28, 29, 30, and 31. The fact
that Congress left the first clause of subdivision (b) intact speaks for itself.
AVhile the powers conferred by the remainder of that subdivision have expired
by their own terms, the powers conferred in the first clause of subdivision
(b) are still vested in the President. By failing to repeal the clause in
question, Congress has treated this situation as requiring that the powers
conferre<l upon the President shall remain vested in him. Courts, in considering the efl:'ect of subdivision (b) at this time, would properly take judicial
notice of the conditions to which the Supreme Court referred in Commercial
Trust Co. V, Miller, supra, and which continuing down to the present time are
affecting adversely the economic life of the country, hence causing damage
to the foundations on which sound currency rests.
Of the cases involving the survival of the Presidents powers under the
trading with the enemy act notwithstanding the proclamation of peace, there
is one which is of special interest because it involved acts by the President's
authority which took place subsequent to the proclamation of peace on August
25, 1921, in which the validity of those acts was challenged. This is Munich
Reins. Co. v, 1st Ins. Co. of Hartford (circuit court of appeals, second circuit,
April 6, 1925), 6 Fed. (2) 742. In that case the complainant alleged that
the Alien Property Custodian on October 20, 1922—hence more than a year
after the proclamation of peace—had without the complainant's consent effected
a payment the validity of which depended on whether or not the powers



vested in the President and delegated by him to the custodian survived in
October, 1922, notwithstanding the proclamation of peace. Tlie opinion of
the court on this point states concerning the trading with tlie enemy act:
" T h e act was not.terminated by the cessation of hostilities, by the joint
resolution declaring the state of war between Germany and the United States
at an end, or by the President's proclamation of peace." Commercial Trust
Co. V, Miller (262 U- S. 51). (At page 745.)
The validity of the payment was upheld, and subsequently the Supreme
Court refused to disturb the decision, dismissing the appeal, 273 U. S. 666.
See also Hicks Alien Property Custodian v. Baltimore & Ohio .Railroad Co.,
10 Fed. (2) 606 (U. S. district court, Maryland, February 3, 1926), in which
the opinion (Soper, D. J.) states at page 609:
" (4) The railroad company further contends that, since the war is ovei^
the custodian may no longer take any action which would affect the possible
rights of those whose rights were not affected by what he did during the war,
and that, if the trading with the enemy act or the joint resolution of Congress
of July 2, 1921, (42 Stat 105), should be regarded as conferring such power
upon the custodian, the act or resolution to this extent is unconstitutional. ^ * * Moreover, the contention is contrary to the decision of Commercial Trust Co. V. Miller. (262 TJ. S. 51, 43 S. Ct. 486, 67 L. Ed. 858.) It
was there contended that the act, being a provision for the emergency of war,
ceased with the joint resolution of Congress of July 2, 1921, declaring the state
of war at an end. But the court held that the power which declared the
necessity is the power to declare its cessation, and what the cessation requires.
The power is legislative and not judicial."
Thus until Congress shall legislate otherwise there is nothing to prevent
the President, if in his judgment the public interest requires it, from exercising
a power validly vested in him by act of Congress without time limit as to its
The clause in question which by its terms confers powers, the exercise of
which is not limited to conditions arising by reason of a state of war is therefore, apparently, still in force, unless Congress lacked the power to enact it.
The constitutionality of the clause as a grant of powers to be exercised after the
end of the war may perhaps be questioned on two grounds: First, as a taking,
without due process of law, of the property of those who are directly affected;
and, second, as an unlawful delegation of legisUitive power to the President
The first objection can not be sustained. The power of Congress under the
commerce clause is plenary, extends to the complete prohibition of dealings
in any kind of property, and is not limited by the requirements of due process.
(See Gibbons v. Ogden, 9 Wheaton, 1, 189, 194; Lottery case, 188 U. S. 321
at page 347; Buttfield v. Stranahan, 192 U. S. 470 at pages 492, 493; Leisy r.
Hardin, 135 U. S. 100 at page 108.)
The second objection (that the power conferred on the President is an
unlawful delegation) presents a more doubtful question. It must be conceded
that the power to prohibit could not be delegated without limitation, leaving
the President wholly free at his discretion to apply an export embargo whenever
he might desire to do so. If, however, the act could be so construed as to
prescribe, even In Indefinite terms, the conditions under which the power is to
be exercised, leaving to the President only the determination as to if and when
the prescribed conditions exist, no unlawful delegation could be held to exist.
Literally, of course, the act prescribes no such conditions.
Its purpose,
however, is abundantly made clear. Each of the granted powers confers
control over transactions, of different kinds, which might tend to impair the
basis of the currencv. This purpose is so distinct, and so limited, that a
court might well hoid it equivalent to a limitation on the granted power:
construing the section as authorizing action only when the President should
find that free commerce in gold and exchange was. in fact, likely to impair
the foundation of the Nation's money. Thus limited, the delegation would
be permissible; and in view of the recognised duty of the courts to construe
statutes, when possible, in such manner as to sustain their validity, the construction suggested might well be adopted.
It was held in Field v. Clark (143 U. S. 649). that the act of Congress
approved October 1, 1890, authorizing the President to suspend " for such time
as he shall deem j u s t " the provisions of that act allowing the free importation
of sugar, molasses, tea, coffee, and hides as to any countries which imposed
upon the products of the United States duties which " h e may deem to be
reciprocally unequal and unjust" can not be considered a delegation of legist
lative or treaty-making power, especially in view of the fact that from the





foundation of the Government, Congress has frequently invested the President
court in Ford
United States (260 U. S. 715), held
i h T t Z ^ ^ v A c t approved August 10, 1917, authorising the President to
regulate the production and prices of coal, was not unconstituUonal as a delegation of legislative power. No case appears to have reached the Supreme
Court where any delegation of power by Congress to the President was held
- . i.
The grant of the power to investigate is, of course, not open to obj^tion as
a delegation. On the other hand, the grant of the power to
regulate is
less easily sustainable than the grant of the power to prohibit except with the
limitation " b y licenses." In so far as by the words
or otherwise
it is
so broadened as literally to be exercised at will, it could not be sustained. But
by construing it as exercisable only when the President finds that certain dangerous conditions exist and. then by prohibition, licensing, or both during the
time when such conditions continue it might reasonably be sustained in a
period of national emergency.
If the act were now to be amended by incorporating therein expressly a
provision such as we have suggested might be read into the act by a court
construing the same so as to sustain its constitutionality, this would insure
that the authority of the President could not be successfully challenged in any
Very truly yours,

Mr. LEON. Let us now analyze the consequences of such action on
our economy; the founders of this country did not create the dollar
as an international currency, but as the currency of the people of the
United States. The duty of Government is to maintain its redeemability, in accordance with the law of the land, for the benefit of
American citizens. The application of a license fee on shipments of
gold for export would in no wise threaten the redeemability of the
dollar. On the contrary, it would insure it by removing certain
destructive foreign elements which, because they undermine our economy, threaten our currency system. Under the new condition any
citizen could redeem his notes in gold on demand.
Deprived of free exit from our market, gold would no longer take
free entry into it, thus effectively stopjjing its concentration, sterilization and consequent appreciation. Aliens could no longer buy a free
" call " on gold by buying dollars in the exchange market. This is
another way of saying that they could no longer freely sell and
depreciate their currencies by the purchase of dollars through exchange and J by the operation, also widen the disparity existing
between their prices and our own. As a result the value of gold at
once would fall when measured in terms of all commodities and
depreciated foreip exchanges which, once again, is another way of
stating that all the commodities and depreciated foreign exchanges
would rise in terms of the dollar. This rise in the foreign exchanges
would be the measure of the rise of all external costs of production
in their relation with our own, thus eliminating external dumping
from our home markets without recourse to increased tariffs. Our
prices would rise at home and fall abroad, thus facilitating both our
home and export markets.
The rate ot dollar exchange in the foreign markets would, henceforth alone be fixed by the supply of and demand for dollars resulting from commercial transactions. The utilization of the dollar
by aliens as a lever on their prices and on our own would be terminated once and for all. The few remaining gold-standard countries




New Y o r k







From ' l 9 3 X


Aug 1

Aug 1
rr. 2

iiig 1

(Face p. 183.)

l u g 1 Big 1



•iports to U. K. and
SChina increased 50^ and
to 74 m i l l i o n

'tug 1 nxg 1 i«ig 1 mg 1







would be likely to follow suit, thus paving the way for the establishment of a sound international money system. This is now being
retarded because certain nations find it profitable at the moment to
remain off the gold standard which they exploit for selfish ends in
utter disregard of the devastating effect of their actions upon the
price structure of the gold-standard nations. Our own country is
especially affected because the credit system is more fully developed
in America than in other gold-standard countries; hence the imdermining of our price level threatens a greater structure.
Once freed from external pressure on our prices, our commodity
and security markets would definitely reverse their downward trend,
and, by gaining in price and volume, would furnish to Government
that basis for taxation which is indispensable to its function. Credit
expansion as an aid to i^rices has been tried and has failed because
the instriunentality was local in its nature; adverse international
factors were unaffected thereby and, therefore, remained uncorrected.
Some may object to this procedure on the ground that we would
lose prestige as a free gold market; but what is prestige ? Webster
defines it as " a weight or influence derived from past success." Let
us, therefore, review the past and squarely face our achievements.
For the sake of maintaining a free gold market for aliens we have
sacrificed our price level, and thus upset the normal basis of economic relation between our creditor and debtor classes. Our debts
and taxes having become unbearable, we are now facing all manner
of unsound legislation designed to relieve us of the intolerable burden which is breaking our backs. If this be the price of such prestige as we derive from the maintenance of a free gold market for
ahens, then, together with the Romans, we can well exclaim, " Venenum in auro bibitur " because we are indeed drinking poison from
a golden vessel.
The second half of the program consists in further correcting the
disparity of the dollar in its relation with the important silver exchanges. The influences of silver-using countries on world economy
has been consistently underestimated by pointing to their relatively small contribution to the total of world trade. No greater
blunder could be made. If artificial stimulus through low exchange
is given to oriental exports, then the coolie will drag the white
man down to his level. He is doing it now, as evidenced by the
statistics of foreign trade which show that the dollar volume of
Chinese trade has shrunk less than that of any one of the leading
nations. Were this trade to be translated in terms of its physical
volume, it would be found that it had grown enormously, while
our own unemployment has grown apace.
I submit to your committee a chart.
The C H A I R M A N . It wdll be put in the record at this point.
Mr. L E O N . That chart shows takings of cotton by China as they
have grown in the past few years.
(The chart showing relation of cotton exports to silver price,
together with tables on the back thereof, is here printed in the record,
as follows:)
159450—35—PT 2






United Kingdom, 926,753 bales, $60,000,000; approximate average prlge,


^^ (fhina, 280,831 bales, $16,000,000; approximate average price, $56 plus.
Total, 1,207,584 bales, $76,000,000.
United Kingdom, 983,056 bales (eight months to April 1, 1932), $39,000,000;
approximate average price, $39 plus.
China, 933,119 bales (eight months to April 1, 1932), $35,000,000; approximate
average price, $38 plus.
Total, 1,896,175 bales (eight months to April 1, 1932), $74,000,000.
Approximately 50 per cent increase in bales, 3 per cent less in dollars.
Wall Street Journal figures of July 20, 1932, editorial: Total exports for
first six months, 1932, 3,917,061 bales; total exports for first six months, 1931,
2,600,000 bales. Increase 1,317,001 bales or 50 per cent over 1931.
Rough calculation in dollars: Total exports from January through June,
1932, $160,000,000; average price, $40; total exports from January through June,
3931, $145,000,000; average price, $55. Increase of $15,000,000 or only 10 per
cent over 1931.
Mr. LEON. China has been forced into an export position bv the

artificial depreciation of the (silver) Chinese exchanges. Had the
purchasing power of the Chinese remained unimpaired, their indispensable import needs would not have forced them into this export
position at the expense of the Western labor. Hence the imperative
necessity of doing something through silver for American agriculture. American industry, and American labor, instead of merely
'' doing something for silver."
Authority should be given the Treasury to purchase $200,000,000
in silver at a cost not to exceed 50 cents per ounce, purchases to be
made in the world's markets and not restricted to American production. The financing of this operation could be effected by expanding
by an equal dollar amount our issue of silver certificates now outstanding in the sum of approximately $500,000,000, or by utilizing
part of the gold now held as reserve for gold certificates and United
States notes combined, now outstanding in the sum of approximately
$1,500,000,000. The gold thus thrown upon the world's markets
could not fail to affect its value when measured in term^ of all other
commodities. Our gold certificates and United States notes would
be left with a gold coverage of approximately 85 per cent which
should be considered as adequate. On completion of this operation
we would have less silver in this country in proportion to gold stocks
than we had in 1914. As a powerful influence on world prices and
on American trade, this measure would have incalculable consequences. The last important available stock of silver, now held in
the Indian Treasury, and said to approximate 200,000,000 ounces,
would be removed from the world's markets. Faced by this vast
sale of gold and by a reduced production of silver, the precious
metals would regain a measure of equilibrium. Meanwhile the fall
in the Chinese internal price level, caused by the rise of the China
exchange, would cause little disturbance owing to the limited size of
the Chinese credit structure, while further compensation would be
found in the restoration of the purchasing power of the Chinese
currency. Dumping on our market from that quarter would be
While unemployment and misery stalk this land of plenty, many
measures of relief are being offered. While well inspired, they are
usually inadequate because their sponsors fail to grasp the true



nature of our basic problem. How can we ask bankrupt industry
to rescue bankrupt agriculture? How can the bankrupt white-collar
class be asked to support those in uniform who are also bankrupt,
all because of low prices. No, class legislation will never do. We
must find a remedy which will bring relief to all classes, one which
will lift the burden from the backs of all our people. Low prices
are diffusing poverty among us all. The distribution of wealth can
only come through the raising of prices, Avhich, by first creating
wealth, will lead to its distribution among all classes.
AVhile no country can pretend to a monopoly of the control of
prices, it is equally true that no nation alone can succeed in raising
world prices. However, an Anglo-American understanding will
constitute a force of such numerical proportions as will insure the
realization of our objective. Therefore, the part of wisdom is for
the United States to assume an attitude of enlightened selfishness, by
adopting a policy of give and take toward our friends across the sea.
Provided Britain will work with us to raise prices and to restore
international trade, we should work with her to enable her to put
the pound back to its former time-honored gold parity, and assure
stable monetary conditions for England which can only come about
if the burden of her debts to our Treasury is not such as to constitute
a constant menace to her currency.
If we are resolute in pursuing this aim, those enlightened and influential Britons, to whom I have already referred, will do their part,
so that certain success will crown our joint effort.
Senator KIXG. I suppose you refer to Sir Robert Home as among
the enlightened Britishers?
M r . LEON. Y e s .
Senator K I N G . And

others who recently signed the British manifesto in regard to silver ?
M r . LEON. Y e s . s i r .
Senator K I N G . Was

there a little inconsistency, Mr. Leon, in your
statement that there ought to be an interdiction upon the export of
gold, followed by your statement that we ought to sell considerable
gold and thus distribute gold throughout the world ?
M r . LEON. N o .
Senator K I N G . D O

you see any incompatibility between those two
statements ?
Mr. LEON. No; none whatever. For the reason that the exchange
operations which caused the disparity between the dollar and the
depreciated currencies are only initiated because the dollars so purchased are a call on gold. If they are no longer a call on gold
nobody indulges in the operation.
Senator K I N G . What would be the immediate effects, if you care
to elaborate your statement, of a measure adopted under the law
to which you referred, or by an independent act passed by Congress
preventing the export of gold?
Mr. LEON. The immediate effect, in so far as viewed from the
United States, would be the sudden rise of the foreign exchanges,
because the rate for dollars in the exchange markets would respond
^nly to the supply and demand of dollars. Whereas to-day they
are responding not alone to that supply and demand of dollars based
on commercial operations, but also to the enormous volume of these




artificial operations on account of the exchange equalization fund
and similar funds for account of other nations.
Senator KING. Would not, however, the rise in the value of dollars—of course gold dollars—throughout the world, according to
the philosophy which you have been enunciating, cause a reaction
upon prices and cause them to seek a lower level ?
Mr. LEON. On the contrary, Senator, the dollar would not rise,
the dollar would fall in terms of foreign exchanges.
Senator KING. It would mean that the dollar, the gold dollar,
would rise in value measured by commodities and human labor?
Mr. LEON. N O ; just the contrary. Just the contrary.
Senator KING. Elaborate that.
Mr. LEON. To-day there is only one commodity which needs stabilization. That is gold. It requires stabilization downwards. If
you will look at the price of all commodities measured in terms
of each other, with the exception of gold, you will find that they
are all pretty well in line.
Senator KING. Including silver?
Mr. LEON. Including silver. They are all selling at subnormal
prices. Now, we have tried to stabilize all other commodities but
the one which requires stabilization. We require stabilization of
gold downward.
Senator KING. D O you think that your criticism of Great Britain—and I do not know that I differ from it—is entirely warranted,
or, rather, do you think that you ought to isolate Great Britain
and direct those shafts of your logic against her, when we find that
France, and particularly Russia, Czechoslovakia, Poland, Germany—especially Germany, in her South American activities—^liave
sought to increase their exports, and in so doing, of course, have
been willing to cut prices and possibly thus to secure greater export
trade than otherwise they might have?
Mr. LEON. Senator King, the British control to-day 491/2 per cent
of the currencies of the world. The details of it are in these figures.
Tliey control directly or indirectly through the sterling area and
the Indian silver policy approximately 1,100,000,000 people.
Senator K I N G . They do not control the currency of Russia?
Mr. LEON. NO. I am trying to describe their control. Any control of approximately 50 per cent of the world's currency constitutes
the control of world prices. I do not care to say that it would not
be very highly desirable to bring all currencies into line, but I say
that if you can brin^ at one fell swoop 50 per cent of the currencies
of the world into line you have done the better part of the job.
In other words, if an Anglo-American understanding can be arrived at that understanding will constitute the bandwagon which
everybody has got to board.
Senator KING. That would mean undoubtedly, then, that if the
United States and Great Britain should enter into an agreement
regardless of the rest of the world for the use of silver at a certain
ratio with gold, that it would be effective?
Mr. LEON. I will express it the other way, Senator. If the United
States and Great Britain come to an agreement about the desirability
of lowering the price of gold through any instrument that they
can think of—the only reason why I pick silver as the only instni





mentality whereby that can be achieved is because there is no other
international instrument known to man. All of the other instrumentalities of exchange are local in their nature. The sterling exchange covers 600,000,000 people. Gold covers the entire population
of the globe, and so does silver, in that they have a market everywhere. Furthermore, they are both deeply embedded in human
psychology as money metals. They are both subject to the same
legal fiat, and therefore can be created as recif)rocal equivalents of
each other. If there is any other instrument whereby the lowering
of gold can be achieved, I will take it with my eyes shut; but I do
not know of any other.
Senator K I N G . Y O U read, I suppose, the admirable address of
President Hoover night before last in New York, in which he refers
to silver, and one of the uses to which it might be put which might
ameliorate conditions was to increase its use as subsidiary coin.
What othei^ policy or plan would you suggest for the utilization of
silver for the purpose of increasing prices in harmony with the
report of the McMillan committee of Great Britain which insisted
that prices should be rehabilitated and increased throughout the
world if we are to be lifted out of this depression ?
Mr, L E O N . Senator, if we could achieve an international money
system, it would be a very ideal sort of thing. It would be just
about as ideal as a universal language or a universal religion. But
it is not quit^ as easy as all that. Now, the world is divided into
about two parts; and in what we call the occidental world gold
functions admirably, or should. I mean it is best suited to our
needs. In the other half, the oriental world, the lowly individual
status of people does not permit them to think in the same terms
as we do. In other words, they can not reach up to the gold basis,
and gold can not be successfully minted in the small
Senator K I N G . Units.
Mr. L E O N (continuing). In the small units, you see, which are
adequate to the very modest individual transactions of the people.
When a Hindoo or a Chinese gets through worldng for a whole
month at a very few cents a day he has just so much, and he can
not command gold, but he can command silver; therefore, silver
is especially suited to his needs.
If we recognize in our currency systems, either by means of fractional currency, if you like, or in any other way, the money of these
other people with whom we trade, and whose importance is particularly great when we think of their ability to affect prices; in
other words, if the instrument of exchange of the East is lowered,
the costs are lowered. The cpsts of production are lowered, and all
that is produced—this production being predicated upon not alone
cheap labor but also cheap exchange, and enters the world market
in successful competition with all goods produced in the occidental
world and therefore destroys prices.
The C H A I R M A N , Mr. Leon, have you anything in mind, any plans
whereby anyone could assist England in bringing back her pound
to $4.86? I ask that because of statements which you have already
made as to the actual necessity of it before conditions in tliis world
are right. What is your idea as to what England can do to place
her pound back to $4.86?



Mr. LEOX. Senator, I am glad you askerl me that. I am going
to show you some figures which have gone recently in the fixing of
the sterling rate. These figures I culled out of the London Economist of January 28, 1933. The floating debts of Great Britain on
March 31, 1932, were 611,000,000 pounds, roughly.
The CHAIRMAN. IS that gold pounds?
Mr. LEOX. Pounds sterling; there are no gold pounds; pounds
The CiiAiii^rAX. Pounds sterling?
'MW LEON. Thefloatingdebt on January 21 1933
Senator BARKLEY. D O you mean by the floating debt the debt of
all the people or the Government ?
Mr. LEON. NO, no; the treasury's debt.
Senator GORE. The unfunded debt.
Mr. LEON. That is it. On January 2 1 , 1933, it was £927,000,000,
an increase of £ 3 1 5 , 0 0 0 , 0 0 0 in approximately 10 months. The British
treasury accounts for it by a deficit of £ 1 5 7 , 0 0 0 , 0 0 0 . There are two
small items, one, loans to road fund of approximately £8,000,000;
and, the other, bonds for war-loan conversion, of £18,000,000. Which
leaves for the exchange equalization fund investment £129,000,000.
Senator KING. That is subtracted from the £150,000,000?
Mr. LEON. In other words, the British treasury has sold in the
past 10 months £129,000,000. And that has kept the rate down.
The CHAIRMAN. YOU say sold that amount of sterling ?
M r . LEON. Y e s .

Was it sold to the English people? Were the
individual Englishmen the purchasers of that amount, or from what
source was the money raised to purchase that sterling ?
Mr. LEON. The money is raised in London by means of sales of
British treasury notes. The proceeds of these pounds sterling belonging to the treasury are immediately utilized to purchase gold
currencies, dollars, francs, Dutch guilders, Swiss francs, Belgian
francs. So that the British Government borrowed from its people
£129,000,000 and sold them in the exchange markets.
The CHAIRMAN. I wanted the record to show it. That is the
only way that it could be done.
Mr. LEON. I submit this for the record.
The CHAIRMAN. Put it in the record at this point.
(The statement presented by Mr. Leon is here printed in the
record in full, as follows:)
Great Britain,

nnancial year 1982^3;

April 1 to January



Jan. 21, 1933
Mar. 31, 1932



Less loans to road fund
Less war loan conversion
Exchange equalization fund investment
Source: The Economist, .January 28, 1933.


157, 717, O O


~ 157,

IS 975,000

G ^ O O

27. 782,000





Mr. LEON. N O W , if you consider the volume of trade has contracted so much, and tiiat the exchange market, of course, is much
thinner than it would be under normal volume of trade, then you
will realize what a weight of 129,000,000 pounds sterling is to all
exchange. In other words, in my estimation the pound sterling
would, if left alone, be selling at well upwards of $4 to-day. Well
upwards. And by way of proof, or, rather, by way of
Senator K I N G . Elaborating.
Mr. LEON. By way of elaborating, if you will, Britain is not the
only Government indulging in these purely artificial operations.
Senator REED. What is the motive for it ?
Mr. LEON. I explained it, Senator, in which I showed that the
short-term objective is the creation of a price condition such that
politically we will be more amenable in this country to such arguments for the reduction of debt as may be offered.
On January 7, this year, the New York Times published the
following dispatch from Tol^^o, January 6:
Yunosuke Yasukawa, director of the great Mitsui Bussam Kaisha, one of
Japan's largest corporations, predicts in his review of business prospects for
1933 tliat President-elect Roosevelt may place an embargo on gold exports
frcm the United States.
Mr. Yasokawa says:
" President Hoover's inflation policy has not ameliorated the distressing conditions in the United States. For this reason I expect that Mr. Koosevelt,
after assuming office, may impose an embargo on gold.
" If he does so, the effect on Japan will be the abrupt rise of the yen to
between 30 and 40 cents. This will give a shock to our financial world. We
must keep the possibility in mind and prepare for it."

The CHAIRMAN. What is this from?
Mr. LEON. This is from the New York Times, January 7.
Senator GORE. The yen could not rise that much, could it? It is
only 30 cents below par now.
Mr. LEON. The yen is now selling at about 21.
Senator GORE. Yes.
Mr. LEON. The weight which is maintaining the yen down is twofold. One is a very large credit expansion. And the other, operations similar to the operation of the equalization funo. It is a
combination of both. You will recall this. The British have not
indulged in a sixj^ence worth of currency expansion. And all of
their credit expansion is completely offset by holdings of gold
Senator K I N G . Does that report from which you read indicate the
debts due the British Government from France, Belgium, Italy,
Mr, LEON. That has nothing to do with debts.
Senator K I N G . I know it does not, but I wondered if it did.
Mr. LEON. N O , indeed.
Senator K I N G . I was wondering if Great Britain had anticipated,
in view of the deficits to which you referred, payments from her
debtors and had failed to realize her anticipations?
Mr. LEON. N O ; I think the deficit naturally includes the $95,000,000
which they paid us in December.
Senator K I N G . Undoubtedly.
Mr. LEON. N O question about that.




Senator K I N G . Have you any other suggestions to make, Mr. Leon,
with reference to the present economic situation in the United States
that would be calculated to relieve the depression?
Mr. LEON. Senator, there is only one thing that can relieve us
all and that is a higher price level.
Senator KJNG. And you have indicated the measures to be adopted
in order to secure that result?
Mr. LEON. I know of no other way to relieve the situation here
for the reason that as long as Government is administrative it must
liave a price basis upon which to administer. If it does not possess
it it can not administer.
Senator ICING. I S there any danger that if there shall be a continued issue of bonds and the assumption by the Federal Government
of obligations which may be denomiated as private in character, this
attempt to bolster up railroads and banks and other organizations—^is
there any danger of the credit of the United States being impaired?
Mr. LEON. There is every rason why the credit of the United
States will be impaired, because the railroads will never be bolstered
up by anything except car loadings.
Senator K I N G . Y O U might reduce the capital structure and that
might contribute somewhat.
Mr. LEON. I am not a proponent of the reduction of anything.
Senator K I N G . If they went through the wringer and the capital
structure was devaluated and brought into a proper juxtaposition
with the real value some good m^ht be accomplished by that?
Mr. LEON. I do not think so, Senator. We can go on deflating
everything in sight. Every time we deflate anything we are contracting purchasing power. I am not a proponent of cutting anybody's salaries, including Government officials. I am for raising
everybody's salaries, everybody's prices, because that will bring us
up nearer to our debts.
Senator K I N G . Y O U would raise us up by our boot straps, would
Mr. LEON. N O , sir; I would not raise us up by our boot straps.
Senator BARKLEY. By whose boot straps?
Mr. LEON. By no one's boot straps.
Senator K I N G . If your policy were merely to increase prices and
salaries, Government as well as private individuals, without increasing production and the productive enterprise of the country you
would not get anywhere, would you?
Mr. LEON. Of course t would not try to do that.
Senator K I N G . N O .
Mr. LEON. What I would try to do is to bring the price level
somewhere near the debt level. In other words, if we permit a purely
deflationary condition to be perpetuated the result is obvious.
Senator BARKLEY. Mr. Leon, I did not hear your full statement,
I am sorry to say, but I gather that the substance of your final recommendation is for the Treasury to purchase $200,000,000 worth of
silver and sell about the same amount of gold?
M r . LEON. Y e s .
Senator BABKLEY. H O W

know ?

much silver is there in the world, do you



Mr. L E O N . The estimates of either gold or silver stocks are nothing but guesses on the part of any one.
The C H A I K M A N . Well, you know how many ounces of silver have
been produced in the world? You know that, of course.
Mr. L E O N . Well, the best estimates. Senators, are good guesses.
I have been in the bullion and exchange business all of my life, and
I can assure you that having spoken to most authorities who get up
interesting statistics there is nothing quite exact about that.
Senator B A E K L E Y . Give the result of these guesses.
Mr. L E O N . The generally accepted figures for the gold stocks
of the world were approximately 12,000,000,000 dollars, and the
generally accepted figures for the stocks of silver are approximately
10,000,000,000 ounces.
The C H A I R M A N . Eleven billion ounces.
Senator B A R K L E Y . Eleven billion ounces ?
Senator K I N G . Ten, he says.
Senator B A R E X E Y . At 5 0 cents an ounce, that would be about five
billion dollars.
Mr. L E O N . About five billion dollars.
Senator B A R K L E Y . Of course I suppose that your theoiy about this
solution is that by the purchase of $200,000,000 worth of silver,
which would be about one twenty-fifth of the amount of silver in
the world, it would bring the price of silver up to a certain point,
and by selling practically the same amount of gold it would drive the
price of gold down on one end of the scale so that they would
approximate each other?
M r . LEON. Y e s .
Senator B A R K L E Y . D O

you think that the purchase of that comparatively small amount of silver and the sale of that comparatively
small amount of gold would result in approximately a meeting of
the two metals in relative jjrices ?
Mr. L E O N . I do, for this reason, Senator, that a thing of this
sort would have a power of leverage far exceeding anything that
we can conceive, for this reason. We know approximately what
stocks are weighing on silver. The Indian stocks are virtually the
only one on the face of the earth of any consequence which are
weighing on silver and ever since these stocks have been placed
for sale, that is to say, in early 1926, every incentive has been given
to the normal users of silver to no longer take their profits in their
money, because they knew that money was doomed, but instead
to take it in gold. And there has been a flight from silver to gold.
If you can induce or superinduce all normal users of silver to reverse
these operations I feel certain that we will not be able to buy a single
ounce of silver at 50 cents.
Senator B A R K L E Y . Upon what basis do you predicate your suggestion that $500,000,000 in new silver certificates be issued based
upon $200,000,000 worth of silver?
Mr. L E O N . I am not speaking of $ 5 0 0 , 0 0 0 , 0 0 0 of silver certificates,
sir. I say $ 2 0 0 , 0 0 0 , 0 0 0 in silver certificates.
Senator B A R K L E Y . You use the figure here of approximately $ 5 0 0 , 000,000 in your statement.
Mr. L E O N . I say that there are now outstanding approximately
$500,000,000 in silver certificates.




Senator BARKLEY. I though you said you would increase them
by that.
Mr. LEON. N O ; I merely suggest I would increase by $ 2 0 0 , 0 0 0 , 0 0 0
the issue of silver certificates, which are now outstanding in the
s u m o f $500,000,000.
Senator BARKLEY.

The net result, as far as money is concerned,
would be a net increase in circulation of our money of $200,000,000?
M r . LEON. Y e s ,
Senator BARKLEY.

There would be no increase of certificates or
Treasury notes payable in gold which now amounts to about $1,500,000,000f You would not lower or raise it by that operation?
Mr. LEON. I have given two suggestions for the financing of the
purchasing of the silver: Either the issue of silver certificates in the
sum of $200,000,000 or the utilization of part of the gold now held
as reserA^e for gold certificates and United States notes, now outstanding in the sum of $1,500,000,000.
Senator BARKLEY. D O you think that the mere bringing together
of the price of gold and silver to approximately a parity by this
operation, which seems simple enough on paper, would be the magic
wand by which the economic conditions of the world would start back
Mr. LEON. If there was any magic wand about it, sir, I would not
talk about it. I am a very practical exchange person, you see.
Senator BARKLEY. Well, I should not describe it that way.
Mr. LEON. I am going to show you that the power of leverage can
function. In 1924 when the franc was in full flight the then Prime
Minister of France, Mr. Poincare, got a credit in America of $100,000,000 for the purpose of stopjnng the flight of the franc. He put
the franc from 2 cents to 8.20, utilizing but a fraction of this $100^000,000. I am informed the sum was $36,000,000. I am merely indicating that because there is a power of leverage. To-day there
exists a technical short interest in silver on the part of the normal
users of silver who would only be too glad to reverse their operations if they were placed on notice that silver was not a doomed
metal or a doomed exchange.
Senator BAKKLEY. Does the increase in the circulating medium due
to the printing of $200,000,000 worth of silver certificates based upon
those new purchases play any important part in this restoration,
in your mind ?
Mr. LEON. In my assumption, sir, the price system is threatened
entirely by the fact that to-day the world is measuring all values,
all prices, in terms of a cornered metal—gold. And that to a very
large extent the present stocks of gold are sterilized. And that by
reversing the operations initiated in 1926 through the Indian silver
policy, that would not alone bring back equilibrium in the important exchanges and through them in cost prices, but that would also
take out of sterility such gold as is to-day locked up.
Senator BARKLEY. And it would be used, of course, onlv as tiie
basis for currency? If it is sterilized the process of unsterilizing it
would result presumably in increasing the circulating money in the
world ?
Mr. L E O N . N O doubt.





Senator BARitLEY. Assuming that that is true, how do you explain
the fact that the increase in our circulating medium in the last three
years by over $1,000,000,000 has been contemporaneous with tlie
constant fall in prices and the depression in business and everything
in the country?
Mr. L E O N . Senator, I am sorry that you did not hear my statement,
because I explained it fully there.
Senator B A E K L E T . I will not ask you to repeat it.
Mr. L E O N . I will repeat it in this wise; I think it bears repitition. Prices, that is to say world prices, can not respond to local
instruments. Thev can only respond to international instruments.
If you extend credit/or currency locally you are really attempting
to raise one corner of the pond. To increase the whole pond you
have got to use an international instrument. Gold and silver are
the only two international instruments that we know of.
Senator B A R K L E Y . Well, there is also danger of all the water
running to the lower end of the pond if you raise your own corner.
Mr. L E O N . I do not say that we should raise our corner, sir;
I say that we ought to try to raise the world level.
Senator GORE. Are you through. Senator?
Senator B A R K L E Y . Yes; I will suspend here for a moment.
Senator GORE. I did not hear the first part of your statement,
Mr. Leon, but I inferred from what you were saying when I came
in that you regard as one of the firet indispensible conditions to
world recovery some sort of international standard or measure of
value ?
Mr. L E O N . I did not make myself clear, sir. I do not think that
is possible.
Senator GORE. Y O U do not think that is possible?

LEON. N o ,


LEON. Y e s ,


Senator GORE. And you think that you can not stabilize exchanges
without some sort of common unit or common standard so that everybody would be talking about the same thing at the same time and
know what they are talking about? I mean the leading commercial
nations ?
Mr. L E O N . Yes. Everybody does talk about the same thing at
the same time. And I might prove it to you in this wise. Britain
to-daj^ is saying that she is not going to go back to the gold standard
except in her own good time. And yet by the operations on account
of the exchange equalization fund she is now the possessor of a stock
of gold for account of the British Treasury which is in excess of
the total gold held by the Bank of England.
Senator GORE. I understood you to say that the depreciated currencies and controlled currencies and thefluctuatingexchanges were
obstacles in the way of world recovery?

Senator GORE. Then are they thinking about and talking about the
same tilings or not? And if so, what is the standard and what is
the word the}'' use when they compare international prices so as to
know what each other are talking about to-day, and that they mean
the same thing three months from now when payments should be
made in that one thing, whatever it is?
Mr. L E O N . Senator, you can translate one in terms of another.




Senator GORE. Yes.
Mr. L E O N . In other words, if you sit in London the only thing
that fluctuates
Senator GORE* Now you can do that day by day.



Senator GORE. But you can not calculate three months ahead when
all your standards arefluctuatingup or down, crosswise or otherwise?
Mr. L E O N . Oh, I admit that.
Senator GORE. N O W , then, the world, the civilized commercial
world, has come by common consent to accept gold heretofore as the
international standard of value, has it not, in the measure and
expression of prices?
Mr. L E O N . I think that applies to the occidental world; yes.
Senator K I N G . Senator, when you said " heretofore " you did not
mean back in 1816 when, in the Napoleonic time, they demonetized
silver, because up to that time there had been the double standard?
Senator GORE. Yes; I mean the main civilized world. A sort of
double standard that never did work.
Senator K I N G . Well, I disagree with you there.
Senator GORE. N O W , then, one of the conditions precedent to the
working of the gold standard has been the free flow, or the ebb and
flow of gold between different countries in response to supply and
demand—or in response to demand. That is indispensable to the
working of the gold standard, is it not?
M r . LEON. Y e s .
Senator GORE. But

you do not think that the restoration of the
gold standard is essential, but some other standard or substitute
would take its place?
Mr. L E O N . On the contrary, I am all for the gold standard.
Senator GORE. Y O U are ?
M r . LEON. Y e s .
Senator GORE. And

the world is too, for the present. But you do
not regard that as one of the causes of existing disorder and trouble?
Mr. L E O N . I do not understand you. Senator. I am sorry.
Senator GORE. Y O U say you are for the gold standard, and the
world is off the gold standard.
Mr. L E O N . Yes; very largely.
Senator GORE. Does that account in anywise for the disorder that
prevails and reigns in these disordered exchanges?
Mr. L E O N . N O doubt.
Senator GORE. Then, if the United States should lay an embargo
on the export of gold would not that aggravate the existing disturbance and add to it?
Mr. L E O N . On the contrary, the present intensification of disparity
in the exchanges is due to purely artificial measures affecting the
gold standard.
Senator GORE. Yes, sir; and would you not recommend, Mr. Leon,
our embargo on gold as an additional artificial lever exercised with
the ultimate view of coercing other countries to agree to some sort
of international standard?
Mr. L E O N . On the contrary, I look upon the artificialities represented by the exchange equalization fund as coercion on the part of
aliens upon us.




Senator GORE. Yes; and this would be retaliation, would it not,
in a sense ?
Mr. LEON. N O ; it would be a measure of self-defense, but no
Senator GORE. Well, it would be an additional artificial force,
whether defensive or offensive? And exercised to bring about a
different attitude on the part of other countries ?
Mr. LEON. Well, I think that you can define self-defense any way
you like. If somebody come to me with a stick and I have got a
pistol I certainly do not want to use that pistol.
Senator GORE. Well, now, is your point for us to get more pistols
and other countries get more pistols, or try to bring about some sort
of truce and lay aside our weapons and carry on commerce on -peace
Mr. LEON. I stated in my statement, Senator, that I look for
cooperation first. That is the thing that I want. But that if I can
not get it, then I have to defend myself.
Senator GORE. IS not your suggestion for us to lay an embargo on
export of gold simply going East with the ultimate view of getting
West ? You can go West and come back to the Atlantic coast here.
And is not that the same theory that is involved in that suggestion ?
Mr. LEON. I do not think so, sir.
Senator GORE. Well, that settles that. I inferred that you wanted
to embark upon a silver policy in order to raise the price of silver
in the Orient.
M r . LEON. N O , sir.
Senator GORE. Or in the world.
Mr. LEON. N O . I want to use any

instrument that I know of to
get the price of gold down.
Senator GORE. Yes.
Mr. LEON. And I Imow of no other instrument that will do it
except silver.
Senator GORE. Except to get silver up. Yes, sir. Now silver is
cheap in the Orient, is it not? It is cheap everywhere.
Mr. LEON. It is cheap everywhere measured in terms of gold.
Senator GORE. Yes. And cheap in the silver-using countries of
the Orient. That is true, is it not?
Mr. LEON. I do not know. That is not true. It is not cheap
measured in terms of any commodity other than gold.
Senator GORE. That is what I am getting at.
M r . LEON. Y e s .
Senator. GORE. But

cheap silver in China means relatively high
prices of their products, does it not?
Mr. LEON. Relatively high prices for their products, yes.
Senator GORE. Yes. .Money is cheap in the Orient and prices are
high. In the United States money is dear and prices are low. Now,
then, does that principle work differently in the eastern and western
hemispheres? You want to reduce the value of gold here and raise
prices. You want to raise the price of silver in the Orient and
reduce prices?
Mr, LEON. Right. In other words, bring about equilibrium.
Senator GORE. Now, then, ought we to sacrifice the Orient by giving them dear money—^what we have got and do not want^—and give




them low prices instead of high prices in order that we can get high
prices instead of low ? My point is that it seems to me like there
IS something wrong when you want to invoke a principle that does
in the Orient the reverse of what you want to do here. Now we are
complaining that money is too dear and the prices are too low. I
think that is true. You can talk about it in the abstract or in the
concrete. Now you want to make prices high and money low here
by making money dear in the Orient and prices low. It somewheres
does not click.
Mr. LEON. Senator, you may forgive me for looking at the situation as an American citizen, from the American angle.
Senator GORE. I see.
Mr. LEON. I can not possibly break out crying about the situation
in China when the situation is "such as it is here.
Senator GORE. If you want to sacrifice the Orient on that altar,
that is a definite policy that we can all understand, economic and
moral as well, for that matter.
Mr. LEON. I do not want to sacrifice them.
Senator GORE. H O W much has gold appreciated?
Mr. LEON. The best way to look at appreciation of gold is to take
a sort of a general commodity index as measured by gold, and you
might say that gold has increased 100 per cent.
(Senator GORE. Yes. It has doubled. Now then, gold is like any
other commodity. It responds to the same law of supply and demand respecting value, the rise and fall of value, does it not?
M r . LEON. Y e s .
Senator GORE. NOW,

there are just two things that will make gokl
become dearer, as it has become dearer. One is an increase in the
demand for gold; the other is a decrease in the supply of gold. The
demand for gold in the world has not doubled, has it ?
Mr. LEON. I should say that it must have as expressed in terms of
all commodities or it would not have gone up.
Senator GORE. Do you not know, Mr. Leon, that under the business conditions of the world to-day there is not any demand for gold
hardly, as compared with what it was several years ago?
Mr. LEON. I fail to agree with you.
Senator GORE. YOU think the demand for gold has increased in
the Avorld 100 per cent?
M r . LEON. Y e s .
Senator GORE. Then

you would not attribute any of it to a decijase, of course, in the supply of gold, because the physical supply
of gold lias not decreased. Would you suggest and I rather inferred
that you did, though I could not quite understand whether you
thought the sterilization of gold would increase or decrease its efficiencv: On what do you base your conclusion that the demand for
gold has increased when international trade, for instance, is only
one-third of what it was a few years ago, and our own business in
this country is about 50 per cent? How do you reach the conclusion
that the demand for gold has increased?
Mr. LEON. Because gold is a primary metal and the basis of a price
system and of a credit structure. If you disturb the credit structure
and the price structure, then every one will want the commodity of
ultmiate redeemability in all currency systems





Senator GORE. Mr. Leon, is not the point in this whole business
the collapse in credit, and is not that the reason the prices havtj
gone down?
Mr. LEON. Well, I go further than that, Senator.
Senator GORE. And that we went perfectly wild in the use and
abuse of credit and brought on an explosion, and that the depression to-day is a collapse of that credit structure ? And the absence
of confidence? Is that not the point?
Mr. LEON. Well, I try to go back of that, sir, I mean I just do
not think that confidence is something which is quite so indefinite.
And if credit has collapsed there must be a good reason for that
Senator GORE. Yes.
Mr. LEON. N O W , there are a number of reasons, but I believe that
the fundamental one has been the basic one of a disruption of your
money systems.
Senator GORE. D O you not think that it was the excessive use of
it that caused that ?
Mr. LEON. There are many contributory factors, sir. A great
many. But the basic factor is still there. Up to 1925, say, before
it was decided to destroy this great mass of gold equivalent, gold
was plentiful. Prices did respond in a very large degree to purely
natural laws. But the very minute that you permitted
Senator GORE. N O W , Mr. Leon, you say that prices responded to
a perfectly natural law. From 1923 to 1929 securities and real
estate went up nearly 100 per cent—went up over 75 per cent.
Commodity prices went down 11 per cent during that same period.
Now, your law was not operating equally on all its subjects, because
securities which were responding to this speculative period and your
inflation of credit w^ent up. Real estate went up—^not during the
whole period, but during a good deal of it. But commodity prices
went down. Now, why should they behave in that sort of a fashion
if it is a law? And does not that confirm the conclusion that it
was the inflation of credit which finally blew up and brought us
down in this crash and in this wreck, and it is a credit crisis and
a credit collapse instead of an increased demand for gold or decreased
supply of gold?
Mr. LEON. Senator, our credit expansion was a local expansion.
Senator GORE. You think it was?
Mr. LEON. Well, local in the sense that it was an American bull
market in securities, if you like. I mean, the same thing did not
exist in all parts of the world. Commodities, on the other hand,
respond to international supply and demand; not local.
Senator GORE. And they went down because gold did what?
Mr,. LEON. Because a certain large amount of gold equivalent
was destroyed, thus rarifying the total stock of gold and/or gold
equivalent as represented by gold arid silver.
Senator GORE. D O you not think if we could bring about some
sort of relationship to restore the international gold standard that
would be the best thing to do?
Mr. LEON. That is what I am trying to do.
Senator GORE. Yes.




The C H A I R M A K . Mr. Leon, I want to ask you a simple question,
and if you can answer it just answer it in as few words as possible.
Supposing you were dictator, had absolute power in your hands affecting the currency and the trade of the country, what would you do
in relation to silver and gold?
Mr. LEON. I would approach the British Government, which controls 491/2 per cent of the people of this world through exchange.
The CHAIRMAN. That is the first.
Mr. LEON. And .then I would, say/this: You .have price.control.
We have the creditor position. All right; let us adopt the give-andtake policy, and first raise prices. Once prices are raised, international trade reestablished, capacity to pay both at home and
abroad re-created, let us readjust the debts on the basis of a capacity
to pay. Whereas to-day we are asked to accept the principle of the
capacity to pay when there is no capacity to pay.
The CHAIR3IAN. Y O U are speaking now of foreign debts to our
Government ?
Mr. LEON. I do. International debts.
The CirAiRMAN. Well, they were settled on the capacity to pay
once. Now, what would you do right to-day under the situation
existing in the world to-day if you were dictator of our country?
Mr. L E O N . I repeat, I would get an Anglo-American agreement
for the purpose of raising the price level and restoring international
trade, and I would not talk about anything else until that was
Senator W A L S H of Massachusetts. How can that be done? How
can you get international agreement to raise price levels?
Mr. LEON. Senator, here is a chart of the disparity of exchanges,
and here is your United States dollar [exhibiting the chart]. The
gold countries totaling 336,000,000 people, and here are the numerical numbers of consumers weighing upon them. The control lies
here. Here is the population of the world. The British control
through exchange, through sterling exchange that many [indicating], and through silver that many [indicating], or 491/2 per cent.
Senator GORE. How much silver and how much gold? Can you
tell ? Have you got thosefigures?
Mr. LEON. The British control of consumers and producers numerically is 491^ per cent of the world's population. If you can get
an agreement between the control of 491/2 per cent of the world's
population and the creditor nation, you have got the control of the
Senator W A L S H of Massachusetts. I do not see how you can get
the agreement.
Mr. LEON. Well, we can only get agreements by trying to get
Senator W ^ L S H of Massachusetts. That is true. You have got to
have something, concrete, though.
Senator liiNo. Let me say to Senator Walsh about that, that
recently 100, or perhaps 200, of the leading statesmen, bankers, and
members of Parliament have issued a manifesto in which they practically suggest this proposition, namely, that there should be an
agreement between the United States and Great Britain with a view
to stabilizing prices, and one of the methods to accomplish that is to





rehabilitate silver. And they say that the United States and Great
Britain and her Dominions getting together could accomplish that
Senator W A L S H of Massachusetts. Following out the question of
the chairman, I understood you to say that you did not accept the
principle of deflation; that is, that if you were dictator you would
not reduce any salaries and you would not reduce any employees in
the Government service. Is that true?
M r . LEON. Y e s .
Senator W A L S H

of Massachusetts. So that if the post-office receipts
of the country fell off by 25 per cent and there was not the need of
the number of carriers and clerks that were formerly required, you
would not reduce any of their wages or reduce any of their numbers?
Mr. L E O N . Oh, no, Senator; no, indeed; no.
Senator W A L S H of Massachusetts. What would you do? Increase
taxes ?
Mr. L E O N . N O , indeed.
Senator W A L S H of Massachusetts. How are you going to avoid
that, if you keep the expenses of the Government the same to-day as
they were in prosperous times?
Mr. L E O N . The way in which you are going to avoid raising
taxes—there is not going to be anything in the world to raise taxes
on unless you do change the fundamental conditions.
Senator W A L S H of Massachusetts. I know, but there is a period of
time when you have either got to borrow money to pay the current
expenses or you have got to increase your taxes.
M r . LEOX. Y e s .
Senator W A L S H of Massachusetts. Which would you do?
Mr. L E O N . I would do neither. I would try to raise prices first

and try to do what I could about walking the tight wire until I
had raised them.
Senator W A L S H of Massachusetts. In other words, you would not
increase taxes, you would not reduce taxes; you would let the Government drift along?
Mr. L E O N . N O , indeed. I am not for a drifting policy on the
part of anybody. But I am for attacking the basic problem instead
of everything else.
The C H A I R M A N . Mr. Leon, have you anything further?
Senator CONNALLY. May I ask the witness one question, Mr. Chairman?
T h e CHAIRMAN. Y e s .
Senator CONNALLY. Mr.

Leon, I did not have the advantage of
your early testimony, but I shall not ask you to repeat anything
about that. Your idea, as you said a while ago, is that gold has
appreciated in value, regardless of causes, about 100 per cent?
Mr. L E O N . A S measured in terms of all commodities, approximately that.
Senator CONNALLT. A S measured in terms of all commodities.
Here in the United States a gold dollar will now buy twice as much
as it would formerly.
Mr. L E O N . Right you are.
159450—33—^T 2




Senator CONNALLY. Have you considered the matter of debtors
and creditors and the inequity that results to the debtor by reason
of that condition?
Mr. LEON. I have, sir.
Senator COXNALLY. Your view is that the only way prices can
be raised is by international action, because the price level, according
to your idea, is international?
Mr. LEON. Right.
Senator CONNALLY. Debts, however, are not international, necessarily ?
Mr. LEON. Right.
Senator CONNALLY. Have you any plan to suggest that would aid
the debtor in the inequalities that the Government has forced upon
him by the undue appreciation of gold compared to his commodities
which he must sell and with which he has to pay his debts ?
Mr. LEON. I know of no other way excepting the raising of prices.
Senator CONNALLY. The raising of prices. Well, that is easily
said. That is like restoring confidence; you press a button and
restore it. 'What have you to say, so far as the United States alone
is concerned, about reducing the value of the gold dollar so that
debtors will have some method by which they can discharge in a fair
degree of equity and justice their debts?
Sir. LEON. Senator, I have made the practical suggestion that the
only commodity which needs stabilization is gold. It needs stabilization downward.
Senator CONNALLY. Certainly.
Mr. LEON. A S we are the possessors of gold, we are obviously in
a position of effecting the stabilization downward better than anybody else.
Senator CONNALLY. What have you to say about the Government
of the United States reducing the value of the gold dollar by cutting
down its content ?
Mr. LEON. I have everything to say about that, because that
follows the principle of depreciation.
Senator CONNALLY. Certainly.
Mr. LEON. ^Vhich everybody else can follow until we all reach
Senator CONNALLY. D O you not think that it would be fair to
bring the dollar down to commodity levels with other prices?
Mr. LEON. YOU could not possibly do it, Senator, for this reason:
That if the principle of depreciation is established and further con-

cutting the dollar in half, and then cutting it again in half until we
all reach zero.
Senator CONNALLY. AVell, no. If we tie the value of the gold
dollar to the commodity price level, why would it not stay there?
Mr. LEON. Y O U can not tie the dollar to the commodity price level
because they are both fluctuating units.
Senator CONNALLY. All right. If you varied the redeemability of
the dollar from time to time in so many grains; not coin the gold
into money, but put the bullion in the Treasury and redeem the





gold certificates from time to time in certain variable grains in
the dollar, depending upon the average price level of other commodities, why would not gold then be valued fairly and justly as a commodity and not attain this undue value by reason of action of the
Mr. L E O N . Well, Senator, I can not conceive a system, either a
currency system or an economic system of any sort, which is going
to vary monthly, daily, weekly, or
Senator C O N N A L L Y . Well, they did do it, did they not?
Mr. L E O N . N O ; they did not.
Senator C O N N A L L Y . Commodity values change, do they not, from
time to time ?
Mr. L E O N . Commodity values change, right. We have to have
some sort of a system which is going to be fairly lasting.
Senator C O N N A L L T . One more question: According to your idea^
then, unless we do something internationally the debtors in the
United States will have to pay $2 for $1 on their debts?
Mr. L E O N . N O ; I think the debtors of the United States would pay
nothing on their debts.
Senator C O N N A L L T . In other words, they would be absolutely liquidated or bankrupt, would they not?
M r , LEON. Y e s .
Senator C O N N A L L Y .

The creditors will either get twice as much
or the debtors will pay nothing?
Mr. L E O N . If the debtors pay nothing
Senator C O N N A L L Y . If the debtors pay nothing the creditors will
not get anything, of course.
Mr. L E O N (continuing). The creditors will get nothing.
Senator C O N N A L L Y . But it means absolute wholesale bankruptcy
for the debtors, or if it is collectable it means $2 for $1 for the creditor, does it not ?
M r , LEON. Y e s .
Senator C O N N A L L Y . That is inevitable?
Mr. L E O N . Inevitable.
Senator C O N N A L L Y . And your plan is to let it go?
Mr. L E O N . N O . My plan is to raise commodity prices

so that the
debtor can pay something; is in position to pay something. And
that if readjustment is necessary he can readjust on the basis of the
risen price level.
Senator C O N N A L L Y . In other words, you would devaluate the present gold dollar by lifting commodity prices 100 per cent?
Mr. L E O N . Yes; I would.
Senator C O N N A L L Y . There are hundreds of commodity prices and
gold on the same level?
Mr. L E O N . Right.
Senator C O N N A L L Y . You are in favor of bringing prices up to
gold but you are not in favor of bringing gold down to commodity
levels ?
Mr. L E O N . Just the reverse of the process. You can express it
any way you like.
The C H A I R M A N . Thank you, Mr. Leon. Mr. Jackson Reynolds. At
this point, however, before you begin, Mr. Reynolds, I desire to




place in the record here a letter from Mr. Daniel Willard, president
of the Baltimore & Ohio Railroad Company.
(The letter from Mr. Daniel Willard is as follows:)

Baltimore, Md,y February 10, 193S.



Chairman Committee on Finance,
United States Senate, Washington, D. C.
MY DEAR SENATOR SMOOT: Your letter of the 8th instant, inviting me to

appear before your committee and to give my views concerning the present
depression and possible legislative remedies, is received, and I appreciate very
much the compliment paid me by your invitation. I doubt very much if there
is anything that I can add to what has already been said in this same connection that would be of any real help to your committee. I am willing, of course,
to appear if you should still wish me to do so.
Responsive, however, to a suggestion contained in the third paragraph of
your letter, I might say this: Naturally I have given the general situation much
thought and I have read and listened to many suggestions as to what ought to
be done or might be done to improve the existing conditions. It seems to me
that whatever is done should be done primarily because it is hoped and believed
that the doing of it will contribute towards relief of the unemployment
situation, and by " relief " I do not mean a dole, but work for the men who
are anxious and willing to work, but unable to obtain work.
With this in mind it has seemed to me that there could be no doubt about
the desirability, in fact the importance, of taking early steps to balance the
Budget. No individual can go on indefinitely living beyond his means, nor do
I til ink a government can follow such a course with impunity. If we may
believe the statements made in Congress and elsewhere, it would appear that
the expense of government in this country during the present year will be
upwards of, if not above, $15,000,000,000, and it is now being estimated that
the Nation's income may be as low as $40,000,000,000, but even if it should
be as high as $50,000,000,000 it would appear that 30 per cent of the Nation's
income will be required to pay for the cost of government. If these statements
are true it ought to be possible to reduce such costs by at least 25 per cent.
Of course, the process will be difficult and painful, but we have all had to
meet the same problem in connection with all other activities and it seems to
me it ought to be met resolutely by those whom the people have selected to
represent them in the several representative bodies authorized to deal with
such matters.
If in addition to a substantial reduction in the cost of government it is
deemed necessary to increase the amount to be raised by taxation, it seems
to me that a sales tax uniformly applied, naturally small in terms of percentage, would be the best course to follow. Income taxes are already so
Iiigh that we hear men constantly speaking somewhat as follows: " What is
the use of risking my money in business in the hope of securing attractive
profits when if I succeed in making profits they will be largely taken away by
the government? A much easier course would be to invest my monev in taxfree securities and escape all risk and worry."
The next and only other recommendation which I would make has to do
with our so-called governmental debts. Personally I believe it would be better
for us and better for the world, or that part of the world in which we are
particularly interested, if all such debts relating to the war could be canceled.
1 have two reasons which seem to me to justify this conclusion.
My first reason is this: Certainly the Great War was our war after the 6th
of April, 1917, whatever it may have been before that date, but it was upwards
of a year later before we were able to make any substantial contribution in
support of our Allies by funiishing soldiers for the battlefield. In the meantime we could assist them and did so by loaning them large sums of money
with which to secure the things necessary to carry on the war with their own
boys while ours were being trained. It so happened that I had a son in tbe
Harvard Law School when our country entered the war. He left tlie school
at once, entered the training camp at Fort Myer, received his commission as
second lieutenant and was sent abroad in September, 1917. Most of the time
he served in a battery in the Twenty^Sixth Division at the front. Happily ^^
returned in 1919 without injury and in good health. My son was only one o£





the 2,000,000 sent abroad, but the fact that he and so many others came back
without injury was due in part at least to our inability,to send trained soldiers
and equipment over in the spring of 1017, immediately' after we entered the
war, and to the further fact that English and French boys, among others, were
bearing the shock of battle and losing their lives at a time when tlie only
thing that we could do was to furnish money, much of which was spent in
our own country. For these reasons and others I have always felt that the
money which we advanced for the purpose of winning the war really meant
that we were sending our money to the battlefield instead of our . boys, and
so far as I am concerned I do not want any part of whatever my share would
be of any payments if made to our Government in that connection. That is my
first reason for feeling that such debts ought to be canceled.
My second reason is this: It has seemed to me that probably nothing would
do more to restore orderly conditions in those countries, particularly with
which we ordinarily have close economic relations, than to wipe out as completely as possible all intergovernmental debts, and if this could be done it
has seemed to me that that of itself would have a tendency to stimulate trade
and commerce, broaden the market for our agricultural products, and also
lead to additional employment for some of the men now unable to find it.
On the assumption that it would be impracticable and perhaps undesirable
to simply cancel sucli debts as I have in mind, it seems to me that we should
at least be willing to go as far in that direction as our associates in the war
were willing to go and did go at the Lausanne Conference. Personally, however, I would prefer to accept the formula which was announced by Governor
Smith some months ago. He may not have been the originator of the idea,
but he was the first one to state it, so far as I know. I would favor first a
moratorium so far as interest payments are concerned, for 10 or 20 years. In
the meantime if any country increased its purchases from this country above
the present basis, I would favor reducing that country's debt to the extent of
one-fourth of such increased purchases, and it would be my hope that the result
of such an arrangement would stimulate our foreign trade and lead ultimately
to the extinguishment of all such governmental war debts.
There are undoubtedly many other things that ought to be done responsive
to our serious economic and political conditions, but if the responsibility
rested wholly upon myself to decide what to do first and now, I would do the
two things I have mentioned and in the order in which I have mentioned them.
I do not see how we can reasonably qxpect any return of confidence in this
country to the extent necessary to stimulate a revival in business or how we
can expect to see any substantial increase in our trade and commerce and in
our consuming markets unless and until both of the things I have referred to
above shall have been accomplished. Concerning these two matters I feel
clear and certain in my conclusions. If I were to appear before your committee I could not add to what I have already said in this letter, and if it is
agreeable to you I would be glad if you would accept this letter as my statement and excuse me from appearing in person.
Very truly yours,

Senator HARRISON. Mr. Chairman, in that connection, before Mr.
Reynolds starts, I move that these answers from these persons who
have been invited to appear before the committee, unless their
answers are strictly confidential, go in the record, and that the
clerk give them to the press.
The CHAIRMAN. Yes. Without objection, that will be the rule.

The CHAIR]MAN. Mr. Eeynolds, we will be glad to hear from you.
Mr. REYNOLDS. Mr. Chairman, I am at a loss to laiow exactly why
I have been asked to attend here, but I am attending here in response
to the summons to answer any questions. I have not presumed to
prepare a statement for the information of this committee, because
I am sure the committee is better informed than I am.



The CHAIRMAN. AVe would like to get the views, you know, of any
of our leading men, not only of one industry but all of the industries
of the country, and we did think, Mr. Reynolds, that you had some
ideas, l o w i n g the conditions in the country as they exist to-day,
that you would be willing to express to the committee. Of course,
you can make it as lon^ as you want to or as short. But whatever
ideas you have concerning the conditions that we find ourselves in
or affecting the world conditions.
Senator W A L S H of Massachusetts. Of course, he is at liberty to put
his views in writing if he wants to.
Senator K I N G . A S you know, there is a very serious depression in
this country, and Congress wants to deal with it if it can. I am
sure that any suggestions that you or other men are willing to offer
would be welcomed by the committee.
Mr. REYNOLDS. Well, it is not from any reluctance to state what
I think, that I am diffident about this, but a very modest estimate of
my own competence and of my own view of the horizon. I do not
know very much about the world. I do not know anything about
this intricate exchange problem that you have listened to just now.
I work in a bank and see some of the difficulties that confront the
Nation and the customers of the bank in the present conditions.
Senator GORE. Have you any solutions for those difficulties that
you could suggest?
Mr. REYNOLDS. I have not, and I do not believe anybody has except day to day work within his own jurisdiction to better the conditions within his own control. Subject to the application to Government affairs of very much the same principles.
Senator GORE. I inter then that you do not believe in the fairies?
Mr. REYNOLDS. I do not. I do not believe in the fairies.
Senator GORE. I agree with you.
Mr. REYNOLDS. And I do not believe in the omniscient caj)acity of
any one man to point the way to recovery in this complex situation.
Senator REED. D O you think that can be corrected by Government
action, Mr. Reynolds?
Mr. REYNOLDS. In my work in the limited sphere in which it takes
place I am repeatedly impressed with two things that are a great
deterrent apparently, to recovery, and I think one of them is more
or less the corollary of the other. The corollary is somewhat in the
negative. The principle is in the affirmative. But one stems from
the other.
^ r o ^ niy observation there was a terrible destruction in the war.
We did not pay for it as we went along except with I. O. U's. All
of which appear to be heading this way. And now we have got to
pay for them. It will be a very long process, and I doubt if legerdemain or formulae will produce the payment.
My predecessor in this chair quoted the Romans about drinking
poison from a cup of gold. I would like to quote one word from
the Romans which is the infinitive credere, meaning to have trust
in, believe in, to have faith in, to have credit in, from which we
derive the word " credit
I assume you have heard it so often from other witnesses that
there is plenty of money in this country that you believe it in the
medium of exchange. I believe it. There is plenty of credit in





the world for those who maintain their credit. There is plenty of
credit in this country for those who maintain their credit. And
it seems to me that the keystone of this difficult arch with so many
other stones in it is the growing belief that the highest credit is
beginning to be dealt with in such a way that people are beginning
to lose faith in it, beginning to disbelieve in it and beginning to
discredit it.
If we take an individual, we none of us have very much faith or
give much credit to the extravagant, spendthrift, prodigal man. I
think it is the same with the Government, and I think that the
Government appears to many of its thoughtful citizens as being
on the road to spendthrift, prodigal dealings with its affairs.
And I come, therefore, to the major premise of my feeling of the
difficulty as being that of the failure of the Government to live
prudently within its income. And that until we do that we shall
not get out of this difficulty. We shall not get out of it immediately
if we do do it, but we shall make a greater contribution to getting
on the road to recovery by doing it, in my opinion, than any other
expedient we might adopt. That is the affirmative action to which
I referred.
The negative corollary is that I think the Government should not
create a new fear in t^he people that its currency is not entitled to
faith and trust and credit. I said in the beginning that I did not
believe any man could point out the way to recovery. I certainly
can not. There are hundreds of contributing factors. The gentleman who preceded me reduces it all to one. And he may be right.
I can not dispute him. But I think the situation is very much like
that of the man who was interested in what particular tooth of a
buzz-saw cut off his wrist. There are a great many teeth in the buzzsaw that produced that result. And it seems to me that with the
very moderate equipment of brains that men have—all men, any
man—that the simplest thing to do is to try and correct the thing
that is most obvious and that we are most familiar with, and that
we can do something about, and it is therefore that I have taken the
very simple and homely suggestion of applying to the Government
what I apply to my personal affairs, and have all my life, of living
within my income. And while it is simple now to live within my
income it was not always so. And I nevertheless do, and did when
it was very difficult.
I do not think that I have any nostrum or necromancy for the
problem, or anything further that I would add on my own initiative.
Senator GORE. Mr. Reynolds, with reference to your philosophy,
which seems reasonable to me, do you not think if the Government
of the United States would lend money to everybody that needs it
or wants it, whether public or private, and would fix it so that nobody
who had lent rnoney in the past would collect it—do you not think
that would revive confidence and restore credit and bring business
and prosperity back?
Mr. E E T N O U > : . I should not suppose so.
Senator GORE. "Well, that is our theory here.
Senator W A L S H of Massachusetts. You say that is a theory in the



Senator GORE. Well, Senator I do not want to get in the category
of Barry, so this deponent will not say anything further.
The CHAIRMAN. Was that all, Mr. Reynolds?
M r . REYNOLDS. Y e s .
Senator BARKLET. Mr.


Reynolds, let me ask you this. Despable
as it is that we shall live within our income, from the standpoint of
the Government^and I think it is just as necessary to do it as it is
for a corporation or an individual to do so—it is more difficult to do
it, I will say, because you have absolute control of your expenditures
in your household; you can give the word and notliing is bought—^but
it is not quite that simple with reference to the Government. There
are so many heads of the family, and so many calls upon it from
otherwise legitimate sources which in normal times are respected,
and in times like these almost all demands are legitimatissed by propaganda on the one hand and by sincere effort on the other. But
assuming that we could like within our income, which, to use the
common expression, is to balance the Budget, will that of itself, without other actions, without other influences and agencies here and
abroad, start the country or the world up the hill again ? Is there
any magic to the mere balancing of the Budget alone that will turn
the tide ? I am asking purely for information, because I agree with
you entirely as to the limitation of our brains. That applies to
all of us.
Senator KING. Especially the Senate.
Senator BARKLEX. Well, it is a cross-section, I imagine, of the
country. More cross than a section.
Mr. REYNOLDS. I am not a soothsayer, and I , of course, have no
more confidence in what I am now about to say than you will have
when I have said it. I do not believe that balancing the Budget
will immediately and in and of itself without any other concomitant
reorganize the world on the old basis. I appraise largely what will
follow from balancing the Budget by the knowledge of what has
followed by the failure to balance the Budget, and repeated promises
to do so without performance, the result of the discouragement over
that prospect on the part of prudent, thrifty, thoughtful men. And
I believe that if you put that process into reverse you would climb
the hill that you descended very nearly to the height from which you
Again I say I would not think that would happen merely because
of the balancing of the Budget, although a great deal of it would
through the restoration of trust and confidence and faith that the
Government was well run. But I think that it would have a reflex
on other countries, on States, on cities, the cumulative effect of which
would be almost as of the square of the direct incidence of that one
balanced budget of this country.
I believe that a great deal of the difficulty of the exchange situation is due to the fact that other countries have not balanced their
budgets. And this is a terrible example to other countries. If this
great, rich country, which could balance its Budget—it is not impossible—does not, of course those countries which are poor and have
more difficulty in balancing their budgets, will not do so, and the
whole international situation is in a morass and will be until everybody does it. But we are in the best position to make the start on





that road, and I believe if we did make the start we would have
followers both here and abroad, and a very great change for the
better would ensue.
Senator B A R K L E Y . We adjourned Congress at the last session with
the announcement that we have balanced the Budget by the passage
of a tax bill, which, so far as we knew, so far as any expert opinion
that we could obtain from those that had a right to know and from
whom we expected the knowledge—which so far as we knew had
been balanced. But it was not balanced by any appreciable reduction in expenses, but by an effort to tax the people enough to bring
the income up to what we were spending.
Is there any balancing of the Budget that can j)roduce such a
result that does not contemplate first the most drastic reduction of
which we are capable before there is any effort to tax the people
more in order to balance it ?
Mr. REYNOLDS. I do not think there is.
Senator BARKLEY- And if we were able to balance it by an increase
in taxes alone, would that bring about any appreciable improvement
in the condition of the country merely from the knowledge that we
were spending no more than we would bring in? Except to the
extent that probably the bond market would not have to be burdened
by any further Government financing?
Mr. REYNOLDS. I do not believe you can balance the Budget by
any device of taxation. I do not think you can levy enoug taxes to
balance your Budget.
Senator K I N G . Y O U mean now? At present?
Mr. REYNOLDS. I mean now. Under present conditions.
Senator GORE. And the constantly declining price levels?
Mr. REYNOLDS. Everything.
Senator B A R K L E Y . I do not want to detain the witness. But there
is one phenomenon that is difficult for me to understand. We talk
about the so-called prosperous era and the great delusion, and the
great illusion, and the great mirage, and all of those things that
transpired from along about 1922 to about 1929, when everybody
was feeling that we were in a wonderfully prosperous age, and that
there would never be any end to it—except in agriculture. I do
not think agriculture felt any such phenomenon. But during that
so-called era of seven or eight years of increased prices and increased
production and increase in ever^^^thing, we increased our total indebtedness in this country until it is to-day anywhere from $150,000,000,000 to $175,000,000,000, involving an annual interest charge
upon our net income of over $8,000,000,000, which, added to the
Government expenses of about $15,000,000,000, takes $23,000,000,000
out of our total income now of about $40,000,000,000.
How do you explain the apparently paradoxical increase in our
total indebtedness coincident with our increase in prosperity and
the enjoyment of the results of all of our increased prices and
increased production and increased trade with the world?
Mr. REYNOLDS. H O W do I explain the great increase of everything?
Senator B A R K L E Y . Of indebtedness especially? Why should not
we then have been paying off our debts mstead of increasing them?
Mr, REYNOLDS. Well, I should say that about ninety-nine out of
a hundred haven't got sense.



Senator GORE. D O you n'ot think you are kind of overestimating
at that?
Senator BARKLEY. A little high.
Senator KING. Yes.
Senator BARKLEY. I will accept it in principle.
The CHAIRMAN. Senator, you had no reference to the reduction
of the debts of the United States?
Senator BARKLEY. I am not talking about the United States debts.
I am talking about the total debt of everybody in this country.
Mr. REYNOLDS. That is what my answer talks about. Everybody
went into debt.
Senator BARKLEY. Everybody was increasing in prosperity, evidently—we were told that many people were—and at the same time
their debts were increasing, their total indebtedness increased enor*
mously during the 7-year period from 1922 to 1929.
Senator KING. It was intoxication, was it not?
Mr. REYNOLDS. Well, it was dementia without doubt, but a very
normal dementia the way men's alleged minds are constituted. And
there were opportunities then of vast profits, in very short times.
And a man by borrowing $100,000 might be able to make $20,000
in two or three days. Therefore he borrowed them. And if he
borrowed along toward the end of October he was left stranded.
Senator GORE. Is it not an historic fact, Mr. Reynolds, that people
get into debt in good times and get out in bad ?
Mr. REYNOLDS. That is it. And you can not get anybody to borrow
now except in institutions for feeble-minded.
Senator BARKLEY. I have a feeling that one of the greatest agencies
of depression, not only financially but spiritually and mentally and
morally in this country to-day is debt and taxes. By debt I mean
interest as well as principal. I do not like to ask a man who is as
Avell recognized as you are in the financial world to answer a question
of this sort unless you want to, but do you believe that we can pay
these debts ? That the people at large can ever get out from under
this load of debt that is now existing? And we might, if we wanted
to, take in the whole world. Is the world ever going to be able to pay
its debts ? Assuming that we could start back up the hill again and
arrive at the peak where we were in 1929 ?
Mr. REYNOLDS. Well, I haven't a philosophical or a comprehensive
mind. I think I can pay my debts. I have been very careful not
to get very far in debt. I know a great many people who never will
be able to pay their debts. Whether the second class or group outnumbers all those in the first class or not I do not know. I am inclined to believe that there is going to be, necessarily, a considerable
revision of debts and a failure of the creditors to realize the amount
stated in the bond.
Senator KING. IS it not a fact, though, Mr. Reynolds, that so
many of the debts are in a circle; A owes B, and B owes G, and it
goes around in a circle, and the dollar started out to pay the debt
of A to B would discharge when it got around the debts of a large
number of individuals? So that many of our debts will be simply
washing out? Transfers?
Mr. REYNOLDS. Of course, that is axiomatic. But the difficulty is
to get the dollar to start with. And that is going to be difficult.






I do not think I can generalize in answer to Senator Barkley's question. I think it will be a case of each debt having to be considered
on its own basis. A coal mine may have a bonded indebtedness that
looks high. If prices of coal are not brought back to the old levels,
they can not pay that debt. Because the only way they can pay it
is to mine the coal and sell it at a profit and work it down. So
as to a debt on a farm. If an Iowa farm was sold at prices at
the high and mortgaged for 66 per cent on that basis of prices, and
the product can not be sold at enough to reap a profit over a term
of years to pay on those high prices of that mortgage and original
valuation, that debt will not be paid. Well, I do not know how
much to the total part is contributed by the coal mine and the farm
that may not or can not pay its given debt.
Senator B A R K L E X . As a matter of fact, one of the things from
which we are suffering now is the whirlwind reaped from the wind
of too much credit. Do you agree to that?
Mr. KEYNOLDS. I should say it was from the lunatic use of that
credit in a great many cases. I do not think the existence or nonexistence of credit has very much to do with a given situation, except as it is employed. There is a statement frequently made that
there is no credit now. There is plenty of credit, but it is not
used. It can not be used—and I do not know that there was too
much credit then—but it was employed by people that used it
Senator B A R K L E Y . Well, of course, that is the very point. The
fact that we are overwhelmingly in debt is evidence of the fact that
there was credit. Otherwise we would not owe anything.
M r . REYNOLDS. Y e s .
Senator B A R K L E Y . What

I want to ask in that connection is: Is
there any way to regulate the use of credit so as to prevent the recurrence of^^the same thing at any time in the future?
Mr, REYNOLDS. I hold a rather heterodox view on that. Probably
if I had more enlightenment I would not hold it, but my own view is
that there is no way to regulate that. If you have credit it will
never be used unless and until the user sees that he can make money
out of the use.
Senator GORE. Or fancies he can.
Mr. REYNOLDS. Yes; fancies he can. On the other hand, it is very
difficult, and I believe under our organization of society of laissez
faire it is impossible to prevent people using credit when they do
think they can make money out of it.
The C H A I R M A N . The demand has a great deal to do with it, does
it not, and also the supply ?
Mr. REYNOLDS. The hope of great profit or the despair that there
are no profits produces on the one hand the use of credit and on the
other the failure to use it.
Senator B A R K L E Y . Do you think that plus the balancing of the
Budget, which has come to be a rather stereotyped term, an increase
in the amount of our circulating money would contribute anything
to the solution of this problem?
M r . REYNOLDS. N O , s i r ; I d o n o t .
Senator BARKIJEY. You do not adopt

the theory that Gov. Bob
Taylor is said to have had when he is said to have said in 1896



that he was for a little more gold, a little more silver, a little more
greeiibaclra, and a sprinkling of counterfeit?
Mr. REYNOLDS. N O . I think there is plenty of money in the sense
of currency and the medium of exchange for all the operations.
Senator K I N G . I want to ask a question of Mr. Reynolds. I do
not know whether you care to .answer it, Mr. Reynolds. Assume
that the Government with its $5,000,000,000 of deficit during the
past three years and an unbalanced Budget for the next year, should
issue bonds, two or three or four or five billions more, to meet the
demands of the R. F. C., these various corporations which have
been set up, or perhaps new buildings, for furnishing food and
clothing, and so on, to 12,000,000 unemployed, would there be a
point at which the credit of the Government might be impaired so
that its bonds might not readily be sold, or if sold, sold at a discount
and a high rate of interest demanded? In other words, do we not
face the possibility with continuous bond issues of impairing the
credit of the country, particularly if the Budget is not balanced?
Mr. REYNOLDS. I believe you do.
Senator K I N G . There is a limit to the Government's credit?
Mr. REYNOLDS. There is.
Senator K I N G . And if the credit of the Government of the United
States should now be impaired, or even psychologically, to say
nothing of directly and really, would not the effect be disastrous to
the whole economic fabric?
Mr. REYNOLDS. It would certainly be very discouraging to all
thoughtful men.
Senator COUZENS. May I ask Mr. Reynolds what he considers belongs in the budgetary items of the Government? I do not want
him to be misled, but he knows more about making a budget than
most of us do. Would you put in a budget nonrecurring items and
attempt to balance them each year?
Senator REED. Such as public buildings?
Senator COUZENS. Yes; such as money advanced to the R. F. C .
and to the home loan bank and to the Federal land bank? Would
you put those in a 1-year budget or in the year that they were
advanced ?
Mr. REYNOLDS. I should have, Senator, a great straggle between
my major premise of thrift and prudence on the one hand and the
doctrine of theoretical accounts on the other.
Senator GORE. Of what?
Mr. REYNOLDS, Theoretical accounts on the other. If you ask me
what I would do, I would do in the Government, if I had the whole
control, just what I do about my personal affairs, and I would not
spend in any one year more than I brought in that vear, whether
I built a house or bought an automobile' or loaned 'money to my
brother. I would not put out any more than came in. Now, that
is what I would do if you ask me what I would do. And that is
what I would do in the Government.
On the other hand I recognize the theoretical defensibility of tlie
accountancy theory; that a physical structure like a Federal court
building or a navy yard should be built out of an issue of bonds and
amortized over the depreciation period. And that if money were
temporarily raised by the Government to reloan on good loans which



would be returned and at a rate which was in excess of the rate paid
on the bonds, that you could create a sinking fund out of the payment
of the loans to redeem the Government bonds that were made collectible against that kind of enterprise. And I think that is defensible accounting.
Senator COUZENS. Then you think it would be defensible if the
Government were to eliminate from its Budget the sum of $500,000,000 advanced to the R. F. C. for stock?
Senator K I N G . For what, Senator?
Senator COUZENS. For stock in the R. F. 0.; and $125,000,000
to the Federal land bank, and $125,000,000 to the home loan bank?
You would be in favor of taking those out of the Budget and not
try to balance those expenditures all in one year?
Mr. REYNOLDS, I would regard that theory as defensible. I think
my practical, thrifty prudence would overcome my personal indorsement of that theory by practice. But if I were so far driven as to
adopt the theory in spite of my practice of thrift and prudence, I
should want to look at each one of those cases, pretty critically and
see just how justifiable it was to count on the return of that money
to the Government. I would think you might not count on 100 per
cent return, and I would want to have some margin of safety even
on that theory.
Senator COUZENS. Tliat might be true, but would it be fair to the
taxpayers of 1933 to take out of them money to balance the Budget
with those items in it, and the next year when it is refunded credit
the taxpayers of the following year? They may not be the same
taxpayers. I mean, is there any justice in trying to collect in one
year all of the emergency advances that we are making, whether they
are sound or not, on which we expect to have return in future years ?
Mr. REYNOLDS. The mere statement of the argument demonstrates
it. Of course I as an individual taxpayer to-day am getting the
benefit of the great millions of expenditures that were made on niy
theory before my time. And so I am personally much more in
favor of having' my tax bill larger and continuing the present
method, personally. But it is a very peculiar and unoi-thodox
attitude, I presume.
Senator COUZENS. Well, I was not so concerned about the orthodox attitude as I was about the matter of justice between the taxpayers of one period and the taxpayers of another period.
Mr. REYNOLDS. Well, I could only look at it selfishly and personally. As a taxpayer I would rather adhere to our present method,
although there is much to be said against it, and pay as I go, and
pay my tax bill. And I would be perfectly willing to do that if
you balance the Budget, on that theory.
Senator COUZENS. Of course, if we followed out your theory we
would not have had any railroads, and we would not have had any
great developments in industry and utilities; we would not have had
them if we had not postponed to some later date the payment of the
debts incurred to construct the properties, would we ?
Mr. REYNOLDS. That is perfectly true as to individual financing.
Senator COUZENS. Yes. Of course, we assume when we advance
these hundreds of millions of dollars and billions of dollars to the
R. F. C. and so on, that we are going to get it back, the same as the



railroad investors, the utility investors expected to get theirs back
when they made their investments.
Mr. REYNOLDS. I can not answer your argument. Your argument
is a complete demonstration. But you asked me my opinion.
Senator COUZENS. Yes.
Senator REED. Mr. Reynolds, if that method of accounting were
adopted which Seoator Couzens suggests would it not be only ordinary prudence to set up as current expenses very large depreciation
funds each year?
Mr. REYNOI^S. Oh, certainly. Certainly. I stated that in my
answer three or four answers back. You have got to amortize your
expenditures on the depreciation basis.
Senator BAR3£LEY. Of course that would not apply to a loan.
Senator REED. We have got to provide for default.
Senator BARKLEY. Unless you assume that some of it is not going
to be paid.
Senator REED. I assume that some of it is not going to be paid,
that is, I do in all human experience.
Senator COUZENS. Y O U might charge off some of the business as
bad debts.
Senator CONNALLY. I want to ask two very brief questions, if
no other Senator has any question. Mr. Reynolds, you spoke about
balancing the Budget. Of course you meant to include also all
State governments and the cities and counties and every tax-gathering unit, did you not?
Mr. REYNOLDS. No. I was addressing myself alone to the functions of this committee, as a Federal matter, but I did say that I
was confident that it would be a great example; it would be adopted
by all those bodies.
Senator CONNALLY. Y O U realize, though, that the great load of
taxes now on the average man is in the form of State, municipal,
and county taxes, rather than Federal taxes, do you not ?
Mr. REYNOLDS. I should think it was on the classification of men
who owned property but did not have high incomes.
Senator CONNALLY. Yes. What I was going to get at was this:
Do you not regard it as a fatal policy for the Federal Government
to be financing counties and cities out of the Federal Treasury, as
\ve are doing now under certain advances of the Reconstruction
Finance Corporation?
M r . REYNOLDS. Y e s , s i r .
Senator CONNALLY. Is that

not fatal to their financial independence, and does it not encourage improvident expenditures, when
counties feel that they can vote new bond issues, incur extravagant
public expenditures, and then come up to the Federal Government
and get the Federal Government to take over those bonds and finance
Mr. REYNOLDS. My judgment is, there is no doubt about that.
Senator CONNALLY. Do you not think we ought to discontinue
that policy even in this critical period?
Mr. REYNOLDS. I hesitate to tell you what you ought to do.
Senator CONNALLY. Well, if you were doing it, what would you
Mr. REYNOLDS. I would discontinue it.




CONXALLY. Y O U would discontinue it?
M r . EEYNOLDS. Y e s .
Senator COKNALLY. I think you are exactly right.

I think the
Federal Government when it embarks on financing States, counties,
and municipalities is simply entering upon the road to ruin not
only for the Federal Treasury but for the counties, the cities, and
the taxpayers themselves.
Senator GORE. It takes away their incentive to economize or to
reduce taxes.
Mr. REYNOLDS. Or their self-reliance or independence.
Senator K I N G . I hope you will use your powerful influence to
restrain the State of N"ew York from coming here and trying to
borrow $95,000,000 from the E. F. C. when the State of New York
pays 25 per cent of the taxes and ought to have the greatest credit
of any State in the Union.
Mr. REYNOLDS. I have already exerted all the suasion I am capable
of in that direction.
Senator GORE. If the officers and directors of the bank were elected
by the borrowers from the bank and those who draw salaries from
the bank it would exert a sort of a restraining influence on the officers
and directors of the bank in policies of economy and retrenchment
and so on. That is a practical difficulty here. We men have to get
elected. And a great many men think their highest duty is to be
kept in public life.
The CHAIRMAN. We thank you, Mr. Reynolds.
Senator REED. Are you going to hear Mr. Taylor before we adjourn?



The CHAIRMAN. YOU may proceed, Mr. Taylor.
Mr. TAYLOR. Senator Smoot and gentleman of the committee: I
am very much like Mr. Reynolds. I came this morning without any
prepared statement. I was at some loss to know along just what
lines to prepare myself. Naturally, my experiences in business life
at the present time would be somewhat different than those of both
of the gentlemen who just addressed you.
Senator GORE. Will you state your name and business?
Mr. TAYLOR. Myron C. Taylor. Chairman of the United States
Steel Corporation.
In industry, that branch of industry in which I am principally
concerned, the manufacturing branch, distinguished in many particulars from the agricultural or the railroad branches of industry,
^e adhere to certain old doctrines that have proven in the past to be
worthy of respect, and are guided very much in our activities by the
law of supply and demand.
We all know the effect of the war upon industry; its rapid development during war days. We know the heights to which the value
of all manufactured commodities rose during that period. We are
very familiar with the reaction that occurred early in 1921 and 1922,
and in that reaction we learned a very good lesson.



If you recall, at that time industry was burdened with very heavy
inventories on very high price levels. And, but for factors which
intervened to limit the term of that depression industry would have
received a blow from which it could not very well have recovered,
except for more general and more drastic reorganizations than took
place. Those which took place were severe and widespread.
The reaction which occurred in 1929 was slow in gaining momentum in industry, and it was not until well into 1930 that we felt the
full effects of it. But inventories had largely been liquidated. And
the prosperous years that intervened between 1922 and 1929 were
generally taken advantage of by industrialists to correct their capital
structure where it was top-heavy and to conserve its quick assets.
And so industry came into the depression well fortified, speaking
generally, to withstand a considerable siege. We have withstood
three years of that siege. We have retreated from one position
involvmg price of commodities, cost of production, distribution of
resources to stockholders and readjustment of wages only as condi^
tions forced that readjustment. Industry is undertaking at the
present time to hold its present position. It is undertaking to hold
it with confidence. Confidence born in part from the experience
through previous similar depressions that when the basic conditions
in this country particularly, and in a secondary sense, as we believe,
in the world, right themselves, industry will forge ahead.
In our two related industries, agriculture and railroading, we have
a very great interest. Agriculture is not governed by the same rules
that manufacturing is, because apparently overproduction does not
decrease the effort to produce. Overproduction and declining prices
in manufacturing tend to reduce production and to stabilize prices,
within reason.
Our fear in respect to agriculture, which we look upon as the source
from which all our lives gain inspiration in an economic sense, is that
it does not take quite seriously enough the problem which faces it,
and it looks more to relief through finding fonds to purchase at
rising prices its overproduction than it does in going to the root
of the difficulty and limiting production.
I have always been influenced by Joseph's interpretation of
Pharaoh's dream and similar events at different periods in history,
which have always recurred in due course, and which I think, in
spite of serious effort by the producers themselves, may in due
course repeat themselves in our day, and solve, for the time being at
least, this difficulty.
A combination of conditions has produced large crops
Senator BARKLEY. If I may interrupt to ask you a question there,
Mr. Taylor. Is it not a fact that falling prices in agricultural
products frequently stimulate overproduction in order that the
farmer may obtain a certain amount of money needed, and the more
he produces the nearer he can approximate it?
Mr. TAYLOR. I am afraid it is. But this miracle that we are
hoping for, though it may work harm to that particular individual
whom you desribe, might restore the value of the product and
therefore relieve that situation.
Senator COUZENS. Mr. Taylor, have you given any thought to any
way whereby over the years commodities might have some relation
to the purchasing power of the dollar?



Mr. TAYLOR. I have thought a great deal about it^ sir. But I
think, so far as I have been able to explore the subject, that the
law of supply and demand as related to commodities generally
determines that question. The medium by which products are
exchanged follows in due course.
Senator COTJZENS. Is there any justification in the difference between what a person having a dollar in 1929 could get for his dollar
and what he can get to-day? Is there not something wrong with
our system that permits that wide range, and is there not something
that can be done to remedy it? I am just looking for information.
Mr. TAYLOR. I have no remedy in mind, sir, of an artificial
Senator COUZENS. I am not concerned particularly with Avhether
it is artificial or whether it is natural. If it could not be by artificial methods, let nature work so that that great discrepancy\vould
not occur?
Mr. TAYLOR. I know of none.
Senator B A R K L E Y . D O you think that any artificial situation produced this result, either in legislation or governmental policy or
the attitude of the people ?
Mr. TAYLOR. I think the attitude of the people during the period
of our great prosperity produced this result. I think it would again.
Senator B A R K L E Y . D O you think that the artificial barriers raised
by nations against the exchange of products has had anything to
do with it?
Mr. TAYLOR. I think it has something to do with it, at the present
time particularly.
Senator B A R K L E Y . If we could remove whatever artificial handicaps had been imposed, not in this country alone, but all over the
world, it might help, might it not ?
Mr, TAYLOR. That would be by a stabilization in all countries on
a particular level.
Senator B A R K L E Y . Y O U say a stabilization
Mr. TAYLOR. A stabilization of exchange upon a satisfactory level.
Senator REED. I think Senator Barkley was speaking rather of
tariff than exchanges.
Senator B A R K L E Y . Well, I know how dangerous a subject that is
to even hint at. But still if we are going to deal with realities we
ought to deal with it. We ought not to avoid something that has
to do with this situation because it is unpleasant. I do not want
to avoid it.
Senator EEED. I was only injecting the suggestion because Mr.
Taylor was speaking of one thing and you were speaking about
Senator B A R K L E Y . I had in mind other things besides tariffs. I
know that that is a word that is verboten now almost, in connection
with an investigation intended to get facts. I thought it probably
would not be improper to entertain the idea.
Mr. TAYLOR. I understood you to stress the fact that through
foreign competition increasing quantities of goods were invading
our markets, because of the exchange situation. It was that to which
I referred.
159450—33—PT 2




Senator K I N G . Of course, we are invading the markets of other
countries to the extent of more than $300,000,000 in our favor
last year.
M r . TAYLOR. Y e s .
Senator COUZENS.

Mr. Taylor, have steel prices gone clown in the
same relative amount as other commodities have ?
M r . TAYLOR. Y e s , s i r .
Senator COUZENS. They

have gone down in the same relative
Mr. TAYLOR. Not to the same relative extent as products of the
farm, because the products of the farm are all under the 1914 level.
Substantially under it. Steel prices are at 135 as compared with
100 per cent in 1914.
Senator COUZENS. Is that not too high when other prices are
lower than the 1914 scale ?
Mr. TAYLOR. IT is the lowest of any other commodity with
relation to 1914, sir.
Senator L A FOLLETTE. H O W is it, Mr. Taylor, in relation to the
1923 to 1926 average which is taken as 100 by the Bureau of Labor
in its estimates and also by the Federal Reserve Board?
Mr. TAYLOR. Well, it is substantially lower. I am carrying in my
mind always the relation between steel prices and wages at the
varying times when the price of wages fluctuated. Those periods
were 1914, 1922, and 1929.
Senator L A FOLLETTE. But in the statistics publihsed by the
Government agencies that attempt to chart the fluctuations in prices,
most of them accept the 1923 to 1926 average as 100 in their index.
Mr. TAYLOR. We are very much below the 1922 price base in the
steel industry.
Senator CONXALLY. Are you as much below it as agriculture?
M r . TAYLOR. N O , s i r .
Senator CONNALLY. Y O U are
M r . TAYLOR. N O , s i r .
Senator COUZENS. Why is it,


Mr. Taylor, that the railroads continue to complain about the maintenance of the price of rails at $40
a ton? I have talked with railroad officials and they have spoken
about the maintenance of that rate and the uniformity of it.
Mr. TAYLOR. Well, that is an old question, sir; it is rather an
involved one; but I may say to you that as long as my relation to
the company has existed the price has fallen or risen with the price
of labor. And to-day our labor is on the basis of prices of 1922.
Our labor is 156 per cent of the 1914 base. Our rails are at the
Senator COUZENS. I understood you to say that steel prices were
at 135?
M r . TAYLOR. Y e s .
Senator COUZENS. And that rails were at 1 5 6 . Is that it?
Mr. TAYLOR. The prices of all steel products are at 135.
Senator COUZENS. But the rails are at 1 5 6 ?
Mr. TAYLOR. Yes, sir; I was speaking of all steel products in

country. That takes in products of all plants of all sorts.
Senator GORE. Did you say rails or wages are at 156?
Mr. TAYLOR. Wages are at 156, Senator Gore.




Senator GORE. That is what I thought you said.
Senator COUZENS. And he said rails also.
Senator GORE. I thought he said they were back
Mr. TAYLOR. Back to the 1922 price.
Senator GORE. That is what I understood.
M r . TAYLOR. Y e s .
Senator BARKLEY. H O W

does that 156 compare with the purchasing power of the laboring man's dollar? In the necessaries of life,
I would say ?
Mr. TAYLOR. D O you mean by that food only, or clothing?
Senator BARKLEY. NO, I mean everything. If you take an average comparison of the cost of those things to-day and in 1914, how
do they compare ? Just as a matter of information. I was wondering how that 156 compares with the purchasing power of the laboring man's dollar.
Mr. TAYLOR. I think in all necessary commodities we are slightly
above the 1914 base. On food alone I think we are below it.
Senator BARKLEY. D O you mean that the price of the necessaries of
life for the average home has gone down more than the price received by the wage earners?
Mr. TAYLOR. Yes, sir. Substantially.
Senator KEED. The purchasing power of the day's wage is higher
to-day than it has ever been, is it not?
Senator L A FOLLETT. But that does not give any real reflection
of purchasing power unless you know what is in the pay envelope at
the end of the week.
Mr. TAYLOR. That is quite true. But what is in the pay envelope
at the end of the week is determined by the amount of work that can
be distribued among the workers.
Senator L A FOLLETTE. Yes, I appreciate that. But in making a
statement as to the purchasing power of the wage it has always
seemed to me that the figure of what the base is or what the rate is,
is not as important in these days as is the amount that is in the pay
Mr. TAYLOR. Well, one is a method of calculating used by industry
in arriving at our conclusions. The other is a fact for which we
have sought in vain for a remedy.
Senator L A FOLLETTE. I appreciate that. I am not wanting to get
into a controversy with you, Mr. Taylor.
Mr. TAYLOR. I realize that.
Senator L A FOLLETTE. I simply wanted to bring that fact out,
because after all it seems to me that purchasing power is in part a
very important factor in this situation.
Mr. TAYLOR. Unfortunately the condition you describe exists.
And to remedy it industry has quite generally given relief. Our
corporation last year in its welfare work spent $16,000,000. In its
direct relief in administering food to the needy among its employees
we spent between five and six million dollars.
Senator C O N K A L L Y . May I ask one question? What percentage
of the total output of steel rails in the country does your company
and its subsidiaries total?
Mr. TAYLOR. I should think 38 per cent.



Senator CONNALLT, Your company and its subsidiaries control
about 40 per cent of the total output of rails?
Mr. TAYXOR. Of course in the last year or two, Senator, we have
not produced any to speak of.
Senator CONNALLY. Well, your ratio would still be the same?
Mr. TAYLOR. I think so.
Senator CONNALLY. 1 was asldng if the ratio was not the same.
YOU said that since you have been connected with the company the
prices of rails and wages have maintained the same relative level?
M r . TAYLOR. Y e s .
M r . TAYLOR. Y e s .

When one goes down the other goes down ?

That would seem to indicate a control, would
it not ? In other words, if your company is able to maintain the
price of rails in the same ratio as its wages it would seem to indicate that other factors which have operated on the reduction of other
commodity prices did not affect your company to the same extent
as it has other companies? In other words, would that not seem
to raise the implication that you were able to control your price
of rails by just figuring what your wages would be and fixing it
accordingly ?
Mr. TAYLOR. We make a price based upon that reasoning.
Senator CONNALLY. That is what I say.
Mr. TAYLOR. If the customer does not purchase, why, we are very
much out of luck, you might say.
Senator CONNALLY. In other words, you have the economic power
and ability to fix the price of your rails where you want to fix them,
and in doing that you fix them on the basis of your wages ?
Mr. TAYLOR. Well, I should not say that we have any power to fix
prices at alL Senator.
Senator CONNALLY. Well, you have fixed the price of your own
Mr. TAYLOR. We make the price as respects our own product.
Senator CONNALLY-. Yes, certainly,
Mr. TAYXOR. But we do not go beyond that.
Senator CONNALLY. KO. I mean your own prices for rails are
fixed, based on what your wages are costing you ?
Mr. TAYLOR. Naturally, in part.
Senator CONNALLY. Yes.
Senator K I N G . And in competition with other companies that
may bid against you ?
Mr. TAYLOR. Well, we estimate the cost—I am speaking now of
an estimated cost—and competition naturally controls the business
in the last analysis.
Senator CONNALLT. But the fact that rails have not gone down
as low as other steel products, and the fact that you have been able
to maintain this ratio exactly between prices of rails and wages,
would seem to indicate that other factors had not operated on your
concern in the same waj^ that they have on other commodities?
Mr. TAYLOR. Well, there has not been any business. That is the
answer, sir. We have not had any business offered to us.
Senator CONNALLY. Well, that does not change the facts? Those
are the facts, are they not?



Mr. TAYLOR. The fact is that the asking price to-day is as it was
in 1922, having been reduced from the 1929 estimate.
Senator GORE. What was the peak price, Mr. Taylor?
Mr. T A Y M R . The peak price was
Senator CONNALLY. And rails are $ 4 0 now?
M r . TAYLOR. Y e s , s i r .
Senator CONNALLY. Other

commodities have gone down, as testified by other witnesses, 50 ^er cent measured in the average commodity level of the dollar, and yours have declined about 10 per cent,
from $44 to $40.
Mr. TAYLOR. That is as it stands at the moment.
Senator CONNALLY. That is what we are talking about—at the
M r . TAYLOR. Y e s .
Senator BARKLEY.

Did you say that you were not selling any steel
rails now?
Mr. TAYLOR. We have not been doing any business, so to speak,
for the last two years.
Senator B A R K L E Y . S O you are in the same position as the farmer.
You do not know what the price is ?
Mr. TAYLOR. We do not know. We do not get a chance to
Senator BARKLEY. Then you naturally take what the market will
Mr. TAYLOR. Yes, naturally.
Senator K I N G . I would like to ask you one question, Mr. Taylor,
if you care to answer it. In the light of the existing depression and
with the problems before Congress, the demands for inflation and
demands for large appropriations for the unemployed and for municipalities and States, and the demands of the Reconstruction Finance Corporation to extend credit to a multitude of activities—if
you care to express an opinion, what suggestions would you have to
make as a guide to Congress to determine a national policy, or to be
calculated to help us to get out of this depression? That is a big
order, if you care to answer that.
Mr. TAYLOR. I would not care to answer it just that way, but I do
believe that at the present moment uncertainty is playing a great
part and is a great factor in the revival of our affairs. I believe that,
as Mr. Reynolds said, if the Government would put its own house in
order as an example to the community, balance its budget, and live
within its income, it would go a long way towards reviving public
confidence. I think the fear of tampering with the money system
is one that spells a good deal of uncertainty in the public mind. I
do not believe many people know really what is meant by inflation.
And so many forms of it are suggested that even discriminating
people may have doubts.
Senator B A R K L E Y . Mr. Taylor, right there let me ask you about
this budget balancing theory. I agree with you as to the desirability
of that from an economic, political, and moral standpoint. But as
a matter of fact the Government was not only balancing its budget,
but it was more than balancing the Budget when this debacle began.
When we started down hill we were balancing our budget, and had
been for a long time. Now if the balancing of the budget did not



prevent the beginning of this decline, how is that alone going to
start us back up ? That is the thing I would like to know. I am for
it if that is the secret of it.
Mr. TAYLOR. Well, I referred to it as an element of uncertainty in
the public mind. I think Mr. Reynolds demonstrated very clearly
the action of an indi\ndual with* respect to his private affairs, and
how soimd and sane that is. I think that is true with respect to our
corporations. I think it is true with respect to our Government.
Senator BARKLEY. Well, that is a sound principle anywhere in
the world, not to spend any more than you take in, unless like in
the case of the railroads, in their early history, and I imagine in
the case of your own corporation, that it had to borrow money
with Avhich to make capital investments and build plants, and the
industrial development of the country would not have progressed
as rapidly if everybody had paid as they went. We understand
that. I appreciate fully the soundness of the theory al^vays where
it is possible, of spending no more than you take in. But I have
not been able yet—it may be I am obtuse on the subject—^to vision
just how the mere fact that we spend no more from the Government standpoint than we take in is going to start everybody else's
business, turn it around and start it back up the hill again and
restore prosperity. If I thought that is the only thing that was
wrong with this country I would be much happier than I am.
Mr. TAYLOR. I do not believe that is the only thing that is
wrong, Senator.
Senator GORE. Mr. Taylor, on that point. I figure that if the
Government abuses its credit, sooner or later its bonds will go down.
Senator K I N G . That is it. That is the point.
Senator GORE. And when United States bonds go down, State,
county, municipal, and corporation bonds will go down. When
their bonds go dow^n sooner or later their stocks will go down in a
distress market. Now, it sometimes happens that bonds go up and
stocks go down and sometimes stocks go up and bonds go down. But
in a distress market like this, if bonds continue to decline stoclp
will decline, and if stocks decline commodities will continue their
decline. Now, that is the way I relate this balancing of the Budget
to the return of prosperity.
Senator K I N G . Surely.
Senator GORE. We have got to stop this decline, and not only
stop it, but reverse it. And we can not do that if the Government
abuses its credit and its bonds go down. That aggravates it. That
is the way I figure it out. I may be wrong.
Senator L A FOLLETTE. I would like Mr. Taylor or anybody else
to tell this committee how you can balance the Budget of a corporation or government when you are on a slide.
The CHAIRMAN. Only by taxation.
Senator L A FOLLETTB. If your national income, j)I'oduction of
wealth, shrinks as much in the next year as it has in the last year,
any estimates that you make for balancing this Budget will be just
as cock-eyed as the ones that were made by the Treasury last spring.
And it seems to me that the horse is before the cart. Have you not
got to get a bottom into this situation somewhere before you can
begin to predicate estimates upon a balanced Budget or how to



balance a Budget? I would like to get the witness's suggestion on
that point of view.
Mr. TAYLOR. I think the surpluses of raw materials are our greatest
menace, I think the carry-over of our crops is a great menace to
the stabilization of values. That is a very difficult thing to correct.
Senator L A FOLLETTE. Well, I simply want to point out that
that does not answer the question. We have been on a slide ever
since 1929, and every little while people come out and tell us that
we have reached the bottom, and that we are going to start back,
ana apparently it has been predicated on the theory that there is
some theoretical point marked " X " where this constant see-saw
comes to rest and that you do not descend any further. But until
that point is reached I am unable to understand how a government,
however willing to accomplish the purpose and to apply a broadax
to its expenditures, can get its budget into actual balance.
Senator REED. The important thing, Mr. Taylor, is, is it not,
that we show a real intention to balance the Budget as far as possible? A^Tiether we actually accomplish it in any year seems to me
t be of less importance.
Senator L A FOLLETTE. Well, we showed a very clear intention to
balance it last spring.
Senator REED. That is true.
Senator L A FOLLETTE. We tore our hair in this committee to find
ways and means of balancing it, and Ave thought we had balanced it,
after the Treasury had adjusted its estimates no less than three or
four times while the bill was going through the Congress.
Senator REED. That is right.
Senator L A FOLLETTE. If that is the answer for this depression it
seems to me that those who advance it as the primary objective to
be attained in the midst of this crisis are under necessity of demonstrating why it did not have the desired effect last spring and why
and how it can be accomplished now while we are still on the toboggan going 60 miles an hour.
Mr. TAYLOR. It seems to me that the simple rules that we apply
in our own lives are those to apply here. When our resources begin
to shrink and our obligations begin to press upon us—that we live
more simply, that we curtail expenditures, that we try to bring
ourselves into a state of balance.
Senator BARKLET. Strict adherence to that rule, however, would
have prevented the organization of the Reconstruction Finance Corporation, which was a thing that was pressed upon us by business
of all kinds. It would have prevented whatever we have done in the
way of construction to give employment to labor. And I am somewhat confused as to just at what point the Government shall cease
to lend its credit, which means money ultimately, to take the place
of private credit agencies in normal times.
Now, if you had been a Member of Congress, would you have
carried your theory to the extent of voting against the Reconstruction Finance Corporation organization; would you have voted
against the $500,000,000 that we gave it outright out of the Treasury
and the $3,000,000,000 that we gave it potentially by the sale of Government securities from which it has obtained all the money which
it has lent to business, because it has not sold a single debenture of



its own? Would you have voted against the $125,000,000 to be
pumped into the stock of the farm-loan system, and all these other
business agencies which were aided by the Government, on the recommendation of the business men of the country that it would tend
to stop bank failures and receiverships of railroads, insurance companies, and all that? Would you carry your theory of balancing
the Budget to the extent that the Government should do notliing
along the lines we have been attempting to do in the last year?
Mr. TAYLOR. I should have voted in favor of the organization of
the Reconstruction Finance Corporation.
Senator REED. We have been fighting a rear-guard action too, Mr.
Taylor, just as you say industry has. We have voted public buildings, hoping that that would provide employment. Most of us realize now that it was ineffective and that it really raised our debt and
did not make much difference in the employment situation. We
voted money for the Reconstruction Finance Corporation. I personally am sorry. I think we have merely postponed the day of
clearing up the sore spots.
Mr. TAYLOR. Yes, but at that time you would have had a crisis on
your hands.
Senator REED. Yes, that is right. At that time it seemed to be the
Avise thing to do.
Mr. TAYLOR. Y O U would have had disaster.
Senator L A FOLLETTE. But, Mr. Taylor, that was based upon the
theorj^ that there was a bottom somewhere, and that it was not too
far off. The same arguments were made in favor of the Reconstruction Finance Corporation that are now made in favor of balancing
the Budget. I am as anxious to get out of this depression as any man,
of course. But what I am anxious to have demonstrated to me is
first of all whether this new objective that has now been set up as
the next thing we must attain is actually going to accomplish the
results, and if so^ how it may be done while we continue to have a
constant decline in purchasing power, in commodity prices, and a
diminution in the total turn-over of business?
Mr. TAYLOR. Well, Senator, I can only answer you as to the attitude of mind of industrialists generally. They are confident people, hopeful people. They believe in the future. They believe in
the future of this country. They believe in its inherent strength.
And they are going to use every ounce of their energy to pull this
thing out so far as it lies within their power to do it.
Senator L A FOLLETTE. Well, they have been doing that all the
time, have they not?
Mr. TAYLOR. N O W , I do not believe that you should at this moment show lack of faith in the future.
Senator L A FOLLETTE. I am not showing any lack of faith, if you
will excuse me, Mr. Taylor. What I am trying to do is to be a
realist in this situation. We have been told that psychology would
remedy this depression business, and I am getting a little bit skeptical of that technique, and I want to have something more than
the mere assurance that it is going to help to restore confidence, and
also I am interested to know how it may be done while the slide
keeps on.
Mr. TAYLOR. Well, we are all of us trying to find the remedy.



Senator B A R K L E Y . In our efforts to make the income and outgo
equal would you limit that to the ordinary, normal expenses of the
Government, and set aside these extraordinary emergency expenses
as being a little different, and pay for them over a period of years
by the issue of either long or short term Government obligations,
or would you pile them on top of the normal expenses of the Government and try to balance all of it year by year as you go?
Mr. TATLOR. N O ; I think you would have to amortize a certain
portion of that.
Senator B A R K L E Y . Y O U think that in the nature of capital investment?






Senator B A R K L E Y . I agree with you.
Senator L A FOLLETTE. I would like to ask Mr. Taylor one more
question, if he will suffer the interruption.
Senator L A FOLLETPE. In reading some of the things which you
said during the course of this depression, Mr. Taylor, I have gotten
the impression that you believe that all costs should be deflated to
the point where there is a profit at the present prices. Is that a fair
Mr. TAYLOR. At the present prices of certain commodities. But
I do not tliink that applies to agriculture.
Senator L A FOLLETTE. NO. Well, let us except that. I would be
interested to know upon what theory you assume that more goods
would be sold, assummg that all costs were deflated to make a profit
at the present price level, when all manufacturers are unable to sell
the goods which they now produce?
Air. TAYLOR. I do not believe in a radical readjustment, and have
not so acted. Ours has been an orderly, rather slow, you might say,
readjustment in our costs. There has been a school, very active
during the past two years, in favor of a more radical readjustment.
And I have not believed in that.
Senator L A FOLLETTE. Well, I may be dumb. But assume that it
takes place and that you now have got all costs deflated down to
the point where there is a profit at the present price level. Upon
what theory, or what are the reasons for assuming that more business will be transacted when at this very time all manufacturers
that I know much of anything about are having difficulty in selling
their goods ?
Mr. TAYLOR. The theory is that bj^ reducing the price sufficiently
you can inspire buying even under this condition.
Senator L A FOLLETTE. But has that not been exploded in this whole
experience that we have been through since 1929? Is it not a fact
that people, instead of buying at the reduced price, wait to buy
because they think the price is going lower, and that people really
buy when prices start in the other direction in order to make a
Mr. TAYLOR. Well, that has happened.
Senator B A R K L E Y . May I ask Mr. Taylor one question. With
reference to balancing the Budget. I believe that last year your company paid a dividend, although it had a considerable deficit?
M r . TAYLOR. Y e s , s i r .




Senator BARKLEY. What was the theory of it? And does that
harmonize with your theory now ?
Mr. TAYLOR. The theory was that our resources were adequate to
continue the dividend, probable future demands of the company
Senator BARKLEY. Rather than withhold it as a further reserve
for the future ?
Mr, TAYLOR. We felt that our reserves, unless the depression lasted
interminably, w^ould be sufficient to carry us through.
Senator BARKLEY. Of course, as a corporation, you can accumulate these reserves.
M r . TAYLOR. Y e s .
Senator BARKLEY.
Mr. TAYLOR. Yes;

But as a Government we can not do that.
I realize that. I realize your difficulty. It is
very difficult for us who have only a fragment of your great problems in our minds to frame an answer that would be a solution. I
am very sorry I can not give you a better one.
Senator BARILLEY, YOU are not by any means alone in that situation.
The CHAIRMAN. The committee will now adjourn and will meet
in executive session at 2 p. m.
(Thereupon, at 1 o'clock p. m. AVednesday, February 15, 1933,
the committee adjourned to meet in ^executive session at 2 o'clock
p. m.)





CoaraiiTTEE o x F I N A N C E ,

Washington^ D. G.
The committee met at 10 o'clock a. m., pursuant to adjournment
on Wednesday, February 15, 1933, in room 335 Senate Office Building, Senator Reed Smoot presiding.
Present: Senators Smoot (chairman), Watson, Reed, Couzens,
La Follette, Thomas of Idaho, Harrison, King, George, Walsh of
Massachusetts, Barkley, Connally, Gore, and Costigan.
The C H A I R M A N . The committee will come to order. Hon. John F.
Hylan. If you will be as brief as possible, because we have about
^00 witnesses that would like to be heard, and, of course, our time
is limited. March 4 is not so very far off.
Mr. H Y L A N . But, Senator, I want to go into it, because I have
tried here to work out something which I consider constructive.
The C H A I R M A N . We will be very glad to hear you.

Mr. H Y L A N . In response to your request, it gives me pleasure,
both as a duty and as a privilege, to appear before the Finance Committee of the United States Senate, which has been directed to
study and analyze the causes of the present industrial depression,
and to suggest possible legislative remedies to meet the trying conditions which the people of this country and of the whole world are
Jiow facing.
We are in the midst of the greatest depression in human history,
although the banks have a superabundance of currency and credit
while millions of people have no work, money or credit with which
to purchase food or clothing or to pay their debts and taxes.
The primary cause of the depression, as I see it, is a scarcity of curi^ency and credit money caused by the maladministration and defective operation of our monetary system. Whether such unjust operation was executed designedly, I do not know, but it has left bankruptcy, misery, and beggary in its wake.
In addition to appearing personally, I am authorized to represent
tile World Monetary Reform League as its president. The World
Monetary Reform League takes the position that modern progress
has outgrown our present monetary system which we condemn as



grossly inadequate and improperly administered by the big bankers
for the needs of industry, trade, and commerce. We take the position that business stagnation, industrial depression, unemployment,
and starvation are the direct results of a world need of a sufficient,
scientific medium of exchange administered for the benefit of the
masses and not for the private profit of any group.
In my statement, I may use the ideas, language or phrases of others,
I do not claim them as my own, but merely utilize them combined
with my views, in a desire to give to the Senate committee all information available, to aid, if possible, in the solution of the economic
condition which has brought us so much human suffering.
I want to say at the outset that I am not an economist; I am just
an ordinary citizen trying to dope out the cause of the depression
and the remedy for it. I read the stabilization report in the Sixtyninth and the Seventieth Congress, and most everything I could get
on the question of money and the depression.
Studying the ill effects flowing from the Federal laws, we find
the basic evil to be the private control of our currency and the
operation of our present monetary and banking system, tolerated^
permitted, and fostered by laws intended to be beneficial and for
the good of the people, but which in their operation, have been
twisted and diverted from their original purposes, resulting in an
oppressive and intolerable situation, that must be immediately corrected and remedied.
The CHAIRMAN. I suppose in this statement of yours you refer
to each one of them and tell the action necessary to overcome the
M r . HYLAN. Y e s , sir.

^Vhen the constitutional convention granted to the Federal Government the right to " coin money, regulate the value thereof, and of
foreign coin," it certainly intended tllat this power should be. exercised by the Federal Government direct, and not farmed out to
private profit-maldng corporations.
Money, in ample volume and circulation, is one of the greatest of
ail human necessities, and its issue and control is therefore essentially
a governmental function. It should function without any hope or
desire for profit bv those administering it. The private banking
system has complete control of our cash and credit circulation, with
few governmental restrictions. This is the economic life of the
Nation. Control of the cash and credit circulation of a country is
the master of its people. This control should never be placed in the
hands of anv private or corporate group operating for profit.
In the two great crises of this country gold money fled into hiding.
It was only by resorting to other kmds of monev that the soldiei^
of the Revolution and the Civil War were paid.
During the Civil War the "Gold Ring" cornered gold and
attempted to force the Federal Government to pay extortionate
prices for it, but Lincoln's administration resorted to the issuing of
greenbacks, which by increasing the volume of money eased the
financial stress and enabled our Government to prosecute the war to
a successful conclusion.




The so-called " gold standard " is based on an utter fiction. As
a matter of fact, there is not enough gold available on earth to
redeem all our own paper money issues in gold much less those of
other countries.
The entire quantity of gold i& not sufficient for monetary purposes. According to the statistics of the United States Mint, there
is only about $22,500,000,000 worth of gold in the world. Of this,
$11,000,000,000 has been used in the arts and manufacture, leaving
available for all monetary purposes only approximately $11,500,000,000.

As a result of this gold shortage the bankers have supplemented
gold with paper or fiat money which the public is led to believe can
be redeemed in gold. If the holders of the other forms of money
should decide to call on the Government or the Federal Reserve
Bank for the redemption of same in gold, the public would then
realize how they have been deluded by the so-called " sound money "
propaganda of the banlring control.
While this country legally maintains the gold standard, neither
the United States nor any other country ever has been, or can be,
on an actual gold basis. The assumption is that no matter what
form of currency we have now in circulation, we can demand and
receive gold for it. This is absolutely untrue or incorrect.
The fact is that the amount of gold would not be sufficient to
redeem the other forms of money, and the big bankers who cry loud
for sound money know it. The bankers know that this country is
not, strictly speaking, on a gold basis and never has been; but its
monetary system is based mainly on "fiat" bank deposit credit
money out of which they are making tremendous profits.
The volume of gold, the basis of our monetary system, is not large
enough to support the superstructure of the paper money issued by
and printed by the United States Government for the bankers at
their request and for their profit.
_ ^
The easy money policies adopted by the Federal Reserve Bank
during 1926-27 were intended not only to influence the domestic
situation, but also to assist the European central banks to maintain
the gold standard, which had been impaired by the tremendous inflation which followed the adoption of the gold exchange standard
in 1922, the subterfuge adopted by the international bankers to allow
European countries having no gold to make paper money and to
operate under the gold standard. That is, the issuing of additional
paper money having as a reserve currency of other countries payable
in gold on demand or approved paper payable in gold at maturity,
was used to bolster up the crumbling gold standard.
In explanation I wish to say that there was a conference held in
Europe in 1922 where all the representatives of the larger banks
congregated, and they wanted to take in some of these European
coimtries under the gold standard, but they did not want to distribute any part of the gold that they controlled, so they made an
arrangement whereby they took them in under what they called the
gold exchange standard, where they had no gold as a reserve. But
the currency they issued there was based on paper of the Federal



reserve payable in gold at maturity, or currencies of other countries
payable in gold on demand. The Federal reserve
The CHAIRMAN. Before you proceed with that. What countries
have you reference to?
Mr. H Y L A N . Well, I have reference to Poland and Austria and
some of those central European countries.
The CHAIRMAN. That grew out of the war, did it not, the World
Mr. H Y L A N . N O ; it was after the war.
The CHAIRMAN. Yes; but was not the cause of it? Was that not
the principal cause of it?
Mr. H T L A N . K O ; not necessarily so.
The CHAIRMAN. All right.
Mr. H Y L A N . They wanted to extend the gold standard to the other
countries. Get more trade and business.
The CHAIRMAN. There is no need of going into it now. You may
Mr. H Y L A N . They took these countries in under the gold exchange
standard, and they had no gold as a basis for the money that they
issued there, no reserve like in the gold standard countries. That
is, they inflated the so-called gold standard. And this paper approved by the Federal reserve, payable in gold at maturity, for which
they issued Federal reserve notes to different banks, they took that
paper out of one pigeon hole and put it into another, and earmarked it, and sent a cablegram to Austria or to Poland, and they
would issue $3 of paper over there for every dollar that paper represented here. That is just a narrative of this idea of bringing these
countries in under the gold exchange standard. They had no reserve
for the issuing of this paper money there.
Senator K I N G . In Russia, in 1923, when I was there, the Soviet
authorities, seeing the futility and the unwisdom of the continuation of the paper money, the ruble having gone down to the vanishing point, conceived the importance of trying to have a gold
standard, because it was the standard employed in the world. They
acquired by the sale of goods and by other processes a considerable
amount of paper money, that is, they showed me their huge piles of
American gold notes, British pounds, and French francs, and so on.
And upon that paper money which called for gold—they treated
that as gold—they acquired some gold, some silver, and they then
said, " We are going to the gold standard and base the future issue
of our currency upon the gold standard." And they did. They
issued the chervonetz, the new gold coin—^they coined a few of them—
and the chervonetz paper money. They only issued against that
gold reserve 40 per cent paper. It was all right and held its parity
in relation to the world as long as they did not issue other paper
money. But when later on they began to issue their fiat money and
disregarded the limitations imposed by the gold and the paper
money which was gold exchange of other countries then the
chervonetz, which had circulated at par, went down to the vanishing
So Russia was not forced to the gold standard by any conference
in Geneva or elsewhere, but they saw the necessity of stabilizing the
exchange if they wanted to trade, and therefore they established
the gold standard.



MI\ H Y L A K . I am not opposed to the gold standard, but the
administration of it by the bankers.
Before the breakdown (which forced many countries to go off the
gold stpdard) gold coin and gold certificates had been withdrawn
from circulation and monetary gold had been concentrated largely
in the big banks. Such gold was converted into gold bullion and
stored in bank vaults, cutting down enormously the volume of gold
Senator W A T S O N . Mr. Mayor, you made a rather significant statement : That you are not opposed to the gold standard, but its administration by the bankers. Are you elaborating on that in your
statement ?
Mr. H Y L A N . Sir?
Senator W A T S O N . Are you elaborating on that point ? And if you
are not, what did you mean by that?
Mr. H Y L A N . Well, I am not opposed to the gold standard. I
mean this, that they are pyramiding credits on a pin point of gold.
They are issuing too much paper money for the reserve that they
have in gold.
The C H A I R M A N . That is not the banks. That is the Government.
Senator W A T S O N . D O the banks control that?
Mr. H Y L A N . Well, I know the banks are more or less connected
with it through governmental channels.
The C H A I R M A N . All right.
Mr. H Y L A N . During the last 10 years the gold standard has been
maintained only by a gold-economizing or gold-stretching policy,
if I may so term it; that is, a policy of substituting for gold reserve
something other than actual gold as an excuse to issue paper money.
But when France and our own Federal reserve began to withdraw
gold from circulation on a large scale and when the United States
ceased to export capital to foreign countries, the drain on the gold
reserve of other countries caused the breakdown of the international
monetary system, forcing manv countries off the gold standard.
The great demand for gold "for reserve and for the payment of
obligations payable in gold caused the sudden increase in the value
of gold. This caused a corresponding fall of the entire general
level of commodity prices.

A committee of international experts at Geneva, on Februaiy 8,
1933, suggested a world economic conference to further camouflage
the machinations of the gold manipulators and delude the American
people and others in an attempt to effect a redistribution of world
gold stocks by calling upon nations which held large amounts of
gold, particularly the United States and France, to part with a portion of their gold stocks for the benefit of nations not so well supplied with this monetary metal, to bolster up and reinstate the gold
standard in the bankrupt European countries. The scheme is to
reduce the reserves, the gold backing for their currency note issues,
from a 40 per cent reserve to 25 per cent reserve, thus further increasing the volume of paper or fiat money. This scheme of the central bankers to make additional paper money, based on a pin point



of gold, is to frustrate the activities of those who are fighting for
real sound money. It is a subtle form of inflation on a world-wide
scale for the benefit of the bankers only.
The greatest sham of the age, successfully operated all over the
world, which has made all mankind its victim has been the plan of
inducing foreign governments to adopt the gold standard under the
pretense of establishing their currencies, making them large loans at
high rates of interest. This has already brought many of these countries to the verge of bankruptcy and greatly contributed to our
present ruinous plight.
This scheme of big bankers is sufficient proof of the shortage of
gold, as well as of their utter selfishness in its control and manipulation.
The great industrial scientists, economists, and thinkers of the
past, such as John Locke, David Hume, and John Stuart Mill, spoke
in no uncertain language as to the cause of depressions and the
effect of money conditions upon industry, trade, and commerce. Lessening the quantity of money, these authorities point out, inevitably
increases the quantity of commodities required for its exchange.
Prices and commodities rise and fall in proportion to the increase or
diminution of money. When gold goes up, everything else goes
Sir William Dampier-Whetham, in Lloyds Bank (Ltd.) Monthly
Review for July, 1931, in an article on the connection between business depression, unemployment, commondity-price drop, and money,
The practical effects of rising or falling prices are easily analyzed, and have
been clearly illustrated by the history of the last 30 years. If prices are rising
faster than costs, goods become more valuable while being made or stored;
fixed charges, defined in terms of money, become less onerous in terms of goods
and services; profits are made, enterprise encouraged, and wealth increased.
If prices fall owing to a cheapening of production, the result depends largely
on the elasticity of the market. If prices fall owing to a scarcity of money,
or to a failure of new investment to keep pace with the savings—that is, if the
value of money grows greater—the effects of rising prices are reversed.
People with fixed incomes from bonds or sheltered wages gain as prices faU;
but the farmer, the manufacturer, and other active producers find the market
always against them; costs lag behind prices, charges fixed in terms of money,
whether public debt or private loans, need a larger and larger fraction of the
produce of industry to pay them, profits are turned into losses, enterprise is
checked, and unemployment becomes rife. These effects react on their causes,
lowering demand and thus prices.

Edward Owings Towne, in his recent book on monetary economics,
setting forth the cause and cure of industrial depressions, entitled
"Wake Up World," states:
In modern practtce where bank-deposit credits have in great measure, particularly in the United States, superseded the use of actual cash currency, the rule
is exactly the same, viz: The greater the amount of such credits the higher the
price of commodities. When defiation of bank credit takes place the inevitable
result is to lower the prices of the products of industry. By deflation is meant
a forced diminution of credit by refusal Of creditors to extend maturing or
callable obligations or to make new loans without prohibitive increase In interest rates, or by other devices to reduce the amount of the currency-credit substifute for actual basic money in circulation. When credit crumples up, or currency is curtailed, the purchasing power of consumers is diminished, business
activities are halted, and industrial paralysis follows as a necessary consequence.




In the United States in 1837 a serious panic occurred, followed by
an industrial depression that lasted for many years. The immediate
cause of the panic of 1837 was a drastic order by President Andrew
Jackson requiring all payments for public lands to be made in gold
and silver. This destroyed confidence in the circulation of bank
notes, which were the principal media of exchange. Bank notes contracted from $149,000,000 in 1837 to $58,000,000 in 1843. Every bank
in the country suspended specie payments. Accompanying'prices
and falling land values came business stagnation and ail the other
symptoms of trade disruption that follow in the wake of monetary
stringency. In 1849 important gold discoveries in California, and
a little later in Australia, brought an increase in the world's circulating medium and an enormous revival in industry occurred. Prices
rose, business became profitable, enterprise found an outlet in railway and steamship building and in the opening up of new territories
to agriculture and attendant development. Kemarkable industrial
progress was made, until it seemed that at last the world had attained
permanent prosperity.
But in 1871 Germany adopted the gold standard: the United
States in 1873 demonetized silver; France, Switzerland, Belgium,
Italy, and Greece in 1873 limited the coinage of silver; and in 1875
Holland, Sweden, and Norway adopted the gold standard. The consequent growing need of gold reserves, with inadequacy of decreasing supply, caused a gold scarcity followed by a most serious industrial and trade depression that continued for 8 or 10 years and in
England and the United States was without precedent.
Later came the disastrous panic of 1893. There was no relief
until 1897-98, when the gold discoveries in Alaska and South Africa
started a world revival and brought about a financial normalcy that
lasted, with temporary setbacks, until 1914.
To the careful student of the history of monetary panics and their
attendant circumstances, it is easily observable that no monetary
crash ever occurs that does not follow a curtailment or diminution
of the medium of exchange, or the undue expansion of credits upon
too narrow a base of real money. If the monetary basis is too small
and credit is piled upon credit, the day of reckoning will surely
come. The structure will topple and fall with a crash, and with
stunning suddenness the country will find itself overwhelmed by
financial disaster. Slowly, and with great pains and care, must the
structure be rebuilt on a broader basis and with more substantial
superstructure, before industry resumes its normal conditions and
sanity and prosperity take the place of misery and despair.

Let me quote from the interim reports of the gold delegation of the
League of Nations:
A persistent aiul world-wide price decline of commodities may be taken
•S a fairly conclusive evidence that the course of prices is positively and
undesirably affected by an inadequate supply of gold (p. 39).
159450—33—rr 2




The report further declares that their figures on the state of the
gold-mining industry were derived from the opinions of experts
who say that there is a prospect of a slight increase in production
for the next few years, then a gradual decline up to 1940 and thereafter a rapid reduction in gold output. The report fuiiiher states
that in all probability there will be a gold shortage by 1934.
If we measure the value of the dollar by wheat, there are two
factors to be considered to determine the value of the dollar. One
is the number of cash and credit dollars in circulation, the other
is the number of bushels of wheat offered for sale. With a given
quantity of wheat on the market, the price of the wheat may be
increased by increasing the amount of money, cash, or credit in
circulation. Or the price of wheat may be decreased by increasing
the amount of cash and credit circulation. The same rule will apply
if you take any other product as an example.
While I know this proposition is elementary, the masses have
trusted the bankers so long in the manipulation of their money and
the regulation of the value of their property and the prices of the
commodities they produce, that it will do no harm to refresh the
memory of those interested in industry and agriculture who are
more seriously affected by the contraction of currency.
We often hear well-informed people says that there is an " overproduction of commodities " and that there are " more men than
There is, in fact, no overproduction of commodities, nor are there
too many human beings born to do the work of the world. But
there is an underproductin of money with which to purchase commodities, the products of farms and factories, and to pay labor for
the work that is needed. The representatives of 125,000,000 people
go out of their homes in the United States daily for money, the
greatest of all necessities, the possession of which means comfort
and stability to the family.
If each one had a little more money, or some means of earning it,
he or she would purchase more of the commodities produced, thereby increasing the demand for commodities, and business would become more active.
The amount the average person consumes is determined by the
amount of cash or credit he has with which to pay for the things he
wants. Give him more cash or credit and he will consume more.
The average citizen of this country has never reached the Umit of
his consuming power because he has never had sufficient means to
meet it.
It is difficult to convince people that too much wheat is produced
while millions are hungry and in actual want of food.

The passage of the Federal reserve act in 1913 was clearly in response to a demand for a more flexible currency; one that would
meet more adequately the demand for an expanded currency and
credit and afford a means of discounting commercial paper, which
would, domestically at least, expand and contract approximately
according to the amount of wealth available for distribution and



to establish a more effective supervision of banking and currency in
the United States and for other purposes, such as safeguarding
against panics and money stringency.
The results of the passage of this act have been so great and portentious as to be almost immeasurable. It is very doubtful whether
President Wilson and his advisors had any conception of the consequences that were to flow from this gigantic concession to the banking
Let us recall, in outline, the magic wrought by the Federal reserve
system that the bankers have worked out by experience and practice.
The reserve bank has authority to issue Federal reserve notes to
member banks in the ratio of $2.60 of notes to $1 of reserves.
So when a member bank deposits $100 cash with a reserve bank,
the latter must retain $35 as a reserve against the deposit and may
lend on the basis of the remaining $65 in the form of Federal
reserve notes two and a half times tiiat amount—^$162.50, or in the
form of deposits 2.85 times the amount $185.25.
But this is not all. Money borrowed from the reserve bank may
in turn be loaned to a customer by the member bank. Thus a member bank having received a cash deposit from a customer, may
deposit it with the reserve bank and thereby increase the latter's
lending power of $162.50, which the member bank may then borrow and lend to its customers.
The lending power of the member bank may be increased still
further, if the loan to its customer merely gives rise, to a deposit
account and not a cash payment, for against a deposit the member
bank needs to keep on the average only a 10 per cent reserve with
the reserve bank. Thus the $100 in cash deposited, by being turned
over to the reserve bank enables the member bank to lend $1,000
additional to its customers in the form of deposit credit.
At the same time, this addition of $100 to the reserves of the
reserve bank increases the latter's own lending power, for after
setting aside the $35 as reserve against the $100 deposit, the reserve
bank can lend in the form of deposit credit an additional $185
(2.85 times $65). This additional loan of $185 will increase the
member bank's reserves by this amount and the latter in turn will
be able to increase its own lending of deposit credit by 10 times this
amount, that is, by $1,850. So that the $100 deposited in cash with
the member bank has increased its lending power directly by $1,000
and through borrowing at the reserve bank $1,850 mor^ the total
mcreased lending power thus amounts to $2,850. The difference between the $1,000 and the $2,850 represents the additional lending
power introduced into the situation by the Federal reserve bank.
The commercial paper discounted for a customer, except for a
farmer, must mature within 90 days. This enables the banks to
take the interest discount out in advance every 90 days and loan
It to another customer, which gives compound interest every quarter,
instead of yearly.
Although probably imforeseen by the originators of the Federal
reserve legislation, by a reasonable construction of the act, the law
permits the commercial banks to function as savings banks under
tre time-deposit provision of the law.



There are approximately 1,500,000 persons in New York State
who have time deposit "thrift accounts" in commercial banks.
The " thrift department" is now a featm-e of almost all the commercial banks functioning as member banks of the Federal reserve
banking system., This is a direct invasion of the field of legitimate
savings banks whose depositors' funds are safeguarded by much
more stringent provisions of the law than those of the commercial
Hundreds of millions of savings deposits are held by commercial
banks, whose deluded depositors think that they are fully protected the same as they would be in a legitimate savings bank.
It requires a colossal failure, like that of the Bank of the United
States, to open their eyes and reveal to them that the so-called
thrift department, where they have been cajoled into placing
their savings, is only a delusion and a snare, and that in case of the
bank's failure, they must take their position in line with the ordinary
commercial depositors and receive no preferred or greater dividends
in the settlement of the bank's affairs. In the meantime their deposits have been entered on the books of the bank as time deposits,
and as such have enabled the banks to loan their bank deposit
credits to the extent of thirty-three times the amount of the depositors' savings. In other words, on the deposit of $100 in cash in the
thrift department, the member bank is allowed to loan its credit
for $3,300.
No one, at that time, knew or realized what powers were granted to
the individuals who were to compose the Federal Reserve BoardNo one realized that this powerful board, through its control of currency and credit, could by the inflation of credit and interest rates
on loans, encourage and, in fact, aid the orgy of Wall Street speculation such as that experienced in 1929, taking from thousands of
people their ready cash and savings and almost every available asset
they could turn into money. On the other hand, no one could anticipate that, through deliberate deflation of the quantity of money and
credit currency, all kinds of property would lose its value, causing
ruin and destruction to those who had invested their life savings in
property, stocks, and bonds.
Who will contend that the Federal reserve system has been administered in the interest of legitimate business and industry?
Who can deny that the Federal reserve administration, in cooperation with the central bankers of Europe, was utilized to secure control of gold and regulate circulation of all kinds of money, currency,
and credit in this country and abroad?
The volume of gold and its production being limited, the basic
monetary metal was easily controlled. According to the report of
the United States Mint, approximately $22,500,000,000 worth of gold
has been produced since Columbus discovered America in 1492. This
figure does not include the gold which may have been hoarded in
India and some of the other Asiatic and African countries of which
there seems to be no record. Eleven billion dollars' worth of this
amount had been utilized in the arts and manufacture of c o m m o d i ties, leaving less than $12,000,000,000 in monetary metal for the people of the world to do business with operating under the gold standard. And along with that in contracts and other obligations pay



able in gold there are between four hundred and five hundred billion
dollars of contract that are supposed to be paid in gold.
After the Federal reserve legislation became operative, credits
were easily obtained and widely used. From 1915 to 1920, despite
the destructive influence of a World AVar, America never saw such
an era of prosperity.
In every department of human life, from the lowest to the highest, there was a miraculous improvement. Never before in the history of civilization were the necessities and luxuries of life so
abundantly and so easily obtained.
The cost of living during this period was high, but the means of
meeting that cost were adequate and satisfactory. Enterprise was
stimulated throughout the country. Labor was employed, wages
the highest on record. In a word, credit and capital were abundant
to move profitably the wealth produced by the teeming masses of
Amej'ica. Nearly everybody was making money; everyone was
Bankers were more than generous in their loans. They inflated
credit, collected interest and bonuses, until practically all of the real
primary money was owned and controlled by them, and the gold
safely stored away in the vaults of the big banks.

In order to understand how the masses were fleeced in the stockmarket crash in 1929, and what caused the closing of 10,000 banfe
of all kinds in the United States with losses of billions of dollars to
the people, let us briefly outline banking operations beginning with
the man who earns the' dollar. The laborer, the mechanic, and the
housewife, in our well-organized system of banks and branch banks
under the Federal reserves, seldom go to the commercial discount
and collection departments. They go straight to the window
marked " Savings.'^ They receive credit for their deposits in their
bank books and the amounts received are recorded in the timedeposit book of the bank;
The people w^ho go to the windows marked " Teller " are in a some^'hat different class. Thev represent local trade, commerce, and
industry. Their accounts are current, called checking accounts or
credit balances. They bring both cash and checks to deposit; and
besides making deposits they may often tender their own checks
to be cashed at the same time. At the end of the day, the man at
the "Teller" windows count up what they have received and
what they have paid out, and the difference is recorded m the bank s
books as an increase or decrease of demand deposits.
A bank pays interest, so that bank lends its deposits. For each
actual dollar of other people's money on demand deposits received,
^ bank may lend from seven to thirteen times as much bank deposit
credit money. In actual operation, in normal times, bank deposit
credit loans average about ten times as much as the money deposited
by the bank's customers.
l^ending to local people is the safest kind of lendmg but the
hrst thing the local bank does with a part of its surplus credit is
to deposit it in a big New York City bank. The New York bank,




in turn, may either lend it to a broker on the Stock Exchange who
lends it to a speculator, or it may lend it to a foreign bank where
the interest rate is very high or the bank may buy fore^n Government bonds. It is used then for any purpose the foreign Government
may see fit.
Big and little banks all over the country perform the same act
of multiplication, all in the same general way, lending their surplus until, in many instances, too much has been loaned on thmgs
which aherward turn out to be bubbles.
If the bank has multiplied credit in the ratio of 10 for 1 and
its depositors begin to withdraw their cash, the little local bank
must call in loans and deposits with the big banks. It calls upon
the New York bank to return the amount the local bank has sent it
in loans or deposits.
The New York bank has loaned that money on call to the big Wall
Street brokers and must call in their outstanding loans. If the
banks that supply the Stock Exchange with credit all call at the
same time for that credit to be returned, because thousands of local
banks all over the country, where the credit came from, are calling
upon them to return it, the Stock Exchange brokers are sunk. They
must say to their customers: " We can not carry your securities any
longer on credit. If you can not pay for them in cash immediately^
vi-e shall have to sell them for what they will bring to save ourselves^
This causes panic on the Stock Exchange, similar to the one in
1929. The broker's loans collapsed first; in the stampede to sell in
order to pay debts, stocks crashed and this started the long train of
events which is still going on, including the fall of commodity prices.
Selling, at first normal, soon turns into distress selling, which is
forced selling to preserve one's solvency. The more stocks and commodities are sold because of lowering prices, the more prices sink
and compel further selling.
In many instances, the New York bank has loaned the credit to
a bank in Berlin or some other part of Europe, or perhaps to South
America, and can not get it back. It is obliged to return the credit
to the small local bank. In that case the New York bank must sell
some securities out of its own reserve investments. But if all the
New^ York banks are doing the same thing at the same time, the
effect on the Stock Exchange is even worse. The banks will be selling bonds where speculators would be selling stocks, and the effect
upon the mind of the country from a fall in bonds is much more
The local bank may get its credit back from the New York bank
and find that it is not enough because its depositors continue to withdraw their money.
Then the local bank bej^ns to sell its foreign bonds, which were
l^rchased through the solicitation of expert salesmen and the New
York investment banks. It finds quoted at 30 the same bonds for
which it paid 90. If the bank sells them at 30, it will lose forever
two-thirds of its credit loaned to the foreign government through its
purchase of such bonds.
The bank must then sell its United States Government bonds.
Even these prime securities have declined in price under the selling
by thousands of other banks, all in the same dilemma.



Having sold its United States Government bonds, the local bank
continues for a while, paying off its depositors, telling them everything will be all right, hoping for the best. The bank examiners
from the Comptroller's office come unexpectedly to look at the books.
They find that the bank has sold its best assets and, to make the books
balance, it is carrying bad assets at the values it paid for them; the
foreign bonds now selling at 30 or even less still valued on the books
of the bank at 90 or 95. The examiners decide the bank is not solvent and that it will have to close.
Pyramiding of credit and collecting profits in interest by the banks
with too small a deposit or base of real money is a most dangerous
policy for the welfare of those who deposit real money. Pyramiding
paper money on too small a volume of gold reserve and the bolstering
up of bankrupt foreign countries with the wealth of the people of
this country have resulted in the breakdown of the people's wealth.
That is the fundamental cause of this depression.
The business of creating paper money and credit on a pinpoint of
gold and setting it free in the hands of big bankers and others is
one of the most dangerous schemes of money manipulation that has
ever been foistered upon the producing business interests and the
people of any nation.
Senator EEED. Mayor Hylan, we have a number of other witnesses
who have come from considerable distances, and we can not give a
witness more than an hour, if we are to let the other witnesses be
heard; and there are only five minutes left of the first hour.
Mr. H Y L A N . This is very important. I would like you to hear this.
Senator EEED. I know; but what the other witnesses have to say is
also very important. So I am going to ask you to come down to your
concrete suggestions. You can put that all in our record, and we
will read it and the country will read it; but it is not fair to the
other witnesses to take a portion of their time.
Senator W A G N E R . I hope that you will give the mayor a little more
time. He has an important message.
Senator B A R K L E T . Considerate to him as well as to the others.
Senator HARRISON. We were a little late getting started this morning, it is true; but we have on the calendar for to-day five people
who are here to be heard. But if the mayor can eliminate some of
these details.
Mr. H Y L A N . I will hurry along as rapidly as I can, because there
are facts here at least that you ought to hear, whether you agree
with me or not.

During the recent years of prosperity every possible means was
employed by the investment bankers to induce the producers to part
with their savings. High-pressure salesmen, through alluring and
misleading propaganda, induced them to invest in stocks and bonds
of all kinds. New issues, split-ups in corporations, capital increases
and rights to buy stock, all expanded and inflated the number of
shares that represented the real value of the corporations in which
the people were advised to invest. In many instances the bankers
and brokers encouraged the public to borrow in order to make
additional investments.



In these instances all that the people received for their paper
money, which they believed could be exchanged for or redeemed in
gold in countries under the gold standard, was nicely engraved paper
stocks and bonds. To get the paper money away from them so they
could not demand gola for it, they were induced to part with this
paper money for stocks and bonds on which the Government stamp
was lacking and on the presentation of which they could not
demand gold.
Loans upon loans were made; commissions, interest, and bonuses
were collected by banks and bankers; debts accumulated; obligations were refinanced, until at the present time there are international obligations, Federal debts, State, municipal, and public obligations totaling over $500,000,000,000.
Foreign countries and their people owe to our Government, the
money lenders, and the people of the United States more than
A DEBT BURDEN OF $ 2 2 0 , 0 0 0 , 0 0 0 , 0 0 0

The monetary obligations of the people of the United States,
Federal, State, and municipal governments, along with private
debts and interest-bearing obligations, have increased to the enormous total of $220,000,000,000. Each year, each month, each week,
each day adds to the growing mass oi interest-bearing obligations,
all of Avhich are promised to be paid in monetary gold, of which
the world possesses at the present time less than $12,000,000,000.
The speculative orgy in Wall Street absorbed most of the people's
money. They took money out of the savings and other banks.
They pledged their industrial and other good securities which they
had purchased at high prices and bought additional stock on margin.
Of the Latin American bond issues that had been recommended
to investors by the very best Wall Street banks and their bondselling affiliates—of these alone, I am informed, 56 issues, aggregating more than $800,000,000, are in default, and the fate of others
not actually in default is very uncertain.
One by one the international bankers appeared before committees
of inquiry of the United States Senate, all saying that at the time
they were issued they thought the bonds were good, and all alike
disavowing further responsibility. They had not guaranteed the
bonds or th e validity of them. They were not responsible for how
the money was spent or misspent; the borrowers were responsible.
And as for the foreign-bond delerium in this country, that was
something the people, the private investors, had done to themselves.
These international and investment bankers call themselves " merA r e s p e c t to the sale of bonds and stocks to the public.
All they have to offer now are disavowals and regrets—^very cold
advk^^ ^^ ^ ^ investors who lost billions through their urging and
A member of the most powerful private international banking
house m giving testimony said to the Senate committee:
are merclmnts. That is what we are, just like any merchants in the
grain business, in the cotton business, or anything else.



He said:
Speculation was in the air, and the speculators wanted to buy, buy, buy, and
the bankers and brokers dealing in securities supplied that demand. I think
they were trying to supply what the customers wanted. I think the banker is
like the grocer; he supplies what his customers want.

It is a sad state of affairs in our country when men of a trusted
group, as the bankers were, can sell the public gold bricks and then
in an endeavor to evade responsibility hide under the assumed title
of " merchant."
American investors did not demand that the investment banker
search the world for foreign borrowers. It was the big bankers and
their foreign allies who initiated these foreign bond issues and
reaped huge profits from them. Foreign bonds were extensively
advertised. The big banks forced them on the smaller banks. They
pressed upon the investor through costly selling organizations, by
house-to-house canvass, even by radio ballyhoo, their merchandise,
stocks, and bonds beautifully engraved.
The people are amazed at the recklessness of American bankers in
selling to the public foreign and other securities in which millions
of trusting investors lost their lifetime savings, and then these
bankers ask the people to have confidence in them by parting with
more of their savings. So long as the Government did not object,
Wall Street went on bringing out German bond issues faster and
faster, for German industry, German agriculture, German ports.
It kept hundreds of representatives in Germany soliciting all of
these sources for bonds to sell to the American public.
The investment bankers bankei^ had solicitors in almost every
country in the world, bartering away American credit for the commissions and bonuses they could get out of such deals.

While the banks were lending money to Europe to extend European agriculture they were also extending credit for economic engineering to restrict the products of American manufacturers, plunging
them into debt; they were loaning billions to European countries to
build up their plants and factories to compete with us in foreign
trades. These huge loans made the people of foreign countries
debtors of American investors to the extent of billions and bound
the borrowers to pay nearly a billion dollars annually in tribute
money. Having gotten our money—some $17,000,000,000 of it—they
now default, saying they can not pay principal or interest, leaving
us with the bag to hold.
The American bankers in lending American credits to Europe
did not insist upon—did not demand—an increase in the American
export trade. The most extraordinary act was the lending of our
credit to our debtoi^ in order that they could make payments to us
on their debts. American loans to Germany enabled Germany to
pay reparations to the Allies. Reparations ivom Germany enabled
the Allies to pay interest on their war debts to the United States,
hardly touching their own pockets. We were the victims of this
vicious circle.




Nations which borrow American money actually needed for constructive purposes seldom incur obligations beyond their capacity
to handle. They may be expected to pay their debts. But doubtful
or inadequately secured foreign loans are extremely risky. Here the
responsibility rests heavily upon the investment banker. The banker
should never be lured either by the desire for profit or the desire for
reputation to recommend an investment which he does not have
every reason to believe is good and will be paid.
Because of the argument for endless world prosperity as a product
of unlimited credit bestowed upon foreign trade, the banks loaned
billions of American credit to our debtors, to our competitors, and to
our customers. They loaned credit to competitors/who loaned it to
their customers. The bankers loaned credit to Germany, who loaned
credit to Eussia for the purpose of enabling Eussia to buy German
Eailroad and other bonds were about to mature. The central and
investment bankers saw an opportunity to get back dollars with a
purchasing power worth from 62 to 80 cents more than the dollar
they originally loaned so that refused to extend the loans. Then
some one suggested the Eeconstruction Finance Corporation to substitute public credit for private credit. The people's money was
loaned by the Government through the Eeconstruction Finance Corporation to the railroads and others to pay these obligations to the
banks when they matured. The banks tnus were enabled to unload
on the Government many undesirable loans and get rid of a big
burden of frozen assets or unprofitable issues. They rode the Eeconstruction Finance Corporation for hundreds of millions.
After many years of floundering and only a short time before the
World War, tlie formula for the most efficient credit and national
wrecking machine—if viciously operated—that was ever invented
was discovered. This was the Federal reserve system, diverted from
its original purpose and manipulated so as to give us a financial
government of the banks, by the banks, and for the banks.

The industrial, agricultural, or economic equilibrium program was
inaugurated and, from the viewpoint of its powerful sponsors, the big
bankers, worked to force prices of commodities and the value of
property far below real values and cost of production. To-day we
lave the highest valued dollar and the lowest property and commodity values in history. Bankruptcy, business failure, unemployment, and misery prevail.
In enforcing their economic equilibrium policy by the forcible
reduction of the prices of commodities, the international bankers
and their allies are reducing the wages of American workmen to
the level of the pauper labor of Europe, thereby depriving labor of
ite just wage and lowering the standard of living in the United
States. The distributing and giving of doles seems to be a part of
the scheme to keep the people quiet and subservient while the economic equilibrium surgeon is performing the operation.
Under this scheme a large part of the money in circulation has
been withdrawn. Deflation is in progress. The price of practically



everything has fallen below the cost of production. The value of the
dollar went up and the prices of commodities, farm lands, real estate,
and property generally have fallen to extremely low levels, spreading
financial distress and bankruptcy throughout the land.
The confidence of the people in the financial institutions of this
country has been destroyed. They have lost faith not only in the
bankers and brokers, in stocks and bonds, but also in the laws upon
which they had fondly believed their prosperity was firmly fixed.
Woe to those who have betrayed this trust! When the unemployed and those who have lost the result of their life's labor and
the savings put aside for their families, understand how it was done
and who did it they will drive out those who betrayed them even as
Christ himself drove the greedy money changers from the temple.
Senator REED. What would you do about it, Mayor?
Mr. H Y L A N . I will give you the remedies in a few minutes^my

This depression has blasted the hopes of millions of Americans.
The 1929 stock speculative orgy was the revival of the same kind
of scheme as the French people experienced when John Law put
over his Mississippi Bubble and the Earl of Oxford put over on
the British people the South Sea Bubble, where the investors lost
all their savings and the governments became involved in their
financial frauds.
The governors of the Federal Eeserve Board, their officers and
advisory council in May, 1920, met in executive session and decreed
that the circulating medium must be restricted, credits must be
drastically curtailed, that all tenxporary currency must be
AVhen this was determined upon, the bank officials did not call
an international conference to determine that there should be deflation. They met in the United States. The conference was composed wholly of American bankers. There was established by them,
for the banks of the country, a maximum or what they termed
a base line of credit beyond which a progressive and graduated
discount rate should be applied. There followed the deflation which
drove down values by billions and caused thousands to lose their
stores, factories, farms, and homes. Far more disastrous results
have followed the deflation caused by the panic and depression ot
the past three years.
We are told from time to time that there is more money in
existence in America to-day than there was during the time ox
prosperity and that there should be no attempt to increase the
currency supply and the circulation of it or expand the credit ot
the country.
If the volume of money in the United States is as gi'eat to-day
as It was from 1915 to 1920, where is it and why is it not put in
^circulation to relieve distress?





After unloading upon the people stock and bonds at highly inflated prices and getting real money for this paper, the policy was
changed. Those responsible brought about the destruction of market values of all kinds of property and commodities. Through their
equilibrium policy, they aim to compel the producer to produce only
the volume and quantity of goods which the public now have money
to purchase. They want them to maintain an equilibrium between
production, distribution, and consumption. By this policy the producers will be prevented from making things that the people need
because there will be too many things to sell rather than because
there will be too many things to use. The people who need them
must do without because they have no money with which to buy.
At a luncheon of the English Speaking Union held in London in
June, 1931, Professor Sprague, economic adviser to the Bank of England, said that there were two ways of overcoming the depression;
one way, by increasing the volume or quantity of the metallic
medium, gold money; and that the Bank of France, the Bank of
England, and the Federal Reserve of New York were against this
method, and added: " The central banlts could do that if they were
convinced that it was advisable." The other method was the industrial, agricultural, or economic equilibrium plan favored by the central bankers, which would require a world dictator to carry out.
Not satisfied with control of the monetary metal, gold, the big
bankers have set out to secure control of the production and distribution of the necessities of life. And I regret that I haven't time to
go into that more carefully.
Interest has played a great part in bringing the world to its present plight. To one who gives a little thought or attention to this
subject the result of figuring interest, compounded and recompounded, would be astonishing. It is largely through accumulations
of interest that the financial obligations of the world have increased
to the enormous total (according to reliable economists) of over

Abraham Lincoln, in a speech in the hall of the house of representatives, Springfield, III, December, 1839, discussing the subtreasury scheme as a means of collecting, safekeeping, transferring,
and disbursing the revenue of the Nation as contrasted with a
national bank for the same purpose, contended that the subtreasury
would keep the money collected in iron boxes, locked up in idleness
(thereby taking it out of circulation) while if it was deposited in
the national bank the money could be kept in circulation among
the people by making loans to those wishing to borrow it until such
time as the Government was obliged to use it.
In referring to the policy of the subtreasury, he said:
More than half of aU the specie belongin- to the fifteen millions of souls
who compose the whole population of the country, is thrown into the hands of
the public officeholders, and other public creditors, composing in number perhaps not more than one quarter of a million, leaving the other fourteen milUoDS
and three-quarters to get along as best they can, with less than one-half of
the specie of the country, and whatever rags and shin plasters they may be
able to put and keep in circulation. * * *



When one hundred millions, or more, of the circulation we now have shall
be withdrawn, who can contemplate without terror the distress, ruin, bankruptcy, and beggary that must foUo^v. The man who has purchased any
article—say, a horse—on credit, at ^100, when there are two hundred millions
circulating in this country, if the quantity be reduced to one hundred millions
by the arrival of pay day will find the horse but sufficient to pay half the debt;
and the other half must either be paid out of his other means, and thereby
become a clear loss to his creditor.
What I have here said of a single case of the purchase of a horse will hold
good in every case of a debt existing at the time a reduction in the quantity
of money occurs, by whomsoever, and for whatsoever, it may have been contracted. It may be said that what the debtor loses the creditor gains by this
operation; but on examination this will be found true only to a very limited
extent. It is more generally true that all lose by it—the creditor by losing
more of his debts than he gains by the increased value of those he collects;
the debtor by either parting with more of his property to pay his debts than
he received in contracting them, or by entirely breaking up his business, and
thereby being thrown upon the world in idleness. * * *

Dr. Nicholas Murray Butler, in an address delivered before the
Economic Club of Chicago, on April 15, 1932, said:
Deflation has gone on to an extent which is without parallel, and every day
the value of what we do and of what we own is falling not only in those
countries which are without a supply of gold but in those like France and the
United States, which have gold in superabundance.

If Doctor Butler had applied the same logic to the superabundance
of gold he referred to—which is deposited in the vaults, in iron
boxes, locked up in idleness in the Bank of France and the Federal
Reserve Bank of the United States, out of circulation—as Abraham
Lincoln did to the people's money locked up in idleness in the United
States Subtreasurj and out of circulation, he would then realize why
the value of what we do and of what we own is falling in France
and the United States as well as in those countries which do not have
as large a supply of gold.
If Congress would profit by the sound reasoning of Abraham
Lincoln, with reference to the quantity of money and its actual circulation, and enact proper laws, the hoarding; the locking of it up
in idleness by the banks: the revelry in high finance; the orgy of
profit making; the carrying out of the industrial, agricultural, or
economic equilibrium program of the international bankers to curtail and control farm and industrial products; and the resultant
unemployment, distress, ruin, and beggary would end. Such a return
to common sense and sound reasoning would bring prosperity again
to our millions. There is only one way to stabilize the general level
of prices and restore and continue prosperity, and that is through
honest monetary regulation, if the gold standard is to be continued.

There is an equitable limit to the quantity or volume of currency
that should be maintained to keep a proper ratio between money and
commodities, commerce and population. Increase beyond this normal or equitable limit would be " inflation " so far as regards the
volume of money, but " deflation," so far as the purchasing power
of the money is concerned. Decrease in the quantity of money below
this normal or equitable limit would be " deflation " in the quantity
or volume of money, but " inflation " in its purchasing power.



The volume of primary money is not now sufficient to stabilize the
price of commodities; therefore a reasonable increase in this volume
would not be inflation and could not fairly be construed.
The stock argument of those who are opposed to a proper volume
of currency and its circulation among the people, as a means of
restoring confidence and commodity prices to normal conditions
is that of Germany's inflation of the mark. The answer is that
Germany was a defeated, bankrupt, and debtor nation without a
gold reserve or other national resources on which to base her currency. Prior to and during the war, many of the wealthy took
their gold and other valuables out of Germany and deposited such
securities in other countries. After the war, realizing her deplorable
condition, she began to issue marks to pay her obligations, and as the
obligations increased, she continued to print additional marks. It
has oeen said that Germany deliberately inflated its currency. It
was part of German strategy to dispose of her war debts by repudiation, just as France did to the extent of four-fifths, and Italy to
the extent of three-fourths.
We can profit by one lesson from the expansion of currency in
Germany, France, and Italy. Commodity values increased with the
volume of inflated money.
The situation in the United States is entirely different. One-third
of all the monetarv metal in the world is in the vaults of the bankers
and the United States Treasury. We have a superabundance of
wealth and commodities, raw materials, and other national resources,
and are the world's greatest creditor Nation. Our dollar and thfe
manipulation of it by the Federal reserve, under its policy and that
of the central bankers is utilized destructively, resulting in unemployment, suicides, loss of homes, farms, foreclosures, bankruptcies,
and unbalanced budgets. It compels the debtor to produce three
times the volume of commodities to secure that dollar to pay what
he justly owes.
Any further taxation on earned incomes as a means of balancing
the Budget will retard the restoration of prosperity instead of hastening it. We will never be able to balance the Budget until commodities, raw materials, and other values are restored in proper
ratio to the dollar.
Senator HARmsoN. Do I understand from that that you do not
favor an increase in taxes if it is necessary to balance the Budget?
Mr. H Y L A N . Some taxes, yes. But I do not favor placing any
lurther burden on the man who produces. The producer of the
counti^. The man who goes out and extends his business and employs help and builds up the country. He ought not to be taxed to
The irresistible conclusion must be reached that, fundamentally,
the present industrial and trade depression was caused and still
exists by reason of an insufficient and inadequate world and national
medium of exchange, and by the attendant circumstances of the deflation of currency and credit resulting from the control which the
± ederal Reserve Board has exercised over currency and credit.
address at the Lincoln Day dinner in
the Waldorf Astoria Hotel, New York City, on February 13, said:
financial c M e s ' ^

economic peace, it must break vicious fiscal and



I agree with him, and I think that the 12,000,000 people out of
employment, and millions of others who are affected by the depression, are beginning to realize the viciousness of this financial circle.
Central bankers and other big bankers, their control over the monetary metal, gold, their control over currency and credit and the circulation of it, along with the contraction of credit currency as well
as the new scheme inaugurated by them to secure control and regulate production of the necessities of life, through their industrial,
agricultural, or economic equilibrium programs, are the links in the
vicious circle which must be broken before economic peace and
prosperity can be restored.

The successful operation of any banking system, whether central or commercial banking, must depend upon the acceptance of certain common principles and conventions by all its members. Tims, if an important commercial
bank decides suddenly to modify its average cash reserve ratios, it may force
on the whole system an inflation or deflation of deposit currency proportionate
to the extent of that change and to its own importance in the banking community. In central banking, the greatest influence is exercised by the banks
of those countries which are large exporters of capital, for they are able to
influence both the flow of funds to or from, and the rates of interest in, other
money markets. In recent years, this power has rested mainly with the United
States of America, the United Kingdom, and France.

There are. of course, numerous other contributory and incidental
causes of the depression, such as trade, exchange and tariff restrictions and the tremendous burden of public debts.
The battle for the possession and control of the monetary metal,
gold, among the international bankers will continue and the people
will be obliged to suffer because of depression as they now suffer
until the people through government channels take control of the
currency system of their country.

What then can be done to remedy the manifest evils of our present
condition? What measures must be taken if we are to be rescued
from the ruinous monetary policy and the economic equilibrium
program of the central bankers?
The first thing to be considered is the need of a substantial and
adequate supply of currency and credit, and its proper circulation
among the people.
I agree with former Senator Owens. The remedy is to expand and
control the expansion of currency and credit and to counteract the
unjust, the unsound, the ruinous contraction of currency and credit
^hich has taken place, thereby restoring the peoples' confidence not
alme in the monetary system but in our Government as well.
The Federal Reserve banks could have given the country relief
oy the vigorous expansion of credit and currency since the man^ade catastrophe of November, 1929, took place. Instead they contracted credit and currency. This policy has exerted its ruinous
consequences upon the people of the United States. It is indefensible and, if persisted in, may lead to remedies much more drastic
tnan the public interest requires.



The Secretary of the Treasury could remedy this deplorable condition, if he would, by issuing legal tender Treasury notes, not redeemable but interchangeable with gold, and using such notes to
redeem or purchase United States bonds and pay other governmental
obligations. This would afford a saving of interest on bonds and
would furnish an adequate medium of exchange which can not be
cornered but which can be definitely and positively controlled by
Government action in behalf of the people of the country.
These Treasuiy notes could be put in circulation by redeeming
the bonds aforementioned and by paying the current expenses of
the Government in lieu of levying additional taxes upon the people
or further penalizing honest business interests.
When this money flows into the hands of the people, some of it,
of course, would go into banks. If it did, it would go into the
banks as demand deposits of the people, subject to check, which
would add to the volume of available currency. Such deposits
could not be canceled by calling loans. If the banks would deposit
it with the Federal reserve banks it would add to their reserves
and entitle them to issue approximately ten times as much new
credit as they deposit; so that credit conditions would be made
still easier for the banks and their fear of not being able to get
curx-ency against the demands of depositors would be abated.
The real value of the proposed remedy is to reestablish confidence
in the country, to cause the value of commodities to rise, and to
make people understand that the hoarding of currency, however
justified for private reasons or otherwise, is against the public interest and, ultimately, against the interest of the hoarders themselves.
If it is clear that the policy of the Government is to expand the
currency then those people who have ^ut their investments in such
form as to secure the advantage of a rising market w^ould invest in
stocks and bonds and in property. Those waiting to see if the
expansion of credit and currency is going to take place and who
have been keeping their funds liquid for a rising market would
invest when the stability of the marW becomes assured.
The United States, through the medium of Congress, should
appoint a committee to make a survey and study of the monetary
question to determine if there is enough gold available in the world
to produce the volume of real money and credit required to meet
the needs of the Government and incidentally, those nations
operating on the gold standard.
Such a committee could invite the representatives of the gold
standard and gold exchange standard countries to participate it
they wish.
If it is found that there is enough gold available and it is deemed
wise to continue to operate under the gold standard, there are four
outstanding suggestions which will help to restore our prosperity
and to maintain stable property values and commodity prices;
First. Actual possession, control, and regulation by the Government directly of a sufficient quantity of monetary metal to establish
and maintain such a volume of currency and reserve for credit money
as is decided upon and to redeem all kinds of paper or token money



Second, A larger volume or quantity of standard, primary, or
basic money, as well as bank credit currency, to maintain a proper
ratio between currency, property, and commodities, and to meet the
needs of an ever-increasing population and the tremendous expansion of world and domestic commerce to maintain in so far as possible a stable level of prices.
Third. A wider and more active circulation of such currency
among the masses—those who do not borrow from banks, those who
must have some real money in their possession—thereby creating
a greater purchasing power among the masses.
Fourth. A stronger, more stable credit basis of reserve, and the
control by Congress (not by bankers) of the expansion and contraction of currency and credit, if possible.
If it is found that there is not sufficient available gold to maintain a
proper ratio between the necessary volume of money and commodities and the additional uses for money (as well as the maintenance
of a proper redemption base and credit reserve for international and
domestic purposes) and it is deemed advisable to continue a commodity money basis, then another metal should be given the same
recognition as gold (through an act of Congress) so that a proper
ejiuilibrium can be maintained between money, property, commodities, and the expansion of commerce, and also to provide for a proper
redemption base and credit reserve.
If this is not done, then the only remedy would seem to be a reduction of the metallic content of the gold dollar. That is, a decrease
in the number of grains to below 25.8 now contained in the dollar.
This would presuppose that the Government should obtain the ownership and control of all monetary gold in the country before the
decrease in the metallic content should be put into effect, as otherwise the great banks which own the gold would profit to the extent
of billions of dollars by such operation.
Federal reserve notes are issued to the Federal reserve banks and
national-bank notes are issued to the national banks by the Government upon deposit of Government bonds which, issued by the
Government and sold to the people, bear interest, burdening the
people with millions of dollars of interest annually. The people
buy these bonds from the Government, realizing that the Governnient is the security back of these bonds, and no one seems to be
afraid to purchase them. Why should they fear to take at face
value any currency issued by the Government, behind which is precisely the same security, which has the full backing of the Government and people of the United States, and which carries no mterestbearing obligations, placing no further interest debt upon the Goverment and its taxpayers?
To put money into circulation, great public works—Federal, State,
and municipal—should be instituted, putting to work millions of
people. Instead of issuing interest-bearing bonds, the Government
could issue a sufficient amount of Treasury notes to enable it to
extend credit to States and municipalities taking part in the public
works program and could pay the labor of millions of people now
out of work who would gladly accept the Treasury notes in exchange
for their labor and services. Trust to the unemployed in this coun159450—33—pt 2





try to take this money from Uncle Sam and convert it into food
and clothing for their children and dependents.
The unemployed will secure work through such a plan and will
take these Treasury notes in payment for their service, inasmuch
as the Government is behind them. This money can be made legal
tender to pay obligations such as income tax, taxes to be paid to
the municipalities and to the State governments, and when , this
money finally gets back to the Federal authorities it can be cancelled or reissued, according to the necessities of the situation. In
the meantime, the people will be put to work. They will be able
to purchase food, clothing, and other necessities of life, which will
help the producers and business interests to make a profit.
The debt of the country during the World War was increased to
over forty billions in the sale of interest-bearing bonds and other
ways to help Europe win the war. Won't the bankers let the
Government help the 12,000,000 unemployed Americans with a
Treasury note issue which will save millions in interest and help
balance the Budget, as well as send millions back to work ?
The suggested remedies would help to stabilize property values
and commodity prices. Producers, the manufacturers, and the farmers can then operate at a profit and be assured that the value of
their property and their savings, measured in basic, yardstick money,
will not disappear or evaporate as the sun melts the snow.

In conclusion, may we not hope that the incoming Congress will
see that the control of currency and credit shall be taken away from
the banks and bankers in the United States and that such control
be restored to the Government; that ample currency and credit may
be made abundantly available for the American people, enabling
them to build up industry, employ labor, stabilize the prices of property and commodities, and relieve the present depression and distress; and that tariffs may be so adjusted that trade barriers may
be removed, and markets found for our surplus, restoring profitable
trade with our own people and other nations, and that our country
resume its leadershij) among the nations in progress and civilization?
I thank you for giving me so much time.
The CHAIRMAN. Thank you.
AVe will next hear Mr. E. D. Duffield, Newark, N. J.

The CHAIRIMAN. Give your full name and address for the record.
Mr. DUKFIELD. Edward D . Duffield. South Orange, N. J,
Senator REED. You are president of the Prudential Life Insurance
Co., are jyou J-lV/ll V
y J U L not?
Mr. DUFFIELD. I am president of the Prudential Life Insurance Co.
Senator KEED. And acting president of Princeton University?
Mr. DUFFIELD. Yes, sir*
Mr. Chairman and members of the committee, at the outset I
want to say that in accepting the invitation of the committee to ap



Dear here I had a real feeling of diffidence because I realize how
ittle I can contribute to the problem which you are seeking to solve.
I am not a political economist, and I do not claim to be an authority
on international finance, or, indeed, an authority on economics.
Senator HARRISON. We may get some good out of you then.
Mr. DUTTIELD. I really felt that the best service that I could render
the (?ommittee was to discuss in an informal way the problem which
is presented to you in the light of such business experience as I may
have and in connection with the situation that presents itself to us
during the period of this depression. And I have more hesitancy
because I realize the difficulty and possibly the impossibility of the
task which is presented to this committee. We have grown so accustomed to expect Government to take care of everything that we are,
I suppose, generally looking for Government to provide a means to
escape from the dilemna in which we find ourselves which possibly
and indeed probably it can not do solely and by itself.
It seems to me, Mr. Chairman, that the fundamental difficulty
which prevents a resumption of ordinary activities is a general lack
of confidence. What we are faced with is a fear of the unknown.
We are fearful of what may happen in the future, and as long as
that situation continues it is impossible, in my opinion, for business
to advance, for industry to become active and for agriculture to
secure the fruits of its' endeavor. People are fearful, and when
people are fearful they are not willing to risk the future, and yet
all business, all commerce depends, as I see it, upon a stabilized
situation, at least to a degree.
When men are confident of what may happen they face that
situation, meet it and proceed. And therefore it seems to me that
the problem that presents itself not only to legislative bodies but to
^^^viduals, is a restoration of confidence and a dissipation of fear.
Therefore in the few words that I want to say I want to address
myself to that subject. I realize that much that I may say you are
lamiliar with quite as well as I, and I say so, I trust, with a full
recognition of the fact, but nevertheless with a purpose to indicate
^v'here to some degree, at least, confidence may be restored and fear
mav be dissipated.
I want to suggest to you three matters, two of which I desire to
treat of very briefly, and the third which possibly by reason of the
nusiness^ in which I am engaged I might develop at somewhat
greater length.
I will say at the outset, and I say this with a great degree of
hesitancy, that I believe the thing of primary ^ - ^ -xu is the bal^ -- ,
- importance u
aiicmg of the Federal Budget. I say that, as I said, with hesitancy,
because I do not question that every member of this committee
aj^-rees with me. I do not question that, speaking generally, every
Member of Congress agrees with me as to the necessity and desirability of balancing the Budget. But it is a factor in the uncertainty
^'hich confronts the countrv that the Federal expenditures have for
a period of years now exceeded their receipts. And that has not
been unique with the Federal Government. It has been the same
yith the State governments, it has been the same with the municipahties, it has been the same with private organizations and individuals. And the necessity of that being accomphshed is not




merely to regulate Federal finances, as I see it, but it is also to
act as an example to State governments, to municipal governments,
arnl, to corporations and individuals.
Mv hesitancy is due to the fact that I believe an honest effort has
been^made not only in Congress but in the State legislatures to solve
this problem. The difficulty with the problem arises out of a lack
of agreement as to the methods to be pursued, and that again I think
on analysis was almost inevitable. What must be done, of course,
is either to reduce expenditures or to increase receipts or to do both.
Now, the minute that that problem is stated you have the situation that what you, sir, might think is a necessary feature of government I might think is unnecessar}'^, and therefore I would be in
favor of dropping that or curtailing that, while you would be in
favor of continuing it. On the other hand, there raay be some proposal of curtailment of some governmental feature in which I was
interested and which you might thing was unessential, and therefore
I would not be in favor of curtailment in that particular..
The same thing is true with regard to the raising of taxes or the
increasing of revenues. Nobody is in favor of taxing themselves.
Everyone is in favor of taxing some one else. No increase in revenue
is possible without being burdensome to some one, and as long as
some one finds that it is burdensome some one objects to that particular form of increased governmental revenue.
Therefore, as I say, in referring to this I am not doing it in a
critical attitude, but I merely feel that I should refer to that as
one of the causes which is occasioning the present uncertainty, the
present lack of confidence, and the present unrest which prevents a
restoration, as I see it, of commerce and through commerce an increase in the activities of business and industry.
The CHAIRMAN. And those are the very questions that we desire
you to discuss. And we appreciate it greatly.
Senator HARRISON. We are glad you know our difficulties.
Mr. DUFFIELD. Well, I certainly do.
Senator EEED. Most people do not, Mr. Duffield.
Mr. DUFFTELD. I think it is perfectly obvious, Senator, and the only
suggestion that I can make to this committee to meet that is that I
think that a repetition of the necessity of a give and take policy in
order to arrive at the conclusion which all will agree is desirable, is
quite essential.
I will say further that I do not believe that the ready solution
which is always offered of a curtailment of salary furnishes any
solution to the problem either in the State or Nation. A certain
amount can be done, but you can not balance the Budget by reducing
Ae salaries paid to those who are working for the Government.
You can cut off activities. You can remove those and find that they
are unnecessary. But I do not believe that the solution which is so
readily and universally offered, of a reduction of salary as meeting
this whole problem, is any solution at all.
I suggest as the second matter which it seems to me is causing
public unrest and public uncertainty is the fear that in some ^ay
our monetary system will be radically changed. You can not expect business to develop where those who are engaged in it are
uncertain as . to what will be the value of the circulating medium



at the time in which the business is transacted. There must be sonie
reasonable certainty as to conditions existing in the future in order
to enable business "to be conducted and in order to enable men to
risk their capital in the hope of a profit and a return.
And so I say again that the discussion, the fear that there is
in the minds of many that some radical change will be made in our
whole monetary system and that there will be an alteration in the
value of the dollar is another cause of uncertainty which in my
opinion interferes with a resumption of normal activity.
Senator L A FOLLETTE. Mr. Duffield, how are you ever going to
eliminate that fear when the constant decline of business and the
increased suffering increased the agitation for some monetary approach to this problem?
Mr. DUFFIELD. Well, Senator, frankly I can not discuss with you,
because you are more familiar than I with the technical question of
the effect, or the method, or those matters which go into the gold
standard, and the continuance and maintenance of it, and the importance of it. I would be glad to do it, but I am quite sure that it
would be ineffective. The point I want to make is
Senator L A FOUJSTTE. I am not trying to argue about inflation,
as to whether it is desirable or undesirable. But it has been the
history of all past depressions, and it is showing itself in this depression, that as the situation becomes more critical the agitation and
discussion of this thing which you think creates uncertainty and
fear increases? and what could Congress do to allay or prevent that
public discussion ? I can not see anything that we could do about it.
Mr. D U F F I E U ) . Well, the difficulty with that is. Senator, as it seems
to me, that if it were once assumed that we were to begin inflation—
we hear a great deal about controlled inflation—but the difficulty is,
Where will you control inflation? For the basis of my argument it
might be that a stabilized dollar at 70 cents would allay and would
create, a condition in which, if business were assured that it would
remain at 70 cents indefinitely, would enable the business man to risk
his money and buy his goods and start with the hope of making a
profit. The difficulty, as I see it—and I am speaking now as a layman and not as an expert—is. Where do you stop ? The minute feat
you reach the basis of 70 cents the debtors are not relieved. The
pressure increases.
Senator L A FOLLETTE. Y O U misunderstand my question, Mr. Dufheld. I do not care to argue with you about the desirability or the
undesirability of inflation as an attack upon this depression. But
you have mentioned it as one of the factors of fear and uncertainty
^nich ought to be eliminated, and the point which I am trying to
onng out and to bring to your attention is that as the situation becomes more desperate there is more and more agitation—^ven if it
^id not occur in Congress it occurs in the public mind—for an inflationary approach. I can see it in my own mail, and I am sure my
colleagues would bear me out, that more and more indication of the
^ide^spread interest in inflationary procedure is cominff in to us.
^>ow, we can not do anything to stop the public from thinking about
inflation and talking about it.
Mr. DUFFIELD. N O , Senator, but I think that if Congress could
assure the country that the pledges in the two platforms for sound



money would be carried out without alteration or change, and that
the monetary system would not be radically changed, confidence
would be restored, that business would be conducted on a monetary
system where the same value which exists to-day would exist six
months from now. I think under those circumstances the fear which
now exists would be relieved, and I believe that hoarding which
now is being accomplished would be eliminated. And I believe that
the draft upon us made now by foreign countries would be lessened
to a degree that the strain would be removed. And I believe that
the extension of credit which would result by such a declaration
from Congress would expand credit to a point which would alleviate the situation of tight money which may be created by reason
of the fear which has been occasioned, by reason of the very pressure
to which you refer.
That is the best answer I can give you, Senator.
Senator L A FOLLETTE. Assuming that everything you say is true,
for the sake of the argument. Congress might pass a resolution
to-morrow reaffirming the position taken in the party platforms, but
that is not going to prevent the same Congress or the next Congress
from taking up a serious discussion of monetary procedure. And in
the meantime the agitation goes on over the radio and in the public
prints and in meetings and discussions. I do not quite see how we
are going to stem the tide of this discussion about the monetary
Mr. DUFFIELD. Senator, do not misunderstand me. I said at the
outset that I do not believe Congress in and by itself can cure this,
nor do I blame Congress nor criticize Congress for the creation of
this uncert^iinty. But I do believe it is something which Congress
should have in mind, and I believe that Congress in cooperation with
the individual citizen could allay this appeal for a varying currency
instead of a constant one, and if it would do that it Vould go far to
restore credit, which in turn would meet the needs of the country
with its present circulating medium.
Senator L A FOLLETTTE. Y O U are expressing a wish rather than giving us any means of carrying it out.
Mr, DUFFIELD. Well, I think you have indicated very clearly, Senator, the limits to which Congress can go. And I, for one, do not
expect Congress to accomplish every result necessarv to the restoration of prosperity.
Senator EEED. Mr. Duffield, vou have suggested that Congress
could do something to allay this*^agitation. I want to ask you what
you have done? . Have you explained to your policyholders that
any of these schemes of inflation would mean that the value of their
dollars would shrink? That they, who have paid you good dollars
would get back bad dollars? Have you?
Mr DUFFIELD. Well frankly, Senator, I have not. I am not sure
that I should not have. The reason that I have not has been that
it seems to me that this whole discussion creates a situation which
is disastrous and injurious, and I have felt that so far at least, it
was unwise to endeavor to enter into the field of argument. But
I think you are perfectly correct, and at a later stage of what I
have to say I would desire to cover that point.



Senator KEED. We talk about inflation as being a levy on the
creditor class, and most of the people who write to me I am sure do
not realize that the big creditor class of this country are the people
who get paid on Saturday night and the people who have insurance
policies and the people who have bank accounts.
Mr. DUFFIELD. Of course, Senator, the life-insurance business is
the largest debtor there is in the country. There is no question
of that.
Senator REED. $ 1 0 3 , 0 0 0 , 0 0 0 , 0 0 0 of life insurance in force somebody
told me. Is that right?
Mr. DUFFIELD. I should say that that is approximately correct.
Senator HARRISON. Mr. Duffield, may I ask you, as I understand,
your first suggestion here is to balance the Budget?
M r . DUFFIELD. Y e s .

draw in our expenditures to meet our receipts, and so forth. That that is what ought to be done first. What
would jou think would be the effect on business generally and the
restoration of confidence if we assume that during these remaining
days of this Congress there is not a great deal of legislation to be
passed; that certain inatter must go over; and assume that an extra
ses^on of Congress will be called quite early; if in this extra session
1 ^^Si'^ss there should be a constructive program laid down and
the Budget should be really balanced, mostly through cutting with
an ax and retrenching, and so forth, and then passed these constructive measures we might agree upon whether we did a^ree upon
them or not, but passed them quickly, in two months' session; take
just that program, take up nothing else, and adjourn Congress
think that it would have any effect upon business
the restoration of confidence?
Mr. DUFFIELD. I think, sir, that nothing that could be done could
nave a greater effect. I think that a factoi at least is the fear of
attempting to do by legislation what necessarily must be done by
economic laws. Or in other words, an interference. I believe that
II, as you say, this Budget were balanced, that business would then
nave a chance to recognize the factors as its problem and could
prognosticate a future with a fair degree of certainty. Have I
answered your question?
Senator L A FOLLETOE; I S it a fair assumption from your statement, Mr. Duffield, that you are in favor of letting this depression
Its course?

Mr. DUFFIELD. Well, Senator, it is difficult to answer that question yes or no. And after all, it will or will not, without regard
^ whether I favor it. I believe that there are certain things which
can be done by legislative enactment, and I believe that there are
law ^^ ^^i^gs which necessarily must happen by reason of economic


Did you favor the creation of the Recon-

? ? ^^inance Corporation ?

^ir. DUFFIELD. I did, for the purpose for which it was created.
senator L A FOLLETFE. Well, that was an interference with the
deflation, was it not? It was an attempt to maintain the
apitai and debt structure of certain institutions.




Mr. DUFFIELD. I think the Eeconstruction Finance Corporation
creation was justified upon the ground that I do believe that by legislation we should endeavor to prevent unnecessary injury from what
in the broader sense must be cured by economic law. And there the
question of time is of the greatest importance. For example, if
you take a perfectly solvent institution which may not spee dily be
able to liquidate its assets, but can, if given time—I believe that
governmental aid to that institution is thoroughly justified.
I see little or no advantage in aiding an institution which under
no circumstances or conditions can avoid a final banlcruptcy. And,
therefore, between those two it seems to me that there is a clear
Furthermore, I believe that Government may properly extend aid
to the States or to the municipalities who necessarily are burdened
with the care of the unemployed. I believe that the extension by
Government of aid to those who during this period find themselves
out of employment and unable to support themselves is not only a
proper governmental function but a governmental obligation.
Senator L A FOLLETTE. I am assuming, for instance, that the administration of the Eeconstruction Finance Corporation has been
very conscientious. I am not seeking to criticize it in any way at
all. But it was an agency created for the purpose of maintaimng
the solvency of institutions of various kind which at the time that
the loans were extended were assumed to be in the category that
you have indicated were eligible for governmental assistance. And
yet the constant downward trend of business conditions has entirely
altered that situation, as witness the fact that many banks which
the Reconstruction Finance Corporation thought at the time could
be saved received loans and have failed. The same is true of railroad
corporations. And I do not quite see how anyone is going to be in
possession of sufficient vision into the future to carry out the sound
sxiggestion as to the determination of which group of institutions
sliould be helped and which should not.
Mr. DUFFIELD. Well of course, Senator, that is the difficulty with
the administration of any matter which is entrusted to human beings. We all make mistakes, and I assume that looking back at it
the Reconstruction Finance Corporation would realize that possibly
it had made some mistakes. Mv question was merely directed to the
justification of the creation of that institution.
Senator L A FOLLETTE. What it comes down to is this, is it not:
That we have constantly proceeded here upon the theory that sonic
time or other these various economic factors would come into balance, and that that would be the bottom of the depression. Aind
usually we have estimated that it was a month or two months or
three months away. But that time has not come yet. Here we are,
for mstance, confronted with the situation so far as the capital debt
structure of the railroads is concerned. How long should Congress
go on, in your judgment, tailing up and trying to support that capital structure? When is the time going to be reached when you
would liave Congress or the executive agency created to administer
the act say: " I t is perfectly obvious that we can not sustain the
structure forever, and Ave might just as well let it proceed through
the wringer of deflation and reorganization



Mr. DUFFIELD. Well, the difficulty in answering that question, Senator, is that I do not think that you can apply a universal rule to any
particular railroad, for example. I do not think you can say that
all railroads should be denied aid because some railroads possibly
can not weather the storm. I think you have got to use the best
judgment that you have at the time as to whether with a reasonable
anticipation of the future of the road to which aid is granted can,
if aid is granted, carry tlirough. You have got to use the best judgment that you have in administering that fund to determine whether
or not another road can not under any circumstances carry through.
And undoubted^ if either you or I were administering that fund
we would make mistakes, but I think that our obligations would be
to use the best judgment that we can.
If I may use an illustration, Senator—think that the service
of the Reconstruction Finance Corporation is exactly that in a situation where some one is sick of pneumonia, for example, where you
would bring in oxygen in order to keep the patient alive. The
oxygen does not cure pneumonia. Now I think the purpose to utilize
the Reconstruction Finance Corporation was to keep the patient
alive during the disease until the economic situation had cured, and
that I think for that purpose it served a very useful end, and still
Now you ask me how long, and I do not know how long. I can
not tell you. I doubt if any one can tell you.
Senator COITZENS. Could you estimate the amount of money that
the R. F. C. was justified in putting up before that determination
could be reached?
Mr. DUEFIELD. I think this committee is far more comjoetent than
I to determine how great a strain the credit of the United States
can stand in order to keep this economic structure of ours in status
Senator COUZENS. Would you say that we were justified in advancing Up to twenty billions of money to maintain that structure?
Mr. DUFFIELD. I hesitate, Senator, to make any statement as to
amount. I have tried to indicate the question of principles, but I
am not, as I said at the outset, an economist, neither am I familiar
with the details of governmental business, and I would hesitate to
say as to the amount.
Senator COUZENS. What is the extent of money that you have in
your corporation that you control?
Mr. DUFFIELD. In railroad securities, sir?
Senator COUZENS. N O , in all.
Mr. DUFFIELD. D O you mean the amount of our assets?
Senator COUZENS, Yes.
Mr. DUFFIELD. Something over $2,500,000,000.
Senator COUZENS. And from that wide experience you could not
advise us how far we were justified in going and issuing Government
securities to maintain capital structure?
Mr. DUFFIELD. I reallv do not think I could, sir.
Senator COUZENS. Well, you are imposing a great deal of responsibility upon a lot of us poor laymen if you can not advise us how
far we are justified in going.



The CUAIKMAN. I think that there may be a wrong impression
drawn from what was said in relation to the K. F. C. It is true that
there have been a few cases, but we must stop and think of the many
cases—100 to 1 cases—that if they had not received the assistance,
more than likely they would have failed. And I think the results
of the Reconstruction Finance Corporation, as far as successful loans
are concerned, are as great as any of us anticipated they would be.
Mr. DUFFIELD. I entirely agree with you. Senator.
Senator COUZEKS. I would like to point out to the witness and the
chairman also that no determination can yet be reached, because we
have not yet reached the end, as to the estimate of these loans.
The CHAIRMAN. That is true, Senator. And that would happen^
and would have happened long before now, in my opinion, if it had
not been for the E. F. C. and Government assistance.
Senator COUZENS. Well, maybe we would have been better off if it
had happened. Senator.
The C H A I R M A N . I do not think so.
Senator COUZENS. Sometimes we had better have a leg off early
than wait until gangrene sets in.
The C H A I R M A N . I think we would have had our head off instead
of a leg.
Senator K I N G . Mr. Duffield, do you not think that the loans which
have been extended by the R. F. C, in the past and those which may
be extended in the future would have secured better results, and will
secure better'results in future, if they contemplate, or rather if they
are more interested in, giving jobs to men than in bolstering up
capital structure?
May I say, just so that you may understand my view, that I have
rather felt that if we could put men to work we would put dollars
into circulation, increase the purchasing power, and the celerity, as
you know, of the circulating medium is what contributes to the
vitalization of our industries, and therefore that the loans which may
be extended in the future ought to be rather with the view of furnishing work than for the purpose of bolstering up insolvent organizations ?
Mr, DUFFIELD. Well, if you limit it to insolvent ORGANI2:ationSy
Senator, I will agree with you.
Senator K I N G . Well, those the capital structure of which conc^dedly needs to be scaled down and reorganizations ought to be
M I \ DTJFFIELD. I will say certainly, Senator, that where any organization is so capitalized that it is practically certain that it can
not meet its obligations that there is no value in adding to its oblifations, and that where a man is hopelessly in debt you are not
elping anybody by increasing his debt.
Now, with that" limitation it is as near as I can come to definitely
answering your question, because where you are talking about capital
structures I can conceive of a local bank the saving of which would
be more important than the erection of a post office or even than the
erection of a dam, which would employ labor in the town. Therefore, unless you have an individual case, I can not answer your query
in a more definite way than I have tried to do it.
Senator REED. Each case has to stand on its own merits.



Mr. DUTFIELD. I think so, Senator.
Senator EEED. Where a bank is helped merely to postpone its
ultimate closing up, certainly it is a wrong to the depositors for the
Reconstruction Finance Corporation to take all its good assets as
Mr. DUFFIEU). I entirely agree Avith that statement, Senator.
Senator K I N G . Mr. Duffield, is there not a limit to the credit of
the Federal Government ?
Mr. DUFFIELD. I believe there is.
Senator K I N G . Of course, as you know, whenever the K . F . C .
makes a loan it has got to get the money from the Government of
the United States. Your company has not taken any of the securities issued by the R. F. CJ
M r . DUFFIELD. ISTO, s i r .
Senator K I N G . Nor has any organization in
Mr. DUFFIELD. None whatever.
Senator K I N G . In other words, the Treasury

the United States.

has had to carry the
entire load of all of the debentures, or whatever you denominate
them, that have been issued by the Reconstruction Finance Corporation?
S^ator K I N G .


And it is obvious that if additional issues are given
out by the Reconstruction Finance Corporation the Government will
Have to purchase those. Now, if that should continue indefinitely,
aiicl if these deficits of the Government, which are now approximately $5,000,000,000 in five yeai^s, should continue indefinitely, will
niere not come some period when the credit of the Government will
become impaired ?
Mr. DUFFIELD. I should say so. Assuming:, of course, that this
depression continues.
Senator K I N G . Yes; sure.
Mr. DUFFIELD. Assuming that, and that the demands on the Reconstruction Finance Corporation are continuing, I should say that
tHere could not be any argument.
^ Senator K I N G . D O you not think then that one of the obligations
wh f
Congress is, so far as they possibly can, to determine
rp L ^ ^
issues might be made of Government bonds without
limit of the strength of the Government to bear the
Mr. DUFFIELD. I think that not only should it be done but I think
-i^ie difficulty I had in answering the question of the Senator some
time ago is that I think that that is a question which the political
conoimst or one who is capable of analyzing government credit far
^nore efficiently than I could best assist you in.
ih f ^^-^IRMAK. Would not the ultimate purchaser finally decide
as to whether the Government bond was going to be
to I
suppose that is true, Senator. But when it comes
sL r '
^ ^^ concerned, I would take counsel. I mean to
y irankly that if the question of purchasing Government securities
to me as the head of my own institution I would not
my judgment, and for that reason I had hesitancy in answer



ing that question. I would seek the advice first of those who I felt
could intelligently advise me, and I would be governed accordingly.
The CIIAIKMAN. And that is about the same that every purchaser
of Government bonds does now. In other words, he is not going
to purchase any Government bonds unless he has gone into the
ability of the Government to redeem those bonds, and if in his
opinion the Government has not that ability he will not buy the
Senator REED. Well, the present quotations of the United States
Government bonds indicate that nobody has lost faith in us yet.
Mr. DUFFIELD. Absolutelv, Senator/ There is no question about
Senator COUZENS. Has your company borrowed from the R. F. C.
at all?
Mr. DtTFFiELD. No, sir.

Senator COUZENS. Have you any record there of the number of
farm mortgages that you have foreclosed?
M r . DUFFIELD. Y e s , s i r .
Senator COUZENS. Have you given it
Sir. DUFFIELD. NO. But if you will

to the committee ?
permit me, Senator, the next
point I want to discuss will cover the whole mortgage question, and
if I might be permitted to present my views I will be glad to answer
Senator REED. May we not have Mr. Duffield take that up at 2
o'clock? It is almost 12. Some of us have to be on the floor when
the Senate convenes.
Mr. DUFFIELD. That will be entirely satisfactory to me. But I
merely want to suggest that I would like in the presentation of this
question of the mortgages, which of course we are vitally interested
in, to present my views, and I think I have some data here that
will, I believe, answer the inquiry of the Senator.
The CHAIRMAN. Y O U have that right, Mr. Duffield.
We will adjourn until 2 o'clock.
(Thereupon, at 12 o'clock noon an adjournment was taken until
2 o'clock p. m. the same day, Thursday, February 16, 1933.)

The committee resumed its session at the expiration of the recess.
The CHAIRMAN. The committee will come to order. Mr. Duffield,
I would like to have you proceed now.

Mr. DIOTIELD. Senators, I endeavored to suggest this morning
certain things which seemed to me have affected the confidence and
that create fear in the way of uncertainty. I want to suggest a
third ground which is, in my opinion, even more important, and
that is the fear that through legislative enactment the binding
elfect of a contract may be destroyed. I think our whole economic
structure largely rests upon the fact that there shall be no impairment of a contract once made.



By that I do not mean, of course, to say that the creditor should
in all instances and in all cases enforce his contract to the letter.
There are many cases in which not only leniency but consideration
and even self-interest would require a modification or alteration of
the original obligation. But to destroy or modify or change or
weaken the binding effect of a contract once entered into, in my
opinion, might even destroy the basis on which our whole economic
structure is built.
And of course I speak in this connection largely from the situation in which I am, as the head of an institution which has been a
large investor in the obligations of individuals and the obligations
of corporations. But I am in no different position than I would be
if I were the trustee of the estate of a single woman or the guardian
of a single child. The fact is that a life insurance company does
act as a trustee for more than half of the people of the United
States, and the funds which have been entrusted to it are in the
highest degree charged with a trust. The position, as I view it,
of the life insurance companies is exactly the position of a commonlaw trustee, and the primary obligation is to safeguard and conserve
the trust estate which has been committed to their care. That I
think will not be disputed by anyone.
I do want to call attention to the fact that wheher an individual
trustee or whether a corporate trustee or whether a trustee such as
a mutual life insurance company, an aggregation of individuals,
is handling trust funds which have been restricted by statutory
enactment and by policy annunciated not only by the Federal Gov*
ernment but by the State governments in the handling of their
trust funds to obligations of indebtedness, whether it be bonds of
corporations, whether it be bonds secured by mortgage on private
property, statutory enactment has wisely limited them to a certain
definite class of investments.
That was done, I take it, for a purpose. It was done in order
that the corpus of the estate might be safely protected. It was
done to prevent speculation with trust funds. It was done to
require the trustee to surrender that income which he might have
obtained by investing in common stocks or equities or by buying
real estate and borrowing money from others in order to finance
It, so that at all times the corpus entrusted to him by his cestui que
trust should be safe and secure.
When I speak to you to-day I speak in the position of a trustee,
I speak not only as the representative of my company which
stands as a trustee for perhaps one out of six individuals in the
Uited States, but for the life insurance business which stands as
trustee for more than half of the people, for banks and trust comand private executors and trustees, all of whom have been
limited to a certain definite form of investment with the purpose
of safeguardincj against all hazards the corpus of the estate comW
to their "carl.
, ^
^ , ,,
>ve hear frequently a discussion of a readjustment ot the ilebt
^nd the sealing down of the debt. I am not sure that I know what
that means. If it means scaling down all debts, it, of course, means
^iie scaling down of the debts which, for example, our company
^^^'es to the millions of people who have entrusted their funds to us,



who have made sacrifices of their own interest in order to protect
those who are dependent upon them. I do not think it is suggested
that that should be done. I trust it is not. But you can not scale
down the debt of one class and refrain from scaling down the debt
of another class, without creating a situation which would render
it impossible for the trustee, whether he be individual or corporate,
to discharge his trust and fulfill his obligation.
As I have said, that does not mean that the trustee might not be
obligated in the discharge of his trust to give consideration to the
situation in which the debtor finds himself. It does not mean that
the trustee should not use that wisdom which he has in order to
protect a situation which will enable the debtor to discharge his
debt in full. It does not mean that he is not in a position to, at
times, compromise that debt in order that the debtor and creditor
may both be conserved; but it does mean that his position as creditor
should be recognized as such, and that his position as trustee should
not be invaded by a suggestion that the property of his cestui que
trust should be treated in one way and his obligation to his cestui que
trust treated in another.
The difficulty with the situation, I think, and one thing that has
disturbed investment, is that by legislative enactment a umform rule
should be applied; in other words, that the necessitous debtor, the
one who finds it difficult to meet his obligation, should be treated in
exactly the same way as the man who is thoroughly competent and
capable of meeting his debt in full; that uniform aid should be extended to those who need it and to those w^ho do not need it at alL
And while I would be the last to belittle the situation which exists
in connection with the mortgage question in the country to-day, and
while certainly no one in my position can be oblivious to the distress
and disaster w^iich have occurred to those who have been required
in the past to acquire loans, nevertheless I think we ought to have
a clear perception of exactly what happens. Figures can show just
what proportion of our people are in that situation.
I want to suggest to you, therefore, that my strong feeling is that
these are cases which should be dealt with individually; and I do
not think there is any danger in doing so. I do not believe a trustee,
whether, again, he be representing an individual and protecting the
estate of a single woman, or whether he be corporate and protecting
the estate of a large number of people, wants to acquire these properties. This money was not loaned for the purpose of purchasing
leal estate. It was loaned for the purpose of having interest paid
on it during the time it was not needed to meet the obligations which
it seeks to provide.
And; therefore, I suggest that the real problem in the case of the
needy debtor is to provide him adequate time in which to fulfill his
obligation and adequate opportunity to develop, if it is a farm, or
to pay if it is a home, the debt which he has created. I think his
interest regiilates that. I do not believe it would be seriously urged
that where individuals have gone, for example, into an investment
for profit and are thoroughly capable of meeting the loan wdiich they
have made in order originally to finance this enterprise, who have
adequate security in the real estate that they have, should be relieved
ot that obligation either as to the postponement of the time in which



the debt is to be paid or a reduction of the interest to which they
Senator K I N G . Then, as I understand you, a general law* for
instance, by the State of New York or any other State, granting
a moratorium upon all mortgaged property; that is, obligations
secured by mortgages or trust deeds, granted for one or two years,
you think would not be just?
Mr. DUFFIELD. I think it would not be just; that is, a general
moratorium. I think that the interest accomplishes that result.
If I may be pardoned for referring to my own company with
which, of course, I am much more familiar than I am with others,
although I think what I shall say will apply generally, in the
summer of 1931, before there was any suggestion of legislative
moratorium, we reached the conclusion that the financial condition
of many of those who had mortgaged land was such as rendered it
wise for us to adopt a general policy; and I will give you some
figures in detail; but I want to impress you with the fact that this
was done in 1931, and it was not done from a philanthropic motive;
it was done because we believed it economically a wise thing to do
and which we could do with a due regard to our obligation as trustee.
What we did was to decide in each individual case where the
mortgage was maturing and the mortgagor was unable to meet his
interest installments or his taxes—what we did was to discuss his
situation with him. In large areas we removed the intermediary
of the agency and used our own branch offices there in order to deal
directly with the debtor, and I think I may say without fear of
contradiction that in every case where the individual was the owner
of the farm and where he showed an ability to utilize that farm
and to operate it, and where he did not himself say that he wanted
to abandon the plan, we refinanced him by paying his taxes, by
writing a new mortgage covering his installments of interest, and
starting him off again from scratch.
.The result of that has been that we have had substantially httle
diiBculty, notwithstanding that we are in the fourth year of the depression. I may say—and I want to go somewhat into detail—that
out of over a billion dollars invested in mortgages, 89 per cent of
those mortgages are paid up on interest within six months. In other
words, there are only 11 per cent that are in distress at all.
The C H A I R M A N . Is that of to-day ? According to a report that
six months ago, it was the fact then.
Mr. DUFFIELD. That is true as of December 31, Senator.
Senator K I N G . Are most of those mortgages to which you referred
and which are included in that billion dollars, on farms?
Mr. DUFFIELD. NO, sir. Possibly I had better quote these figures
and then we will have a basis for discussion.
senator K I N G . It has been intimated to me during the past two
or three days that there is a concerted movement on the part of a
certain number of persons with large means to take advantage of
this situation, particularly in respect to business buildings and apartj^^nt houses, and that many business properties and apartment
nouses are being foreclosed and acquired by small groups pursuant
• ^nis concerted plan. Have you found any evidence to support the




contention that there are persons organized to take advantage of this
unfortunate situation?
Mr. DUFFIELD. I have not, Senator; and yet I am not certain that
I ^vould be in a position to know, for this reason: I have always
felt that the best service that we could render in the investment of
our funds was the encouragement of the individual to acquire property; and of this billion odd dollars that I am speaking of, our
average loan is only six thousand odd dollars. W e have encouraged
people to buy farms; we have encouraged people to purchase their
own homes; we have believed in the private ownership of property
and that it has been conducive to a better citizenship, and we have
tlierefore developed our whole local plan on the small loan to the
owner-owned and occupied farm and the owner-occupied home; and
while we have a few large loans, I think, if my memory serves me
correctly, at least 93 per cent of all of our loans are of the character
that I have indicated, and the balance would be of the other kind.
So that while I know of nothing of that character, Senator, I really
would not be^ probably, in a position to know if it were true.
Senator KING. A general moratorium throughout the United
States upon all obligations, especially mortgage indebtedness, say,
of two years, you think, if I apprehend your position, would rather
impair the ability of mauv of these trustees, such as insurance companies, to meet their dues ?
Mr. DUFFIELD. It would interfere, of course. Senator, with the
whole structure. There is no question about that.
Senator KING. And the value of the insurance policy held would
not have its face value, and it would lead to a great deal of appreliension on the part ol these holders as to the value of their
life-insurance policies which they have sacrificed, perhaps, to obtain
and to maintain.
Mr. DUFFIELD. Exactly, Senator; and I can think of nothing that
would be more disturbing.
Of course, I am not prepared to say, nor do I believe it to be a
fact, that a 2-year moratorium would prevent the meeting of obligations by some companies. I think that there would still be honest
men who would pay their interest even though they were not compelled to do so. I still believe that there are honest debtors who
would want to discharge their debts, and I still believe that we would
be able to secure an income. But what would inevitably happen
would be that the cost of insurance would be radically increased in
every case of a mutual life insurance company. It certainly woukl
be^radically increased in any attempt to arbitrarily reduce the interI think it might be helpful to you if I gave you a few figures in
order that you may see the situation, because our picture is not
different. It might vary slightly.
We have at present 163,965 loans. Of this number 37,568 are on
farms and 126,397 are what we call city loans, which means urban
or suburban homes and houses. Of course, included in that are some
speak of " city " you will know 1



mean the small home, and when I speak of the farm I mean the
(vwner-occupied farm.
Those loans on farm lands amount to $201,419,000. The city loans
amount to $908,666,000, making a total of $1,110,085,000.
The percentage of mortgage loan investment is 18.2, invested in
farm mortgages, and 81.8 per cent invested in city mortgages.
The number of loans delinquent in interest six months or more
are 4,000, or 11 per cent; 2,100 of the city loans, or 1.6 per cent, and
3.8 per cent of the total.
^ The number of loans in the course of foreclosure to total holdings
IS 2,400, or 6.5 per cent of farms; 3.3 per cent of city property, and
4 per cent of the total.
The per cent of loans in satisfactory condition on farm lands is
82.5 per cent. That means that interest is not in arrears over six
^^^ths. Of the city loans, 94.6 per cent, or a total of 92 per cent.
The 89 per cent quoted previously referred to volume of loans as
translated in dollars, whereas the 92 per cent refers to the volume as
translated in numbers.
The CHAIRMAN. Have you a report on delinquencies?
Mr. DUFFIELD. AS I say, Senator, I think it may be said that where
a foreclosure has been made it had been made either on a showing
oy the mortgagor on his recognition that the situation was hopeless,
or where he has deliberately disregarded any question as to mortgaged property and has failed to exercise that reasonable care in its
conservation which should mark it.
The CHAIRMAN. I n other words, he lost hope and lost all faith in
the property himself?
fVi +
Yes. The point that I am making is this, Senator,
that with 92 per cent of this large amount of loans in a satisfactory
condition, any arbitrary rule of dealing with it, with the resultant
serious consequences which are obvious, is one that certainly would
aestroy confidence to a higher degree than it has yet been destroyed,
t^i? K ^ '^ords, it seems to me that whether you are dealing with
tne bond of a railroad or whether you are dealing with a mortgage
on a single piece of property, the recognition that the trustee purcnasing that obligation purchased it in order to safeguard the
should be taken into consideration.
What would happen if that were not true? Supposing that the
^curities were scaled down in order to meet the situation of the
debtor. In the case of the corporation it would be an
enhancement in value of the common stock. But if this depression
wminates, as I believe it will terminate, what is then the situation?
^ne speculator, the man who has invested for income without regard
to safety, IS restored not only to his original position, but has the
^vantage of any gain in property. But the obligation once scaled
^lown remains there, and the trustee is left with his security fixed on
<^epression basis from which he can never recover. So therefore it
ould seem to me, Mr. Chairman, that no more serious question can
e met m this discussion or taken into consideration when we discuss
of the debtor than what is also the situation of the
^^^ the creditors? That scaling of debts has not
een shown by any figures here apparent to afford benefit to a large
159450^33—PT 2



enough perce^tage of the entire class of debtors to indicate any real
need therefor. With those cases self-interest will compel that they
shall be treated with leniency in order to provide a means and an
opportunity for them to restore their situation in order that they
can, and as they will when they can, meet the obligation that they
have assumed.
The CHAIRMAX. That is very plainly put and is a very sensible
Mr. DUFFIELD. Therfe is nothing more that I can suggest, Senator.
The CHAIRMAN. Thank you very much, sir.
OF A U T O M O T I V E E N G I N E E R S , W A S H I N G T O N , D . C.

The CHAIRMAN. You live in Washington, do you not?
D o c t o r DICIUNSON. Y e s , sir.

The CHAIRMAN. What is your business ?
Doctor DICKINSON. I am an engineer and scientist. I am at present the president of the Society of Automotive Engineers. However,
I come to you as a private individual with no interest other, than
the interest of the general public, so far as I can say.
. The CHAIRIMAN. You may proceed. Make your statement as brief
as you can, because we have a very long list of witnesses.
Doctor DICKINSON. Gentlemen, in order to make this statement
as brief as possible, I have prepared a portion of it, which I shall
ask the opportunity of reading because it can be done more quickly
than I can do it extemporaneously. I want to say in advance, however, that the material here presented was jjresented in the form
of a presidential address in Detroit to this society about three weeks
ago, and I have copies of that material. Also, I wish to say this,
that as an engineer I have taken the utmost pains to see that everything that is said and recorded here is correct. I t is the result of
a study of basic economic problems for the past several years and
has been checked carefully by consultation with perhaps a hundred
or more of the best thinkers I could find; and as a result I may
say that I am certain, as is everyone who has been over the material,
of the essential soundness of what I shall give you. I am much
more certain of that than I am of my ability in a very short time
to make it clear to you; but as the material is written and in more
or less extended form, I shall trust to that to make anything clear
that I can not make clear myself.
We should get nowhere in science or engineering if problems were
handled in the manner in which economic problems have always
had to be handled. Progress in science has always been based uj^n
the simple statement and use of basic laws. No such laws, with
perhaps one exception, are generally recognized in economics.
It is my purpose to show that the competitive economic system
of a nation is in fact a mechanism, following, as does a machine,
certain general laws; that severe inflations and depressions arise from
a definite instability in the balance between capital goods and consumables, and that this instability can be controlled through adjustment of the mechanism itself without disturbing the present




competitive system and with far less intereference with personal
freedom of action than we are accustomed to at present
Senator KING, And without involving technocracy ?
Doctor DICKINSON. Absolutely. This offers a means of securing
throughout the population, continuous prosperity^ stabilized at any
scale of living which the population desires to maintain by its hours
of labor.
A clear view of the existing economic situation requires first the
statement of a few fundamentals some times overlooked.
The primary economic object of any system of society is to promote the efficient production and distribution of goods and services,
the products of industry. Otherwise, aside from the purely social
advantages, there would be no factor tending to concentrate population.
The law of supply and demand in its general sense appears to be
imiversal so long as there is competition. The few exceptions are
fancied. Despite all efforts to the contrary, through attempts to
control competition, and so forth, the relationship between supply,
aemand, and price is always controlled in the long run by competitive factors.
Any economic unit or social unit such as a city or a nation which
I mainly selfcontained as regards outside trade, can be considered
lor certain purposes as a single industrial plant, with the difference,
however, that both the producers and the consumers of the product
constitute the same population.
In Figure 1 the tJnited States is represented as such an economic
unit It consists of a population of some 123,000,000, of which normally about 40 per cent, or 48,000,000, are producers, i. e., " gainfully
these and the remaining 60 per cent are the consumers.
I he latter consist mainly of those members of the family or group
^Jho are not working for direct wages: typically the mothers, children, and old people
^ ' Ji^
The total product of this industry, expressed in 1929 dollars as
net income, was then worth some $86,000,000,000. Expressed in terms
nm^AA®^^^ price levels this product would be worth about $60,1032
^^^ as compared with $40,000,000,000 for the net incomes of
. This is substantially a self-contained system, for although there
IS a considerable amount of foreign trade, amounting at times to
fo per cent of the total business, the net outgo of goods and services
in tile nine years between 1922 and 1931, inclusive, was less than 0.8
per cent. This represents a net export of the products of industry
^ 1 per cent during a period of maximum export.
ree of exactness the population of the United States
ver this period consumed exactly the equivalent of what it proneed in the way of goods and services. The currency mostly has
in circulation or in hiding. The liquid credits which con^^iiute a considerable part of the " m o n e y " have contracted with
fle^eased demand.
^^ st^o^ld be emphasized that wherever goods or servser^'^^^^ produced and exchanged for money all the goods and
thp ^^^ ^pd all the money remained in the United States except for
iraction of 0.7T per cent which represented the net foreign



business. This was a net export of goods and services in exchange
mostly for foreign loans, not for money, and represented the amount
of such product produced but not consumed within the United
It should be noted here that we do not overlook the important
eft'ect of foreign commerce, representing at times the exchanges of
goods and services to the extent of 10 per cent of the total national
product. This elfect comes about through the reaction of foreign
trade on the distribution of incomes, which we shall discuss in the
next paragraph.
It will be seen that such disturbances are not important, so long
as national and international conditions are reasonably stable; but,
like taxes and interest charges, they may become very serious when
price levels and industrial conditions are changing with abnormal
rapidity. In any case, however, the disturbance effects of foreign
competition are of exactly the same sort as those of competition
within the Nation.
Distribution of incomes, which is a measure of the distribution of
goods and services among the population, is determined under present competitive system by a complex array of economic forces involving a large measure of chance or accident. The net result is a
distribution of incomes which is closely analogous to the natural
l>robability curve familiar in the physical sciences.
In Figure 2 is shown such a probability curve. The small circles
represent the relative number of incomes in each income class as
shown by the best data at hand. These data are not very reliable,
and the departure of the points from the curve are as likely to represent errors in the data as departure of incomes from the probability
Money as used in all modem countries is a means whereby this
general distribution of product is accomplished. For this purpose
money serves primarily as a medium of exchange. It is closely
analogous to what are known as catalysts in chemistry. Money is
not consumed or used up in the process of exchange, but simply
j3a^es from one person to another.
wo of the most
' conservation of
t the knowledge
that when a given amount of matter or of energy disappears at one
point an exact equivalent necessarily appears somewhere else, many
of our engmeering problems would not be solved.
" Conservation of money," with certain limitations stated below,
IS an equally essential element in the solution of most problems of
national economics.
This leads, for instance, to the often repeated and but rarely
accepted fact that taxation is solely a process of redistribution.
Senator KIXG. By " conservation of money " you do not mean to
say that it must be gold or silver or paper or any particular creation
by legislation?
Doctor DICKINSON. NO, sir. I have defined that very carefully in
a paper which I will give you a copy of.
(The paper referred to by the witness was subsequently filed with
the committee.)



Senator KING. YOU accept the academic definition, do you not,
that money is real purchasing power?
Doctor DICKINSON. Oh, yes; certainly.
In fact, taxation constitutes only one of the multitude of processes
whereby incomes are distributed, as explained above. Taxation
neither directly increases or decreases monej.
It may be grossly
unjust or unwise in the process of redistribution, or again it may be
hig:hly advantageous. Taxes also may be so collected and spent as
to avoid redistribution or to promote a distribution which is highly
advantageous to the entire population.
In any modern monetary system money consists of currency and
liquid credits. The latter includes all sorts of negotiable paper, such
as checks, drafts, and so forth, which circulate as money in exchange
for goods or services. Thus the total amount of money in circulation at any time is variable through the expansion or contraction of
these credits, and no accurate figures can be given for this tbtal
amount without drawing some arbitrary line between credits which
circulate as money and fixed credits such as make up the bulk of
" frozen assets " in times like the present. A sharp distinction, however, is not necessary for this discussion, as will be seen later.
It is a familiar fact that money as a medium of exchange must
serve two other purposes: (a) A s a standard of value, and (b) as
a symbol of value.
A standard of value is necessary, for instance, to permit of keeping accounts and quoting or standardizing prices.
. As a symbol of value money can be kept in hand for periods of
tune before exchanging it for goods or services. This makes possible
the hoarding of money.
Both these functions are essential to modern business processes,
but both are the source of serious difficulties, not the least of which
are due to frequent lack of clear understanding of what money
f'eally is. In any modern system money is practically devoid of any
intrinsic value. Even gold owes its value almost entirely to its
monetary status. This use of gold being pretty much world-wide,
however, its value is there^by better standfardized than that of
currency resting on the credit of a single country.
deferring again to the manner in which the product of goods and
services is distributed as incomes, Figure 3 is a typical curve of
income distribution. It is calculated directly from the probability
curve shown in Figure 2. I have dotted the portion which represents a rough approximation of the percentage of savings which
ai'e a part of our income. The bottom of this income curve comes
out at about $3,000 salaries for present purposes. The shaded portion represents the amount of savings. This portion of the curve
Li^icating] represents savings.
^ ,
.^here are two things that can be done with savings. I have
Pictonalized this because it was presented to an audience of engineers. Savi^gs can be utilized for what I have termed as social
capital—for things that do not draw interest, such as our own indi^luual houses, our personal property, our national roads, national
m s , our schools, and public buildings. They are all social capital,
-^^^ey do not pay interest, in general, except in the process of acquir





ing them. If we put our savings into social capital, they no longer
enter into economics, because they do not draw interest.
In this figure is shown, on a relative scale, the total of all incomes
in each income class. The highest point of the curve represents the
sum total of all incomes in the particular class plotted on the horizontal scale. This maximum point occurs at about $2,200 incomes.
The total area under the curve indicates the total income of the
For the present purposes this income is assumed to contain the
sum of all net incomes plus any payments of interest which are
deducted before net incomes are computed.
The shaded portion of the curve represents total savings from
incomes of different classes as estimated by the insurance companies.
The use to which these savings are put is one of the most vital
elements in the problem of national economics.
In Figure 4 are represented two leaky jugs, representing the
necessary depositories of all savings except such as may be hoarded
in kind.
The contents of the jug, marked "economic capital" represents
the total accumulated savings which are represented by capital, i.^ e.,
capital goods on which interest is obtained. Those of the jug
marked "social capital" represent all those things such as roads,
parks, schools, public buildings, and personal property which have
resulted from savings devoted to personal or general social purposes,
and on which no interest, charge is made.
I t is clear that savings, unless hoarded in kind, necessarilv gOj
so to speak, into one of these two jugs. Both jugs are shown as leaky
to represent the fact that capital goods of all kinds wear out or
become obsolete. The contents of these jugs may increase or decrease
depending upon how much is put in and how much leaks out.
Senator KING. Your social capital, as you denominate it, is an
expense as well as an ultimate loss ?
Doctor DICKINSON. It is an expense.
Senator KING. An annual expense for the maintenance of it?
Doctor DICKINSON. Not necessarily.
Senator KING. For these schoolhouses and churches and what not
there is expense incident to the maintenance of those buildings.
Doctor DICKINSON. That is all a part of our investment in social
capital. That is, it requires a certain amount in every case. I^
includes the cost of keeping them going.
Social capital which does not earn interest does not come directly
into the economic problem. Economic capital, however, is an essential element, and needs to be evaluated. So far as we can determine
there are two definable values of the total of national economic
capital, i, e., capital goods, as here defined. One is the capitalized
value of its earning power at some accepted rate of interest and the
other is its sale value. These two figures may or may not be equal
and their relative amounts are important as will appear later.
For the present purpose interest is used to designate the returns
on capital as such, exclusive of profits or losses which may result
i^om good or bad management. In other words, it is what one
would have to pay for the use of money for long periods without
the element of risk as to principal. So defined the interest rate



taken as an average throughout the Nation does not vary greatly
in the absence of any serious economic disturbances.
In fact the normal interest rate is, we believe, determined over
long periods of time through the operation of the law of supply and
demand and can not be greatly modified by artificial measures,
except locally or temporarily.
For any total amount of income as depicted on Figure 3, there
is necessarily some total amount which can be used to pay interest
on the total amount of capital in the Nation.
There are just two ways, so far as I can see, of stating value.
One is, how much can it earn; how much can we receive in the way
of interest for it? The other is, how much can we sell it for? And
that is an important distinction which I shall emphasize later,
namely, how much will the capital earn, and how much can it be
sold for?
I have expressed this situation in the form of an equation which
perhaps may not be so apt to this purpose as the same thing expressed in words. The amount that can be received in the way
of interest for capital is absolutely fixed by the amount of income
which we can earn; that is, by the amount which we can take out
of earned income to put into interest, or by the amount of use
which somebody can make of the total capital. Beyond that point
capital is of no more value, no matter what we do with it. In other
words, I have assumed that for this purpose when we have reached
a point where all the use is being made of capital that can be made
of it or we are paying all the interest that we can pay on it, this
jug is full.
. 1
AVhat happens if we save more than can be used? Obviously
something must be done with those savings. Putting them into
this jug [indicating"] does not increase our income at all. In other
words, it is useless. And here is where the fundamental difficulty
in our economic system lies, and this can be remedied if we attempt
to put more into this jug [indicating].
In other words, if we attempt to buy securities beyond the point
where there is room for them, the price of securities rises, and that
m^ns that we acquire additional savings.
Of course, it is a matter of actual fact that those savings accrue
very largely to the people in the upper brackets of this curve (indicating) who can not spend it all for consumables and must reinvest
them. Therefore the reinvestment further increases the value of
capital, and we have a system that is distinctly unstable. As we s ^
in mechanics, it is unstable like a trunk standing on its edge. It
IS all right when you hold it in its place, but if it is allowed to drop,
that is another matter.
Prices reach a point where people begin to realize that they are
buying securities at a price such that the actual earned return on
those securities is much below an acceptable rate of interest, maybe
2 or 3 per cent instead of 5 per cent, as might be normal. When that
occurs, then we have the beginning of a panic which we had in 1929.
-t^anics of that kind have occurred throughout history, and they
^lU continue to occur if we allow this thing to take place.
Senator KING. All of which means, if I understand you, and
reducing it to very commonplace phraseology, we went on a wild




spree with surplus, with anticipated profits and with some real
Drofits, and bought a lot of worthless securities that had reached
ligh market values, and when securities fell the so-called capital
Doctor DICKINSON. Senator, I should not quite say we bought
useless securities. W e did buy some useless securities and we paid
a great deal more for them than they were worth.
Senator KING. W e bought a great many securities that were
Doctor DICKINSON. Yes. That was part of the program.
If more savings are put into the jug the total real value of the
contents is not increased unless the total amount of incomes is increased, or else a larger percentage of the total income is paid out
as interest. As there is a limit to this process there is likewise a
limit to the value, based on earnings, of total capital. This we may
designate as a full jug. If more savings are poured in, the jug overflows or leaks faster and the savings are lost; not necessarily the
same savings, but a like amount.
Thus we arrive at a very important postulate now emphasized
by various eminent economists but apparently totally neglected in
practical economics. This is, that the total real value of capital
can never exceed that on which current incomes or business can pay
returns. When economic capital has reached this maximum the ]ug
is full.
The inherent instability about this matter, however, seems to have
been generally overlooked.
Suppose that there is a small excess of savings over what is needed
to offset the leak in the jug and provide the 4 per cent or so required
annually for normal growth of industry (in the United States).
This surplus will be invested, unless the owners hoard it or put it
into social capital; but there is no more room for it in the " economic " jug, so this runs over. No one finds this out immediately,
though, for the following reasons: The act of investment in capital
beyond that normally needed raises the price, though not the earning power of capital. This rise in price permits sale of capital at
a profit which profit in turns goes partly to increase apparent savings which demand further investment. This process takes place
through expansion of credit and represents not a real rise in value
but an unearned increment of capital value above its earning power.
This process, therefore, is highly cumulative, increasing in intensity
as times goes on.
The CHAIRMAN. Doctor Dickinson, I want to call your attention
to the fact that we have to leave in about five minutes in order to
Doctor DICKINSON. I did not know that the time would be so short.
I shall not be able to give you, then, the definite proposal which I
have. I CM not begin to tell you the whole story in five minutes,
Senator. But I have plotted here from the figures available two
curves which represent the present situation. A n analysis of this
whole problem simmers down to a conclusion that the present situation IS brought about mainly by a lack of distribution resulting
very larply m or at least accompanying an unemployment of





Therefore in order to see where we stand at the present time T
have plotted these two curves, one of which is in terms of gold dollars and one of which is in terms of purchasing dollars, showing
where we stood in the 20 years previous to 1929 as regards the proportion of our people employed. About 39 per cent at least of the
population was employed on an income in gold dollars of $750 per
year per individual in the United States, or in terms of present purchasing dollars, about $460. A t present our income has dropped to
about $350.
Senator HARRISON. That is, per capita?
Doctor DICKINSON. Yes, sir. It is a little less than that, because
we have gone far below this.
The other possible solution at the present tme, other than the
scaling down of debts, about which you have just heard a discussion, is to bring back this employment situation along the same curve.
There is one way in which that can be done. Individual companies
can not increase their employment. The nature of this curve [indicating] is such as to show that at this point [indicating] when an
employee was discharged the loss in national income was exactly
equal to his salary. When this point [indicating] was reached the
loss in national income when a man was discharged was twice his
salary. When this point [indicating] was reached the loss in national income was three times his salary. If we reach this point
[indicating] the loss in national income is four times the salary. In
other words, there is a tremendous margin between the cost of employing people and the amount of net income which we experienced if
they are unemployed.
That offers the key to a complete and certain method of recovery.
The only necessity for recovery is to see that employment is increased. Any number of people have proposed means whereby that
can be done; any number of proposals have been given. The first
tmng we must do to stop unemployment is to prevent any further
aecrease in employment anywhere. The next thing that we must
do is to increase employment through any means whatever
The CHAiRaiAN. Can you tell us how to do that? You say it
ought to be done.
Doctor DICKINSON. I can tell you various ways. One method is
to employ the private employing agencies, such as the various companies, to increase their employees
' ^
YOU may proceed here with your statement. and
^t Will be in the record. The reporter will take it and we will recess
at this f ™ ^
at thicj time. The balance of the day will be spent in hearing Mr.
^ a , who has a confidential statement to make.
iJoctor DICKINSON. May I ask one favor? The importance of
^^cognized by some two or three hundred people who have
^^^ ^ ^ ^ consider it the most important thing that has been
Proposed yet. That is not mv evaluation of it, but theirs. I would
^^ ^^ would not be the pleasure of this committee to sugma ff ^PP^^^t ^ small group of the best men that you have who
^^ ^^^ down with me and let me give them a complete
The committee will take that up later. Anything
ner that you want to state you may state now, and the reporter
place in the record.




(The committee then recessed until 4 o'clock p. m., and the witness
continued his statement as follows:)
Doctor DICKINSON. The proposal which I have to make contemplates not only the recovery from the present depression but a com])lete system of treating the economic situation in such a way that
we can be sure of not falling into another difficulty of the same kind.
And this is the key to the situation.
The annual income of the individual and the Nation is made up
of net earnings plus or minus the increase or decrease in the value
of our capital as a whole. . The result may be positive or negative,
depending upon whether earnings are going UD or down. When
an inflation occurs the selling price of capital increases above its
earning power; and a remedy for an inflation can be found in preventing that increase.
Such a remedy would consist in determining by means of a public
agency, nonpolitical in character, when this condition occurs and,
at such time, levying a special stabilization tax on the difference
between the real value of capital and the sales value of capital.
Such a levy would amount at most to 50 per cent of the difference
and should not exceed a fraction of a per cent of capital value.
Such a levy must be expended for such things as social capital, and
such expenditure for social capital should be encouraged. Those
who are taxed should be encouraged to spend for social capital of
their own account. In other words, the tax should be remitted to
anyone who will so spend the surplus which can not be invested.
It might be, for instance, in bonuses to employees or in public works
or in any accepted form of social capital.
I f a panic occurs, the price of capital falls below its earning
power. This situation is not a serious matter and has often occurred,
resulting in what have been known as Wall Street panics, without
having any appreciable effect on the general welfare. I f this condition cures itself promptly, no remedy is necessary. If it does not
cure itself promptly, we fall into a cumulative depression. Such
depression is cumulative because the loss of net national income
exceeds the §ain in individual income by the discharge of personnel.
Such a point was reached in the present depression early in 1930.
Early in 1931 this differential was 2 to 1. A t this point the discharge of employees to the extent of a million dollars reduced the
national income by $2,000,000. Near the beginning of 1932 the
factor was 3 to 1.
^ This factor, by the way, results purely from an analysis of statistics, contains no theoretical deductions whatever, but contains the
assumption that the fall in prices was the result of reduced employment. This assumption is not entirely correct, because the fall in
prices was partly the result of international conditions.
If we assume that the fall in prices was solely a matter of international conditions, and not at all dependent upon conditions within
the Umted States, the factor at the middle of 1932 was 2 to 1 instead
of 3 to 1. The actual factor necessarily lies between these two
It results, therefore, that any process whereby funds can be spent
for the reemployment of pereonnel will yield a net profit to the




Nation of from two to three times the expenditure. Such funds can
be secured by any one of several means. W e suggest that for this
Durpose funds be borrowed from the surplus of several billion dolars now available in the banks at a rate of possibly from half a
billion to $700,000,000 a month, and employ any of the various acceptable means for increasing total employment or for the purchase
of consumable commodities, which amounts to about the same thing,
and this process will necessarily with mathematical certainty result
in an increase in national income of the order of two to three times
the amount expended.
It therefore constitutes a form of investment which the National
Government can make, but which no individual business can make
of itself, which will yield a net profit of from 200 to 300 per cent.
This loan should not be amortized by bonding, because Government
bonding will increase the total net national indebtedness which at the
present time probably is far higher than is safe. Therefore these
loans should be amortized as rapidly as possible from the profits of
the transaction which accrue to the public.
These profits accrue in two ways: As an increase in net national
income of two or three times the expenditure, and also as an increase
in the real value of capital to the extent of probably many times
the expenditure. Therefore these two sources of income should be
used for amortizing the temporary loans necessary to bring about
This can be done through the medium of a nonselective tax on
earned increments plus a levy on the increase in the sales value of
It is indeterminate how much of the money expended in reemployment will accrue as net income or how much will accrue as increase
in capital values. Therefore the proportion of the expenditure to
be amortized from these two sources should be determined from
the results of the process.
In any case the cost of recovery will be borne in the form of a
comparatively small percentage of the accruing gain to the country
and, if properly distributed, can be done without entailing an expense to any individual. The results in profit to the Nation should
shortly bring about a return to normal prosperity. So^ar as we are
able to estimate, at the rate here suggested, the normal prosperity
sh^ld be restored in about 18 months^ time.
The plats which have been shown of the trend of unemployment
as related to national income suggest that the Nation is reaching the
danger point beyond which a drastic decrease in fixed indebtedness
^ill be necessary. The proposed method of rehabilitation would
the necessity of any such drastic change.
I here are two other points which I wish to emphasize. One is
that the underlying cause leading to all national disasters, such as
those of Rome and Spain and Europe during the dark days, has
come about through an increasing burden of debt which has reached
such dimensions that the earnings of business were all absorbed in
the payment of returns on capital.
In relation to this matter it should be emphasized that the only
Reason why a burden of debt of this kind can become destructive
IS that it is related to the use which is made of interest. If it were



possible to prevent the overinvestment of interest or to share that
interest on indebtedness so that all or nearly all is expended for
consumables, the destruction of national integrity through a burden
of debt would become impossible.
The method proposed above for preventing inflation carries with
it a means for controlling this situation.
The proposals here made, taken together, constitute, I believe, a
complete system whereby disastrous inflations and deflations can be
controlled and made to retain an equilibrium. W e believe also that
the means necessary for accomplishing this result could be incorporated in a permanent form of legislation put in the hands of an
administrative body without giving them individual discretion and
could be so administered as automatically to accomplish the results
here stated.
W e believe, also, that if this can be accomplished it necessarily
makes possible complete recovery from the present depression and
also the realization of permanent stabilized prosperity.
Taxation as a means for accomplishing a result of this kind must
be looked upon as a method which can not be utilized by individuals
because of the nature of competition between individuals but can
be utilized by the National Government or could be utilized by all
industries together through common consent.
(The charts and graphs referred to by the witness in the course
of his remarlts were filed with the committee.)
(The committee, then, at 4 o'clock p. m., met in executive session.)







'Washington^ D, C,
The committee met, pursuant to adjournment on Thursday, February 16, 1933, at 10 o'clock a. m., in room 335, Senate Office Building, Senator Reed Smoot presiding.
Present: Senators Smoot (chairman), Couzens, La Follette, Metcalf, Harrison, King, George, Walsh of Massachusetts, Barkley,
Connally, and Gore.
The CHAIRMAN. The committee will come to order. Mr. Houston.
S T A T E M E N T O P D A V I D P E A N K L I N H O U S T O N , P K E S I D E N T OF T H E
M U T U A L L I F E I N S U E A N C E CO. O F N E W Y O E K , N E W

The CHAIRMAN. Mr. Houston, give your full name and address
for the record.
Mr. HOUSTON. David Franklin Houston; 34 IJfassau Street, New
York City.
Senator HARRISON. Let the record show that Mr. Houston is exSecretary of Agriculture and ex-Secretary of the Treasury. What
is your present business?
Mr. HOUSTON, President of the Mutual Life Insurance Co. of New
The CHAIRMAN. YOU may proceed in your own way.
Mr. HOUSTON. Mr. Chairman and Senators, I am greatly honored
by your request to come before the committee to-day, and I accepted
not so much because I thought I could be of any assistance to you
gentlemen but because you asked me to come and I did not see how I
could decline.
In your telegram you asked me for some views on the causes of
the present depression and some suggestions as to courses of action.
I need scarcely say that it seems obvious that the background of
the present depression is the Great W a r ; the enormous financial costs
to the leading nations of the war, the direct costs alone exceeding
$186,000,000,000, the indirect costs exceeding $81,000,000,000, the
total more than $286,000,000,000 during the war. Added to that I
think we must take note of the enormous destruction of human life.
More than 9,900,000 known dead. Over 6,000,000 men seriously
wounded. Fourteen million other men wounded. Making a total
of 30,000,000 men.




W e must add to those figures the estimated losses in other directions. The upsetting of governments. The dismemberment of nations and the setting up of a number of new nations.
W e might also add as an item which has complicated the situation
advances which have caused disruption of international exchange by
certain of the Allies to others and by Germany to some of her aUies.
The total of those advances was $22,000,000,000.
The CHAIRMAN. That is outside of the advances made by Germany?
Mr. HOUSTON. The total, as I have the figures—and these are not,
probably, complete; I took them as of the latest date available—^the
advances of the Allies, the United States, Great Britain, and France,
were about $19,700,000,000, and of Germany about $2,375,000,000,
making a grand total as of the date for which I have these figures
of over $22,000,000,000.
The CHAIRMAN. I stated that because I alwavs understood our advances were about $22,000,000,000.
M r , HOUSTON. O f loans?

The CHAIRMAN. Not only the loans, but what was advanced in
other w ^ s . I did not mean the cost.
Mr. HOUSTON. NOW, you gentlemen are quite familiar with the
mounting burdens that this Government had. In 1916, before we
entered the war, the ordinary receipts of the Government were about
$782,000,000. And by 1920 they ran to about $6,700,000,000. The
ordinary expenditures mounted from about $742,000,000 in 1916 to
nearly $19,000,000,000 in 1919.
It has been stated that in the three years following our entry
into the war this country spent in the neighborhood of twelve or
fourteen billion dollars more than it had spent in its entire preceding national history. And our debt, as you know, increased from approximately a biliion dollars to over* $26,000,000,000, And State
and local receipts and expenditures correspondingly increased.
That picture, I think, gives a hint not only as to the political
disruptions but as to the economic burdens that the world has been
called upon to assume, which are still with us in a great many
Following the armistice, as is, I think, always the case after a war,
there was a period of hope, of optimism, it being generally assumed
that when the fighting had ceased the war was over, instead of assuming that the war had left us with a legacy that we would be
struggling with for generations. This spirit was manifested, I remember, in a conference that was held in Washington in December.
It was apparent that men in industry, thinking that peace had come,
were ready to set up again. Of course, during the war many plants
had been unduly expanded. Prices had greatly increased—had
doubled, very nearly—and wages in many directions had more than
doubled. Other plants set up at an undue rate. And yet, it seemed
clear pretty early in 1919—in fact, in the latter part of 1918—that
world trade would be greatly decreased and that there would be a
decline of price, not only for industrial things, but for agricultural
products. It was quite obvious that Europe would not have the
money to pay for what she really wanted or for what she had been
buying. And that as the submarine was out of the way she would
begin again to seek things from other nations from which she could



not get them during the war, and from which she had been accustomed to get them.
Some warnings were issued to that effect but, notwithstanding
that, the expansion both of agriculture and of industry continued.
The farmers of the Nation especially had been urged to produce,
to increase their acreage in leading cereals and in animals, during
the war, and they responded very nobly. But after the armistice
came, instead of returning to pre-war practices as they were urged
to do, they continued to produce an undue amount, especially of
wheat and cotton and some other things.
In the period of 1911-1915, for instance, the acreage of cotton was
Senator HARRISOX. In the United States ?
Mr. HOUSTON. Yes. That is the average. In 1916-1920, 35,000,000. In 1921-1925, 37,600,000. In 1926-1930, 44,700,000.
A.S to wheat, 1911-1915, the acreage was 52,000,000; 1916-1920,
58,000,000; 1921-1925, 57,000,000; 1926-1930, 60,000,000.
Agricultural exports which had run to $3,800,000,000 in 1920 began
to recede, until in 1922 they were $1,900,000,000, and dropping in
1931 to $1,000,000,000.
All exports which in 1916 were $5,500,000,000, rose to over $8,000,000,000 in 1920, dropped to $4,500,000,000 in 1921, and $3,800,000,000
in 1922.
There was an unmistakable land boom.
Senator HARRISON. Have you the pre-war figures there on exports?
M r . HOUSTON. Y e s , sir.


1913 it was $2,450,000,000.



(the European war having broken out in 1914) it was $5,500,000,000;
had risen to $5,500,000,000, and then rose, as I said, by 1920, to
$8,200,000,000. Would you care for the imports?
Senator HARRISON. NO. I just wanted to get the pre-war exports?
Mr. HOUSTON. Farmers continued their activities on a large scale.
Many of them began to buy lands at very high prices. Values
mounted enormously, and they went into deM for very large
In 1910 the values that I have taken from the statistical abstract
were $6,300,000,000. In 1920, $13,800,000,000. Dropping about 1925
to $10,800,000,000 and by 1930 to $10,300,000,000.
And the debt on the farms which incurred debt—and I may say
that I am now speaking only of farms operated by owners—^was
reported at $1,700,000,000 in 1910, at $4,000,000,000 in 1920, four
and one-half billion dollars in 1925, receding slightly to $4,100,000,000
m 1930. And the largest increases were in the section of the country
that is normally regarded as one of the most prosperous and the
best farm section, the North Central States, I may say that these
States showed the largest increase in the land values, and also in
the debts incurred.
The CHAIRMAN. Can you give us the percentage of increase?
Mr. HOUSTON. I think I can give that in a moment*
I have seen a recent statement by Doctor Englund of the Department of Agriculture giving his estimate of the total mortgage debt.
As I said a moment ago, those figures were for farms owned and
operated by the owners. Total mortgage debt in 1910 of $3,300,000,That includes the debt on farms operated by the owners, on




tenant farms and farms operated by managers. In 1920, $7,800,000,000. In 1925, $9,300,000,000. Receding by 1930 to eight and
one-half billion dollars.
^ ^
The North Central States to which I referred—for those States
I have the estimate of the same authority—had 59 per cent of the
total debt, 33 per cent of the number of farms and 51 per cent of
the value of lands and buildings. And it is estimated that of the
total debt 56 per cent was on farms .operated by owners, 40 per cent
on tenant farms, and 4 per cent on farms operated by managers.
If the committee has not the figures it may be interesting to note
his estimate of the creditors. The Federal land banks in 1928—
that is the last year for which he gave the figures—had 12.1 per
cent of the mortgages for $1,146,000,000; the joint-stock land banks,
7 per cent, for $667,000,000; commercial banks, 10.3 per cent, for
$1,020,000,000; mortgage companies, 10.4 per cent, for $988,000,000;
insurance companies, 22.9 per cent, for $2,164,000,000; retired farmers, 10.6 per cent, for $1,000,000,000; active farmers, 3.6 per cent, for
$339,000,000; other individuals, 15.4 per cent, for $1,453,000,000; and
other agencies, 7.2 per cent, for $685,000,000, making a total as of
that date—which has since decreased—of $9,463,000,000.
Senator HARRISON. Doctor Englund testified l3efore a subcommittee of the committee on banking and currency, and I think that
proportion is about maintained up to date.


Now, Mr. Chairman, it is rather important to note, I think, that
the number of individual holders of these mortgages is very large.
Outside of the owners of the insurance companies, who number perhaps sixty-odd millions, the other individual holders are about
750,000. So that they, together with the owners of the mutual insurance companies own about $4,900,000,000, or nearly half. And, of
course, I need not say that the policyholders, of whom there are more
than 60,000,000, are the owners of those companies.
There came the slump, the decline of foreign trade, marked decline in agricultural exports, falling prices—^industrial prices beginning to fall in the preceding December and continuing through 1919.
Then there followed another period of expansion, of reckless
speculation and gradual weakening of the financial structure.
Money rates, as you recall, for secured time loans went to 10 per
cent, and from 6 to 7 per cent for commercial paper. And the
reserve ratio in 1920 dropped to the minimum required by law for
the s3^stem, and in the case of some of the reserve banks below the
minimum. There was, of course, the larse dip in airricultural
prices in 1920.
After 1922, and especially after 1923, a period of recovery began.
It mounted rapidly until October, 1929. It was characterized by
the things that usually characterize these depressions—over expansion of industry—not only of industry, but of agriculture. Large
credits extended, not only here but abroad. Large loans to foreign
countries. And a mounting of expenditures, especially in State,
local, and city units, public and private.
The CHAIRMAN. E[ave you the percentao'e there of increase during the period from 1925 to 1929 on the expansion of State, county,
and city expenditures?




Mr, HOUSTON. I am sorry to say that I have not got complete
figures'* for that.
The CHAIRMAN. I thought perhaps you could give the percentage*
Mr. HOUSTON. I can not give you that, Senator. But take a few
indices of the mounting of production. Automobile production in
1915 was 895,000. By 1918, the year of the armistice, it had risen
to 943,000. In 1919, 1,650,000. In 1920, 1,900,000. In 1923, 3,750,000; 1928, 4,000,000; 1929, 4,800,000; dropping in 1930 to 2,900,000.
The registration of automobiles in 1915 was 2,446,000. In 1920,
9,223,000. In 1928, 24,500,000. In 1929, 26,500,000. In 1930, 26,500,000. And the most recent hint that I have had as to the present
registration is about 23,500,000, or enough to carry the entire population of the United States in one trip.
Another hint I think may be found in a direction in which expansion was needed but which perhaps proceeded more rapidly than
was wise, and that was in highway building. In 1914, $24,000,000
in highway construction. In 1919, $107,000,000. In 1921, $397,000,000; 1925, $649,000,000; 1926, $622,000,000; 1927, $707,000,000;
1928, $827,000,000; 1929, $910,000,000; and in 1930, $1,140,000,000.
Or in that period a total of $4,500,000,000.
Senator HARRISON. That is State, local, and Federal government?
Mr. HOUSTON. Federal aid and St^te and local. Now of course I
need not say that I was very much in favor of improved highways,
and I administered the Federal aid road act for some years, but
you can overdo even a good thing, or do it too rapidly.
Take another hint. Building construction. I am sorry that I have
not the figures for the war or preceding periods, but in 1925 it was
$6,000,000,000. In 1926, $6,400,000,000; 1927, $6,300,000,000; 1928,
$6,600,000,000; 1929, $5,750,000,000. Or a total in five years of
Now, unquestionaly, human nature and human wisdom were weak
in that field. There are many communities in America, from New
York City, Chicago, Los Angeles, down to smaller cities, that I
might mention, that greatly overbuilt, overbuilt ahead of any need,
and of course complicated the situation.
Coincident with this began a period of speculation which was
amazing. Prices even of good stocks and other securities mounted
far beyond what they should have reached on any basis of earnings
or reasonable prospects, and on some other securities far beyond
that, and it was nation-wide; so far as I have been able to ascertain
there were few communities in America in which people of all classes
were not speculating, and many of them on margins, and it was
practically impossible to head them off, and there were some people
who were not disposed to try to head them off. A s in many other
nelds of course there was high-pressure salesmanship, but aside from
^at, even when you tried to stop them it was difficult to do so.
borne of us who urged caution in the latter part of 1928 and during
1929 were told that we were out of date; that we were in a new
economic era, and that economic law had been set aside, but they
^ ^ ^ to their sorrow that they were mistaken.
The thing ran its course, and then came the collapse of stock
prices in October of 1929.




Senator LA FOLLETTE. Mr. Houston, before you get any further
in your historical analysis. Assuming for the sake of the argument
that all that you say' concerning the overenthusiasm which characterized the building industry and highway development is true, do
you or do you not believe that the expansion of the construction
and the expansion of the highways and the expansion of the automobile industry contributed to pulling us out of the slump of
Mr. HOUSTON. I think that is a difficult question to answer. It
helped to set up trade activity, but going beyond what seems to me
to be a reasonable point it simply precipitated a worse situation, as
overexpenditures either on the part of private individuals or Government agencies always do.
Senator LA FOLLETTE. I was anxious to know whether or not you
felt that those industries expanding construction, the automobile,
the building of highways, contributed to the turn which came after
the slunm of 1920-21, or not?
Mr. HOUSTON. I should rather think, Senator, that they were a
reflex of the fact that the turn had come.
Senator LA FOLLETTE. IN other words, it is your opinion that if
there had been no expansion in the automobile industry and in
highways and in construction of all kinds that we would have come
out of the slump anyway?
Mr. HOUSTON. Yes. W e would have worked out of it anyway.
And if we had proceeded with due caution we might have gone on
without anything like the phenomenon that we witnessed in 1929.
But human nature, of course, is fallible, and human wisdom is
limited, and it is very easy to see the mistake after the event.
Senator LA FOLLETTE. In your opinion did the automobile industry expand too rapidly?
Mr. HOUSTON. I think so. I think most things did. I am not
criticising the automobile industry as such, but 1 think that most
things did. I think we as individuals and public servants throughout the Nation overdid expenditure in an excellent thing like highway construction. Did it too fast. But that is nothing new. We
have always done it.
Mr. Chairman, it may not be entirely without value if I were to
remark here that the public seems to think, and perhaps naturally,
that this is about the only period in which the Nation has been in
trouble. Now, I do not underestimate the difficulties that individuals are in to-day, that enterprises are in, and that governments
are in, or the problems that you gentlemen have to solve. But we
have had one or two other depressions ranking pretty close to this
and in some respects presenting difficulties that we have not yet
had to encounter. May I just briefly refer to them?
The CHAIRMAN, We will be glad to have you do so.
Mr. HOUSTON. Let us go b a ^ to the good old days of the 1830's.
There we had a course of reckless overexpansion, internal improvements, canals, the taking up of public lands, reckless speculation in
public lands, and coincident with that, as you gentlemen remember,
the fight on the Second United States Bank. In that period, especially with our State banking system, which was the only thing we
had aside from the Second United States Bank, our laws and our



banks were even weaker than they are to-day. Arid, furthermore,
that depression, like most others, was world-wide and not local.
Europe was in trouble. Her people became frightened as to what
was happening in this country and began to withdraw their American securities. The farmers were in trouble. There had been several years of cereal-crop failures. They had little or nothing to sell.
Land values collapsed. And this was accentuated by the action of
the Government in issuing the specie circular which withdrew specie
from where it was needed to where it was not needed. The sales of
public lands fell off from $25,000,000 in 1837 to $900,000 in 1843.
It is stated by an economist that 50 per cent of all land in the
country changed hands; and all the land in Alabama.
Senator HARRISON. Did that affect one section more than it did
another, or was it pretty generally universal ?
Mr. HOUSTON. NO; it was universal. I have just spoken of the
land troubles. Nine-tenths of the factories in the East, it is estimated, closed down. Fifty-thousand men in Massachusetts alone in
the shoe factories were thrown out of work. New York City was
characterized as a dead city, with 20,000 idle people, and the militia
was called out to suppress riots.
The CHAIRMAN. What was the population of New York at that
time, do you remember?
Mr. HOUSTON. I do not remember. It was relatively small.
Senator HARRISON. The proposition, though, of unemployment
at that time was as large as it is to-day ?
Mr. HOUSTON. I should think so.
Senator BARKLEY. But life was much simpler.
Mr. HOUSTON. That is true.
Senator BARKLEY. That was before the steam engine and the
steamboat had come into use, or soon after they were brought
into use. Of course, the whole social structure was jnuch more
primeval than it is at present, and to that extent was not so complicated.
Mr. HOUSTON. That is true. But, on the other hand, the people
had less reserves than they have now. I will touch on that if I
may a little later.
It has been stated that from one-half to two-thirds of the clerical
force in the city of Philadelphia were thrown out of work. Some
of the Western States, what were then Western States, were on
the verge of bankruptcy, and several States repudiated their indebtedness.
Of course, there was a banking collapse. The banks in New
Orleans went first, and then those in New York City and Philadelphia. And in 1837 the country had 758 banks, and 680 of them
suspended. There was a partial resumption in 1838, and in 1839
840 banks were in the country and 759 of them suspended.
The currency of the Nation contracted from $149,000,000 to
$83,000,000. The Government, as you remember, could find no
safe place in which to put its money, and founded the independent
^easury system which has only recently been transferred to the
Federal Reserve.
Now, I shall not go into the panic of 1857.




Senator HARRISON. HOW long did that panic in the 1830's last?
Mr. HOUSTON. From 1837 to 1842. Five years.
The panic of 1857 ran the same course. Had very many of the
same incidents. The only peculiarity about it was that it was
characterized by overexpansion of railroad building, the taking up
of lands, speculation in lands, stimulated in no small part by the
discovery of gold in California coincident with the discovery of gold
in Australia.
And there was this interesting thing. The banks assumed that
the gold from California was going to stay in this country. I hap^
pened to make a special study of that, and of all the volume—I can
not remember the exact amount, but it was large—that poured out
from the California mines between 1848 and 1867 only $10,000,000
stayed in this country. You can trace it to England, and through
England to France, where it displaced silver, which went to India.
Senator HARRISON. Was that not due largely to the fact that London at that time was the great financial center?
Mr. HOUSTON. And because of her trade relations; yes, sir.
Senator HARRISON. This one in the 1850's lasted how long?
Mr. HOUSTON. That lasted only a very short time. And we had
hardly begun to recover from it when the Civil W a r came on.
Now came four years of fighting. Our own people engaged in
the most serious struggle, I suppose, up to that time in the world's
history. W e had hardly started the fighting in the North before
there was a sus]Dension of specie payments. And there was the
same mounting of expenditures, in proportion I think approximately
as great as during the late war. Our Federal expenditures in 1860
were only $60,000,000. The average between 1861 and 1865, in the
Union alone, was approximately $700,000,000 and the receipts
And of course the debt mounted. In 1860 it was $64,000,000. In
1865 it was $2,700,000,000. And at the beginning of the war the
total wealth of the Nation was only $16,000,000,000.
Prices, of course, had mounted. The war had been financed
largely by borrowing. Greenbacks were issued, I think, up to about
$432,000,000. And the South was left with her economic strength
impaired 60 per cent, and a disruption of her social and economic
Now, again, after the peace a wave of optimism swept over the
Nation. This was followed by a period of expansion, enormous
railway undertakings, and a riot of speculation.
Senator HARRISON. What year did that start after 1865?
Mr. HOUSTON. There were symptoms of trouble as early as 1870.
Senator HARRISON. But the expansion started immediately after
the war?
Mr. HOUSTON. Yes. Just as it did after the late war. And railways were built ahead of the need of the moment and of population.
The cost of this construction between 1867 and 1873 is estimated to
have been $1,700,000,000. The railway construction in that period
was 32,000 miles, or more than the Nation had in 1859.
Now, It had some good aftereffects, because if those railroads had
not been extended to the Mississippi, as they were, we would not
have had poured out the subsequent flood of products from the



Middle West which made the resumption of specie payments possible. But there was overexpansion in iron, steel, and textiles and
oil refineries and flour mills, and in State, city, town, and county
There was the same reckless issue of securities. This country and
Europe were flooded with them. There was much borrowing in the
East. And again warnings were imheeded. And I have no doubt
that those who gave warnings were told that they were in the new
economic era.
In 1872 the reserves in New York City w^ere deficient. On September 8 nine New York banks failed. On September 20 the New
York Stock Exchange closed for the first time in its history. And
then there was a suspension within the suspension. Specie payments
had already been suspended and again, as in 1861, they had to resort
to the use of clearing-house certificates. Checks had to be made
payable through the clearing house. In New York City limits were
placed on the amounts of deposits that could be drawn out. Then
Boston, Philadelphia, Baltimore, Washington, Chicago, St. Louis
followed, and then the rest of the country.
Senator BARKLEY. W h a t year was that?
Mr. HOUSTON. In 1873. B y September 27 it had become general
throughout the Nation.
S e n a t o r HARRISON. S e p t e m b e r 2 7 , 1 8 7 3 ?

Mr. HOUSTON. That was 1872—September 27, 1872. The people
were alarmed. They began to hoard,^ thev began to try to draw out
of the banks, and in the next year, 1873, there were 5,000 commercial
failures, f o r $ 2 2 8 , 0 0 0 , 0 0 0 ;

in 1878, 1 0 , 0 0 0 ;

and in the period


1873 to 1878, 47,000. And it appears that in proportion the number
of commercial failures at that time—in 1878, I think it was—was
approximately the same as in 1932, in proportion to the number and
It has been stated that 89 railroads went into the hands of receivers. Trade fell off from 25 to 50 per cent.
Five hundred thousand railway men alone were out of work. That from 300 to 700
iron and steel plants closed down. A n d that in a population of
approximately 38,00,000, 3,000,000 of men were out of work. Relatively few women were working in industry then. That is the proportion, 3,000,000 to about 38,000,000.
And during that period w e had the reverse of the situation that
we are now in. The country was struggling to get a sound money
system. The national banking system had been created, but had
never had a chance to get started satisfactorily. W e had no gold.
And the Congress provided in 1875 that specie payments should be
resumed in 1879. A n d by reason of the fact that our exports for
several years exceeded our imports, and we imported gold, we resumed specie payments in 1879, and then prosperity began to
Senator HARRISON. SO that panic lasted about six or seven years?
Mr. HOUSTON. W i t h symptoms in 1870, but acute in 1873, it lasted
through 1878. About five years in the acute stage.
Senator LA FOLLETTE. DO you know what happened to production? Have you any data on that period of how much it fell off?




Mr. HOUSTON. I am sorry that I have not the figures for that,
Senator. But of course the North was not as hampered in that field
as the South was, but I should think that the decline was considerable. I could get the figures and supplement those if you wish.
Senator LA FOLLETTE. I will be glad to have you do so. I have
seen d a t a — d o not know how accurate it is—to indicate that we
have never had in these previous depressions such decline in the
percentage of production, and I wondered whether you had looked
into that aspect of it?
Mr. HOUSTON. That is true in certain industries. I will take that
statement back. I was then thinking of a great enterprise which
did not exist as such at that time; but I should be very much surprised if in the main the decline was not fairly comparable.
You are more familiar with 1893. That also did not appear without warning. There was a good deal of speculation here and abroad.
Failures appeared in England. The Baring Brothers failed in November of that year. In this country a number of private bankers
and brokers failed.
Resort was again had to clearing-house
The CHAIRMAN. That was coming for two vears, though, was it
Mr. HOUSTON. Yes. I will come to that.
The CHAiRatAN. People in the world, I suppose, knew that it would
arrive, though they did not know how soon.
Mr. HOUSTON. Prices of agricultural staples were low. The farm
debt was heavy. There w^as again reckless financing of railroads
and many went into receivership.
There had been an agitation for cheap money. And then the
passage, as you remember, of the silver purchase act in 1890. That
caused apprehension here and abroad, and the usual phenomenon
This depression was world-wide. Our exports dropped $14,000,000
in six months in 1890. Gold began to go out of the country. The
circulation contracted $29,000,000 in six months. And Europe began to call for her securities. Railroads began to fail. The stock
market collapsed on May 4. In six months 3,400 commercial failures
for $169,000,000. Banks began to suspend, and on June 15 clearinghouse certificates were resumed. And there was little improvement
in the situation until 1896.
In 1907 we had a bankers' panic, but that does not
Senator HARRISON. Before you leave the other. This depression
in the nineties lasted about four or five years?
Mr. HOUSTON. It began in 1890. The svmptoms of trouble appeared m 1890. And it disappeared after 1896.
Senator BAKKLEY. DO you attribute its disappearance mainly to
the discovery of gold in Alaska?
Mr. HOUSTON. I am speaking of 1893.
Senator BARKLEY. I thought you said it disappeared after 1896.
Maybe you have not reached that point.


Senator BARKLEY. Are you going to discuss that in your statement,
as to whether the discovery of gold in Alaska in 189(5 had anything
to do with that?
Mr. HOUSTON. XO; I have not followed that, Senator.



Senator HARRISON. YOU have gotten clown, Mr. Secretary, to 1907?


Senator HARRISON. Had you finished witli that ?


Senator HARRISON. That lasted liow long?
Mr. HOUSTON. That was very short. I do not remember the exact
Senator HARRISON. Would you be able to tell the committee during these series of depressions what, if anything, stands out preeminently that was done by the Government to help to bring about
economic normalcy ?
Mr. HOUSTON. I am going to touch on that.
Broadly speaking, there was nothing different in the course of
these depressions from the course of the depression that we are
now in. There was the same overexpansion, the same speculation,
the same proposal for relief—similar proposals for relief—I should
not say the same—of spending of more money and attempts to
tamper with our monetary system, some of which w^ere more or less
Senator BARKLEY. You mean the tampering was successful?
Mr. HOUSTON. Yes. There were even proposals for changes in our
governmental system, our social system, as we have at all times.
And in this, of course, for planning boards to plan for the Nation,
groups of men. I have not found so many who know how to plan
for their own individual enterprises as to justify me in thinking
that they could plan for all the activities of the Nation. And many
of these proposals come from people who have made no particular
success of their own individual plans and have not been charged
with large responsibilities. They have even proposed the overturning of our system of Government without telling us where we are
to look for a. better or giving us any concrete suggestion that would
certainly bring improvement.
. I am not one of those, Mr. Chairman, who think that this country
IS in quite as desperate a situation as some people think it is. I do
not think it is the worst time in the history of the world, and I do
not think, broadly speaking, it is as bad in some respects as the
country has been in preceding depressions.
Of course if w e compare this country with Europe we find it in
so much better condition in most respects as to admit of no comparison. Our wealth still exceeds that of perhaps the four leading
nations of Europe, Our savings in savings banks and in time deposits are somewhere between twenty-four billions and twenty-eight
millions of dollars are very much larger in proportion than those of
any other people. And we have around from 50 to 70 per cent of
many of the most valuable things in the world, with only 6 per cent
of the population. Nearly 50 per cent of our people live in homes
which they own, and more could live in them but many of them
prefer to rent. And at the last date for which I have the figures,
60 per cent of the arable land was still cultivated by owners. Now
those figures can not be duplicated in any other country in the world.
Another fact that has interested me as bearing on what we try
to do for the people. I suppose the only way to try to bring about
equality of opportunity, or one of the most effective ways, is to try
15945(V-.33—PT 3




to increase equality of capacity, and it seems to me that we have
omitted nothing to do that. This Nation, so far as I can get the
figures, examining the budgets of all the nations in the world, with
6 per cent of the population spends more for education than all
the rest of the world put together.
Senator BARKLEY. DO you think we are getting our money's worth?
Mr. HOUSTON. Not in all directions. I think we are trying to
educate many people who are not educable. I used to be rather
innocent in that field. I used to think that everybody could become
educated. I have come to doubt it. While I believe in keeping the
door of opportunity open, I think after a boy or girl demonstrates
that he or she can not or will not profit by the opportunities the door
ought to be closed. And I think we are wasting a good deal of
money in that field. Still I prefer to err on that side than on the
I might add that the people of this nation are covered by 73 per
cent of the insurance of the world. They are covered hy more than
$103,000,000,000, which, of course, so far as the companies are concerned, is a liability to be paid over 25 or 30 years. The companies
having assets of around $19,000,000,000, and as a little hint of what
the people still can do, they took out $14,000,000,000 of insurance last
year. They paid in premiums $3,500,000,000. A n d they received
in policy loans, which shows one of the resources which I referred to
a moment ago, over $2,000,000,000.
Their beneficiaries received
Senator BARKI^Y. Right there. I suppose that those figures could
not be considered as net? I imagine that many of the policy loans
were obtained for the payment of premiums and that there would
be an overlapping there?
Mr. HOUSTON. These are cash payments. Those are net cash
Senator BARKLEY. Can you tell whether after a man borrowed
money on a policy he used part of it to pay his premium?
Mr. HOUSTON. Well, he might, of course, if he gets the cash.
Senator BARKLEY. Yes. Of course it would be cash payments.


Senator BARKLEY. But it may be that a considerable portion of
that $2,000,000,000 that was borrowed was used also to pay the
$3,500,000,000 of premiums.
Mr. HOUSTON. Some of it, but I do not think a very large per cent.
Senator HARRISON. In the case of certain people that I know*—
and a number of the members of this committee—a large proportion.
HOUSTON. Yes; in many cases. The beneficiaries received
including the
. .
things to indicate that we are not in the
condition that I think some people think we are.
There are three or four things that seem to me to be somewhat
more striking in this depression. In the first place, for some reason
or ofter, the people have either been induced to look or do look to
the Federal Government and the Federal Treasury for their salvation. That is almost a new phenomenon. They have been taught to
believe t l ^ t prosperity can be implemented from Washington, and
that the Federal Treasury in some mysterious way, without going
broke, can take care of all of them.



Then, I think it is also true that, perhaps, there are more and
better organized minorities assaulting you gentlemen than we have
ever had before in the history of the Nation.
Senator BARKLEY. The word " assaulting'' there is well advised.
Mr, HOUSTON. Yes. I have watched it. And it seems to me, gentlemen, if these tendencies are not held in check it will become not
only more menacing but must of necessity, if it is yielded to, result
in the wrecking of the Federal Government.
The CHAIRMAK. I wish you were on the Appropriations Committee.
Mr. HOUSTON. I am glad I am not. I know something about the
problems that you gentlemen have had in the past and some of
the difficulties you have now, and I can only say that you have my
I think that is all I care to say in the way of trying to sketch
the causes of the present depression, the character of former troubles,
and some of the incidents.
Senator LA FOLLETTE. Mr. Houston, may I ask you whether you
feel that the activity of the Government through the Reconstruction
Finance Corporation was justified or not?
Mr. HOUSTON. I think perhaps in larger measure than that of
almost any other of the agencies.
Senator LA FOLLETTE. YOU think then, there are certain devices
which the Federal Government should employ to aid in the
Mr. HOUSTON. I think on account of the increasing decline of
confidence among the people and the threatened runs on banks,
that some aid of that Mnd carefully extended on proper security
was a step in the right direction. I think that the answer would
depend—and I have no knowledge of my own—on whether it was
properly done.
Senator LA FOLLETTE. I am not seeking to go into that aspect of
it. But it just occurred to me that if, for instance, there had not
been some action by the Government in that connection some of
these reserves which you indicate as available at this time might
not now be available.
Mr. HOUSTON. I quite agree with you. I do not mean to say
that there were not certain things that the Federal Government
could do and there were not things that it had done that were not
desirable. I think they have been—some of them.
Senator LA FOLLETTE. Well, I thought your statement might be
taken as a sweeping statement.
^ .
Mr. HOUSTON. I t might have been, yes. I am glad you asked
the question.
I have nothing new, I think, to tell you gentlemen. I believe
that it is of the utmost importance that the credit of the Federal
Government shall be maintained at all hazards. I know it is easy
to say that the Budget ought to be balanced. It is another problem
to do it, and I am sure that you gentlemen realize that as fully as
anybody, and that you will omit notliing in the way of reducing
expenditures and increasing receipts, where it is possible, to maintam the credit of the Federal Government. And, incidentally, so
^ar as possible, avoid any unnecessary appropriations. I do not
Jieed to dwell on that. It would be offensive to the intelligence of

the committee.



I am equally convinced that there would be nothing quite so
harmful and that would so quickly precipitate even greater chaos
than any tampering with our monetaiy system. W e are very fortunate, I think, in the main. This is the only time in any great
depression when the country has carried on as long as it has in a
depression with what might be regarded as a reasonably sound
monetary and banking system. It is the only time in which practically all of our banks 'have not suspended. Now, we have had
bank failures, unfortunately. But if one were to wake up in the
morning and find that every bank in every city and town in
America had suspended we would begin to think we were in trouble. And that happened in preceding depressions.
Senator LA FOLLETTE. May I ask you right on that point, Mr.
Houston, as to whether or not there was any difference in the situation so far as the use of credit for the transaction of business is
concerned between the earlier depressions and this one?
Mr. HOUSTON. NO; I think that broadly speaking the mounting
use of bank credit Avas the same in each instance.
Senator LA FOLLETTE. YOU think proportionately there was no
Mr. HOUSTON. NO real difference. They were less able to stand
any strain than they are to-day.
Senator LA FOLLETTE. It has been my impression that to a certain
extent bank failures were less significant per se in the previous depressions than now because of the larger employment of credit as a
means of transacting business.
Mr. HOUSTON. Well, of course, you are quite right in suggesting
that the use of credit—^bank credit and checks as a medium of exchange—^has grown. But I should say considering the relative
strength of the banking system to-day and in former periods the
number of failures is less significant, considering the relative strength
of the banking systems in the different periods.
Senator LA FOLLETTE. Well, yes; but what I had in mind was that
an entire collapse of the banking structure now, in view of our greater
reliance upon bank credit as a means of transacting business, would
have a more devastating effect than it had, say in the panics of the
early eighteen hundreds. That is the point that I had in mind, and
I wanted to get your reaction to it, as to whether or not, in other
words, the use of bank credit has not become a very important factor
in our transactions?
Mr. HOUSTON. It has. But it has always been important, and it
was very marked during the period from 1923 to 1929, and that
meant a very rapid turn-over. But since 1929 the use of checks
has tended to decline, because the banking operations have slowed
down very markedly. And most of the banks of which I have any
I^rsonal knowledge are in very strong position, in very liquid position, and are ready and anxious to take care of good loans if they
can find them. But the difficulty they encounter is in finding loans
that prudent bankers should accept. Now, perhaps, they make mistakes m conservative directions 3ust as in other times they make
them in optimistic directions.
Senator BARKLEY. Mr. Houston, are you able to make any comparison with reference to bank suspensions in the panic of 1837 and
in this one as to the ability of the bank to reorganize and open up
for business again?






Mr. HOUSTON. May I come to that in a moment?
Senator BARKLEY/Yes.
Mr. HOUSTON. I was speaking of what seemed to me to be the
necessity of maintaining the integrity of our monetary system, and
I said that I thought we are quite fortunate in the position in which
we found ourselves. W e have, as you know, about 40 per cent of
the world's gold—around $4,000,000,000. And we have even to-day
2.3 billions of dollars more money in circulation than we had before
the war. And as much as we had, I think at the peak.
Senator BARKLEY. If you will permit me right there, Mr. Houston.
In to-day papers there is a statement issued by the Treasury showing
that on February 15 the amount of money in circulation was $5,854,000,000, which is the highest amount ever in circulation in the history of the United States. That represented an increase of $149,000,000 in one week.
Mr. HOUSTON, That is a later date than the one that I used here.
There are those who have suggested that we go off the gold standard. W e worked very hard for a good many years in the seventies
to get back on it, and with the strength of our present position
I should deem that highly unwise, and I know of no nation in
Europe that would not be glad to return to it if it could, and which
does not envy us our present position. And there are some gentlemen in one country in particular who have been very insistent, for
reasons that one can easily imagine, to get us off the gold standard.
The CHAIRMAN. Have you an}^ objections to naming the partie^?
Mr. HOUSTON. One of the gentlemen, who has been rather partial
to our inflating since Versailles, was Mr. Keynes, and another was
the former Chancellor of the Exchequer, Mr. Reginald McKenna.
I happened to see him in 1923 and he was then insistent that we
ought to, and he has been at it ever since. I could understand
his reasons.
The CHAIRMAN. I think others do.
Senator HARRISON. For the benefit of the record, will you not
give us the reasons?
Mr. HOUSTON. Well, if they could pay what they owe us for about
one-tenth of the price, they would like it very much.
Senator BARKLEY. Who would not?
Mr. HOUSTON. W h o would not! I remember when I happened
to be in Germany in 1923, just across the border, as a souvenir I
bought a billion-dollar mark for 75 cents.
Senator BARKLEY. I got a $100 bill changed there in 1921 and it
^ ^ ^ three wheelbarrows to get it back to the hotel.
The CHAIRMAN. I saw a mortgage in Berlin for $25,000 paid by
$1.65 United States money.
Mr. HOUSTON. Well, Senator Harrison knows that in our own
section of the country, in the latter days of the Confederacy you
couH not haul enough in a wheelbarrow to pay for a meal.
We have had, as I said a moment ago, in spite of our general
strength, quite a number of bank suspensions. I think the public
naturally pays more attention to the suspensions than it does to
those that continue. In 1931 we had 2,290 banks to suspend, with
deposits of $1,700,000,000 in round numbers. Of these 1,781 were
J^tate banks with deposits of $958,000,000. But at the end of the
yearFRASER nearly 20,000 banks still going, with deposits around
Digitized for we had




$50,000,000,000. And I think if the public realized those facts
they would be a little less panicky than some of them are.
Senator BARKLEY. How did those deposits compare with the highest amount of deposits at any other one time ?
Mr. HOUSTON. I do not recall any amount higher than $54,000,000,000. I would not like to state that as the maximum. That is
my recollection.
Senator BARKLEY. We have close to $48,000,000,000 now?
M r . HOUSTON. B e t w e e n $ 4 8 , 0 0 0 , 0 0 0 , 0 0 0 a n d $ 5 0 , 0 0 0 , 0 0 0 , 0 0 0 .

I do

not know the exact figures. It is hard to get accurate figures.
And I think the Secretary of the Treasury is right in suggesting
that if we can be certain of maintaining the credit of the Federal
Government—and I think we can—and that we are going to continue with a sound monetary system, that we ought to have a reW d i n g operation to reduce the interest charges.
Then I think that it is of the utmost importance that the people
of this Nation must realize that by hook or crook they must get a
stronger banking system.
Now, of course, we speak of a banking system, and we pride ourselves on having passed the Federal reserve act. I need not remind
you that that covered only a fraction of the banks, and only around—
Well, I do not remember the exact fraction, but the smaller fraction
of the bank resources. So that we have the loicture of a smaller number of the banks but with large resources under the direction of the
Federal Government, and the larger number of the banks with immense resources under 48 other jurisdictions. And I think it is
clear that some of those laws are not as strong or never have been as
strong as they should have been, and I have no doubt that they could
greatly strengthen, as I think they should do, their banking control
and inspection.
I do not believe that we have as much banking talent in the Nation
as we have banks. And the banking talent is quite as important as
the financial set-up of the bank itself. I think we have entirely
too many small, weak banks.
Now I know it is a very difficult matter. The Federal Government has not jurisdiction"^over all of them. The States are very
slow to act. There is a very strong lobby always against any attempt to lessen the number of small banks, to extend branch banking with strong banks, but I am thinking of the small depositor,
who perhaps would lobby against it with the others, and he is the
one most intimately concerned. I can not see why this Nation has
not enough intelligence in its verious governmental authorities to
establish a banking system in the interest of the small man, especially so we will not have utter collapse as we have had in preceding
depressions, or numerous suspensions, as we have had in this
It is M c u l t to take the requisite action, but in some way we must
do it. C ^ a d a was harder hit by the war than we are, and was
weaker. Great Britain was harder hit by the war than we are,
and her trade was shot to pieces. And yet they have not had a
bank suspension during this depression. 'That means two things:
A sound banking system with sufficiently strong banks, and somehow higher requirements for banking talent. Or at least they seem
to have it.



Senator HARRISON. YOU have studied the Glass banking bill. Do
you think that will improve the banking structure?
Mr. HOUSTON. That, while it has many good features, naturally
could not attack the whole problem. It would still leave a large
Senator HARRISON. You think it is in the right direction ?


]\IR. BARKLEY. IS the answer to your suggestion unified banking
system ?
Mr. HOUSTON. Either that—I do not see any other answer to the
question, to be frank.
Senator BARKLEY. Of course we all shy away from that buggestion
M r . HOUSTON. S O d o I .

Senator BARKLEY (continuing). Because of the difficulty of ever
accomplishing it and of the unpopularity of attempting it among
all those who pride themseh^es on the maintenance of local control
over local credit and banks. But if that is the answer, the sooner
somebody breaks loose on it and is bold enough to suggest it the
better it will be. I do not know that I would ever espouse that cause,
but if that is the only answer I at least want to consider it.
Mr. HOUSTON. I think it is worth considering it. I am not prepared to say how it can be done or that it should be attempted. But
I think we ought not to have any independent bank that is not strong
enough at least to be a member of the Federal Reserve System.
Senator BARKLEY. When we think about our banking system we
all know that it is a ridiculous position that our people are in here
in the strongest nation in the world financially, and from nearly
every other standpoint, but we have had more bank collapses than
have occurred in all the rest of the world combined.
Mr, HOUSTON. Well, I think it is a reflection on our inteUigence
and courage.
Senator HARRISON. Are w e to infer, Mr. Secretary, when you talk
about protecting the depositors, that we ought to have a guarantee
of bank deposits?
Mr. HOUSTON. NO. I think that any guarantee of deposits is a
premium on bad banking at the expense of good banks. I think the
remedy lies in another direction, and in the direction that I have
tried to point. I think it has usually worked badly Avherever it has
been attempted.
Another subject that I approach and really do not see the need
of discussing, because I am not optimistic that we shall get anywhere, is some attempt somehow to break down the water-tight
economic compartments in which the world is increasingly attempting to operate, and it can not be done.
Senator LA FOIXETTE. Y o u mean you can not break it down or
they can not operate?
Mr. HOUSTON. YOU can not do it; not with benefit to the people,
course since the Avar there have been a number of new nations
^eated. Europe has 14 nations that have the average area of South
J^arohna, which is of the same size as Scotland, and the average
population of Ohio. And each of them has its nationalistic set-up,
Its barriers of every kind. And other nations since the war have
increasingly imposed barriers of one sort and another. Of course




if a person does not believe in international trade I have no argument
with him. But if he does, if he thinks that there are advantages, I
will say to him that I think the sooner the world realizes that it
can not restore full prosperity by continuing to attempt to operate
in water-tight economic compartments, the better. If it prefers that,
why then they will have to take their medicine.
Senator HARRISON. Plainly speaking, you think there ought to be
a revision of our tariff laws and an enlargement of our trade?
Mr. HOUSTON. Efforts should be made as far as possible in attempting to secure revision of restrictions abroad which have been
mounting and which are even more depressing there because of the
small units. In our country, operating over a large continent with
a population of 122,000,000, Ave can get away with it in some measure, although I still believe for us an expansion of trade would
result ultimately in benefit not only to industry but also the fanners.
The CHAIRMAN. Are we not holding our percentage of trade, our
foreign trade, as compared with the foreign trade of the world ?
M r . HOUSTON. I think so.

The CHAIRMAN. I think you will find it is a greater percentage—
I mean, taking into consideration the amount of trade of the world,
our foreign trade has held better than any other country in the
Mr. HOUSTON. Well, of course, they have been badly shot to pieces.
The CHAIRMAN. Certainly.

Mr. HOUSTON. And the times are abnormal. But, without desiring to argue the matter, Senator, I still believe that there must be
some breaking down of these water-tight com^^artments.
Senator HARRISON. YOU had better get off of that subject.
Mr. HOUSTON. Yes. We have been debating that subject for
years, have we not?
The CHAIRMAN. All I wanted to call your attention to was that,
as far as percentage of trade of the world is concerned, we are better
off than any other country in the world.
Senator iBARKi^Y. Well, is it a fact that we want the facts about
this whole situation except on one subject, and that we have got to
steer clear of that?
M r . HOUSTON. N O .

Senator BARKLEY. I hope not.
Senator HARRISON. Are you going to discuss stabilization of
exchanges in your statement?
M r . HOUSTON. N O .

Senator HARRISON. Have you anything to say about stabilization
of exchanges ?
Mr. HOUSTON. Nothing except that they will become stabilized
when trade becomes more normal, and that is the only way I know
of doing it.
The CHAIRMAN. I do not know of any other.
Mr. HOUSTON. You can use artificial devices and they will break
down, but if you can once return trade toward some degree of
normalcy the exchanges will rectify themselves, and I know of no
other way of doing it.
I believe that it is urgent that there be some legislation, Federal
and State, in respect to the railroads, along the lines, broadly speaking, of the report of the recent agency, and especially to place their
competitors on a just basis of competition. Now, I am not attempt



iug to say what it is, but in respect to convenience and necessity,
in respect to biirden of taxation, in respect to service, and in respect
to rates, I think legislation in that direction will be helpful.
There is one thing at least that I should do in respect to agriculture.
The CHAIRMAN. Before you get on to the question of agriculture,
have you any suggestion as to the competition of railroads with the
trucks using the public domain?
Mr. HOUSTON. If the conditions of competition are equitable; no.
The only thing I am suggesting—and I am not trying here to indicate the terms of equity—is that it should be equitable. My own
personal opinion is that the truclcs are not as heavily taxed. They
run on highways, rights of way which the public generally provides.
They pay license taxes and gas taxes which help to provide the
highway, but of course the railroads have to provide their own
rights of way and maintain them, and then have enormous taxes
in addition. But I shall not try to settle that. You require of the
railroads a certificate of convenience and necessity. I do not see any
reason why a truck, a bus, should not have the same requirement.
You regulate the railroad's charges. You prevent rebates. Undoubtedly the trucks take commodities at lower rates, and the cream
of it in many cases. Now, I realize the necessity of these things.
We have got to have them. But all I suggest is that they be put
on a comparable or proportionately just basis with respect to regulation.
Senator BARKLEY. Do you believe, Mr. Houston—if you do not
want to answer this you do not have to—do you believe that the
railroad situation can be permanently solved and the railroads pulled
out of their present difficulties on the basis of present capitalization ?
Mr. HOUSTON. Some of them; no.
Senator BARKLEY. On the whole, your answer would be in the
negative ?
Mr. HOUSTON. Some of them may. Undoubtedly there has got to
be a readjustment in many directions. Nor do I believe that in the
main they can be saved by Federal relief any more than other
people are going to be saved, in the long run. Some of them have
got to go by the board.
Senator LA FOLLETTE. HOW long do you think we should keep on
tailing-up this unsound debt and capital structure ?
Mr, HOUSTON. Well, I think the sooner some of them reorganize
better. I can not answer without looking over the list of them.
There is one thought in my mind, Mr. Chairman, as to the
farmer. In one section of the country, of course, the problem is the
large indebtedness. In other sections it is a problem of better
farming. If every farmer in this country did what the best farmer
does and makes it a point to be self-sufficient first of all, produce
what he eats and feeds, and then puts his surplus labor and capital
^ t o special crops we would not have much of a problem. He can
be the most independent class in societv at all times. Now they
are not doing that.
I have statistics here, prepared for me by the Department of
Agriculture, showing the production of a number of States of leadwig crops and the percentages per annum. I asked for that when I
ARST went to the Department of Agriculture in 1913, and I had it
CIIECKED up in 1930. In very many States it shows a very pathetic
 do not want to take time to read that.
situation. I



The CHAIRMAN. I would like to have it put in, because that is
one of the most important questions in this country to solve. I do
not know whether it can be as long as the farmer wants to raise just
what he wants to raise no matter what the market may be for it.
Of course there may be something that he can be shown that would
be of benefit to him and to the country at large.
Mr. HOUSTON. I can give a hint without taking much time. Take
my own State of North Carolina. These statistics were as of 1930,
so I do not know the figures later. The department gives me cattle
per farm per annum in North Carolina, 1.9. Dairy cows per farm
per annum, 1. Hogs, 2.9. Sheep, three-tenths of 1 per cent.
Chickens, 31. Eggs, 1,458.
Now, if you contrast that with some of the States out your way
you will see there is a difference. Iowa, of course, is in rather a
serious situation, mainly because of the indebtedness on many of
her farms, but as against 1.9 cattle per farm Iowa had 18.
Senator BARKLEY. That is not in percentages but in cattle?
Mr. HOUSTON. That is the number per farm per annum.
In North Carolina the cattle, as I said, 1.9. Iowa, 18.
Dairy cows. North Carolina 1; Iowa, 6 % .
Hogs, North Carolina, 2.9; Iowa
Sheep, North Carolina 0.3; Iowa
round figures.
Chickens, North Carolina Siy^; Iowa, 160.
Eggs, North Carolina, 1,458; Iowa, 9,530.
Those people have their living.
Before the war the Department of Agriculture in contact with
the land grant colleges and certain leading farmers had begun to
work out a program for balanced farming, especially in the section
of the Nation where the farming was not sufficiently diversified,
and they were getting ready to put that program over when the
war came and short-circuited it. I would like to see the Depai-tment
of Agriculture and the land grant colleges and the best fanners
checking it up, the agricultural press and other agencies launch such
a program to induce the farmers to become independent by proany other broad program that is going to do very
much good.
The CHATR^IAN. That has been understood for years past and
preached to the farmer and no result as yet,
Mr. HOUSTON. I know that. But I still think it would be worth
while putting on that kind of a program.
I think the matter of allied debts has been given undue prominence.
I think it has been a relatively small factor in the whole situation.
I know that it has complicated the exchanged. They have had
difficiilty in paying in goods and they haven't the gold. 1 personally
would not cancel those debts, but I'would be willing to discuss adjustments of them provided they can show that America can have
any compensation out of it.
Senator LA FOLLETTE. DO you have in mind something more specihc than the contribution to improvement of world conditions?
Mr. HOUSTON. Well, that is the main thing I had in mind. One
of the things.



Senator LA FOLLETTE. AS I understand it they argue now that if
we would readjust or cancel, that we would participate in the benefit
of the improvement of world conditions.
Mr. HOUSTON. SO would they. Most of their arguments make
me very weary.
Senator LA FOLLETTE. Well, I just wanted to bring that out.
Mr. HOUSTON. For instance, Mr. Chamberlain argues that if we
would cancel our debt to England they would cancel an equal
amount of their debts. That is very fine for England, who would
stay even while we would hold the bag for the whole amount. And
so with the other nations. I am not prepared to attempt to suggest
what considerations we might ask for, and I doubt whether it Avould
be wise at this time to attempt them.
Senator LA FOLLETTE. I am not suggesting that you do.
Mr. HOUSTON. That is about all that I have in mind, Senator.
The CHAIRMAN. W e thank you very much.
Senator BARICLEY. Did you discuss inflation at all? I was a little
late in getting in here and did not hear all you said. Did you
discuss that in your remarks?
Mr. HOUSTON. Only indirectly by suggesting that we maintain the
integrity of our monetary system.
Senator BARKLET. Yes; but have you given thought to the various
plans for inflation, like the remonetization of silver, or the reduction
of the gold basis for the issue of money from 40 to 25 per cent, or
the revaluation of the gold ounce, or any of those?
Mr. HOUSTON. I have given for a good while thought to suggestions at any time for inflating our currency, and I can not think
of anything that would more quickly precipitate a crash and a collapse than efforts in that direction. And I think the talk about it,
which, as was said yesterday I think by soiiie member of the committee, is by no means confined to Congress, but is rampant throughout the Nation, is already doing a vast amount of harm.
. Senator BARKLEY. Yes. Take my own situation. I am getting
more letters on that subject than any other subject, except for applications for office. And they are serious letters. They are from
people who are in desperation, and they are honest letters. I made
a statement in reply to one, for instance, on the subject of what we
were talking about a while ago—^the scarcity of money—that we
have more money in circulation now than ever before. That it has
increased over a billion dollars since 1929. It is more than a billion
dollars greater than it was in 1928 when we were supposed to be most
prosperous. And the reply to that suggestion was in perfectly
good faith, that that is true, there is more money in circulation
theoretically, but it is all locked up in the banks, which is true. But
if we were to increase our circulating medium by two or three or
five billion dollars more would it or not find its way to the sanie
place where the money is now locked up that is in circulation or is
supposed to be?
Mr. HOUSTON. Well, of course in the first place it would not correct
the inequality of price. I f it had the effect of raising prices, which
under certain conditions it might not do, but normally would do,
the prices that were still too low would remain too low relatively;
the prices that are high would remain high, and temporarily the
only tihng it would do would be to help the debtor at the expense




of the creditor, and ultimately to wreck the debtor as well as the
creditor, because if it were politically an expanded monetary system
it would lead to chaos. I have no doubt that if there were serious
danger of legislation of that kind going through, that we would have
a collapse that would make this look like 30 cents.
Senator LA FOLLETTE. IS it a fair assumption that your position,
Mr. Secretary, is that you feel that the best thing that can be done
is to let the natural course of business run on uninterfered with and
unchecked ?
Mr. HOUSTON. Broadly speaking.
Senator LA FOLLETTE. Thank you.
Senator GEORGE. Mr. Houston, does that not involve deflation all
along the line? Does it involve deflation throughout the whole
credit structure—fixed debt?
Mr. HOUSTON. Deflation?
Senator GEORGE. Yes.
Mr. HOUSTON. Well, I hope not.
Senator GEORGE. Or reductions?
Mr. HOUSTON. I hope not. I hope that if the action that is likely
to be taken, the course of action that has been suggested before this
committee by a number of people is followed, that the decreasing
inventories and other things will soon lead to an upturn and, broadly
speaking, the individuals and institutions of the Nation will work
upward as they always have in the past. How much longer this is
going to last at this bottom I am not prophet enough to make a
prediction, but I think we will come through it, and I think we will
come through it very much as we have formerly done.
The CHAIRMAN. Thank you, Mr. Houston. W e appreciate greatly
your statement.
Mr. HOUSTON. Thank you.
The CHAIRMAN. You have here two articles showing the situation
in the past depressions and how nearly comparable they are to present conditions.
Mr. HOUSTON. The stat^ of mind of the people and statements
that were being made about the depressions at that time.
The following article was recently brought to my attention and
I am passing it on to you as a matter of interest. This article is
reprinted from Harper's Weekly, volume 1, page 642, of the issue
dated October 10, 1857.
74 Y L R A O ; T E L S O O THE D Y
It is a gloomy moment in history. Not for many years—not in the lifetime
of most men who read tliis paper—has there been so much grave and deep
apprehensions; never has the future seemed so incalculable as at this time.
In our own country tliere is univerfial commercial prostration and panic, and
thousands of our poorest fellow citizens are turned out against the approaching
winter Avlthout employment, and without the prospect of it.
In France the politlical cauldron seethes and bubbles with uncertainty;
Russm hangs, as usual, like a cloud, dark and silent upon the horizon of
Europe; while all the energies, resources, and influences of the British Empire
are sorely tried, and are yet to be tried more sorely, in coping with the vast
and deadly insurrection, and with its disturbed relattons in China.
It IS a solemn moment, and no man can feel an indifference (which, happily no man pretends to feel) in the issue of events.
Of our own troubles no man can see the end. They are, fortunately, as
if we are only to lose money, and by painful
poverty to be taught wisdom—the wisdom of honor, of faith, of sy?npatby»
and of charity—no man need seriously to despair. And yet the very haste



to be rich, which is the occasion of this widespread calamity, has also tended
to destroy the moral forces with which we are to resist and subdue the
Good friends, let our conduct prove that the call comes to men who have
large hearts, however narrowed their homes may be; who have open hands,
however empty their purses. In time of peril we have nothing but manhood,
strong in its faith in God, to rely upon; and whoever shows himself truly a
God-fearing man now, by helping wherever and however he can, will be
as blessed and beloved as a great light in darkness.

And also this:

Bear in mind the date of this—1886, 45 years ago. From the
first report of the United States Commissioner of Labor:
The rapid development and adoption of machinery have brought what is
commonly called overproduction, so that machinery and overproduction are
two causes so closely allied that it is quite difficult to distinguish the one
without taking the other into consideration.
In England, Belgium, and France railroads and canals that are really needed
have been built, Germany is provided with a full network df railroads, and in
the United States railroad construction has been out of all proportion to the
increase of products to be carried.
Harbors and rivers are sufficiently developed, and warehouses, water and
gas works, tramways, etc., are largely provided f o r ; the Pyrenees and Alps are
tunnelled. And the Suez Canal has been built.
Terrestrial and transoceanic lines of telegraph have been laid and the merchant marine has been transformed from wood to iron. The nations of the
world have overstocked themselves with machinery and manufacturing plants
far in excess of the wants of production.
This full supply of economic tools to meet the wants of nearly all branches
of commerce and industry is the most important factor in the present industrial
It is true that discovery of new processes of manufacture will undoubtedly
continue, and this will act as an amelioration influence, but it will not leave
room for marked extension, such as has been witnessed during the last 50 years,
or afford employment to the vast amount of capital which has been created
during that period.
The day of large profits is probably past.

In 1886, then, we were fed up. AVe were through. From the
surfeit there could be no recovery. Everything had been thought
" Technological unemployment " was with us for good. Invention
and discovery had reached their limit. Industrial progress was
stymied. Maybe a few things might be conjured up, but not enough
to count.
^ In that year New York was a city of less than two and a half millions; Chicago, of less than a million. The preceding census
showed Cleveland at 160,000, Detroit at 116,000 and Los Angeles at
It would take a volume to describe the things that have come into
of America since then.
What one can't foresee is hard to believe, so to-day, as then, we
nave the feeling that the Commissioner of Labor had back there—^the
feeling that we're stopped.
And 45 years from now some viewer of the past wiU smile, as we
shortsightedness of a generation that was.
TTO CHAIRMAN. The statement of agricultural statistics for specihed States, calendar year 1930, may be printed in the record at this
(The statement above referred to, presented by Mr. Houston, is
liere printed
 in the record in full, as follows:)



Affrioultural statistics

for specified States,

calendar year,


[Division of Statistical and Historical Research]
Farms, Apr. 1,1930
Value of farm products (crops),
Value of livestock products,
On farms January 1
Per farm
Dairy cows:
On farms January 1
Per farm
On farms January 1
Per farm
On farms January 1
Per farm
On farms January 1
Per farm
Production 1929
Production per farm



Caro- Indiana


257,328 256, 252, 312,453 279,723 167,894 182,092

1,000 dollars- 240,404 300,040 285,413 334,415 175,681 237,937





1,000 bushels
1,000 dollars.








1,000 bales...
1,000 dollars-






1,000 bushels
1,000 dollars.





26,978 110,197
24,280 67,220

6 06 8




1,000 pounds
1,000 dollars.



3 07 0
2 92 5



























10, W1



















160 4

1,000 dollars.







Farms, Apr. 1, 1930
Value of farm products (crops),
Value of livestock products,
On farms Jan. 1
Per farm
Dairy cows:
On farms Jan. 1
Per farm
On farms Jan. 1
Per farm

1,000 dollars.

On farms Jan. 1 . . .
Per farm
On farms Jan. 1 . . .
Per farm
Production. 1929..
Production per farm.

Ala- Georgia Missisbama







976.1 1,458.6
7,106 10,626



1,102. C7,358.9, 9,530.4
63 5
4,785 32,428 4 , 9




47.663 78,050
96,475 192,511










1,000 bushels
1,000 doUars.

76,164 235,695 88,816
44,937 120, 01 59,507




1,000 pounds
1,000 dollars-



166,055 129,632 219,659 60,663
310,568 337,967 291,743 139,321
278.270 328,168 288,358

1,000 bushels 158,862
1,000 dollars. 88,945




01 1
12 0












































1,000 dollars.





6,816.8 8,781.8 6,779.1 5,686.6 4,772.6 4,202.4
18,366 51,604

foUowing sources: Number of farms from pre^ relf se
^^alue of Hvestocfc from the September, 193^
issue of Crops and Markets, which are the latest available
- - ^
Dec. 1, 1930, crop report of the Bureau oi Agr
Agriculture. Livestock on farms from the Jan. 1, 1931. Uvestock
of Agriculture. Chickens and eggs from record^of the Division of Crop and Live-

n nrJ^ifpHJ??® W r Computed by dividing the number of the particular class of livestock on f r s
or production of eggs by the actual number of farms reported as of Apr. 1, 1930.

The CHAIRMAN. W e will next hear Mr. John L. Lewis.



S T A T E M E N T OF J O H N L . L E W I S , P R E S I D E N T OF T H E U N I T E D
M I N E W O E K E R S OF A M E R I C A , I N D I A N A P O L I S , I N D .

The CHAIRMAN. Mr, Lewis, will you give the reporter your name?
Mr. LEWIS. John L. Lewis.
The CHAIRMAN. Whom do you represent?
Mr. LEWIS. President of the United Mine Workers of America.
Residence, Springfield, 111. Office address, Indianapolis, Ind.
The CHAIRMAN. You may proceed, Mr. Lewis.
Mr. LEWIS. Mr. Chairman and gentlemen of the committee: The
political stability of the Kepublic is imperiled. In excess of
12,000,000 wage earners are unemployed. In certain industrial
States the percentage of unemployed equals 40 per cent of the enrolled workers. Of the remaining 60 per cent a large number are
employed on a part-time basis, and are the victims of a continuous
schedule of wage cutting. Those who are employed, directly or
indirectly, must inevitably bear the burden of supporting the millions to whom employment is unavailable. The cost of maintenance
of government, and the support of nonproductive institutions is,
therefore, day by day being passed to the continuously decreasing
number of citizens who are privileged to work.
Our Republic and our institutions can not be expected to exist
under the progressive accumulation of ills which result from our
inability to properly organize our economic processes. Manifestations of widespread unrest and discouragement almost akin to despair, are daily becoming more violent. Over wide areas insurance
companies and other investors find the population in rebellion
against the usual processes of recovery from debt defaulters. Violent
resistance to evictions for rent default is daily more e\'ident. Disorder and rioting, because of the inadequacy of public relief, is increasingly prevalent. Continuing bank failures, with their consequent train of human tragedies, add to the sum total of bitterness
of a population sick with waiting and deferred hope for intelligent
economic and financial leadership. A student of history will find,
in many respects, a duplication of these appalling conditions in the
misery of the French people antedating the French Revolution. The
Bourbons of France, like some of the modern Bourbons in our own
country, indulged themselves in idle chatter and continued to believe
in their own security, notwithstanding the suffering and degradation
of the masses. They paid for their error and their inaction -with
their heads.
The appalling social and political problems arising from the
present emergency are of a fundamentally economic concept. The
restoration of order in our economic and industrial household is
primarily essential to any intelligent dispositon of the social and
political problems of the nation. W e are victims of our own national
short-sightedness, by failure in the halcyon days of prosperity to
intelligently plan for the future. A horde of " small-time " leaders
in industry and finance, like the freebooters of old, vied with each
other, looted the purse of the population, and diverted the proceeds
to their own interests.
-Now that the day of adversity has come, these same leaders are
destitute of competent suggestion to safeguard the present or the
rnture, and they expect the population of this country to remain




quiescent while they utter ponderous platitudes about balancing the
Budget and the necessity for further wage reductions. The very
application of their wage-cutting fallacy further reduces the national
income to a point where the population can not sustain itself and the
National Budget can not remain balanced. The balancing of the
Budget will not in itself place a teaspoonful of milk in a hungr}
baby's stomach or remove the rags from its mother's back. It must
be obvious to any thoughtful person that the National Budget can
never be permanently stabilized in the face of ever-growing unemployment, shrinkage in business volume, mounting inability to pay
taxes, and consequent depreciation of national income.
If democracy and corporate participation in industry are to survive in America, labor must have an opportunity to exercise its industrial rights for the protection of itself and our democratic and economic institutions. An emergency now exists which is more critical
than would be the case if a fleet of a foreign power were at this
moment bombarding the defenses of one of our major ports. The
very foundations of democracy and integrity of American institutions is threatened. Labor should be granted the right of collective
bargaining, with representatives of its own choosing in those major
industries of the country where this right is now withheld.
In large areas of the coal, textile, lumber, and steel industries
workers are denied the rights of collective bargaining and are treated
more or less as serfs, compelled to accept any wage, no matter how
inadequate, declared by a harassed employer existing on the verge of
financial bankruptcy. Democracy in these industries is supplanted
by an industrial autocracy.
Senator WALSH of Massachusetts. Has the depression resulted
in reducing the policy of collective bargaining in the coal industry?
Mr. LEWIS. TO a very great extent. Senator.
Senator AVALSH of Massachusetts. Practically wiped it out, has
it not?
Mr. LEWIS. In large areas of the bituminous coal industry where
collective bargaining was formerly recognized, the increased pressure on the operating end of the industry and the financial end of
the industry has caused them to drive out the union wherever possible in order to reduce their wage to try to keep their mines out of
the hands of the sheriff.
Senator AVALSH of Massachusetts. That is pretty general throughout the whole industrial life of the country, is it not?
Mr. LEWIS. I think that is a fair assumption, Senator.
Legahzed collective bargaining will permit the workers of America to exercise their birthright of participation in the fixation of the
prices of their services and the conditions of employment.
Labor should be given greater recognition in the affairs of governnient, and its spokesmen should be given representation upon
boards and commissions exercising governmental functions. During
the period of the World War labor was given such recognition, and
inasmuch as the Nation is now confronted with an emergency even
more grave than was the case during the years of 1917 and 1918,
labor should again be given its seat at the council table.
I t given the right to organize in our major industries, labor can
police those industries against Communism, or any other false and



destructive philosophy, more efficiently than can the Government
itself. American labor has in the past demonstrated its patriotism
and its desire to stand behind and protect the accredited institutions
of our land.
If labor is accorded its fundamental rights it can render great
service in the present crisis.


In consideration of the obvious circumstances, Congress should
pass a joint resolution declaring a state of national emergency, to
effectuate intelligent organization of the industrial and financial
activities of the Nation.
A board of emergency control should be created. It.should be
composed of representatives of industry, labor, agriculture, and
finance. It should be given plenary emergency power, under the
direction of the President.
The board should be instinicted to reduce the hours of labor, and
the number of days in the work week, to a point where the industrial machinery of the Nation can substantially take up the slack
of unemployment, and under conditions where labor is accorded the
right of collective bargaining through representatives of its own
This board should also be instructed to stabilize the prices of
agricultural products and other commodities to a point that will
express reasonable return to the producers thereof.
The board should be given such other instructions as to fundamental economic planning and other matters, in accordance with
the judgment of the Congress.
The foregoing recommendations may be criticized by some as
being a form of dictartorship repugnant to the American concept
of government. Nevertheless it is the form of procedure resorted
to by our Nation during the crisis of the World War, when the
enemy was 3,000 miles from our shore. To-day the enemy is within
the boundaries of the Nation, and is stalking through every community and every home, and, obviously, this proposal is the most
democratic form of internal regulation that can be devised to deal
with our economic and industrial collapse.
The CHAIRMAN. Are there any questions of Mr, Lewis?
Senator BARKLEY. Mr. Lewis, I am very much interested in your
suggestions, especially with reference to agriculture and the stabilization of agricultural products to the point where the producers can
obtain a profit. Would you care to go into some detail about how
that would be brought about?
Mr. LEWIS. I have dealt here, Senator, with the principle which
I think is an entirely practical arrangement. Obviously commodity
prices, agricultural prices and prices of certain other commodities,
have decreased to the point where there is no return to the producer
thereof and he finds himself involved in circumstances which are
gradually driving him to despair. I have in mind that in the coal
mdustry an emergency board of control could stabilize the price of
coal in the coal industry at a point that would enable the operator
to pay a reasonable wage for his labor and enable the producer of
169450—S&—PT 3





the coal to procure a reasonable return upon his investment through
the establishment of minimum prices.
I have in mind that substantially the same principle can be followed in the agricultural industry. As to the details of the application of that principle in the agricultural industry I would much
prefer that advice be sought from the farm leaders and the spokesmen for the agricultural industry who, of course, are naturally
much more versed in the details than I would be myself.
Senator BARICLEY. Congress attempted to do what you had in
mind in some respects by setting up the Farm Board, and it was
called the agricultural stabilization act, with the results of whose
operations you are familiar, and its failure. I am not saying that
as a criticism of the personnel of the board or its policies. I felt
from the beginning that the law itself w^as fundamentally inadequate. They probably did the best they could with what they had
to work with. But taking that as an example of the effort to stabilize farm products I was wondering whether you had worked out
in your own mind any method by which it could be done ?
Mr. LEWIS. Of course, the attempt at stabilization of the farm
prices through the action of the Government board and subsidy
brought the Farm Board in competition with the lesser prices of all
other commodities, and it was simply a question of the Government
going into the open market and purchasing what might be called a
surplus of the farm production, and in the face of the general situation affecting the commodity markets of the nation and the world
it was found to be not as effective as had been anticipated.
I think, however, that within the proposals made in this memorandum we are suggesting another principle, that plenary powers
be given an Emergency board that would promulgate minimum
prices. During the war period our emergency board promulgated
maximum prices of certain commodities, with respect to wheat, coal,
cotton, and other things. In this instance we are not suffering
from maximum prices or a robbing of the public or the excessive
prices charged by producers, but the Nation is suffering from the
inability of the producer of the commodity to receive a fair return.
I think that we have a slightly different principle involved.
Senator BARKLEY. Such a board as you suggest, with plenary
power as you suggest, would involve the conferring upon that board
complete control of all industrial, agricultural, financial, and labor
operations of the country?
Mr. LEWIS. Within the necessary limits of the suggestion made,
I have this in mind, Senator
"Senator BARKLEY. Would you confer upon such a board the power
to say to a farmer that he should not raise more than a certain
acreage of wheat or corn, or not more than a certain number of
cattle, so as to lessen the production or the surplus that he may have,
or of cotton and things of that sort?
Mr. LEWIS. If it were found after competent investigation that
such an action was beneficial and necessary to the stabilization of
farm prices I can conceive that with the cooperation of the agricultural mdustry such authority might well be given an emergency
board of control.



Senator BARKLEY. Would that involve the same policy towards
industry; that if the board found that there was a surplus of steel
products or of clothing or shoes, would you confer then upon them
the power to bring about a lessening of that production?
Mr. LEWIS. I would if the rationalization of industry would require
that action.
Senator BARKLEY. How would you take up the slack in the in*
creased unemployment brought about by the curtailment of production in such case ?
Mr. LEWIS. I rather think it would operate in the reverse direction, Senator. For instance, I suggest here that one of the first responsibilities given the board of control would be to reduce the hours
of labor and tne number of work days in industry.
Senator BARKLEY. I am fully in sympathy with that and have
been for some time. The situation is bad enough now, and I am
wondering whether if such a board were given power to curtail
employment where they found that there is already enough of any
particular product on hand, if that would not accentuate the unemployment situation and make it necessary to spread out still farther
among those available for work the work that could be done ?
Mr. LE^VIS. I doubt whether it would, Senator, because in the
final analysis it is a fair assumption that after all no more steel
will be produced than the country will consume within a definite
Period of time, and no more coal will be produced than will bte
turned, and no more corn or wheat can be i^aised after all than
the country can consume or hold in storage.
Senator BARKLEY. I think that is more true with relation to clothing and shoes than it is wheat and corn.
Mr. LEWIS. I think you are right there.
Senator BARKLEY. Because each farmer may hope that the other
farmer is going to cut down his acreage while he may increase his
if it is necessary to raise a certain amount of money, and the cheaper
the price the more of the product is necessary to get that amount.
It is not an organized industry.
Mr. LEWIS. That is true. May I point out this fact, Senator, that
the rationalization of industry by the cutting down of the hours
per day and the number of days per week will spread all employment.
Senator BARKLEY. Of course. It will also spread purchasing
power, which is very important.
Mr. LEWIS. It will spread purchasing power. And approximately
ten or twelve million workers who are now unemployed and ahnost
completely out of the market as buyers and consumers will again
come back into the market with their families and dependents, and
we will have a situation where practically 48,000,000 people of this
country of high and low degree will begin to consume farm products, which in itself will be a tremendous contribution to the agricultural industry.
Senator BARICLEY. Going to the coal industry, with w^hich you are
more personally identified
Mr. LEWIS. Quite so.
oenator BARKLEY. And I , am, of course, coming from Kentuckvt
concerned with the coal industry, from the standpoint of the coal



miner—it is a long story, but could you in a few words give the
cause of the collapse of the coal industry in the United States?
Mr. LEWIS. Yes. Overdevelopment of the industry during the
war period, Avhen demand for coal was inflated. The diminished
demand for coal due to the development of the fuel-oil industry,
the natural gas industry, the extensive pipe-line systems of the
country, hydroelectric power, and due to the tremendous strides
made iii the improved internal combustion, more power being derived from a pound of coal than ever before. All of those things
have contributed to diminish the demand for the bituminous coal
products throughout the country, with competition intensified by
this idleness thrown on the industry through lessened demand and
the six or eight thousand corporate entities producing coal all fighting with each other and cutting the ground from under each other
in a competitive way, to sell their coal in the market.
Senator BARKLET. Putting aside the questions arising out of the
depression and accentuated unemployment, but taking the normal
stretch of time, what can the Government do specially to aid the
coal industry with its relationship to these other activities like oil
and gas and hydroelectric power without repressing those developments ? Is there any legitimate field in which the Government can
aid the coal industry without correspondingly repressing the others?
Mr. LEwik I am quite certain that the coal industry can be stabilized without reflecting unduly upon the interests of the oil industry or the gas industry or the hydroelectric power industry. If the
coal industry were rationalized, it could operate with some return
to the operators in the industry for the tonnage they produce. As
it is now, the bulk of the tonnage has actually been sold at less than
the cost of production. W e have pending in Congress at the present time a coal stabilization bill which provides for two things as
an aid to the coal industry. The right of the operators in the industry to form coal sales agencies for selling coal so as to increase their
realization, cut down their selling expense, and be free from prosecution under the antitrust laws for forming these coal sales agencies
under certain checks and limitations that will protect the public.
On the other hand it permits the employees of the industry to organize and collectively bargain with the employers, which would
stabilize from 60 to 70 per cent of the major labor cost of the industry and enable the operators to stabilize their production costs, and
in the end get a return upon their investment.
Senator BARiti^EY. In view of the overdevelopment of the coal
industry during the war, which, of course, had its effect upon the
overdevelopment of both ends of it, from the operator as well as the
labor standpomt and assuming there is a surplus of labor in the
coal helds, would you spread out whatever labor there is available
among all those now available for coal minincr or would you attempt
^odixQvt some of that surplus coal labor into other channels?
Mr. LEWIS. Well, we would have to permit labor to work out its
own destmy as it always has. A miner can not stay in the coal
industry unless he is employed by some operator in that industry
who is trying to operate a mine. And if that operator relinquishes
the attempt to operate the mine the individual miner is detached
Irom the industry and must make his own way in the world.




Senator BARKLEY. AS a matter of fact, the shorter hours and less
week days is almost an academic question now in the coal fields.
Mr. LEWIS. That is true, sir..
Senator BARKLEY. Because they are not getting much work at
any time.
Mr. LEWIS. That is true. Senator.
The CHAIRMAN. I f that is all, we thank you, Mr. Lewis. W e
meet at 2 o'clock, when Mr. Taber will be before the committee.
(Thereupon, at 12.15 p. m., an adjournment was taken until 2
o'clock p. m. of the same day, Friday, February 17, 1933.)

The committee reconvened at the expiration of the recess, at 2
o'clock p. m.
The CHAIRMAN. The committee will come to order. Is Mr. L. J.
Taber present? Take the chair, Mr. Taber.


The CHAIRMAN. Mr. Taber, you are a resident of the District of
Columbia, are you?
Mr. TABER. M y name is L . J . Taber. I am master of the National
Grange, Columbus, Ohio.
The CHAIRMAN. Y o u m a y proceed.

Mr. TABER. The causes of this depression are many, some of them
intricate and some not yet revealed, but the fundamental cause is
apparent to all. W e have violated the laws of God and the laws of
economics, and are paying the penalty. The measures necessary to
restore normal conditions are some of them still shrouded in mystery,
but the essential step is that w^ith common sense we apply economic
justice to all groups alike.
Any nation expanding wath the rapidity with which ours developed must inevitably make mistakes, grant undue privileges, and
fail to provide machinery to equitably distribute the wealth created
in such a prodigal amount and with such great rapidity. A part of
the price of national expansion has been permitting unsound distribution and the exploitation of our natural resources. Inevitably a
day of reckoning would have overtaken our Nation, but world conditions greatly hastened the penalties inescapable to a people of our
rapid growth and expansion.
The prime cause of all our troubles can be traced back to the World
War. This fire started by ambition and hate that burned in Europe
until it consumed their accumulated savings of a century and burdened the world with debt and was extinguished only with the blood
of millions of the best young men of the world. The aftermath of
geographic dislocation, unAvise territorial distribution, unsound burdens of debt and reparations created economic conditions such that
retribution was almost certain to overtake us.
A debt-ridden and almost bankrupt world w^ent on a drunken orgy
of speculation. In this country, overcapitalization and speculation
were rampant, many believing that playing a bull market was the




easy road to wealth and that the old-fashioned virtures of thrift,
economy and toil had become obsolete.
The maldistribution of wealth increased our dilRculties. Millionaires grew like mushrooms and fortunes sprang up as if by magic.
Combination, mass production, chain merchandising and installment
buying made their appearance. . The report of the Commissioner of
Internal Eevenue for 1929 shows that 504 men had an aggregate net
taxable income greater than the total farm value of the cotton crop
grown upon 45,000,000 acres and the wheat crop produced upon
55,000,000 acres during the ensuing year. Clearly the ine5[uitable
distribution of wealth was a major factor in precipitating the
The machine age inventive genius and scientific development
caused productive ability to outrun consumptive capacity. W e have
learned well how to produce and in part how to distribute, but have
forgotten that unless mass consumption and mass production go
hand in hand^ disaster is inevitable.
The failure to provide a stable medium of exchange has remained
the root of many of our difficulties. An honest dollar must mean
a dollar's worth, 100 cents, no more or no less; one just a debtor and
creditor alike. A fundamental cause of the collapse of 1929 and
the three years of disaster that have overtaken the Nation was the
failure of America to do justice to agriculture. The farm problem
was allowed to groAv more acute until the purchasing power of
agriculture was almost destroyed and a large group of our people
were brought to the verge of bankruptcy while the Nation was yet
in seeming prosperity.
As master of the National Grange, an organization that for 67
years has sought equality for the farmer and at the same time the
good of all, I shall address myself specifically to the problems of the
farmer. Agriculture has been basic in every civilization. It produces the food, the clothing, and most of the shelter of mankind.
No amount of invention, no amount of scientific discovery, no
amount of congesting in cities ever has or ever will enable a nation
to get away from its direct relation upon the soil. Farm prosperity
is synonymous to national well-being. Prosperity and stability can
not return until the farmer purchasing power is restored.
Mr. Chairman, I would like at this point to put in the record
the resolutions adopted bv the National Grange dealing with this
problem, marked " Exhibit A . "
The CHAIRMAN. They may be put in the record.
(The resolutions referred to are as follows:)




N . C . , NOVEMBEB 1 ( 5 - 2 5 ,




Whereas the American Nation has led the world in agricultural exports,
more than one-half of the Nation's exports having been agricultural products,
the farmer has beyond question proven his efficiency in production but has
suffered by the necessity of buying in a highly protected market while selling
'''' ^
^^ ^^^'^ign competitive prices; and
M liereas the records show that during the years 1919 to 1929 when p r a ^ '
ral y all other nulustries enjoyed the greatest prosperity in the history of the
f iao(i
lost over 30 per cent of its wealth, and from the years 1921
to 1\)2J bank failures increased from 43 per year to 583 per year; and




Whereas the failure to protect agriculture destroyed the purchasing power
of 40 per cent of our people engaged in agriculture or directly dependent
thereon, thereby causing material losses to industry, commerce and labor; and
Whereas if agriculture is given adequate protection and encouragement,
national prosperity will be hastened: Therefore be it
Resolved, That we reaffirm our faith in the principle of cooperative marketing and properly administered cooperative agencies under farm control.
W e heartily approve that portion of the agricultural marketing act which
encourages cooperative marketing and commend the action of the Federal Farm
Board in giving assistance to the cooperative organizations.
W e believe that a public board or commission can better serve agriculture if
bipartisan in character.
W e urge the adopton of a sound policy of surplus control, including debenture, a simple form of domestic allotment, or some other practical plan designed
to relieve the evils of agricultural surplus, and authorize the executive committee of the National Grange to cooperate with representatives of other organizations and groups in developing such a policy for agricultural relief.

Whereas the land-grant colleges through the extension service have rendered outstanding service to American agriculture; and
Whereas under stress of tax reduction and the opposition from commercial
interests there is danger of the Federal act being so amended as to handicap
this service through reductions of funds or congressional restrictions: Therefore be it
Resolved "by the National Grange, That we favor the continued Federal financing to the extent that this service shall not be impaired in rendering a uniform public service to agriculture. Be It further
Resolved, That the extension service in the various States be financed solely
from public funds.


Believing that the broadening of the offerings of public education in America
so as to provide practical vocational training for the millions of boys and
girls, men and women who can never take advantage of a college education,
has been one of the great developments in education in the twentieth century,
we desire to go on record as favoring the teaching of vocational agriculture,
home making, and trades and industries by the public schools of the country.
W e urge the extension of this program until every boy, girl, man, and woman
in the rural areas is given an opportunity to take courses, preparing them to
more effectively meet the intricate problems of home and farm.


Be it resolved hy the Natio^ial Orange, That we reaflirm our support for
legislation granting at an early date independence to the Philippine Islands.


1. The interest and safety of the public require enforcement of proper
restrictions regarding the size, weight, and speed of all vehicles moving over
the public highway.
2. Such regulations should be uniform as between the several States and
there should be reciprocity between the States based on such uniformity.
3. The power to regulate is a police power lodged with the States. As a
basis of regulation, we commend to all the States adoption of the uniform
code for the regulation of traffic recently approved by the American Association of State Highway Officials and the United States Bureau of Public Roads.
4. Kach motor vehicle should be taxed its fair share of the cost of the highways which it uses. The State should be the sole taxing agency.
5. Every special tax collected for highway improvement should be conseiTed
for that purpose alone. Consequently, no gasoline tax diversion should be
6. No taxation or regulation of motor vehicles should be permitted which
has for its purpose any increase in cost or restriction in use, in order to
equalize competition between motor transportation and other forms of transportation.



1. No reduction in the Federal income tax.
2. Maintain and increase the estate tax, and allow the States to retain a
portion of the tax collected.
3. The collection of a limited tax on luxuries.

1. Utilization of a State income tax as a means of better distribution of the
tax burden.
2. Limitation of all special assessments against real estate.
3. Laws to control the debt incurred by taxing units.
4. A study of budgetary control laws now in force, to tlie end that more
local governments might utilize such to advantage.
5. Utilization of the gasoline tax and motor vehicle license revenue for the
reduction of the local general property tax by applying a portion of such State
funds for local road pui'poses, except that in such States as have substituted
a license fee for a property tax on automobiles, a portion of such license proceeds may be used for general tax purposes.
6. Special commodity taxes, particularly on luxuries, where such additional
revenue is necessai-y to replace large delinquencies existing in property taxes.
7. The elimination of inefficient and unnecessary units of Government and
the introduction of better business practices in all Governments.
W e oppose:
1. Issuing bonds to cover current expenses.
2. General sales taxes.
3. The diversion of gasoline taxes to purposes other than highways.

Whereas there is duplication, overlapping and pyramiding, in the field of
taxation as between the Federal Government and the several States; and
Whereas a subcommittee of the Ways and Means Committee of Congress is
now making a study of this subject in the hope of pointing the way to needed
reforms in this connection; and
Whereas many States are now taxing manufactured tobacco products, already taxed by the Federal Government to the extent of approximately $400,000,000 a year: Therefore, be it
Resolved, That in the interest of simplicity and economy in the collection
of these taxes, to prevent evasion, and to effect a fairer and more equitable
distribution of the proceeds of Federal taxes on manufactured tobacco, we
recommend that taxes on manufactured tobacco products should be collected
by the Federal Government, that one-sixth of the sum thus realized should be
returned to the States on the basis of population, and that in the allocation of
such funds to the States there be deducted the amount of all money collected
by the States on manufactured tobacco products.

In considering ways and means of reducing taxation, the welfare of the
Nation demands that we should scrutinize carefully our disbursements for the
relief of veterans and their dependents. Therefore, be it
Resolved, That the National Grange is opposed—
1. To the payment of the cash bonus at this time.
2. To tlie paying of benefits to veterans who have no service-connected

Whereas during the last Congress there were a number of measures sponsored by the Senate economy committee and others that threaten to seriously
curtail the service of our rural mail; and,
Whei-eas among suggested measures are a revival of the old contract system,
tlie suspension of equipment, maintenance allowance for one year; a flat
reduction of 10 per cent in the postal appropriation bill that would mean the
dismissal of from thirty to forty thousand postal employees; the consolidation
of 8,000 rural routes, and the placing of 9,000 rural routes on the triweekly
instead of daily service; and,



Whereas during the last houi"s of Congress a special Senate economy committee was appointed that will continue to make recommendations through
the coming Congress; and,
Whereas there has been a consolidation of rural routes resulting in a saving
of nearly $4,000,000 annually since August, 1925: Therefore, be it
Resolved, That we are opposed to any movement, intent or practice, that will
in any way endanger, hinder, or interfere with the regular and efficient distribution of mail to rural communities, and that we oppose the free use of the mail
to other than postal employees in the discliarge of mail service.

Whereas existing credit facilities have broken down, resulting in excessive
tax and mortgage delinquencies and foreclosures w^ith untold loss and suffering;
Whereas one of the greatest needs of agriculture is a sound system of credit
providing amply for the needs of production, marketing and capital investment,
at a rate of interest comparable to farm prices, we bel'eve that the problem
demands two types of treatment, one dealing with the emergency which exists,
and the other designed to improve and perfect the agricultural credit facilities
so that they .can operate to the best advantage in normal times: Therefore, be it
Resolved, That we recommend the following:

1. Loans through the Reconstruction Finance Corporation to existing private
loan agencies where necessary and with satisfactory guaranty that money will
be used for purposes intended, sufficient to enable them to carry deserving
borrowers through the period of ruinous prices.
2. Sufficient appropriations be made for the reserves of land banks to enable
them to carry deserving borrowers through the period of ruinous prices.
3. Establishment of an emergency holding corporation to acquire, hold, and
dispose of lands now owned or hereafter acquired by Federal land banks, such
corporation to operate under the supervision of the Federal Farm Loan Board.
4. A Federal guaranty of Federal farm loan bonds, with provision for refunding existing loans at the lowest rate of interest possible and strengthening
the democratic control of the system through increasing the responsibility of
associations to prevent any possibility of political domination.
5. Permitting land banks under original or subsequent appraisal, to consolidate the debts of the borrower, arising from the mortgage, under a new
mortgage, such mortgage to be acceptable by the registrar, upon approval of
the Federal Farm Loan Board, when adequate reserves are set up for all
such additions.

Legislation for a permanent program consisting of amendments to the Federal farm loan act to provide—
1. For the elimination of duplication in governmental agencies making farm
loans, including the joint-stock land banks w^hose assets should be merged
^ t h the Federal land bank system as rapidly as can be done with full justice
to the borrowers, the bondholders, and the stockholders, in such manner as
to preserve the cooperative features of the system under farmer control.
2. For the removal of certain restrictions from the requirements concerning
mortgages as follows:
More flexible amortization terms should be provided, permitting shortrerm loans with irregular or balloon principal payments, to make possible
handling loans on properties not suitable as security for long-term regular
amortization loans.
(h) The terms of eligibility should be broadened to permit a farmer-proaucer to borrow upon land which he is not personally operating,
nr L ? ^ ® P^iiT>oses of the loan should be broadened to permit the use of the
of the loan to meet anv debts of the borrower within the discretion
i } ^ ^^^^^^
discretion as to the acceptability of loans should be left to
nw^i^'^l I^and Bank Board in all matters excepting as to the value of the
Physical security.
rat ^^^ increasing the permissive spread between bond rate and interest
^te to
per cent, using substantial portion of increase to augment the




income of associations. It is suggested that not less than one-eighth of 1
per cent be paid to associations to enable them to function as intended under
the act, and increasing the reserves of both Federal land banks and farm
loan associations.
4. For amending or ruling to provide that the words " agricultural purposes "
as used in subdivision 5, section 12, of the act with reference to determining
the value of the land shall be construed as including horticulture and all types
of farm production, provided that where specialized crop returns are used as
a principal factor in determining value a satisfactory record of production
over a term of years must be shown.
5. For class 15 stock in associations whose capital is impaired to the point
where new loans through the association have become impossible; such stock
to be issued when five or more qualified borrowers are available with acceptable
applications totaling $10,000.
Such stock to constitute a separate issue to
be subject to assessment for losses incurred from class B loans only, and to
bo issued only upon approval of the Board of Directors of the Federal Land
Bank and the Federal Farm Loan Board.
6. For more flexible provisions with reference to initial loan charges so
that associations may be permitted to collect enough from applicants to cover
appraisal costs on small loans.
7. That upon completion of the above program, the bonds 6f any land
bank under Federal charter be accepted as legal tender at face value in
lieu of cash in payment or balances on mortgage loans made through it bearing the same or lower rate of interest, where the loan is being paid in full*
whether such banks are solvent or in the hands of the receiver and whether
the borrower is in default or not.

W e favor amendments to Federal intermediate credit act expressly providing
for the establishment of cooperative agricultural credit associations with rediscount privileges and for rediscounting acceptable agricultural paper of credit


The report of last year on monetary stabilization directed attention to the
serious situation of agriculture by reason of fluctuation in monetary values.
It was recommended that steps be taken to secure restoration of the wholesale
price average of 192G as computed by the United States Bureau of Labor Statistics and the stabilization of the price level as nearly as practicable at that
point. In order to accomplish this, the following recommendations were made:
1. An increased purchase in large volume of securities in the open market
by the Federal reser\^e banks.
2. Reduction of rediscount rates by the Federal reserve banks.
3. Reduction of the legal minimum gold reserve ratios of the Federal reserve
banks to point materially below the present 35 to 40 per cent legal ratios, to
the end that the surplus gold in the United States may be exported without
endangering the gold standard.
4. An international monetary conference for the purpose of (a) stabilizing
the gold price of silver and (6) stabilizing the purchasing power of gold
in terms of the average of wholesale prices of commodities.
Subsequent events indicate the soundness of the above recommendations;
Therefore, be it
Resolved, W e demand that Congress take proper steps to expand the currency
to such an extent as to raise the commodity prices to the average level
obtaining from 1921 to 1929, to the end that both public and private debts
may be justly liquidated, and to furnish us with a medium of exchange whose
value shall be stable from year to year,

Mr. TABER. While the depression is only a little more than three
years old, so far as it relates to industry and finance, it is necessary
to emphasize the fact that agriculture has been in serious distress,
for 12 years. In order to get a clear perception of unparalleled diflSculties confronting the farmer to-day, we must ffo back to the time
of the World War.



The period of 1914 and 1917 found American agriculture in a
fairly prosperous condition, because prices of farm products had
been gradually advancing since the beginning of the century. The
consuming power of our own people was overtaking farm production. From the time when the United States entered the war, in
April, 1917, the highly important part devolving upon the farmer
was emphasized in governmental and military circles.
Attractive posters bearing the legend, Food will win the war, were
on display throughout the agricultural sections of the country.
Prices were lifted and appeals were made to the patriotism of the
farmer, and production campaigns were waged in every nook and
corner of rural America. Every possible effort was made by the
Government to convince the farmer that it was his duty to expand
his acreage, purchase improved machinery, and produce the largest
possible amount of food. The farmers responded in the most magnificent manner to this call for increased production, and in addition furnished more than one-fourth of the fighting men for the
Army. The food produced under great difficulties and at high cost
on American farms helped save the cause of democracy and bring
victory to the Allies.
While the war was in progress, the farmers were assured again
and again that they need have no fear of overproduction, and that
even if hostilities should cease, there was a starving world overseas
which would take all they could produce. This speeding up of
production resulted in the accumulation of large supplies of foodstuffs which after the close of the conflict had to compete with commodities that had piled up in Argentina, Australia, and other distant lands, and which were now moved to the markets of the world.
With domestic markets glutted with food, and confronted with
a rapid decline in foreign demand, prices for farm products took a
drop, and this tendency was accelerated by a general clamor for
lower costs of living. A crusade was launched through the office of
the Attorney General to bring down the prices of farm products.
Leaders of farmers' cooperative associations in many sections of the
country were placed under arrest and prosecuted under the antitrust
laws. Government stocks of food were advertised at l>argain prices
through the agency of the Post Office Department, and Government
wool was sold at auction to the highest bidder. It was announced
that these supplies would not be exported, but would be thrown on
the home market, while retailers were encouraged to dispose of them
at cost.
All this was in marked contrast to the treatment accorded industry
by the Government. After the war, the Government paid claims
Aggregating more than $500,000,000 to the holders of war contracts.
But there was no indemnity paid to the farmer. To add to the
difficulties confronting agriculture under these circumstances, the
Federal reserve system inaugurated a policy of deflation through
successive advances in discount rates, which, to all practical intents
and purposes, left the farmer without credit and compelled him to
^row his crops on the market for anything they would bring,
•tiundreds of thousands of farmers went bankrupt through no fault
their own during 1921-22. With slight interruptions, the agri



cultural depression continued until the crash of 1929. Since then
what had been a depression has become a disaster.
The oldest unanswered problem confronting the American people
is that of doing justice to the farmer. In the famous document submitted by Alexander Hamilton to Congress in 1T91, he recommended
a protective tariff as an agency of developing our infant industries
and providing revenues for the Government. He also pointed out
that tariff legislation might handicap the producers of raw material,
especially agriculture. To correct this inequality, he recommended
that a portion of tariff revenue should be used as a bounty on agricultural exports as a means of offsetting increased costs to agriculture. Congress adopted the first portion of Hamilton's recommendation, later adding provisions for the drawback and for
manufacturing in bond, so that they need not handicap American
manufacturers in their efforts to compete in the markets of the
Unfortunately, the second part of Hamilton's recommendation,
the providing of some offset or means of doing justice to agriculture,
was not enacted.
Senator KING. Would a debenture measure up to that recommendation ?
Mr. TABER..A debenture is that recommendation. I will proceed, Senator, and show that in just a moment.
Thus, with this complement to our tariff structure ignored, we
have maintained a lopsided policy, leaving the products of the
major portion of the plowlands of the Nation without direct tariff
The opening up of new and cheap land, the limitless fertility
of our soil and the improvement in agricultural machinery enabled
the American farmer to hold the export market for approximately
a century without serious difficulty. In the nineties this issue again
made its appearance in the form of what was then called the Lubin
idea, which found only partial recognition in sugar bounties, proposals for reciprocity, and similar minor amendments to tariff legislation. But in the nineties, as back in the very beginning of the
Government, nothing was done to reach the heart of this problem.
, The CHAIRMAN. I did not quite understand your statement that
agricultural products had no protective tariff, at the beginning of
your statement.
Mr. TABER. This was my statement. I will repeat it, Senator.
Thus, with this complement to our tariff structure ignored, we have maintaineil a lopsided poUcy, leaving the products of the major portion of the
plowlands of the Nation without direct tariff protection.

The CHAIRMAN. T h ^ have got all they asked for.
Senator HARRISON. On some of them you got protection.
The CHAIRMAN. Then you ought to have used different words than
Senator HARRISON. He says "lopsided." That is a verv appropriate word.
Mr. TABER. I think it is appropriate, but I am perfectly willing
to state that
The CHAIRMAN. If you can find out what " lopsided " means.



MI\ TABER. A l l right, Senator. I will define what lopsided means
by saying any system that directly reaches one portion of our citizens
and does not directly reach the other portion is lopsided.
The CHAIRMAN. That has reference not only to agriculture, ihat
may apply to anything, or any law.
Mr. TABER. Senator, I can not withdraw my behet
T h e CHAIRMAN. I d o n o t ask y o u t o w i t h d r a w it.


Mr TABER. I can not withdraw niy belief that our tarilt policy
has been lopsided. I can not understand why Congress, composed
primarily of Eepresentatives from the rural districts in 17J1, toolc
the first part of the Hamiltonian jDhilosophy and failed to take the
second part, which provided that part of the tariff revenues should
be used for compensating benefits to agriculture. The only answer
I have ever been able to find, in the writings of the times, was this,
that the wars of Napoleon, the high prices of farm products, and
the unsettled conditions in Europe made a market such that this
was not an issue. But be that as it may
Senator KING. Without desiring to project a partisan tinge to
this testimony, may you not explain the failure to relieve this
lopsded situation during the past years since the Civil War, by
reason of the fact that nearly all the farmers persisted in accepting
the orthodox theory of tariff and supported people who voted the
highest tariffs?
Mr. TABER, Senator, I shall not answer your question as vou want
me to.
Senator KING. I Avant the facts.
Mr. TABER. I will simply say, however, that some farmers, and
some of their representatives, have gone to the fountain source of
protection, and to their amazement have found the apostles of this
fountain source have not followed it to its ultimate conclusion.
Senator HARRISON. Wliy do you point to the chairman of this comwhen you say, " the apostles of this fountain source^'?
M r . TABER. I d i d n o t i n t e n d t o p o i n t t o h i m .

The CHAIRMAN. All the chairman can say is that in the SmootHawley tariff law, the farmer got exactly what the farmers' representatives asked for.
Mr. TABER. Except the debenture.
Ihe CHAIR3IAN. That is not a tariff.
debenture is as much drawback as is a part of the
Senator. They are complements.
1 shall proceed, to save time,
h fK
^^^ equalization fee, the determined fight made
Arrange for the export debenture and the discussion of the
aomestic allotment legislation in this Congress are all chapters in
Jnis century and a half old struggle to do justice and bring equali'ty
to the American farmer.
JiiVer since the first session of Congress, our Government has been
^^inkering with economic laws through patent grants,
rfn •
restrictive, permissive, and protective legislation, and
century and a half most of these benefits have gone to
others than the farmer.

^^ " i y distinguished friend across the table that it has
made any difference which party has been in power.




W e have been spending hundreds of millions of dollars in river
and harbor development. This has benefited the Nation. Millions
of dollars have been expended in locks and experimental barge service. Large sums are spent in lighting airways across the continent
High prices are given for the carrying of mail in the hope of developing the merchant marine. The Government delegated some
of its constitutional authority of issuing money to the national
banks and the Federal reserve system. This may have been sound,
but others have benefited more than the farmer. Our Government
has granted the right of eminent domain, has given large tracts of
land, and has set up special machinery for the development of railroads and interstate commerce. In the way^ of protecting our ideals,
we have set up stringent immigration restrictions. Authors and inventors have been protected by co^right and patent privileges.
Thus for a century and a half our Government—and I might say
practically without interruption—^has interfered with the operation
of economic laws and in this program, others have been benefited
more than the farmer. In seeking to maintain on American soil a
higher standard of living than obtains in the rest of the world, we
have built such a fabric of protective, restrictive, and perniissive
legislation, and administration, that it can not be destroyed without
affecting national welfare. Agriculture must secure the same privileges and opportunities that others enjoy.
The first step in the Grange program for stability and prosperity
is lifting farm prices and increasing farm purchasing power. We
have no choice in the matter. W e are compelled to either demand
the same type of price lifting machinery and governmental assistances that is given to other interests or we must seek a lowering of
tariffs and a readjustment of all restrictive legislation granting
special favors to other groups.
Senator HARRISON. A s between the two, which is the better plan,
in your opinion?
Mr. TABER. Senator, if I thought it possible, I think it would be
infiinitely better to remove every vestige of restrictive, permissive, and
special legislation. But, as I have indicated, we have built such a
fabric over such a long period of years, and we have done it with the
determined purpose, as I shall show later, of maintaining a higher
standard of living in America than obtains in the rest of the world.
Senator KING. Something like a fibroid tumor that ramifies all
through the physical body?
Mr. TABER. That is hardly a good comparison. I t is the same in
one way, but in another way, if those special privileges go to all,
none are injured.
If we are going to build this artificial standard, we must include
all in the artificial standard, and that is my plea, and the point I am
trying to stress.
As to the first step in the farm program, I can only speak for the
Grange, but I am glad to say that the Farm Bureau, the Farmers'
Union, and organized agriculture are in fine agreement on the main
principles,, and I think we all agree that the first step is lifting prices.
Senator KING. Without desiring to interrupt your statement, if
you are going to treat this later I shall not press it, but have you
reached a conclusion as to the importance or necessity, in the proper




rehabilitation of agriculture, of foreign markets for agricultural
Mr. TABER. I will handle that later, if it suits you just as well.
Senator KING. Very well.
The CiLviKMAN. Then, as I understand your position, it is this,
that if they have free trade in everything else, the farmer is perfectly willing to have free trade on his products ?
Mr. TABEE. You are right; and if others are protected, we are
^oing to fight, as long as there is a vestige of strength left in us, to
lave protection for ourselves.
Senator HARRISON. If every other industry uses stilts, you want
stilts too?
Mr. TABER. Yes; and if they have a parachute, I want a parachute,
We must bring equivalent tariff benefits to surplus-producing commodities either through the export debenture, through a simplified
domestic allotment, the equlization fee or a combination of these
methods. Foreign markets must be restored, and new markets
found. Through research we must develop new uses for farm products and guide production with intelligence and information.
Another step in lifting prices will come through reduction of
distribution costs and giving the farmer a larger share of the consumers' dollar. Cooperative marketing is yet in its infancy. The
final solution of our marketing problems will not come until our
major farm crops find their way to market through farmer-owned
and farmer-controlled marketing agencies, beginning with the
farmer producer and approaching as near the ultimate consumer as
conditions will permit.
Supporting figures to prove the necessity of lifting farm prices
are unnecessary. However, we submit the fact that the value of
our farms and their equipment shrank from $79,000,000,000 in 1919
to approximately half that figure at present-day levels. Farm income has declined from approximately $12,000,000,000 in 1929 to
$5,000,000,000 to-day. The latest price index of the Department of
Agriculture places all farm commodities at 51 per cent and the
thmgs the farmer buys at 105 per cent of the pre-war level. In
other words, the farm dollar to-day is worth approximately 49
cents—and some people wonder what is the matter with the farmers.
The second step is to bring stability to agriculture, the Nation, and
the world is a stable and honest monetary system. Agriculture demands a dollar worth 100 cents, no more and no less. A dishonest
dollar is one that requires more than 100 cents with which to pay
a dollar's debt, or one that permits the payment of the same debt
for less than 100 cents. Uncontrolled inflation will lead to greater
suffering and disaster than deflation. W e must recognize the fact,
however, that we will either reflate or repudiate. Inexorable economic laws require reflation of our volume of currency and credit
or the tragedy of bankruptcy and possible repudiation will stalk
though the land.
We hear much of rubber money. It is my understanding that
rubber will contract the same as expand. Agriculture is suffering
irom iron debts and rubber money. Wliat has happened to agriculture in the way of debt paying ability at the present level of com




modity prices is graphically told in the subjoined table. The Bureau
of Agricultural Economics of the United States Department of
Agriculture is authority for the statement that the farm barometer
in January, 1933, stood at 51. Comparing to-day's farm prices with
the former price index, the table below shows in terms of what the
farmer has to sell just how much he has to pay in the way of farm
crops for each dollar borrowed during each of the years indicated
in the table. [Reading:]
A dollar borrowed in the year—
191 6
191 7
191 8
191 9
192 0
192 1
192 2
192 3
192 4
192 5
192 6
192 7
192 8
192 9
193 0
193 1
193 2

If paid in
January, 1933
4. 02

(January, 1933, equals 100.)
(Compiled from records of Division of Statistical and Historical Researcb.)

Senator KING. Of course, labor would be subjected to the same
pressure. It would take several days' labor now, aside from some
of the building trades, to pay the obligation which was contracted
in the period you have indicated.
The CHAIRMAN. A carpenter who is getting $11 a day is not hurt
at all.
Senator KING. I say, except for these building trades. Some say
they are a special class.
Mr. TABER. The third step in our program is the reduction of
interest rates and the providing of an ample reservoir of credit to
take care of the needs of agriculture in this crisis.
Tlie wholesale foreclosures of farm mortgages, which has been
darkening our land and wrecking the homes and lives of our people
must stop. The full power of the Federal Government must be
invoked to bring this about in an orderly and effective way.
By reason of conditions for which in the main he is not responsible
and which are utterly beyond his control, the American farmer
to-day finds himself in the most difficult financial and economic
situation that has confronted agriculture since the founding of the
The alarming increase of tax sales and foreclosures during recent
months threatens the very foundations of American institutions.
In tlie last six years, every tenth farmer in the United States has
lost his farm through mortgage foreclosure, tax delinquency, or
The last census indicates that there is a farm mortgage debt of
about $9,2^1,000,000, with an average rate of interest of 6.1 per cent.
All other farm debts approximate $3,000,000,000 and the interest
rate on this additional debt ranges from 6 to 12 per cent—and I



know of cases where it runs to 20 per cent. The total annual outlay
for interest on the farm debt is more than $800,000,000.
The two chief cash crops of the American farm, wheat and cotton,
were valued at approximately $600,000,000 for the year 1932, a sum
just about sufficient to pay the interest on the mortgage debt alone.
A reduction of one-third in the interest rate on an amortized loan
running for 35 years has the same effect as a reduction of more than
one-third in the total face of the debt, and ^'^et it will not adversely
affect general security values.
In other words, if we reduce the interest charge on a debt of
$10,000 from 6 per cent to 4 per cent, if that is an amortized 33-year
loan, we are doing the same service for the farmer as though we
marked his mortgage down from $10,000 to $6,000, and we have
done none of the dangerous things of continuing instability and
difficulty along that line.
Senator HARRISON. The committee on Banking and Currency
brought out a bill, as I understand, to carry out that idea to some
extent, is not that true ?
Mr. TABER. Of course, I am not discussing particular bills, Senator, but in the main the purpose of the Hull bill, as I understand
it, which is to provide a reservoir of credit to prevent foreclosures,
and at a rate of interest not to exceed 4 per cent, is a step in the
right direction. The bill may need further amendments. I have
not seen it in its completed form.
It is apparent that the farmer can not continue to pay 6, 7, and
8 per cent interest at prevailing commodity prices. Farm prices
must come up or interest charges must come down, and the first step
toward security is a 30 or 40 per cent reduction in interest charges
to carry farmers through this period of ruinously low prices. This
can be done through emergency loans, through the reamortization
of loans and through the postponement of principal payments.
The increased farm mortgage indebtedness in the United States
has been estimated on the basis of special studies at various earlier
dates as follows:
320,470, 000



Jl"" "



857,700, 000



241. .S90, 000

This debt is distributed as follows:

Lending agencies

PederaUand banks
Joint-stopk land banks
Commercial banks

wS^® companies.,.:.::::::"

0 her individuals : : : :
"iher agencies



<Buieau O Agricultural Economics.)


held byeach

held by

Per cent

Millions of




I have here a table or chart showing the returns per acre of 10
leading crops and taxes, land values and mortgage debt per acre of
farm real estate.
(The chart referred to is as follows:)









The CnAiEMAN. Do you think the Government can pass legislation affecting a private loan to a farmer?
Mr. TABER. Senator, of course we can not—and I think we all rejoice in the fact that in America we can not pass legislation changing
contracts, but the Government does have a very definite responsibility and opportunity. W e can, in the condition in which we find
ourselves to-day, reduce interest rates to the farmers. W e can protect the borrower, and we can protect the Government. The Grange
resolutions on that point which are in the record, I think, clearly
point out the steps that our organization wants taken, and in the
main we are in harmony with the other farm organizations, although
we may differ in details.
Here is what we propose: First, let us unify the farm loan system.
Second, let us issue low interest rate bonds, guaranteed by the Government, and substitute those for the present high interest rate bonds
that have doubtful Government responsibility, by having printed
across the back of them something to the effect that, " This bond is
an instrumentality of the Government."
Then we can reduce the interest charge to the farmer from 6 per
cent to 4 per cent. A t the same time, we can set one-half of 1 V^J
cent aside as a reserve to protect the Government, and I have figured,
since the beginning of the farm-loan system, that if we had set aside
one-half of 1 per cent, all the losses on farm mortgages could have
been absorbed out of that one-half of 1 per cent.
I n other words, we can do justice to agriculture by giving it a
lower mtere^ rate. W e can do justice to the bondholders, who have
a certain misunderstanding, at least, of Government responsibility
as to bonds issued under the Federal Land Bank system; and lastly,



we can do all of this without danger of financial obligation to the
Senator HARRISON. Did you read or hear the testimony of Mr.
Baruch with reference to the mortgage situation?
Mr. TABER. I did not hear Mr. fiaruch's testimony, but the newspaper story would indicate something very similar. He proposes
3 per cent bonds, and I propose
He would propose a spread of
one-half of 1 per cent, which is not sufHcieut. I would set aside
one-half of 1 per cent spread for the Government, and 1 per cent
for the institutions.
Senator HARRISON. But the principle is the same.
Mr. TABER. The principle is the same. It is a matter of detail.
Senator KING. YOU mean that there will have to be some governmental agency set up which, as far as possible, would bring into one
organization the various agricultural loans, so that, instead of having half a dozen Federal agencies, extending credit to the farmers,
you would have one Federal organization through w^hich the loans
and credits to the farmers might be handled.
Mr. TABER. Yes, Senator. You are using my exact words later
in that discussion.
This farm mortgage crisis can be relieved and in time corrected
by providing an ample reservoir of credit from the Reconstruction
Finance Corporation or otherwise to make immediate loans to farmers to pay delinquent interest and taxes and prevent foreclosures,
through the unifying of the farm-loan system, the issuance of lowrate Government guaranty bonds and exchange them for the higher
interest bearing unguaranteed bonds, reducing the interest rate on
outstanding mortgages from approximately 6 to 4 per cent. Payment on principal should be withheld for a 2-year period. Mortgages should be reamortized where the farmers have a sound investment, and a reservoir of credit provided for new loans. This will
stabilize farm values and give the farmers of the Nation a fighting
chance to save farms and homes.
Here is a farmer who has had taxes and delinquencies pile up.
The law is too inelastic. Under the law, we have difficulty in taking
care of this farmer. What we should be allowed to do is to write
this farmer a new mortgage, if his investment is still sound, taking
care of some of these deficiencies and delinquencies, and reamortizing
it over a longer period, which would give lower interest rates and
lower principal payments. Then we should provide by law that
need be no principal payment until prices lift.
This is a very simple, constructive program. I do not want to
seem facetious, but it is so simple that I am just afraid it will not be
done. It is very apparent that we can take the steps to avert a
trmendous crisis, and render great service.
Senator KING. Mr, Taber, do you not underestimate the magnitude of the task which you impose on the Government if your plan
IS carried out, in view of the fact, as you have indicated, that the
farm mortgages are approximately $7,000,000,000? I am making
no criticism at all of your plan, but your plan would contemplate
that there must be a readjustment. Many of these organizations
Mve. emended credit, and Eastern moneys have been loaned, as you
™ow, in .many of the agricultural States. In my State, a great deal




of money has been loaned upon farms by organizations which have
furnished the money and taken mortgages and then sold the mortgages in the East, which would mean an approach to, or a contact
with all the mortgagees in the United States, those who are private
persons, and these Federal banks and joint-stock land banks. It
would really mean a reformation, in a way, or modification of existing contracts which relate to $7,000,000,000 of indebtedness, the
lowering of the interest, and perhaps the granting of moratoria with
respect to many of these loans. Have you appreciated the magnitude
of that situation, and that task?
Mr. TAIJER. 1 certainly have, Senator, but the trouble with us is
tliat we try to do everything the hard way. W e can make this a
very difficult problem, and we can make it a rather simple problem.
I have put into the record, and I will now read, the distribution of
these $9,400,000,000 mortgages:
Federal land-banks, 12.1 per cent; joint-stock land banks, 7 per
cent; commercial banks, 10.8 per cent; mortgage companies, 10.4
per cent; insurance companies, 22.9 per cent; retired farmers, 10.6
per cent; active farmers, 3.6 per cent; other individuals, 15.4 per
cent; other agencies, 7.2 per cent.
Now, Senator, we are going to commence our progi^am entirely
on the 17 per cent. It becomes effective automatically without difficulty, and we will start on the 17 per cent without impossible difficulty, now in the Federal farm-loan system by revamping that system and providing the machinery, that will automatically expand.
There is no difficulty about it at all. It simply means cooperation
between the farmer borrower and the lending bank. Bonds are
substituted. The people that do not substitute will wish they had.
There is no worry about that, because the unguaranteed, uncertain,
]iigh-rate bonds will be exchanged for the low interest rate Government guaranteed bonds.
The CHAIRMAN. Take the joint-stock land banks. The Govemjnent is not responsible for them at all. You would include those,
and let the Government take all those loans they have made, some
of which are worthless.
Mr. TABER. I would not do that, Senator.
Tlie CHAIRMAN. That is what your proposition is.
Mr. TABER. No, Senator. I have not taken the time to go into
details. That is not the proposition. The proposition would be
that the Federal land-bank bonds—begin, first, with the Federals.
The CHAIRMA^T. The Government is responsible, in a way, for
them. They were set up. The Government is not responsible at
all for the joint-stock land banks that you put in there, making the
17 per cent.
Mr. TABER. That is true, but they were each organized under
Government control and supervision. Every farm loan has been
made by a Government-appointed inspector, and the bonds are issued by the Government, and have on the back of them, " This bond
is an instrumentality of the Government." Whether it is 12 per cent,
or 17 per cent, we shall not bother to discuss, because, if there is not
a provision that protects the Government, of course, we are hoping
that no action be taken. No good American wants anything done
that does not protect the Government.



Senator KING. YOU would not ask for the redemption of those
joint-stock land bank bonds which have been taken in by the various
organizations at 30 cents on the dollar ?
Mr. TABER, I would give actual value for them.
Senator KING. Not par value?
Mr. TABER. NO. That, again, will make it easy to carry out this
plan. I would give the value. If they have sold for cash for 50
cents, we would assume that is somewhere near their value. If they
have sold for cash at 90 cents, we would assume that that is somewhere near their value. That matter of adjustment is not the fundamental thing I am emphasizing. I am emphasizing the fact that
these bonds are now out; they now bear approximately 5 per cent
interest; and they now have on the back of every one of them, " This
bond is an instrumentality of the Government."
These bonds now have back of them farm mortgages held in the
registry for the district in which the bank is located. The farms
were appraised by an appraiser appointed by the Federal Farm
Loan Board. The mortgages were submitted to the Federal Farm
Loan Board for approval. They are held by an instrumentality
of the Government, and there is, an indirect if no direct responsibility. I am not saying that there is a direct responsibility. I am saying that there is a moral responsibility. Let us forget that phase
of it. That is not what I am discussing. I am discussing the principle of doing justice to the farmer, and finding a way whereby we
can bring in a lower rate of interest in an orderly manner, without
the dangers that we do not like to discuss, that are in evidence.
I want to give the farmer, Senator, the advantage of these depreciated bonds, and there is an orderly way to do it. It can not be
done by some of the proposals that have been made, because the
speculator would get the benefit. I want the farmer to get the
benefit, and this program reaches the farmer and not the speculator.
Senator KING. Permit me to say, by way of parenthesis, that I
think the Federal Government, when it learned that those bonds,
upon the back, bore the authentication to which you have referred,
that they were Government bonds, was derelict in failing to enjoin
the issue of those bonds in that form.
Mr. TABER. A constitutional lawyer like you, Senator, knows why
that was done. It was done to continue the tax-free permission.
You have read, of course, Judge Hughes's opinion, and you have also
read the words of Woodrow Wilson relative to encouraging people
to buy this type of investment.
But the point I am trying to make. Senator—and I want it clearly
imderstood—is that I am not trying to make the point of protecting
any bondholder. I am trying to make the point that we have the
stage set to give the farmer, without loss to anybody, a lower rate
ot mterest. Whether the percentage is 12 or 17 per cent, I shall not
enter into a discussion of that with the distinguished Senator. I
think it is 17 per cent, and you think it is 12, but we will pass that.
V\e take care of this group.
Then, through the issuance of more bonds, through the providing
Of a reservoir of credit, insurance companies, banks, and others will
either find a method of reducing interest rates to their farmer borI'owers, or these farmers, as conditions may be, will transfer them




selves from commercial banks and from these other classes, and find
themselves in the cooperative farm-loan system, a revamped organization, revitalized and put in shape to serve agriculture.
Agriculture has not gone to the dogs, bad as conditions, are, and
there is some value in farm lands, and that is going to come back
more quickly than we realize, if we will be just to the farmer.
What I want to give to the farmer is a fighting chance to save his
farm and home.
These three essential steps of lifting prices, providing an honest
dollar and reducing interest rates are emergency steps that can not
be postponed if agricultural conditions are to be stabilized. They
alone will not cure all farm ills, but they are fundamental to recovery and can be enacted into law at this session of Congress or in a
special session later to be called.
It is apparent that there will be no stability or permanent recovery
in prices until the discussion of foreign war debts is brought to a
stop and a definite policy is established.
I agree with some speakers who liave preceded me, and certainly
disagree with others.
These debts are honest; they should be paid, and should not be
canceled. On the other hand, we were foolish to allow these debts
to stand in the way of returning prosperity. Nations that can not
pay should be given credit on purchases of farm products or other
commodities in the United States. Payments from the war debt
should be used to open markets and promote international trade.
There is too much discussion and thought of the foreign situation
and a failure to recognize that America's greatest market is at home.
Bring back the purchasing power of the millions of farmers and
they will absorb many times as much goods as was exported from
the United States in our greatest year.
W e talk about finding a new market, with the equivalent of a
nation of 40,000,000 in population in agriculture, just waiting for a
chance to buy billions of dollars of the products of industry, if we
only give them something to buy with.
Of equal importance is the fact that more than 12,000,000 unemployed and their dependents, aggregating approximately 30,000,000,
are not now consumers. In other words, a market greater than any
potential market in the world is here at home and can be developed
by a sound program of reconstruction. It must not be forgotten
that there will be no enduring prosperity until all groups prosper.
W e will all go up or go down together.
In reference to our home market, it is well to remember that restrictive quotas, embargoes, and high tariff rates in many nations
are starting a mad race of nationalism that if continued will in
reality put a Chinese wall around each of the nations of the world.
W e can probably stand this better than others, but we should seek by
treaty arrangement and by world conferences to develop world cooperatioiK If this can not succeed, as a last resort we must put a
high tariff on every commoditv of ever kind and sort coming into
this country.
The program of national readjustment must give first emphasis to
a stable banking structure, and the revamping of the credit machmery of the Nation. W e should give careful consideration to a
system of Federal depositories where the public will know that its



money is safe or some other system of protecting deposits. It may
be necessary to separate the functions of deposit from the loaning
facilities of banking. It is believed that through the Reconstruction Finance Corporation and other steps, bank failures are largely
a thing of the past but it must not be forgotten that the darkest
picture in this depression has been written by the failure and collapse
of our banking leadership and facilities. There can not be enduring
prosperity without amendment and adjustments to our banking
In this same connection, it will be necessary to revamp the rural
credit structure of the Nation. It is unsound to have 8 or 10 separate agencies making loans to agriculture. The Federal seed loan
function should be removed from the Department of Agriculture
and lodged in the central credit agency when established. It is
unsound to prostitute a research and educational department to the
functions of loaning and collecting money. Agriculture will be better
served when all loaning facilities dealing with agriculture are
brought under one head.
Senator KING. May I interrupt you right there?
Mr. TABER. Certainly, Senator.
Senator KING. Suppose that Congress—wisely, I think—should
pass a law to-morrow suspending the further operations of the
Agricultural Department in the loaning of this $80,000,000 or
$90,000,000 which we provided for a few days ago, for several
weeks, until there could be a unified organization for the purpose
of extending these credits. Do you think postponing it for three or
four weeks or a month would involve serious injury to the farmers?
Mr. TABER. It would in some sections, especially in the South.
When I was in New Orleans recently, and in South' Carolina, I saw
them planting gardens, in southern South Carolina.
Senator KIKG. Evidently they are planting without recourse to
this seed loan organization, then?
Mr. TABER, That is true, Senator.
I feel strongly that there ought to be a unification—so strongly
that I would be willing to make a very substantial sacrifice to bring
it about. I think perhaps we could find some way that this regrouping could be accomplished. Think of the Eeconstruction Finance
J^orporation, the Federal farm loan agency, the joint-stock land
banks, the intermediate credit banks, the Department of Agriculture, and all of these other ramifications that are developing. It
?ieans duplication, working at cross purposes, and an unsound loanii^g policy. W e ought to set up a great central agency to which
would take all loaning agencies from the Farm Loan Board, the
Reconstruction Corporation, the Farm Board act, and all other
Reduction in the cost of government, efficiency, and economy must
^^ep pace with progress. Hundreds of millions of dollars can be
efficiency can be increased by further regrouping and
^^^^S^ization, Agriculture has as much or mor^at stake than any

tion T -department oi Agricuiture so mat lana use, conservain ^
and sound national development can go forward
armony with present and future needs of agriculture.




I want to pause to say that I believe that reorganization of the
functions of government is the greatest challenge of the present, but
I can see tremendous injury done to agriculture unless we intelligently keep in the Department of Agriculture those agencies that
deal with the use of land. For instance, the Bureau of Irrigation
and Eeclamation ought not to be in a different department from
the department that discusses problems of markets and agricultural
welfare. It all ought to be brought into the Department of Agriculture. Until we do that, we are going to have continual waste,
continual duplication, and we will be working at cross purposes,
to the injury of agriculture.
Senator ICING. Of course, you would not supersede the effective
agricultural organizations within the States, for example, such as
that in the State of Pennsylvania and the State of New York, particularly in Pennsylvania ? The agricultural organization of Pennsylvania has done effective work, and the farmers of Pennsylvania
generally speaking, are better off than the farmers, perhaps, in any
other part of the United States, and there has been less of Federal
bureaucracy manifested there than in any other State.
Mr. TABER. Yes. I am very familiar with that Pennsylvania situation. The director of agriculture there is a former master of the
Pennsylvania State Grange, and a personal friend of mine.
Senator I&NG. Perhaps that accounts for the improved condition
Mr. TABER. I would not say that. Senator. He is a good fellow,
just the same. He belongs to your political faith, however.
Senator KING. That is to his credit.
Mr. TABER. Transportation costs remain a continuing burden upon
the farmer. It must not be forgotten that the farmers' transportation bill is gerater than his tax bill, and while the farm dollar is at
51 per cent of pre-war, rail transportation costs are at 155 per cent.
Agriculture must be protected in its right to enjoy the cheapest and
most efficient methods of transportation that science and inventive
genius can provide. Instead of burdening motor transportation with
new and restrictive legislation, it may be well to relieve burdens now
imposed upon the railroads.
One of the greatest causes of the continuation and severity of the
depression is the loss of confidence of many of our citizens. While
there have been disappointments and severe losses and heartbreaking
suffering, yet Ave must remember that fundamentally there has been
nothing lost in the resources of the Republic. Many of us do not now
have property that we once thought we had, but the resources of
soil, forest, mines, lake, and stream all remain. There has not been
lost anything that is fundamentally worth while to the welfare of
America a quarter of a century or'a half century hence, unless we
permt ourselves to lose confideW, courage, and hope.
No amount of reflation or protective legislation, no amount of
artificial stimulation will bring perinanentlv better times unless we
restore and maintain the confidence of the people of this country m
our resources, in our Government, and in the ability of ourselves to
complete the difficult task of readjustment and reconstruction.
Our difficulties are not insoluble, our readjustments can be made,
and while there is no time to delay because of the gravity of the



situation confronting us, yet there should go forth from this committee and the men here assembled a clear understanding that in
this greatest crisis of our history the indomitable spirit that has
created the Nation and carried it through other struggles will bring
it again to a time when prosperity and well-being and happiness of
our citizenship will be greater than ever before known.
Senator, if I may, I would like to submit, as an appendix to my
discussion, a partial rejDort of the executive committee of the
National Grange dealing with Federal depositories. W e have had
Mr. Albert S. Goss, of our committee, make a study of whether there
is any possibility of expanding the suggestion I made a while ago
of seeking banking stability, if there is a solution in providing for
banks of deposit, and separating the functions of deposit from the
loaning functions of our banking structure.
Senator KING. That is, to have commercial banks separate from
savings banks and investment organizations?
Mr. TABER. This report looks into the possibility of going further
than that, to see if we can provide a system of Federal depositories.
Senator KING. YOU mean to expand the Postal Savings banks?
Mr. TABER. Somewhat along that line.
The CHAIRMAN. Under the control of the Government?
Mr. TABER. Under the control of the Comptroller of the Currency.
The CHAIRMAN. That would be the Government.
Senator HARRISON. Mr. Taber wants to put it in the record.
The CHAIRMAN. I have no objection to that.
Mr. TABER. I would like to introduce that as an appendix.
(The report referred to is here printed, as follows:)

The 1931 session of the National Grange passed the foUowing resolution:
"Whereas during financial depression the confidence of the public in our
banking institutions becomes shaken, requiring the banks to pursue a rigid
collection policy in order to attain a safe margin of liquidity, and
"Whereas such a policy at a time when obligations are hardest to meet
tends to hamper and curtail industry, still further shaking public confidence
and adding to a vicious circle of causes of depression, and
"Whereas our present banking system has proved utterly inadequate to
cope with widespread depression, resulting in unprecedented bank failures
with hundreds of millions of dollars loss to innocent depositors, and
"Whereas rural communities have been particularly hard hit, due to the
nonliquid character of the credit needed for agriculture, and agriculture is in
urgent need of a system of credit calculated to meet its needs:
''Resolved, That the executive committee of the National Grange make or
cause to be made a special study of the Government depository system of banking under which the accepting of deposits and making of direct loans shall be
separated, the Federal Government to operate all banks of deposit, making
loans to banking institutions only, which, institutions shall receive no deposits,
but confine their operations to lending money, rediscounting the securities
received through the Federal depository bank in a manner similar to that of
the intermediate credit system, and that said committee be instructed to report
Its findings to the 1932 session of the National Grange/*
The difficulties and expense attendant upon such a study, if conducted by
one committee made up of representatives from all sections, caused the executive committee to appoint 3 study committees, 1 in the Atlantic States. 1 in the
^ n t i a l States, and i in the far West. Even though thus localized, none of the
subcommittees have been able to meet frequently enough to complete their
^udies or render any final report, but the data received from them has been of
material assistance to the executive committee in conducting its studies which
are not complete.



The studies of the Federal depository system soon developed the fact that
the hanking question was inseparably linked with the problem of monetary
stabilization for approximately 90 per cent of our medium of exchange consists
of bank credits. The following table shows the amount of money in actual
circulation, and the amount of deposits in National, State, and private banks,
loan and trust companies, and in mutual and stock savings banks, on June 30
of each year as shown:




4,823,274, 772



Rfitio deposits
to money
Per cm
91.5- 8.6
91.6- 8.6
92.2- 7.8
91.1- 8.9

55,934, 569,000

90.(V- 9.4

10-year average

It must be borne in mind that hoarding has caused a large, but unknown,
amount of money in circulation to go into hiding during the last three years.
So the ratio of bank credit to money in actual circulation has been far larger
than the figures shown, being estimated by some to be as high as 94 per
It can readily be seen that if over 90 per cent of our medium of exchange
consists of bank credits, anything which restricts the free use of such medium
is of utmost importance in considering the whole monetary problem, and unquestionably an unsound banking system is one of the basic causes of the instability of the purchasing power of the dollar. The importance of stabilizing
the purchasing power of the dollar is apparent when we realize that we must
pay our debts with a gold dollar or its equivalent, while the means of acquiring
that gold dollar have decreased with the fall of commodity prices. This is
effectively illustrated by the condition of the agricultural industry.
Ac:riculture has debts of nearly $15,000,000,000 which were incurred to
enable production to proceed, with the expectation that the debts would be
pnid through the sale of the crops produced. The lowering of commodity
prices makes it more difficult to pay these fixed debts. The impossibility of
paying these debts out of the proceeds of crops sold at present prices is realized
through a study of the following table which shows, in terms of the average
farm commodity values, the amount the farmer would have to produce to-day
to pay debts contracted in the years shown. The average farm commodity price
for June is taken, for this is the season when crops begin to move to market
and when liquidation of debts begins:









Interest at 6 per cent equivalent to 15.9 per cent
Interest at 7 per cent equivalent to 18.5 per cent
Interest at 8 per cent equivalent to 21.2 per cent









It iTiTist be obvious to all that there is no hope of agriculture paying back $2.05 for every dollar borrowed, or even of paying from
15.9 per cent to 21.2 jDer cent interest on debts which on their face
bear interest of from G to 8 per cent. Such a condition, if not
remedied, means bankruptcy for the industry.
This condition has destroyed the normal purchasing power of the
farmers and those directly dependent upon agriculture. It is estimated that these constitute 45 per cent of our population. It is
impossible to destroy the purchasing power of 45 per cent of any
people without bringing down disaster upon the whole people. It
is significant that 85 per cent of the bank failures in America have
occurred in towns of less than 5,000 population. It is estimated
that prior to 1029, approximately 95 per cent of the failures were in
rural areas. The farmer can not pay his debts unless he can farm
profitably and unprofitable prices have caused an epidemic of bank
failures. Bank failures restrict the free movement of bank credit,
which is over 90 per cent of our money. Eestricted money means
high-priced money, which is another way of saying low-priced commodities. The whole money problem is so inextricably interwoven
in this bank problem that no comprehensive study of our banking
system can be conducted without viewing the whole problem of
monetary stabilization and its effect upon the economic life of the
A dollar of stable purchasing value is essential to the orderly conduct of agriculture, commerce, and industry. Since over 90 per cent
of our money is bank credit, a stable banking s^^stem is at the root
of the stabilization problem. The following table of bank failures
shows clearly the failure of our banking system to provide stable
bank credit T





192 4
192 5
192 7
192 8





2, 298

In addition to the faUure of our banking system to provide stable bank credit,
it is estimated that over $2,000,000,000 of direct losses have been suffered by
a public compelled to use the only facilities provided and we have suffered a
loss of untold billions through the failure to provide adequate credit for carrying on the normal business of the Nation. No other major nation on earth
has a record of faUures remotely approaching this. It is suggested that thia
record and the dire consequences justify the conclusion that some fundamental
changes in our banking svstem are essential to the establishment and maintenance of stable business conditions.
Such changes should be designed to accomplish the following purposes;
1. Provide a place where our people can keep their money with the best
possible assurance that they can get it when wanted.
2. Provide a dependable source of credit for individuals and industry on a
-sound basis.
3. Maintain a supply of money and credit sufficient to meet legitimate regional
and seasonal requirements.
4. Curb or control speculation with other people's money.
5. Prevent investment of other people's money in questionable securities, both
•domestic and foreign.



6. Avoid foreign complications tiirough financing with othei* people's money
for profit of private bankers without regard to international complications
which might result therefrom.
It at once becomes apparent that protecting the money of our people and the
life blood of commerce is as much a public function as protecting their physical
property or their persons, which is the primary purpose of government. Anyi
system of intrusting the protection of our lives, our homes, our factories or
otiier property to private interests in order that they might profit thereby, interests which might fail to function when most needed, is unthinkable.
In its essence, government consists of a group of people who band themselves together to protect their lives and property and to guarantee freedom
of individual action. The founders of the Nation recognized this principle
when they wrote into the Constitution a provision giving Congress the power
" t o coin money and regulate the value thereof."
(Art. I, sec. 8 (1).) Any
government which protects the lives and physical property of its citizens
without protecting their money, or the value of their money, fails of Its main
purpose. The unprecedented bank failures and the disastrous break in commodity prices clearly indicate that the Federal Government has failed to provide an adequate system of banking, first, to protect the money of our citizens,
and, second, to regulate the value thereof so that it performs the functions
intended. This is essentially a governmental function.
To bring about these results, the resolution under study proposes the following
changes in our banking system.
1. The separation of the two functions of our banking system: (a) The
custody of funds of depositors, (&) the lending of money.
2. The establishment of Federal depositories to assume the custody of depositors' money and to conduct the checking business.
3. The lending of depositors' money by Federal depositories only to properly
capitalized rediscount agencies upon approved securities.
4. Banks, as now operating, to receive no money on deposit for their own
account, but only as agents for the Federal depository,
5. Banks to constitute the lending agency of our banking system, lending their
own cnpital and rediscounting their paper through the Federal depositories.
6. Federal depository to be a bureau of the Treasury Department under the
supervision of a Federal depository board similar in make-up and powers to
the Federal Reserve Board. Such bureau to issue currency under regulations
similar to those now in effect in our Federal reserve system.
The essential differences between the operation of such a system and the
existing banking system would be as follows:
Little or no change would be required in the physical property of existing
banks or the relations of depositors or borrowers with bank officials or employees. Under proper contracts and bonds, banks would act as fiscal agencies
for Federal depositories receiving deposits, and conducting the checking departments of the system, holding all money so deposited for the account of the
Federal depository. The same personnel would probably handle the funds as
at present, the banks performing these functions as agents for the Federal
depository for a compensation stipulated in a contract with the Federal
depository board.
Instead of lending the depositor's money direct, banks would have available
for lending only their own capital and surplus, plus what money they would
borrow. These borrowed funds would be obtained chiefly through rediscounting the notes of their customers with the Federal depository in a manner
similar to that now in practice in rediscounting through the Federal resers'e
Banks would be compelled to pay a rate of interest on all borrowings sufficient to maintain the system, but as offsetting features would be freed from
the expense of (a) maintaining the checking and depositorv branch of their
business; (&) maintaining reserves suflicient to meet the demand of deixi!==itors
through normal or unusual withdrawals.
It is suggested that the following improved conditions would result:
1. The depositors' money would be held in trust by the Treasury of the
United States. Loans therefrom would be made only under regulations of
the Federal depository board and the laws of Congress. This condition now
prevails in discounting with the Federal Reserve System where losses have
been held to a negligible amount. The depositor would thus be protected from
( a ) wild'iat banking; (&) exceptional regional demand for money in excess ot




regional deposits; (c) bank runs by a public which has lost confiaence in local
management or local conditions.
2. The borrower who is entitled to credit would be protected from untimely
curtailment of credit caused by the need for establishing a high degree of
liquidity to meet prospective bank runs, unexpected withdrawals, adverse local
crop conditions, or other causes likely to affect the amount of local deposits.
3. All deposits being under control of one board, money could be made
available when and where legitimate demand required. This is particularly
true in rural sections where seasonal production or marketing demand often
exceeds the facilities of local banks whose lending capacity depends chiefly
upon the amount of deposits. Many rural communities are entirely without
local credit facilities because the fluctuating nature of deposits makes local
banking unprofitable. Under the Federal depository system, agencies with
capital to lend would undoubtedly occupy this field, providing needed credit
facilities with profit to all concerned. Lack of such credit is now largely
responsible for early crop dumping and other unsound marketing practices.
4. Speculation with other people's money could be controlled. The wild flight
of money to W a l l Street for speculative purposes is too recent to require extended comment. Legitimate credit for agriculture and industry was severely
crippled by banks lending money to Wall Street on call in order to get exorbitant rates of interest, frequently running in excess of 15 per cent. The legitimate business and commerce of the Nation, which is dependent upon the supply
of money, was hampered, and in many cases ruined, by diverting this money
from needed channels to speculative channels for private profit. Under the
Federal depository system, none could profit by such diversion and any such
shifting of credit on a large scale would be under the control of the Federal
depository board, whose sole interest would be to keep the credit facilities of
the Nation in balance with the Nation's needs.
5. Investment of other people's money in questionable securities could be
prevented. The practice of many of our banks in underwriting questionable
securities, both domestic and foreign, then unload on the public, through rigging the market, is also too recent to require extended comment Such practices have no place in any institution intrusted with the custody of the people's
money and could not longer be conducted with the depositors' money under
the Federal depository system.
6. Foreign complications due to large-scale financing by private bankers
could be avoided. Complications arising from loans made by our so-called
international bankers have at times brought the Nation to the verge of war,
and at the present time are complicating the problem of repayment of our
foreign w^ar loans. No private bankers for private profit should be permitted
to lend the people's money to foreign interests when such loan might complicate the relations between nations, or when the money so loaned is needed
at home to promote legitimate business and hold interest rates at a reasonable
level. The Federal depository system would correct these abuses.
The Federal-depository plan presents possibilities for curing many of the
most serious defects in our present banking system—defects which have been
largely responsible for the financial debacle which has brought so much distress
to America. There are some questions of doubt in the minds of your committee, which it is believed should have further study.
It is essential to preserve the private interests of bankers, or money lenders,
as a buffer between the borrowers and the Federal depository, in order to prevent the play of politics from affecting the consideration of credit. The extension of credit must be completely divorced from any political pull or favoritism.
Further study is necessary to determine w^hether the private banker or money
lender would find in the proposed system sufficient inducement to employ his
funds for lending purposes under the provisions of the proposed plan.
Your committee believes that there should be greater control by the Federal
Government over the lending of other people's money, but has some doubt
about the abilitv of the small and needy borrower with little more than his
character as security, to secure needed loans under the proposed system.
M ^ n s must be found for caring for this type of credit.
Your committee believes that if such legislation is enacted, it should l>e
made permissive rather than compulsory so that its workability could be fully
demonstrated in practice before being made compulsory. Your committee,
therefore, recommends that this material be printed in pamphlet form and
that the study of the proposed system be continued.




Senator HARRISON. Mr. Taber, before you iEinish, you talked about
sound money. I take it you are not in favor of this country going
off the gold standard ?
Mr. TABER. I believe, Senator, that we can do justice without going
off the gold standard. I am rather amused at people that talk
about the glories of what we have done, and come back and say,^
" W e are still on the gold standard."
I want to say this, Senator: If there is nothing we can do toward
bringing a more stable dollar; if there is no solution, other than
what one of the speakers suggested this morning—continued deflation—civilization is not worth while. I f there is not wit enough
in the people of this civilization to prevent the continued recurrence
of depressions and difficulty and disaster, and if we know nothing
more than to let deflation go to its final conclusion—disaster—and
then seek to build up, we just are not statesmen—financially, politically, economically, or otherwise.
Senator HARRISON. If I understand you, you think these suggestions you have made, if they could be worked out rationally, would
be so helpful that we would not have to go to the other extreme?
Mr. TABER. That is what I believe. Senator.
Senator HARRISON. And that applies also to bimetallism?
Mr. TABER. I am rather compelled, in a hearing of this kind^
Senator, to stick to my bible, which is the journal of proceedings
of the National Grange, and follow its policy as outlined in the
Grange resolutions.
Senator HARRISON. That is a pretty good bible,* is it not?
Mr. TABER. I t is a pretty good bible. It is not as good a^ the
Bible I take to Sunday school, but it is a pretty good one.
The Grange proposal is that we should at once call an international
conference to try to stabilize the value of silver. The greatest tragedy, outside of the things happening in the United States, was
changing the money of a thousand million people in the Orient to a
commodity. There is some way that we can use silver in supporting
our standard.
Senator HARRISON. It has been suggested here tliat if France,
England, and the United States could act together and purchase a
certain amount of silver, $200,000,000 or $500,000,000—or various
amounts have been suggested—that might help the situation. Would
that be your viewpoint ?
Mr. TABER. I think. Senator, that will help. I still think, Senator,
we will have to do more than that. I am not quite ready to go the
full length of such legislation as the Rankin-Thomas bill. Neither
do I find myself permitted by the Grange resolutions to go quite
as far as those who would cut the grains of the gold dollar in two.
But when we recognize that every great nation except ourselves,
without a single exception, is either off the gold standard or managing its currency, it looks as though we can not possibly set ourselves
up on such a pedestal, and have anything but low prices and disaster.
The other day I told