The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
IN V E S T IG A T IO N
C O N D IT IO N
OF
OF
THE
THE
F IN A N C I A L
U N IT E D
STATES
HEARINGS
BEFORE TH E
COMMITTEE ON FINANCE
UNITED STATES SENATE
EIG H TY-FIFTH CONGRESS
F IR S T SESSION
JUNE 18,19, 20, 21, 25, 26, 27, JULY 1, 2, 8, 9 ,1 0 ,1 1 , AN D 12,1957
PART 1
Printed fo r the use o f the Committee on Finance
U N ITED ST A T E S
GOVERN M EN T P R IN T IN G O F F IC E
968X9 O — 5 7
W a s h in g to n : 19 5 7
COMMITTEE ON FINANCE
H A R R Y FLOOD B Y R D , Virginia, Chairman
R O B E R T S. K E R R , Oklahoma
J. A L LE N F R E A R , Jr ., Delaware
RUSSELL B. LONG, Louisiana
GEORGE A. SM ATHERS, Florida
C L IN T O N P. AN DERSON , New Mexico
P A U L H. DOUGLAS, Illinois
A L B E R T GORE, Tennessee
E D W A R D M A R T IN , Pennsylvania
JOHN J. W ILLIAM S, Delaware
RALPH E. FLANDERS, Vermont
GEORGE W . M ALON E, Nevada
F R A N K CARLSON, Kansas
W ALLA C E F. B E N N E TT , Utah
W IL L IA M E. JENN ER, Indiana
E u zabith B. S fbin qsr, Chief Clerk
Samuel D. Mcilwain , Special Counsel for Investigation
n
CONTENTS
Discussions between Hon. George M. Humphrey, Secretary of the Treasury,
and members of the Committee on Finance:
Members of the Committee on Finance:
Harry F. Byrd (chairman)_____________________________________
1-87
Robert S. Kerr_______________________________________________ 87-226
Edward Martin_____________________________________________ 227-244
J. Allen Frear, Jr____________________________________________ 245-280
John J. Williams____________________________________________ 280-319
Russell B. Long_____________________________________________ 321-349
Ralph E. Flanders___________________________________________ 349-358
George A. Smathers_________________________________________ 361-406
George W. Malone___________________________________________ 407-543
Clinton P. Anderson_________________________________________ 544-586
Frank Carlson_______________________________________________ 587-601
Albert Gore_________________________________________________ 601-632
Wallace F. Bennett__________________________________________ 633-647
William E. Jenner___________________________________________ 647-655
EXHIBITS
Analysis of the Federal debt outstanding on December 31, 1952, and
December 31, 1956_____________________________________________ _____ _
145
Are living costs out of control? Excerpts from article in the Atlantic Monthly,
February 1957______________________________________________________402
Average family personal income after Federal individual income tax
liability, for quinteles and top 5 percent of consumer units ranked by size
of after-tax incomes, 1941 and 1950___________________________________
574
Average prices received by farmers for wheat, and retail prices of cereals
and bakery products, 1947 to date_____________________________________
596
Average typical prices offered for FHA-insured (sec. 203) home mortgage
loans and indicated yield to effective maturity for selected dates_______
324:
Balances available at start of year, by type ani agency, based on existing
and proposed legislation----------------------------------------------------------------------56
Bank rates on short-term business loans, 19 cities_____________________ 325-326
Budget expenditures, fiscal years 1955 and 1958_________________________ 51, 156
Budget receipts and expenditures, fiscal years 1929^58____________________
312
Builders survey finds new homes’ price tag up 1 percent over 1956, Inter
national News Service article__________________________________________
600
327
Business expenditures for plant and equipment, 1948-56_________________
Business failure statistics, 1900-56_______________________________________
393
Calendar vear average— Consumer Price Index (1947-49= 100), purchasing
power of dollar (1939±100)_______________________________ 14, 15, 16, 18, 19
Cash transfer type obligations, April 1948-March 31, 1957______________
451
Circulation statement of United States money, May 31, 1957______________
352
Civilian employment and annual increase, 1940-57_______________________
330
Comparative totals of money in circulation______________________________
353
Comparison of estimates and appropriations by sessions of Congress (fiscal
years 1946-47)-----------------------------------------------------------------------------------429
Computed interest rate on the public debt_______________________________
12
Computed interest rate on the public debt (1855-1957) and yields on long
term Governments (1919-57), percent per annum_______________________
284
Concentration of total assets of manufacturing corporations, June 30, 1951
and June 30, 1956____________________________________________________
373
Congressional action on budget requests______________ _______ ___ _____ 428, 508
Consumer Price Index__________________________ ____________ _____ 96, 117. 187
Consumer Price Index, and annual change, 1940-57.____________________
338
Consumer prices and the purchasing power of the dollar, 1913 to date-. 418, 508
m
IV
CONTENTS
Pas*
302
Consumer prices and purchasing power of the dollar, 1039-57----------------Consumer prices (1947-49*® 100). purchasing power at the dollar (1939=®
100). ana selected factors affecting prices, 1939-57------- ^-----------------------Cost of living (or retail price) indexes for selected countries-------------------299
Countries which left the gold standard, April 1929 to April 1933---------- 420, 508
Countries applying exchange controls------ -------------------------461, 487, 509, 512
Crop production per acre, livestock breeding units, production per breed
ing unit, and farm output per man-hour--------------------------------- ----------593
Effect of inflation on a $750 investment at 2.9 percent made in May 1942
and maturing in May 1952-------------------------- - - - - - ---------------------------243
Estimated changes in gross public and private debt, December 1956-May
1957.___________________________________________________________ 146,209
Estimates of farm income per worker and operators' net per farm income.
598
Excerpt from a bulletin of the National Tax Association------------------------577
Excerpt from a report of the Subcommittee on Fiscal Policy of the Joint
Economic Committee----- ---------------------- ------------------------------------------281
Excerpts from a report of the Select Committee on Small Business, House
of Representatives.......... .......... — --------- -----------------------------------------401
ExcerpU from hearings of the Joint Economic Committee— Monetary
policy and the management of the public debt-----------------------------------571
Excerpts from Senate Document 83, 84th Congress----------------------------- 526-528
Executive directors and alternates of the World Bank and their voting
499
power, June 30, 1956------ ----------- ----------------------------------------------------Farm and marketing share of food expenditures, 1947-56-----------------------597
Farm and retail price of cereals and bakery products-------------------- --------596
Federal budget position, fiscal years 1940-58,------------ ---------------------------332
Federal budgets—appropriations and expenditures, fiscal years 1953-58,
42
inclusive____________________________________________________ ______
Federal cash payments to the public, by program, fiscal years 1950-58.. 126, 200
Federal Government purchases of goods and services, in 1956 prices, and
annual changes, 1940-57------------------------------------------------------------------336
Foreign dollar noldingB, March 31, 1957-----------------------------------------------483
Forgotten people, article in the Wall Street Journal_____________________
238
Gold balances as of June 30, 1957_______________________________ 446, 489, 508
Governors and alternates of the World Bank, June 30, 1956_________ _ 498, 519
Great Swindle, article by Henry Hazlett in Newsweek, July 1, 1957_____
300
Gross national product, in 1956 prices, and annual rate of increase, 1940-57329
Housing costs, 1947-57________________________________________________
33
Increase in price level. 1955-57--------------------------------------------------------- 115, 183
Increases in selected economic indicators, 1955-57______________________
240
Individual income tax: Combined exemptions and credits for married per
son and credits for married person with three dependents and first
bracket tax rate, 1913-54----------------------------------------------------------------318
Interest rates and economic decline____________________________________
551
Inquiries concerning loans of the Small Business Administration_________
406
Interest Rates Are Rising All Along Line, article in Journal of Commerce,
June 18, 1957_______ _____ ______________- __________________________
403
Interest rates on consumer credit. - _____ __________ _____ ______________
326
Interest rates on indebtedness other than public borrowing......... ........... 326
Interest rates on loans to farmers for selected years.____________________
325
Items reported in short supply by members of the National Association of
Purchasing Agents_____ ________ ___________________________________
192
515
Lend-leaso silver transactions (fine ounces) as of June 30, 1957__________
Letters and telegrams:
Gary, Hon. Raymond, Governor of Oklahoma, to Hon. Robert S.
Kerr, July 8, *1957._________ _______ ____________________________
464
Griffith, Ernest S., Director, Legislative Reference Service, Library of
Congress__________________ ___________________________________
464
Hollister, John B., Director, International Cooperation Administra
tion, to chairman, July 15. 1957______________________________ 450, 508
Wells, O. V., Administrator, Agricultural Marketing Service, Depart
ment of Vgriculture, to Hon. Clinton P. Anderson_____________ 252, 271
Ixmg-range commitments and contingencies of the United States Govern
ment as of December 31, 1956_________________________________ 80, 156, 269
Major countries which left the gold standard, May 1934 to September 1936.
420
Market value of outstanding Government securities, December .31, 1952,
June 21, 1957, and June 30t 1952_______ __________________________ 140, 198
4
CONTENTS
V
Page
Market value of Treasury marketable securities, on June 30, 1952________
141
Marr, Roy M., president of the United States Savings and Loan League,
extract of speech delivered June 24, 1957, before the New England Con
ference of Savings and Loan Associations and Cooperative Banks at York
Harbor, Maine_______________________________________________________
293
402
Merchants View, article in the New York Times, May 5, 1957__________
Net purchases in market during May 1957 for Treasury investment and
other accounts_____________________________________________________ 132, 194
394
New business corporations formed in the United States__________________
Number of bankruptcy cases filed in years 1946-56______________________
395
Number of manufacturing firms drops___________________________________
392
Opinion of the Treasury’s general counsel on the effect of the repeal of the
Bretton Woods Agreements Act on the price of gold__________________
522
Outstanding indebtedness in terms of current rates of interest...................326
288
Ownership of the public debt, Dec. 31, 1956_____________________________
Paper currency of each denomination in circulation, May 31, 1957______
352
Percent of 727 manufacturing companies having a line of bank credit,
399
March 1955 and March 1956 by size of company____ __________________
Percentage change in new orders for durable goods_______________________
185
Percentage changes in unfilled orders— selected dates, major durable goods
industries__________________________________________________________ 116, 183
Percentage decline in purchasing power of monetary units, January
1948-December 1956_________________________________________________
301
Percentage of sales going to manufacturing corporations with assets under
$1 million expressed as percentage of all manufacturing corporation sales.
370
Prices, extract from 1953 report of United States Board of Governors,
Federal Reserve System______________________________________________
100
Prices received by farmers and retail food prices, 1947 to date___________
594
337
Private money supply and annual change, 1940-57______________________
Problem Is Not a “ Crisis,” article in the New York Times, June 6, 1957. .
233
Profits per dollar of sales after taxes_____________________________________
372
Public debt ownership, December 31, 1956______________________________
288
Purchasing power of the dollar, 1939-57___ _______ ________________ ____
292
Ratio of gross national product to gross farm income, and ratio of national
income to net farm income____________________________________________
592
Relative economic trends, 1949 through 1953 and 1956 through mid-1957..
177
594
Retail food and farm prices, 1947-56---------- ---------------------------------- -------Resolutions:
Republican State Central Committee of the State of Nevada________
535
Young Republicans of the 48 States, June 21, 29, 1957______________
537
Sale of gold by the mint to United States industry and net industrial
consumption of gold by United States industry, 1947-55____________ 456, 516
Sale of surplus materials or activities, fiscal years 1946 through 1949, and
1950 through 1957__________________________________________________ 307, 308
Secretary Humphrey’s answer to chairman’s questions relative to dangers
of our fiscal situation__________________________________________________
86
Section 1361 of the Internal Revenue Code_______________________ ______
378
Silver Purchase Act of June 19, 1934____________________________________
513
Silver purchases_____________________________________ _____ ______ ____ 477, 512
Statement of subscriptions to capital stock and voting power of Interna
tional Bank, June 30, 1956----------------------------------- J*________________ 495, 519
Text of S. 1897, 85th Congress, 1st session, and report of the Treasury
Department________________________________________________________ 484, 485
Text of S. 1775, 85th Congress, 1st session, and report of the Treasury
Department________________________________________________________ 487, 488
Three percent United States bond prices decline— and inflation takes
further toll___________ ______ _________________________________________
136
Three and one-quarter percent United States bond prices decline— and
inflation takes further toll, January 3 0 ,1955-June 17,1957.........................
137
Tighter Money— More Firms Postpone, Kill Expansion Plans as Interest
Costs Soar, article in the Wall Street Journal, June 24, 1957...................
166
Top 30 United States companies^—and how they grew, ranked by 1956
sales___________________________ _____ ________________________________
568
Treasury comments on contingent liability statement compiled by Comp
troller General's Office_______________________ ______________________
269
VI
CONTENTS
Treasury does not have statutory authority to coordinate or control the
activities of the various Government agencies that lend and insure loans Pa*e
to private domestic borrowers________________________________________
571
Treasury’s experience under the Customs Simplification Act of 1956_____
535
Type of tax liability. All returns, by net income class, income tax, and
excess profits tax— 1953____ ______________________ _____ ______________
379
United States gold stock and foreign short-term dollar holdings, end year,
1945-56 and March 31, 1957_________________________________________
71
United States gold stock, monetary gold reserve requirements, and foreign
482
dollar holdings, 1934-57______________________________________________
United States gold transactions with foreign governments, central banks,
and international institutions, 1934—57_________________________ 457, 489, 516
United States Government floating debt, 1952-56_____________________ 132, 157
United States Government public marketable and nonmarketable issues
outstanding May 31,1957, which were issued prior to January 1,1953— 133, 173
Uses and sources of credit: Amount outstanding, December 31, 1952December 31, 1956___________________________________________________
25
Uses and sources of credit: Increases in 4-year period, December 1944-48;
26
December 1948-52; December 1952-56_______________________________
Wholesale price index (1947-49=100)________________________________ 116, 186
INVESTIGATION OF THE FINANCIAL CONDITION OF
THE UNITED STATES
TU ESDAY, JU N E
18, 1 9 5 7
U n it e d S t a t e s S e n a t e ,
C o m m it t e e o n F in a n c e ,
Washington, D. C.
The committee met, pursuant to call, at 10:10 a. m., in room 312,
Senate Office Building, Senator Harry Flood Byrd (chairman) pre
siding.
Present: Senators Byrd (chairman), Kerr, Frear, Long, Smathers,
Anderson, Douglas, Gore, Martin, Williams, Flanders, Malone, Carl
son, Bennett, and Jenner.
Also present: Elizabeth B. Springer, chief clerk; and Samuel D.
Mcllwain, special counsel.
The C h a i r m a n . The committee will come to order.
The Senate Finance Committee, by resolution, today is undertaking
to make a complete study of the financial condition of the United
States, including—
(1) The revenue, bonded indebtedness, and interest rates on
all public obligations, including contingent liabilities;
(2) Policies and procedures employed in the management of
the public debt and the effect thereof on credit, interest rates,
and the Nation’s economy and welfare; and
(3) Factors which influence the availability and distribution
of credit and interest rates thereon as they apply to public and
private debt.
This will be the first full-dress examination of our fiscal and mone
tary policies since the one conducted by the Aldrich Monetary
Commission in 1908.
The immediate occasion for this study is the existing credit and
interest situation and, more important, inflation which has started
again with its ominous threat to fiscal solvency, sound money, and
individual welfare.
Legislative matters relating to Federal revenue and debt, tariff and
trade, and social security and pensions are under the jurisdiction of
this committee. In the discharge of its direct responsibilities with
respect to these subjects, the committee has become convinced that
serious conditions exist in the areas to be studied, and that these
conditions have exceedingly dangerous potentialities.
It is the purpose of the committee to explore these areas, examine
the conditions, determine the cause, and, so far as possible, find the
remedies.
To make such a study complete, the committee must examine fiscal
and monetary policies, mark the distinctions between them, and study
their relationships, one to the other.
1
2
FINANCIAL CONDITION OF THE UNITED STATES
The hearings incident to this study are opened today against a
background of historical facts, documented developments, and obvious
conditions which are of grave concern to the country and to every
individual citizen.
Some of these facts, developments, and conditions which necessarily
must be examined by the committee may be summarized as follows:
Generally speaking, the United States maintained itself on a payas-you-go basis until 1932. The principal exceptions were periods of
war, and until World War II we hastened to pay off our war debts.
For example, after World War I, we paid our war debt down to $16
billion.
But, for the quarter of a century since 1932, the Federal Govern
ment has been virtually on a deficit-financing basis in all but 5 years.
We have been at peace three-fourths of that period.
Now our direct Federal debt is approximately $275 billion. This
direct debt is practically even with the statutory debt limit which this
committee has preserved as a safeguard against even greater excessive
spending.
In addition to the $275 billion in direct debt, there are more than
$250 billion in contingent liabilities, and effort will be made on this
committee to determine to what extent these contingent liabilities
may become an actual charge on the Treasury.
State and local debt have been rising steadily since 1946. All
public debt, Federal, State, and local, is now estimated to total more
than $325 billion.
Debt increase has not been confined to public operations. Private
and corporate debt also has been on a constant rise. Commercial
bank loans are now at their alltime high.
All debt in this country, estimated as of last December by Treasury
Department officials, totals nearly $800 billion:
B illion
Corporate------------------- -------------------------------------------------------------------------Private-------- ---------------------------------------------------------------------------------------Federal_____ ______ ________ ______________ _____ _______________________
State and local__ ___________________ __________________________________
$253
213
277
50
Total_______________________________________________ __________793
This is an increase of $200 billion, or about 33 percent, in 4 years.
With only temporary exceptions to the rule, Federal expenditures
have been constantly rising, and in recent years—since 1954—the
greatest increases have been in strictly domestic-civilian programs;
not military and foreign aid. (See table on p. 4.) State and local
governments have been following suit. Combined Federal, State, and
ocal expenditures from tax revenue, miscellaneous receipts, and bor
rowing are running to a total of more than $132 billion annually.
In the past 25 years we have raised Federal taxes to their alltime
high in both rate and take. Now, 4 years after the Korean war, we
are still practically on a wartime Federal tax rate.
State and local taxes are rising steadily. Total receipts—Federal,
State, and local—are now estimated at approximately $110 billion
for fiscal year 1958, as compared with the pre-World War II total of
$14.6 billion in 1940. (These figures exclude State and local miscel~
laneous receipts from such sources as business-type activities.)
As a measure of magnitude, it may be noted that taxes are now
nearly equivalent to one-third of the national income as reported by
the United States Department of Commerce.
f
FINANCIAL CONDITION OF THE UNITED STATES
3
This committee is vitally concerned with the question as to how
long our economy can absorb taxation of these proportions and still
provide the stimulus of the profit motive necessary to the free enter
prise system. When the currently continuing Korean war taxes
were imposed on corporations, Mr. C. E. Wilson, formerly president
of General Electric Co., said these rates could not be endured in
definitely by American industry. Mr. Wilson made this statement
in testimony before this committee as Chairman of the Office of
Defense Mobilization.
The committee is equally concerned over the question as to whether
we can risk even higher taxation or debt which is likely to result from
increased spending at the Federal, State, or local level, or all down
the line.
This committee can never lose sight of the fact that the Govern
ment’s integrity depends upon a stable currency. This involves
not only the value of the money with which the Government redeems
its own bonds, but it involves also the savings, pensions, life insurance,
and so forth, of the people of the Nation, which can be kept intact
only by a stable dollar.
When the Government increases expenditure programs, it con
tributes to the inflation spiral and thereby increases costs, and perhaps
the cost of living, taxes, and debt. Secretary of Defense Wilson
recently demonstrated the effect of inflation on the cost of Govern
ment in the military field. He said it will take $38.5 billion in fiscal
3rear 1958 to buy what $33.4 billion bought for defense in 1954.
The committee cannot overlook the fact that responsibility for
sound currency is a prime responsibility of the Central Government.
May I divert briefly from my prepared statement. I will give you
the record of one of the greatest inflationary periods in our Nation’s
history, from 1940 to the present date. These are official Govern
ment figures from the Departments of Treasury and Labor and the
Federal Reserve Board, as compiled by the Treasury Department.
It should be noted that in this table the Treasury Department has
used a Consumer Price Index based on 1947-49=100 and the decline
in the purchasing power of the dollar is shown on a base of 1939=100.
A more proper comparison would show both on the 1939=100 base.
On this basis the 1939 Consumer Price Index figure would have been
100 and the April 1957 figure would have been 201.3, and the index
figures between would have been higher accordingly. But there would
be no difference in the increase span or in the percentages of increase.
There is reason to assume there will be further references to the
figures in this table as compiled by the Treasury Department. It is
desirable to keep the record both consistent and accurate. So with
this notation relative to the figures in this table, I shall use it without
requesting conversion of the Consumer Price Index to the 1939=100
base at this time. My purpose is to trace the development of inflation
since 1940, and the table, as it stands, will serve that purpose.
(The table referred to follows:)
TBwuOTAt. m u n m o y o r
th e
flK M »
w aw s
C onsum er p r ie * (1 9 4 7 -4 9 = 1 0 0 ), purdH M H V ™ * $ * * * > ftor < * « * * = * < » ) ,
and td td ti fa d o n ajfacttn g p n c tt, 1 9S 9-67
Consumer prion
Purchasing power
of dollar»
Cafendar yean
Price index
(1947-69—100)
mi....
ms__
IMS......
1*44.......
1*45.......
194 6
194 7
IMS......
1949.......
196 0
196 1
1982-----1968.......
1964.......
1966____
1936.......
April:
1966,
1967.
In cents
Change
in oents
—0.8
- 4 .8
- 9 .2
-4 .9
- 1 .3
-1 .8
- 6 .0
- 9 .0
-4 ,4
+ .5
-.5
—4.3
- 1 .2
- .4
-.2
+ .2
-.8
—L 9
change
113.5
114.4
114.8
114.5
+7
-!
-1.0
+1.0
+8.0
+ 2.3
+8
±:i
+ 1.5
100.0
99.2
94.4
85.2
80.3
79.0
77.2
71.2
62.2
57.8
58.3
57.8
53.5
62.3
51.9
51.7
51.9
51.1
114.9
119.3
+ 3.8
51.7
49.8
59.4
1940____
Percent
59.9
62.9
69,7
74.0
75.2
76.9
814
95.5
102.8
101.8
102.8
111.0
U6l2
-fO
-8
+5.0
+10.8
+6.2
+1.6
+ 2.3
+ 8,5
+14.5
Federal Burplus or deficit
(in billions
o f dollars) *
-3 .9
-3 .9
-6 .2
-2 1 .5
-5 7 .4
-5 1 .4
-5 3 .9
-2 0 .7
+ .8
+ 8 .4
- 1 .8
- 3 .1
+ 3 .5
-4 .0
- 9 .4
- 3 .1
- 4 .2
+ 1 .6
M oney supply (In
billions o f dollars) *
Total
Change
36.2
42.3
48.6
62.9
79.6
90.4
102.3
110.0
113.6
111.6
111.2
117.7
124.5
129.0
130.5
134.4
138.2
139,7
+ 6 .1
+ 6 .3
+ 14.3
+ 16 .8
+ 10.8
+ 11 .9
+ 7 .7
+ 3 .6
-2 .0
-.4
+ 6 .5
+ 6 .9
+ 4 .5
+ 1 .5
+ 3 ,9
+ 3 .8
+ 1 .«
4 134,4
* 135.2
+ .8
i x j m r o u n d bT BLS oonsumer price Index, assuming purchasing power at 100 cents In 1939.
1 Ftmlyear«KuniJune30ofyearshown.
, iT4
• Currency mif**** of
and demand deposits adjusted, end of December,
* Bsasonefty adjusted.
Source: Department of Labor, Treasury Department, and Federal Reserve Board.
The C h a i r m a n . So we see that the Consumer Price Index from
1939 to 1957 increased by more than 100 percent while the value of
the dollar declined by more than 50 percent. It went from 100 cents
down to 49.8 cents and the loss is continuing.
I am aware that a number of factors contribute to inflation, and
all of these must be carefully evaluated.
The conditions I have just mentioned stand forth by the record.
The record shows further that the combined tax burden of the
Federal, State and local governments has increased 8 times in 17
years, and that the combined State and Federal debt has increased
in that period from $63,3 billion to $325 billion, exclusive of contingent
liabilities. The record certainly indicates that there is need in the
public interest for an exhaustive inquiry to be undertaken to deter
mine the cause, the effect, and the remedy,
I will, then, go back to my prepared statement.
The squeeze of this inflation, even at this point, is being felt
seriously by individuals of fixed incomes, and in businesses which
cannot pass on inflated costs. The cost of living, as we all know,
has increased steadily for 8 consecutive months.
Actually, confidence in the American dollar is the principal deterrent
in the world today to Russian aggression. The pages of history detail
the stories of nations which have been wrecked by unsound fiscal
policies and debased currencies. If the value of the dollar continues
to drop at the rate of 2 cents a year, as it has in the past year, it will
be worth only 25 cents in 12 years, as compared to the 1940 dollar.
This committee wants to know the casues of this new inflation, and
it wants to find the remedy before the consequences become disastrous.
The committee has reason to be concerned also over the fact that
the cost of money is rising. The Federal Government offered Z%
FINANCIAL CONDITION OF THE UNITED STATES
5
percent interest on a recent 5-year bond issue which was not fully
taken despite the highest interest rate in 34 years.
The committee has been watching the cost of interest on the Federal
debt for some time. Interest is now taking more than 10 cents out
of every tax dollar collected from American citizens. It amounts now
to more than $7 billion annually. If the Federal debt were refinanced
at 3% percent interest, it would cost taxpayers $10 billion a year,
or an increase of $3 billion in interest.
Interest paid by the Federal Government is taken as a standard, and
refinancing any substantial part of the nearly $800 billion total debt
in the country at a percentage of increase in interest comparable to
that already offered by the Federal Government is a matter of general
concern. It would place new burdens on all taxpayers and consumers*
There is obvious need for appraisal in all of the areas covered by
the resolution under which the committee is working, to determine
to what degree the present prosperity is sound.
The committee would be remiss in its duty if it did not examine
the possibility of a recession even though it may be a minor one.
Few people realize the great effect levels of income have upon budget
receipts. For example, if present corporate and personal income
levels dropped to the level of only 2 years ago, that is, the 1954-55
level, the currently estimated budget surplus, according to Mr. Colin
F. Stam, of the Joint Committee on Internal Revenue Taxation,
would be converted to a deficit of $12 billion.
With the Federal debt at its present precarious heights, miscue
in its management can be costly. The same sort of tremendous
responsibility rides on actions through the Federal Reserve System.
It is easy lor a nation indulging in excessive expenditures, taxation,
debt, and credit to close its eyes to reality. It is easy to charge the
whole matter off to growth. But the growth of our Nation is not
commensurate with the burden we have undertaken.
In this statement I have touched on only some of the matters of
vital concern which prompted this study. From its years of experi
ence with the fiscal affairs of the Nation, the Senate Finance Com
mittee is acutely aware of the importance and complexity of its work,
and it approaches the undertaking with a consciousness of its impli
cations.
It is the committee’s purpose to conduct an objective examination
to clarify the situation and be helpful in the effort to avoid further
inflation, and to establish sound fiscal principles flexible enough to
meet possible recessions as well as increasing prosperity.
As chairman of the committee, it will be my purpose to see that
each member of the committee is afforded opportunity to develop all*
phases of the vital questions before us. It is the desire of the chair
man that the discussion at public hearings be completely free, so that
out of the wisdom of the individual Senators may come helpful con
tributions, and out of the collective wisdom of the committee may
come constructive recommendations.
The fact that the committee is composed of men of great capacity,
and long training in business and fiscal affairs, is a source of pride
and confidence to the chairman. We open these hearings sincerely
hoping that the effort will be worthwhile.
For the record, and the information of the witnesses and the public,
the committee has agreed to the following rules of procedure:
6
FINANCIAL CONDITION OF THE UNITED STATES
1. The witness will not be interrupted while he is presenting his
prepared statement.
2. Questioning by members of the committee will be in order of
seniority, beginning with the chairman, followed first by the ranking
Democratic member, then the ranking Republican member, and so
on, until each member has had an opportunity to interrogate.
3. No limitation on time will be imposed on a Senator during the
first round of questioning of the committee.
This resolution was adopted by the committee unanimously.
4. In addition, no Senator will be asked to yield part of his ques
tioning time to another member. However, one Senator may yield
his entire time to another member for questioning if he so desires.
The Senator yielding will take the turn of the member to whom he
yields.
The first witness is Hon. George M. Humphrey, Secretary of the
Treasury.
I want to say to Mr. Humphrey, as I said recently on the floor of
the Senate, I deepl v regret his resignation as Secretary of the Treasury.
My close association with him in the past 5 years has impressed me
with his great ability and his high patriotism, and I am sorry to think,
Mr. Secretary, that at the end of these hearings we will no longer
have you before the committee as you have come so frequently in
the past.
S T A T E M E N T O F H O N . GEORGE M . H U M PH R EY , SECRETA RY OF
TH E TREA SU RY
Secretary Humphrey. Mr. Chairman, I appreciate very much
indeed your very kind personal remarks, and I am very glad indeed to
have tfiis opportunity to be here to appear before this committee
’ust before I leave the Government service, to try to be as helpful as
can in discussing with you the serious problems that you, Mr.
Chairman, have outlined all of which I recognize and which I believe,
as you have suggested, are subjects of the most serious import to our
country, and deserve the most serious thought and consideration of
this committee.
Broadly speaking, your study relates to the financial condition of
the United States.
(Discussion off the record.)
Secretary Humphrey. I was just saying that in order to assist
you in this inquiry, it seems appropriate that I provide a statement
as to the problems we have faced, the goals we have set, and the record
of our accomplishments in the past 4 years.
This is a record of a prospering America with new high levels of
employment, rising income, and increasing purchasing power. It is
a record of more and better jobs, more homes, more cars, more leisure,
and more recreation. It is a record of unequaled prosperity with both
the blessings and the problems of such a period.
Last year an average of 65 million of our people were gainfully
employed, an increase of 3,700,000 in only 4 years. During the same 4
rears, unemployment has averaged only 3.8 percent of the civilian
abor force compared to 4.1 percent during 1949 through 1952, and 15
percent from 1937 until the beginning of World War II.
The present low level of unemployment has been achieved although
the civilian labor force has increased from 63 million in 1952 to 68
i
!
FINANCIAL CONDITION OP THE UNITED STATES
7
million today. For the first 5 months of this year, unemployment
has averaged about 3.7 percent.
The record of the past 4 years is also a record of rising levels of
living, widely shared. During this period, average annual family
income, after Federal income taxes, has increased from less than $4,600
to an estimated $5,200, an increase of about 12 percent, even after
eliminating the effect of price changes.
In 1956, the average family purchased 12 percent more goods and
services, in real terms, than in 1952.
Almost 5 million families have moved into new homes since 1952.
Almost 30 million families own their own homes today, an increase of
13 percent in only 4 years.
The number of homes with electric refrigerators has increased from
38 million to 45% million, accounting for 96 percent of all wired homes.
In only 4 years, the number of homes with food freezers has increased
from 5 million to
million; the number with clothes dryers (either
electric or gas) from 1% million to b% million, and the number with
television sets from 21 million to 38K million. The number of families
owning automobiles has increased from 31 million to 37 million.
This growing prosperity has extended to nearJy all segments of our
society except the farmer. The postwar adjustment in farm income
has only recently been reversed, with a small increase last year for the
first time in several years.
Farm income per worker last year was $1,862, up $151 from 1955.
Farm prices have been rising moderately in the last few months, and
on May 15, were up 3 points above the level of a year earlier.
The objective of this administration is to enable our farm families
soon to share more fully in the record prosperity which characterizes
the rest of the economy.
The record of the past 4 years is one of great enhancement in per
sonal financial security. The number of life-insurance policies in
creased from 219 million 4 years ago to an estimated 265 million in
1956, an increase of 21 percent, and the number of persons covered
by hospital insurance increased from 91 million to 112 million, or
23 percent.
Time deposits in banks and share accounts in savings and loan
associations increased from $79 billion to about $112 billion, or 41
percent, and the estimated number of shareholders in American
industry increased from 6& million to more than 8K million people.
The record of the past 4 years is also one of increased leisure.
There has been a 19 percent increase in the amount of time Americans
took for their vacations—85 percent with pay.
About 55 million of our people visited national park areas last year,
an increase of 30 percent in the last 4 years, and approximately 60
million are anticipated for this year.
N o w , t h i s g r e a t i n c r e a s e in t h e i n c o m e , t h e l i v i n g s t a n d a r d , t h e
r e c r e a t io n , a n d s e c u r ity o f o u r p e o p le h a s b e e n a c h ie v e a a t a tim e w h e n
t h e r e h a s b e e n a s u b s t a n t i a l c o n t r a c t i o n in d e f e n s e e x p e n d i t u r e s .
Our free economy has again denujnstrated its ability to absorb the
reductions in Government expenditures not by contracting, but by
expanding employment and the living standards of our people.
The record of the past 4 years has been one of unequaled investment.
The Nation has devoted a vast amount of its resources to improving
and enlarging its productive capacity.
8
unancux* com m a s o r tk » o t h t o w a t m
Businesees have spent an alltime higb of $152 billion on new plant
and equipment, compared with $123 billion in the preceding 4 years*
This record volume of capital outlays has provided a dramatic answer
to those who would contend that our economy would run down without
the artificial stimulus of chronic deficit spending and the backlog of
private demands deferred by the war.
Outlays to make better provision for needed public faculties have
also been at very high levels in recent years. Total public construc
tion in 1956 was $13.4 billion, 23 percent above 1952 levels, and educa
tional construction outlays during this same period increased 56
percent, from $1,6 billion m 1952 to $2.5 billion in 1956.
The increased confidence of our people and of our business concerns,
that they will be free to determine their own course—free from
unnecessary regulation or harassment—greater confidence in the
stability of our Government and the wider distribution of purchasing
power, have encouraged our consumers, our homeowners, our business
concerns, and our communities, to plan for the future, and to buy the
automobile, or the home, to build tne factory or the schoolhouse, that
a brighter future justifies.
Thus the record of the past 4 prosperous yeare has been characterized
by the many blessings of widely shared prosperity'—but it has also been
beset by one of the problems of prosperity.
The tremendous outlays to expand our public and private facilities
have required financing, and this has inevitably given rise to a heavy
demand for borrowings. With growing confidence on the part of
lenders as well as borrowers, there has been a rapid increase in the
volume of both long- and short-term credit.
Almost all of this increase has come from savings and not from an
increase of money supply in the banks. Nevertheless, there has been,
and is, the ever-present threat of rising prices.
The monetary policies of the Federal Reserve and the fiscal policies
of this administration have been designed to encourage the growth of
the supply of goods (as the foregoing figures indicate), but not to
encourage excessive credit expansion.
The cost of living has risen an average of only six-tenths of 1 percent
per year for the past 4 years, as compared with an average increase
at tne rate of about 7 percent per year for the preceding 13 years.
In short, the rise in prices during this administration has been at
only one-tenth the average annual rate of the preceding 13 years.
Even this rise is more than I like to see, but it is a record of far better
price stability than in many years.
Nevertheless, prices have been rising a little faster for the past 12
months, and the threat of renewed inflation, which had been so
severe from 1946 to 1952, is perhaps our most serious domestic
economic problem.
The greater increase in dematid for credit than in the supply thereof
has inevitably brought about higher interest rates.
The record of the past 4 years is one of sensitive and flexible adjust
ments to the release of controls, and to the return to free markets, an
accommodation of the post-Korea curtailment in military spending,
and of a free market's emphasis first on housing, then automobiles,
and now on new plant construction with continuous improvement in
the total economy.
FINANCIAL CONDITION OF THE UNITED STATES
9
It is a record of encouraging savings and investment in increased
productive capacity, of encouraging an adequate volume of credit,
but of not encouraging that excess of credit which, in a period of
high employment, could only penalize our people by bidding up
prices without increasing production.
It is essentially a record of flexible and quickly adjusting fiscal and
monetary policy designed to continue the sound improvement in levels
of living, widely shared, which is the wonder and ambition of all the
rest of the world.
It is a most significant record, important to us all, because the
monetary activities of the Federal Reserve System and the fiscal
activities of the Treasury affect the wages, the standard of living, and
the savings—indeed the entire financial well-being—of each one of
our citizens.
It is above all a record of the renewal of widespread confidence of
the people in the preservation of their individual freedom of choice,
in their jobs, in their right to the enjoyment of the fruits of their own
initiative and endeavor, and in the security of their savings. It is a
record of renewed confidence in the security of our country.
Feeling as I do that there should be the widest possible public
interest in this subject, and feeling such a deep pride in what this
administration has done and is doing, I welcome this opportunity to
speak to your committee and, through you, to the more than 171
million Americans whom the Congress represents.
Let me review the major policies of, and the fiscal actions taken by,
this administration since we took office in January 1953.
In discussing fiscal, monetary, and credit policies, as I am doing
today, I do not want to give the impression that they alone can
prevent inflation and assure economic growth. They are, however, a
subject of the present inquiry and I shall concentrate my attention on
them.
Certainlv if they are not sound, there is little chance for sound
money and sound long-term economic growth.
As a preface to our present policies, let us review the situation as it
existed when we came into office. We came in in 1953.
The direction in which we had been going was as follows:
You will recall the tremendous changes that had occurred in the
period before 1953. In 10 of the 13 fiscal years from 1939 through
1952, the Government operated at a deficit, as it had in the preceding
9 years.
Largely as a result of World War II, the Federal debt increased in
only 13 years from $47.5 billion at the end of 1939? to $267.5 billion
at the end of 1952. Those are figures that to me are simply astounding.
It is attributable to a war period, but a debt going from $47.5 billion
to $267.5 billion, in only 13 years.
The interest charge on this indebtedness had grown from an annual
rate of $1# billion per year in December of 1939, to $6# billion in
December of 1952, an average increase in interest cost of almost $400
million per year.
In 13 years, annual Federal taxes had increased from a little less
than $5 billion in 1939, to almost $65 billion in 1952. ^This amounted
to an increase in the average tax burden of each American citizen from
$36 in 1939, to $413 in 1952.
10
wmmcua* oomaffw m
The condition* which we faced when we took office in 1953:
When this administration came to office in January of 1953, w«
1. A Federal debt equal to 89 percent of our annual national income*
2. Budget expenditures of $74.3 billion for fiscal 1953, and proposed
budget expenditures, a prepared and then existing budget, of $77.9
billion for 1954.
,
,
, , „ .
3. A budget deficit of $9.4 billion for 1953, and a planned deficit of
$9.9 billion, almost $10 billion, for 1954.
4. A continuing spiral of inflation which had reduced the purchasing
power of the dollar from 100 cents in 1939 to 77 cents by 1945, and
down to 52 cents by 1952.
In appraising these conditions and the course to pursue, we were
influenced by a recognition of the overpowering importance of pre
venting other devastating postwar inflation which, prior to 1953,
the Government was attempting to control by inadequate means.
Now, what were our goals?
Within less than a month of his taking office in 1953, President
Eisenhower, in his state of the Union message, called attention to
the “inescapable need for economic health and strength/' and he
stated:
O u r im m e d ia te ta sk is t o ch a rt a fiscal a n d e c o n o m ic p o lic y t h a t c a n —
f i r s t , red u ce t h e p la n n ed d eficits a n d th e n b a la n c e t h e b u d g e t, w h ic h
m ean s, a m o n g o th e r th in g s, red u cin g F e d e r a l e x p e n d itu r e s t o t h e s a f e
m in im u m ;
S eco n d , m eet th e h u g e c o s ts o f ou r d efen se^
T h ird , p rop erly h a n d le t h e b u rd en o f o u r in h e r ita n c e o f d e b t a n d o b lig a
tio n s;
F o u rth , ch eck th e m en a ce o f in flation ;
F ifth , w ork tow ard th e ea rliest p o ssib le r e d u c tio n o f t h e t a x b u rd en ;
8ix th , m a k e c o n stru ctiv e p la n s t o en co u ra g e t h e in itia t iv e o f o u r c itiz e n s.
Let us review these goals and our efforts, our difficulties, and our
accomplishments to date, in following them.
The first objective was to reduce the planned deficits and then
balance the budget.
To what extent have we accomplished this goal?
1. We first reduced and then entirely eliminated planned deficits.
The budget in effect when we took office in 1953 produced a $9.4
billion deficit, and the budget proposed for the fiscal year 1954 called
for a $9.9 billion deficit. Our administration immediately went to
work, with the help of the Congress, to reduce the planned deficit for
fiscal 1954, and inaeed the final deficit ($3.1 billion) was only one-third
of that anticipated by the prior administration.
Without the largest tax cut in our Nation's history, the budget
would have been balanced in 1955. However, in view of the tran
sition resulting from the reduction in militarv spending, and antici
pated further reductions in spending which in fact materialized
concurrently with our action, we were able to pass some of the savings
from our reduced expenditures back to the people, even though this
meant another year's delay in achieving a balanced budget. Fiscal
1955 was, however, the last year of deficits.
2. We have balanced the oudget.
By fiscal 1956, we had entirely eliminated deficits, balanced the
budget, and completed the year with a surplus of $1.6 billion.
FINANCIAL CONDITION OF THE UNITED STATES
11
The 1957 budget will result in another surplus, and the budget pro
posed by the President for 1958 provides for a third successive surplus
for the first time in 25 years.
3. We have reduced Federal expenditures.
Federal expenditures were reduced from $74.3 billion in the in
herited budget of 1953, to $67.8 billion in 1954, and down to $64.6
billion in 1955. As a result of additional programs authorized by the
Congress, substantial pay increases, and the need for increasingly
expensive military equipment, expenditures increased slightly in the
ast year to $66.5 billion, with further increases anticipated to $68.9
illion for 1957 and $71.8 billion for 1958.
The 1957 budget is nearly $5.5 billion below the budget we inherited
in 1953, and is but 16 percent of our current gross national product
now as compared to 21 percent in 1953.
The second objective was to meet the huge costs of our defense.
Major national security expenditures have been reduced from $50.4
billion in 1953, to $46.9 Tbillion in 1954, to an estimated $41.0 billion
in 1957, with a proposed $43.3 billion in 1958.
This reduction has been achieved despite the fact that, though not
at war, we are still engaged in a titanic contest which requires not
only the expense of preparedness, but extremely expensive research
and development.
Such research is necessary to assure preparedness for tomorrow,
and the days beyond, in the terrible race for primacy in the most
complete transition from old to new weapons in the history of the
world.
While our fantastically costly weapons of tomorrow are still in the
expensive research and development stage, we must continue to main
tain our maximum strength in the weapons of today. This means
that during the transition period we must support increased costs of
two systems of defense.
We have met these huge costs with a balanced budget and with a
reduced tax burden. We have provided the necessary large amounts
of expensive and revolutionarily new equipment needed for our national
safetv, greatly expanded our productive facilities, and at the same time
enabled far more capital and labor to be directed toward building
more cars, more houses, more of all of the good things our people
need and want.
Our third objective was to properly handle the burden of our inherit
ance of debt and obligations.
As you have invited the Under Secretary, Mr. Burgess, to meet
with you, I have asked him to report to you in detail on our handling
of the debt.
In preface to his remarks, I might say that the management of $275
billion of debt is not a simple assignment under any circumstances.
The Federal Reserve’s proper withdrawal from the pegging of the
Government bond market, which withdrawal was the most effective
single action taken in the battle against inflation, has made it more
difficult to manage debt operations than it was when a fixed rate was
assured.
Had such a policy continued, however, the resulting inflation would
eventually have produced even greater complications for debt man
agement than we have experienced under a system whereby interest
rates are determined by the forces of the market.
E
96819 0 — 67-------2
12
FINANCIAL CONDITION OP THE UNITED STATES
In January 1953, when this administration took office, the average
rate on all Government interest-bearing issues outstanding was 2.35
percent. The total net computed interest cost at an annual rate at
that time was $6.2 billion.
Four years later the average rate on all Government issues out
standing was 2.67 percent, or an increase of about three-tenths of 1
percent. The total net annual computed interest cost, as of December
31, 1956, was $7.3 billion, of which $0.9 billion is due to increased
interest rates, and $0.2 billion is due to an increase in the debt incurred
to pay obligations inherited from previous commitments.
This increase in interest rates results from the free market influences
of supply and demand in a period of unparalleled prosperity. It is a
continuation of a rise that has been going on for the past 10 years
under the growing pressure of borrowing demands.
In this little table the computed interest rate is shown:
Computed, interest rate on the public debt
December—
Percent
1946............................... .................................................. ............... ............. 2.06
1952................................................. - ............. .................................. ........... 2.35
1956............................- .................................... ........................ ......... ......... 2. 67
May 1957.................... ......... ......... - ......... - ............................. ................. ......... 2. 75
So that the rate has increased over the 10-year period from 2.06 to
2.75, or a little less than three-fourths of 1 percent.
For the entire period from December 1946 through May 1957, there
was an increase of sixty-nine one-hundredths of 1 percent in the com
puted interest rate on the public debt. Of that increase, twenty-nine
one-hundredths occurred prior to this administration, and forty onehundredths occurred during this administration, right up to now.
During the past 4 years there has been no increase in public debt
interest cost in relation to national income. The interest cost was
2.1 percent of national income in December 1952, and was exactly the
same percentage in December 1956, for the increase in interest cost
has only kept pace with the increase in national income.
Furthermore, the SI billion increase in interest paid reflects increased
earningB received by the investors who own the securities.
Now, who are those investors?
Of the $7 billion of interest paid on the public debt during calendar
year 1956, $1.4 billion represented the payment of interest to socialsecurity funds and other Government investment accounts.
About $0.6 billion of public debt interest was received by the
Federal Reserve banks, and 90 percent of that comes back to the
Treasury as surplus earnings.
Commercial banks received approximately $1.4 billion of such in
terest last year. About $0.6 billion went to other financial institu
tions—mostly insurance companies and savings banks; about $0.5
billion to corporations, about $0.4 billion to State and local govern
ments, and about $0.4 billion to nonprofit institutions, foreign ac
counts, and so forth.
The remainder, of about $1.8 billion—the largest single segment
of the interest on the public debt—went to individuals, either m the
form of cash payments or accumulated interest to the 40 million
holders of savings bonds. Millions of Americans are benefiting from
these higher interest rates.
FINANCIAL CONDITION OF THE UNITED STATES
13
I am asking Mr. Burgess to review other phases of our debt man
agement program.
The fourth objective, check the menace of inflation.
1, The problem
At the risk of oversimplification, let me condense the story of in
flation to about a dozen lines.
Almost all of our employable labor force is employed—and at higher
wages than they have ever received before. Our people are buying
virtually all that they are producing, but they want to buy more,
both more consumer goods and more productive facilities.
Being confident of the future, they desire to borrow to buy more.
The lenders are lending more than ever before, but still not as much as
the public would like.
However, with most resources fully utilized, additional bank credit
would not put any more people to work—it would merely provide
additional demand in excess of the supply of both labor and goods.
Such a demand in excess of supply would cause a rise in prices if it
were fed by excessive bank credit expansion.
A rise in prices hurts every housewife, everyone on a pension, every
person with a fixed or lagging income, every saver. It robs labor of
much of its gain in wages. This rise in prices has been a principal
cause of the farmers’ difficulties, because while income per farm re
mained fairly static during the last 10 years, the farmer has had to
pay higher prices. As a consequence, he has been particularly hurt
by the inflation which, to a lesser extent, injures every single one of us.
There are two ways to check this rise in prices: (a) increase the sup
ply of goods, and (6) slow the expansion in the number of dollars
bidding for the goods.
We nave utilized both methods. The administration in many ways
has encouraged an increase in productive facilities which is the only
way to increase the supply of goods. The Federal Reserve and the ad
ministration have taken action to restrain a too rapid growth in the
number of borrowed dollars available to bid up the price of the limited
supply of goods and services.
2. The respective roles of the Federal Reserve andthe Treasury
Now, what are the respective roles of the Federal Reserve and the
Treasury?
I would like to take a moment to identify the respective roles
played, on the one hand by the Treasury, which influences fiscal
policy—through its recommendations on tax and budget policy as
well as its management of the public debt—and on the other hand
by the Federal Reserve, which is responsible for monetary policythrough its influence on the cost and availability of money and credit.
A mere statement of the respective functions demonstrates the
major role of the Federal Reserve in the effort to stop inflation. The
Federal Reserve has the authority and the tools to take monetary and
credit action. We do not.
The Treasury cannot determine the level of interest rates, but must
pay the rates determined by market forces. The Federal Reserve
can influence the levels of market rates, although there are definite
limits to its power to maintain any fixed level of rates, as is shown by
history.
14
FINANCIAL CONDITION OF THE UNITED STATES
I do not point this out to shift any responsibility from the Treasury.
On the contrary, we approve wholeheartedly the course which the
Federal Reserve has followed, and have admiration for the courage
and decisiveness with which the Board has acted.
(a) Through 1952
As you will recall, throughout the decade prior to 1951, the Federal
Reserve followed a policy of supporting the market for United States
Government securities at or above par. This was done to enable the
Government to sell, at a lowinterest cost, the great volume of securities
which was necessary to finance World War II.
It accomplished that purpose, but it created cruel inflationary
conditions which required the sale of more bonds and increased debt
to pay the resulting higher costs of the war.
I n artificially holding interest rates at lowlevels, the Federal Reserve
made credit cheap, not only for the Government, but for all borrowers.
By maintaining a market which enabled the banks to liquidate their
Government bonds at any time at par or better, it encouraged a
continuance of the war-born expansion of excessive bank credit.
This cheap and plentiful credit was an important cause of the war
time inflation which, despite wartime restrictions of direct controls
and rationing, robbed the dollar of 23 cents of its purchasing power
between 1939 and 1945.
Then follows a table, Mr. Chairman, which recites the same figures
that you recited a few minutes ago, which shows that the dollar was
at 100 cents in 1939, and was 77 cents in 1945.
The C h a i r m a n . Without objection, that will be inserted in the
record.
(The table referred to is as follows:)
Calendar yeear average
Purchasing
power of dollar
(1939-100)
If*
IttO
IM1
IMS
IMS
1M4
1M6
100.0
99.2
94.4
86.2
80. a
79.0
Secretary H u m p h r e y . At the end of World War II there was an
acute shortage of goods. There was, however, a pent-up.demand, a
demand made effective by both a large amount of liquid assets ac
cumulated during the war and a rapid increase in private credit.
The war-born policy of the Federal Reserve, mistakenly continued
into peacetime under Treasury insistence, enabled the supply of credit
to rise too rapidly, with the result that this credit-backed demand for
goods exceeded tne supply of goods.
While interest rates were held at artificially low levels, prices con
tinued their serious rise, at an average annual rate of over 7 percent
from 1945 to 1951, and in those 6 years the dollar lost another 23
cents of its purchasing power.
Then follows, Mr. Chairman, another table, following out the rest
of the table you showed, that period after the war.
The C h a i r m a n . Without objection, that will be inserted.
FINANCIAL CONDITION OF THE UNITED STATE8
15
(The table referred to is as follows:)
Calendar year average
1945....................................................................................................................................
1946....................................................................................................................................
1947....................................................................................................................................
1948....................................................................................................................................
1949..................................................................................................................................
1950....................................................................................................................................
1951....................................................................................................................................
Purchasing
Consumer
Price Index power of dol
(1947-49-100) lar (1939s* 100)
76.9
83.4
95.5
102.8
101.8
102.8
111.0
77.2
71.2
62.2
57.8
58.3
57.8
53.5
Secretary H u m p h r e y . The dollar at 77 cents in 1945 depreciated to
only 53.5 cents in 1951.
It was becoming clear to increasing numbers of observers that the
unwise credit stimulus provided by the Federal Reserve should be
withdrawn. Such a withdrawal could be achieved only by paying
the lesser penalty of an increase in the interest rates to be paid.
It was clear that if the Federal Reserve ceased purchasing Govern
ment securities at par, natural market forces, reflecting increasing
demand for credit, would result in the higher interest rates which the
Federal Reserve purchase policy had so far postponed.
During this postwar period the Federal Reserve made several
modest moves toward freer short-term markets but was held back by
the Treasury. After a most thorough review of the relative advantages
and disadvantages of such a change, the Subcommittee on Monetary,
Credit and Fiscal Policies, known as the Douglas subcommittee, con
cluded in 1950 that, and I quote from the Douglas committee report:
As a long-run matter, we favor interest rates as low as they can be without
inducing inflation, for low interest rates stimulate capital investment. But we
believe that the advantages of avoiding inflation are so great and that a restrictive
monetary policy can contribute so much to this end that the freedom of the
Federal Reserve to restrict credit and raise interest rates for general stabilization
purposes should be restored even if the cost should prove to be a significant in
crease in service charges on the Federal debt and a greater inconvenience to the
Treasury in its sale of securities for new financing and refunding purposes.
Partly as a result of that review and report, the administration then
in office and the Federal Reserve, by an agreement referred to as the
“ accord,” changed the prior policy, and the Federal Reserve began
to withdraw its support of the market for Government bonds in
March of 1951.
While this was a step in the right direction, it was not a complete
step. On a number of occasions during 1951 and 1952, the Treasury
still relied on Federal Reserve purchases to keep new issues from
sinking in the market.
Let me pause in this chronology to remind you of the facts about
that change in policy.
It was put into effect by an independent agency, the Federal
Reserve.
It was urged by many of the best informed Members of Congress.
It occurred during the preceding administration—21 months before
this administration took office.
This new policy of the Federal Reserve was not so much antiinflationary as it was a tempering of wh&t formerly had been positively
inflationary action. The Federal Reserve began to reduce the amount
16
IDUNOLUi CONDITION OF TBM TOOT® 8TATIS
of credit it had been artificially creating. It freed natural market
forces.
As an incidental result of the reduction in the volume of artificial
credit generated by the Federal Reserve, the supply of credit grew
somewhat more slowly than the demand for credit. As a consequence,
interest rates began to rise, and the market prices of bonds went down..
Though the full force of this change in the Federal Reserve policy
was not immediately effective, almost a quarter of the increase in the
computed interest rate on the public debt—from 2.22 percent at the
time of the Federal Reserve-Treasury accord in 1951, to 2.75 percent
in May 1957—almost a quarter of that occurred in the 21 months
prior to the time this administration took office.
As a result, banks and insurance companies, which had such large
blocks of Government securities, were more hesitant to sell them at a
3 - or 4-point loss in order to make a loan. This caused them to make
fewer loans than they would have made had the earlier policy been
continued.
Although by the accord of March 1951, the administration then in
office had reluctantly agreed to the right of the Federal Reserve to take
such monetary action, that administration itself continued to rely on
direct controls on wages, prices, and rents.
In addition, after the short-lived budget surplus of 1951, increasing
Government spending, and renewed deficits in 1952, largely as a result
of the Korean conflict, encouraged a further depreciation in the dollar
to 52.3 cents.
And then follows a table.
(The table referred to is as follows:)
Calendar year avenge
Consumer
Price Index
(1947-49-100)
1961......................................................................................................................
IMS......................................................................................................................
111.0
113.5
Purchasing
power of dollar
(1939-100)
SS.5
62.3
Secretary H u m p h r e y . Inflation had been appreciably slowed, but
if inflation was to be effectively checked, the Federal Reserve’s new
policy had to be supported more vigorously and supplemented with
parallel fiscal policies.
(6) Since 1952
In 1952, General Eisenhower campaigned for the Presidency in
part on the ground that further inflation must be prevented, and
advocated, and I quote:
A Federal Reserve System exercising its functions in the money and credit
system without pressure for political purposes from the Treasury or the White
House.
i. We have conducted our affairs so as not to interfere with the
Federal Reserve's monetary policies.
We have lived up to that promise that the President made. To do
so, however, has subjected the Treasury to certain burdens, just as
it has other borrowers. Not to do so would have created much more
serious burdens for all of us.
Although new financing was less expensive and easier in 1954, it
has again become more costly. With a very high percentage of bank
FINANCIAL CONDITION OF THE UNITED 8TATES
17
and insurance <
ow in loans, these institutions are
not clamoring
even intermediate-term—Government securities.
We must, therefore, at present, sell mostly shorter-term securities,
which are attractive because of their high liquidity. I do not say this
to complain, but to acknowledge an obvious fact.
We will meet these difficulties and solve them as we have in the
past, continuing our flexible policy, postponing debt extension when
we must, achieving it whenever we can.
There is a strong demand for short maturities. Our bill auctions
each week are always well oversubscribed. The Treasury faces no
crisis. Our securities are the most highly regarded in the world.
But in a free market, we must compete for funds. That means
the factors of supply and demand determine the rates we must pay.
Rates may decline or they may go higher. I would be disappointed
to see them go higher, but if that is the price we must pay to prevent
growth of excessive credit and consequent inflation, it will well justify
the price.
This administration, in addition to supporting the Federal Reserve’s
independence, has utilized its debt management and fiscal functions
to help check inflation.
ii. rlanned deficits have been eliminated.
Federal deficits necessitate increased Federal borrowing. More
Federal borrowing, to the extent it comes from the banks, means the
creation of additional bank credit. This tends to create more spend
able dollars than there are goods to buy.
As your chairman, Senator Byrd, so clearly pointed out in his
remarks to the Senate on August 13, 1954:
Deficit spending is perhaps the greatest single factor in the cheapening of the
value o f the money.
In ending deficits, we have eliminated this very inflationary pressure.
iii. The debt is being reduced.
We reduced the public debt in fiscal 1956 as a result of our budget
surplus of $1.6 billion. Another budget surplus is being applied to the
debt this year, and we expect to do it again in 1958. Reduction of
the public debt is one of the best ways to fight inflation.
iv. Government expenditures have been reduced.
Government expenditures are inflationary, particularly when the
economy is at a high level of output and employment. 'Taxes divert
to Government spending some funds which, in the hands of the tax
payer, would have gone into savings.
Furthermore, some Government expenditures go into payrolls to
produce goods and services—especially military equipment and mili
tary services—which neither contribute to the Nation's capital ac
count nor become available for private consumption.
Yet this additional purchasing power competes for the existing
supply of both goods and services.
By reducing Government expenditures, we have released more
workers and materials directly to private industry where they could
add further to the supply of goods and services needed to meet our
heavy demands for plant and equipment, and greatly increase the
supply of homes, cars, television sets, and other consumer products
necessary for our rising standard of living. Reduced Government
expenditures have been an anti-inflationary influence.
18
FINANCIAL CONDITION OF THE UNITED STATUS
v. W© have reduced the floating debt.
The amount of marketable public debt maturing within a year,
plus demand obligations (other than E and H savings bonds) in the
hands of the public—securities which in many ways are dose to
cash—has been reduced by $25 billion from the high point in 1953.
vi. We have also shifted some of the debt away from the banks.
Since increases in bank loans represent additional spendable money,
they tend to be more inflationary than loans that grow out of a transfer
of existing savings. As a consequence, one of the Treasury's longrange debt management objectives has been to reduce bank holdings
of Government securities to a reasonable minimum.
To this end we have, in the past 4 years, reduced the amount of
Government securities held by the banks by $4 billion. This has
been achieved in part by paying off some securities and in part by
designing the terms of new issues—such as tax anticipation bills and
certificates—to be particularly attractive to nonbank investors.
vii. We have stimulated increased savings.
Greater confidence in the future, higher rates of interest, and
increasing confidence in the stability of the dollar, have all encouraged
our people to save more, both in dollars and in relation to disposable
income.
As one means of encouraging savings and combating inflation, we
have emphasized the continued sale of series E and H savings bonds.
The amount of these small-saver bonds outstanding has increased
from $35.3 billion to $41.4 billion during the past 4 years.
Moving thus on all of these fronts, by ending deficits, by reducing
the debt, by reducing expenditures, by keeping down the bank-held
debt, by reducing the floating debt, and by selling more E and H
savings bonds, as well as by working closely with the Federal Reserve,
we have accomplished a tempering of inflationary pressures during
these years, with a decline in the purchasing power of the dollar of
onlv eight-tenths of a cent in 4 years.
And then follows a table which shows that up to the end of the year
1956, the dollar went down from 51.9 to 51.1.
The C h a i r m a n . Without objection, it will be inserted.
(The table referred to is as follows:)
Calendar year average
IMS.......................................................................................................................
1*64.............................................................................................................................
1966.................................................................................................................... ........
1986......... .......... .......................................... ............................... . ........................
Consumers
price index
(1947-49-100)
114.4
114.8
114. 5
lift. 2
Purchasing
power of
dollar
(1939-100)
51.9
51.7
51.9
51.1
Secretary H u m p h r e y . The past 4 years have been characterized
by greater price stability than any other 4-year period since 1939.
But inflation is not stopped. It is only slowed down.
Indeed, there has been a disturbing renewal of pressures in the last
12 months, during which the dollar has lost almost 2 cents in pur
chasing power.
And tnen follows a table which shows that in April of 1956, the
dollar was 51.7, and in April of 1957, April just last past, was 49.8,
down almost 2 cent*.
FINANCIAL CONDITION OF THE UNITED STATES
19
The Chairman. The table will be inserted.
(The table referred to is as follows:)
M onth
1956—A pril.......................................................................................................................
July.................. ...................... ................ ............................................ ................
October_____________________________________________________ ______
1957—January..................................................................... ..........................................
February_____________________________________________________________
M arch____________ ___________________________________________________
A pril........ ................................ .......... ..................................................................
Consumers'
price index
(1947-49-100)
114.9
117.0
117.7
118.2
118.7
118.9
119.3
Purchasing
power of
dollar
(1939—100)
51.7
50.8
50.5
50.3
50.0
50.0
49.8
Secretary Humphrey. This most recent decline in purchasing power
is disturbing. It reinforces our conviction that we must continue the
vigorous pursuit of our present policies. We should certainly not
abandon them.
3. The necessity for flexibility
While over the past 4 years it has been necessary to follow generally
anti-inflationary fiscal and monetary policies, we have had changes in
the economy which have required us to moderate them on occasion,
and we may encounter other circumstances which may require some
relaxation at some times in the future.
We approve the philosophy expressed in the Douglas subcommittee
report that—
Timely flexibility toward easy credit at some times and credit restriction at
other times is an essential characteristic o f a monetary policy that will promote
economic stability rather than instability.
Our administration had been in office only a few months when the
coincidence of the full effect of the Federal Reserve's new policy, and
the curtailment of defense spending, temporarily changed the problem.
We were, at that time, more concerned with preventing a decline
in employment and production than with a rise in prices. Taxes
were reduced, and the administration relaxed downpayment and
maturity terms on FHA- and VA-guaranteed housing loans.
At the same time, Federal Reserve policy also eased, making funds
more readily available. The decline was stopped and a sound eco
nomic expansion got underway with renewed public confidence in
the courage of the administration and the flexibility of its policies.
By 1955, economic activity was again vigorous and the problem
was one of inflationary pressures—which have continued—and easy
bank credit expansion was no longer encouraged.
What are the available alternatives?
4- The available alternatives
In view of the breadth of the subject of your inquiry, it is appro
priate that we consider what might have been some available alterna
tives to general monetary and credit policy.
Some of these alternatives are:
(a) Direct controls prohibiting or limiting certain types of credit.
(b) Compulsory saving.
(c) Physical controls on prices and wages—plus, perhaps, rationing
and allocation of materials and labor.
20
FINANCIAL CONDITION OF TBE TOUTED STATES
(cf) Higher taxes and large governmental surpluses to be applied
on the bank-held debt.
#
(€) Greater individual savings and voluntary effort at restraint*
if) A reversion to the pre-1951 policy of Federal Reserve purchase
of Government securities at or above par—and consequent encourage
ment of severe inflation.
.
The use of any of the first three alternatives m peacetime would
have been inequitable, impractical, and inconsistent with our tradi
tions of freedom.
The fourth alternative would have required the imposition of
additional taxes on top of our present heavy load, and would not have
been acceptable.
#
^
The fifth, which the President emphasized m his state of the Union
message just a few months ago—namely, voluntary efforts—can help
immeasurably, but can be achieved only if other policies are effective.
Thus, as a practical matter, the real choice is between the antiinflationary course which we have pursued, and a new round of
inflation.
Those who, in a period such as this, urge an abandonment of our
anti-inflationary policies, those who urge either deficit financing or a
policy of artificially creating more spendable dollars are, whether
unwittingly or by intention, inflationists.
No matter what their motives, their proposals for further credit
expansion are proposals to further reduce the purchasing power of
the dollar, to rob every housewife, every farmer, every pensioner,
every wage earner, and every family with savings. Their arguments
must be understood to urge just that.
There can be no doubt as to the wisdom of our choice in utilizing
the tools of monetary and credit policy. As to the extent to which
we used these tools, I can only say that I gain confidence from the fact
that we are criticized with equal vigor by those who feel that credit
has been restricted too severely, and those who feel it has not been
restricted severely enough.
Despite some recent tendency for prices to rise again, the admin
istration can take considerable pride in what has been achieved to date
in respect to this, the President's fourth goal.
Now, the fifth goal was to work toward the earliest possible reduc
tion of the tax burden.
The Eisenhower administration and the Congress, working together,
have already made possible the greatest single tax cut in history.
In 1954, in order that the people might benefit from the substantial
reduction in Government expenditures, we brought about a tax cut
that has provided them with annual savings of about $7.5 billion.
As the President pointed out in his letter of April 18, 1957, to the
Speaker of the House, this tax cut has already saved our people
almost $25 billion in taxes.
More than 60 percent of that reduction w~nt to individuals. Every
taxpayer benefited.
That was a creditable accomplishment by the Congress and the
administration. Tax receipts are now at an all-time high as a result of
our current prosperity; but, even so, Federal taxes account for a
slightly smaller proportion of our national income than they did in
1953.
J
FINANCIAL CONDITION OF THE UNITED STATES
21
We intend to go further at the earliest justifiable opportunity, for
the tax burden is still far too heavy. However, the possibility of a
reduction in taxes depends upon the degree of success of the admin
istration and the Congress in keeping the budget position sound.
The sixth goal, to make constructive plans to encourage the initi
ative of our citizens.
A primary goal of this administration is a free and prosperous
America. To encourage the initiative, energy, and savings of our
people, which are the only means to prosperity, our most important
steps were our anti-inflationary actions which have increased public
confidence in the security and stability of our economy.
In addition, we have taken other helpful action :
1. We relieved the public of the burden of controls.
When this administration took office in 1953, the country was still
handicapped with controls over prices and wages, and the use of cer
tain materials. We promptly terminated these controls.
2. We have reduced Government activities which compete with
private business.
During the past 4 years, some 500 Federal enterprises competing
with business have been abolished. We have disposed of the Govern
ment-owned synthetic rubber producing facilities and the Governmentowned tin smelter to private enterprise; and the Reconstruction Fi
nance Corporation is now in the process of liquidation. Surplus real
estate, worth $366 million, has been sold and turned back to local tax
rolls.
3. We have created a more favorable climate for enterprise.
(а) We have moved vigorously to prevent monopolies.
The number of antitrust prosecutions has been materially increased
and the number of convictions, guilty pleas, and consent decrees
obtained in the past 4 years has been more than 40 percent higher than
in the preceding 4 years.
The number of prosecutions under section 7 of the Clayton Act, as
amended in 1950, lias increased from only 1 in the 2 years, 1951 and
1952, to 29 during this administration.
(б) We have encouraged small business.
Upon the success of small business firms to prosper and grow depends
much of our production and our survival as a free competitive society.
This administration has sought in many ways to aid smaller firms and
to relieve them of burdensome taxes and requirements.
In the past 4 years, small business has benefited materially from tax
law changes—the expiration of the excess profits tax law, the reduction
in personal income tax rates in 1954, and the extensive revision of the
Internal Revenue Code. Even more important to the smaller firms is
the general prosperity of the past 4 years.
To aid small firms which are unable to obtain adequate credit from
normal sources, President Eisenhower signed the Small Business
Administration Act on July 30, 1953. That act created the Small
Business Administration, and authorized a revolving fund of $275
million to provide needed loans to small business concerns.
Subsequently, the administration supported increases in the SBA
funds to $375 million in 1956, and to $455 million in 1957. The
administration now has a bill pending to increase this to $600 million,
and to make the SBA a permanent organization.
22
FINANCIAL OOMMXfON OF TH» tTNTTBD BTATB8
Each year the SBA has made a larger number of loans, with over
$125 million made in the last 10 months, and currently is making
loans to about 60 percent of the applicants whose files have been
rBvidwod•
(e) We have encouraged trade with other countries.
This administration has effected measures which have aided the
increase in our total foreign trade in 1956 by 22 percent (exports 25
percent) over 1952.
.
In addition, the Treasury, with the cooperation of your committee,
H||^ put into effect a number of customs simplification acts which
have reduced the complexities attendant on the movement of goods
into the United States. We have also provided greater certainty in
our administration of the tariff laws.
(d) We have encouraged initiative and activity.
Throughout the past 4 years this administration has continuously
attempted to encourage rather than discourage enterprise. As a re
sult, our productivity and living standards have been rising steadily.
During the past 4 years, 500.000 new business corporations were
formed in the United States. Of course, not all succeeded. A free
economy is not a riskless economy. During that period, 44,000
enterprises—noncorporate as well as corporate—failed, but that is
lower in relation to tne number of new corporations formed than during
the preceding 4 years—34,000 failures ana 355,000 new incorporations.
(e) We have encouraged savings.
The importance of savings as the anti-inflationary source of financing
is so great that I would like to make these points:
i. There are many people who benefit from higher interest just as
there are many who find it an additional cost.
You and I hear complaints today about the increased cost of money.
We know it is nowhere as important afe the increased cost of labor, but
we also know that higher labor cost is a 2-sided coin, it is a 2-way
street. Someone pays more—but someone receives more.
Now, the same is true of interest.
Although many of us owe money in one form or another, it is equally
true that many of us have savings in one form or another. As a result,
we have a stake in protecting our principal against deterioration in the
value of the dollar.
We have a further stake in a higher interest return on our money.
We are owners of millions of share accounts in savings and loan
associations, time deposits in banks, and mutual life-insurance policies.
Many of us belong to a pension system, and our benefit payments
tend to increase as interest earnings rise.
Some critics allege that higher interest rates benefit only the bankers.
That is nonsense. Earnings of insured commercial banks as a return
on average capital accounts in 1956 were 7.82 percent.
This is lower than the average for the prior 3 years, or for the years
1948-52. Such bank earnings have averaged 8.29 percent for the
past 4 years. This is less than the average of 8.62 percent for the
entire 8 years of the prior administration.
Bank earnings for 1956, of 7.82 percent, are substantially less than
the average earnings of all manufacturing companies which averaged
12.3 percent. In 1952, bank earnings of 8.1 percent compared with
manufacturing earnings of 10.3 percent.
FINANCIAL CONDITION OF THE UNITED STATES
23
Bankers are brokers of money. When they receive more, they pay
more. Our people have approximately 90 million savings accounts
in banks and savings and loan associations. As you know, during the
past few years most banks and savings and loan associations have
increased the rates they pay to the saver.
The amount of return paid or accrued for savers in the savings and
loan associations (members of the Federal Home Loan Bank System)
increased from less than $500 million in 1952, to an estimated billion
dollars in 1956, a little more than double.
The amount of interest so accrued for savers in mutual savings
banks rose from $500 million to almost $800 million in 1956. Interest
paid or accrued to depositors in commercial banks increased from
about $450 million in 1952, to about $800 million in 1956.
In the past 4 years, interest rates on all these types of savings have
been moving upward and, in a modest way, we" have followed with
our recent increase in the interest rates on newly purchased savings
bonds.
ii. Increased interest stimulates savings.
The higher interest rates paid in the past fewyears have encouraged
greater savings. During the 4 years of the Eisenhower administration,
our people saved more, both in terms of dollars ($JP5 billion of personal
savings compared to $56% billion in the preceding 4 years), and in
relation to disposable income, 7.1 percent as compared to 6.4 percent.
iii. Increased savings are a major means of assuring continued high
employment and prosperity.
Increased capital investment—more tools, more factories, more
equipment—is necessary to provide the jobs with the high wage levels
which are paid in this country today. It is the principal means by
which we can raise our living standards.
To the extent such increases in capital investment are provided by
excessive bank credit expansion, they are inflationary. To the extent
they are financed out of savings, they are not.
With the great increase in capital investment in tools, it is essential
to encourage savings in order that as little of this investment as possible
be financed in such a way as to stimulate another round of inflation.
In the past 4 years, we have moved to an unparalleled prosperity.
More people are living better than ever before. It is this prosperity,
in turn, which creates heavy demands for money and requires some
anti-inflationary restraint.
We have made great progress toward the sixth goal established by
the President—to make constructive plans to encourage the initiative
of our citizens.
Current monetary and fiscal policies have been beneficial to the
economy.
This administration has successfully encouraged saving, enterprise,
and production. This is a demonstrable and desirable accomplish
ment. With such means as it has had at its disposal, the adminis
tration has attempted to arrest inflation and has been largely
successful.
I note, however, that there have been some complaints that the
monetary and fiscal policies have been too severe and have affected
certain segments of the economy unfairly.
A.
Has the administration’s anti-inflationary program been
injurious?
24
73NAHCXAL COfNDITION OF THE UNITED STATES
Let me review again what the administration has done to fight
inflation.
We have reduced the Government debt.
We have reduced Government expenditures.
We have balanced the budget.
We have reduced the floating debt.
We have moved some of the debt out of the hands of the banks and
put more of it into the hands of individual citizens.
The reduction in Government expenditures has perhaps injured
those corporations which might have received orders had the Govern
ment spent more money. The entire course of action, having been
anti-innationary, may have injured those few who might have bene
fited, at the expense of the rest of our citizens, from runaway inflation.
But, except for these few, the good of the overwhelming majority
of our people was best served by the course we have followed.
We have also endorsed the independence of the Federal Reserve
and conducted our affairs in such a way as to avoid interference with
its anti-inflationary monetary policy.
B. Has the Federal Reserve's anti-inflationary program been
injurious?
1. By restricting the growth of credit?
The Federal Reserve's program is one of allowing the natural
market forces to operate, while adjusting credit availability to meet
the needs of normal seasonal activities and sustainable economic
growth.
The Federal Reserve has ceased its earlier policy of creating addi
tional bank credit, except to the extent needed to meet the basic
requirements of a healthy economy.
(a) TheFederal Reservehasnotreducedthevolumeojavailablecredit
Some current discussions of Federal Reserve policy proceed on the
mistaken assumption that the Federal Reserve has reduced the amount
of credit below an amount previosly available.
Nothing could be further from the truth. Credit—the aggregate
of new savings and new bank credit—has expanded substantially in
tbe past 4 years, and at a rate fully equal to the need, to sustain a
very high use of both services and materials.
There is more credit outstanding today than ever before—$146^
billion more than in 1952.
I am going to read that again: There is more credit outstanding
today than ever before—$146# billion more than in 1952.
Then follows a table, Mr. Chairman, which outlines where that
extension of credit has taken place, and I would just refer to the last
column to illustrate.
The C h a i r m a n . Without objection, it will be inserted.
(The table referred to is as follows:)
FINANCIAL CONDITION OF THE UNITED STATES
25
Uses and sources of credit
[In billions of dollars]
Am ount outstanding
Dec. 31, 1952 Dec. 31,1956
Change
Uses of credit:
Individual:
M ortgage............. ..................................................................
Consumer. ...........................................
......................
Other........... ................................................ ........................
82.4
27.4
25.7
131.5
41.9
34.1
+49.1
+14.5
+ 8 .4
T otal.............................. ....................................................
Corporate.............. ...................................... ...............................
State and local governm ent......... ............ .. ..........................
135.5
202.9
31.2
207. 5
249.3
50.0
+72.0
+ 46.4
+18.8
Total (other than Federal)................................. ...................
Federal’Qovernm ent_______________________________ ____
369.6
267.4
506.8
276.7
+137.2
+ 9 .3
T ota l............... ......................................................................... .
637.0
783.5
+146. 5
Secretary H u m p h r e y . Mortgage credit has gone up $49 billion,
consumer credit $14 billion. This is over a period of 4 years we are
now talking about, over the period of 1952 to 1956, through December
of 1956. Mortgage credit has gone up $49 billion; consumer credit
$14 billion; and “Other,” $8% billion, or a total of $72 billion.
Corporate has gone up $46.4 billion; State and local governments
nearly $19 billion, for a total of $137 billion.
Now then, the Federal Government has gone up during that same
eriod $9.3 billion, making a total, if you add it all up, of $146.5
illion which occurred during the 4-year period.
As important as the fact of the increase in credit, is the source of
this increase.
Now, the sources of the increase, Air. Chairman, again a table, of
which I will read only the last figures:
^Nonbank credit over the 4 years which came about through savings
during that period, nearly $136 billion; bank credit, less than $11
billion—for a total of $146.5 billion.
The C h a i r m a n . The table will be placed in the record.
Secretary H u m p h r e y . What i s that?
The C h a i r m a n . I say we will put the complete table in the record.
Secretary H u m p h r e y . All right.
(The table referried to is as follows:)
E
Uses and sources of credit
[In billions of dollars]
A m ount outstanding
Dec. 31,1952
D ec. 31,1956
Sources o f credit •
N onbank credit (savings)..........................................................
Bank credit (m oney s u p p ly ) ..................................................
506.0
129.0
m
00t>»
1
!
+135.8
+ 10 .7
T ota l............................................................................................
637.0
783.5 I
i
+146.5
Change
rotAH CU L OaHDRKW OV THB UK1TBD BTATllB
26
Secretary H t t m p h m t . In 1956 a l o n e total debt--other than Fed.
e r a l G o v e r n m e n t - i n c r e a s e d $ 37.5 billion. Of this increase, $17.5
b i l lio n was i n d iv id u a l d e b t , *15.5 billion c o r p o r a t e , and $4.5 b i l l i o n
State a n d local government d e b t .
,
,
The increase in total credit in the past 4 years has been greater
than in either of the 2 preceding 4-year periods. But a most impor
tant fact to note is that 93 percent of this increase has come from
savings and onlv 7 percent from an expansion m the money supply.
Then follows another table, Mr. Chairman, which shows where
this has come from, and it shows that $136 billion came from nonbank
credit - and about, a little less than, $11 billion from extension of bank
credit, for the total of $146 billion of extended credit, mcreased credit.
(The table referred to is as follows:)
U*e* and sources of credit
Increases In 4-year period
December
1944-48
December
1948-52
December
1952-56
In billions of dollars
Uaaa of credit:
Individual
Mortgage
19.4
9.3
3.7
32.0
13.0
49.1
14.5
8.4
Pamoral* . .
Bu m aod local government...
32.4
29.6
2.7
52.4
63.2
11.5
72.0
4&4
18.8
Total (other than Federal)..
Federal Government.............
64.7
20.8
127.1
14.5
137.2
9.1
85.5
141.6
146.5
613
21.2
124.2
17.4
135.8
10.7
85.5
141.6
146.5
Otter..
Total.............................
Total.
areee of aradtt:
Naabaak credit (aatfncs)----Bank credit (mooey mppty)
Total.
Percent
a1
Parerat tnoraaan accounted for by:
New avtnga.........- .......................
K«papstoo in money supply........
Total.
75
25
88
12
93
7
100
100
100
Secretary H u m p h r e y . Of the $146.5 billion increase, $135.8 billion
has come from existing funds of nonbank investors—which amount
may be called “savings”—and only $10.7 billion from bank credit
expansion, or increased money supply—new and additional spendable
The total increase has been adequate for our most healthy economic
expansion in many years. The growth in the money supply, at the
rate of only 2 percent per year, has prevented any objectionable bank
credit inflation.
The secret of success in providing adequate funds for proper
expansion without inflation is to encourage savings as the principal
source. That we have done.
FINANCIAL CONDITION OF THE UNITED STATES
27
The foregoing table points out three most important facts:
(i) Total loans have increased substantially in the past 4 years—
indeed more than in either of the 2 preceding 4-year periods.
(ii) This increase has been primarily in private credit—credit to
buy homes, cars, consumer goods—rather than tanks or guns.
(iii) This increase has come much more from savings and less from
bank credit expansion than in prior years—hence it has been much
less inflationary.
The Federal Reserve policy of not encouraging more rapid bank
credit expansion has been based on the premise that further expansion
of bank credit would merely have enabled more would-be buyers to
bid up the price of the limited supply of goods and services.
This policy has been necessary and in the best interests of the
great majority of our people. But despite the substantial credit ex
pansion that has taken place, since there has been less new credit
created than the demand therefor, there has been some disappoint
ment, and in some cases, real hardship.
It is said that the unavailability of unlimited credit has been
particularly burdensome on the housing industry, on small business,
and on State and municipal projects. As these areas are very impor
tant to all of us, perhaps we should briefly review them.
Let's look at housing.
It is charged that we have impeded the flow of credit to housing.
During the past 25 years, far from restricting credit to housing, the
Government has greatly increased the volume of credit available to
this industry—over what it would be in a normal free market—by
stepping in and guaranteeing the pa}rment of millions of homeowners’
mortgages.
Tins has helped to provide many Americans with homes which they
otherwise could not afford. On the whole, this has been a good pro
gram, but we must recognize that it has introduced certain artificiali
ties into the free market for the purpose of diverting credit from other
uses into home mortgages—credit that wouldn't be available to hous
ing without these Government guaranties.
That was true under the prior administration; it is true under this
administration.
Has this administration restricted the terms on new housing loans?
We have not—we have relaxed them. We have lowered the minimum
downpayment on FHA loans, and we have permitted 30-year loans
in place of the former 25-year maximum. We have materially liberal
ized FHA mortgage terms on existing homes.
In addition, FNMA special-assistance programs have been inno
vated since 1952 to provide mortgage support for relocation, redevelop
ment, and rehabilitation housing under sections 220 and 221 of tne
National Housing Act, for housing for the elderly, and for Capehart
military housing.
Also, the voluntary home mortgage credit program, started in 1954,
has helped obtain home financing for veterans and others in small and
remote communities, and for minority group members.
Has the administration restricted the availability of mortgage funds
by curtailing the FNMA secondary market operations? Again, let's
look at the record.
96819 0 — 5 7 ------8
28
h h a h c m l cflHP iiMW «
th * » » » *» m tam
Purchases of mortgagee byF N M A in th e a e ^ n d ^ morteage
market, during the last 12 months, have totaled nearly a billion dollar*
an amount surpassed only in the calendar year 1950.
Furthermore, in 1950, all of those funds were provided by the
Treasury under the sounder participating program as Congress ha*
now revised it, the funds largely come from private sources
According to preliminary figures, m May of this year there were
96 000 private nonfarm housing starts. This is a second consecutive
monthly increase on a seasonally adjusted basis, and brings the annual
rate of new housing starts in May up to 990,000.
While this is somewhat below the annual rate of 1,146,000 starts ia
Mav a year ago, and even further below the 1,398,000 rate in May
1955, it is still a substantial volume of housing.
There are undoubtedly many contributing causes to this decline.
For the past few years, home construction has been running ahead of
new family formation, with a consequent reduction in the backlog of
vouug families needing a home.
Building costs have risen substantially m the past 10 years. The
price of land has also risen, as have State and local taxes, which are
an element of cost. As the aggregate of these costs result in sub
stantial increases in the price of a home, the number of potential
purchasers is reduced.
This cost increase has been accentuated by the host of new laborsaving appliances and luxury equipment which our people feel are
now necessary in a home. There has been actual overbuilding in
some localities and a diminishing supply of desirable building sites
in others.
All of these factors have had an adverse effect on new; home con
struction, but the unavailability of unlimited mortgage credit is also
a major factor, and it falls most heavily on those who heretofore have
been able to obtain mortgage credit only through Government assist
ance.
The number of new homes financed through conventional mortgages
(bas«i entirely on the credit of the borrower and the amount of his
equity) has not declined. Indeed the number of such housing starts
•o financed in the first 5 months of this year (269,400) was slightly
higher than the number so financed in the first 5 months of last year.
It is the Government-guaranteed mortgages which are finding the
km receptive market. The number so financed in the first 5 months
of this year (114,200) was 42 percent less than the number financed
in the first 5 mont hs last year. This decline is due to the lower interest
rat«» which such guaranteed loans bear.
The increase in the maximum rate on FHA loans from 4% percent
to 5 percent has given such financing renewed strength, but the lack
of congressional authorization of an increase in the rate on VAguaranteed mortgages has made it increasingly difficult for a veteran
to obtain such a loan.
The significance of rate limitations is indicated by the most recent
figures. Housingstarts financed by conventional mortgages increased
from 63,900 in April to 69,000 in May—which compares with 64 500
in May 1950.
’
Housing starts under the FHA program increased from 12,100 in
April, to 15,000 in May—as compared with 19,700 in May 1956.
Housing starts under VA inspection declined from 13,500 in April
to 12,000 in May—compared with 26,600 in May 1956.
*
FINANCIAL CONDITION OF THE UNITED STATES
29
Thus it appears that there is only a relatively limited supply of
mortgage credit available for the small downpayment, extended terms,
and 4^ percent interest rate on VA guaranteed loans.
There is a substantial volume of mortgage money available for
FHA insured mortgages at the 5 percent rate, although there is some
insistence on higher downpayments than the minimum permitted
under FHA terms. There appears to be sufficient mortgage credit
available to finance those borrowers who can make an adequate
downpayment and pay the going rate of interest.
This is the result of a free money market. It undoubtedly has
caused many young families to postpone the purchase of a new home.
Their disappointment, and that of the builder, is understandable.
Yet how much better off would they have been if a more than
adequate supply of credit had brought about increased prices, not
only of their home but of all of the other articles which they desire?
Lets look at small business.
I am sure that there have been some small business firms which
have been unable to obtain all of the credit that they would have
liked at the rates they would like to pay. I believe this has been
true in every year through history, and it has been true for each of
the oast 4 years, but this does not mean that there has been any
reduction in the dollars of credit extended small business in the past
4 years. Quite the contrary. Both the number and amount of loans
made to small business have been increasing substantially.
In this connection, we must remember that the great majority of
our banks are themselves quite small, and the size of the loans they
can make is limited by law. Of the 13,101 insured commercial banks
in the United States, 10,853 have deposits of less than $10 million
each and, in general, cannot make loans above $100,000.
That is almost 11,000, out of the 13,000, that are small banks.
Total loans of banks in this category increased by almost $2.1
billion during the past 4 years, an increase of 19 percent. Virtually
all of their loans are to farmers, homeowners, consumers, and small
business firms.
Another 1,802 banks generally can make loans up to $500,000, but
most of their loans would actually be in amounts of less than $100,000.
Total loans of banks in this category increased by $4.4 billion during
the past 4 years, an increase of 44 percent.
The remaining 446 banks do indeed represent almost two-thirds of
the Nation's deposits, and are of great importance to the economy.
They are the primary source of bank credit to larger business firms,
but even they make many loans to small business.
A survey made of a representative group of 78 such large banks
indicated that in the year from September 1,1955, to August 31,1956,
their small business loans—for amounts of under $100,000—had in
creased by $228 million, or 14 percent; and that the number of such
loans had increased by 5 percent.
Within this group there was more of an increase, both in numbers
and dollar amount, in the loans under $50,000 than in those between
j|5Q|000 and $100,000.
While it is true that totil business loans of banks increased some
w hat more rapidly than those loans for amounts under $100,000, this
is a pattern which would be expected in such a period of rapid economic
expansion, for the cyclical heavy goods industries naturally tend to
require a larger volume of credit in such a period.
30
FINANCIAL CONDITION OF TOT UNITED STATES
At all times the established, successful firm is more able to obtain
necessary credit than is the new, unproven or unsuccessful company,
and this is particularly true of a period of credit stringency. Not all
firms have obtained ail of the credit they have wanted. Yet, in the
aggregate, they have obtained more than ever before. t
^ in addition to the increased amount of bank credit received by small
business during the past 4 years, there has also been a sizable volume of
book credit extended by larger firms to smaller firms distributors,
merchant#, and suppliers,
I do not mean to minimize the disappointment, inconvenience, and
in many cases real hardship, that some businesses have experienced
because of their inability to obtain as much credit as they would have
liked.
i •*
Indeed, this is a matter of deep interest to the administration
which, as you know, has supported the creation of the Small Business
Administration, the enactment of improved tax laws, and the granting
of exemptions from certain Securities and Exchange Commission
regulations.
*
■
In addition, we have made vigorous efforts to see that more defense
work is subcontracted to smaller firms.
I understand that you intend to invite Mr. Mueller, Assistant Sec
retary of Commerce, to testify before you, and I believe he will discuss
the matter of small business financing at somewhat greater length. I
do, however, want to make the point that there has been a lai^e
volume of credit available to, and used by, small business in the past
4 years.
Let’s look at States and municipalities.
In the past 4 years, a quarter of a million new schoolrooms have
been built for our youngsters. Total public construction in 1956 was
23 percent above 1952 levels, and educational construction was up 56
percent.
During 1956 alone, new borrowing by States and municipalities
totaled $5.4 billion; and during the last 9 months for which figures
are now available, more elementary and secondary school bonds were
sold than in any 9-month period in our history.
State and municipal financing has increased by $18,8 billion in the
past 4 years. This is more than it has ever increased in any other
4-vear period, and compares with only $11.5 billion during the period
1948-52.
These figures do not demonstrate any extraordinary burden on State
and municipal financing from lack of available credit. Undoubtedly,
local governments have been unable to obtain all of the funds they
would have wished, but they have built more and they have financed
more than in any other 4-year period.
The Federal Reserve's monetary policy for the past 4 years has been,
and is, one of discouraging the growth of credit at quite as rapid a rate
as would-be borrowers desire. As a consequence, some individuals,
some home purchasers, some small businesses, and some municipalities,
and other categories of our citizens, have felt some pinch as a result
of limited credit. But—in the past 4 years, small loans to business
have increased substantially.
In the past 4 years, $57.5 billion has been spent for housing—as
much as had been spent in the preceding 6 years.
FINANCIAL CONDITION OF THE UNITED STATES
31
In the past 4 years, $16.7 billion has been spent for new highway
construction—more than had been spent in the preceding 11 years.
In the past 4 years, $8.8 billion has been spent for school construc
tion—more than had been spent in the preceding 20 years.
This is not the record of extreme credit stringency. Any freer
credit would have further inflated prices.
Let’s look at the rise in interest rates.
The Federal Reserve’s abandonment of its pegging of prices in the
bond market has prevented an unlimited growth in credit. It was
intended to, and did, slow the rate of growth of bank credit.
It also has resulted in some increase in interest rates. It is alleged
by some that this increase in interest rates has brought about a
severe increase in the burden of taxes and in the prices we pay for
manufactured goods, or utility services; that it has materially increased
farmers’ costs, or the price of a home.
Now, are these charges true?
Higher interest—although the result of a lesser supply of credit
than the demand therefor, a condition which prevents far greater
inflationary increases in other costs—is itself an element of general
costs and in some cases may be reflected in higher prices.
However, interest payments are such a small fraction of the total
cost of business operations, that a rise in the rate does not represent
much of an increase in total cost.
What is the interest burden on the taxpayer?
Total budget expenditures for fiscal 1957 are estimated at $68.9
billion. Of this, $7.2 billion, or 10.4 percent, represents interest
expenditures. The per capita cost of all expenditures of the Federal
Government for this fiscal year is $406; for interest alone, the per
capita cost is $42.40.
In 1952, interest on the public debt was $37.57 per capita. Thus
the increase in interest on the public debt during the past 4 years
amounts to less than $5 per person.
Now, what is the effect on the price of manufactured goods?
In 1946, gross sales of all manufacturers amounted to $132 billion.
Manufacturers had net interest expense in that year of about $154
million, equal to one-eighth of 1 percent of total sales.
In 1952, interest expense had increased to about one-fourth of 1
percent; and on the basis of limited information now available, it
appears that the 1956 ratio will be about one-third of 1 percent.
Thus, interest costs are only one-third of 1 percent of the average sales
price of manufactured goods.
Of the cost of an article selling for $100, about 33 cents represents
interest, with no more than 10 cents of that representing an increase
since 1952.
Furthermore, the increase in this minor item of interest costs
reflects an increase in the amount of debt as well as an increase in
interest rates.
The relative unimportance of interest as a part of total costs is
reflected in the fact that during the same 10-year period, prices of
goods that consumers buy rose 27K percent, or $27.50 on a $100 item
(due to labor and other costs), compared to the 20-cent increase due
to higher interest.
In other words, $27.50 for other items as compared to 20 cents for
interest.
32
FINANCIAL CONDITION OF THE UNITED STATES
The far greater significance of the increase in labor and other cost*
is reflected quite clearly in the price of consumers' services which
have risen 43X percent during the same 10 years.
It is apparent from these figures that even with increased interest
rates ana increased indebtedness, the burden of interest costs on
manufacturers in reference to their total costs is very slight. Th®
effect of higher interest on the sales price of goods is hardly significant.
This is even more apparent when we compare the increased costs
of the last year. Prices of goods bought by consumers (which reflect
material, labor, interest, and profit) have risen 1.3 percent. Th®
price of consumers’ services (which reflect primarily labor costs) has
gone up 2.3 percent.
How does it affect public utility rates?
It has been suggested that higher interest rates lead to substantial
increases in public utility rates. This sounds plausible because public
utilities rely heavilv on bonded indebtedness.
However, the latest figures available indicate that the net interest
expense of public utilities is still less than 4 percent of gross revenue—
the same proportion as in 1952. Even for electric utilities, when
average interest cost on long-term debt now exceeds 5 percent of
gross revenue, the relative cost of interest has risen very slowly.
The estimated average of 5.2 percent for both 1955 ana 1956
compares with 4.8 percent in 1952 and 5.0 percent for 1946. In
other words, 5.2 in tJie last 2 years; 5.0 percent in 1946.
Now, farmers' costs:
Difficult as the farmer’s position has been, it is not the result of
interest rates. The Department of Agriculture estimates that only
about 5 percent of farmers’ costs are for interest.
Interest rates on farm loans outstanding in insured commercial
banks on June 30, 1956, averaged 6.1 percent. This was four-tenths
of a percentage point higher than the average rate reported in a similar
survey made in 1947; less than one-half of 1 percent difference since
1947.
Thus, this four-tenths of 1 percent increase in rate would be less
than one-half of 1 percent of his total costs, or 5 cents on a sale of $10
worth of farm products.
Now, the cost of a hoiAe.
The effect of higher interest rates in relation to the decline in private
nonfarm housing starts from 465,000 units in the first 5 months of last
year to 384,000 for the same period this year, has been grossly exag
gerated.
Housing is perhaps the most dramatic example of the effect of rising
costs. Hourly wage rates in building construction have risen 21 per
cent in the past 4 years. In the manufacture of some products, the
increased cost due to hourly labor rates has been offset by greater
efficiency. Through use of additional capital goods—tools—the
productivity per man-hour has been increased enough so that the total
cost has been kept fairly stable. This is true of most of our home
appliances.
However, in those fields in which mechanization is not practicable
« V n which restrictive practices or legal requirements have pro
hibited maximum efficiency, the cost of the finished product has risen
in dose relation to the increase in hourly labor rates. There is no
better example of this than housing.
FINANCIAL CONDITION OF THE UNITED STATES
33
Many home purchasers consider only the size of the required
monthly payment—not the number thereof or the elements that make
it up. To them, interest is of no significance. To the more sophistic
cated purchaser who inquires as to the component elements in his
mortgage payments, increased interest rates are small in relation to
increased labor and material costs.
This is apparent if we compare the cost and financing charges of
the same house in the spring of 1946, the spring of 1953, and the spring
of 1957. Let us take as an example a house that cost $10,000 to Duila
in the spring of 1946, and compute the required monthly payments on
the basis of 15 percent down and the balance over a period of 20 years.
Then, Mr. Chairman, there follows a table, and I will not read that
table.
The C h a i r m a n . That will be inserted.
(The table referred to is as follows:)
Spring of—
1946
Estimated cost of house_____________________ . . . . _________
Interest rate (P H A ).................................................... percent..
Monthly payment (for 20 years)________________ ______ ____
Increase in cost of house since 1946........................ .....................
Increase in monthly payment since 1946: *
Due to interest rate____________________ _______ _______
Due to other costs______________ ______ _______________
$10,000
4
$51.51
1953
$17,300
4M
$91.06
$7,300
1967
$19,000
$106.58
$9,000
$8.71
$46.36
N o te .— Housing costs are based on data compiled by Roy Wenzlick & Co.
Secretary H u m p h r e y . This shows that the $ 1 0 ,0 0 0 house in the
spring of 1946 cost $19,000 in the spring of 1957; and of the amount of
increase in monthly payments, $55.07, $46.36 was due to other costs
and $8.71 was for interest.
The monthly payment has more than doubled in 11 years. Of this
increase of $55.07, $46.36 reflects higher labor and material cost, and
$8.71 is due to higher interest rates.
During the past 4 years in which our policies have resisted inflation,
the sales price of that house has gone up much less—about $400 per
year as compared to about $1,000 per year from 1946 to 1953. And
I want to repeat that the increase in the cost of that house, from
$10,000 to $19,000, has gone up much less in the 4 years since we have
had these restrictive practices than it did in the 4 years when we had
the easy money.
In other words, it went up $400 in these years as against $1,000 in
the easy-monev years, and the interest went up only $8 a month.
Which has been the major factor in discouraging construction?
The $9,000 increase in building cost ($46.36 per month), or the 1percent increase in the cost of interest ($8.71 per month)?
While interest is an element in the cost of mortgaged homes, the
increase in interest rates has not been the major factor in delaying
home construction. Mortgage interest rates were higher in 1955 than
in any prior recent year; yet new nonfarm housing starts were the
second highest in history, at more than 1,300,000.
Almost 5 m illio n new dwelling units have been built in the putt
4 years. Less than 3# million new households have been formed in
that period, so that 1%million units have gone to satisfy prior shortages
34
FINANCIAL CONDmON OF VBM tJHlTID 0TATS8
and to cover housesabandonedorrowd to make way for new construe*
tion. The proportion of married couples without their own household
has declined 21 percent since 1952.
m
A Strong desire continues to exist for better housing, but it is
is hindered from becoming an effective demand by today’s inflated
prices. To attempt to force an acceleration in home construction
todav by lrmlnng more credit available for housing would add further
to the already increased building costs.
This would not only be inflationary, it would encourage uneconomic
practices and curtail the new construction that we might otherwise
expect in years to come.
The foregoing review of the effects of this administration’s fiscal
poUcies indicates that the supply of credit has not been reduced.
The supply of credit has merely been prevented from expanding as
rapidly as the demand therefor.
This slowing of the rate of growth of credit has inconvenienced those
who have found credit unavailable, and imposed a higher charge on
those who have borrowed. These results are hardly welcomed for
their own sake, but they are the price we have to pay for the price
stability that we have achieved in the past 4 years.
This has been a far greater stability in prices and in the purchasing
power of the dollar than we have enjoyed for two decades. Faced
with this choice between the inconvenience of limited credit and the
robbery of renewed inflation, our people would certainly choose the
course which we have pursued for the past 4 years.
In conclusion, I have attempted to review for you the conditions
existing when the Eisenhower administration took office, the goals
that the President set for us, and our progress toward those goals.
We have not achieved perfection by a long way. We have been
unable to fully accomplish some of our debt-management objectives.
We have perhaps checked, but not entirely stopped, inflationary
pressures.
In the process, some of our citizens, some of our municipalities,
and some of our businesses have been unable to obtain all of the credit
they would have liked.
We have had a large measure of success in encouraging the initiative
of our citizens, but not every business has prospered as much as it
might, nor every citizen had all of the comforts he would enjoy.
1 acknowledge imperfections in our accomplishments, but I enter
tain no doubt as to the propriety of our goals or the wisdom of our
policies. To aid you in your consideration of the alternative courses,
and to help you measure their promises against the actual results of
the past 4 years, let me remind you of some of our achievements.
When we took office in 1953, the Federal debt was equal to 89
percent of our national income—in December 1956, it was 79 percent,
as compared with 89.
For the fiscal year 1953, budget expenditures were $74.3 billion;
and, for the year 1957, they are estimated at $68.9 billion, and $71.8
billion for 1958.
For the fiscal year 1953, the budget resulted in a deficit of $9.4
billion—for 1957, it will result in a surplus.
From 1939 through 1952, the cost oi living increased an average of
7 percent a year—for the past 4 years, the average increase has been
only six-tenths of 1 percent.
FINANCIAL CONDITION OF THE UNITED STATES
35
In the past 4 years, civilian employment has risen 6 percent,
average weekly earnings of production workers in manufacturing have
risen 18 percent and, after allowance for the 2.4-percent increase in
consumer prices which occurred between 1952 and 1956, the gain in
workers7 earnings, after taxes, amounted to about $10 per week, or
more than 15 percent in real purchasing power gained during the
period.
Personal income of individuals has risen every year, from $272
billion in 1952 to $325 billion in 1956, a gain of 20 percent, and an
estimated $340 billion for 1957.
Labor income has not only risen in dollars; it has increased from
67.2 percent of national income in 1952 to 69.8 percent in 1956, while
corporate profits declined from 12.7 percent of national income to
11.9 percent.
Striking achievements have been made in housing. The 5 million
dwelling units that were constructed exceeded the number built in
any previous 4-year period, and substantially enlarged the housing
stock available to the American people.
There were improvements in the size, design, and equipment of new
homes, and sizable outlays for repairs and alterations added to the
comfort and convenience of existing homes. A growing proportion of
our homes were owner occupied—60 percent in 1956, as compared with
55 percent in 1950.
This is a gratifying record of the improvement in the level of living
that can be achieved only through a vigorous, competitive, free-market
economic system which offers both individual freedom of choice and
the stimulation of initiative through personal incentive.
In particular, it shows the capacity of such a system to bring about
confidence and daring in enterprise and widespread participation in
the benefits of economic expansion. This is in sharp contrast to the
artificial restrictions, interferences, and controls of a paternalistic
bureaucracy.
The past 4 years have demonstrated the ability of the Nation's
private economy to expand, to provide an increasing number of better
jobs at better pay, and to raise levels of living.
These 4 years have tested the capacity of our economy to adjust to
large changes in the pattern of demand and the effectiveness of public
policies designed to promote growth of individual freedom and
stability in the economy.
Because the problems are continually changing in a dynamic econ
omy, policies aimed at promoting stable growth must be flexible.
This fact was well illustrated in the past 4 years of the Eisenhower
administration. Our problems have shifted from those of a con
trolled, wartime economy to those of a rapidly widening prosperity.
We have been able to encourage this prosperity.
Through the flexibility of monetary and fiscal policies, the Govern
ment has been able to adjust to the rapid changes in our economy.
We have moved forward toward our goals and demonstrated the great
capacity of a free economy to correct imbalance and to maintain
growth with a high degree of stability.
We have accommodated the reduction in wartime Government
mending, accompanied by recordbreakmg tax reduction, and offset a
threatened decline in employment and business activity in 1953-54.
36
FINANCIAL CONDITION OF THE UNITED STATES
We have encouraged an expansion of enterprise to new high levels,
and, through expenditure and debt reductions as well as debt manage
ment, we have slowed the growth of inflationary credit.
We have encouraged a rapidly rising economy which has brought
more wealth, more purchasing power, more comfort, more jobs, more
homes, more luxuries, more leisure, more education, and more security
to our people than they have ever enjoyed before.
Gentlemen, I take great pride in making this report.
The Chairman. Mr. Secretary, the committee thanks you very
much for your statement.
The committee will recess until 10 o'clock tomorrow morning, when
Mr. Humphrey will be available for questions by the committee.
(Whereupon, at 12:30 p. in., the committee recessed, to reconvene
at 10 a. m.t Wednesday, June 19, 1957.)
INVESTIGATION OF THE FINANCIAL CONDITION OP
THE UNITED STATES
W EDNESDAY, JUNE 19, 1957
U nited S tates S enate ,
C ommittee on F in ance ,
Washington, D. C.
The committee met, pursuant to recess, at 10:00 a. m., in room 312,
Senate Office Building, Senator Harry Flood Byrd (chairman) pre
siding.
Present: Senators Byrd (chairman), Kerr, Frear, Long, Smathers,
Gore, Martin, Williams, Flanders, Malone, Carlson, Bennett, and
Jenner.
Also present: Elizabeth B. Springer, chief clerk; and Samuel D.
Mcllwain, special counsel.
The C hairm an . The committee will come to order.
Mr. Secretary, I have a few questions that I would like to ask you.
Your statement of yesterday will be of great current and historical
value, but I want to discuss certain of your statements which were
not clear to me.
You said on page 34 of your prepared statement, that the adminis
tration had reduced the public debt. Treasury statements show on
January 15, 1953, when the present Republican administration came
in, the public debt was $266.7 billion; and on June 30, the end of that
fiscal year, 1953, the debt was $265.5 billion. The debt is now
$274.2. billion. That is a substantial increase of about 9 billions.
Would you please explain that?
STATEMENT OF HON. GEORGE M. HUMPHREY, SECRETARY OF THE
TREASURY—Resumed
Secretary H um phrey . Well, Mr. Chairman, the difference comes
about through the inherited obligations that we took over which had
to be paid when we came in. I just deducted those inherited obliga
tions as matters that were already contracted, bills that were a part
of the debt.
The C h a i r m a n . What inherited obligations were they?
Secretary H u m p h r e y . Well, as a matter of fact, there were about
$80 billion of total outstanding, and there was a projected deficit of
about 9 as I recall it, $9.9 billion, which was estimated for fiscal
1954, which grew mostly out of bills that we had to pay during the
first part of the administration.
The C h a i r m a n . You know, Mr. Humphrey, that we run our affairs
on a cash-in and cash-out basis. As of the end of the fiscal year we
balance the books, making no allowance for the income tnat has
accrued or for expenditures to be paid out.
37
38
FINANCIAL CONDITION OF THE UNITED STATES
If the system of bookkeeping you are suggesting is to be adopted,
there should be another column for the income which, as of that date,
had accrued to the Government but had not spent.
Secretary H u m p h r e y . Well, that is right. And it would work that
way, if we did it that way.
.
The C h a i r m a n . But followed to its completion it may not work m a
way to show a reduction in the debt.
Secretary H u m p h r e y . Well, I think it would.
You see, we have all sorts of complications infiguring it, because you
have, and vou had at that time, a considerably greater collection
of income in the first half of the year than—you see, at that time,
under the Mills plan^you had a large part of your income collected in
the first 6 months, lliat would be an overaccrual for the year.
The C h a i r m a n . Why did you institute a new method of book
keeping in vour calculation of the debt? It is completely new to
Government procedure.
Secretary H u m p h r e y . We did not change the books. I was trying
to show here, as nearly as I could, what had actually occurred.
The C hairman. You did not conform to the Treasury daily statement?
Secretary H u m p h r e y . No.
The C h a i r m a n . The daily statement shows the true debt as of t h e
date.
Secretary H u m p h r e y . No. I think the figures you have given are
the correct figures for the daily statements.
The daily statements; I wifi read them beginning with the end of
1951, 267.4; 1952, 275.2; 1953, 278.8; 1955, 208.8. And then down to
276.7 at the end of 1956.
And these figures in this statement are mostly made up for the end
of the fiscal year 1956, and there was a reduction, you see, not from
the beginning, but a reduction during the period. The debt was
going down at the end of the period.
The C h a i r m a n . You have increased the Federal debt under terms
used in recording it for years. In fact the debt has been increased by
$9 billion since tne Republican Party took over.
If you want to take obligations that have accrued, you should start
with June 30, 1953, and make the comparison with the situation as
of todav. But from your prepared statement, one would think you
were talking about the Federal debt in its officially recorded terms.
Secretary H u m p h r e y . Well, we can d o that, and I can have that
figured for you.
But just on the face of it, you see, the debt is going down from the
high even during our period. The high----The C h a i r m a n . It is not going down----Secretary H u m p h r e y . The high during our period was 280.8, and
it is now, at the end of the period under discussion here, it was 276.7,
which is a reduction of about $4.1 billion in those particular figures on
those particular days.
Actually, the only reduction in the debt that has taken place during
our administration has got to be the surplus that we had last year,
when we balanced the budget. We had $1.6 billion of surplus. Now,
that was a definite reduction in the debt.
The C h a i r m a n . You said the high in your period was $280.8 billion.
It may not have been intentional, but do you not think your state
ment on the debt might be misleading?
FINANCIAL CONDITION OF THE UNITED STATES
39
Secretary H u m p h r e y . We reduced it last year $ 1 .6 billion, there
is no question about that.
The C h a i r m a n . This was your prepared statement of yesterday:
Let me review again what the administration has done to fight inflation.
Secretary H u m p h r e y . That is right.
The C h a i r m a n . Then you said:
We have reduced the Government debt.
You were referring to the period of this administration; were you
not?
Secretary H u m p h r e y . Well, not necessarily. I think a trend i n
debt reduction is a very healthy anti-inflationary measure— and last
year it was $ 1.6 billion just in a single year— and I think that is a
very healthy move toward the reduction of inflationary pressures.
The C h a i r m a n . Y o u are saying today that you did not mean you
had reduced the Government debt-----Secretary H u m p h r e y . Not over the whole-----The C h a i r m a n (continuing). Under its level as of the time you
came in?
Secretary H u m p h r e y . Not over the whole period.
T h e C h a i r m a n . W o u l d n o t t h i s s t a t e m e n t , w i t h o u t t h is e x p l a n a
t i o n , i n d i c a t e t o a p e r s o n r e a d i n g i t — i t c e r t a i n l y d i d t o m e --------Secretary H u m p h r e y . Well, if it does, it should be corrected to say,
which is beyond any question of doubt at all, in the past year. And I
will be very glad to make that amendment to it if that will clear it up
here.
The C h a i r m a n . The facts are clear. During this Republican ad
ministration the debt has increased $9 billion.
Inflation has not been reduced in the past year. In fact, it started
again in the past year.
Secretary H u m p h r e y . That is right, and that is why this trend-----The C h a i r m a n . Y o u reduced the debt last year only, but it has
had no effect, apparently, on the new inflation which has occurred.
Secretary H u m p h r e y . That is w h y it w a s particularly useful to
have it in the past year.
The C h a i r m a n , b u t you meant that you have reduced the Federal
debt only in the past year, then?
Secretary H u m p h r e y . A billion six in the past year.
The C h a i r m a n . And I respectfully suggest that we should not try
here to change the Government's long-standing method of bookkeep
ing to take in the accrued liabilities and the accrued income. That
would be a very complex operation.
We have been operating this Government, as you and I know on
a cash-in and cash-out basis with a balance taken at the end of each
fiscal year, and I would like the record clearly to show that your
statement of yesterday does not mean that the public debt has D e e n
reduced during the period of this administration.
Secretary H u m p h r e y . N ot been reduced, you mean.
The C h a i r m a n . It has not been reduced.
Secretary H u m p h r e y . That is right.
The C h a i r m a n . On the contrary, there has been an increase of
$9 billion b y the orthodox methods of showing the debt.
Secretary H u m p h r e y . That i s correct.
40
financial
m
The C h a i r m a n . I s there any doabt about that?
Secretary H u m p h r e y . That is correct.
The C h a i r m a n . Another question— —
Secretary H u m p h r e y . The only real reduction during that period,
on the orthodox system, is $ 1 .6 billion last year.
The C h a i r m a n . Another question; You said that t h e administra
tion had reduced the Government expenditures. What did you mean
by that? You certainly did not have reference to the last budget,
did vou?
Secretary H u m p h r e y . Well, even the last budget is below the
expenditure of the vear we came in. The highest expenditure that we
have had in the time that we have been here was the $74.3 billion which
was spent in fiscal 1953, which was the finishing of the expenditures
of the past Administration.
The next highest is the $71.8 billion which is the budget projected
for next year.
The C hairman. When you came in----Secretary H umphrey. But if you compare the spending in the first
year that we were here, and the spending in the last full year, which is
1956, is down almost $8 billion.
The C hairman. Do you not think that some consideration should
be given to the fact that when you came in, in January 1953, we were
engaged in the Korean war, which did not end until June 1953, the
end of that fiscal year?
Now, you are comparing a peacetime budget with a war budget.
Secretary H u m p h r e y . Well, Mr. Chairman, I do not think it is
fair to talk about a wartime budget and a peacetime budget in com
paring the period of the Korean war and comparing the present.
The Korean war was characterized as a police action during all of
the time that it was being carried forward. It was a bitter war for
those who were engaged in it, but it was not a major war from the
point of view of comparison with world wars.
We are carrying on and are obligated to carry on, and believe that
it is necessary and desirable for the protection of this country to carry
on, a security program and military programs today with items of
military equipment which are so much more costly than they were
even in the Korean war that there is no comparison, and I just do not
believe it is fair to say that one period was war and one was just
peace.
The C h a i r m a n . What do you estimate the Korean war cost?
Secretary H u m p h r e y . I d o not have those figures, Mr. Chairman.
I could try to get them, but I do not have them.
The C h a i r m a n . In m y spending comparisons I am including the
$1.8 billion transferred to the highway trust fund.
Secretary H u m p h r e y . Yes, sir.
T h e C h a i r m a n . I a m adding that $1.8 billion, to the $71.8 billion
budget expenditure estimate for fiscal year 1958 because in most prior
y e a r s road expenditures were in the regular budget figures. In
cluding roads the President's expenditure budget, assuming it is
e n a c t e d , would be $73.8 billon as compared----Secretary H u m p h r e y . $73.6.
The C h a i r m a n . You are right, $73.6 billion, a s compared to the
Korean war budget of $72.9 billion.
FINANCIAL CONDITION OF THE UNITED STATES
41
Secretary H u m p h r e y . Well, the 1953 budget was $ 7 4 .3 , so it is
still higher.
The C h a i r m a n . The 1953 budget?
Secretary H u m p h r e y . Expenditures.
The C h a i r m a n . I wish you would check that again.
Secretary H u m p h r e y . Is that not correct? $74 billion.
The C h a i r m a n . I have $73.9 billion—$72.9 billion. You are right.
I was looking at the column for appropriations instead of expenditures.
Secretary H u m p h r e y . The actual round figure is $74.3 billion.
The C h a i r m a n . Then, assuming adoption of the President's
budget, you will spend in 1958 approximately what was spent during
the last year of the Korean war; is that correct?
Secretary H u m p h r e y . It will be about a billion dollars less, $600
million less.
The C h a i r m a n . $600 million less. All right. But, I have added
in only the road figure at this point. For completely accurate comarison with 1953 we should include also the 1958 Federal National
fortgage Association expenditures and the postal deficit. These
would raise the 1958 expenditure estimate to $74.7 billion.^ But,
since we have started by including only road expenditures, let it stay
on that basis for the time being.
S
Federal budget*— appropriations and expenditures, fiscal years 1953 to 1958t inclusive
(In billions oi dollar*)
Appropriations
Truman
C»U«orte«
Eipendituree
Truman
Ktaanboim
Kiaenhowar
1963
(1964)
1964
1966
1906
1967
1966
1968
0*54)
19A4
1956
1966
1967
National security:
Military function*...............................................................
Stockpiling and defense production..................................
Atomic energy........................................................ .........
>48.8
.2
4.1
(*41.3)
(.2)
(2.0)
834.6
•30.8
.4
1.3
833.2
.6
1.2
$36.4
1.1
2.0
0 6 .6
.1
2.5
643.6
1.0
1.8
(646.4)
C9)
( 1 7)
$40.3
1.0
1.9
$35.5
.9
1.9
$36.8
.6
1.7
$36.0
.4
1.9
$810
.4
IS
(43.6)
36.7
3X5
34.9
38.3
41.1
46.4
(49.0)
43.3
38.3
38.0
38.4
417
im
Subtotal, national aecurlty................................... - ........
63.1
Foreign aid:
Military assistance..............................................................
Economic aid........................................................................
4.2
1.9
8
3.8
1.1
1.2
2.1
1.0
1.9
2.0
1.9
2.4
11
4.0
2.0
si
3.0
1.6
13
2.0
2.6
1.6
2.6
11
16
11
Subtotal, foreign aid.............................. ........... - ............
International affairs..................................................................
6.2
.2
(7.7)
(.3)
4.8
.2
3.3
.2
2.9
.2
3.9
.3
4.6
.4
5.9
.3
'!:!!
ft.1
4.3
.2
4.7
.4
36.0
38.0
42.6
46.1
52.6
(66.9)
4.2
.2
42.6
17
.3
40.7
.2
48.6
4.3
Total, other than domestic-civilian________ ________
59 5
(51.5)
Domestic-civilian:
Veterans services and benefits................................. ..........
Labor and welfare........................................... ........ ............
Agriculture and agricultural resources............ ........ ........
Natural resources....... ..........................................................
Commerce and housing......... ................................ ...........
Qeneral government............................................................
Interest on the debt.............................................................
Allowance for contingencies.................................. ...........
4.1
2.5
1.3
1.4
3.5
1.3
6.6
(3.0)
(1.5)
(1.5)
(2.8)
1.5)
(6.4)
4.3
2.5
4.0
1.2
2.6
1.0
6.5
4.4
2.6
2.7
1.0
2.9
1.1
6.4
4.8
2.9
3.3
1.2
4.5
1.6
6.8
4.9
3.2
5.1
1.4
4.0
1.9
7.3
.2
5.0
3.8
4.8
1.6
2.8
1.4
7.4
.5
4.3
2.4
2.9
1.5
2.5
1.5
6.6
(4.6)
Total, domestic-civilian..................................................
20.8
(21.3)
22.0
21.1
25.2
27.9
27.3
21.7
Grand total, budget..........................................................
80.2
~ (72. 9)
62.8
577l
63.2
70.5
7&X
74.3
2.6
2.9
Items not budgeted:
Trust funds:
Highways........................................................................
F N M A ...........................................................................
Postal-rate increase..............................................................
Increases to domestic-civilian and grand budget
totals................................................................................
» Not split.
.6
2.6
3.5
(3.1)
(1.8)
(1.4)
(2.8)
(1.5)
(6.4)
2.5
2.6
1.3
.8
42.8
4.5
2.6
4.4
4 11
4.8
2.8
4.9
4.9
10
4.7
1.4
10
16
10
1.6
1.7
1.6
1.2
6.5
1.2
1.5
1.2
6.4
(21.7)
19.1
21.8
24.1
25.6
910
(78.6)
67.8
64 6
66.5
68.9
71.8
.1
1.2
.3
1.8
.6
.6
.1
1.6
10
1.1
2.0
1.6
6.8
13
1.9
7.3
.2
N otk.—Figures are rounded and In aome instances will not add precisely to total*.
T:J
48
FINANCIAL CONDITION OF THE UNITED STACKS
pressure on the Congress b y people in counties which hare nofc been
chosen for one of these great, improved, fine school buildings.
So when you speak of the Congress doing these things, I think we
ought to make it dear that, while I do not have a list o f them, quite
a few of these expenditure programs have been advocated and pres
sured by the administration.
D o you think I am correct about that, or not?
Secretary H umphrey. Well, we tried to state facts here with
respect to financial demands and financial requirements, and we were
not in any way attempting to point the finger at anybody with
respect to them.
The C h a i r m a n . Well, you are not pointing the finger at anybody
except that you repeated in your statement the assertion that much
of the expenditure increase results from new programs authorized by
Congress.
Secretary H umphrey. I do not think I quite said it was necessary
to do that for that reason. What I said was, Congress had passed the
law which required these expenditurees, which is the fact, Mr. Chair
man. We cannot spend the money until Congress does pass the law,
and I was simply stating a fact, tnat Congress had authorized these
expenditures.
The C h a i r m a n . But does that, Mr. Secretary, account for a differ
ence of $ 9 billion or more between fiscal 1 9 6 5 and the present budget?
Secretary H u m p h r e y . The i t e m s t h a t I l i s t e d d o a c c o u n t f o r t h a t
w h o l e d i f f e r e n c e , I t h in k .
The C h a i r m a n . Nine billion?
Secretary H u m p h r e y . For the whole 9 billion; yes.
The C h a i r m a n . Well, we do not spend that—■—
Secretary H u m p h r e y . It is the increase in programs,
the changes in
programs, the increase in pay that has been granted, the increase in
service that is demanded, and the increase in population that re
quires greater service by the departments.
The C h a i r m a n . Is the public demanding these new services now?
I have been over the country, and I find, especially after the state
ment you made a short time back, there is a tremendous sentiment
everywhere for reduction in Federal spending.
Secretary H u m p h r e y . Well, Senator, that raises one of the ques
tions, which I think are very serious that confront the country. There
is a great undercurrent in this country of almost revoke against
expenditures for everybody but themselves.
Each person is for economy and talkes about less Government
spending for everything except the project that fits him. As to the
project that fits him, he is down here in the Halls of Congress and in
your offices, demanding your votes and demanding your help in
getting money for his pet project; and at the same time he goes right
after lunch to a meeting m tne chamber of commerce or NAM and
votes to cut Government expenditures.
And by that illustration I do not mean just businessmen. It is
everybody. It is schoolteachers, it is unions, it is businessmen, it is
all kinds of people everywhere. It is localities.
And whether in this country this feeling of desire for economy is
going to reach the place where people are wSling to economize on their
own account as well as have tne other fellow do all the economizing,
I do not know. But I certainly hope that it does, and I hope that we
FINANCIAL CONDITION OF THE UNITED STATES
49
reach the time when the American citizens are going to say, “ I will
take a little less for myself, provided everybody else does, aiid we get
some o f this down.”
But until that time comes, you are going to have great cries for
economy and less Government spending “ for everybody but me, and
I am going to be here demanding that you do more for m# and less
for everybody else.”
The C hairman. Mr. Secretary, I want to respectfully and em
phatically disagree with you on that, because I have attended as
many of these meetings as anyone. Back in January, 500 leading
businessmen of the country came to Washington for an emergency
meeting. Their only purpose was to urge that the budget be cut.
They said nothing about not cutting this and not cutting that. They
wanted the budget cut.
And another delegation, as I recall, came from Illinois, 50 of them,
and stayed here for 10 days, going around to Congressmen and Senators
urging them to cut the budget.
Now, I think that situation you described did exist at one time.
But I think there has been a tremendous change of sentiment; that
the people realize if we keep this up we are going over the precipice
of financial disaster, and I think you indicated something to that
effect.
There is no doubt about the fact; they arc in favor of economy, and
Congress is trying to practice economy. But the administration is
the obstacle and, as you know, the administration can destroy the
effort. It can use unexpended balances to replace reductions in
appropriations.
Secretary H umphrey. I am sure, Mr. Chairman, that nobody can
feel I am not an advocate of economy.
The Chairman. I know that; I know that your opinion is an im
partial one; I am trying to learn why the President has found it n e c e s
sary to add $9 billion or more to his budget since 1955 most of which
is in domestic civilian expenditures and not in the military expendi
tures.
Furthermore, I am concerned over the fact that the President is
asking now for new spending programs which, if once started, will
grow and grow throughout the years.
I regard this present fight by Congress to cut the budget as being
one o f tremendous consequences, beeause if this huge budget is ap
proved, we will be committed indefinitely to high spending and high
taxes, until some recession comes; and then the situation will be
serious.
I think you recognize these dangers probably much more than I do.
Y ou are a man of great competence and capacity along these lines.
Let the record m ow the official budget expenditure figures—actual
lo r fiscal year 1955, and estimated for fiscal year 1958.Expenditures for military functions in 1955 totaled $35.5 billion.
T he estimate for 1958 is $38.0 billion, an increase of $2.5 billion.
Expenditures for other national-securitv items in 1955 totaled $2.8
billion. The estimate for 1958 is $2.7 billion, a reduction of $0.1
billion.
Expenditures for foreign aid in 1955 totaled $4.3 billion. The esti
mate for 1958 is $4.7 billion, an increase of $0.4 billion.
50
FINANCIAL C0WP1WQN OF TH* TOflffBD 8TATBS
Expenditures for international affairs in 1956 totaled $0.2 billion.
The estimate for 1958 is $0.4 billion, an increase of $0.2 billion.
Expenditures for domestic-civilian programs in 1955 totaled $21.8
billion. The estimate for 1958 is $28.9 billion, an increase of $7.1
billion. Figures for both years include expenditures for roads,
Federal National Mortgage Association, and postal deficit.
From these figures it wul be seen that as between 1955 and the 1958
estimates there are increases as follows:
Billion
$2. 5
.4
.2
7.1
Against this total of $10.2 billion, there is a reduction of $0.1 billion
in other national-security items, making a net increase of $10.1 billion.
The 1958 budget proposes postal rate increases to eliminate the
$0.6 billion postal deficit. For this reason, and to use a conservative
round figure, I am contending that there is an increase between 1955
and 1958 of at least more than $9 billion, and that the increase in
domestic-civilian items is at least more than $6 billion. (See table 2,
Military functions..
Foreign aid..............
International affaire.
Domestic-civilian. . _
p . 42.)
I did not want to take this interrogation so far afield, but I think
we must meet these questions. I was influenced by the fact that the
blame is being put on Congress for all of these things, when Congress
this year has snownevery indication of wanting to reduce expenditures.
On the other hand the administration has brought the most enormous
pressure to prevent the reduction of expenditures, at least in sub
stantial areas, as you know.
I have made some examination of the record, and I think it will
show that never in the history of this country has Congress reduced
the budget to the extent it has this year in the face of strong opposition
by the President of the United States.
We will pass from that subject.
I would like, if possible, for you to show or have your assistants
show the particular programs which necessitated the increase of $9
billion or more between 1955 and 1958. It may be furnished for the
record.
Secretary H umphrey. I think we can show where the differences
took place.
(The information referred to with related comments by the chairman
subsequently submitted follow:)
FINANCIAL CONDITION OF THE UNITED STATES
51
Budget expenditures, fiscal years 1955 and 1958
[In millions]
Estimated,
Change, 1958
Actual, 1955 1958 (January compared
with 1955
budget)
M ilitary:
Defense Departmont (military).. ,..
Mutual militaryassistant*
,.. ,
J
Subtotal, m ilit a r y .........................................................................
Nonm ilitary:
Agriculture Department:
Commodity Credit Corporation *.........................................
Soil-bank program................................................. ....................
Other_________________ _________ ______ _________________
A tom ic Energy C om m ission .......................................................
Commerce Department_______________ ____ _____ ______ _____
M utual security (other than military assistance)__________
Export-import B ank............... .........................................................
Health, Education, and Welfare D ep a rtm en t____________
General Services Administration___________________________
Federal National Mortgage Association.___________________
Postal deficiency___________________________________________
Veterans’ Administration.................................................... ............
Interest on public debt _______ _____ ______________________
A ll other...... ............................. ............................................. ................
$35,532
2,292
37,824
3,414
$38,000
2,600
+$2,468
+308
40.600 ______ +2,770
1,223
1,857
>495
1,928
—101
1,993
973
237
356
4,405
6,370
3,001
2,201
1,253
1,876
2,340
772
1,756
243
^831
654
140
58
5,068
7,300
4,715
Subtotal, nonmilitary__ _____ ________ ______________ ______
*26,151
31,207
+5,056
T otal............................................................................................. ........
*63,976
71,807
+ 7 ,8 3 2
-1 ,2 1 3
+1,253
+653
+483
+277
— 172
+344
+838
—319
—97
—296
+663
+930
* +1,714
1 Includes reimbursements to C C C .
1 For comparative purposes excludes $505,000,000 for Federal-aid highway program.
> Accounted for mainly by net receipts in 1955 exceeding those for 1958 by $440,000,000 for R F C and
Federal Facilities Corporation, inclusion of a large part of the increased Government payment of $536,000,000 in 1958 to civil-servioe retirement fund, and allowance for undistributed contingencies in 1968 of
$400,000,000.
Chairman's comments.—It should be noted that $595 million in highway
expenditures has been deducted from the 1955 total in the table above. Witn
this figure included, the 1955 total was, as recorded by the budget, $64.6 billion.
When the $ 1.8 billion highway expenditure estimated is added to the 1958 esti
mate, the total is $73.6 billion, an increase of $9 billion, instead of $7.8 billion as
shown in the table.
The
C
h a ir m a n
.
Next I wish to take up inflation.
Secretary H u m p h r e y . Let me just get clear, “these 2 years.” We
can do that-----The C h a i r m a n . It is fiscal 1955 compared to fiscal 1958.
Secretary
H
um phrey.
The proposed new budget.
The C h a i r m a n . Expenditures in 1955 totaled $64.6 billion. The
1958 budget was submitted in January 1957. I want someone in
authority to advise the committee what happened in those 2 years
between to raise the expenditure estimate for 1958 by $9 billion, or
more.
Secretary H u m p h r e y . W e will try our best to show you just where
this is.
The C h a i r m a n . N o w , the next thing I want to talk about is
inflation.
It was indicated by your statement that inflation had been practi
cally stopped by the present administration; is that a correct interpre
tation?
Secretary H u m p h r e y . N o; I do not think so. It had been retarded.
The C h a i r m a n . You stated it was an anti-inflationary program.
52
FINANCIAL CONDITION OF THE UNITED STATES
Secretary H ummuucy. I think you are referring to the following;
p&ragr&ph in my prepared statement:
The past 4 years have been characterised bv greater price stability than any
other 4-vear period since 1939. But inflation is not stopped. It is only slowed
down. Indeed there has been a disturbing renewal of pressures in the last 12
months, during which the dollar has lost almost 2 cents in purchasing power.
Is that the thiug y o u were referring t o ?
The C h a i r m a n . Y o u say it practically stopped
fo r 4
years, that is,
1953 1954 1955___
Secretary Humphrey. We went 4 years with a loss of 0.8 of 1 cent.
Then we took a jump, and we have lost over 2 cents in a relatively
short period.
The C h a i r m a n . In other words, it was practically stabilized.
Secretary H u m p h r e y . It was very steady. It moved up and down
a little, but it was very steady for about 4 years, and during the last
several months it has----The C h a i r m a n . What coocerns me, is the fact that in the past year,
fromApril 1956 to April 1957, there was a loss of 2 cents.
Secretary H u m p h r e y . A loss of what?
The C h a i r m a n . A loss of 2 cents.
Secretary H u m p h r e y . That is right.
The C h a i r m a n . From April of 1956 to April of 1957.
Secretary
H
um phrey.
That is right.
That is what
I
say here.
The C h a i r m a n . Now, that inflation is still continuing, of course.
These figures are up to April.
Secretary H u m p h r e y . That is correct. More pressure, that is
correct.
The C h a i r m a n . Why do you think, that after a practically stabi
lized dollar for 4 years, another period of inflation has started which
may continue for a long time?
Secretary H u m p h r e y . Well, I do not know whether it will continue
or not , of course. I think the main thing that lias started this move
ment forward again has been the increasing prosperity and the increas
ing demands that have occurred in the country.
These inflationary pressures grow in direct relation to the degree of
prosperity in the country, and the fuller the employment, the greater
the demand for goods; the more money there is to spend, the more
pressure there is on prices and on demand for all sorts of tilings. And
we have been in the last 12 months under very high pressure and very
high demand and very high employment.
So that vou have had ail the forces at work that move toward
inflation. Vou have had high spending all along the line, including
the Government spending. Ana about the only pressures you have
had to the contrary have been the monetary pressures which have
been exercised, leaning against the wind to try to restrain the effect
of these pressures in the other direction. And they haven’t quite
done it.
The C h a i r m a n . W h a t d o y o u t h in k w ill b e d o n e o r c a n b e d o n e t o
s t o p th is c r e e p in g in fla t io n ?
Secretary H u m p h r e y . I
think the pressures that we now have
against the creeping inflation—or, if not creeping, a moving inflation—
work slowly. There is a lag in their operation.
I think they will gradually become more effective. I think, too,
that these things go in waves. I think some of the expenditures,
pressures for expenditures, may be relaxed somewhat.
FINANCIAL CONDITION OF THE UNITED STATES
53
I think that as those pressures for expenditures relax, both in
industry where there is very heavy pressure, and in municipalities
and governmental subdivisions, and the Government itself, the
Federal Government itself, some relaxing of expenditures all along the
line would immediately help to ameliorate the situation.
The C hairman. H ad this new inflation started when the 1958
budget was prepared?
Secretary H umphrey. It was just about the same time.
T he C hairman. Notwithstanding that fact, the President brought
in budget expenditures of $5 billion more than the previous year.
Is that a wise thing to do, or not?
Secretary H umphrey. Well, it was not five, was it?
The C hairman. I should have said $3.5 billion, including roads.
Secretary H umphrey. Y ou are putting in your road money, putting
in the road money, I mean, too?
The C hairman. It is $3.5 billion.
Secretary H umphrey. Of course, there is a lot— again, Mr. Chair
man, you have to relate this, if you are going to put in the roads,
you have to relate it to road expenditures and not just to what is
set aside in the trust fund for the roads, because it is the expenditure
that really causes the pressures.
The C hairman. Well, the expenditures are estimated at $1.8 bil
lion. T he amount received b y the trust fund at this time is larger.
Secretary H umphrey. That is a larger amount, and that is a
helpful------The C hairman. And the previous year, when the roads were put
in------Secretary H umphrey. That is a helpful anti-inflationary pressure,
you see. As you collect in more money than you spend out, it is
helpful to retard purchasing power to some extent, so that the road
program up to date is anti-inflationary rather than inflationary.
It m ay turn out to be the other way, but at the present time it is
not.
The C hairman. D o you regard Government spending as infla
tionary?
Secretary H umphrey. I do.
The C hairman. Has anything been done b y the Administration to
reduce that Government spending?
Secretary H umphrey. Well, M r. Chairman, I do not want to get
into an argument that sounds political. I want to make it and keep
it factual in every way that I can. [Laughter.]
The C hairman. I am nonpolitical, M r. Secretary.
Secretary H umphrey. W hat is that?
The C hairman. I am nonpolitical.
Secretary H umphrey. Well, I try to be.
I just want to say this: that there is nobody— I have worked with a
lo t o f people in m y life, in a lot of ventures of various kinds, and I have
never seen anybody more concerned, more thoughtful, who puts in
more time and effort than the President of the United States on this
budget, and who is more concerned about increasing Government
expenditures.
N ow , how y ou balance the services that the people ought to have,
that the people demand, how you balance what Congress may do
with respect to certain programs where they exceed the requests, how
54
FINANCIAL CONDITION OF THE UNITED STATES
you balance what you ask for, how you balance what is needed for
our security against a threatened attack, a threatened enemy, and it
is red, and the terrible expenditures that are required continually for
the security to save our lives, and how you balance all those things
out with an expenditure level for the whole Government that will
help to reduce and confine inflationary pressures and still, at the same
time, maintain us between inflation and deflation—because that is
where we want to try to be, where you are just balanced and can turn
either way, that is tne happiest situation that America could be in—
and how you balance that and maintain it is an extremely difficult
thing.
Now, in my experience, I have never seen anybody more dedi~
cated, more honestly attempting to arrive at a proper balance of those
factors than the President of the United States, nor anybody who
works harder at it.
The C h a i r m a n . D o you think it is the duty of the President of
the United States to yield to all requests for Federal expenditures?
Secretary H u m p h r e y . No, I do not.
Hie C h a i r m a n . You mentioned the fact these programs are being
demanded by the public. You say the public have not changed their
minds. I do not agree with that.
I have been over the country a good deal, and people have changed
their minds. That is reflected by what Congress has done to appro
priations.
Secretary H u m p h r e y . Well, I of course recognize, Mr. Chairman,
just as you do, that there is a great wave of public protest against
Government spending. But I still believe you are wrong, to a degree
at least, in the extent to which that Government spending protest has
reached to the person who is after something for himself.
There are just two groups of people who come to see me: One
group who want their taxes cut, and the other group who want money
for something. And your-----The C h a i r m a n . Could I ask you a personal question?
Secretary H u m p h r e y . Yes, sir.
The C h a i r m a n . How many letters did you get when you made
that statement on the Budget about “ curling the hair” ? How many
approving letters did you get?
Secretary H u m p h r e y . I got a great many.
The C h a i r m a n . That indicates, I think, that there is public
demand. It has been evidenced in every way. There have been
meetings all over the country. A number of Congressmen and
Senators have attended these meetings.
Secretary H u m p h r e y . Well, the fellow I am waiting for is the
fellow who will come to me and say, “ I asked for a waterpower project
or a flood-control project,” or some kind of farm subsidy or some kind
of a business subsidy or a ship subsidy, or something of that kind,
“ and I have been down here with a great crowd demanding action from
Congress. And I have turned around and I have gone to Congress
and said, ‘We ought not to have this/ ”
When I see that man, I am going to have a lot more confidence in
getting our expenditures cut down.
The C h a i r m a n . Y o u do not mean we ought to yield to organized
minorities, do you? [Laughter.] I thought the taxpaying people------
FINANCIAL CONDITION OF THE UNITED STATES
55
Secretary H umphrey. D id you say we ought to yield? I say we
ought not.
The C hairman. Y ou seem to be saying that if a group is organized
for a specific thing, it necessarily must have it.
Secretary H umphrey. Unfortunately------The C hairman. I think the taxpayers ought to be considered, too.
Secretary H umphrey. It is not, Mr. Chairman, that they ought to
have it. It is the unfortunate thing, M r. Chairman, that they so
often get it.
The C hairman. Is the President not strong enough to resist pres
sure of this kind?
Secretary H umphrey. This is largely congressional pressure, I
think. [Laughter.]
The C hairman. M r. Secretary, it has not been this time. The
Senate, for the first time in 25 years, has reduced the appropriations
bills below House figures. That has never been done before in the
25 years I have been here.
Secretary H umphrey. I think maybe it would be worth while, and
I will spend a few minutes trying to do it, to take a few of the bills
that have been passed, and just see how much they are either over or
under, the appropriations actually passed, are over or under the
requests.
The C hairman. W e may as well understand that, with $70 billion
o f unexpended balances, a great many o f the appropriation cuts we
are making will have no effect on 1958 expenditures.
Secretary H umphrey. W e do not have that much now, as you know.
W e are down to around 50.
The C hairman. I think the budget shows a total of $70 billion.
Secretary H umphrey. It is 46.3.
The C hairman. I am using the budget total of $70 billion, in all
expenditure authorizations, not appropriations alone. I shall insert
in the record table 7, 1958 Budget Document, pages A12 and A13,
which shows the total:
Balances available at start of year by typt and agency based on existing and proposed legislation
Description
1064actual
| Obligated
1957 estimate
1954 actual
Unobligated , Obligated
Unobligated
Obligated
; Unobligated
1958 estimate
Obligated
85
1959 estimate
Unobligated J Obligated
Unobligated
Appropriations enacted or recom
mended:
124 31,318,242,054 14,649,888,458 34,186,435,619 11,838,856,682 32,539,276,177
849,781
180,310,506
82,688,008
7,910,180,810
5,502,780
97,862,821
23,361,425
1,265,883
450,407
37,198,000
8,544,915,880
WtATBB
,
111,928,900
92,978,296
HJflSTO
Total balances of appro
priations enacted or rec
ommended............ 64, 741,030,634 13,668 766,377 31, 773,246,368 20,322, m
500,000
THB
2,000
$88,008
CONDnTON
$30,048,800
$16, 167, GOG
$7,258,851
$12, 252,344
$22,601,102
$7,906,354
$27,167,897
Legislative branch.............
$14,825,896
$772,378
2,262,309
2,274,641
1,936,109
2,261,599
The judiciary............
8,786
1,231,566
Executive Office of the Presi
96,409
549,123
204,092
664,999
89,157
762,118
735,037
dent.............. ...
666,256
35,000
Funds appropriated to the
President:
337,968,576 3,603,307,136
3,663,590,063
169. 482,000 1,789,724,136
48,424,162 3,376,344,452
Mutual security.......
910,358,366 2,151,260,618
16,152,033
9,587,464
23,796,638
9,653,546
13,195,232
10,424,908
Other................
18,741,045
Independent offices:
Atomic Energy Commis
755,331,370
II,130,217,597
975,534,675
375,810,475 1,291,350,150
58, 695,000 1,390,972; 818
sion................
99, 407,950
113.630,395
906,729,251
129,795,802
342,292,913
89,947,578
80,280,463
147,635,652 111,578,558
Veterans' Administration
129,118,636
101,075,960
181,223,892
[ 101,104,568
161,699,609
160,537,254 319,457,518
Other............... .
General Services Administra
333,582,982
497,077,428
408,067,599
458,900,162
246, 774, 464
146, 754,230
412,211,708
190,065,231
tion........... ...... . 1,425,198,183
Housing and H o m e Finance
984,000
646,822
2,370,794
57(5,691
15,250, 508
694,967
1,784,780
1,399,794
Agency... -...........
2,943,574
132, 734,154
355,075, 799
164,600, 289
140,877,308
310,008,354
253,624,627
Department of Agriculture...
155, 506,336
219,036,506
188,859,305
122,659,109
173,138,990
182,691,379
90,257, 763
159, 258,754
Department of Commerce—
24,600, 796
298, 607, 722
85,293,418
411,153,424
Department of Defense:
Military functions..... SO, 703,951,144 i,372,259,389 25,193,701,785 18,254,872,462 25,154,070,441 12,340,552,800 27,050,061,076 10, 568,355,683 26.738,218,183
240,994, 392
Civil functions....... .
138,664,046
112,315,953
37,1G0,840
146,697,474
212,716,647
56,451,027
104,021,356
260,474,220
Department of Health, Edu
cation, and Welfare.......
65,644,860
431,646,332
436, 518,003
101,606,353
699,300,278
454,380, 776
142,452,066
105,354, 729
665,720,688
Department of the Interior.-.
131,125,423
134,137,991
114,313,789
96,197,008
194,393,018
75,548,817
168,281,478
49,997,707
218,085,115
Department of Justice..... .
22, 505,257
302,942
14,405,829
244,901
23,992, 765
847,645
14,206, 739
300,000
20,790,073
Department of Labor..... .
2,396,029
5,277,786
4,383,691
3,218,552
8,046, 900
21,732, 553
37,754,
Department of State...... .
63,815,455
34, 4G5, 562
21, 536,404
18,503,622
14,225,302
29,020,517
81,012, 881
85,595,914
5,006,678
Treasury Department......
9,041, 796
*55,068,392
87,688,135
61,548,776
5,171,630
11,247,574
64,066,910
542,490
73,865,216
District of Columbia (gencal
fund)................ .
12,680,000
23,487,000
30,887,000
37,387,000
FINANCIAL
BALANCE!* O f PRIO R AU TH O RIZA
TIONS rO R K X P E N D fT l'R K S
tor
Uter trans-
The Judiciary ......... ..........
Fundi appropriate to the
President: Mutual security
Indepcnent offices:
Atomic Energy Com-
40,000
3, 439, 482,000
mtfrinn .. ..........
250,000
28, 474, 8 )2
243, 000
992.000
010.000
50, 000,000
868,000
40, 000, 000
1, 431, 431,242
7, 984,000
275, 000
529,468.758
330,000
321, 540
8W. 400
282, 077, 500
2, 500,000
5, 930
350.000
175.000
40, 000
137, 750,642
131, 873, 397 5, 420, 836, 317
20,000
64, 7 4 1 ,0 3 0 , 634
10,000,000
29, 500, 000
43,300,000
633,098, 758
13,668, 766,377 31, 773,246, 368 20, 322, 208, 124 31, 318, 242,054 14,649. 888, 458 34,324,186, 261 11, 970, 730,079 37, 960,112, 494 9,178,014,398
1,154,047,420
747, 251,060
920, 342,631 5,924, 366, 724
625, 801, 984
663,157, 571
841,414, 77“ 7, 549, 429, 523
366, 544, 680
745, 925, 833
332, 038, 383
340, 857, 381
837, 673, 730
798, 003, 139
812, 295,990 7, 593, 291,310 1,148, 942, 640 6, 523, 292, 660 1,274, 190,010 5, 581,059, 960
150,000,000
4, 597,089,010 15, 603, 468,012 4, 797, 816, 516 14, 765, 088, 238 4, 358, 583, 507 13, 893,107, 319 5,114, 215, 444; 13, 078, 090, 948: 5, 442, 666, 272 11.130, 834, 740
STA T ES
1, 373, 829, 670 3, 410, 667, 637 1, 384, 753, 540 2, 645, 627, 640 1, 124, 353. 971 3, 246, 070. 660 1, 507. 658, 690 2, 833. 968, 434 1, 844. 089, 494 1, 958, 637, 630
438, 337, 559
603, 004, 560 1,576, 115.816
1,144, 317,071 2, 586, 893, 303 1, 904. 190, 570 •1, 160, 829, 149 1,621, 216, 252 i 107, 635, 8: 1, 617, 352, 295
2, 345, 089 2, 786. 254,911
2, 588, 089 2, 785, 786.911
4. 300,058 2, 783, 399, 942
2, 714, 155 2, 820, 523, 845
4, 552, 212 2, 784, 289, 288
UNITED
465, 000
5, 000,000
34, 200,000
9!), 140, 000
THE
* Deduct.
20,000,000
OF
Total balances of author
isations to expend from
debt receipts. .................
200,000
78, 656, 575
CONDITION
Authorizations to expend from
debt receipts:
Funds appropriated to the
President____ _________
Independent offices: Other..
Housing and Home Finance
Agency......... -......... .
Department of Agriculture..
Treasury Department_____
Department of Defense, civil
functions.______________
138, 800,000
5,200,000
Total balances of appropri
ations for later transmis
sion...............................
Grand total, balances of
appropriations..............
850,000
1,108, 397
FINANCIAL
Veterans' Administration
Other..............................
General Services Administra
tion....................................
Housing and Home Finance
Agency____________ ____
Department of Agriculture...
Department of Commerce__
Department of Defense:
Military functions..........
Civil functions........... .
Department of Health, Edu
cation, and Welfare--------Department of the Interior..
Department of Justice.........
Department of Labor______
Department of State.. .........
Treasury Department.........
Balance* available a! start of year, by type and agency based on existing and proposed legislation Continued
1064 actual
1067 estimate
1066 actual
8
1959 estimate
1058 estimate
DeecrlpUou
Obligated
Unobligated I Obligated
Unobligated
Obligated
Unobligated
Obligated
Unobligated
Obligated
Unobligated
Authorizations to expend from
debt receipts for later trans
mission:
Independent offices: Other..
Housing and Home Fiance
Agency...................................
Department of Agriculture...
$8,000,000
Total balances of author
izations
to
expend
from debt receipts for
later transmission.............
8,000,000
$8,871,700
$26,128,300
$350,000,000
4
920,000,000
205,000,000
9,000,000
240,128,300
928,871,700
Grand total of balances of
authorizations to expend
from debt receipts............. $4,697,089,010 $15,603,468,012 $4, 797,816, 516 $14,765,088,238 $4,358, 583, 507 $13,893,107,319 5,122,215,444 13,428,090,948 5,682,794, 572
12,059,706,440
350,000,000
B A LAN C ES OP CONTRACT
A U T H O R IZA T IO N S
Legislative branch..........................
General Services Administration
H ousing and H om e F inance
Agency— ......... .........................
Department of Agriculture...........
Department of Commerce............
Department of Defense—Military
functions....................................
Department of Health, Educa
tion, and Welfare . .................. .
Department of the Interior......... .
Contract authorizations for later
transmission:
Housing and Home Finance
Agency.............. ................... .
Total balances ol contract
authorizations...............
21,185,664
85,000,000
4,200,000
25.246.000
19.500.000
11,980,338
70, 392,143
321, 607,857
96, 757,682
923,874,303
136,177,388
22,200,000
1,600,000
774,195, 571 1,013'377,381
14,603,325
128,654,154
2,640,131
10,040,205
102,637,695
280,000
88,496,675
497.449,383
85, 550,617
336,242,318
24.000.000
48,000,000
872,744,332 1,190,374,805 2,004,919,446
206,725,617
536,699,383
448,140,617
395,559,383
67,120,433
65,254,567
106,220,433
" 54,*ifi4,”fi87
678,465
10,607,045
834,525
44, 550, 527
951,676
12,157,572
561,304
44,000,000
44,246,000
3,019,662
10,391,846
2,659,869
54,276,612
44, 716,094
31,283,906
18,428,000
21.000.000
6,475,591
752,848
7,206,879
2,682,352
73,529,904
678,455
12,707,694
1,853,400
39,774,919
250,000,000
1,2(50,329,498 1,205,501,631 1,174,791,222 1,411.748,474 1,320,791,286 2,720,291,433
295,171, 755
750,256,697
657,906,973
658.878,579
FlKANClAIi CONDITION O
F THE UNITED STATES
BALANCES Of M U O K AU TH O RIZA
T IO N S FOR E X P E N D IT U R E S — OOO.
m revolving and
MANAGEMENT FUNDS
jalan ch
7,591,779
10
77,005,106
i 17,224,832
110,085,452
300,000
13,847, 204
/ 119,892,142
96,738,064
\ 92,397,569
4,474,290
39,932,340
49,455,429
529,428,785
9 17,701,217
40,776,286
96,661,996
50,366,826
181,895,300
501, 792,652
2 25,305,050
63,728, 584
111,849,418
48,795,393
246,037,096
379,941,801
* 30,689,926
137,875,677
51,398,297
60,108,147
95,825,897
456,179,411
* 41,744,568
341, 505,287
66,957,664
40,345,152
193,086, 796
29,248, 282
479, 889
390,447,956
57,932, 564
35,377,191
198,924,906
24, 735, 234
1, 222,132
492,392,462
62,413,185
32,388,645
175,626,318
26, 729,890
2,382,449
604,021,589
81,361,625
43, 248,105
451,952,229
13,972,529
171,821,416
6,617,314
1 6,771,412
>1,848,389,283 1,802, 574,902
19,498,816
32,540, 577
1,480,514
* 10,155,187
2,771,977
1,433,860
210,877,237
336,427
8,515,630
592, 767
25,663,401
1,100,869
2,048,509
4,887,594
281,591
3,476,401
>897,895,661 2,642,552,072
147,460,371
30,925,635
2,826,562
* 754,923,447 4,037, 504,199
61, 596,198
28,164,782
705,152
11,396, 744
i 7, 286,363
553,492
206,044,250
289,115
7,755,523
1,574,068
14,631,706
12,629,560
1,894,580
88,493,493
263,257
115,870,371
77,242,524 5,315, 758,154
7,944,520
3,792,632
7,145
14,761,989
» 285,031,922 2,948,176,440
45,525,106
30,556,188
288, 095
10,014.151
J6,183, 348
667, 202
191, 579, 513
206,611
14,985, 721
6,531,000
1,364,430
21, 795,355
9,733,001
639,551
22,189,957
134,819
53, 543, 727
404,462, 928 4,234,066, 713
7,145
15,510,468
» 294, 223,804 2,308,128,771
27,418,315
45,184,411
375, 549
10,900,000
i 6,138,000
622,616
215,531,000
462,485
15,271,762
4,541,000
1,359, 723
14, 635,869
9,642,943
495,006
7,000,000
43,350
10, 997,294
401,521
11,828,617
J6,136,000
562,616
224,273,000
525,168
13,665,303
1,370,472
12,967,850
9,653,943
764,006
7,000,000
7,062,875
632,450,444 3,542,683,070
150,000,000
TDNITED
458, 534,675 3,562,211,679
50,000,000
i 133,860, 727 2,242,495, 694
22,469,026
47,018,700
69,700,553,481 33,120,288,092 37,823,096,630 41,814,802,990 37,402,079, 775 35,497,353,923 40,250,108,135 29,711, 289,403 45,083,324,483 25,439,282,487
* Deduct, excess of receivables over obligations.
2Deduct, excess of obligations over cash and receivables.
STATES
608,706,781
55,435,914
21,188,066
4,441,038
THE
Total balances available at
start of year....................
17,450
49,728
OF
Total balances in revolving
and management funds...
Allowance for contingencies.........
}
131,202
5,874
CONDITION
Legislative branch.......................
Executive Office of the President..
Funds appropriated to the Presi
dent.........................................
Independent offices:
Veterans' Administration.....
Other....................................
General Services Administration.
Housing and Home Finance
Agency
Department of Agriculture........ .
Department of Commerce...........
Department of Defense:
Military functions.................
Civil functions......................
Department of Health, Educa
tion, and Welfare.....................
Department of the Interior........ .
Department of Justice.................
Department of Labor..................
Post Office Department............. .
Department of State.................. .
Treasury Department.................
FINANCIAL
96819 0 —57------ 5
(Including U. S. Government
securities held)
Cn
<£>
60
FINANCIAL CONDITION OF THE UNITED STATES
The C h a i r m a n . Can the executive branch use those balances to
replace the cuts by Congress in expenditure authorizations in many
instances?
Secretary H u m p h r e y . Well, these appropriations are very strict,
as you know, very strict regulations as regards shifting of funds from
one account to another.
The C h a i r m a n . Within the departments?
Secretary H u m p h r e y . I regret to say there sure are. I went to
Congress this vear, for the Treasury Department, where they had
made some reductions in the budget, which I was glad to accept,
provided they would give me a 5 percent movement, which they
willingly did.
The C h a i r m a n . That is true.
Secretary H u m p h r e y . That w a s only 5 percent.
The C h a i r m a n . But, as you know, the Treasury now is assisting
me in an effort to ascertain to what extent reductions in appropria
tions and other expenditure authorizations to date will be reflected in
expenditure reductions in the coming fiscal year, beginning July 1,
and it is practically impossible to ascertain that because we don't
know to wnat extent these unexpended balances in old authorizations
will be used.
Now, why is that?
Secretary H u m p h r e y . Well, it is difficult because-----The C h a i r m a n . I have been working with your own staff in con
nection with that, as you know.
Secretary H u m p h r e y . That is right. We have been working trying
to get it better in hand than it is.
The C h a i r m a n . And they are finding it difficult to show definitely
what the reduction in expenditures will be.
Secretary H u m p h r e y . That is so. I know that.
The C h a i r m a n . There are billions in these balances which can be
spent, despite appropriation reduction, if the President chooses to
allow it. Last vear for instance, we reduced the foreign aid appro
priation by a billion, but the reduction in the cash expenditures was
estimated at $200 million.
Secretary H u m p h r e y . That is right.
The C h a i r m a n . 1 know you have done your utmost to wipe out
these unexpended balances, but I think you will agree with me that
the Congress has lost control of budget expenditures.
Secretary H u m p h r e y . They have been t o o large.
The C h a i r m a n (continuing). In large measure because of these
unexpended balances. You have testified to that effect, and you
have done everything you could—you and former Budget Director
Dodge— to get that corrected.
Secretary H u m p h r e y . That is correct.
The C hairman. Let us go to inflation again.
You said in your statement yesterday—I do not have the page—
something which indicated that the cost of living had only increased
a very small percent .
Secretary H u m p h r e y . That the what?
The C h a i r m a n . The cost o f living as shown by the consumer's
price index.
Secretary H u m p h r e y . Yes.
The C h a i r m a n . Did y o u include the period from April 1 9 5 6 t o
April 1957?
FINANCIAL CONDITION OP THE UNITED STATES
61
Secretary H umphrey. Yes; I go through April 1957. The table
starts with April 1956, and goes through the quarters of that year,
and then comes to the 4 quarters of the following— the 4 months, I
mean, o f the following year, that is 1957. That is this year. So we
com e right down------The C hairman. I know, but in your statement yesterday, I do not
have it before me, you made reference to a decline of only a fraction
o f 1 percent.
Secretary H umphrey. Well, that was up through the period of
1956, I think you are thinking about.
The C hairman. I say that is a------Secretary H umphrey. It is a fraction, as I recall it; six-tenths of
1 percent a year for the 4-year period through 1956.
If you will turn to the very next page, right at the top of the page,
you will then see I brought that right down to date, right down to
the first day of M ay, which is the last figure that is published.
The C hairman. I know it was unintentional, but that would mis
lead because actuallj7 from April 1956, to April 1957, the Consumer
Price Index went up 5 points. That was a very considerable rise
during that time.
Secretary H umphrey. A little less than 4%, I think.
The Chairman. Well, less than 4%.
D o you think there are specific things that should be done to stop
this inflation, or are you concerned about it? D o you think it may
be serious? And I will also ask, if we should continue losing 2 cents
a year for 10 years, what would be the condition of this country?
Secretary H umphrey. I think it would be extremely serious, and
I feel exactly as I expressed myself before: that if, over a long period
of time, w e' do not get better control of our expenditures, and if we
are not able to control our Government expenditures, Government
services, and the expenditures that individuals make, at the same
time, if we are unable to get a better control of our situation, that we
can get ourselves into a very great deal of trouble.
The C hairman. In your judgment, how long can we continue to
lose 2 cents, which is 4 percent of the present dollar, and not get into
very serious difficulty?
Secretary H umphrey. I do not think anybody, M r. Chairman, can
pinpoint dates on this. These things go for some time before there
is a public realization of what is going on, and then you get rather
unexpected swings that usually are not anticipated, but then all of
a sudden the public develops some loss of confidence that moves over
the country like a blanket, and everybody gets to thinking the same
thing at the same time, and you get into difficulty.
T ne C hairman. Suppose it continued for 5 years. That would be
10 cents further loss, bringing the value o f our dollar down to less than
40 cents compared to 1940. W ould that be serious?
Secretary H umphrey. I would not be able to guess a time. All I
could say is that it is a trend that we ought to get hold of and that
we ought to retard and stop.
T he C hairman. D o you agree with M r. Stam? H e has furnished
m e with a memorandum showing that if we go back to the national
incom e o f 1955, there will be a loss of $13 billion of revenue to the
Treasury?
62
FINANCIAL CONDITION OF THB UNITED STATUS
Secretary H u m ph r ey . Well, I have not made up those fig u re ^
It would not be hard to do. But of course, if we had a very sub*
stantial drop in activity, we would have a drop in our income, and
that would seriously affect our budget position.
The C h a i r m a n . I am just speaking of 2 years, going back to %
years ago. We were supposed to be very prosperous then.
Secretary H u m p h r e y . Let me see if we cannot figure it here very
quickly. 1 have forgotten what the income was during that year you
are talking about. What 2 years? The new budget, 1958 budget?
T h e C h a i r m a n . I a m t a lk i n g a b o u t fiscal 1955, g o i n g b a c k t o fiscal
1955 a s c o m p a r e d t o t h e p e r i o d t h a t g e n e r a t e s t h e r e v e n u e f o r th i*
f is c a l y e a r 1958.
Secretary H u m p h r e y . For 1958, yes.
The C h a i r m a n . Mr. Stam is a recognized authority. He estimates
there would be a $13 billion loss of revenue.
Secretary H u m p h r e y . The difference is $13.2 billion, as I make a
quick figure here, which would confirm—there may be some little
adjustment that makes-----The C h a i r m a n . In round figures, $13 billion.
Secretary H u m p h r e y . It would b e a lar^e amount of money.
The C h a i r m a n . In other words, a $13 billion loss that would wipe
out the $1 billion or so estimated surplus, and we would have a $12
billion deficit.
What would that do to the economy of the country?
Secretary H u m p h r e y . Well, I think it would have very serious
consequences.
The C h a i r m a n . Going b a c k just 2 years, Mr. Secretary, would not
b e regarded a s a great recession.
We thought wo were very prosperous
2 years ago.
Secretary H u m p h r e y . That is right.
The C h a i r m a n . Well, is it not a fact that we have not gotten
into difficulty before because we have had a rising period of prosperity
since 1940?
Secretary H u m p h r e y . That is correct.
The C h a i r m a n . Has any preparation been made or any reserve
established against a minor recession? I am not talking of a great
depression, but I am talking of a minor recession, just going back to
1955.
Secretary H u m p h r e y . You mean have we some nest eggs laid
away here and there?
The C h a i r m a n . Not nest eggs.
Secretary H u m p h r e y . Not tnatlknowof.
The C h a i r m a n . I know there are no nest eggs.
Secretary H u m p h r e y . I have been looking for nest eggs and have
not been able to find them.
The C h a i r m a n . All of those nest e g g s have b e e n hatched out and
spent.
But you must have some plans, because here we are skimming
along now on thin ice, and all we have got to do is go back 2 years ana
we would be in terrible difficulties. What are the plans for meeting
such a situation?
Secretary H u m p h r e y . Well, the unfortunate thing is, Mr. Chair
man, that until you know what the conditions are that you have to
meet, it is very difficult to make plans to meet them.
FINANCIAL CONDITION OF THE UNITED STATES
63
I think you have to be guided b y conditions as they develop, and
try to use the appropriate, try to do the appropriate, things.
I,
of course, think this, and I have said so many times: that while
there are things that the Government can do to be helpful in these
situations, either up or down, the real, the real force in our economy
are the citizens of America. It is not the Government. The Govern
ment's participation is relatively small.
Now, the Government should do what it can and should conduct
itself in a sound way and in a proper way as far as it can. But the
real strength of America lies in the citizens, in the free initiative, the
free thinlang, the free choice of the American citizen, and his own
activity and his own confidence in himself, in his future, in his security,
and in the reasonable and right and proper conduct of his Government.
The C h a i r m a n . The American citizen cannot be expected to under
stand the details of all these things, and I do not see how he can act
effectively when the situation is upon him. He depends upon us, his
Representatives, in the Government at Washington, to take care of
such matters.
Secretary H umphrey. Every American citizen, or most, the great
m ajority o f American citizens, looks after his own affairs pretty well,
and it is the cumulative effect of millions of American citizens lookingafter their own affairs well which gives the strength to the country.
There is nothing the Government can do that can give strength to
the country if the American citizens themselves fail to look after
their own affairs.
The C hairman. If we were to have a $12 billion deficit, then it
would be up to the Government to do something, would it not? I
do not know what the citizen back home could do about it.
Secretary H umphrey. Well, there would be some things the G ov
ernment could do, and there probably would be some things the
citizens could do.
The C hairman. W hat could citizens back home do, make a con
tribution to the deficit?
Secretary H umphrey. T hey eventually would have to pay it, yes.
W hatever the deficit is, it finally lands in the citizen's pocketbook.
The Chairman. I am not predicting any such thing will occur, but
as you well know, and this committee well knows, our taxes are up
to a point where, if we raise them higher, there will be diminishing
returns. T h ey are close to the highest taxes this country has ever
had.
There was a reduction in 1954. But it is well to bring out the
figures. Notwithstanding that reduction, there has been an increase
in tax revenue collected from the people. In 1953, we collected
$64.7 billion; in 1957, we collected $70.6 billion. That is an increase
in collections o f more than 10 percent.
N ow , the point that concerns me, and I am deeply concerned about
it, is that we have no reserves. W e are just assuming everything is
going up and up. And you know better than I know that that does
not happen without interruption. Things go down sometimes.
T h ey m ay com e back again, but they go down too.
Secretary H u m p h re y . Well. M r. Chairman, you want to remember
this: that we would have $25 billion more either on hand or in reduc
tion o f debt or something else, if everything had gone as you say and
64
FINANCIAL CONDITION OF THE tTNITBD STATES
we had not handed that much money back to the people in tax re*
duction.
So the people have had the benefits of $25 billion in lesser taxes
over this same period you are talking about.
The C h a i r m a n . I am bringing out the point there was a reduo*
tion in tax rates, but an increase m collection.
Secretary H umphrey. There would have been $25 billion more
collected.
The C h a i r m a n . I do not know the total. But there has been a 10
percent increase in actual cash collected from American taxpayers.
Secretary H u m p h r e y . If all other conditions had remained equal,
which I would doubt.
The C h a i r m a n . It seems to me the Treasury ought to have some
thing in mind. You have said you would not regard going back to
1955 as any great depression.
Secretary H u m p h r e y . No; I would not.
The C h a i r m a n . Would you regard it as a recession?
Secretary H u m p h r e y . I "think I called it a rolling readjustment.
[Laughter.]
The C h a i r m a n . All right, rolling readjustment.
If vou have a “ rolling readjustment” now, you are going to have a
$12 billion deficit. Wnat are you going to do about ruling that?
[Laughter.]
Secretary H u m p h r e y . Well, I would try to meet it as I saw what my
problem was, and I know of no other way to do it.
The C h a i r m a n . Is that not a great potential danger? We have
exhausted our capacity to tax. I think we have exhausted our
canacity to borrow.
Now* if something adverse happens to us, even in a small way, in
these conditions that confront us-----Secretary H u m p h r e y . Well, Mr. Chairman, every housewife in
America knows if you spend aU you earn and you borrow more money
than vou can repay, and then a rainy dav develops, you are in more
trouble than you Vould be if you had been more cautious as you
proceeded along.
The C h a i r m a n . Y o u are talking my doctrine 1 0 0 percent.
[Laughter.] It is what I have been preaching here for 25 years, and
have not been able to get many people to agree with me.
I just want to ask a few more questions-----Secretary H u m p h r e y . Our trouble is, there are not enough house
wives in tfie Government.
The C h a i r m a n . I want to ask a few more questions on inflation.
Inflation is a very complex thing. The Library of Congress has
supplied me with a definition, but it is rather complicated. I want
to ask you this question:
Can it be said simply that the decrease in the purchasing power of
the dollar is the best measurement of inflation?
Secretary H u m p h r e y . Well, I d o not know t h a t i t is t h e b e s t , but
it certainly is a measurement.
I am not—I do not know much about the theory of these things.
As you know, I am just an ordinary businessman. I know the effect
of what happens.
The C h a i r m a n . Yes.
FINANCIAL CONDITION OF THE UNITED STATES
65
Secretary H umphrey. I would certainly say that that was a
measure.
The C hairman. I understand that there are many elements, but
is this not the outstanding measurement?
Secretary H umphrey. Well, they are all relative, you see. If your
cost o f living goes up, the value of your dollar goes down.
The C hairman. That is a good index of inflation; is it not?
Secretary H umphrey. It is an index; yes, sir.
""
-rr-.i
•
•
this complicated definition
confidence in the Library’s
workSecretary H umphrey. I cannot understand most of those.
The C hairman. It is complicated.
But for a simple-minded man, as I am, would it be accurate to say
that inflation or deflation is measured b y the purchasing power of the
dollar?
Secretary H umphrey. I think that is about right.
The C hairman. All right.
Now, we understand that credit inflation and price inflation exist
today. I f that is true, would you, in clear and concise and simple
language, as you always use, define each of these two kinds of inflation?
Secretary H u m p h r e y . Well, you are getting over m y head in
theoretical definition. I cannot do that.
And I do not know that the two are too far apart. They come
from a little different causes, they develop in a little different way,
but tbe net effects merge after you get do\vn the road a little way.
A price inflation occurs through increases in costs, o f one kind and
another, that result from either increases in costs from excessively
high employment or from various causes o f that kind, and prices
going up because o f an excessive demand over the supply o f goods.
Whereas the credit inflation comes about originally or starts
originally with the monetary policies, developing more credit in the
country,' and providing more money and more credit than you pre
viously had.
Now, as you get along a little way, either one will have an effect on
the other, I think, and the net result o f both is that as they become
operative, you finally find that your dollar buys less and your costs
o f living are more.
The C hairman. I think you have said before that large deficit
spending— and we had large deficit spending during W orld W ar I I
and the Korean war— is probably the most important factor in
inflation; is that correct?
Secretary H umphrey. I think there is nothing that will push you
along the road to inflation much faster than large Government deficit
spending.
The C hairman. W e did not have deficit spending last year, and it
was not estimated for this year; yet inflation has started again. D o
y ou think the high Government spending is responsible for that?
Secretary H umphrey. I think it is a part o f the pattern.
The C hairman. W hat else would you say?
Secretary H umphrey. As I said before, 1 think that it is the degree
o f prosperity in the country that we are enjoying, and in direct pro
portion to the degree o f prosperity that you nave, your inflationary
pressures develop.
66
FINANCIAL CONDITION OF THE UNITED STATES
The C h a i r m a n . Then Government spending-----Secretary H u m p h r e y . And Government spending is contributing
to that pressure.
The C h a i r m a n . We have increased borrowing in the last 4 years
by $200 billion— that is the corporations, individuals, and Govern
ment. Now, that money is circulating in the economy of the country,
lias that borrowing been inflationary?
Secretary H u m p h r e y . I think probably it has.
The C h a i r m a n . Would you name, in order, the major causes o f
inflation, starting first with high deficit spending?
Secretary H u m p h r e y . Well, 1 cannot give you any textbook deter
mination of it, Mr. Chairman. I have told you as much as I can of
the cause of the pressures that develop, and it is those pressures which,
if they arc not ofFset in some way, gain in momentum and you finally
get to where you cannot control them.
The C h a i r m a n . I would rather n o t have a n y t e x t b o o k definitions.
I would rather take a definition based on your experience and your
judgment as a man who has perhaps had as much business experience
as anjr man in the United States today, combined with Government
experience. These textbooks are very difficult to understand in a
matter like this. In the first place they do not always come from
people with practical experience.
Secretary H u m p h r e y . Well, by and large, and over a sufficient
period of time, you cannot have much more than you produce, and
that is true for people and it is true for the whole Nation.
By and large, if your costs are pushed up in various ways, in ways
to an extent that cannot be offset b y increases in productivity of your
people, if your wage costs go up substantially faster than your pro
ductivity goes up, by and large, if your investment goes up very much
more rapidly than your savings go up, if your expansion is very largely
in debt and very little in savings instead of vice versa, you sooner or
later get to a place where you get an imbalance.
Ana as you get those imbalances, you get excessive or decreased
demands, which result in either inflationary or deflationary pressures
that affect the costs of your goods and the prices of your commodities
and, finally, your cost of living and the value of your money.
The C hairman. Is reduction in taxes inflationary?
Secretary^ Humphrey. I think perhaps temporarily, under certain
conditions, it might be. In one of the most important cases of the
Supreme Court they enunciated long ago the doctrine that the power
to tax is the power to destroy.
I believe that, and I believe that the excessive use of the power to
tax can destroy the American system, if it is carried to a s u ffic ie n t
excess; that it will so limit and so decrease the natural pressures that
we rely upon to stimulate individual incentive, individual activity
and individual endeavor, that you can first change and then perhaps
ultimately and finally destroy our system of government.
The C hairman. Well then, you regard the reduction of taxes when
they are too high as not inflationary?
Secretary Humphrey. I think our taxes now are too high. I think
we are takmg too much.
Again, these things are never just for the moment. . Their effects
are extended, they are over a period. But the effect sometimes comes
suddenly and very unexpectedly. And I think our taxes are too high?
FINANCIAL CONDITION OF THE UNITED STATES
67
and we should m ove in every way that we can, and as rapidly as we
can and still perform our other obligations, and reduce these taxes.
The C hairman. B ut it should be done only when there is a balanced
budget and a surplus in the Treasury?
Secretary H umphrey. That is m y belief.
T he C hairman. H ow much Treasury surplus do you think you
should have, to justify a reduction of the taxes?
Secretary H umphrey. That, again, is not a fixed amount, it is not
a definite thing you can pin right down. W e are collecting, in round
figures, $70 billion. A 10 percent reduction of all taxation would be
$7 billion. Five would be 3%. I think that to make a suitable and
a proper tax reduction, it would take several billion dollars.
T he C hairman. W ould you favor a percentagewise tax reduction,
o r some other kind?
Secretary H umphrey. Well, there again, M r. Chairman, I have
been asked many times to state exactly what to do. I do not think
an y man can intelligently state exactly what he would do until he
knows the amount that would be available for disbursing.
N ow , whether it would be advisable to reduce or increase excise
taxes simultaneously with a reduction or an increase in income taxes,
o r how y ou would apportion it, I think depends very largely upon
how m uch m oney you have and very largely upon conditions existing
at the time a reduction is made.
The C hairman. L et us take the imaginary figure of $5 billion. If
you had $5 billion, would you pay any part of that on the public debt?
Secretary H umphrey. That again would depend very largely on
the times that you were in. I f you were in a period of very high
prosperity and all, your inclination would be to use more of it in debt
reduction than in tax reduction.
I f you were in a different period of time, you might favor more
tax reduction and less debt reduction. It would depend upon the
pressures that were on the econom y at the time you were confronted
with the movement.
T he C hairman. Eliminate the debt reduction, and if you had $5
billion that could be used for tax reduction, what are your views as
to how a $5 billion tax reduction should be made?
Secretary H umphrey. I would try to do it in two w ays: I would
try to do it. in ways that would cover the broadest list of people. I
w ould try to cover, if possible, every single taxpayer in some way.
A n d I w ould try to keep in mind the things that would best serve to
stimulate the growth and development of the country.
A nd between the two, I would try to figure ou t the most advan
tageous tax reduction.
T he C hairman. W hat has been the history o f the effects of inflation
on other countries, so far as you know?
Secretary H umphrey. Well, o f course, it has been terribly serious,
and in a good m any places in the world it has destroyed them.
T he C hairman. T he governments o f m any countries have been
destroyed, have they not?
Secretary H umphrey. That is right.
T he C hairman. D oes that n ot come somewhere along the line
when 66 percent, say, o f the value o f the m oney is destroyed? W e
wave already lost 50 percent.
68
w nuw w ii com m a s
o f the united states
Secretary Humphrey. I do not know. I heard somebody, perhaps
it was you, say that the other day, and it is a very interesting figure,
but I really do not know whether that is borne out. I did not nave
a chance to see. I do not know that there is a fixed thing.
The C h a i r m a n . There is not any fixed standard for it. It depends
upon the country. But it is possible for inflation practically to
destroy governments.
Secretary H u m p h r e y . Mr. Chairman, as you know, the history of
the world is when this thing starts, the first decreases are the slowest,
and as it goes along it gathers momentum, and it goes faster and
faster, and as people lose confidence in their money they seek to
turn their money into goods, and the price of goods soars and the
value of money declines until—I had a friend of mine who told me
that he and three of his friends—just before the complete debacle in
China, that he paid a million dollars for a dinner, his check for dinner
was a million dollars, and he gave the waiter a tip of a hundred
thousand dollars.
The C h a i r m a n . What you have just said about inflation growing
and growing, is what disturbs me about this new inflation. It stopped
for 4 years, and now it has started anew.
Let me ask this question: Is the increase in interest rates infla
tionary?
Secretary H u m p h r e y . Is what?
The C h a i r m a n . The increase in interest rates, is that inflationary
or not?
Secretary H u m p h r e y . I think under the conditions existing at the
present time, it is certainly deflationary. As the cost of money rises,
there are two very simple things that occur: As the cost of money rises,
the rent for money rises—interest is rent for money, and as you get
higher rent bid for your money, there is more incentive to save that
money and to put it out for rent than to spend it. That is particu
larly true if, at the same time, you are not worried about the loss of
the value of your money, if you think that if you lend it out and get
some rent for it you will get the money back and it will buy as much
as it did before you rented it out.
So the stimulation of savings comes about through two things: It
comes about through increased interest, which is increased rent for the
money, plus a widespread feeling of security that the value of the
money is not going to decline. And you have to have them both to
stimulate savings.
Now, as you stimulate the savings, why, of course, that generates
more money for use in the development of the country, in the building
of equipment and machines, ana increasing the productive power of
the people.
Tne C h a i r m a n . Take, f o r instance, a corporation which under its
competitive conditions is able to pass on to the consumer an increase
in interest rates. Would the increased interest be inflationary in that
case?
Secretary H u m p h r e y . Well, what you can pass on, what one person
with goods to sell can pass on to a buyer of those goods depends upon
the competitive situation that is existing at the time. Whether you
are a manufacturer or a farmer or just an individual trader, there is
not a bit of difference, that I can see, in making an automobile and
selling it, or trading a horse, you can price it at what the market will
FINANCIAL CONDITION OF THE UNITED STATES
69
take, what the demand will stand. And if you price it too low, you
will sell out so quick you will be out of business.
The Chairman. That is not quite the situation now. The farmer
cannot pass it on because he is in an overproduced market. Some of
these great corporations and combinations can pass it on, as you well
know.
Secretary H umphrey. Well, I hear that a lot, but I have never-----The Chairman. Is this not true------Secretary H umphrey (continuing). I have not seen it.
The Chairman. Is it not true that an increase in rents, the interest
rates, is the same as an increase in wages or anything else?
Secretary H umphrey. It reflects an increase in costs.
The C hairman. And the effort, then, of the corporation or the
businessman is properly to pass it on if he can?
Secretary H umphrey. That is right.
The C hairman. Some corporations or some businessmen can pass
it on because o f the com petitive situation, and others cannot.
Secretary H umphrey. I think that is right. And sometimes they
can do it at one time, and they cannot at another.
The C hairman. Yes.
I t would seem to me that those corporations which have an over
whelming production of a particular product are in a better position
to pass it on than other corporations which are in a more competitive
position.
Secretary H umphrey. Well, I do not really know of a business
where there is not com petition; and I have never seen one that lasted
very long, where there was not some competition, because there are
just too m any smart fellows around looking for a place where there
isn’t competition, to get in to make some money, and the first thing
you know they get into business there and you nave got competition.
The C hairman. Y ou made a statement a little while back that the
increase in wages in excess of the productivity of those wages is
inflationary.
Secretary H umphrey. That is right.
The C hairman. W hat is the effect of interest rates in excess of the
productivity o f the m oney on which they are paid?
Secretary H umphrey. I think it probably would have the same
effect, except that there is a deterrent effect that rises from an increase
in the cost o f interest, in that people are deterred from taking on
obligations that require that additional payment. T hey do not
expand quite so rapidly or they do not expand inventories quite so
rapidly, or they become more cautious, if they have that obligation.
So an increase in the amount of interest, in rent for money, creates
ft precautionary atmosphere which does not exist the other way
ftround.
The Chairman. D oes the same general principle apply when
business costs are increased in excess o f their productivity?
Secretary H umphrey. Yes.
The C hairman. Any increased cost o f that nature, if it is passed
on to consumers, is inflationary?
Secretary H umphrey. N ot necessarily, because I think perhaps the
deterrent effect more than offsets the inflationary effect.
As I showed you in this paper yesterday, the actual interests costs
•re so relatively minor in &movement o f this kind that they are almost
70
FlXANCIAIf CONDITION OF THB UNITED STATES
lost in the shuffle. They do have some effect in that direction, there
is no question about it.
On the other hand, they have a deterrent effect that offsets it to
quite—I would think, myself, that the deterrent effect would be
greater than the inflationary effect.
The C h a i r m a n . Well, I cannot agree about this being so minor,
because these interest rates have increased rapidly.
Let us take the case of the Federal Government. You offered this
last bond issue at 3%. As I understand it, only a part of them were
sold, on a 5-year basis.
Of course, I know various issues have different maturity dates, but
suppose the entire Federal debt were to be refinanced at the rate on
this last offering; what would it cost in interest?
Secretary H u m p h r e y . Well, I think, in the first place, that there is
a lot of misunderstanding about this last issue of bonds.
We did not offer bonds for sale for cash at all. What we had was
a refunding of an issue that was held by certain holders.
Now, some of those holders, a large percentage of those holders,
had purchased those bonds for particular purposes and for particular
uses, cash uses, and we knew before we started that a large amount of
those bonds, the holders of them wanted cash, and they were not going
to turn them into any kind of bonds.
So that the fact that we had as large a loss of conversion as that was
just about, frankly it was very close to, what we estimated when we
started. It was not anything that was a surprise to us or that we
did not expect.
We estimated something in excess of a billion dollars of attrition
at the time we made this offer, and we made it with that expectation,
and then planned to raise the money in another way, in a cash offering.
If this had been a cash offering, tailored to terms that met the public
requirements, and then we could not sell them, that would have been
something serious.
The C h a i r m a n . Could you have sold them-----
Secretary H u m p h r e y . 6 ut this was not that kind of a case at all.
The C h a i r m a n . Could you have sold those bonds as a cash offering
at 3% percent?
Secretary H u m p h r e y . That depends entirely on the situation— I
think we might have sold it for less, we are selling some issues for less.
The C h a i r m a n . Could you have sold it on a 5-year basis?
Secretary H u m p h r e y . 1 do not know. There again, Mr. Chairman,
you have got to tailor your goods to meet the market requirement,
and I cannot sell you a winter suit this afternoon. You would not
buy one. It is too hot. And if I try to sell you a winter suit this
afternoon, it does not make much difference what price I put on it,
you would say, “ I am not interested.”
So I have got to sell you a thin suit if I want to sell it to you today;
and if I sell you a thin suit at a decent price, you will buy it.
Now, it is just exactly the same with bonds. If I tried to sell you
an overcoat, a fur-lined overcoat, this afternoon, I would not get
very far.
The C h a i r m a n . Mr. Secretary, the Southern people especially
have to be on the Senate floor-----Secretary H u m p h r e y . I hope they are not going to spend a lot of
money.
FINANCIAL CONDITION OF THE UNITED STATES
71
The C h a i r m a n . N o. There is another matter on which I am
confused. I will h&ve more questions tomorrow—but now I want
to ask you about our gold supply. We have $22,406 billion of gold.
The foreign dollar holding of gold is $13 billion. Does that $13
billion come out of the $22 billion?
Secretary H u m p h r e y . I do not quite know what the figures are
you are talking about. Are you talking about gold, or short-term
credits?
The C h a i r m a n . I am talking about the gold we have at Fort K nox
which, as I understand it, is supposed to be $22 billion; is that approxi
mately right?
Secretary H u m p h r e y . Yes; $22.4 billion. It does not happen to
be all at Fort K nox, but that is all right.
The C h a i r m a n . Is part of this gold in Fort K nox owned b y other
countries, or not?
Secretary H u m p h r e y . W e own the gold. But foreign countries
have dollars in this country with which they could buy some of this
gold.
The C h a i r m a n . W hat?
Secretary H u m p h r e y . There are thus potential claims on a con
siderable part of that gold; yes, sir.
The C h a i r m a n . That means------Secretary H u m p h r e y . B y other countries.
The
gold?
C h a irm a n .
That means that we do not own 58 percent of this
Secretary H u m p h r e y . N o. W e own the gold. I do not know
just what the percent of foreign balances in relation to the gold is at
the moment. I can get the figures.
The C h a i r m a n . I have the figures.
(Secretary Humphrey subsequently submitted the following:)
.
United States gold stock and foreign short-term dollar holdingst end-year, 1945-56
and M ar SI, 1957
[In millions of dollars]
Foreign short-term dollar holdings *
End-period
United
States gold
stock
Required
gold
reserves1
Foreign countries
Official
1945..................................... .
1946........................................
1947.......................................
1948.................................
1949.......................................
1950......................................
1961....................... ..............
1952........... ...........................
1953........................................
1954....................................
1955.................................
1956........................................
March 1957.............................
$20,063
20,706
22,868
24,399
24,563
22,820
22,873
23,252
22,091
21,793
21,753
22,058
22,406
$10,919
10,780
11.341
11,938
10,795
11,045
11,758
12,092
12,187
11,847
12,009
12,120
11.761
$4,179
3,044
1,832
2,837
2,908
3,620
3,548
4,654
5,667
6,774
6*956
8,032
7,580
Private*
$2,704
2,963
3,022
3,017
3,052
3,497
4,113
4.307
4,352
4,379
4,768
5,449
5,520
Total
$6,883
6,007
4,854
5,854
5,960
7,117
7,6bl
8,961
10,019
11,153
11,724
13,481
13,050
Interna
tional institutions
(official)
$474
2,262
1,864
1.658
1,528
1,641
1,585
1,629
1,770
1,881
1,452
1,558
1 Required gold reserves are fixed by law at 25 percent of notes and deposit liabilities of the Federal Reserve
System. These figures also include small amounts of statutory gold reserves against certain other types of
currency.
* Foreigners also held U. S. Government bonds and notes amounting to $1,638 million on Mar. 31,1957.
_ ^The^Treaajiry Depar^nm t^do^nc^^^^ejnj^d^to^actions with^oreign individuals or privrtj
JSSlS, and certain international institutions.
72
FINANCIAL CONDITION OF THE UNITED STATES
Secretary H umphrey. But there is a substantial amount of the
gold that might be purchased by other countries to be shipped to
them.
The C hairman. Well, the figures I have are $26,406 billion in
March 1957, and that is carried on the financial----Secretary H umphrey. Twenty-six billion?
The C hairman. I meant to say $22 billion.
Secretary H umphrey. Twenty-two billion of gold on hand.
The C hairman. On hand—in March; it is carried as an asset on
the Treasury daily statement.
Secretary H umphrey. That is right.
The C hairman. Now, the foreign holdings are $13 billion-plus,
which is 58 percent.
Is it correct to understand that foreign countries own, for practical
purposes, 58 percent?
Secretary H umphrey. I cannot quite identify the figures, but the
fact is that foreign countries do have possible claims against a sub
stantial part of our gold.
The C hairman. And that means they own it?
Secretary H umphrey. No; it means that under present laws and
regulations, they can use their dollar balances to purchase it for
export.
The C hairman. That means they own it?
Secretary H umphrey. They do not own it, but they can ask that
it be shipped to them. It is not theirs, it is ours now, but under
present regulations they can demand that it be shipped to them.
The C hairman. If they can demand it, it must belong to them.
Secretary H umphrey. N o, they can demand that we sell it to
them, but unless they do so, it is ours.
The C hairman. Y ou are just the custodian of it; you are not the
owner?
Secretary H umphrey. Well, that is not right.
The C hairman. If somebody asked me to keep a thousand dollars
for them, I do not own that money, because they can call for the
thousand dollars.
Secretary H umphrey. N o, no. But if you have a thousand
dollars, and you give me a little slip of paper saying that “I owe
you $500/’ you still have got your thousand dollars until I say I want
$500 of it, and then you turn it over to me.
The C hairman. I might have it, but if I spend it----(Laughter.)
Secretary H umphrey. If you spent it, you would be in trouble.
The C hairman. If I spent it, I could not pay when it was demanded.
Secretary H umphrey. That is right.
The C hairman. I do not understand what you have said. Would
you be prepared to discuss this subject tomorrow?
Secretary H umphrey. I will.
The C hairman. All right.
We will adjourn until 10 o’clock tomorrow morning.
(Whereupon, at 12 noon, the committee adjourned, to reconvene
at 10 a. m., Thursday, June 20, 1957.)
INVESTIGATION OF THE FINANCIAL CONDITION OE
THE UNITED STATES
THURSDAY, JUNE 20, 1957
U nite d S ta t e s S e n a t e ,
C om m ittee on F in a n c e ,
Washington, JD. C.
The committee met, pursuant to recess, at 10:00 a. m., in room 312,
Senate Office Building, Senator Harry Flood Byrd (chairman) pre
siding.
Present: Senators Byrd, Kerr, Frear, Long, Smathers, Anderson.
Gore, Martin, Williams, Flanders, Malone, Carlson, Bennett, ana
Jenner.
Also present: Elizabeth B. Springer, chief clerk; and Samuel D.
Mcllwain, special counsel.
The C h a ir m a n . The committee will come to order.
When we recessed yesterday, I had asked the Secretary to explain
the gold stock, and the Secretary has advised that it would be necessary
to obtain additional information. It is a complicated subject. When
will you have that ready, Mr. Secretary?
STATEMENT OF HON. GEORGE M. HUMPHREY, SECRETARY OP
THE TREASURY— Resumed
Secretary H u m p h r e y . We will try to have it for you tomorrow,
just as soon as we can pull the data together.
The C h a ir m a n . We will not take it up at this time, Mr. Secretary;
I have a few other questions to ask.
Our public debt, as you know, is approximately $275 billion. In
addition to that, the debts of the States, the localities, and the corpo
rations and individuals is $525 billion, making a total of $800 billion.
This is an increase of $200 billion or 33 percent in 4 years.
Do you regard this as a healthy situation?
Secretary H u m p h r e y . I can say this without the slightest doubt,
Mr. Chairman, it would be a whole lot better for all of us if it was
a lot less.
The C h a ir m a n . Has it added to the inflationary pressure?
Secretary H u m p h r e y . It very definitely has added to the inflation
ary pressure.
The C h a ir m a n . Do you anticipate this gross total of indebtedness
will increase or decrease?
Secretary H u m p h r e y . To be realistic about it, much as you would
hope that it might not go on increasing certainly at anything like
current rates, some of this debt is going to increase for a while.
The C hairman. What segment of debt do you think will increase?
73
74
FINANCIAL CONDITION OF THE UNITED STATES
Secretary H u m p h h k y . I am thinking more of the State, local and
political subdivisions debt. I hope not the Federal, provided of
course we do not engage in a war or have some international complica
tion.
The C hairman. What do you think about the personal and cor
porate indebtedness?
Secretary H umphhky. Personal and corporate indebtedness is a
little different. Personal and corporate indebtedness, if it is incurred
in connection with increased productivity and the development of
lowering costs and increasing production performs a very useful
function and is not nearly as inflationary as debt spent for a good
many other things.
Now the opposite is not true of all public debt by any means, but
it is more true of public debt than it is of private debt.
The C hairman. You would mean that some of the corporation
debt would be for productive purposes?
Secretary Humphhky. That is right.
The C hairman. It would be used for increasing production?
Secretary H umphrey. A substantial part of that is to provide more
goods, more, cheaper, better goods for more people.
The C hairman. But the consumer debt of course is in a different
category, is it not?
Secretary H umphrey. Yes, in a way, and yet I have said a number
of times, Mr. Chairman, that consumer debt within proper limits—
and I am not talking about gross figures, I am talking about proper
limits for the individual that does the borrowing— if that consumer
borrowing is done within amply careful limits, it really has gotten
in this country to become sort of a means of saving, sort of a disci
plinary situation that promotes savings to a greater extent than the
individual would discipline himself to do without.
The C hairman. Would that apply to the purchases of radios and
things like that?
Secretary Humphrey. It applies mostly to things that help in
adding to production and are of a long-term nature, not just straight
consumer goods.
The Chairman. D o you think the present consumer debt is exces
sive?
Secretary H umphrey. It is extremely difficult to reach a conclusion
on that. I don't think anybody knows, Mr. Chairman. I think
that that is one of those things that is going on in our modern society
that has to be worked with, and I think we have to sort of feel our
way with respect to it.
I personally have so much confidence in the good sense and the
intelligence of the American people over a period of time that I would
much rather trust the peoples' judgment than I would some arbi
trary limitation.
The C hairman. How would you regard, for example, a practice
of making initial payments on automobiles so low that a purchaser is
encouraged to buy a higher-priced automobile than he can actually
afford?
Secretary H u m p h rey. Of course you presuppose reasonable terms.
N ow these terms can be stretched until they are out of proportion.
All of this is neither black nor white. It is elastic in the way you
must look at it. It can be done in a proper way; it can be done 10
FINANCIAL CONDITION OF THE UNITED STATES
75
an improper way. If it is done properly and within proper limits, I
think it is beneficial. I think that it gets more things into more
use more advantageously for more people than would otherwise be
the case.
If you push it to extremes, it can have very seriously prejudicial
effects.
The C h a i r m a n . Do you think that to date it has been pushed to
extremes?
Secretary H u m p h r e y . I don't think so. I think that it is paying
off—if you will notice the figures, you will see that about the amount
that is borrowed, while it keeps increasing some each year in the
borrowing, it also keeps increasing in the repayments, and we just
keep rolling it over about a year behind all the time, with a little
increase each year.
The C h a i r m a n . Assuming that we have a further period of pros
perity, what policy and rules should the Government follow to reduce
the public debt?
Secretary H u m p h r e y . Of course how rapidly you reduce the public
debt depends entirely upon how much surplus you have currently
in excess of receipts over expenditures, and in a high state of activity
such as we have now, why I would think that it would be wise to use
at least a substantial part of your savings in debt reduction.
The C h a i r m a n . Assume we have a $5 billion surplus, what per
centage of that do you think under present conditions should be
applied to the public debt?
Secretary H u m p h r e y . I don’t believe I can tell you, Mr. Chairman.
The C h a i r m a n . It is generally reported in the press that the
Treasury was unsuccessful in its attempt to refinance a maturing
issue of Government bonds on a 5-year basis.
Would you please comment on that?
Secretary H u m p h r e y . Yes; I explained that yesterday or spoke
about it yesterday. There has been a great deal of misconception
about that, and a good deal has been said about it by people that just
did not understand quite what they were talking about.
This particular issue was a refunding of about $4 billion of out
standing debt. A substantial part of it was held by people that had
bought it with a specific need in prospect for the use of money at the
time the maturity occurred, and we made an exchange offer for
conversion of that debt.
We did not offer to sell debt for cash; we proposed a conversion of
debt. This was not a public offering to sell securities to raise money;
it was a rollover, and we proposed two alternative issues for the roll
over and we did it deliberately. I did it. I will take the full responsi
bility for it myself. I did it deliberately on what were very narrow
margins.
I pinned it right smack on the market with no advantage to the
holder to take advantage of his rollover as compared to buying it on
the market that day.
I
thought it was wise to do it that way. W e tested the market.
W e could see there had been a continually increasing movement
toward wanting shorter term maturities and we had further financing:
com ing and w e wanted to test the market to get an idea of the trend
and the w ay it was going to go.
96819 0—57---
6
76
FINANCIAL CONDITION OF THE UNITED STATES
We were in a position that we could take care of it if it was not fully
subscribed.
We priced it close to the market, and what we thought might occur
happened. We had about a billion dollars of shrinkage in the sub
scription, in the rollover, and it was not a surprise.
The C h airm an . The offer was 4 billion, was it n ot?
Secretary H um phrey . The offering was 4 billion and there was
about a billion of it that was not rolled over—that was not taken in
the new securities that were offered.
The C hairm an . Y ou mean 3 billion was taken?
Secretary H um phrey . That is right; 3 billion was taken and about
a billion was not, and that was about the estimate that we had made.
We had made an estimate that we might have about a billion dollars
of shrinkage in it.
The C hairm an . I am glad to have that information. I was under
the impression that it was the reverse.
Secretary H umphrey . Oh, no.
The C hairm an . That only 1 billion was taken.
Secretary H umphrey . No, no, it was a billion dollars that was not
rolled over, and a billion dollars was approximately our estimate of
what we might find.
The C h a i r m a n . If that offer had been made as a straightout sale of
bonds at three and five-eighths, 5-year bonds; would they have been
taken under those conditions?
Secretary H umphrey . I think they were priced very close. I don’t
k;;ow whether they would have been taken or not.
As I said to you the other day, selling bonds is not much different
than selling clothing. You cannot sell a fur overcoat to a man in
July. You have to tailor your bonds like you have to tailor the goods
you are selling to fit the market to which the customer wants to buy
and you sell him the kind of goods that he wants to buy at the time
he is buying.
Now as For these bonds, the dem and in the m arket is fo r sh orter
term securities and we have to tailor th em to fit th e m arket and p rice
them to fit the m arket just as y ou w ould w ith a suit o f clothes.
You don’t want fur-lined underwear in July. You want a nice
thin suit.
The C h a i r m a n . Why is there the demand for short-term paper
instead of long-term bonds?
Secretary H u m p h r e y . I think it is because people are interested in
greater liquidity. They don't know just how the markets are going
and they are interested in greater liquidity to get their money.
The C hairman . Is it with the thought that interest rates will go
higher?
Secretary H umphrey . I think they just don't know whether they
are going to go higher or whether they are not and they want to be
mobile. They want to be in a position to meet whatever conditions
may exist.
The C hairm an . Are they concerned about inflation—the possibility
that if they buy on a 50-cent dollar basis now they may be paid off
by the Government later with dollars worth less?
Secretary H umphrey . I think the fear of inflation is very definitely
in the minds of a great many investors, and I don't know why it should
not be.
FINANCIAL CONDITION OF THE UNITED STATES
77
The C hairman . Right. How much of the debt will have to be
refunded in the next 12 months?
Secretary H umphrey . I do not have those figures right here. Of
course there is always a good deal. W e take bids, you know, on
billion six hundred million to a billion eight hundred million dollars
o f Treasury bills every M onday, and there is a large demand. Our
business community has grown up on the basis of a large amount of
short-term obligation, so that there is a lot of demand.
The C hairm an . W ill you repeat that statement?
Senator Martin did not hear it.
Secretary H umphrey . We sell more than a billion and a half of
Treasury bills every week. They are sold at auction.
The C hairm an . The}" are for how long— 90 days?
Secretary H umphrey . N inety-day paper. They are sold at auction.
The C h airm an . W hat was the last sale?
Secretary H umphrey . As I recall it last M onday it was a billion six
and it was about 3.40 percent.
The C hairman . 3.40 percent for 90-day?
Secretary H umphrey . One billion six hundred million.
The C h airm an . Ninety-day bonds?
S ecretary H umphrey . Those are called bills, not bonds, just to
keep the record clear. The differentiation, Mr. Chairman, so that
we will all understand the terms in the trade, is that a bill is a 90-day
bill and a note is for a year or longer, and a bond is for 5 years or
longer.
The C hairman . W hat was the interest rate on the same class of
bills a year ago?
Secretary H umphrey . Just a second and we will see if we can find
that. It would be less. This has fluctuated widely within the last
few months you know, within the last few weeks. It fluctuates from
week to week.
The C h airman . D o you have the averages for the last 12 months?
Secretary H umphrey . W e can get anything you want. I don't
know that we have it all right here.
The C hairm an . Will you supply interest rate figures on the same
class of bills 30 days ago, and 90 days ago?
Secretary H umphrey . Y ou would like bill rates average for 6
months this year and 6 months last year, the first half of this year
and the first half of last year?
The C hair m an . As part of the figures, yes.
Secretary H umphrey . All right, the first half each year for these
2 years.
The C hair m an . I did not understand what you said.
Secretary H umphrey . I have not got the figure. I will have to
look it up. I am just trying to write down what it is that you would
like to have and then we wifi pet it for you.
The C hair m an . That is to be part of the comparison?
Secretary H umphrey . W e will get that.
The C h airm an . Y ou do not have it now?
Secretary H umphrey . This w on 't tell you what you want to know.
W hat you want to know are the new sales, not the averages.
The C h air m an . Suppose we have it in this form.
W hat were the interest rates on these same classes o f bills 30 days
ago. H ave you got that?
78
FINANCIAL CONDITION OF THE UNITED STATES
Secretary H umphrey. We can get it. I don't know a8 we have it
here. We do not have all this data with us here. We would have to
bring a truck, but we can get it all.
The Chairman. What were they a year ago; do you have that?
Secretary Humphrey. No.
The Chairman. In addition to the latest rate paid, for what other
date do you have the rate on these bills?
What I am trying to find out, Mr. Secretary, is to what extent the
interest rates have increased?
Secretary H u m p h r e y . I know it. What you want is to get some
picture of how much we have had an increase and that is what I would
like to give you.
Wait just a minute and let me see if we cannot get you what you
want. I think this is about what you want. Let me read you here—•
and I think this will answer exactly what you are looking for—here
are the monthly bill rates by months, and I will start with June.
The C h a i r m a n . I s that the average of the month?
Secretary H u m p h r e y . This is for the month, yes. This is for June
a year ago, 2.527. July, 2.334. This is the average rate on new sales
for each month.
August, 2.606; September, 2.850; October, 2.961; November, 3.000;
December, 3.230; January, 3.210; February, 3.165; March, 3.140;
April, 3.113; May, 3.042; and then I will give you a few weeks.
The week ending May 4, 3.039; May 11, 2.909; May 18, 2.894;
the 25th 3.122; the 1st of June, 3.245; the 8th of June, 3.374; June
15 was 3.256; and the last one is 3.404.
I think that illustrates what you are looking for.
The C h a i r m a n . In what month w a s the greatest increase? In
what 3 months period?
Secretary H u m p h r e y . It varies. You see this varies, Mr. Chair
man, currently with use of money in other markets and the demand for
money from other sources and it does not follow any special pattern.
It moves, and this would move with the demands for money from
time to time. You see, we are competing, the Government is com
peting with the citizens and with the other governmental subdivisions
for money every time we go into the market.
We are in competition with somebody else to get that same money,
and again it is not any different trying to get money than it is buying
clothes.
People shop for it, shop around for it, and if the fellow across the
street will sea you a suit cheaper than I do, why you go and get it
from him, and if I want to get the suit I have to bid for it. There are
a lot of people that want money and they all bid for it and that is about
the way it goes.
The C h a i r m a n . There has been a general rise though in the interest
rates?
Secretary H u m p h r e y . What is that?
The C h a ir m a n . There has been a continuing rise in the interest
rates, apparently beginning last October?
Secretary H u m p h r e y . Yes. It is even a little longer than that
but it has been a slow continuous rise. Well, not quite continuous.
It goes up and down.
The C h a i r m a n . There have been some fluctuations?
FINANCIAL CONDITION OP THE UNITED STATES
79
Secretary H umphrey. The general trend has been up, and as I
said yesterday, the reason the general trend is up is because there are
more people wanting money and credit than there is money and
credit available for them to have.
The C hairman. D o you expect that general trend to continue up
ward?
Secretary H umphrey. As long as we have the high levels of pros
perity that we are now enjoying and people have the confidence that
they want to spend more than they have got.
The C hairman. Mr. Secretary, I would like for you to furnish to
the committee the total amount of the contingent liability of the
Federal Government along with your own opinion as to the possibility
o f these contingent liabilities becoming actual liabilities. I know the
total can be run up to a tremendous figure, depending upon definition.
I have thought that a conservative figure may be approximately $250
billion. I don’t expect you to answer that now.
Secretary H umphrey. Mr. Chairman, I will do the very best I can.
Y ou and I have been on a committee for 4 years looking at this picture
and you know better than anyone how extremely difficult it is to try
to estimate the contingent liabilities of this country.
The C hairman. Just give your personal opinion, that is about all
any o f us can do.
Secretary H umphrey. T o know even what they are— contingent
liabilities can be put into a number of different classes.
Y ou start, of course, with the form of debt that you owe or that
you have endorsed or that you have guaranteed.
Then you go to programs where you undertake obligations for the
future like guaranteeing mortgages, State matching programs, and
things o f that kind.
These State matching programs, there is no way in the world to
to know exactly what you are going to be up against because you agree
to put up 2 or 3 times as much as the State does.
T he C hairman. Mr. Secretary. W ould you regard Federal contri
butions to a State-aid program as a continuing obligation except to
the extent that Congress has appropriated the funds?
In other words, a Federal grant to the States------Secretary H umphrey. As long as that program is in effect, you have
an obligation under the law whether the appropriation has been made
o r not.
The C hairman. I have never included Federal grants-to-State
programs. For instance, President Eisenhower contends the school
program he is advocating will last only 4 years.
Secretary H umphrey. That may be, that particular one, but we
have got a lot o f them that are unlimited.
The C hairman. I may be wrong but I just cannot believe that
these programs we are entering into in perpetuity must be appro-
S riated for in future years regardless o f whether Congress desires to
o so or not. That is not the kind of contingency I had in mind.
Secretary H u m p h r e y . W hat are your thoughts about, for instance,
social security?
Suppose we com e to a point where on social security our reserves are
insufficient. Isn’t that a contingent liability where we would have to
g o on and put up the money?
80
FINANCIAL CONDITION OF THE UNITED STATES
The C h a i r m a n . That is a contingent liability because under the
law in that case we guarantee these particular benefits.
Secretary H u m p h r e y . H o w in the world are you going to estimate
the contingent liability on that?
The C h a i r m a n . If you cannot do it just say “ I am unable to do it.”
Secretary H u m p h r e y . All right. I will do the best I can. The
real contingencies that this Government is liable for is a lot but I
will do the veiy best I can.
(Secretary Humphrey subsequently submitted the following for the
record:)
L on g-R an g e
C o m m it m e n t s a n d
ernm ent
as
C o n t in g e n c ie s o f t h e U n it e d
o f D e c e m b e r 31, 1956
States
G ov
The attached statement covers the major financial commitments of the United
States Government, except the public debt outstanding and those involving re
curring costs for which funds are regularly appropriated by the Congress ana are
not yet obligated, such as aid to States for welfare programs and participation in
employee-retirement systems. The statement is segregated into four categories,*
namely: (a) loans guaranteed and insured by Government agencies; (6) insurance
in force; (c) obligations issued on credit of the United States; and (d) undisbursed
commitments, etc.
The items appearing in this statement are quite different from the direct debt
of the United States. They are programs of a long-range nature that may or may
not commit the Government to expend funds at a future time. The extent to
which the Government may be called upon to meet these commitments varies
widely. The liability of the Government and the ultimate disbursements to be
made are of a contingent nature and are dependent upon a variety of factors,
including the nature of and value of the assets held as a reserve against the com
mitments, the trend of prices and employment, and other economic factors.
Caution should be exercised in any attempt to combine the amounts in the
statement with the public debt outstanding for that would involve not only dupli
cation, but would be combining things which are quite dissimilar. As indicated
by the enclosed statement, there are $101.8 billions of public debt securities held
by Government and other agencies as part of the assets that would be available
to meet future losses. The following examples illustrate the need for extreme
caution in using data on the contingencies and other commitments of the United
States Government.
1. The Federal Deposit Insurance Corporation had insurance outstanding as
of December 31, 1956, amounting to $121 billion. The experience of the Federal
Deposit Insurance Corporation has been most favorable. During the period this
Corporation has been in existence, premiums and other income have substantially
exceeded losses which has permitted the retirement of Treasury and Federal
Reserve capital amounting to $289.3 million (all repaid to Treasury), and the
accumulation of $1.7 billion reserve as of December 31, 1956. The Corporation’s
holdings of public debt securities as of that date amounted to $1.8 billion which
already appears in the public debt total. Out of $241.4 billion of assets in insured
banks as of December 31, 1956, $63.5 billion are in public debt securities (also
reflected in the public debt). The assets, both of insured banks and the Federal
Deposit Insurance Corporation, as well as the continued income of the Corpora
tion from assessments and other sources, stand between insured deposits and the
Government's obligation to redeem them.
2. The face value of life insurance policies issued to veterans and in force as of
December 31, 1956, amounted to $43.6 billion. This does not represent the
Government’s potential liabilities under these programs since some of these
policies will probably be permitted to lapse and future premiums, interest and the
invested reserves amounting to $6.7 billion of public-debt securities should cover
the norma] mortality risk.
3. Under the Federal Reserve Act of 1913, as amended, Federal Reserve notes
are obligations of the United States which as of December 31, 1956, amounted to
$27.5 billion. The full faith and credit of the United States is behind the Federal
Reserve currency. These notes are a first lien against the $52.9 billion of assets
of the issuing Federal Reserve banks which includes $24.9 billion of Government
securities already included in the public debt. These notes are specifically secured
by collateral deposited with the Federal Reserve agents which as of December 31,
FINANCIAL CONDITION OF THE UNITED STATES
81
1956, amounted to $17.6 billion in Government securities and $11.6 billion in
gold certificates.
Long-range commitments and contingencies of the U. S. Government as of Dec. 31,
1956
[In m illions of dollars]
C om m itm en t or contingency and agency
Loans guaranteed or insured b y G overnm ent agencies:
Agriculture D ep a rtm en t:
C om m od ity C redit C o r p o r a t io n ............... ..................................................
Farm ers’ H om e A dm inistration: Farm tenant m ortgage insurance
fu n d ________ _____________________ _____ ________ ____________ ________
C om m erce D epartm ent: Federal M aritim e Board and M aritim e A d m in
istration________________________________________ ________ ________________
E xp ort-Im port Bank of W ashington............................................. ......................
H ousing and H om e Finance A gency:
Federal H ousing A dm inistration:
Property im provem ent loans__________ _________ _________________
M ortgage loans______ ___________ _________________________________
Office o f the Adm inistrator: Urban renewal fu n d ____________________
P u b lic H ousing A dm inistration______________________________________
International Cooperation A dm inistration: Industrial guaranties 5______
Small Business A dm inistration_______ _____ ____________ _________ ______
Treasury D epartm ent: Reconstruction Finance Corporation (in liq u id a
tio n )____ _______ ________ ______ _________________________________ _________
U . S. inform ation A gency: Inform ational m edia guaranties_____ ________
Veterans' A dm inistration_______ _________________________________________
D efense P roduction A ct o f 1950, as am ended.............................. ......................
T o ta l loans guaranteed or insured b y Governm ent agencies.
Insurance in force:
A griculture D epartm ent: Federal C rop Insurance C orporation...... .........
C iv il Service C om m ission: E m ployees' life insurance________ _______ ____
E xport-Im port Bank o f W ashington...................... ...........................................
Federal D eposit Insurance C orporation..................... ....... ........... ....................
H eld b y insured com m ercial and m utual savings ban ks_____________
Federal H om e L oan B an k B oard: Federal Savings and L oan Insurance
C orp oration _____ __________________ ______ _________ ______ _____________
H eld b y insured institutions................... ........................................................
V eterans' A dm inistration:
N ational service life insurance.................. .................................................U . S. G overnm ent life insurance...................................... ...........................
T o ta l insurance in force..
O bligations issued on credit o f the U nited States: Postal Savings certificates:
U nited States Postal Savings S ystem .................................................................
C anal Zon e Postal Savings System ............................................. ......................
T o ta l postal savings certificates..
Other obligations: Federal Reserve notes (face amount)............................. ..
Undisbursed commitments, etc.:
To make future loans:
Agriculture Department:
Commodity Credit Corporation............................................. .
Disaster loans, etc., revolving fund____ _____ ______ ______ _
Farmers Home Administration: Loan program........................ .
Rural Electrification Administration.........................................
Defense Department: Loan to Peru 3........... .................................. .
Export-Import Bank of Washington:
Regular lending activities................................... ...................... .
Defense Production Act of 1960, as amended..............................
Housing and Home Finance Agency:
Office of the Administrator:
College housing loans......... ................................................ .
Liquidating programs.......................................... .............. .
Public facility loans............................................................ .
Urban renewal fund..............................................................
Public Housing Administration..................................................
Interior
Department:
Defense
Minerals Exploration Administration: Defense Produc
tion
of I960,
as amended.................................................— .
VirginAct
Islands
Corporation..................................._......................
dee footnotes at end of table, p. 82.
Gross
am ount of
com m itm ent
or
contingency
Public-debt
securities
held by
Governm ent
and other
agencies
i $791
2 146
4 296
19.432
67
2,857
96
$.50
412
20
•10
8
15,986
309
40,069
^307
10
362
10,084
120,996
1,830
63,465
34,000
258
2,559
41,974
1,632
5, 472
209,003
74, 77S
* 1,621
1,610
1,627
1,623
«6
27,476
1I
2
11 I
668 |
9
1,553
1
138
(*) 2
104
241
<*)
1,1*1
82
FINANCIAL CONDITION OF THS TJNITW> STATES
Long-rangecom
m
itm
ent!andcon
iesoftheU.S.Governm
entasofDec.SI.
1t9in
6g
6e—ncContinued
[Inxnfflksisof doUan]
Commitment or contingency and agency
Gross
amount of
commitment
or
contingency
Undisbursed commitments, etc.—Continued
To make future loans—Continued
International Cooperation Administration: Loans to foreign coun
tries •___________________ ____ ______ _____________
Small Business Administration..................-..........................
Treasury Department:
Reconstruction Finance Corporation (in liquidation)...........
Defense Production Act of 1080, as amended------------ ------Federal Civil Defense Act of 1950, as amended.................. .
Veterans* Administration (veterans' direct-loan program)---------
To purchase mortgages:
Agriculture Department: Farmers’ Home Administration: Farm
tenant mortgage insurance fund......................... .................... .
Housing and Home Finance Agency: Federal National Mortgage
Government
and other
agencies
$446
87
2
7
3
21
3,252
Total undisbursed commitments to make future loans..
-Other nndfcbunwyl commitments:
Agriculture Department: Commodity Credit Corporatftm............ .
Housing and Home Finanoe Agency: Federal National Mortgage
Association:
Management and liquidating functions..................................
Secondary market operations...................................... -.........
Special assistance functions....................................................
Treasury Department:
Federal Facilities Corporation................................................
All other.............................................................................
Total, other undisburaed commitments..
Public-debt
securities
held by
607
(*)
<*)
<*>
Association:
Management and liquidating functions........................... -......
Secondary market operations.................................................
Special assistance functions.................................... ..............
Total commitments to purchase mortgages.
To guarantee and insure loans:
Agriculture Department: Farmers' Home Administration: Farm
tenant mortgage insurance fund..............................................
Commerce Department: Federal Maritime Board and Maritime
Administration............................ ........................................
Housing and Home Finance Agency: Federal Housing Administra
tion.......................................................................................
Small Business Administration...................................................
Defense Production Act of I960, as amended..................................
Total commitments to guarantee and insure loans.......................
TJnpaid subscriptions: International Bank for Reconstruction and Develop
ment................................................................................................
8
18
3,672
7
102
3,807
% 640
1The Corporation finances part of its activities by Issuing certificates of Interest to private lending agencies *
The outstanding amount of $208million as of December 31,1956, Is included in this figure.
aIndudes accrued Interest of $1 million.
•Less than $600,000.
• Represents the Administration’s portion of Insuranoe liability. The estimated amount of insurance In
fores and loan reports in process as of December 31,1066, is $1,081 milHnn. Insuranoe on loans shall not
exceed 10 percent of the total amount of such loans.
1The Export-Import Bank of Washington acts as agent in carrying out this program.
i Includes loans sold subject to repurchase agreements and deferred participation agreements.
1 Represents estimated insurance ooverage for the 1066crop year.
•Excludes accrued interest.
•Includes public debt securities amounting to $17,606 million that have been deposited with the Federal
Reserve agents as specific collateral.
Nor*.—The above figures are subject to the limitations and precautionary remarks, as explained in the
note attached to this statement.
The C h a ir m a n . Take the Federal housing programs.
real contingent liability?
Secretary H u m ph r ey . Yes.
Are they a
FINANCIAL CONDITION OF THE UNITED STATES
83
The C h a i r m a n . There is approximately $40 billion in current gross
housing program authority, exclusive of additional billions in authority
to insure veterans housing loans.
Secretary H u m p h r e y . That i s right.
The C h a i r m a n . I don’ t mean for you to do the impossible. If you
think you cannot give an opinion just say “ I am unable to give an
opinion.”
Secretary H u m p h r e y . Fine.
The C h a i r m a n . But I would value your opinion very highly for
future reference.
Just state frankly to what extent you think these liabilities will
becom e a charge some day upon the Treasury.
Secretary H u m p h r e y . W e will do that and be very glad to.
The C h a i r m a n . Now, Mr. Secretary, the best figures available in
dicate that all taxes for fiscal year 1958 Federal, State, local, individual,
corporate, payroll taxes amount to a total of $110 billion.
This is equivalent to nearly one-third of the current national income.
H ow long do you think our competitive-enterprise system can stand
a total tax take of this magnitude?
Let me break that down a little further.
The Joint Committee on Internal Revenue Taxation under M r.
Stam estimates that m any corporations pay in all taxes of 60 percent
of their income. That means the Federal, State, and local taxes,
including the unemployemnt taxes, the social security taxes, and so
forth. That leaves 40 percent for dividends, development, and
incentive.
Then, as you know, individuals pay from approximately 18 percent
o f their income to 91 percent.
I know it is a big question, but your opinion briefly as to how long
our com petitive enterprise system can continue under the current
tax burden would be helpful. After all, the profit m otive is the
m otor, so to speak, that turns our private enterprise system and
makes it go.
H ow long can we stand taxation of this magnitude?
Secretary H u m p h r e y . I believe, M r. Chairman, that the nearest
figure you can get to total taxation as compared to national income is
about 31 percent. I am convinced, as you have indicated, that you can
not over a long period take 31 percent of national income in taxes and
have that spent b y public authorities and maintain the kind of a system
that we have had.
Y ou are impairing the individual’s rights and liberties, the indi
vidual incentives, the individual desires to save.
A t that rate of taxation you create so m any imbalances that I
think you will get into serious difficulty if that is continued over a
long period.
N ow as I said to you yesterday, I don’t think anybody can tell what
that period m ay be. The period is going to be determined very largely
b y public appreciation o f what is going on and how serious it is and
how they feel about it, and it is very difficult to estimate when that
will take place.
B ut I have said ever since I have been here, and I cannot repeat it
too strongly, that our present rates o f taxation in m y opinion are too
nigh to be maintained over a period o f years, and that we should
lh ap e our affairs to reduce those at the earliest possible moment.
84
FINANCIAL CONDITION OF THE UNITED STATES
I just want to add this, which I have always said and which always
also has to be kept in mind.
When you are living in a world that is the kind of a world we have
that we are living in today, and when you have got a pistol pointed
at your head and the man says “Give me your money or give me your
life,” he is going to get the money first instead of the life.
Now we are in that position to a certain extent.
I hope and pray that the time will come when the pistol will be
put down, but as long as the pistol is there, you have got to balance
out whether you give your money or your life over a period of time
and balance how you conduct your affairs in that way.
You have got to see that you have got a pistol of your own that is
pointed at him that will be just as effective as his for a stalemate.
The C h a i r m a n . There is a tremendous increase in domestic ex
penditures. Who is pointing that pistol?
There is where the biggest increase in expenditures has come during
this administration. It has not been in the military.
Secretary H u m p h r e y . Y o u said that the other day.
I don't think that is quite right. This increase period, I think it is
about 50-50, the last couple of years.
The C h a i r m a n . We will take the low budget that Mr. Eisenhower
brought in, for which he is to be tremendously commended, in 1955,
64.6, including roads.
Now he brings in a budget now of 73.6 or more including roads, and
the increase in the domestic expenditures in that was $6 billion or
more?
Secretary H u m p h r e y . Of course if you put the roads in, you distort
the figures somewhat.
The C h a i r m a n . It would seem they should be included in the 1958
figure for purposes of proper comparison, but we argued that yesterday
and won't go into it agam.
Actually, the domestic-civilian increase is even higher than that.
For this comparison I have not included in the 1958 figures $0.5
billion for Federal National Mortgage Association and $0.6 billion
for the postal deficit. Both of these items, along with roads, were
included in the 1955 figure, and excluded from the 1958 expenditure
total of $71.8 billion. If they were counted for proper comparison,
the 1958 estimate would total $74.7 billion. On this basis 1955
expenditures for military and so-called national security totaled $38.3
billion and the 1958 estimate is $40.7, an increase of $2.4 billion;
1955 expenditures for foreign aid and international affairs totaled
$4.5 billion and 1958 estimate is $5.1 billion, an increase of $0.6;
the 1955 expenditures for domestic-civilian programs totaled $21.8
billion and the 1958 estimate is $28.9 billion, an increase of $7.1
billion. But I will not count the postal deficit until we see what hap
pens to the proposal to raise the rates.
Secretary H u m p h r e y . Yes. I f you put the roads in, it is 2 to 1.
The C h a i r m a n . The figures stand for themselves.
Secretary H u m p h r e y . That is right.
The C h a i r m a n . They are in the record. (See table 2, p . 42.)
Secretary H u m p h r e y . That is right.
The C h a i r m a n . Now Mr. Secretary. I am going to ask vou my
final question.
FINANCIAL CONDITION OF THE UNITED STATES
85
M r. Secretary, I want to summarize what I regard as the dangers
o f our present "fiscal situation, this represents m y concern as to our
present situation.
1. Our debt has reached the level of the permanent statutory debt
limit. I am of the firm opinion that the Congress will not extend the
$3 billion additional temporary debt ceiling, which expires on June 30,
1957. In fact, I would say that any debt now in excess of $275 billion
would be dangerous, and fiscally unsound. Authority for any addi
tional debt wul be difficult to obtain from Congress.
2. I am convinced that we have reached maximum taxation and
that further increase in taxes would not only result in great hardship
to individuals and injury to the competitive enterprise system but
would, in some classifications, at least, result in diminishing returns.
3. New inflation has started. From April 1956 to April 1957
the dollar lost 2 cents of its 100-cent value^—the equivalent of
4 percent o f the present dollar. This new inflation will, in all likeli
hood, continue, and may, in fact, be accelerated. The present dollar
is now worth 49.8 cents” as compared to 1940. I f this debasement of
the dollar continues, most serious consequences will result.
4. W e have no reserves to meet even a slight business recession.
Colin F. Stam, the chief of staff of the Joint Committee on Internal
Revenue Taxation estimates that if we return to the national income
o f 1955, just 2 years ago, a loss in tax revenue of $13 billion will result.
This was confirmed yesterday b y you. A $13 billion loss in revenue
will mean a deficit of $12 bulion, which, should it occur, will shake
the financial foundation of this country to a dangerous degree.
As I understood you yesterday, you would not regard a return to the
national income to its 1955 level as a serious recession. So, taking
the situation as a whole, we are certainly skating on very thin ice.
W e cannot expect business prosperity to go up and up. History
shows there have always been peaks and valleys in business activity.
In fact, to date the budget has been balanced only once in the past
4 years and that was in fiscal 1956, when the surplus was $1.6 billion.
In fiscal 1957 there is some uncertainty as to whether or not the
budget will be balanced, due to unanticipated increases in expenditure.
For fiscal 1958 the President has indicated his budget as presented
was in precarious balance depending upon two uncertainties: first,
the increase in postage rates, and second, a continuing increase in
national prosperity at a rate of approximately 6 percent.
All in all, this presents to me a picture of the most dangerous
implications, and certainly some preparation should be undertaken
to avoid or meet the evils that would result from even a slight recession
in future national income.
W hat do you think should be done?
N ow Air. Secretary, I am not going to ask you to answer this now,
but very seriously I would like you to answer that question directly
treating all the points I mentioned, right down the line. I know
your opinions wiU be sincere and honest, as to what should be done
to avoid the evils which would result from the conditions that I have
described. W e are geared so highly to income taxes, I am especially
anxious to have your views on the effects o f even a slight recession
an revenue, deficit spending and debt.
86
FINANCIAL CONDITION OF THE UNITED STATES
I don’t want you to give a quick answer now. But I would appre
ciate the benefit of your views for the record. When your answer
is submitted it will be made part of the record.
Secretary H umphrey. I will be very glad to do so, Mr. Chairman.
(Secretary Humphrey later submitted the following for the record:)
T
he
Secretary
of
th e
T
reasury,
Washington, July 18, 1957.
Hon.
H
arry
F lood B y r d ,
Chairman, Committee on Finance.
D e a r M r . C h a i r m a n : I am glad to give you the following answers to the
questions you asked of me when you summarized what you regard as ‘the dangers
of our fiscal situation.”
I share some of your concern, but, I think, perhaps not to the same extent.
I do not believe that great difficulties are inevitable. The good sense of the
American people in the conduct of their own affairs supported by appropriate
action by the administration and the Congress, can minimize, if not entirely
avoid, most of the difficulties you fear, but this will not be easy. It will take
careful thought and analysis and persistent and courageous effort by all concerned.
More BpecificaUy:
1. I hope very much that there will be no necessity for increasing the debt
limit, even temporarily. As you know, we have worked very closely with you
for the past 3 years on narrower margins than were previously thought possible
in order to preserve this debt limit and still permit the Government to function.
I believe in the debt limit. It is a wholesome deterrent to undue spending and
it would be unfortunate if it had to be increased permanently, barring, of course,
some unforeseen change in worldwide conditions.
2. I agree with you that a further increase in taxes is not only undesirable but
I do not think it could be accomplished and accepted by the public unless some
very unusual and unforeseen conditions would justify it. In fact, I will go further
and again repeat what I have said so many times before: I believe our present
taxes are far too high and must be reduced in successive reductions over a period
of time whenever an excess of receipts over disbursements becomes available in
sufficient amount to justify a decrease in taxes, which should then be made
concurrently with the accrual of the excess. I think our fiscal policy should be
so fashioned that this will result.
3. I hope that the fear of inflation will continue to concern us because infla
tionary pressures are incident to prosperity. Just a little continuous inflation,
which is often urged, is neither inevitable nor desirable. The happiest situation
for the people of this country is to have our economy so balanced between infla
tion ana deflation, with both in such good control, that neither predominantly
develops. This is best accomplished by relying principally upon the good sense,
the industry, and the great care with which the American people are capable of
looking after their own affairs, aided by proper governmental monetary and fiscal
policies. It will however, require courageous action, promptly taken, probably
against criticism, but which, in the end, will prove its worth in better times and
better living for our whole Nation.
4. I cannot agree with you that we have no reserves. The United States has
a real reserve of credit. Our governmental credit is not unlimited, but as long
as we have a Government in power which not only believes in, but practices,
sound monetary and fiscal policies, controls its expenditures, and is wise in its
operations, the Government of the United States has ample credit and the people
will have sufficient confidence in it to meet its needs for financing for whatever it
properly may require.
Finally, I do not think it particularly significant to consider what might happen
if we returned to the level of governmental receipts in fiscal 1955 which reflect
national income levels of 1954. Our population is growing; our individual earn
ings are increasing; our whole economy has been expanding, and, I hope, will con
tinue to do so. We have had a substantial growth in both population and in
income since 1954 as well as in the number of income producers and people em
ployed. If we were to reduce our total governmental income now to the dollar
amounts of 1955, it would involve mich higher unemployment and deeper cut
backs in production than occurred in 1954 because of this growth in the meantime.
I do, however, share your belief which is based on history that the economy
will not grow continuously and uninterruptedly. We will have periods when
buying will not be as extensive, confidence will not be as great, and jobs will not
FINANCIAL CONDITION OF THE UNITED STATES
87
be as plentiful nor the income of the people or of the Government as large as at
other times. Just when conditions may develop that will effect such changes, it
is impossible for anyone to forecast. How much conditions might change, what
might be the immediate causes, and how they should best be met can be told
only as the conditions unfold and the problems are presented.
It is not as productive to speculate in such unknown areas as to spend our
time, our thought, our energies, in forceful and persistent efforts to best handle
the problems that face us today. By handling them properly now we will at least
lessen, if not entirely avoid, many problems of tomorrow. Inflationary pressures
already may be abating. Some o f the indexes are leveling off. Natural reactions
may be forming. These approaching changes never are crystal clear but we must
watch with the greatest care to revise our flexible policies as soon as and whenever
changing conditions warrant.
I would like to again emphasize what I said in my opening statement. We
should continue to work to reduce Federal expenditures, to reduce the public
debt, to achieve a sufficient surplus to allow an equitable cut in taxes. We should
continue to encourage saving by all o f the people, with sound money and incen
tive for initiative and with more dependence by the people on themselves and
less on the Government. These are the ways by which the levels of living for
our people will rise most rapidly in the years ahead.
Yours very truly,
G e o r g e M. H u m p h rey ,
Secretary of the Treasury.
The C hairman. M r. Secretary, you have been very patient and
very kind about answering questions and very frank.
N ow I turn you over to the tender mercy of Senator Kerr.
Secretary H umphrey. I hope your appraisal is correct.
Senator B ennett. Mr. Chairman, an inquiry.
The Senate goes into session in 7 minutes. Has the chairman
decided the status of this committee?
The C hairman. W e will be notified if there is any voting or any
other necessity for us to be on the Senate floor. In that event we will
adjourn immediately.
The Japanese Prime Minister comes in at 12:30.
Senator B ennett. Of course, as the chairman knows, there is a
rather unusual parliamentary maneuver scheduled sometime today.
The C hairman. There are some southerners on this committee and I
imagine that we will want to be there.
Senator F landers. M r. Chairman, is it too late to have the Senate
proceedings televised for our benefit?
The C hairman. These proceedings?
Senator F landers. The Senate proceedings.
The C hairman. I am afraid we could not make those arrangements
now.
Senator Kerr?
Senator K err. Thank you very much, Mr. Chairman.
I want to express m y appreciation for the very objective and
statesmanlike approach that the chairman has taken in this inquiry.
In m y judgment insofar as he is concerned, he is highly negating
the charges made on the floor yesterday that Democratic members
o f this committee were making this investigation a political maneuver.
I am glad that the chairman has done what he has in the way that
he has because I feel there is somewhat less of a burden on me to
devote the m ajor part of m y effort to maintaining that same atmos
phere.
M r. Secretary, you have been pronouncing here with a considerable
degree of facility and eloquence the principle that the chairman or
y o u or som ebody should not try to sell fur coats in August.
88
FINANCIAL CONDITION OF THE UNITED STATES
Secretary H umphrey. Should not trv to what?
Senator K err. Should not try to sell fin* coats or fur-lined under-*
wear in August.
Secretary H umphrey. Yes, sir; I think that is right.
Senator K err. I think that is a very wholesome admonition.
What I would like to know is why in violation of that principle
you did just that thing in the offer of your $4 billion renewal in May.
0
TT
AT 1
1j j1 chairman just a minute
We were in a position
________________________ __ ances that were entirely
appropriate for that purpose, and we offered in addition to the usual
short term security of 11 months an alternative proposal of nearly
5 years maturity just to see what the market would develop, and to
keep tryingto stretch out the debt a little.
Senator K err. Y ou knew what month it was?
Secretary H umphrey. Yes, sir.
Senator K err. And you made the statement repeatedly to the
chairman that you gaged your offering so as to hit the market right
on the nose?
Secretary H umphrey. That is right.
Senator K err. I take it that in that regard you were avoiding
that very unwise suggestion of selling fur-lined underwear in August?
Secretary H umphrey. We offered an alternative proposal to see
just how it would develop.
Senator K err. But you offered it as you said and you took full re
sponsibility for doing so right on the market?
Secretary H umphrey. That is right.
Senator K err. But they did not sell?
Secretary H umphrey. Well, they sold about what we estimated.
Senator K err. The holders of those maturing securities were not
the only ones who could have taken advantage of the offer?
Secretary H umphrey. They were the only ones that could.
1
pbody else could get in would be to buy the rights
Senator K err. D o vou suppose that if the rights had been worth
anything that those who owned them would have hoarded them and
made the sacrifice of not selling them?
Secretary H umphrey. N o, the rights would have been available for
sale.
Senator K err. Aren’t they always available for sale?
Secretary H umphrey. They are available.
Senator K err. Aren’t they always available for sale?
Secretary H umphrey. Sometimes they are not purchased.
Senator K err. Aren’t they always available for sale?
Secretary H umphrey. Somebody usually has some for sale.
Senator K err. They are always available for sale if the holders dOf
not want to take advantage of the offer of renewal, aren’t they?
Secretary H umphrey. That is right.
Senator K err. And wasn’t one of your offers for new forms of
indebtedness on a short-term basis?
Secretary H umphrey. That is right.
Senator K err. And yet there was a billion two hundred million not
accepted?
Secretary H umphrey. It was 1.156 billion, but I won’t quarrel with
you over that.
FINANCIAL CONDITION OF THE UNITED STATES
89
Senator K e r r . I don't want to quarrel over anything because there
is a way for us to address ourselves to these matters factually, and I
want to say that I am going to try to do that myself and try to help
you to do the same thing.
Secretary H u m p h r e y . Good, and I will try to help you.
Senator K e r r . Then we ought to get somewhere.
Secretary H u m p h r e y . And I hope the same limitations that you
have suggested for yourself from the chairman's conduct will also
apply to me.
Senator K e r r . I want to say you established that precedent when
you read a speech prepared for you by the chairman of the Republican
National Committee here 2 days ago. I want to say that any po
litical obligations you had to your administration, if they were not
met by your statement, I don't know how they could be.
Secretary H u m p h r e y . I hope you will give credit where credit is
due, however.
Senator K e r r . I will try to and I am not going to charge too much
interest on it.
I have here an editorial from the Wall Street Journal of June 3,
1957, headed “Fiscal Mess."
Neither you nor I have any control over that paper, but it has been
in your corner a lot more often than it has been in mine.
Secretary H u m p h r e y . I am not sure of that.
Senator K e r r (reading):
Early this spring the Treasury raised its interest rate on Government savings
bonds from 3 percent to
percent. Despite this the parade of people walking
up to cash in their savings bonds has hardly diminished.
Early this month the Treasury, faced with the jo b of refunding nearly $4.2
billion of the public debt, offered a 57-month note at 3% percent. It was a flop.
People who held the expiring securities preferred cash over the new Treasury notes
to the tune of $1.2 billion.
And just a week ago Treasury officials gave up hope of selling the public a
long-term bond to raise cash.
I wonder if that is correct.
Secretary H u m p h r e y . It is to the extent that
I don't believe that
you can wisely sell a long-term bond to raise cash today. I don't
think it would be a desirable thing to do.
Senator K e r r (reading):
They found the market was not receptive at the interest rate the Treasury was
willing to pay.
In the meantime the Government’s expenses have been rising and tax collec
tions have been coming in only “ moderately well.” The national debt is already
jonie $5 billion more than it was 4 years ago and officials expect it to go higher
before it goes lower.
Although there are plenty more such unhappy statistics, this is enough to show
tnat when Robert Anderson takes over as Secretary of the Treasury this summer
tL
bis jo b cut out for him.
r u
simple, and incontrovertible fact is that the Government o f the
ton ed States is in a fiscal mess.
1° put it bluntly, the Treasury of the richest Nation on earth is short of money,
t one point this spring it had hardly enough cash to pay a week's worth of bills
with current spending rising faster than current income despite the balanced
Duafet, the squeeze threatens to get worse.
I read that, Mr. Secretary, because it suggests to me either that
J^were trying to sell “fur-lined underwear in August" when you
^ ose renewals last May or that you were mistaken when you
** that you gaged the market situation accurately and offered them
90
FINANCIAL CONDITION OF THE UNITED STATES
right on the nose. If you have any comment to make on that, I
would be glad to have it.
Secretary H umphrey. Yes, Senator. I told the chairman that this
was a very good opportunity for us to offer this in this way. We
have goods to sell right along, and so far as being in a crisis is con
cerned—in a way I have been in a crisis or 2 or 3 crises at a time for
the last 4% years and I have gotten kind of used to them and we are
not in any more crises now tnan we have been at any time since I
have been here.
Senator K err. Are you in any less of one than you were when you
got here?
Secretary H umphrey. Well, yes, I think we are.
There are a great many places that are in much better shape than
they were then.
Senator K err. I am talking about the Treasury now.
Secretary H umphrey. That is what I am talking about.
I am talking about the Treasury entirely, and I think it is in much
better shape than it was.
We did this, this was a sale just as you would make it in your store
or any other place to test your market and see what your market was
to be sure just how you were going to conduct yourself in the future,
and we were prepared to handle exactly the situation that arose, so
that there was no surprise or nothing unusual about this at all.
Senator K err. Then these observers in such publications as
Barrons, the Wall Street Journal, the New York Herald Tribune and
others who indicated that they were quite shocked at what had
happened were just not aware oi the degree of the crisis to the extent
that yon were?
Secretary H umphrey. No, no. They have to have things to write
about.
As you know, a lot of sensation makes good newspaper writing.
Senator K err. And I thought too, it was quite a sensation at that
time. That is what I am talking about.
Secretary H umphrey. There were some articles that attempted to
make it so and there were a lot of other articles that pointed out what
an error that was, so we can read each others’ articles back and forth
on both sides, and there were articles, just as many on one side as the
other.
Senator K err. In your statement, Mr. Secretary, in about the
middle of the page, the last sentence of the paragraph-----Secretary H umphrey. Which page?
Senator K err. Page 1.
It is a record of unequaled prosperity with both the blessings and the problem*
of such a period.
I understood at the time you were reading the statement that you
were referring there to the problems as being the problems in connec
tion with financing the public debt and the fiscal management policies
of the Treasury.
Secretary H umphrey. No. The problems that I referred to here
are the problems of inflation, the great problem of a period of high
prosperity is the problem of correlative inflation.
Senator K err. Let’s stop right there and get 1 or 2 things in the
record.
FINANCIAL CONDITION OF THE UNITED STATES
91
On June 12, 1953 there was an interview in the U. S. News & W orld
Report o f the then Secretary of the Treasury, M r. George Humphrey,
and one o f the questions was this:
When do you think we will have a sound dollar?
Answer. I think you have it today. 1 think the dollar today is a pretty
stabilized dollar.
That was a little over 4 years ago that you were quoted as having
said that.
D id you say that?
Secretary H umphrey . I did, and it proved to be so for 4 years.
I was right for at least 4 years.
Senator K err. Y ou said the other day that this last serious inflation
started a year ago in April.
Secretary H umphrey. I did not say there was a serious inflation,
and I don’t think there is.
I said it had lost two points in purchasing power in the last year.
Senator K err. Can you name any other peacetime year in the his
tory o f the Nation when it m oved that much?
Secretary H umphrey. Oh, yes. I can show you some that m oved
3 or 4 times that.
Senator K err. Peacetime years?
Secretary H umphrey. Yes, sir; peacetime.
Senator K err. That is going to be an interesting development.
Secretary H umphrey. I will let you do your own arithmetic.
Senator K err. No, you are the expert.
Secretary H umphrey. 1945 t o ------Senator K err. Was that a peacetime year, M r. Secretary?
Secretary H umphrey. Between 1945 and 1946 was, and that is
the comparison I am going to make.
Senator K err. Are you talking about fiscal 1915?
Secretary H umphrey . The period from 1945 to 1946.
Senator K err. If you are going to call either fiscal 1945 or fiscal
1946 a peacetime year------Secretary H umphrey. These are calendar years.
Take the calendar year 1946. It does not make any difference.
Take 1946. It was 71.2; 1947 was 62.2, or a difference o f nine cents.
The next year-----Senator K err. W ait a minute, let me go along with you. I don’ t
want to get derailed.
Secretary H umphrey . This table is on page 19 of m y statement.
T he C hairman. I am very sorry to interrupt, but we have been
called to the Senate floor.
W e shall meet again at 10 o ’clock tomorrow morning.
(Whereupon, at 11:10 a. m., the committee was adjourned, to
reconvene m executive session at 10 a. m., Friday, June 21, 1957.)
96819 0 —67--- 7
IN V ESTIG ATIO N OF TH E FIN AN CIAL CONDITION OF
TH E U N ITED STATES
FRIDAY, JUNE 21, 1957
U n it e d S t a t e s S e n a t e ,
C o m m it t e e o n F in a n c e ,
Washington, D. C.
The committee met, pursuant to recess, at 10 a. m., in room 312,
Senate Office Building, Senator Harry Flood Byrd (chairman)
presiding.
Present: Senators Byrd, Kerr, Frear, Long, Smathers, Anderson,
Gore, Martin, Williams, Flanders, Malone, Carlson, and Bennett.
Also present: Senator Bush.
Elizabeth B. Springer, chief clerk; and Samuel D . M cllwain,
special counsel.
The C h a i r m a n . The committee will come to order.
Senator Kerr is recognized.
STATEMENT OF HON. GEORGE M. HUMPHREY, SECRETARY OF
THE TREASURY—Resumed
Senator K err. M r. Secretary, yesterday we were discussing the
sharp rise in living costs and the shrinkage of the purchasing power
o f the dollar which occurred between April of 1956 and April of 1957.
According to the table that you gave us, it had been about 3.8
percent in the 12 months.
Secretary H umphrey. That is right, it had been 1.9 cents.
Senator K err. And we do not have those for M ay, but I anticipate,
o f course, when that index is released it will show an additional rise.
Secretary H umphrey. Well, I think you would have a right to
expect that.
Senator K err. I asked you if you knew of any other peacetime
year in which there had been that much change in that direction, and
I believe you said there were many of them, and you had called m y
attention to 1946, 1947, and 1948.
Secretary H umphrey. That is correct.
Senator K err. What was the extent of it, on the basis of the
information that you have there, in 1946?
Secretary H umphrey. As compared with the 2 cents in the past
year, it was 6 cents in 1946; it was 9 cents in 1947; and it was 4.4
cents in 1948.
Senator K err. D o you have a suggestion as to what might have
caused the increase in 1946?
Secretary H umphrey. No, I do not, M r. Kerr.
93
94
FINANCIAL CONDITION OF THE UNITED STATES
Senator K err . D o you remember that that was the year price
controls were terminated?
Secretary H umphrey. Well, I do not remember; but I have no
doubt, if you say they were, that was it.
Senator K err. I am asking the questions. You have a staff
present who can advise both of us if that is correct.
Secretary H umphrey. Yes; they say that is correct. June 1946.
Senator K err. Now, do you have any suggestion as to the basis of
the sharp rises in 1947 and 1948?
Secretary H umphrey. I do not think necessarily the release of
price controls should account for the sharp increase. We released
price controls the first year we were here, and we did not have any
sharp increase.
Senator K err. Did you have anything like the same pent-up de
mand for goods and wares, and did you have the limited productive
facilities as we had in 1946?
Secretary H umphrey. No, I do not—we had greater productive
facilities at that time. The country had grown, and I think we had
greater productive facilities and, of course, the Korean episode was
not comparable to the Second World War.
Senator K err. What was the gross national product in 1946?
Secretary H umphrey. $209 billion.
Senator K err. $209 billion?
Secretary H umphrey. Yes.
Senator K err. What was it when you ended controls?
Secretary H umphrey. $345 billion.
Senator K err. $345 billion?
Secretary H umphrey. Yes.
Senator K err. That was quite an increase in productive facilities.
Secretary H umphrey. Oh, yes. The country is growing right
along; it has grown up every year.
Senator K err. Yes.
Secretary H umphrey. But relatively, I suppose things would be
about the same. The labor forces and productive factors all have
moved up, of course, to accomplish this. And the very fact that in
the meantime we had these very sharp price increases, these very
things we are talking about, of course greatly increased those figures
we are talking about; because every time the dollar goes down, the
gross national product goes up.
Senator K err. We are talking about a lot of figures.
Secretary H umphrey. Let me make it perfectly plain. Every
time the dollar goes down as it was going down very rapidly during
this period that you are talking about, that meant that the national
gross product figures were going up. Because the gross product rises
as the dollar goes down, the figures go up.
Senator K err. Well, do you have the figures there of the produc
tive ouptut in 1953 as compared to 1946?
Secretary H umphrey. I just gave you those.
Senator K err. On an adjusted basis?
Secretary Humphrey. No, I do not have them adjusted.
Senator Kerr. Well, you have a man there who can figure it for us*
Secretary H umphrey . Well, let’s see if he can. I do not know
whether he can do it that quickly.
S en io r K err. While we are talking about something else, let’s
see if he can*
FINANCIAL CONDITION OF THE UNITED STATES
95
Secretary H u m p h r e y . Let him try.
He says this, I hope it is right: that it went from 290 in 1946 to 366,
on an adjusted basis.
Senator K e r r . In what year?
Secretary H u m p h r e y . Well, it was from 1946 to 1952.
Senator K e r r . T o 1952.
Secretary H u m p h r e y . That is right. Both inclusive.
Senator K e r r . N ow , the 1947 and 1948 years, was there anything
special about those years, do you recall?
Secretary H u m p h r e y . I do not recall, Senator.
Senator K e r r . Did you ever hear of the Republican 80th Con
gress? [Laughter.]
Secretary H u m p h r e y . Yes, indeed.
Senator K err. D o you remember the big fight in 1947 about a
tax-reduction bill which was twice vetoed and had been passed over
the veto of the President, against the warnings that the result of it
would be inflationary?
Secretary H u m p h r e y . I do not know that I do recall that; no.
But I think— I think there was something of that kind, but I do not
remember just when it occurred.
Senator K e r r . Weil, I have here in the hearings before the Joint
Economic Committee in January of 1957 (January 1957 Economic
Report of the President, Hearings before the Joint Economic Com
mittee, Congress of the United States, 85th Cong., 1st sess., p. 89), a
statement b y Ewan Clague, Commissioner of Labor Statistics, Depart
ment of Labor, on prices, which I think might be illuminative about
that period for both of us.
When we come to the last o f the subjects assigned to me, prices, we m ove into
an area in which there is no agreement at all as to the “ normal” trend.
Y ou would agree that that is a fairly accurate statement?
Secretary H u m p h r e y . Yes.
Senator K e r r (reading):
W e are now in the midst of the third period o f price increases during the past
10 years. The first (1947-48) was due to heavy demand arising out of war-created
shortages of goods. The second (1950-51) was due primarily to the outbreak
in Korea. Unlike the tw o earlier ones, the present price rise, which began in
mid-1955, is due entirely to strong forces of domestic origin in both consumer
and producer markets.
The charts show that there are several distinctly different factors at work in the
current price situation—
This is in January 1957—
in addition to the continuing strong demands resulting from our rising standards
of living and increasing population. One o f these has been the extremely strong
business demand for new plant and equipment. A second factor in price m ove
ments in 1956 was the firming up of the farm situation after several years of steady
decline. From the peak in early 1951 to the end o f 1955, farm prices fell about
30 percent * * *
D o you accept the accuracy o f that statement?
Secretary H u m p h r e y . I have no reason to doubt it.
Senator K erk . N ow, the 4 years with reference to which you said
in your statement there had been a decline in the purchasing power
o f the dollar o f only 0.8 cent for 4 years. W hat ao you thmk that
decline would have been had the farmer not been so severely penalized
b y the policies o f your Department o f Agriculture whereby his prices
96
FINANCIAL CONDITION OF THE UNITED STATES
went down, according to the Commissioner of Labor Statistics of the
Department of Labor, 30 percent?
Secretary H umphrey. Well, of course, as long as our Department
of Agriculture had to enforce the laws passed by the Democratic
administration, the farmer did suffer, and I presume there would be
some-------
Senator K err. That is quite a bad guess.
Secretary H umphrey. There would be some. [Laughter.]
Senator K err . That is quite a bad guess, because in the first place,
to the great detriment of the farmer, he has not been under the laws
passed by a Democratic administration during these 4 years.
And in the second place, the administrator of those laws was trying
to do it on the basis so as to nullify them instead of implement them.
But that is a matter of disagreement, and I do not care to get into it
with you.
Secretary H umphrey. Senator----Senator K err. The Commissioner of Labor Statistics of the Labor
Department says in those 4 years farm prices went down 30 percent.
Secretary H umphrey. Well, Senator, that was facetious, and I will
just omit it from now on.
Senator K err. Let’s not do that, because if we do not get a little
bit facetious here once in a while, we both might get serious.
[Laughter.]
Secretary H u m p h r e y . If farm prices had not gone down during that
period, the rise would have been somewhat greater. Just how muchr
1 do not know.
Senator K err. Well, it happens that the Joint Economic Commit
tee asked this gentleman to furnish that information, and he had a
good deal to say about the amount of rise or fall in the price index
caused by the price of food. And at page 154 of the hearings, he
makes this statement:
Let me say a word about our Consumer Price Index. It is very much influenced
by what happens to farm prices, because foods make up 30 percent of the weight
of the average family budget. So what Mr. Wells says about agriculture and
agricultural prices will have a great bearing on what will happen to our index. I
am quite sure that we wiU have continued rises in rents and services, but what
will happen to commodities is the question.
Then they asked him to make an estimate on what that rise would
have been had the price of food followed the trends of other commod
ities.
Secretary H umphrey. In which price was it he was going to adjust?
Senator K err. On how much----Secretary H umphrey. Consumer prices?
Senator K err. H ow much the rise would be on the figures we are
talking about here.
Secretary H umphrey. I thought you said----Senator K err. The Consumer Price Index.
Secretary H umphrey. Yes. That is different, you know, than the
purchasing power of the dollar.
Senator K err. Is there no relation between them?
Secretary H umphrey. Oh, yes, there is a relation, but they are not
the same.
Senator K err. Oh, no, they are not the same?
Secretary H umphrey. But there is a relationship.
FINANCIAL CONDITION OF THE UNITED STATES
97
Senator K e r r . Y ou figure the purchasing power of the dollar in
relation to the price index.
Secretary H u m p h r e y . The Consumer Price Index is the way of
measuring it.
Senator K e r r . That is the one you submitted to the committee,
is it not?
Secretary H u m p h r e y . Yes, that is it.
Senator K e r r . That is the one you submitted to the committee.
Secretary Humphrey. That is right. That is in my statement.
Senator K e r r . And you were fairly comprehensive in what you
presented to the committee.
Secretary H u m p h r e y . That is right. I try to be.
Senator K e r r . Well, and I am trying to stay with it, part of the
time. [Laughter.]
And later, at page 598 of the hearings, the following statement was
supplied b y Mr. Clague and Mr. Wells of the Department of Agricul
ture:
A third estimate is based on the data supplied by Mr. Wells, who has provided
another measure of the change in the food component, based upon the estimates
made by the Department o f Agriculture o f the change in value to the farmers of
their farm food market basket. The farm food value figure for February 1951
was increased by the change in our wholesale price index for all commodities, less
farm commodities and food. T o this figure was added the gross margin estimated
for December 1956 as estimated by the Departm ent o f Agriculture. This yielded
a theoretical current retail value for the farm food market basket. That figure
is 14.6 percent higher than the current actual cost to the consumer of that market
basket. Applying that 14.6 percent increase to the food component o f the Con
sumer Price Index produces an index of 122.7 in December of 1956, or 4 percent
higher than the actual index o f 118.
I cannot verify that, but I take it that until one of us can find a
better estimate, that of the Commissioner of Labor Statistics in the
Department of Labor would be entitled to some respect.
Secretary H u m p h r e y . I think that is right.
Senator K er r . Can your expert there figure for us the average
increase of the 4 years subsequent to the 80th Congress, being for the
years 1950, 1951— no, 1949, 1950, 1952, 1953, that is, except the------Secretary H u m p h r e y . L et’s see, that is 1949, 1950, 1951, and 1952?
Senator K e r r . And 1953.
Secretary H u m p h r e y . And 1953?
Senator K e r r . L et’s include the Korean war year.
Secretary H u m p h r e y . 1949------Senator K e r r . N o .
Secretary H u m p h r e y . Y ou want 1949------Senator K e r r . W e will pick up now after the 80th Congress.
Secretary H u m p h r e y . We will take now 1949------Senator K err . 1950.
Secretary H u m p h r e y . 1950.
Senator K err . 1951.
Secretary H u m p h r e y . 1951.
Senator K er r . 1952.
Secretary H u m p h r e y . 1952.
Senator K err . And 1953.
Secretary H u m p h r e y . And 1953.
I can pretty near do it in m y head. It is about 6 cents during that
period.
98
FINANCIAL CONDITION OF THE UNITED STATES
Senator K err. Well now, either you do not understand my question
or I do not understand your answer.
Secretary H umphrey. Maybe I am confused, then.
Senator K err. No, I would not think that.
What was it for 1949?
Secretary H umphrey. 1949, the dollar-----Senator K ebr . I am talking about the Consumer Price Index.
Secretary H umphrey. Well, wait a minute, then. That is the
other column.
1949, it was a minus 1.
Senator K err. No, it was 101.8, was it not?
Secretary H umphrey. Y ou want the total figure. I was giving
you the changes.
Senator K err. I am trying to get an average for the 5 years sub
sequent to 1948.
Secretary H umphrey. All right. It is 101.8.
Senator K err. Well, the first year it was minus 1, was it not?
Secretary H umphrey. Well, the change, if you want to stick to
change, is minus 1.
Senator K err. If we are going to get the average plus or minus,
you have got to figure it on the change.
Secretary H umphrey. That is the way to do it. It is a minus 1.,
The next year is a plus 1, which offsets it.
Senator K err. All right.
Secretary H umphrey. So the next year is 8.2.
Senator K err. It is a plus 8.
Secretary H umphrey. It is a plus 8.2.
The next year it is a plus 2.5.
And the next year, it is a plus 0.9.
Senator K err. All right. What do those three total?
Seecretary H umphrey. Those 3 total 11.6, is it not? I think it is 11.6*
Senator K err. All right.
Now, 11.6 divided by 5 is how much?
Secretary H umphrey. 2.3.
Senator K err. 2.3. What has it been in the last 12 months?
Secretary H umphrey. 1.9.
Senator K err. I thought it had been 3.8, according to your table.
Secretary H umphrey. On percentage.
Senator K err. Well, the same figures.
Secretary H umphrey. That is right. It is 3.8.
Senator K err. So that the 5 years-----Secretai^ H umphrey. Wait a minute. We are talking about—we
have got it in too many ways, Senator. It gets me confused.
Senator K err. I am taking it the way you gave it to me.
Secretary H umphrey. Yes.
Senator K err. If it does that to you, what do you think it is doing1
to the committee? [Laughter.]
Secretary H umphrey. There is a little confusion among the experts,
but I think it is 4.4.
Senator K err. 4.4-----Secretary H umphrey. I believe so.
Senator K err (continuing). In the last 12 months, as compared to
the average for those 5 years, including the Korean war years, of-----Secretary H umphrey. 2.3.
FINANCIAL CONDITION OF THE UNITED STATES
99
Senator Kerr. 2.3.
Secretary Humphrey. That is right.
Senator Kerr. Do you have there the figures giving the increase
in the gross national product, per year, for those 5 years, and then
for the last 12 months?
Secretary Humphrey. Let's see. I do not know as we have it for
the last 12 months, but we have it for the years.
Senator Kerr. I think you have got it. If you do not, I will give
it to you.
Secretary Humphrey. If you have got it, why do you not let us
have it, and we will have it.
Senator Kerr. I would rather have it from your expert, and then
you and I do not have to argue about the accuracy of it.
Secretary Humphrey. You want it for each of the years?
Senator Kerr. Yes.
Secretary Humphrey. Beginning with which year?
Senator Kerr. 1949, 1950, through 1953.
Secretary Humphrey. 257.3; 285.1; 328.2; 345.4; 363.2.
Senator Kerr. Is that the increase in each year in gross national
product?
Secretary Humphrey. No. These are totals. W e do not have
increases here.
That is inclusive of 1953, is that right?
Senator Kerr. Yes, sir.
That is correct. There were four increases.
Secretary Humphrey. W e divided by 5.
Senator Kerr. I took the 5 years with reference to the increase in
the price index, so to be fair about it I was taking the 5 years on the
basis of the increase in the national product.
Secretary Humphrey. Yes. But when I gave you the average,
I divided by 5 instead of b y 4. I think probably you ought to divide
b y 4, ought you not?
Senator K err. N o, you divide b y 5 both ways. If you are going
to figure 5 years and get the average, you have got to divide by 5,
although some of the years may be minus.
Secretary Humphrey. There are only 4 increases.
Senator K frr. I understand.
Secretary Humphrey. If you are going to get the average of
increases, you have to divide b y 4.
Senator K err. There were only 4 increases in the Consumers Price
Index.
Secretary Humphrey. I think they both ought to be divided by 4.
Senator Kerr. Y ou can do that later, but I am taking the average
of 5, and to be fair about it you have got to divide b y 5.
Secretary Humphrey. The figure he has got divided out here, if
you divide 4 increases b y 5 years, it is $21 billion a year average.
Senator Kerr. N ow then, what was it in 1956?
Secretary Humphrey. Y ou mean the increase compared to the last
o f these 5 years?
Senator Kerr. No, sir. I just want to know what the increase
was in 1956.
Secretary Humphrey. The total in 1956— the increase in 1956
lover 1955?
1 Senator Kerr. Yes.
100
FINANCIAL CONDITION OF THE UNITED STATES
Secretary Humphrey. $21.5 billion.
S e n a to r K e r r . A n d w h a t w a s it fo r e a c h o f th o s e o t h e r 5 y ea rs,
i n c l u d i n g t h e o n e in w h i c h t h e r e w a s a d e c r e a s e ?
Secretary Humphrey. It was an average of 21.
Senator K err. So that in the 5-year period there, even including
the Korean war period, the average annual increase in the Consumer
Price Index was how many points?
Secretary Humphrey. Twenty-one—
S e n a to r K
err
. 2 .3 ?
Secretary Humphrey. The average in the index-----Senator K err . 2.3.
Secretary Humphrey. If you divide by 5; and it is about 3 if you
divide by 4.
Senator K err. 2.3, which produced as much average annual in
crease in the gross national product as was true in the last 12 months,
approximately, where you had a 4.4 increase in the Consumer Price
Index and the same amount of increase in the national product.
Secretary Humphrey. I think that would be right.
Senator K err. Now then, Mr. Secretary, let us go back to your
statement of June 1953, in the U. S. News & World Report in which
you said we had a stable dollar. However, before we do, I want
at this point to put into the record the statement in the United
States Board of Governors, Federal Reserve System report, 1953,
beginning at page 21 of the 39th annual report, covering 1952, entitled
“ Prices” :
In sharp co n tra s t to the shortages and ra p id p rice advances a fte r th e o u tb re a k
o f w a r in Korea, supplies o f m ost m a te ria ls except c e rta in m e ta ls w ere ample
to m eet c u rre n t needs in 1952. Prices o f such m a te ria ls c o n s e q u e n tly eased and,
w ith fa rm prices declining, th e general level o f wholesale prices g ra d u a lly m oved
dow nw ard.
Prices o f finished goods changed lit t le o ve r th e ye a r, h o w e ve r, at
e ith e r wholesale o r re ta il. Wage rates rose a t a b o u t th e same ra te as in 1951.
Changes in c a p ita l values were m oderate. U rb a n real p ro p e rty va lu e s a n d fa rm
la n d values were generally m a in ta in e d and com m on sto ck p rices rose som ew aht
to w a rd th e end o f the year.
Consum er prices were a b o u t 1 percent h ig h e r a t th e end o f 1952 th a n a year
earlier. T he change m a in ly reflected h ig h e r ren ts a n d p rices fo r se rvices; food
prices were s lig h tly lower. W holesale prices were 3 p e rce n t lo w e r th a n a year
ea rlier, w ith especially sharp reductions in c o tto n , corn, a n d liv e s to c k .
M any
fa rm p ro d u c ts were a t su p p o rt levels a nd G o v e rn m e n t e x p e n d itu re s fo r price
s u p p o rt op e ra tio n s were large. D o m estic d e m and fo r c o tto n im p ro v e d som ewhat
b u t e x p o rt dem and declined sh a rp ly. T he n u m b e r o f c a ttle on fa rm s co n tin ue d
th e rise o f the preceding 3 years and reached a new h ig h .
C a ttle m a rke tin g
expanded ra p id ly a fte r m id ye a r and beef prices s ta rte d to de clin e s h a rp ly la te in
th e year. Prices o f some in d u s tria l m a te ria ls d eclined fu rth e r d u rin g th e yearA few m a te ria ls increased in p rice b u t n o t s u ffic ie n tly to p re v e n t th e in d e x o f basic
c o m m o d ity prices fro m d e clin in g considerably. Prices o f m o s t fin is h e d goods
remained exceptionally stable throughout the year.
Now, with that affirmation of stability through 1952, and your own
affirmation of stability in June of 1953, and with your being able to say
that in 4 years, due to the terrible penalization of farmers in the reduc
tion of their prices 30 percent, that the purchasing power of the dollar
declined only 0.8 cent in 4 years, I would like to ask you your explana
tion of the inflationary trend in the last 12 months that has sent the
consumer mdex up by, how much did you tell us-----Secretary H u m p h r e y . 4.4 points.
Senator K err. 4.4 points and 3.4 percent?
Secretary H u m p h r e y . 3.8 percent.
FINANCIAL CONDITION OF THE UNITED STATES
101
I think, Senator, you have conclusively proved that the best year
your administration had in about 12 or 13 years is a little better than
the worst year that we had in 4 years, and is not as good as our average
for the 4-year period.
Senator K err. That is a very intelligent and responsive answer,
Mr. Secretary [laughter], and again shows your attitude of unfairness
of including a comparison of the wartime years. I do not believe
that you want to do that, do you, Mr. Secretary?
Secretary Humphrey. I will take out the wartime years and take
the peacetime years.
Senator Kerr. W hy do you not just answer m y question?
Secretary Humphrey. And the same thing is true.
Senator Kerr. I say, why do you not just answer the question?
Secretary Humphrey. I think it was-----Senator Kerr. I asked you that in view of the fact— —
Secretary Humphrey. That year-----Senator Kerr. In view of the fact of several years of stability—■—
Secretary Humphrey. Yes.
Senator Kerr. As attested to— you and I cannot change the situa
tion of W orld War II, can we?
Secretary Humphrey. No.
Senator Kerr. W hat would you have done if you had been Secre
tary of the Treasury; how would you have financed that war?
Secretary Humphrey. Well, I was not, and I am not prepared to say.
Senator Kerr. Well, you are prepared to say everything else
about it.
Secretary Humphrey. N o; I have not said anything about it.
Senator Kerr. Y es; you have talked about it and brought it back
in the answer to this central question about the last 12 months.
Secretary Humphrey. I drop it out of that and take the peacetime
years.
Senator Kerr. Do not do that. Y ou brought it in. Just tell the
committee how you would have financed W orld War II.
Secretary Humphrey. Oh, well, Senator— I was not Secretary of
tbe Treasury.
Senator Kerr. It had to be financed, did it not?
Secretary Humphrey. It did, of course.
Senator K err . And had you been there, you would have done the
best you cou ld; would you not?
Secretary Humphrey. I would have done the best I could.
Senator Kerr. You think those men did not?
Secretary Humphrey. I think they did the best they could.
Senator Kerr. All right.
Secretary Humphrey. Whether that was good enough or not I do
not know.
Senator Kerr. If you are going to be critical, you at least ought to
tell us how you would improve on it.
Secretary Humphrey. I am not critical. I am simply taking the
figures from the way it was handled, and just comparing it with the
figures, just as you are, with the figures of a subsequent time.
Senator K err . But we got here to the point where, on the basis o f
the Federal Reserve report, on the basis o f your statement, on the
basis of the statistics as provided to the committee b y your and your
staff, we had these years of stability.
1Q2
FINANCIAL CONDITION OF THE UNITED STATES
Secretary Humphrey. You had 1 year of stability compared to
our 4, and it does-----Senator Kerb. Will, does that add-----Secretary Humphrey. One year of stability that you point out in
your administration compares favorably, not as favorably, but
reasonably favorably------
Senator Kerr. You do not want to answer my question?
Secretary H umphrey. With the 4 of our years.
Senator K err. You do not want to answer my question?
Secretary H umphrey. What is your question?
Senator Kerr. Read it to him. If you would have paid attention
to it, you would know.
(The question was read by the reporter.)
Secretary H umphrey . If what your question means is this— —
Senator Kerr. If you do not understand it, I will ask it again.
Secretary H umphrey . Ask it again.
Senator Kerr. On the basis of the description of the economic con
ditions before us, regardless of how little you think of what went be
fore that, regardless of how horrible you might think it was and of
how badly you fared during it, I am asking you, in view of the fact
that stability had been achieved, it was a reality, it was not a theory,
it was not an aim or an objective, and maintained, on the basis of
your evidence or your statement, over a period of 4 or 5 years, what
explanation do you have of the condition whereby, in the last 12
months, we are in the midst of another inflationary spiral to the
extent that we are?
Secretary H umphrey. Well now, just-----Senator Kerr. And to the extent that you saw fit to give us a
statement here that resulted in one of the great Washington news
papers, following your testimony, having this headline, “ Inflation
Called No. 1 Problem by Humphrey.”
Secretary H umphrey. That is right.
Senator Kerr. All right. I am asking you, in view of the stability
that had been achieved by the preceding administration or that fell
upon us-----Secretary H umphrey. For 1 year.
Senator Kerr. Well now, Mr. Secretary, in the first place, that is
not true. There are many years of the preceding administration in
which it was stable, and your own evidence indicates it.
If you would address yourself to the question rather than to the
intensified effort to keep-----Secretary H umphrey. I am trying to find out what it is that you
want to know.
Senator K err. Oh, no, you are not.
Secretary H umphrey. Yes, I am.
Senator Kerr. No, you are not, because I have told you. I will
tell you, there is not any man on this committee that can come any
nearer, in 30 minutes, of telling a witness what he wants on one ques
tion than I can.
Secretary H umphrey. Well, if you would take 2 minutes instead of
30, maybe I would understand it. What is it that you want, now?
Senator K err. I want you to tell us your explanation of the infla
tionary spiral of the last 12 months.
Secretary H umphrey. Well now, I am glad to do it.
FINANCIAL CONDITION OF THE UNITED STATES
103
The reason that these inflationary pressures are on us now is be
cause of the great prosperity which the country is enjoying at. the
present time. It is the demand for building, it is the demand for
goods, it is the demand for all sorts of things that are exceeding]the
supply, and that is what is putting the pressures, the inflationary
pressures, on us today.
Senator Kerr. That is fine, that is very fine.
N ow tell us, if you will, what goods w~ere in short supply during
these past 12 months that brought that about?
Secretary Humphrey. Well, there have been a lot of them that
have been in short supply.
Senator Kerr. L et’s just take them one at a time, now, in the past
12 months.
Secretary Humphrey. I will just take one in your line of business.
I will take line pipe and I will take oil well supplies.
Senator Kerr. Those are steel goods.
Secretary Humphrey. Yes, sir. And we had a shortage, an acute
shortage, of your kind of material in the first half of this year.
Senator Kerr. At what rate have the steel mills been operating
this year?
Senator Humphrey. T hey are catching up.
Senator Kerr. I say, at what rate have they been operating?
Secretary Humphrey. They have been right up at around a hun
dred percent.
Senator Kerr. This year?
Secretary Humphrey. N inety-odd percent.
Senator Kerr. W ill your staff verify that?
Secretary Humphrey. They are in the 90-percent brackets.
Senator Kerr. I say, will your staff verify that?
Secretary Humphrey. Yes, we will verify that.
Senator Kerr. Y ou had better be careful, M r. Secretary, because
you and I will have to verify everything we are telling each other.
Secretary Humphrey. The steel business has been around the 90's
all the first 6 months o f this year.
Senator Kerr. All right, let’s check it.
Secretary Humphrey. I am talking about oil country goods.
Senator Kerr. I asked you about steel.
Secretary Humphrey. Pipe-----Senator Kerr. A t what percent of capacity were the steel mills
operating?
Secretary Humphrey. Well, you switched on me, because we were
talking about the kind of goods that you asked were in short supply.
Senator Kerr. Yes, sir.
Secretary Humphrey. I told you------Senator Kerr. And when you told me that, I asked you-----Secretary Humphhi y (continuing). The kind of things that are in
short supply.
Senator }£err. I asked you, because what you Have said is not
correct.
Secretary Humphrey. I beg your pardon, it is correct.
Senator K e r r . I know nearly as much about the supply o f oilfield
supplies as you do.
Secretary" Humphrey. And line pipe has been in short supply all
this spring*
104
FINANCIAL CONDITION OF THE UNITED STATES
Senator K err. I am asking now, at what percent of capacity haai
the steel industry been operating, and you said well up in the 90's.
Secretary H umphrey. Do you mean for all kinds of products, Of
just for the kinds of products we are talking about?
Senator K erp. I am talking about the steel industry.
Secretary H u m p h r e y . Well, if you want to talk about all kinds of
products, we will look it up.
Senator K err. All right.
Secretary H u m p h r e y . But that is not what I was talking about.
I was talking about particular products.
Senator K err. You talk about things I am talking about. You
talked about yours the other day. Now you talk about what I am
talking about, if you will.
I have been reading the papers. It was down as low as 86 percent.
Secretary H u m p h r e y . Well, it depends on the commodities,
Senator.
Senator K err. Well, the steel industry, Mr. Secretary.
Secretary H u m p h r e y . Well, if you want to talk about the steel
industry-------Senator K err. I am talking about it.
Secretary H u m p h r e y . All right. Now
we will find out. I did not
answer with respect to the steel industry; I answered with respect
to the commodities. We will find out, and I will answer you with
respect to the steel industry, and I will get the figures and show you
there has been a surplus of full body, auto body, sheets because
automobile production has been down.
There has been a shortage of structural and line goods of that kind.
So some of the commodities have been short and some of the com
modities have been long.
If you want the average of the industry-----Senator K err. We are going to start with the average of the
industry.
Secretary H umphrey. Y ou asked me what had been short.
Senator K err. Yes, sir.
Secretary H u m p h r e y . And I tried to answer that. If-----Senator K err. You did.
Secretary H u m p h r e y . If you want the average of the industry, I
will give you the average of the industry.
Senator K err. Y ou answered that, and I asked you another
question, and you said the steel industry had been operating well up
in the 90*8.
Secretary H umphrey. No, I was talking about the demand for tht
kind of goods I was saying was short.
Senator K err. I will be glad to have you explain that, because I
want to know what you said.
Secretary H umphrey. Y ou understand it now?
Senator K err. I do, and I understood it then.
Secretary H u m p h r e y . We do not seem to have-----Senator K e r r . There is not a better informed man in America than
you are, and is it not a fact that the steel industry, overall, was
operating as low as 86 percent a number of weeks this year?
Secretary H umphrey. I do not know, Senator.
Senator K err. Is it not a fact after 2 or 3 weeks of increasing per
centage of capacity, they are operating at less than 89 percent?
FINANCIAL CONDITION OF THE UNITED STATES
105
Secretary H umphrey . I do not know. I can tell you, we will look
it up and get you the exact figures, we will get what they are for the
overall indusUy.
Senator K err . All right.
Now, the first item, then, of goods with reference to which there is a
shortage is line pipe; is that what you have told me?
Secretary H u m p h r e y . Pipe business; yes, sir.
Senator K err . Well now, Mr. Secretary, there is no shortage in
oilfield pipe.
Secretary H umphrey . Line pipe.
Senator K err . Well, 1 say-----Secretary H umphrey . Yes.
Senator K err . Line pipe is not oilfield pipe.
Secretary H umphrey . That is right.
Senator K err . Y ou know there is no shortage in oilfield pipe,
because you know it is stacked up in every supply company’s yard in
this country. If you do not, you can find it out.
Secretary H umphrey . Here we are. Wait a minute, I have got it
right now.
Let's see here, this is May.
Senator K err . What was it in M ay? You said it was well up in
the 90’s for all this year.
Secretary H umphrey . January, 97.1.
Senator K err . All right.
Secretary H umphrey . February, 97.5; March, 93.4; April, 89.4.
Senator K err . Where is that, now, what pa^e of that Indicator?
Secretary H umphrey . Page 18.
Senator K err . Is that June or M ay you have there?
Secretary H umphrey . This is June.
Senator K err . O. K .
Secretary H umphrey . June.
Senator K err . W hat was it in M ay?
Secretary H umphrey . 86.5.
Senator K err . All right, 86.5.
Secretary H umphrey . Then the various weeks run along from 87,
86.7, 84, 86.4, 88, 87.5, being an average of 91 or 92 or 93 percent
for the whole period.
Senator K err . When it had in October and November— in October
of last year it was at 101.6.
Secretary H umphrey . That is right, and that is part of the period,
that is where the difficulties------Senator K err . Since which time it has gone down to 86.5, resulting
in sharply curtailed supplies or inability to meet the market demand?
Secretary H umphrey . N o, no, it is this whole period here of— we
are talking about the period from 1956 on through. These figures
that we are talking about here are for the year of 1956, and the period
of the first 4 months of 1957.
Senator K err . All right.
Secretary H umphrey . And during that period that we are talking
about, the steel business averaged—1 cannot do it in m y head here.
Senator K erb . Y ou can.
Secretary H umphrey . I will say it was around 95 percent.
Senator K erb . Then you made a mistake. So let’s let the man
there figure it up while >rou and I argue about something else.
106
FINANCIAL CONDITION OF THE UNITED STATES
Secretary H umphrey. Let’s take the average for 1956 and th$
first 4 months of this year, which is what these figures are-----Senator K err. All right.
Secretary H u m p h r e y (continuing). For 1956, and see what it is.
And it will be around 95 percent.
Senator K err. Let’s take it for the last 12 months, is what we are
talking about.
Secretary H u m p h r e y . No; let’s take what we are talking abou t.
It is 1956 and the 4 months of this year.
Senator K err. Let’s do that. It gives you 5 months this year.
You do not want to exclude May, do you?
Secretary H u m p h r e y . The figures I have here on m y sheet th at
you have been talking about right along, with respect to inflation------Senator K err. The figures on that Indicator-----Secretary H u m p h r e y . The inflationary figures; you asked m e about
inflation, and that ends with April.
Senator K err. I asked you about the steel business, and you said
throughout the first 6 months of this year.
Secretary H umphrey. Well, I will put in—you can put in a month.
Senator K err. No; I am not going to put it in. It is in that
Economic Indicator you were reading from there.
Secretary" H u m p h r e y . All right. Put it in.
Senator K err. Y ou say there is a shortage in line pipe: that i»
what you told me, is it not?
Secretary H u m p h r e y . Yes.
Senator K err. What else is there a shortage on?
Secretary H u m p h r e y . Well, during these earlier months, there w as
a very tight steel market in most all items.
Senator K err. Well, just give them to me.
Secretary H u m p h r e y . I will have to get, again, some figures. You
want everything proved, so I will have to-----Senator K err. Yes, I do.
Secretary H u m p h r e y . So I will have to get the exact figures. I
will do no guessing.
Senator K err. Well, you are going to start a new policy, then.
Secretary H u m p h r e y . I think, Senator, that, if you want the per
centages of operation in these items, we will have to get them for you.
Senator K err. Well, Mr. Secretary-----Secretary H u m p h r e y . I do not think they are here.
Senator K err. You just brushed it off with a wide brush and said
it would average 95 percent.
Secretary H umphrey. Let’s see; we will see. Let’s get this figure.
Senator K err. Maybe it did; and if it did, why, let’s see it. Da
not strike out anything.
Secretaiy H umphrey. Y ou certainly do not count the period when
the strike is on, when the mills are all shut down.
Senator K err. Was that during the last 12 months?
Secretary H u m p h r e y . Sure.
Senator K err. Then I think we will count it.
Secretary H u m p h r e y . It started in May.
Senator K err. I knew there had been a strike when I asked you
the question.
Secretary H umphrey. Well, it was including the strike, so we will
put the strike in.
FINANCIAL CONDITION OF THE UNITED STATES
107
Senator K err . W e will have to, because it was there.
Secretary H umphrey . And about that, that was 2% months or so
of complete shutdown.
Senator K err . Be careful about that. If you are going to make
those statements, I might ask you-----Secretary H umphrey . The strike was about 2 months of complete
shutdown.
Senator K erjr. Then it was not 2 % months?
Secretary H umphrey . About 2 months of complete shutdown, and
with that it was 90 percent.
Senator K err . Ninety percent last year?
Secretary H umphrey . And nearly 93 percent this year.
Senator K err . Nearly 93 percent this year.
Secretary H umphrey . Yes.
Senator K err . Well, that was not quite 95, was it?
Secretary H umphrey . Well, you take the strike out, and it would
be 95.
Senator K err . Well, it was not quite 95, was it? L et’s look at the
indicator there, giving us the price index. Where is that in that book
you have there?
Secretary H umphrey . It is page 23, consumer prices. Page 23; is
that the page we are looking at?
Senator K err . Yes, sir. That shows the items, as I understand it,
that make up this index that we have been talking about, is that
correct, of consumer prices?
Secretary H u m p h r e y . I think that is right.
Senator K err . Now show me the column which shows line pipe.
Secretary H u m p h r e y . Well, t h a t is not a consumer item. Y ou
did not ask me about consumer items. Y ou asked me what things
were in short supply.
Senator K err . Yes, I did; that is correct; which brought about
this inflation we are talking about.
Secretary H umphrey . Yes. Well, don’t you think there are a lot
o f things besides consumer prices that bring about this inflation?
Senator K err . I think there are.
Secretary H u m p h r e y . I think the most important thing, M r.
Senator, are------Senator K err . I think there are.
Secretary H umphrey . The most important thing o f all hasn't a
thing to do with consumer prices. It is industrial building.
Senator K err . Consumers do not agree with that.
Secretary H umphrey . Well, it is industrial building that is one of
the most important things. That is one of the things that is the high
est on the whole increase.
Senator K err . I will ask it of you this way: W hat percentage of
the increase in the overall price index was caused by the price of line
pipe?
Secretary H umphrey . I cannot tell you.
Senator K err . W ould you say it was material?
Secretary H umphrey . I would say it was small.
Senator K err . Very small.
All right, then, what is the next item o f goods that was in short
supply these past 12 months?
Secretary H umphrey . I will have to get a list for you.
96819 0—57-----8
108
FINANCIAL CONDITION OF THE UNITED STATES
Senator K e r r . Y ou told me a while ago they were responsible fo r
this-----Secretary H u m p h r e y . This great demand we are operating at, a
very-----Senator K e r r . Now-----Secretary H u m p h r e y . Y ou do not contend for a minute, do you,
that we are not in a period of high prosperity, that we are not
operating at a great demand, or that we no not have a very heavy and
high employment in America?
Senator Iv er r . W e are-------
Secretary H u m p h r e y . If that is in question——
Senator K e r r . We are in a period of very considerable pros
perity in many fields of our economy.
Secretary H u m p h r e y . That is right.
Senator K e k r . There are other fields of our economy that are in a
tailspin and depression, as evidenced by the fact we will have more
bankruptcies in this 12 months than during any 12 months in the
history of the nation.
Secretary H u m p h r e y . But you will have less bankruptcy in pro
portion to the number of businesses available.
Senator K e r r . N o w , Mr. Secretary-----Secretary H u m p h r e y . New businesses.
Senator K e r r . You had better ask your staff about that.
Secretary H u m p h r e y . Well, new businesses; let's go right to it.
Senator K e r r . That is not what you said.
Secretary H u m p h r e y . New businesses available.
Senator K e r r . That is not what you said.
Secretary H u m p h r e y . That is what I meant; new businesses
available.
Senator K e r r . Y ou are a man capable of saying what you think.
Secretary H u m p h r e y . It is right over here on this page.
Senator K e r r . I know what you said in your statement, and you
picked out the element that would give a favorable impression, but I
am talking about the number of bankruptcies, and you said that there
were less bankruptcies in relation to those.
Secretary H u m p h r e y . N o ; new starts.
Senator K e r r . No; you did not say that.
Secretary H u m p h r e y . Well, that is what I say now. New starts.
Senator K e r r . That was not what you said.
Senator H u m p h r e y . That is what I said before.
Senator K e r r . I told you that there were weak points in this
prosperity-----Secretary H u m p h r e y . That is right.
Senator K e r r . A s evidenced, first, by a horrible farm depression^
as evidenced, second, by the fact that there are more bankruptcies m
these 12 months than in any other 12 months in the history o f tfife
Nation. Is that correct?
Secretary H u m p h r e y . Well, that is what you said.
Senator K e r r . D o you dispute it?
Secretary H u m p h r e y . I do not dispute it. I do not know w hat the
figures are.
Senator K e r r . If you do, I will put into the record the figures of
the Federal agency which made the statement.
Secretary H u m p h r e y . I will have to check everything you say.
FINANCIAL CONDITION OF THE UNITED STATES
109
Senator K e r r . That is all right, because I am going to check
everything you say.
Secretary H u m p h r e y . Over what period are you talking that there
were more failures?
Senator K e r r . This fiscal year, this fiscal year that ends June 30,
this month.
Secretary H u m p h r e y . Y ou say there are more failures this year
than there ever have been before?
Senator K e r r . Yes, sir.
Secretary H u m p h r e y . Y ou better get your book out and look at this.
Senator K e r r . All right, I will be glad to do that.
Secretary H u m p h r e y . L et’s lo o k at page 186 of the economic
report, and when \^ou find that, tell me how many, just to make it
good, tell me how many failures there were in 1932 as compared with
the failures this year.
Sen ator K e r r . Well, I w ill read it to y o u fr o m th e fe llo w w~ho has
charge o f it.
Secretary Humphrey. I will save y o u ------Senator K e r r . From the hearings before the subcommittee of the
Committee on Appropriations, House of Representatives, 85th
Congress.
Secretary H u m p h r e y . L et’s take the table, and I will read it
for you. M y book shows 31,822 in 1932, as against 12,656 this year.
Senator K e r r . All right.
Now, here is what Mr. C ovey says, who is in charge of that program
for the Government.
Secretary H u m p h r e y . W hich program is this? [Laughter]
Senator K e r r . He is charged with the responsibility o f keeping
statistics on what we are talking about.
Secretary H u m p h r e y . Senator, you find this page, because it is
quite interesting, page 186. This is the Presidents Econom ic Report,
January 1957. If you will glance at that page, you will see, just to
dispose of this, that there were in 1932— and I admit that 1932 was a
terrible year for comparison. I am simply doing it to challenge the
question, that is all.
Senator K err . I want you to do that. That is what I hope you will
do.
Secretary H umphrey. T o challenge the question, there were
2,828,000 businesses, and there were 30,000 plus failures.
Now there are over 4 million businesses, and there were 12,000
taihires. So there is just no comparison between the two.
^ Senator K e r r . I am reading here from the “ Hearings Before the
Subcommittee of the Committee on Appropriations, House of Repre
sentatives, 85th Congress, Judiciary Subcommittee,” and 1 am giving
vou the evidence of Mr. Edwin L. Covey, Chief of the Bankruptcy
^nkV1S^i?
^ .e Administrative Office of the United States Courts.
I he following is quoted from page 119 of the hearings:
R o o n e y . A s i t i s n o w , y o u e s t i m a t e in t h e c u r r e n t fis c a l y e a r , t h e y e a r in t o
a lr e a d y r u n 7 m o n t h s , t h a t i t w ill b e 7 2 , 0 0 0 c a s e s file d i n s t e a d o f
tne 66,000 w h ic h y o u e s t i m a t e d a y e a r aero?
Mr. C o v e y . Yes, sir.
v . if* ^PONEY* IQwhat year in the history of our Government has the number of
oantnjptcy cases filed reached that alarming number?
M r. C o v e y . I t h a s n e v e r b e e n t h a t h ig h .
110
FINANCIAL CONDITION OF THE UNITED STATES
On the basis of the estimate he gave the subcommittee of the House
Appropriations Committee, it would be in the neighborhood of 72,000
this year, and his estimate is for 74,000 in the next fiscal year. He
was getting an appropriation from the Congress in connection with
the responsibility of his office for bankruptcy proceedings in the
Federal courts. And that is his evidence before the subcommittee o f
the House Appropriations Committee, in January of this year.
Secretary H u m p h r e y . Well, these are the figures that I am reading
to you on total failures in this country in business.
Senator K e r r . What do you have there, the President's Economic
Report?
Secretary H u m p h r e y . Yes, sir.
Senator K e r r . What page were you reading from?
Secretary H u m p h r e y . Page 186, Senator.
Senator K e r r . Page 186, Mr. Secretary?
Secretary H u m p h r e y . 186.
Senator K e r r . What line were you reading from?
Secretary H u m p h r e y . Well, if you will take the first column to the
left, that shows you the number of operating businesses in the country.
Senator K e r r . Well now, are they the only ones that take bank
ruptcy?
Secretary H u m p h r e y . Well, you have got to have an operating
business or you cannot very weu get into bankruptcy.
Senator K e r r . I thought an individual could go into bankruptcy.
Secretary H u m p h r e y . I do not know. We are talking about
businesses.
Senator K e r r . I was talking about bankruptcy cases. Are you
taking the position that they are limited to businesses, Mr. Secretary?
Secretary H u m p h r e y . No, no. We were talking about business,
failures.
Senator K e r r . No, I was talking about bankruptcies.
Secretary H u m p h r e y . I want to see if we can find individual bank
ruptcies. This is business failures.
Senator K e r r . Y ou know, we will get along better if you would
just be willing to talk about the things I am asking you about.
Secretary H u m p h r e y . I thought we were talking about prosperity
in this country, and you said-----Senator K e r r . I s there any relationship to the number of bank
ruptcies and prosperity?
Secretary H u m p h r e y . There is some, but there is a lot more
relationship to business failures and prosperity then there is just to
bankruptcies.
Senator K e r r . Would you acknowledge that the number o f bank*
ruptcies is an element to be considered?
Secretary H u m p h r e y . I would.
Senator K e r r . If we had more bankruptcies in the current fiscal
year than in any year of the depression, then that would be some
indication that there were elements of weakness in the economy?
Secretary H u m p h r e y . It would, certainly.
Senator K e r r . Well, that is what I said. All I said was—you
asked me if I would acknowledge that this was a year erf-----Secretary H u m p h r e y . Of very high prosperity.
Senator K e r r . Yes.
Secretary H u m p h r e y . That is what we are talking about.
FINANCIAL CONDITION OF THE UNITED STATES
111
Senator K err . This evidence was supplied by Mr. Covey who
is Chief of the Division of Bankruptcy of the Court of Appeals, dis
trict courts, and other judicial services. That is the identity of the
gentleman I was quoting here.
Secretary H umphrey . Are these bankruptcies filed in the District,
or where else are they filed?
Senator K err . N o, sir, he was before the Appropriations Subcom
mittee for money to operate his department, and he was explaining
to them the traffic that had to be handled, and what he gave the com
mittee was the number of bankruptcies in the United States. And
he told the committee that they were greater in this fiscal year than
they were in 1932.
So I asked you if you could give us a year in the history of our
country when there were more bankruptcies, and you said you sure
could. Now, if you can, I want you to do it.
Secretary H umphrey . I have given you the business failures.
Senator K err . That is not what I asked you.
Secretary H umphrey . And there were three times as many business
failures.
Senator K err . I say that is not what I asked you.
Secretary H umphrey . And about two times as many businesses.
Senator K err . I say that is not what I asked you. I was pointing
to some weaknesses in the economy, and No. 1, I said, was the de
pression among the farmers.
Secretary H umphrey . There are weaknesses in the economy, there
is no question about it.
Senator K err . And No. 2 was the number of bankruptcies.
Senator H umphrey . Yes.
Senator K err . There is just one item I see here in connection with
your— is this— you have got page 186?
Secretary H umphrey . Yes, I have it.
Senator K err . N ow , the heading is “ Operating business and
business turnover, thousands of firms.”
Secretary H umphrey . That is right.
Senator K err . D o you notice that there is a footnote there?
Secretary H umphrey . Let's see, I do not get the number of it.
Is that No. 1?
Senator K err . Would you read that footnote to the com mittee?
Secretary H umphrey . Yes. “ Excludes firms in the fields of agri
culture and professional services."
Senator K err . G o ahead.
Secretary H umphrey . “ Includes, self-employed person only if he
has either an established place of business or at least one paid em
ployee."
Senator K err . Well now, in view of the fact that it starts off b y
excluding firms in the field of agriculture, would you acknowledge
that that was not a complete list, even of businesses?
Secretary H umphrey . I think that is right. This has the great
m ajority of them, but it excludes those particular items.
Senator K erb . The figure that I gave you from M r. C ovey is
for the whole Nation, that is for all of tne Federal courts in the N ation
that handle bankruptcy.
N ow then, we will see if we can go forward in the question that I
was asking you when you detoured on me here a minute ago.
112
FINANCIAL CONDITION OF THE UNITED 8TATE8
To go back now, you said that this inflation was caused by a bigger
demand than productive capacity could supply.
Secretary H u m p h r e y . That is right.
Senator K e r r . And the only one you told me so far was line pipe*
Secretary H u m p h r e y . That is right.
Senator K e r r . What others?
Secretary H u m p h r e y . I will get you a list.
Senator K e r r . D o you know of any other, Mr. Secretary?
Secretary H u m p h r e y . I will get you a list.
Senator K e r r . D o you know of any other?
Secretary H u m p h r e y . I will get you a list.
Senator I v e r r . Do you know of anv other at this moment?
Secretary H u m p h r e y . I will bring a list which will have the
statistics to back it up.
Senator K w e e . Well, that is very fine, but just as an accommoda
tion-----Secretary H u m p h r e y . I have no statistics at hand right now.
Senator K e r r . D o you have any independent knowledge of any
other area of productive capacity in which this country is short?
Secretary H u m p h r e y . I will bring you a list.
Senator K
err.
D o you know of any other at this tim e?
Secretary H u m p h r e y . No, I will bring you a list with the statistics.
I have told you that I haven't the statistics here.
Senator K e r r . All right. Let’s go back to the page in the Econ
omic Indicators that gives us consumer prices. That is on page 23.
Secretary H u m p h r e y . I have it here.
Senator K e r r . The first item is food. And the statement I read
you a while ago said that was 30 percent of consumer purchases.
Is there any shortage in the production of food or supply of food?’
Secretary H u m p h r e y . Well, it is right almost at the peak, not quite.
Senator K e r r . No, that is the price.
Secretary H u m p h r e y . That is right.
Senator K err. I am talking about the supply.
Secretary H u m p h r e y . I am talking about-----Senator K e r r . I am telling you one of the great accomplislimenta
of this administration is to keep food at the peak in price to con
sumers, at a time when there was such a tremendous [and burden
some surplus.
I am asking you now about the supply. Is there any shortage in
food?
Secretary H u m p h r e y . Well, I have just told you, I do not have the
figures here to show.
Senator K e r r . D o you think there is?
Secretary H u m p h r e y . And they are not here.
Senator K e r r . Do you think there is?
Secretary H u m p h r e y . I do not know-----Senator K e r r . Y ou do not know of any?
Secretary H u m p h r e y . Until I get the figures.
Senator K e r r . You would not take the position
that any o f thecurrent inflationary pressures by reason of the greater demand than,
supply is in the field of food, would you?
Secretary H u m p h r e y . I will tell you when I get the figures.
Senator K e r r . Would you take that position now?
Secretary H u m p h r e y . I will tell you when I get the figures.
FINANCIAL CONDITION OF THE UNITED STATES
113
Senator K e r r . Well, the next is housing, which is the second
largest item. D o you take the position that there is a shortage in
houses?
Secretary H u m p h r e y . A great many people claim so; and I will
tell you, again, when I get the figures.
Senator K e r r . What did you say in your statement?
Secretary H u m p h r e y . When I get the figures, I will tell you.
Senator K e r r . Y o u made a statement about it.
Secretary H u m p h r e y . I certainly did. We have had more houses
built in the last 4 years than we have ever had built.
Senator K e r r . There is some place in here in which you discuss
the number of houses built in relation to the new household units.
Secretary H u m p h r e y . The new family units.
Senator K e r r . Family units.
Secretary H u m p h r e y . That is right.
Senator K e r r . Some kindly soul in the audience supplied that both
to you and me. Either one of us should have found it before they did.
Y ou say:
A lm o s t 5 m illio n n e w d w e llin g u n i t s h a v e b e e n b u ilt in t h e p a s t 4 y e a r s .
L ess
t h a n 3}i m illio n n e w h o u s e h o ld s h a v e b e e n f o r m e d in t h a t p e r io d , s o t h a t
m illio n u n it s h a v e g o n e t o s a t i s f y p r io r s h o r t a g e s a n d t o c o v e r h o u s e s a b a n d o n e d
o r r a z e d t o m a k e w a y f o r n e w c o n s t r u c t io n .
W ould you say there is any scarcity or any shortage in the pro
ductive capacity of the housing industry to meet any pent-up or
growing demand in the last 12 months for more houses than the
industry can build or the supplies available to build them?
Secretary H u m p h r e y . There have been a great many people down
here making those claims.
Senator K e r r . D o you make it?
Secretary H u m p h r e y . And I will get the figures and tell you------Senator K e r r . D o you make it?
Secretary H u m p h r e y . I will tell you when I get the figures.
Senator K e r r . But you do not know of any today?
Secretary H u m p h r e y . I know that there are a great many people
down here making claims that there are.
Senator K e r r . D o you make a claim------Secretary H u m p h r e y . Whether the claims are good or not, I wilL
tell you when I get the figures.
Senator K e r r . When will we have that?
Secretary H u m p h r e y . I cannot tell you.
Senator K e r r . Can we have i t at the next session you and I can
get together?
Secretary H u m p h r e y . I hope so.
Senator K e r r . Will you make an effort to?
Secretary H u m p h r e y . I surely will.
Senator K e r r . N o w , on apparel, that is the next item on the Con
sumer Price Index. W hat items of apparel are in short supply?
Secretary H u m p h r e y . Well, Senator, I will just make the same
answer to all these things and save you quite a lot of time, and myself.
Senator K err . H ave you been around the last 12 months?
Secretary H u m p h r e y . When I get the figures on these— I have not
the statistics on the production of these items, and if you have them,
I will be glad to hear what they are. I do not have them.
Senator K ebr . I do not have them.
114
FINANCIAL CONDITION OF THE UNITED STATES
Secretary H u m p h r e y . And I will get them as soon as I can.
Senator K e r r . But I seem to recall—back to housing, your ow n
statement showed that there had been a very heavy decline in non
farm housing starts, did it not?
Secretary H u m p h r e y . That is right.
Senator K e r r . So that would indicate that the productive capacity
was not strained, would it not?
Secretary H u m p h r e y . Well, I do not know. I do not know what
the reason would be. We can check it.
Senator K e r r . Y ou do not know whether that would be an indica
tion that the productive capacity was not strained?
Secretary H u m p h r e y . No, not necessarily.
Senator K e r r . Have you been aware of the number of arguments
and efforts made in Congress and before the Tariff Commission and
before the State Department in behalf of the textile industry in the
past 2 or 3 years?
Secretary H u m p h r e y . Yes.
Senator K e r r . On account of their having to close down be
cause-----Secretary H u m p h r e y . That is right.
Senator K err (continuing). Of-----Secretary H u m p h r e y . Difficulties with importations.
Senator K e r r . Well, that was because the importations were
allegedly flooding the country and driving the price down, was it not?
Secretary H u m p h r e y . For certain classes of goods.
Senator K e r r . So that-----Secretary H u m p h r e y . I think the biggest objection was to velvets
and velveteens.
Senator K e r r . And fur-lined underwear. [Laughter.]
Secretary H u m p h r e y . Well, there has been quite a shortage of that.
Senator K e r r . Well, yes, there has. [Laughter.]
Now, in transportation facilities, do you think there is a shortage
in the productive capacity of the automotive industry?
Secretary H u m p h r e y . Not in automobiles.
Senator K e r r . Trucks?
Secretary H u m p h r e y . No, not in the automotive field; no.
Senator K e r r . We have covered pretty well everything there,
except medical care and personal care.
Secretary H u m p h r e y . Senator, just sticking to transportation there
for a minute, we have had the railroads down here for weeks and
weeks and weeks talking about more cars, and we have now pending
before us a great program, showing that the railroads cannot possibly
supply the country unless a program is adopted. I will refer you to
that.
Senator K e r r . Would you say there is a shortage of transportation
facilities?
Secretary H u m p h r e y . That is just one I happen to have the
figures on.
Senator K e r r . I am going to tabulate every one you have given
me, and then I am going to let you tell this committee how much
those pressures have contributed to this inflationary spiral.
Secretary H u m p h r e y . That i s what I would be very glad to do.
Senator K e r r . Yes.
But as of this moment, now, there is no other field, other than
railroad transportation and line pipe, that you can------
FINANCIAL CONDITION OF THE UNITED STATES
115
Secretary H u m p h r e y . I do not happen to have the figures on them,
and I will get the figures and bring them in.
Senator K e r r . At our next meeting, if possible.
Secretary H u m p h r e y . That is not this afternoon? The next day
you meet.
Senator K e r r . It probably will be Monday, or Tuesday, I believe
the chairman said.
Secretary H u m p h r e y . Whatever the day is.
Senator K e r r . I think that is helpful now, Mr. Secretary.
(When the following was subsequently submitted by the Secretary
it was discussed further. See p. 183.)
T he
In crease
in
P r ic e
L e v e l,
1955-57
In response to a request from Senator Kerr on Friday. I promised to provide
the committee today with a more extended statement describing the pressures
which initiated the recent rise in the general price level.
This rise began to show up at the wholesale level in mid-1955, and by early 1956,
prices of consumer goods and services began moving upward. While the whole
sale price index has been relatively stable since January, the consumer price index
has continued to move upward. Now, what has caused this rise in our price level
particularly during the last year? This is the question with which we are all
understandably concerned, and to which I want to respond here.
W HOLE SA LE PRICES
During late 1955 and 1956, price increases stemmed basically from a massive
increase in capital expenditures. During this same period there was a substantial
accumulation of inventories, which accentuated these price pressures.
As the accompanying tables indicate, the capital goods boom which emerged
in 1955 was of enormous proportions. Industrial construction contract awards
had increased 55 percent during 1955. The volume of new orders for durable
goods jumped 34 percent
Percentage change in new orders for durable goods
Durable-goods Industries, total
Primary metals......... ........ .
Fabricated metal products.
Machinery *.........................
Transportation equipment.
Other durable goods *_____
1955 and 1956
1956
1055
+ 34
+ 32
+ 29
+ 37
+ 55
+12
0
-1
0
+7
-6
-1
+ 31
+29
+47
+46
+11
i
^ tw e e n fourth quarters 1954, 1955, and 1956.
i S ! U3es electriral m achinery.
.
includes professional and scientific instrum ents, lum ber, furniture, stone, clay and glass, and miscel*
8ooroe: Office o f Business E conom ics, Departm ent of C om m erce.
Though shipments increased very sharply, the backlog of unfilled orders
jnounted rapidly for the hard-goods lines generally during 1955, and continued
Jo move upward through most of 1956. Indeed, by the end of last year the
yacklog of unfilled orders was equal to more than 4 months of shipments at the
components and supplies used in durable goods manufacturing. These price
advances, you will note, were much greater than those for products less directly
related to this capital goods boom.
116
FINANCIAL CONDITION OF THE UNITED STATES
P ercen ta ge ch anges in u n filled orders— S elected d a tes, m a jor du rable good s in d u stries
[Percent]
Frou Jan
uary 19f7
to April
1957 »
From Jan
uary 1955
to January
19o6
From Jan
uary 1956
to January
1957
Fiom Jan
uary 1955
to January
1957
-f-20
+73
+26
+ 23
+ 10
-3
+ 11
+«
+9
+ lfi
+ 12
-3
+ 34
+52
+37
+ 43
+23
0
—3
-2
-1
-2
-5
—5
+5
+673
+76
+*
-2 3
—6
+ 10
+499
+ 67
-2
-5
-5
Durable-poods industries total.............................................
Primary metals.............. ............. ...................................
Fabricated metal products..................................... .........
Machinery * ....... ....... .......................................... .............
Transportation equipment_______________ __________
Other durable-goods industries s-.. .............................
Selected commodities:
Railroad passenger cars _ .............. .................. .................
Railroad freight cars ................ ....................................
Railroad diesel and diesel electric locomotives..........
1 Preliminary.
* Includes electrical machinery.
3 Includes professional and scientific instruments, lumber, furniture, stone, clay and glass, and miscel
laneous.
Source: Office of Business Economics, Department of Commerce.
T h e cou rse o f this r a p id ly a cce le ra tin g ca p ita l g o o d s b o o m d u r in g 1955 c a n
b e tra ce d in th e v ariou s lists o f sh o rta g e s p u b lish e d fr o m tim e t o tim e b y th e
A sso cia tio n o f P u rch asin g A g e n ts. A t th e b e g in n in g o f 1955, o n ly nin e ite m s o f
ba sic m aterials w ere r e p o r te d in sh o rt su p p ly . T h is list b u ilt u p p e rs is te n tly
th r o u g h su b se q u e n t m o n th s u n til b y M a r ch 1956, 17 item s w ere listed in sh o rt
s u p p ly : alu m in u m , c e llo p h a n e , ce m e n t, co p p e r, n ick el, p a p er, selen iu m , steel
p ro d u c ts, tita n iu m d io x id e , steel p ip e , steel p lates, s tru c tu ra l steel, ste e l sh ap es,
stainless steel, sy n th e tic ru b b e r, m e th a n o l, a n d n ew sp rin t.
T h is list is, o f course, illu stra tiv e o n ly . T h e b a sic pressu re o n resou rces w as
b ein g ex e rte d b y th e ra p id increase in ca p ita l o u tla y s g en era lly , a n d th e e v e n m ore
ra p id increase in n ew orders, u n filled orders, a n d in d u stria l c o n s tr u c tio n c o n t r a c t
aw a rd s beg in n in g in 1955.
T h e in creased p rices o f m aterials, c o m p o n e n ts a n d su p p lies led t o c o s t increases
fo r p ro d u ce rs o f o th e r g o o d s , su ch as c o n su m e r d u ra b les.
C o n s e q u e n tly , e v e n in
lines o f in d u s try w h ere d e m a n d w a s n o t rising so r a p id ly , som e p ric e in creases
oc cu r re d , as p ro d u ce rs p assed a lo n g a t least so m e o f th e in crea sed c o s t o f
m aterials.1
>In two major areas of the economy, automobiles and home-building, production was actually declining.
This offset some of the pressure built up by the demands for plant, equipment and inventory; crude material
prices never climbed much above their late 1955 peaks although semifabricated materials and components
continued to rise.
Wholesale Price Index
[1947-49-100]
Points change in the index
Price group
From Janu
ary 1955 to
January 1957
Wholesale prices:
All items...................................... .................................................................................
Farm products.................. ............................................... ..........................................
Processed foods____________________________________________ ___________ _
All otber (industrial).............................................................................................
Selected groups of industrial prices:
Rubber and rubber products........ .......................................... ......... ..................
Pulp, paper, and allied products........... .................................................................
Metals and metal products........ ......................................... ..... ...................... .......
Machinery and motive products...........................................................................
Nonmetailic minerals, structural.................................................................... .......
From Janu
ary 1957 to
April 1087
+ 6 .8
-3 . 2<
+ 0 .5
+ 1 0 .0
+ 0 t!
+ 8 .2
+ 1 2 .3
+ 22.1
+ 18.1
+ 10.0
-a*
-a i
+L*
0
+ 0 .2
-2 1
+2.1
+ 2.5
FINANCIAL CONDITION OF THE UNITED STATES
H 7
N o t o n l y d id p r ic e s o f m a te r ia ls a n d s u p p lie s in c r e a s e , b u t la b o r c o s ts ro se s u b
s t a n t ia lly in 19 5 6 .
W a g e in c r e a s e s w e r e s iz a b le a n d o u t p u t p e r e m p lo y e e m a n h o u r fa ile d t o rise a p p r e c ia b ly in 1956, s o t h a t t h e h ig h e r w a g e c o s ts p e r h o u r
w ere m o r e f u l l y tr a n s la t e d i n t o in c r e a s in g c o s ts o f p r o d u c t io n .
C O N SU M ER PRICES
C o n s u m e r p r ic e s g e n e r a lly d i d n o t b e g in t o rise u n til e a r ly 1956, a n d c o n
s u m e r c o m m o d it y p r ic e s (a s id e f r o m f o o d ) d id n o t in c r e a s e u n til m i d - 1956.
The
rise in c o n s u m e r in c o m e s a n d in t h e d e m a n d fo r c o n s u m e r g o o d s w a s s u b s t a n t ia lly
less t h a n t h e in c r e a s e in d e m a n d f o r c a p it a l g o o d s .
I n g e n e r a l, t h e s u p p ly a n d
c a p a c it y s it u a t io n w a s a ls o e a s ie r in t h e c a s e o f c o n s u m e r g o o d s .
H o w e v e r , r is in g
• em p loy m en t a n d w a g e r a te s le d t o a n in c r e a s e in d is p o s a b le in c o m e o f a b o u t 6
p e r c e n t p e r y e a r b e t w e e n m id -1 9 5 5 a n d e a r ly 19 57.
A n d th is w a s l&r^e e n o u g h t o
p e r m it t h e p a s s -t h r o u g h t o c o n s u m e r s o f in c r e a s e s in t h e w h o le s a le p r ic e s o f m a n y
•consum er g o o d s .
Consumer Price Index
\
Percent chance
Price group
June 1956December
1956
'Consumer prices:
All item s................................................................... ..................................
Commodities................................... . . ...................... ....................................
Food................. .................................................................................
All commodities, except food......... ........................ ...... ........... . ...........
Consumer durables..........................................................................
Consumer nondurables....... ........... ..............................................
•Services and rent....... ...................
3.3
2.7
1.3
38
3.4
4.3
3.7
December
1956-April
1957
0 9
.9
.9
.8
».5
>.8
1.6
1 December 19S5 to March 1966 used.
Source: Baaed on data from the Department of Labor.
C o n s u m e r c o m m o d i t y p r ic e s , p a r t ic u la r ly t h o s e o f d u r a b le g o o d s a n d f o o d , h a d
o e e n d e c lin in g f o r a n u m b e r o f y e a r s p r io r t o 19 55.
R e t a il m a r g in s o n d u r a b le
g o o d s c o m m o d it i e s h a d a p p a r e n t ly b e e n fa llin g f o r s o m e t im e , m a k in g a b s o r p t io n
o f fu r t h e r c o s t in c r e a s e s d iffic u lt .
Services JHices, o n t h e o t h e r h a n d , h a d h e r n s t e a d ily risin g t h r o u g h o u t t h e
p o s t w a r p e r i o d ; m a n y s e r v ic e s p r ic e s a r e d i r e c t l y a f fe c t e d b y c h a n g e s in w a n e
r a t e s w i t h o u t a n y o ff s e t t in g e ff e c t o f p r o d u c t i v i t y g a in s .
T h e r e c o v e r y o f f a r m p n c e s f r o m t h e l o w p o i n t r e a c h e d in la te 19 5 5 , a n d t h e
• con tin ued rise in f o o d m a r k e t in g m a r g in s le d t o in c r e a s e s in f o o d p r ic e s e a r ly in
1956.
A f t e r J u n e , o t h e r c o n s u m e r c o m m o d i t y p r ic e s jo i n e d in t h e rise, r e s p o n d in g
t o a. n u m b e r o f in flu e n c e s — t h e e a r lie r in c r e a s e s in w h o le s a le p r ic e s , ris in g la b o r
c o s t s , s c a t t e r e d in c r e a s e s in S t a t e a n d l o c a l s a le s a n d e x c is e t a x e s , a n d in som e
c a s e s p r ic e in c r e a s e s (m a d e p o s s ib le b y t h e r is in g le v e l o f c o n s u m e r in c o m e s ? .
* 9 5 5 , a n d a g a in in 1 9 5 6 , t h e i n t r o d u c t i o n o f t h e n e w a u t o m o b i le m o d e ls a t
h ig h e r p r ic e s a ls o p r o v i d e d a d d i t i o n a l c o n s u m e r p r ic e in c r e a s e s , a lt h o u g h t h e
a c t u a l a m o u n t o f t h e in c r e a s e t o t h e c o n s u m e r v a r ie d f r o m p la c e t o p la c e , a n d fr o m
V m e * d e p e n d in g o n t h e d e g r e e o f d e a le r d is c o u n t in g ,
n i t h f o o d a n a o t h e r c o m m o d it i e s b e g in n in g t o r is e , a n d p r ic e s o f s e r v ic e s c o n ♦
^ e i r r ise , t h e w h o le C o n s u m e r P r ic e I n d e x m o v e d u p in 19 5 6 .
D e s p it e t h e
s t a b i l i t y in w h o le s a le p r ic e s d u r in g 1 9 5 7 t o d a t e , c o n s u m e r p r ic e s h a v e c o n t in u e d
t o in c r e a s e , r e fle c t in g e a r lie r r is e s in w h o le s a le p r ic e s , a fu r t h e r in c r e a s e in f o o d
p n c e s , a n d t h e s t e a d y c l i m b o f s e r v ic e p r ic e s a n d r e n t s , e v id e n c in g t h e n o r m a l
« g m t h e e ff e c t i v e t im in g o f t h is p a t t e r n .
TH E
PRICE
SIT U A T IO N
IN
1957
™ a jo r f a c t o r s w h ic h le d t o t h e rise in in d u s tr ia l p r ic e s , b e g in n in g in m id
is Yi* a
r*se *n c o n s u m e r p r ic e s , b e g in n in g in e a r ly 1 9 5 6 , w e r e s u b s t a n
t ia l l y m o d i fi e d d u r in g t h e fir s t h a lf o f 19 5 7 .
1 t * ? 08? s ig n ific a n t fe a t u r e s o f t h e fir s t h a l f o f 1 9 5 7 h a v e b e e n :
v Z / 1® 8* ° w in g u p o f t h e r a p i d in c r e a s e s in p la n t a n d e q u i p m e n t e x p e n d it u r e s
w h ic h t o o k p l a c e in 1 9 5 5 a n d 1 9 5 6 .
118
FINANCIAL CONDITION OF THE UNITED STATES
2 . T h e d e clin e in in v e n to r y in v e s tm e n t, fro m a n a n n u a l r a t e o f $ 4 .1 b iU ion in
t h e la s t q u a rter o f 1 9 5 6 t o a — $ 1 . 2 b illio n r a te in t h e first q u a rte r o f 1 9 5 7 .
3 . A n a p p a ren t r e su m p tio n o f g a in s in o u tp u t p er m an-h ou r, a fte r a y e a r in
w h ic h o n ly sm a ll in crea ses w ere fo rth co m in g . A lth o u g h w a g e r a te s h a v e c o n
tin u e d t o rise fa irly sh a rp ly , t h e h ig h e r o u tp u t p er m an-h ou r h a s le sse n e d th e ir
im p a c t o n co sts o f p ro d u ctio n .
4. G row in g p ro d u ctio n a n d sto c k s o f m a n y ra w m a ter ia ls, a m o n g w h ic h th e
m o st im p o r ta n t are t h e n on ferrou s m e ta ls— cop p er, lea d , an d zin c.
A s a co n seq u en ce, w h o lesa le p rices sta b iliz e d d u rin g t h e first 6 m o n th s o f t h e
y ea r. C o n su m er p rices, h o w ev er, c o n tin u e d to in crease, r eflectin g t h e n o rm a l la g
t o earlier in crea ses in w h o le sa le p rices, a se a so n a l u p tu r n in fo o d p rices, a n d a
co n tin u e d u p w a rd m o v e m e n t o f se r v ic e p rices a n d ren t.
T h e b a ck lo g o f u n filled ord ers in so m e lin e s is d ecrea sin g a n d th e p ressu re on
d e liv e r ie s a n d sh o r ta g e s is d eclin in g an d , in m a n y cases, h a s a lm o st e n tir e ly
d isa p p ea red .
W h eth er th is is e v id e n c e o f t h e e ffe c tiv e r e str a in t o n in fla tio n a ry p ressu res b y
t h e p o lic ie s w e h a v e p u rsu ed , it is, as y e t, to o e a r ly t o te ll, b u t it m a y b e t h a t th e
n a tu ra l co rrectio n is ju s t b eg in n in g to em erge. I f th is p r o v e s t o b e t h e ca se, our
flex ib le p o lic ie s w ill ta k e it in to a cc o u n t a s so o n a s t h e e v id e n c e is d efin ite.
Senator K e r r . Let us go now to your statement, Mr. Secretary:
“ We have reduced Federal expenditures,” is what you say. Do you
have the figures there for 1953, which you referred to as one of the bad
examples of Federal expenditures due to* the obligations left by the
preceding administration?
Secretary H u m p h r e y . The actual expenditures were $74,274 million.
Senator K e r r . H ow m uch?
Secretary H u m p h r e y . $74,274 million.
Senator K e r r . Generally $74.3 billion.
Secretary H u m p h r e y . That is right.
Senator K e r r . How much of that was for defense? You have it in
your statement there. Do you recall your statement?
Secretary H u m p h r e y . Let’s see if I can find it. Yes, here it is,
right here.
There were $50.4 billion.
Senator K e r r . Leaving an expenditure for all other items of how
much?
Secretary H u m p h r e y . Well, what was it?
Senator K e r r . $74.3 billion and $50.4 billion.
Secretary H u m p h r e y . $23.9 billion.
Senator K e r r . $23.9 billion, approximately, was it not?
Secretary H u m p h r e y . Yes, sir; in round figures, $24 billion.
Senator K e r r . What was the total in 1954?
Secretary H u m p h r e y . Well, what is your total-----Senator K e r r . Y ou had that at the bottom of page 10. It was
$67.8 billion total. And at the top of page-----Secretary H u m p h r e y . It is $46.9 billion. What was the tota l?
Senator K e r r . Your defense expenditures were $46.9 billion
Secretary H u m p h r e y . What was the total for the year?
Senator K e r r . $67.8 billion, according to this statement, leaving
a net of how much, leaving expenditures for other----Secretary H u m p h r e y . About 21.
Senator K e r r . $20.9 billion.
In 1955, the total was what?
Secretary H u m p h r e y . 64.6.
Senator K e r r . Defense expenditures are how m uch?
Secretary H u m p h r e y . Let’s see, this is for what year?
Senator K e r r . 1955.
FINANCIAL CONDITION OF THE UNITED STATES
119
Secretary H u m p h r e y . I do not have the 1955 figure there
Senator K e r r . He has it there.
Secretary H u m p h r e y . 40.6. $24 billion.
Senator K err. How much?
Secretary H u m p h r e y . $24 billion.
Senator K e r r . Leaving $24 billion for others.
Secretary H u m p h r e y . That is right.
Senator K e r r . Well then, in 1955, your expenditures-----Secretary H u m p h r e y . That is 1955, I believe.
Senator K e rr. In 1955, your expenditures for other than defense
requirements went ahead of the horrible example of 1953, did it not?
Secretary H u m p h r e y . No, they were just about the same.
Senator K err. I thought it was 23.9 and 24.
Secretary H u m p h r e y . I dropped the tenths. It is 24, I just
rounded them 24 each.
Senator K e r r . Well, it is $ 1 0 0 million, according to w h a t y o u g av e
me, and I do not want-----Secretary H u m p h r e y . I just dropped the tenths off in mine. If
you put the tenths on, it is 23.9 and 24.
Senator K e rr . It would be $100 million more.
Secretary H u m p h r e y . That is right.
Senator K e rr. In 1956, your total was what?
Secretary H u m p h r e y . 66.5.
Senator K e rr . And defense was what?
Secretary H u m p h r e y . 40.6.
Senator K err. Leaving a net of how much?
Secretary H u m p h r e y . 25.9.
Senator K err. Now, that was $2 billion above the horrible example
of 1953, was it not?
Secretary H u m p h r e y . It is $2 billion a b o v e 1953, y es.
Senator K e rr . Now, in 1957, the total was how much?
Secretary H u m p h r e y . 68.9.
Senator K e rr . Let’s add to that 68.9 the amount we spent for
roads.
Secretary H u m p h r e y . I do not know what that is.
Senator K e rr . Well, he has got it there for you. It is in that
document you have referred to, the President’s Economic Report.
Secretary Humphrey. The actual expenditure.
Senator K e rr. It is either the actual or the estimate of the Budget
Bureau.
Secretary Humphrey. This is for 1956 you are talking about?
Senator K e rr . 1957.
Secretary Humphrey. 1957. Well, you see, you have gotten an
■extra expenditure for 1957.
Senator K e rr. He has got the figure there.
Secretary Humphrey. The defense for 1957 was 41. It is 27.9
without the roads, and we will have to see what the roads-----Senator K e rr . How much?
Secretary Humphrey. 27.9 without the roads, and we will have to
add the roads, whatever the right figure is.
Senator K e r r . Well now, do you not have the Treasury Bulletin
there? Does that not give it?
It is $1.15 billion, is it not, plus 68.9, is $70.05 billion.
Secretary Humphrey. That is 29-----
120
FINANCIAL CONDITION OF THE UNITED STATES
Senator K e r r . $29.05 billion?
Secretary H u m p h r e y . That is right.
Senator "Kerr. In other words, in 1957, your expenditures, other
than roads, was how much more than 1953?
Secretary H u m p h r e y . In 1953, it was 24.
Senator K e r r . 23.9. Let's keep it the way it is.
Secretary H u m p h r e y . 23.9 and 29 billion.
Senator K erk. That was $5.15 billion more, was it not?
Secretary H u m p h r e y . I put that-----Senator K err. That was the excess of expenditures of 1957 above
1953, was it not?
Secretary H u m p h r e y . 1953 is 23.9.
Senator K e r r . 23.9.
Secretary H u m p h r e y . And you want to drop off that zero?
Senator K e r r . N o , a hundred million dollars is not an inconse*
quential item.
Secretary H u m p h r e y . If you want to put it all on, $5,050 billion.
Senator K err. $5,150 billion is the way I get it.
Secretary H u m p h r e y . $5,150 billion.
Senator K er r . Yes.
Now, in 1958, the estimate is what?
Secretary H u m p h r e y . 71.8.
Senator K err. Plus roads.
Secretary H u m p h r e y . 1.8.
Senator K e r r . Total?
Secretary H u m p h r e y . $73.6 billion.
Senator K e r r . Your estimate there, I believe, in your statement,
for defense was $43.3 billion.
Secretary H u m p h r e y . I think that is right.
Senator K e r r . Leaving a difference of 30-----Secretary H u m p h r e y . 30.3.
Senator K e r r . 30.3, or how much more than the 1953 nondefense
expenditure?
Secretary H u m p h r e y . 6.4.
Senator K e r r . That is right.
Now, you told the chairman here the other day a number of tim es
that your defense requirements were as great in 1957 and 1958 a*
they nad been in 1952 and 1953, did you not?
Secretary H u m p h r e y . Expenditures?
Senator K e r r . N o , requirements, the problem of defense.
Secretary H u m p h r e y . Well, I do not know quite what you mean,
the problem of defense.
Senator K e r r . Well, then, we will skip that because I do n o t watot
to get into something that you do not know anything about.
Do you think, in view of the fact that this current fiscal year you
are spending $5,150 billion more for nondefense items than were spent
in 1953, and that in the 1958 budget you have estimated $6,400 biuioik
more, that you can accurately say that you have reduced Federal
expenditures?
Secretary H u m p h r e y . Well, the figures are accurate, Senator Kerrw
You deduct the figures, and they are less total expenditures, Govern
ment expenditures are less. They have gone up in some direction?
and down in others.
Senator K e r r . Then you want to stand on the exact.Governm ent
expenditures?
FINANCIAL CONDITION OF THE UNITED STATES
121
Secretary H u m p h r e y . I will stand on the figures we have.
Senator K e r r . I say, you want to stand on the exact Government
expenditures?
Secretary H u m p h r e y . I say more money was spent in 1953 than is
estimated to be spent in 1958.
Senator K e r r . Well, do you have somebody there-----Secretary H u m p h r e y . And more than was spent in 1957 or in 1956,
for which we have actual figures.
Senator K e r r . Have you got a man there who can give us, then,
the actual Federal cash expenditures, year by year?
Secretary H u m p h r e y . I have got it the way they are published.
Senator K e r r . I say-----Secretary H u m p h r e y . Sure.
Senator K e r r . Have you got a m an who can give us— you want to
be technical.
Secretary H u m p h r e y . No, I do not want to be technical. I just
want to take the figures as they are published. That is the only
thing I know of.
Senator K e r k . D o you want to take them as they are published,
or as they are?
Secretary H u m p h r e y . We publish them as nearly as they are as we
can.
Senator K
err.
Y
ou
really w ant to take th em as th ey actu ally are?
Secretary H u m p h r e y . I do.
Senator K e r r . Well then, suppose you ask him to give us the cash
income of the Treasury and the cash outgo for each one of these
fiscal years.
Secretary H u m p h r e y . We can get the cash figures for the past
years. Now, you cannot get them, of course, for the future years.
Senator K e r r . Y ou see, these figures, Mr. Secretary-----Secretary H u m p h r e y . We can give them for the past years.
Senator K e r r . These figures, Mr. Secretary, you give us are not
the actual cash figures.
Secretary H u m p h r e y . They are published figures.
Senator K e r r . I say, but they are not the actual cash figures.
Secretary H u m p h r e y . They are the budget we give you, and what
I have purported to give you are the budget figures.
Senator K e r r . But they are not the actual cash figures.
Secretary H u m p h r e y . Well, you want to add in—what would you
like to have added in or subtracted?
# Senator K e r r . I was just trying to give you the benefit of the best
interpretation there is.
Secretary H u m p h r e y . Well, the best interpretation I know of is to
take the budgets as they are prepared, which is what I was talking
about. If vou want to talk about something else-----Senator K e r r . You made the statement that you paid out $7.1
billion in interest this year.
Secretary H u m p h r e y . That is the budget estimate.
Senator K e r r . That is the statement you made.
Secretary H u m p h r e y . I say it is the budget estimate. It has not—
the year is not completed, and I do not know exactly, to the penny>
what it is yet, and you do not know, either.
Senator K err . 1 know what your Treasury has estimated.
Secretary H u m p h r e y . Well, all right. I know what I estimate.
122
FINANCIAL CONDITION OF THE UNITED STATES
Senator K err: Your Treasury has estimated----- Secretary H umphrey. I do not know what has actually been paid,
because we have not finished the year.
Senator K e r r . How much will the Treasury, in your judgment,
actually pay out in interest?
Secretary H u m p h r e y . $7.2 billion is the budget-----Senator K err. I am not talking about the budget estimate. I am
talking about your estimate of the actual cash interest you will pay.
Secretary H u m p h r e y . Well, how are we going to know until we get
to the end of the year? We can guess.
Senator K e r r . Then we will take last year. Where is your state*
ment of what you paid last year. WTiat page of the statement is that?
Secretary H u m p h r e y . That figure is not in the statement.
Senator K e r r . Oh, yes, it is.
Secretary H u m p h r e y . If you will turn to page 3 of the book----Senator K e r r . I am talking about your statement now.
Secretary H u m p h r e y . Do we have a figure in the statement o f inter
est payment?
Senator K err. Total computed interest cost at that time was
$6.2 billion.
Secretary H u m p h r e y . All right, what page is that?
Senator K e r r . That is page 13.
Secretary H u m p h r e y . There it is, $6.2 billion; that is right.
Senator K e r r . Did the Treasury pay out $6.2 billion interest?
Secretary H u m p h r e y . This is 1956?
Senator K e r r . Yes, sir.
Secretary H u m p h r e y . The net computed interest rate—you see,
that is 1953, if you road the sentence. Senator.
Senator K e r r . Then 1956, $7.3 billion.
Secretary H u m p h r e y . Yes; $7.3 billion.
Senator K e r r . Y ou have got the record on that, have you n ot?
We will take that. That is behind you, is it not? That was last
year.
Secretary H u m p h r e y . That is an end of calendar year figure-----Senator K e r r . Is that $7.3 billion-----Secretary H u m p h r e y . That is a calculated rate.
Senator K e r r . All right.
I want to ask you, is that $7.3 billion—is that in this figure that you
gave us for what you spent that fiscal year, where is that now?
Secretary H u m p h r e y . You see, this is an end of calendar year
figure, and the other figures are fiscal year figures, so you just have
to adjust for them, that is all. They will come out the same when
you get through, but thi3 is the end of a calendar year and the other
is a fiscal year.
Senator K e r r . In the total expenditures which you gave us here
for these years which are at the bottom of page 10, is that $7.3 repre
sented by a like amount in the figures at the bottom of page 10?
Secretary H u m p h r e y . Let me see. What is it you want to know,
now? Is the $7.3 billion that was the calculated interest, is that
included in the figure on page 10?
Senator K err. The $74.3 billion for 1953.
Secretary H u m p h r e y . That part of it, I think the proper answer
to that is that that part of it which falls within the fiscal year—you
FINANCIAL CONDITION OF THE UNITED STATES
123
are transposing, you see, from an end of calendar year rate to a fiscal
year— is part of it.
Senator K err. I understand, but aside from that, at the top of
page 11 you are talking about what happened in 1956.
Secretary H umphrey . It would fit into 2 years, but the total would
be in-----Senator K err. The total would be in either the $66.5 billion-----Secretary H umphrey. That is right.
Senator K err (continuing). Or the $68.9 billion?
Secretary H umphrey. That is right.
Senator K err. N ow then, I asked you if you actually paid that
$7.3 billion out.
Secretary H umphrey. We paid actually, the fiscal year that is
finished is 1956, we paid $6.8 billion in that year. The estimate for
the-----Senator K err. Calendar year 1956?
Secretary H umphrey. It goes into 2 years.
Senator K err. I know it does, Mr. Secretary.
Secretary H umphrey . And one is $6.8 billion, and the other is
$6.2 billion. And $7.3 billion is what we were estimating.
Senator K err. You mean you changed your estimate of what you
paid last year since you were here the other day?
Secretary H umphrey . N o. What we are estimating here is that
we will pay out this year $7.2 billion.
Senator K err. I am talking about what you paid out in 1956.
Secretary H umphrey. Well, you have got it in two 6 months.
Senator K err. I am not trying to argue with you about it. What
I am trying to find out is, you said the $7.3 billion referred to here on
page 13 was reflected in full in the statement in the figures on page 11.
Secretarj" H umphrey. It is reflected in two sets of figures, yes, sir.
Senator K err. N ow then, I am asking you if that $7.3 billion is
paid out by the Treasury in cash.
Secretary H umphrey. Well, the $7.3 billion is a calculated rate for
the end of an annual period.
Senator K err. Yes, sir.
Secretary H umphrey. The other figures are actual or estimated for
a fiscal year period.
Senator K err. But they are expenditures, you said.
Secretary Humphrey. I'hat is right.
Senator K err. The point I am making is that you did not spend
$7.3 billion interest last year.
Secretary Humphrey. Here in the calendar year, they have gone
back and figured it here into a calendar year, of actual expenditures in
a calendar year, which is part-----Senator K err. How much is it?
Secretary Humphrey. In the calendar year 1956, it is $7,022
billion. And that is what was actually paid in a calendar year which
ia a part of 2 adjoining fiscal years.
Senator K err. Now, Mr. Secretary, is it not a fact that you do not
p a y cash to the trust funds?
Secretary Humphrey. We do not pay cash to the trust funds. We
•ell bonds to the trust funds.
Senator K e rr. You do not pay them interest in cash, do you?
Secretary Humphrey. It is a credited account.
96819 O—57-----9
124
FINANCIAL CONDITION OF THE UNITED STATES
Senator K err. Well, you do not pay cash, do you?
Secretary H u m p h r e y . No. It is a credited account.
Senator K e r r . So that seven point-----Secretary H u m p h r e y . But it has to be charged against it.
Senator K e r r . So actually, the interest on the Federal bonds in the
trust accounts is figured on an accrual basis?
Secretary H u m p h r e y . It is a credited account.
Senator K err. So you did not spend that money, did you?
Secretary H u m p h r e y . Well, we owe it.
Senator K e r r . I understand. But you told me here that these
figures you gave me were cash outlays.
Secretary H u m p h r e y . That is right. This is the total amount of
interest that we are obligated to pay during those 12 months.
Senator K err. I understand that. But you told me those figures
you gave this committee here of $66 billion and $68 billion were
cash outlays.
Secretary H u m p h r e y . Well, they are cash obligations.
Senator K err. Well, that is not the same thing, is it? Did you
not tell the chairman here vesterday that that $10 billion worth of
gold down yonder, althougn it belonged to somebody else if they
wanted it, was ours until they wanted it?
Secretary H u m p h r e y . No; I did not tell him that, any more than
I told the things you are sajdng.
Senator K err. What did you say to him?
Secretary H u m p h r e y . I have a statement for the chairman on
the gold. I said that we had the gold, that there were some claims
against the gold just like there are claims against deposits in a bank.
And I explained it exactly that same way.
Senator K err. I am just trying to get into the record what the
actuality is. You said that these figures were actual cash expenditures.
Secretary H u m p h r e y . Cash obligations.
Senator K err. Well, then I asked you what the actual cash
expenditures were.
Secretary H u m p h r e y . Well, you are asking it—you see, the trouble,
Senator, is, what you are getting all mixed up about is-----Senator K err. I am not getting mixed up. You are right about
the situation but wrong about the identity of the fellow who is in
the fix. [Laughter.]
Secretary H u m p h r e y . No, I am sorry, you are the one who is
mixed up, because you are trying to ask it in tw o-----Senator K e r r . You said: “ W e have reduced Federal expenditures."
Secretary H u m p h r e y . That is right.
Senator K e r r . And then when I pressed you on it, you said you
were talking about cash expenditures.
Secretary H umphrey. That is right, cash obligation expenditures.
Senator K e r r . No. Cash expenditures.
Secretary H u m p h r e y . Well, cash expenditures are all the sam e.
Senator K err. No, they are not.
Secretary H u m p h r e y . It is a budgeted expenditure.
Senator K err. It is not. I do not know much, but- I know there
is a lot of difference between making a note and giving a check.
[Laughter.]
Secretary H u m p h r e y . We are not making notes or giving checks
in this particular case.
FINANCIAL CONDITION OF THE UNITED STATES
125
Senator K err. Oh, yes, you are.
Secretary H umphrey. No.
Senator K err. H ow can you have an expenditure without patting
out the cash?
I say, how can you make an expenditure without putting out the
cash?
Secretary H umphrey. If you have an obligation, you have an
obligation to pay it.
Senator K err. That is right. And when you pay it, it becomes an
expenditure.
Secretary H umphrey. If you make a note and pay the cash and
take the cash out, you have covered it the same way.
Senator K err. You remind me of a fellow who had 4 sons, and the
old man died, and they wanted to help him some so he could get along
into the next world. So they decided to give him $125 apiece. And
the 3 oldest ones came up and laid $125 each in the casket, and the
fourth one came along and put in his check for $500 and took out the
$375 cash. [Laughter.]
Secretary H umphrey. Now, I do not know whether that qualifies
him to be a Senator or the Secretary of the Treasury. [Laughter.]
Senator K err. It will make him eligible to get on the staff.
[Laughter.]
Secretary H umphrey. He sure should be one place or the other.
Senator K err. That is right.
Now, I think your Treasury has a record of your actual cash income
for 1956.
Secretary H umphrey. Oh, yes, we have it.
Senator K err. T o the extent of $77 billion.
Secretary H umphrey. W e have all the records, and if you will just
tell us exactly what you want in new sets of combinations, we will
figure out any combination you propose and give you the figures.
Senator K err. I am trying to get it on the basis of cash expenditures.
Secretary H umphrey. You just give us what you want, and we will
get it.
Senator K err. I would like to have you bring here a tabulation of
Federal cash expenditures, by program, and cash receipts, for the
fiscal years 1950, 1951, 1952, 1953, 1954, 1955, 1956, and your Treas
ury estimates for 1957 and 1958, showing these items.
Secretary H umphrey. H ow can we have a cash expenditure for a
year that has not yet come? All we can do is make an estimate.
Senator K err. I said your estimates.
Secretary H umphrey. If you want estimates-----Senator K err. I said your estimates for 1957 and 1958.
Secretary H umphrey. I did not hear you say that.
Senator K err. I will tell you, you make a mistake when you try
to figure out what I am going to say and then answer it on that basis.
Secretary H umphrey . No, I am trying to hear what it is you want
exactly; and when you say it exactly, we will get it.
Senator K err. What years did I give you?
Secretary H umphrey. You want it from 1951 to what?
Senator K e r r . N o; 1950, 1951, 1852, 1953, 1954, 1955, 1956, and
the estimate for 1957 and 1958.
Secretary H umphrey. All right.
126
VTKAHCttlt CONDITION OF THE UNITED STATES
Senator K err. Including these items: Major national security, in
ternational affairs and finance, retirement and insurance trust funds,
agriculture and agricultural resources, interest, highways, public as
sistance, natural resources, housing and community development,
public education, public health, veterans1 services-----Secretary H umphrey. Not quite so fast.
Senator K err. Veterans' services and benefits, and others.
Secretary H umphrey. What do you mean, “others” ?
Senator K err. That is the way it is tabulated in the chart I have
here, which would mean all others.
Secretary H umphrey. Which are the same thing, comparable to
“ others.”
Senator K err. Which would mean all cash expenditures not in
cluded in these separate classifications.
Secretary H umphrey. Yes.
Senator K err. Giving the total cash expenditures and the total
cash receipts.
Secretary H umphrey. Then what you want are the things that
checks were actually written for or deposits that were actually made
in a bank, regardless of what was owed either way; is that correct?
Senator K err. What I want is the total of cash expenditures and
the total of cash receipts.
Secretary H umphrey. Actual cash transactions, regardless of obli
gation during the period.
Senator K err. Yes, sir.
Secretary H umphrey. All right.
(When the following was subsequently submitted by the Secretary,
it was discussed further. See p. 200.)
Federal cash payments to the public, by program, fiscal years 1950-58
[In millions of dollars]
Program
1950
1951
1952
1953
1954
1955
1956
1957 1
Major national security
international affairs and
finanoe...............
Veterans services and bene
fits.. .......... ......
Agriculture and agricul
tural resources.........
Interest........ ......
8ocial insurance trust funds
Public assistance........
Health................
Education......... ....
Highways------ ------Housing and community
development..........
Natural resources.------Other J...... .... .....
13,113
22,639
44,181
50,507
47, C M
40,781
40,771
41,156
4,579
3.406
3,098
2,177
1,595
2,008
1,650
3,3o7
2,923
9,278
5,993
5,756
4,883
4,963
5,057
5,283
5,44^
5,648
2,848
4,326
3,368
1.125
244
73
498
629
4,141
3,0:7
1,187
306
91
455
1,133
4,136
3,815
1,180
330
175
470
2,?53
4, 715
4, r80
1,332
3)8
288
572
2,601
4,688
6,063
1,439
2S0
271
586
4,435
4,964
7,467
1,428
275
321
647
5.029
5,115
8.062
1,457
351
275
783
4,691
5,501
9,250
1,584
501
283
1,194
4,890
5,498
10,550
1,684
600
533
1.732
221
1,216
2.258
861
1,276
1,756
259
1,375
2,056
381 -1,014
1,485
1,330
2,582
1,994
249
1,217
1.989
311
1.123
2.401
853
1,401
3,030
911
1,575
2,830
43.147
45, 797
67.964
76,773
71.360
70,538
72,611
78,265
82,979
40.940
53,390
68,013
71,499
71,627
67,836
77,084
8t,720
85,933
Exoess of receipts or
payments (-).... -2,207
7,593
-232 -2,702
4,473
3,455
2,953
Total payments to
the public.......
Total case receipts from the
public...............
49 -5,274
19581
4a 570
iJanuary 1957 budget.
*
inning in 195S, Government payments to the Feioral employees' retirement funds Are allocated to
the individual agencies ani the correction to the cash bnsis is made la ono lump sum as a deduction in ar
riving at tho total for “other” expenditures. In prior years, both the payments to the funds and the cor
rection to the cash basis were included in “other” expenditures. Accordingly, the figure for 1958 ta
understated in comparison with 2 prior years.
fk>urce: Budget documents.
fXNANCIAL CONDITION OF THE TJNTTET* STAtffcS
127
Senator K err. I know you want us to have the accurate data.
Secretary H umphrey. Sure I want you to have it.
Senator K err. I want to tell you a secret. I want you to have it.
Secretary H umphrey. I would be very glad to have it.
Senator K err. When you get it, why, we will both have it.
Secretary H umphrey. It would be very interesting to have it any
way you want to have it.
Senator K err. N ow, you talk about interest costs. And since, as
I understand it, according to the Treasury Bulletin, you figure it on
an accrual basis rather than on a basis of cash expenditures, for the
purposes of our discussion we will keep it on the basis that you figure it.
That is right, is it not, the accrual basis?
Secretary H umphrey. Yes, sir.
Senator K err. But before we get to that, I believe I will take your
statement “ We have reduced the floating debt.”
If you will, I would like for you to identify for me what the floating
debt is.
Secretary H umphrey. If you will look at my statement you will
read:
The amount of marketable public debt maturing within a year, plus demand obli
gations (other than E and H savings bonds) in the hands of the public—securities
which in many ways are close to cash—
That is what it is.
Senator K err. Well now, I have a compilation of the total debt
here, the interest-bearing public debt, by the Congressional Library
Reference Service, and it has these tabulations, and I think they are
identical with what is in the Treasury Bulletin.
And, so that we may understand each other, let us together explore
them and see if they are accurate.
Total public issues, total marketable issues-----Secretary H umphrey . What is it you are reading from, so that
I can follow it.
Senator K err. I tell you it is all in this Treasury Bulletin. That
is one of the most illuminating and comprehensive compilations I have
ever seen. But I am trying to identify specifically what you referred
to when you said, “ We have reduced the floating debt.”
Secretary H umphrey. All right. I just want to be able to follow
your figures, that is all.
Senator K erb . Well now, you can give it to me; if you would
rather just outline them to me, that would suit me. That is the way
I asked you.
Secretary H umphrey . Y ou go ahead and see what it is, but I just
want to be able to follow, that is all.
Senator K err . Well, you have what you call marketable issues, do
you not?
Secretary H umphrey . That is right.
Senator K err. What do they include?
Secretary H umphrey. They include bills-----Senator K err. All right, rlow, we are going— are bills part of the
floating debt?
Secretary H umphrey. Yes.
Senator K err . What else do they include, marketable issues?
Secretary H umphrey. Certificates.
Senator K e r r . Are they part of the floating debt?
128
FINANCIAL CONDITION OF THS UNITED STATES
Secretary H umphrey. Yes.
Senator K err. What else? Marketable issues, what else is in mar
ketable issues?
Secretary H umphrey. Notes that come due within 1 year.
Senator K e r r . Do you call them notes?
Secretary H umphrey. That is right.
Senator K err. All right. Then that is part of the floating debt?
Secretary H umphrey. That is right. That part of the notes that
comes due within a year. If they come due after a year, then they
are not floating debt.
Senator K err. What else is in marketable issues? What is meant
by the term “ bank eligibles” ?
Secretary H umphrey. Well, those are bonds that are eligible for
banks to purchase.
Senator K err. But that is. not part of the floating debt?
Secretary H umphrey. The maturities that occur within 12 months,
of those, are part of the floating debt for the period within which they
are due within 12 months.
Senator K err. Then the notes within 12 months-----Secretary H u m p h r e y . And the bonds within 12 months, the ma
turities within 12 months.
Senator K err. Of the notes and of the bank-eligible Treasury
bonds?
Secretary Humphrey. That is right.
Senator K err. And of the bank-restricted Treasury bonds?
Secretary H umphrey. Well, we haven't any of those.
Senator K err. But then the bank-eligible Treasury bonds, it is
within 12 months?
Secretary H umphrey. That is right.
Senator K err. That is part of the floating debt?
Secretary H umphrey. You have to deduct from that such of these
securities as are held by the Federal Reserve System.
Senator K err. Y ou do not owe that?
Secretary H umphrey. Y ou owe it, but it is not included in what is
known as floating debt. This is floating debt in the hands of the
public.
Senator K err. Is that what your statement said?
Secretary H u m ph r ey . That is right. We talk-----Senator K err. I believe the words are “in the hands of the public.”
Secretary H umphrey. That is what a floating debt is, in the hands
of the public.
You see, it is right in the statement, expressed iust that way, Mr.
Senator. It is the amount of marketable public debt maturing within
a year.
Senator K err. I have that, but for my own benefit, in order tha|
we may understand each other, I am trying to identify it.
Secretary Humphrey. Well, I have just given it to you, a n d t
have told you just what to add in and just what to deduct out, and,
I am pointing out that it corresponds exactly with what I said.
Senator K e r r . Tell me w h a t i t w a s on December 3 1 , 1 9 5 2 .
Secretary Humphrey. You want the floating debt as defined in
my statement.
Senator K err. I want to know what it was on December 31, 1952.
Secretary H umphrey. 1952, 74.6.
FINANCIAL CONDITION OF THE UNITED STATES
129
Senator K err. $74.6 billion?
Secretary H umphrey. That is correct.
Senator K err. We can sure break that down, can we not?
Secretary H umphrey. I think so.
Senator K err. All right.
Now tell me what that $74.6 billion consisted of.
Secretary H umphrey. Just a second until I read across the right
line. This is 1952.
Senator K err. Is that December 31, 1952?
Secretary H umphrey. That is right.
This is the end— this is December 31.
And the under 1 year-----Senator K err. The $74.6 billion total is what I want to break down.
Secretary H umphrey. That is what I am going to give you.
Senator K err. All right, give it to me.
Secretary H umphrey. It breaks down into marketable debt-----Senator K err. Marketable debt. Now, wait a minute. How
much?
Secretary H umphrey. 42.9.
Senator K err. 42.9. What does that consist of?
Secretary H umphrey. That is everything that is due within a year.
Senator K err. What is it? What are they?
Secretary H umphrey. It is whatever they may be.
Senator K err. Y ou have got the tabulation.
Secretary H umphrey. I do not have it tabulated as to specific
items. I do not have the 42.9 broken down.
Senator K err. What would they consist of?
Secretary H umphrey. It consists of bills, notes and bonds that come
due within 12 months.
Senator K err. Bills, notes, bonds.
Secretary H umphrey. That come due within 12 months.
Senator K err. What is that?
Secretary H umphrey. I do not have it broken down between those
items.
Senator K err. Is that what it consists of?
Secretary H umphrey. That is correct.
Senator K err. What is the rest of it?
Secretary H umphrey. Savings notes, $5.8 billion.
Senator K err. What is that again?
Secretary H umphrey. *It is 5 billion 800 million.
Senator K err. 5,800 million.
Secretary H umphrey. That is correct.
Senator K err. Those notes were due when?
Secretary H umphrey. Within a year.
Senator K err. Within a year.
All right, what else is in the $74 billion?
Secretary H umphrey. 22.6 of F and G savings bonds.
Senator K erb . F and G savings bonds, 22.6.
Secretary H umphrey. There might be some J's and K 's in there,
too. They were— —
Senator K err. F, G, J, and K.
Secretary H umphrey. F, G, J, and K.
Senator K err. What else?
Secretary H umphrey. Miscellaneous debt, 3.4.
130
FINANCIAL CONDITION OF THE UNITED STATES
Senator K e r r . What does that “ miscellaneous” mean? What
would that be?
Secretary H umphrey. That includes some investment bonds and
depository bonds, and Armed Forces leave bonds, and CCC demand
obligations, and matured debt, and debt bearing no interest.
Senator K e r r . All right, then.
Now, on May 31, of 1957, what was the total?
Secretary H u m p h r e y . Well, I have 1956, the year 1956, here.
Senator K err. Y ou do not have May 31, 1957? Let’s take it on
December 31, 1956.
Secretary H u m p h r e y . Here it is, right here, I have got it.
Senator K e r r . All right. What is the total?
Secretary H u m p h r e y . This is May 1957. The total is 62.9.
Senator K e r r . 62.9. What does that consist of?
Secretary H u m p h r e y . The first category is 46.1.
Senator K e r r . Marketable-----Secretary H u m p h r e y . That is right.
Senator K e r r . That is how much?
Secretary H u m p h r e y . 46.1.
Senator K e r r . All right.
How much of savings notes?
Secretary H u m p h r e y . None.
Senator K e r r . None.
What were they replaced with?
Secretary H u m p h r e y . Well, they went into the first category,
under the bills and notes or some of those things.
Senator K e r r . Into bills and notes.
F and G savings?
Secretary H u m p h r e y . 13.7.
Senator K e r r . What became of the rest of those?
Secretary H u m p h r e y . Well, they were paid off.
Senator K e r r . Paid off?
Secretary H u m p h r e y . Yes.
Senator K e r r . Have other savings bonds been issued?
Secretary H u m p h r e y . Well, we keep selling bonds, but not of these
classes.
Senator K e r r . Not of these classes.
Secretary H u m p h r e y . That is right.
Senator K e r r . What was it that distinguished F- and G - from Ebonds?
Secretary H u m p h r e y . Well, these were the bonds designed for the
larger investors, and we discontinued selling them.
Senator K e r r . Discontinued.
What about the miscellaneous debt?
Secretary H u m p h r e y . $3.1 billion.
Senator K e r r . Mr. Burgess here a few weeks ago told the commit
tee that there was something like 75 or 76 billion, as I recall, of the
Treasury indebtedness that was being currently refinanced over short
term periods.
Secretary H u m p h r e y . Well, we are currently financing all the time,
Senator.
Senator K e r r . I am just trying to get the total.
FINANCIAL CONDITION OF THE UNITED STATES
131
Secretary H umphrey. I cannot toll you what the total is. It keeps
changing all the time. You would have to ask me for a period. I can
find out for any particular period. But we keep financing right along.
Senator K err. I asked him what it was as of that date.
Secretary Humphrey. I do not know what you asked him. What
did he say?
Senator K err. He was testifying here in connection with the
raising of the rate on the E bonds.
Secretary H umphrey. Did he say there would be approximately
$75 billion coming due within a year?
Senator K err. That is the way I understood it.
Secretary H umphrey. Well, that is about right for all the marketables.
Senator K err. Well, according to this, you said on M ay 31 it
was 62.9.
Secretary H umphrey. Well, the amounts keep changing all the
time, and you have got to deduct what is in the Federal Reserve, you
see, which I told you in the first place.
Senator K err. Well, how much is in the Federal Reserve?
Secretary H umphrey. I do not have that.
Senator K err. H ow much was in the Federal Reserve on December
31, 1952?
Secretary Humphrey. This is on which date?
Senator K err. On December 31, 1952.
Secretary H umphrey . 1952. We will have to get that.
Senator K err. How much have they got now?
Secretary Humphrey. At the end of 1956, it was 24.9 for their total
Governments.
Senator K err. I am talking about May 31.
Secretary H umphrey . I think, Senator, we had better get these-----Senator K err. What?
Secretary H umphrey. I think we had better get these things for
you, because wre do not have broken down here what it is as between
maturity within a year and after a year, you see, so I think we will
have to get these Federal Reserve figures for you and present them
to you.
Senator K err. That is fine, because we want to be talking about
the same thing.
Secretary Humphrey. That is right. We do not have the break
down between the two here.
Senator K err. I would like for you to have them when we meet
•gain.
Secretary Humphrey. We will.
Senator K e rr. As to the Federal Reserve notes.
Secretary Humphrey. We will.
(Secretary Humphrey subsequently submitted the following:)
132
FINANCIAL CONDITION OF THE UNITED STATES
U.8.Governm
entfloatingdebt,196B-66
[In billions of dollars]
Dec. SI
1953
Marketable debt maturing within 1 yea r:1
M a y 81,
1957
1956
Leas: Held b y Federal Reserve * ...----------
57.8
14.9
68.7
23.1
67. J
21.1
Amount held b y public............................ .
42.9
45.6
46.1
Nonmarketable demand debt held b y public:
8avings n o te s * ..............................................
F, O f J, and K savings bonds..................... .
Miscellaneous d e b t4.................. .................. .
5.8
22.6
3.4
14.9
3.5
13.7
3.1
T o ta l ou tstan din g............................ ...............-
Total............................................................
31.8
18.4
16.8
Total floating debt......................................
74.6
63.9
62.9
i Marketable debt maturing within 1 year (including called bonds paid of! or refunded within year):
partly estimated for December 1956 and May 1957.
* Including Government Investment accounts.
* Nonmarketable 9-8 year notes sold mostly to corporate Investors to cover tax liabilities.
« Includes investment bonds (series A), depositary bonds, armed forces leave bonds, CCO demand
obligations, matured debt, and debt bearing no interest.
S e n a to r K e r r . L e t u s g o b a c k to M a y fo r j u s t a m in u te .
I h a v e a T r e a su r y D e p a r tm e n t r e le a s e o f M o n d a y , J u n e 7 , 1 9 5 7 ,
a n d I a sk y o u if it is a u th e n tic .
I s t h a t a n o ffic ia l r e le a s e ?
S e c r e t a r y H u m p h r e y . I t h in k i t is , y e s .
S e n a to r K e r r . I t sa y s:
D u r in g M a y 1 9 5 7 , m a rk et tr a n sa c tio n s in d ir e c t a n d g u a r a n te e d s e c u r itie s o f
t h e G o v ern m en t for T r ea su ry in v e s tm e n t an d o th e r a c c o u n ts r e s u lte d in n e t
p u rch a ses b y th e T rea su ry D e p a r tm e n t o f $ 3 1 3 , 4 2 0 , 0 0 0 .
W o u ld y o u te ll m e w h a t g u a r a n te e d s e c u r itie s o f t h e G o v e r n m e n t
th o se w ere?
S e c r e ta r y H u m p h r e y . I d o n o t t h in k I c a n , in d e t a il.
W e can,
a g a in , g e t t h a t fo r y o u .
I t is s e c u r itie s b o u g h t in t h e m a r k e t fo r
tr u s t fu n d s.
B u t I c a n g e t y o u t h e d e t a ils a s t o w h a t t h e is s u e s w e r e .
(W h e n t h e fo llo w in g w a s s u b s e q u e n t ly s u b m it t e d b y t h e S e c r e t a r y ,
i t w a s d is c u s s e d fu r th e r .
S e e p. 1 9 4 .)
Net purchases in market during M ay 1967, for Treasury investment and other accountr
Net purchases, or
T rea su ry b o n d s:
2% p ercen t o f
2 # p ercen t o f
2 # p ercen t of
2 y4 p ercen t o f
2 y4 p ercen t o f
p ercen t o f
2 # p ercen t o f
2 Vi p ercen t
2 H p ercen t
2 Yi p ercen t
2}<t p ercen t
2 # p ercen t
T rea su ry n otes:
lH p ercen t
2 # p ercen t
1% p ercen t
3H p ercen t
3H p ercen t
of
of
of
of
of
(- )
1 9 5 6 - 5 9 __________________________________________
— $9,
1 9 5 8 - 6 3 ............. ...............................................................
- 72,
J u n e 15, 1 9 5 9 - 6 2 ________________________________
— 6,
D ec. 15, 1 9 5 & - 6 2 ........................... ............. .......... . . .
-5,
1 9 6 0 - 6 5 ...................................... .......... ,«i_......................
-81,
1 9 6 1 ______________________________ _______________
7, 0 5 1 ,
1 9 6 2 - 6 7 .............................................................................
-12,
2}* p ercen t of 1 9 6 3 - 6 8 ............. ...................... ............. ...........— 9,
D ec. 15, 1 9 6 4 - 6 9 ______ ______________ ___________
-31,
J u n e 15, 1 9 6 4 - 6 9 ________________________________
— 19,
1 9 6 5 - 7 0 ___________________ ______________________
— 1,
J u n e 15, 1 9 6 7 - 7 2 ________________________________
—2,
S ep t. 15, 1 9 6 7 - 7 2 . ...................................................
-1,
due
due
due
due
due
M ay
June
F eb .
M ay
F eb.
15,
15,
15,
15,
15,
1 9 5 7 __________________________________
1 9 5 8 _______________ __________________
1 9 5 9 _____ ____________________________
1 9 6 0 __________________________________
1 9 6 2 _________________________ ________
3 6 3 , 150.
893,
— 4,
4, 3 0 0 ,
60,
500
75Q
000
000
300
000
500
500
000
000
000
000
000
000
000
000
000
000
FINANCIAL CONDITION OF THE tiNITED STATES
133
Net purchases in market during M a y 1957, for Treasury investment and other
accounts— Continued
Net purchaMt, or
Certificates of indebtedness:
***** <->
3*4 percent due Oct. 1, 1957_________________________________ —$83, 900,000
3% percent due Feb. 14, 1958----------------------------------------------6, 000, 000
Treasury bills:
Issue maturing Aug. 15, 1957_______________________________
800, 000
Issue maturing Aug. 29, 1957_______________________________
15, 324, 000
Panama Canal bonds: 3 percent of 1961_________________________
—3, 000
Total.................................................... ...........................................
313,420,450
Senator K err: Does not your Treasury Bulletin there disclose
that?
Secretary H umphrey. No, not for this month.
Senator K err. I s there any member of your staff here who has any
recollection of it?
Secretary H umphrey. We will get the exact figures. We will not
guess.
Senator K err. W e will leave it that way, and you will get the
exact amount of Government securities.
You told us in your statement that the average rate on all Govern
ment issues outstanding was 2.67 percent.
Secretary H umphrey. That is what it says.
Senator K err. What part of the Government issues outstanding
have been refinanced by your or by your Department since you have
been in?
Secretary H umphrey. I also will have to get that for you. Of
course, there is a good deal of it, but I cannot tell you exactly. A
good deal of it.
Senator K err. D o you have an estimate?
Secretary Humphrey. N o; I have not.
Senator K err. D o your assistants here have it?
Secretary H umphrey. No. We will get the figures. Let’s get the
right figures.
I think we might do this, Senator: If you wanted things of this
sort, if you would furnish us with a list of this sort, we will try to get
it ahead of time, or do it this way if you would prefer.
(The information referred to was subsequently submitted at p. 173.)
Senator K err. You get it M onday or Tuesday. That is all right.
I noticed in yesterday’s paper, the New York Herald Tribune,
that Governments had again reached a new low. And in this morn
ing's paper, it showed they went down again yesterday. The head
line says—
Bond yields slide to 3.90 percent as prices fall. Yields on United States
Government bonds yesterday went up to the 3.90 percent level and bond prices
slumped again to a new record low.
Can you tell us, Mr. Secretary, how long prior to that date it was
that Government securities were selling low enough to yield 3.90
percent?
Secretary H umphrey . N o; I cannot.
Senator K err. Could your aide thei*e tell us?
Secretary H umphrey . Well, I do not know. What would you be
talking about, long bonds?
134
FINANCIAL CONDITION OF THE tJNITfiD STATES
Senator K e r r . I am talking about the yields on bond3 that sell in
the market.
Secretary H umphrey. Well, of course, they are not exactly the
a*mm although the arbitrage on them is not too much different.
Senator K
err.
I am talking about w hat this paper is talking a bou t.
Secretary H umphrey. I do not know what the paper is talking
about.
Senator K e r r . Does your staff m an know w hat I am talking a b o u t?
Secretary H umphrey. What does it say?
Senator "Kerr. The New York Herald Tribune.
Secretary H umphrey. I do not know how they compute this. This
is some kind of an average computation. You see, they quote different
issues. I do not know exactly how they get what they call a “ yield”
here.
But generally-------Senator K err. I have here from the financial pages of the Wash
ington Post this morning the market on Government bonds, and
giving the yields for different bonds.
Secretary H umphrey. For different bonds?
Senator‘K e r r . That is right.
It shows Treasury 2#s, 59-57, yield 3.84; Treasury 2Jis, 62-59,
3.85; 2Ks, 61, 3.89; 2J^s, 67-62, 3.89; Treasury 2J*s, 69-64, 3.90.
What is the date of that paper you have there?
Secretary H umphrey. This paper is Thursday, June 20.
Senator K err. I notice in the Washington Post this morning-—
that which I was reading to you was yesterday morning’s—the
Treasury
69-64, were bought at a yield of 3.91.
What I asked you was how long it had been prior to this present
time that comparable Government securities were selling to yield as
much as 3.90 or 3.91 or 3.84 or 3.85?
Secretary H umphrey. It would be a relatively—comparable bonds,
I think, would probably be in the twenties.
Senator K err. In the twenties?
Secretary H umphrey. I think so.
Senator K err. Well, is it not a fact that it was in the 20's, from
1924 to 1929?
Secretary H umphrey. Yes, somewhere in there, in that period up
through 1925.
Senator K err. Just before the crash of 1929.
Secretary H umphrey. Well, I do not know just what it was then,
but that is, of course, when the short term interest rates were at
their highest. Bonds were high in 1932 and 1933 too.
Senator K err. Well, if I read the financial pages of the newspapers
correctly-----Secretary H umphrey. That would be likely ------Senator K e r b (continuing). Government bonds are now selling,
for the first time since that period, at a basis to provide a comparable
yield.
Secretary H umphrey. I think that is right.
Senator K err. Well now, does that mean that if you were to sell
long-term bonds now, in order to sell them you would have to sell
them to yield that?
Secretary H umphrey. You would certainly have to yield that if
you sold them, and I do not know whether just the rate would sell
a long-term bond today, or not.
FINANCIAL CONDITION OF THE tJNITfiD STATES
135
Senator K err. You could not sell them for less than that?
Secretary H umphrey . Y ou could not sell them for less than our
current markets.
Senator K err. Now, if we had refinanced our $275 billion debt on
the basis to yield the return which Governments that are now selling
in the open market provide, how much additional interest would it
have cost us?
Secretary H umphrey. I do not know, but it would be substantial.
Senator K err. Well, your figure here on page 13 said that at 2.67
it was $1.1 billion more than it was on December 31, 1952.
If you refinanced it at 3.90, how much additional interest would
that cost as compared to 2.67?
Secretary H umphrey. I have never figured it out, because of course
we are not going to do that. But we can do it.
Senator K err. You have somebody there who can do it. Let’s
get it.
Secretary H umphrey. We are not going to refinance them all at
that. I f we did it, and we are not going to, it would be something
over $3 billion.
Senator K err. Would it be about $3.4 billion?
Secretary H umphrey. That is right.
Senator K err. And that, plus the $1.1 billion more we were paying
December 31, 1956, in comparison to December 31, 1952, would make
a total of about $4}£ billion a year more interest that the public debt
would cost us then it was costing us in December of 1952.
Secretary H umphrey. If you were going to do it all.
Senator K err. And if you did it.
Secretary H umphrey. That is right.
Senator K err. Well, you are eventually going to have to refund
this debt.
Secretary H umphrey. Well, but I do not know just when. It is
not going to all be done now, and the rates may be lower by the time
you come to refund it, I do not know.
Senator K err. Is there any indication that they are going to be
lower?
Secretary H umphrey . I do not know. I would not be surprised
that the rates would be lower.
Senator K err. I have a couple of charts here, Mr. Secretary, that
I would like to show you, the 3 percent and 3Ji percent. These are
the 3-percent bonds that your Department issued, I believe, in 1955.
Somebody has inconsiderately called them the “ Humphrey-Dumphreys.” I do not want to call them that.
Secretary H umphrey. No, you have got the wrong issue. There
is an issue of that kind, but not on your chart there.
That is more like it.
Senator K err. We will get to both of them before we are through.
I believe these are the two long-term bonds you have issued since
you came in.
Secretary H umphrey. I think that is right. They are the longest.
Senator K err. Have you issued any other long-terms?
Secretary H umphrey . Well, it all depends on what— these are the
real long ones.
Senator K err . What others have you issued that could be desig
nated as long-term?
3 % as. e w w m e s w a rn
-AND INFLATION TAKES FURTHER TOLL
DoUonond
CoMinner Price Index
JANUARY 30,1955- JUNE 17,1957
J/M
NMOft*M
.ISSU
EDFEBRU
ARY19,1*55
^■ONOM
ttCCSATEN
DO
FM
O
N
THEXCEPTJU
N
E1907,ASO
FJU
N
E17
*N«rAN
OJU
M
C,IM
7.CSTItU
TCO
Dollors and
ConsumerPrice Index
SO
U
RCE-U
N
ITEDSTATESTREASU
RYAN
DLABO
RO
EfeATM
CN
TS
2>’/ 4%U.S. BOND"PRICESDECLINE
-AND INFLATION TAKES FURTHER TOLL
Dollars ond
Consumer Price Index
APRIL 30,1953"JUNE 17, 1957
J
Ift7A
1T
*IC
M
S,O
IF
tSM
U
CN
D
M
YX
1U
,1P
*T
93J
.U
V/ *tO
0N
*O
0SPor
fttCC
U
D
O
TH
,A
C
N
EIttT,ASOfJU
N
EIT.
1/ M
AYAN
O*MCIM7, CSTlM
ATCO.
Dollars and
Consumer Price Index
•OUM
QC'UW
TepfTATCSTRCASUM
tAN
OUAtOftDCM
RTM
CNTt
138
FINANCIAL CONDITION OF THE UNITED STATES
Secretary H umphrey. Well, there are 5 years and 8 years, and----- Senator K err. H ow much?
Secretary H umphrey. Various amounts of—they arc not large
amounts, 6ut there have been quite a number of them.
Senator K err. These are the substantial items?
Secretary H umphrey. These are the real long bonds.
Senator K err. A s of today, this chart is not up to date because it
was prepared a couple of days ago, here are the bond prices: The 3#s
below 94, and they sold yesterday at—the bid was 93.8.
And the 3 percent were a little above 88 on this; and yesterday they
were bid at 87.8—bid, 87.8; and asked, 87.16, to yield 3.62. and the
3Ks vield 3.64.
This is the consumer price index line, Mr. Secretary, that shows the
fate of the purchaser of those bonds. He has taken a whipping, both
from the standpoint of the depreciated value of what he bought, and
of the reduced purchasing power of the dollar if he sold what he
bought, which would put this one down to here, and the other one down
to here.
What is the legal limit of interest that the Treasury can pay on this
kind of a bond?
Secretary H umphrey. I think our top rate is 4# percent.
Senator K err. Is it not a fact that that is the legal rate—is that
not the legal limit that you can pay?
Secretary H umphrey. That is what I say.
Senator K err. How long, in your judgment, will it take if the
present trend of decline continues, and present policies of the Treasury,
and the Federal Reserve Board hold the line, how long do you think
it will be before those bonds and other long-term bonds are selling at a
return of 4#?
Secretary H umphrey. Well, I would have no way of estimating
how long it would be.
Senator K err. If the present rate continues, it will not be long, will
it?
Secretary H umphrey. Of course, I think, my own judgment is, that
the rate will slow down, but 1 do not know how far it will go. There
is no way to tell, no way that I know of to tell.
Senator K err. Well—how much of a maturity have you got
coming up within the next 12 montlis?
Secretary H umphrey. Well, as I say, I have not the exact figure in
mind. It is somewhere around 70 to 75 billion dollars.
Senator K e r k . I thought you said a while ago that the floating
debt was just $64 billion.
Senator H umphrey. Well, I just got through telling you on that,
and we just went over that, Senator, a few minutes ago, and I told
you that you had to deduct what was in the Federal, and we did not
nave the exact amount of less than 1 year, that is in the Federal.
Senator K e r r . Y ou have to refinance that; do you not?
Secretary H u m p h r e y . Well, it is refinanced, but it goes into the
Federal. It is a turnover in the Federal.
Senator K e r r . Yes.
Now, the last issue of short terms you sold, sold to yield 3.40.
Secretary H u m p h r e y . That is right.
Senator K e r r . What were the short-terms selling to yield Decem
ber 31, 1952, or June 30, 1952, let us take that figure, and I take that
FINANCIAL CONDITION OF THE UNITED STATES
139
figure for the sole and only reason that that was before the effect of
what I regard as a change in Federal Reserve policy after November
1952.
Secretary H u m p h r e y . I see.
Well, the average for the year, why not take that?
Senator K e r r . What is the average?
Secretary H u m p h r e y . 1.766.
Senator K e r r . 1.766 was the average for 1952.
And in 5 37ears, then, it has doubled, has it not?
Secretary H u m p h r e y . That is about it.
Senator K e r r . 3.40.
Secretary H u m p h r e y . 1.766.
Senator K e r r . When things are going in the same direction, things
keep going the same way; do they not?
Secretary H u m p h r e y . Not necessarily. These things fluctuate,
and I do not know whether the same forces will keep operative con
tinuously or not. I think it is believed that the pressures will be
somewhat less. I believe that they will be. I believe that some of
these excessive demands will, first, be satisfied; and that they will
slow down to some extent.
Senator K e r r . I saw in the paper just the day before yesterday
where some great utility in Michigan paid 6 percent.
Secretary H u m p h r e y . Well, I would not be surprised. It all de
pends on the terms of the bond and they way they are tailored, and
how much— what the call rates are, and when they can be called, and
all sorts of conditions are involved in what your interest rate is.
Senator K e r r . If it does continue, and if it got to where you could
not sell your bonds at 4%, what would you do?
Secretary H u m p h r e y . I think, if I were here, I would come back to
Congress, and very much on the same basis that I came back on the
debt limit. I would regret it, just as I regretted coming back on the
debt limit.
But you are confronted with a condition and not a theory in these
matters, and you finally reach a point where you just have to decide
whether the Government will pay its bills or whether it won't. And
when that is the decision to be made, I think you do what is the
practical thing, and then try to get back into proper shape, into better
shape, just as rapidly as possible.
Senator K e r r . At present market rates, Mr. Secretary, how much
under par are the total outstanding marketable securities of the
Government?
Secretary H u m p h r e y . I have not figured it up. I would have
to— —
Senator K e r r . Would you have that prepared for us, when we meet
again-----Secretary H u m p h r e y . I can add it up.
Senator K e r r . A tabulation of the losses or of the reduced value-----Secretary H u m p h r e y . Y cs .
Senator K e r r . Of outstanding Government bonds from June 30>
1952, down to whatever the market is when you come back?
(When the following was subsequently submitted by the Secretary,
it was discussed further. See p. 198.)
968190—57-----10
140
FINANCIAL CONDITION OF THE .TOOTED STATES
June SO, 186S
M arket value o f ouU landing G overnm ent eeeu ritiee D ee. S t, 1 9 6 t, J u n e i t , 1967, an d
[Money amountsinmillions]
June 30,1952 *
June 21,1957
Dec. 31,1052
Amount Mar Average Amount Mar Average Amount Mar A venge
market
out
ket
ket
market outstand ket
out
market
ing i
value * price* standing value * price*
standing value * price*
Marketable:
Bills............................ $21,713 $21,644
Certificates................. 16,712 16, 712
30,266 29,963
N o te s ....... ................
Bonds:
72,353 70,938
Taxable...............
Partially tax ex7,674
em ot................
7,402
Wholly tax ex
57
empt.................
50
$99 22
100.00
99.02
$17,219 $17,182
28,423 28,432
18,963 18,755
$99.25
100.01
99.00
98.01
78,391
71,652
91.13
68,258
67,750
99.08
2,404
2,398
99.24
7,402
7,808
105. U
50
51
103.00
so
58
116.08
160,331 153,132
95.16
115.08
100.00
100.00
100.00
100.00
100.00
267,445 265,958
99.14
Market depreciation____
$99.20
99.28
98.31
103.22
Total............. 148.497 147,009
Nonmarke table:«
Savings bonds...........
57,040 57,940
Investment b o n d s... 13,450 13,450
8,172
6,172
All other.....................
Special issues.................... 39,150 39,150
Miscellaneous................... •2,237 •2,237
Total.......................
$28,777 $26,673
21,785 21,756
30,924 30,601
99.00
Percent
1,487
0.56
55,193
11,203
210
46,137
2,263
100.00
100.00
100.00
100.00
100.00
275,337 268,138
97.12
55,193
11,203
210
46^ 137
2,263
Percent
7,199
2.62
140,315 139,985
57,685
14,046
6,986
37,739
<2,380
57685
14,046
6,986
37,739
<2,380
250,151 258,821
330
» .*
100.00
100.00
100.00
100.00
100.00
99.28
Percent
0.125
* June 30, 1952, figures subsequently furnished.
* Averages on marketable (decimals in thirty-seoonds) based on closing market bid quotations.
* As of May 31, 1957.
« Stated in terms of current redemption value both as a public debt liability and as an available asset of
the investor.
* Include* marketable postal savings bonds, amounting to $84 million.
Secretary H umphrey. Y ou see, we went—we had lower interest
rates after June 30, 1952. We sold some bills— —
Senator K err. I am not talking about the interest rate now
Secretary H umphrey. Down as low as-----Senator K err. I am now talking about the loss to holders of bonds,
that they would take.
Secretary H umphrey. If they sold them?
Senator K err. If they sold them.
Secretary H umphrey. Yes, we can figure that. But just to show
you the fluctuations, Senator, and see how they run, the bill rates few
the average of 1952 were 1,766, which I read a minute ago.
In 1953, they were 1.931.
1954,
when there was slightly less pressure, they were down to
0.953.
Senator K err. Was there less pressure, or had the Reserve and
Treasury done some-----Secretary H umphrey. N o, there was less business. There was less
demand-----Senator K err. I see.
Secretary H umphrey. And it went down to 0.953.
Then in 1955, it went back up again about to the same as 1952.
It was 1.753 instead of 1.766, and then it went on up.
Senator K err. We are talking about the last year of your pred
ecessor, and this year.
Secretary H umphrey. Yes, sir. Those were the two figures, but
I am just showing you the fluctuations that occurred in between.
There were wide fluctuations in between, and they reflect very
largely, or to some extent, the pressures and the demand for money.
FINANCIAL CONDITION OF THE UNITED STATES
141
On this market appraisal, market estimate, what is the date of that,
June 30 or—last June 30, or December 31, that you want?
Senator Kerr. June 30 of 1952.
Secretary H u m p h r e y . Y o u want June 30 of 1952.
Senator K e r r . And whatever the last date is.
Secretary H u m p h r e y . The last date for which quotations are
available.
(The Secretary subsequently submitted the following:)
T h e m a r k e t v a lu e o f T r e a s u r y m a r k e ta b le s e c u r itie s , o n J u n e 3 0 , 1 9 5 2 , w a s
$ 1 3 9 , 9 8 5 b illio n , $ 0 , 3 3 0 b illio n b e lo w t h e ir p a r v a lu e o f $ 1 4 0 , 3 1 5 b illio n .
Senator
K
err.
In your prepared statement, Mr. Secretary, you say:
T h e T r e a s u r y c a n n o t d e t e r m in e t h e le v e l o f in te r e s t r a t e s b u t m u s t p a y t h e
r a t e s d e t e r m in e d b y m a r k e t fo rces.
Secretary H u m p h r e y . That is right.
Senator K e r r . Would you say that the Treasury and the Federal
Reserve Board together could not determine interest rates?
Secretary H u m p h r e y . N o , sir.
Senator K e r r . They cannot?
Secretary H u m p h r e y . I would say that the Federal Reserve Board
can have a very substantial effect on interest rates. The Treasury has
to take what the market provides.
Senator K e r r . Well, the Treasury can sure put a floor under them,
can it not?
Secretary H u m p h r e y . No, I do not believe so. I do not think the
Treasury could. The Federal Reserve Board might.
Senator K e r r . When you sold the 3#s in 1953, did that not put
a pretty substantial floor under interest rates?
Secretary H u m p h r e y . N o , I do not think so. They fluctuated a
good deal after that.
Senator K e r r . Yes, I know th e y did.
Secretary H u m p h r e y . I do not think the Treasury— there is not
any way, Senator, that I know of, that the Treasury can peg bonds.
Senator K e r r . I am not talking about them pegging the top.
Secretary H u m p h r e y . Or peg th e b o tto m .
Senator K e r r . I s it not a fact that when the Treasury makes an
offer of a long-term bond, if interest rates prior to that time had been
lower then that would be the minimum, would it not?
Secretary H u m p h r e y . N ot for long. Well, it might be for that day.
It could change-----Senator K e r r , And maybe the next?
Secretary H u m p h r e y . It could change within a week or within a
few days.
Senator K e r r . I understand that.
Secretary H u m p h r e y . There is no way the Treasury can peg the
price of its interest or the price of its bonds.
Senator K e r r . I understand they cannot peg the limit.
Secretary H u m p h r e y . Either w a y .
Senator K e r r . But when they issue them, they establish the floor.
Secretary H u m p h r e y . I do not think so. They establish the price
of that issue, and another issue may come out—you see it every day,
it changes every day, and pressures ehange.
' Senator K e r r . The ones you see1changing every day-----Secretary Htri«ptf6EY. :W ntit is that?
142
UNAffciXL coNumoN' b r
t &e tooted states
Senator K err. The short-terms are the ones you put up for bid.
Secretary H umphrey. You see the long-term, ana the same thing
is true for municipal debt. When you come to put out an issue,
Senator, you have got to sell it at a price that somebody will buy it for.
Senator K e r r . That is right.
Secretary H u m p h r e y . And they are not going to buy it for less
than they can buy other issues currently.
Senator K ekh. That is correct.
Secretary H u m p h r e y . N o w , that m ay change the next day.
Senator K e r r . And they are not-----Secretary H umphrey. And another issue may come out and be
priced lower, and then you have got a new floor.
Senator K e r r . Well, that sounds-----Secretary H u m p h r e y . In pegging, there is no way I know of that
the Treasury can peg markets or peg interest rates. Now, monetary
controls and the limitations on credit are the functions of the Federal
Reserve Board, not of the Treasury.
Senator K e r r . That is what you do on these short-terms.
Secretary H u m p h r e y . We do that on short-terms; yes.
Senator K e r r . But you do not do it on long-terms?
Secretary H u m p h r e y . Look at your own chart. You see how
rapidly your own chart changes.
Senator K e r r . I am talking about what it was the next day.
Secretary H u m p h r e y . We do not peg any floors. All it does is for
the day, that is about all.
Senator K e r r . But it does it for the day.
Secretary H u m p h r e y . I think so.
Senator K e r r . Well, that is all I asked you.
In other words, the Treasury can push the interest rates up, though
they cannot push them down.
Secretary H u m p h r e y . I think that is about right.
Senator K e r r . All right.
Secretary H u m p h r e y . We cannot hold them up, but we can push
them up 011 an issue.
Senator K e r r . That is right.
T h ere is a stro n g d em a n d for sh o r t m a tu rities. O ur b ill a u c tio n s e a c h w eek
are a lw a y s w ell o v ersu b scrib ed . T h e T r ea su ry fa c e s n o crisis. O ur se c u r itie s
are th e m o st h ig h ly regard ed in t h e w orld.
Do you believe that, Mr. Secretary?
Secretary H u m p h r e y . Yes, 1 do.
Senator K e r r . Is that the reason they are selling roughly a t 14
percent off of par?
Secretary H u m p h r e y . I do not think that has a thing to do with
it. That simply reflects tbe interest. You see, you fix interest in
two wavs: You fix interest by the rate, and by the price. And in an
interest-bearing security the only way the interest can be adjusted
to meet the market price ol interest is to adjust the principal.
Senator K e r r . Mr. Secretary-----Secretary H u m p h r e y . Market value.
Senator K e r r . I am among those who have a great respect for
your business ability, I want to say to vou frankly; I have said it
before and I say it again, I do not think tfiere is an abler businessman
in the country.
FINANCIAL CONDITION OF THE UNITED STATES
143
And do you believe that when a man comes into Government posi
tion that he should operate his responsibility with the same degree of
care and concern that he does his private business?
Secretary Humphrey. I certainly do.
Senator K e rr. What do you think would happen to a private busi
ness that had to expand by issuing bonds or notes or debentures or
other media of credit where everything it issues except demand notes
sell materially below the issuing price?
Secretary Humphrey. I think you see that happen every day.
You see industrial concerns every day-who have some securities out
at a fixed rate of interest that were sold on a different market, that
are selling at a different price than the issue price, and they put out
another issue today, on this market of interest, with higher interest
or a lower interest, depending on which way the market is going, and
their securities sell.
Senator K e r r . Let us say every issue it put out sold under par.
Secretary Humphrey. That is-----Senator K e r r . How do you think the average investors-----Secretary Humphrey. They will sell both ways.
Senator K e r r . Now, suppose you show me a Government long
term security in the market yesterday for which a prospective buyer
bid par.
Secretary Humphrey. Suppose I do what?
Senator K e r r . Name one long-term security of this Government
which in yesterday’s market had a bid of. as much as par from any
purchaser.
Secretary Humphrey. Well, there were not.
Senator K e rr. There was not a one?
Secretaiy Humphrey. When the long-terms were sold, we were on
a lower level, so the way to adjust to the higher level of interest is to
reduce the market price for the bond.
Senator K e rr. But what I am asking you is, how do you think
investors would feel about the issues of a private concern which, with
out a single exception, sold in the market at below par?
Secretary Humphrey. You will find many.
Senator K e r r . What do you think the average investor would
think about it?
Secretary HuMrtWEY. You will find, if you take, Senator— I have
not done this, but'I believe you will find it so— if you will take cor
porate securities or municipal bonds that were sold at the same time
that these long-terms of ours were sold, that they are selling below
the issue price, too.
Senator K e r r . I think that is true.
Secretary Humphrey. I think they are. And our securities, I
will call your attention to the fact that our securities, the “HumphreyDumphreys,, that you speak of, sold above par. They were put out
at par, and they sold above par. They sold below par, and then they
went back above par again.
Senator K erb . I think that is pretty strong evidence that some
body made a mistake when they said that they hit the market right,
on the nose.
Secretaiy Humphrey. Well, you only hit a market for a day.
You know, if anybody could figure out where these markets were, he
would be alone in the world ana we would all be working for him.
144
FINANCIAL CONDITION OF THE UNITED STATES
Senator K e r r . D o you think the Government securities in today's
market could be regarded as speculative securities?
Secretary H umphrey. Out Government securities?
Senator K err. Yes.
Secretary H umphrey. They are speculative to a certain extent:
I think less speculative than almost anything else you could think of,
but nevertheless anything, anything that you have to sell for cash,
the market can change, and what you can get for it can change,
whether it is a piece of real estate, whether it is a piece of machinery,
whether it is an old automobile, or a horse or buggy, it all changes,
and the market price as of any day, what you can actually sell it for
on any day, may be different than any other day.
Senator K err. Y ou recall when you took office as Secretary of the
Treasury
Secretary H umphrey. Yes.
Senator K err. D o you remember your pronouncement as to a
certain very unhappy situation that had been permitted to develop
in the matter of the term of Government issues?
Secretary H umphrey. I do not know just what you are talking
about.
Senator K err. Well, for instance, on November 23, at Chicago,
before a Republican—well, I guess you can be excused for what you
said there [laughter]—you said that—
t h e p u b lic d e b t is n o w p r a ctica lly a t th e lim it o f $ 2 7 5 b illio n . I n a d d itio n t a
in h e r itin g a d e b t o f en o rm o u s size, w e a lso in h erite d a d e b t t h a t h a d b e e n b a d ly
m a n a g ed .
Secretary H umphrey. That is right.
Senator K err (reading):
N e a r ly three-q u arters o f w h ich m a tu r e s w ith in less th a n 5 y e a r s or is red e e m a b le
a t th e h o ld er’s o p tio n .
Before the Union League Club of Philadelpha— there is a place
where a man would expect you to really do your best, is it not?
[Laughter.]
You said:
N e a r ly th ree-q u arters o f th is d e b t m a tu res w ith in le ss th a n 5 y ea r s or is r e d e e m
a b le a t th e h o ld er’s o p tio n . T o o large a p ro p o rtio n is in t h e h a n d s o f b an k s.
W e are tr y in g to w ork o u r w a y o u t o f th is in h erite d p ro b lem b y d o in g tw o th in g s
w h ich wiU m ak e th is p u b lic d e b t less d an gerou s t o th e v a lu e o f m o n e y a n d t o t h e
N a tio n ’s eco n o m y : W e are tr y in g to ex te n d th e m a tu r ity o f t h e d e b t b y p la c in g
lo n g er term issu es, w e are tr y in g to m o v e m ore o f t h e d e b t a w a y fro m t h e b an k a
a n d in to th e h a n d s o f p r iv a te in v esto rs.
Now, according to the information we have from the press, there is
a man going to succeed you one of these days.
Secretary H umphrey. That is right.
Senator K err. He will inherit a situation, will he not?
Secretary H umphrey. Yes, he will.
Senator K err. What part of the debt will mature within less than 5
years or is redeemable at the holder's option when he comes in?
Secretary H umphrey. I do not have the figure; we will get it for
you, and it will not be good. We did not-----Senator K err. Will it be in excess of three-quarters?
Secretary H umphrey. I do not know. I think it will be pretty
close to the same. We did not make the progress that I hoped we
would make.
FINANCIAL CONDITION OF THE UNITED STATES
145
Senator K e rr . Suppose I told you that it would be about five-sixths.
Secretary Humphrey. That it would be about what?
Senator K err. That it would be about five-sixths.
Secretary Humphrey. Well, it might be. I haven’t the exact
figure, but we will get it. But it is not a good figure.
(Secretary Humphrey subsequently submitted the following:)
I n 1 9 5 3 , I m a d e t h e s t a t e m e n t t h a t “ N e a r ly th r e e - fo u r th s o f t h is d e b t m a tu r e s
w it h in le s s t h a n 5 y e a r s o r is r e d e e m a b le a t t h e h o ld e r s ’ o p t io n .”
T h is s t a t e m e n t
w a s b a s e d o n a n a n a ly s is o f t h e F e d e r a l d e b t o u ts t a n d in g o n D e c e m b e r 3 1 , 1 9 5 2 ,
w h ic h s h o w e d t h a t 6 8 . 8 p e r c e n t o f t h e F e d e r a l d e b t o u ts t a n d in g w a s in t h is
ca teg o ry .
B y D e c e m b e r 3 1 , 1 9 5 6 , t h e p e r c e n t a g e c o m p u t e d o n t h e s a m e b a s is
w a s 6 8 . 4 p e r c e n t.
T h a t p a r t o f t h e p u b lic d e b t in c lu d e s:
1. A ll m a r k e ta b le s e c u r itie s m a tu r in g in le s s t h a n 5 y e a r s , r e g a r d le s s o f t h e
t y p e o f h o ld er;
2. A ll d e m a n d d e b t, s u c h a s s a v in g s n o te s , s a v in g s b o n d s (in c lu d in g E
a n d H b o n d s a s w e ll a s F , G, J, a n d K b o n d s ), d e p o s it a r y b o n d s, m a tu r e d
d e b t, a n d n o n in te r e s t- b e a r in g d e b t;
3 . I n v e s t m e n t se r ie s b o n d s — b o t h se r ie s A, w h ic h is r e d e e m a b le o n d e m a n d ,
a n d se r ie s B , w h ic h is e x c h a n g e a b le o n d e m a n d in to 5 - y e a r m a r k e ta b le n o te s;
and
4 . S p e c ia l is s u e s t o G o v e r n m e n t i n v e s t m e n t a c c o u n ts , s u c h a s U n e m p lo y
m e n t T r u s t A c c o u n t, F e d e r a l D e p o s it I n s u r a n c e C o r p o r a tio n , F e d e r a l H o u s
in g A d m in is tr a t io n F u n d s , a n d F e d e r a l S a v in g s a n d L o a n I n s u r a n c e C o rp o
r a tio n , w h ic h a c c o u n t s in v o lv e d e m a n d - t y p e o b lig a tio n s .
Senator K e rr . It is substantially more of it.
Secretary Humphrey. It is not a good figure.
Senator K e rr . As I recall, Mr. Secretary, the other thing that you
made quite a point of when you came in was that interest rates had
been held at an artificially low level.
Secretary Humphrey. That is correct.
Senator K e rr . Another one of the addresses you made before the
American Bankers Association here in Washington, September 22—
I remember you got more cheers there that day than any Republican
speaker did that fall before any audience. You said:
I t is o u r fir m in t e n t io n t o o ffer m o r e in te r m e d ia t e a n d lo n g - te r m is s u e s a t o p
p o r t u n e t i m e s in t h e fu tu r e .
I have the quotations here which we will get around to, maybe, in
which you said that the interest rates had been held at fictitiously low
levels, and that you were going to free the interest rates.
Secretary Humphrey. That is right.
Senator K e rr . And let them find their own levels.
Secretary Humphrey. That is right.
Senator K e rr . I want to ask you this question: When you did that,
and when you implemented that policy, did you not make it impossible
to accomplish your first objective?
Secretary Humphrey. No. I think the thing that made it imossible, or difficult, perhaps it wag not impossible, perhaps we should
ave done better, but the thing that made it difficult was because we
developed in this country, and no matter how, but we did actually in
fact develop this long period of sustained prosperity.
Now, when you have a period of prosperity, where people are want
ing to spend more money than they have and where more mid more
people are wanting to borrow, it means you have more competition in
the borrowing market for the money that is available to be borrowed.
With these periods of prosperity, it is much more difficult to sell
these longer term bonds than it is in a period where there is not the
E
146
FINANCIAL CONDITION OF THE UNITED STATES
amount of demand, the same demand, that there is in those highprosperity periods.
Senator K erb. Do we have anything, Mr. Secretary, any agency
in our Government, that has the power to increase die amount of
credit available?
Secretary H umphrey. Yes, we have.
Senator K err. What is it?
Secretary H umphrey. The Federal Reserve Board.
Senator K err. Was it organized by the Congress with the respon
sibility to provide the amount of credit reasonably needed by an
expanding economy?
Secretary H umphrey. I think that is probably correct.
Senator "Kerr. Does it have the power to do that?
Secretary H umphrey. I think that is probably correct.
Senator K err. And the resources?
Secretary H umphrey. I believe so.
Senator K err. What was the total public and private debt on
December 31, 1952?
Secretary H umphrey. I believe I have got that figure right here.
The total of all, $637 billion.
Senator K err. $637 billion. Can you break that down for me?
Secretary H umphrey. Yes, sir.
Senator K err. Will you do that?
Secretary H umphrey. I think if you look at page 35, it is broken
down.
Senator K err. I think it is, too, but I want to get it broken down.
(When the following was subsequently submitted by the Secretary,
it was discussed further. See p. 209.)
Estimated changes in gross public and private debt December 1956 to M a y 1957
[Billions of dollars]
1956
December
Individual:
Mortgage........................ .................................................. .
Consumer
____ ____________ ________ ____ _____ ___
Other.................................. ...... ......................... - ...............
1957
M ay 1
Change
131M
42
34
136
41H
34
'Corporate......................................... ...........................................
State and local government...... ......................................... ........
207^
24»H
50
211H
255
Total (other than Federal).............. .................................... ....
Federal Government......................... ..........................
507
276M
519
275
-m
783^
794
+H K
Total................................................. ....................- ................
Total..............................................................................
52H
•Preliminary estimates by Treasury Department.
Senator K err. The Federal was $267 billion, was it not?
Secretary H umphrey. The Federal was $267.4 billion.
Senator K err. State and local?
Secretary H umphrey. State and local was $31.2 billion.
Senator K err. And private?
Secretary H umphrey. Corporate is $202.9 billion.
Senator K err. $202.9 billion.
Secretary H umphrey. And individual, $135.5 billion.
Senator K err. And that adds up to $637 billion?
+4
+8*
FINANCIAL CONDITION OF THE UNITED STATES
147
Secretary H umphrey. That is right.
Senator K err. What is it now?
Secretary H umphrey. $783.5 billion.
Senator K err. That figure is as of December 31, 1956?
Secretary H umphrey. 1956.
Senator K err. Yes.
Secretary H umphrey. That is right. I think that is the last com
parable figure I have. I have that right here.
Senator K err. Give it to me. This is 12-----Secretary H umphrey. This is 4 months ago.
Senator K err. It is 5 % months.
Secretary H umphrey. Five and a half. Time flies.
Senator K err. 1956, State and Federal— I mean Federal?
Secretary H umphrey. Federal is $276.7 billion.
Senator K err. $276.7 billion Federal.
State and local?
Secretary H umphrey. $50 billion.
Senator K err. Corporate?
Secretary H umphrey . $249.3 billion.
Senator K err. Private or individual?
Secretary H umphrey . $207.5 billion.
Senator K err. Now, you can get those figures— and that adds
up to?
Secretary H umphrey. $783.5 billion.
Senator K err. $783.5 billion.
You can get that by next Tuesday on at least a responsible estimate
of the Federal Reserve Board and the Treasury as of M ay 31, can you
not?
Secretary H umphrey. I think so.
Now, wait a minute. He says it is a hard job. They are published
within a week, he says.
Senator K err. N ow, Mr. Burgess put them into the record 3
months ago.
Secretary H umphrey. We made some guesses.
Senator K err. They were not far wrong.
°
'
™
rr"
1 ' ir wrong. We will make a
Senator K err. This was an expansion of $146 billion in 4 years,
w*fihknot?
Secretary H umphrey . That is right.
Senator K err. Y ou have a statement in here as to how that was
provided.
Secretary H umphrey. Yes, sir.
Senator K err. I have a little difficulty in understanding it. I
believe it is on page 35.
Secretary H umphrey. Yes, sir.
Senator K err. Tell me now, or explain to me, just where that $146
billion came from.
Secretary H umphrey . Well, if you will iust follow the same pattern
that you did before, the total is $146.5 billion. The Federal GovernGovernment increase is $9.3 billion. The private increase total, other
than Federal, is $137.2 billion.
The State and local government is $18.8 billion; the corporate is*
146.4 bfflion; and the individual is $72 billion.
148
FINANCIAL CONDITION OF THE UNITED STATES
Senator K err. N ow, the thing I am trying to get at, over on the
next page, Mr. Secretary, you say that the sources of that credit are:
Savings, $135.8 billion.
Secretary H umphrey. Yes.
Senator K err. And yet, 2 or 3 pages before that, you said that the
total savings was $75 billion, on page 32.
Secretary H umphrey. I think that is a different figure.
Senator K err. That was in personal savings.
Secretary H umphrey. This is just people.
Senator K err. What I am trying to find out is where the rest of it is.
Secretary H umphrey. Well, it is in all of the things except the
banks. It is corporate increases and all other increases.
Senator K err. Well now, corporate increases could not be over
$10 or $11 billion a year, because that is all they had after taxes and
dividends.
Secretary H umphrey. It is corporate savings and loans and funds,
and all sorts of things, pension funds, everything except bank expan
sion.
Senator K err. Was that $146 billion in the form of currency?
Secretary H umphrey. What?
Senator K err. Was it in the form of currency?
Secretary H umphrey. Y ou mean the dollars added up here?
Senator K err. Yes.
Secretary H umphrey. Oh, no.
Senator K err. In what form was it?
Secretary H umphrey. It is in the form of credits.
Senator K err. In credits?
Secretary H umphrey. Yes.
Senator K err. Well, is it not a fact that, one way or another, it
represents the degree of expansion of credit that had been made
possible by the Federal Reserve Board?
Secretary H umphrey. Well, I would not think so. It includes,
this includes real gains, and the savings that are made of real earnings
and additional production, additonal creation of wealth during that
period.
Senator K err. Y ou say the people do not have the money, they do
not have currency.
Secretary H umphrey. They have got the credit.
Senator K err. They have got credit in a bank or savings bank, have
they not?
Secretary H umphrey. It is the production added, whatever
expansion of credit is here is in this, but the large factor here is the
creation of wealth Senator K err. I understand, but I am trying to find out what form
it is in. It is not in land.
Secretary H umphrey. It is in the form of credits.
Senator K err. It is in the form of credits in financial institutions,
is it not?
Secretary H umphrey. Well, it is largely financial institutions, or
it is available to individuals in financial institutions, including pension
funds and various other things.
Senator K err. Who has it?
Secretary H umphrey. Insurance companies and pension funds.
Senator K err. In what form?
FINANCIAL CONDITION OF THE UNITED STATES
149
Secretary Humphrey. They have it in the form of credits or
securities.
Senator K err. But securities are just credit, are they not, if a
security is a debenture or a bond?
Secretary Humphrey. Well, it is not necessarily a Federal bond.
It can be any kind.
Senator K err. Not at all.
Secretary Humphrey. It is not just expansion of credit within the
realm of the Federal Reserve. This is representative of any in
creased wealth.
Senator K err. Well, but in what form?
Secretary Humphrey. It can be a dozen different forms, it is a
dozen different forms.
Senator K err. But they are all credit.
Secretary Humphrey. All credit. It does not mean immediate
credit. It may be property account or various other things.
Senator K err. No, this is not property account.
Secretary Humphrey. Well, it may be represented by property
account, it may be obligations of municipalities or obligations of cor
porations, or anything of that kind.
Senator K err. That is credit.
Secretary Humphrey. That is credit, that is right.
Senator K err. And in the final analysis, that credit is implemented
through the operation of the Federal Reserve bank or banks.
Secretary Humphrey. Well, I do not follow that, Senator; no. I
do not see what the Federal Reserve has to do with that.
As to the bank credit, you are right. As to the increase in other
credits-----Senator K e rr . D o they not all go back to banks in some way?
Secretary Humphrey. N o; I ao not think so. They may go
through a bank if you want to use them. But as they stand, I do not
think the Federal Reserve Board has a thing to do with them, except
the bank credits.
Senator K err. If a man has a checkbook in his pocket, that he can
go down there and write a check on and get a suit of clothes or an
automobile------Secretary Humphrey. That is in a bank.
Senator K e rr . It has to be by reason of the fact that he has got
credit in that bank, either through depositing somebody else’s check
or currency or something.
Secretaiy Humphrey. That is right. But if he owns a mortgage
on your oil well, he still has increased his credit, but he cannot write a
check against it.
Senator K e r r . I can, or I do not give him the mortgage.
[Laughter.]
Secretary Humphrey. You may have written your check.
Senator K err. I have, and that is the way to write it, and somebody
furnishes that credit, and I am asking you if it is not a fact that the
fountainhead of it is the Federal Reserve System.
Secretary Humphrey. Well, I think you will have to ask Mr.
Martin about that. I do not believe so.
Senator K e rr . Let me tell you something, Mr. Martin may be
harder to get along with than you, but he does not know any more
than you know.
160
HNANCiAii o o in irn o N ^of tb ® tog tb d sta te s
Secretary H umphrey. I am afraid he knows more about the Federal
Reserve than I do.
Senator K err. Oh, no.
Secretary H umphrey. I am afraid he does.
Senator K err. Well, you told me a little while ago that the Federal
Reserve had the responsibility to provide the expanding credit for the
reasonable requirements of an expanding economy.
Secretary H umphrey. That is right.
Senator K err. And the banks cannot do it unless they either have
deposits or go to the Fed, can they?
Secretary H umphrey. That is right.
Senator K err. In speaking of this debt that we have and the inter
est rate that we have, they (the Federal Reserve) can determine, in
conjunction with the Treasury, whether or not these bonds issued are
going to sell at par or above par or below par, can they not?
Secretary H umphrey. Well, I think this is true: I think the Federal
Reserve, by stepping into the market to purchase all of the bonds that
sell below par, can peg the bond prices at par.
Senator K err. Well now, you said-----Secretary H umphrey. The way they do that, and of course the
only way they can do that, is by printing money.
Senator K err. Y ou said the Federal Reserve did not have any
more bonds December 31, 1952, then they had December 31, 1956.
Secretary H umphrey. I think that is about right.
Senator K err. That is what you told me a while ago.
Secretary H umphrey. I think that is right.
Senator K err. Well, they did not have to print any money to do
it in 1952, did they?
Secretary H umphrey. They did. Lord in heaven, they printed a
lot of money. That is what happened to our dollar. It went to
50 cents.
Senator K eur. I thought you said they had just as much in 1952
as they had in 1956.
Secretary H umphrey. They maintained it, and that is very largely
why the dollar maintained its value, very little difference.
Senator K err. Well, bonds have not retained their value.
Secretary H umphrey. They have not gone in and bought bonds,
no. They stopped pegging bonds about a year and a half before we
came in.
Senator K err. How much did the}r have December 31, 1951?
Secretary H umphrey. $23.8 billion.
You see here, let me just read you about the way this went, and
just to make it short and not long, I will start with 1939.
Senator K err. No.
Secretary H umphrey. Let me just start it, and it will illustrate it.
Senator K err. I do not want you to detour me here. I have a
hard enough time keeping my mind on the track asking you what I
want to ask.
Secretary H umphrey. It will illustrate to you what you want to
know.
Senator K err. How much was it in December 1950?
Secretary H umphrey. About 21.
Senator K err. $21 billion?
Secretary H umphrey. That is the nearest round figure.
FINANCIAL CONDITION OF THE UNITED STATES
151
Senator K err. And December 31, 1951?
Secretary H umphrey. 24.
Senator K err . $24 billion.
Now, in 1950, you say they were pegging the market.
Secretary H umphrey. That is when they began to let go.
Senator K err. Not in 1950.
Secretary H umphrey. Wait a minute.
It was March of 1951.
Senator K err. That is what you told me. That was after Decem
ber 31 of 1950.
Secretary H umphrey. That is right.
Senator K err. Y ou mean to tell me that they were able to peg the
market and keep the bonds above par by owning $20 billion worth,
and that they cannot do it now by owning $54 billion worth?
Secretary H umphrey. Owning how much?
Senator K err. What did you say they had December 31, 1956?
Secretary H umphrey. They had $24.7 billion in 1952; and they
had $24.9 billion in December of 1956.
Senator K err. H ow much did they have in December of 1950?
Secretary H umphrey. 1950, it was $21 billion.
Let me read you down the list: 19, 23, 23, 23, 24, 19, 11, 6, 2, 2, 2,
and out. It just went right up.
Senator K err. And they could-----Secretary H umphrey. A s they bought bonds, it went right up.
Senator K err. Since they have quit pegging the market, it has
gone up.
Secretary H umphrey. No. When the}r quit pegging the market,
it stayed even, it did not change.
Senator K err. What I cannot figure is-----Secretary H umphrey. After they quit pegging the market, here
they sit.
Senator K err. If they could hold the bond market at par for the
benefit of the purchasers-----Secretary H umphrey. By buying a lot of bonds, and they went
from $2 billion up to $22 billion.
Senator K err. When did they have $2 billion?
Secretary H umphrey. They had $2 billion in 1941, and it goes
$2 billion, $2 billion, $6 billion, $7 billion, $11 billion, $15 billion,
$19 billion, $22 billion, $24 billion, $23 billion, $24 billion, $23 billion,
and then it just flattens out pretty well and it runs along at about
$24 billion from then on.
Senator K err. H ow much was it in December-----Secretary H umphrey. $24 billion.
Senator K err. H ow much was it December 31, 1956?
Secretary H umphrey. $24.9 billion, just the same.
Senator K err. Let’s see.
Secretary H umphrey. It was $24.7 billion in 1952.
Senator K err. $24.9 billion?
Secretary H umphrey. $24.7 billion.
Senator K err. The last year they pegged the price was 1950,
according to what you told m e; is that correct?
Secretary H umphrey. That is when they began to let go. They
still bought some.
152
FINANCIAL CONDITION OF THE UNITED STATES
Senator K err. But the last year, you said they stopped pegging it
in early 1951.
Secretary H umphrey. That is when they began to stop.
Senator K err. All right. Then in December of 1950----Secretary Humphrey. 1951; in June of 1951 it was 23, and in
December it was 24.
Senator K err. In December of 1950, it was how much?
Secretary H umphrey. It has been there ever since.
Senator K err. December of 1950, it was how much?
Secretary H umphrey. December of 1950, it was 21.
Senator K err. $21 billion?
Secretary H umphrey. Yes.
Senator K err. So they were able to peg it at par or better with
$21 billion; but they are not able to do it with $24.9 billion.
Secretary H umphrey. It is just standing still, you see— if you are
going to keep pegging, you have to increase.
Senator K err. The bonds in their portfolio have not stood still,
the value of the bonds has not stood still, nor has the expense of the
Government in the matter of interest been standing still.
Secretary H umphrey. That is because they did not keep increasing
the bonds. As long as you stand still, you have no effect. It is
when you increase or decrease it you have an effect.
Senator K err. But they increased from 1950 to 1956.
Secretary H umphrey. Almost the same.
Senator K err. It was $21 billion the one time, and $24 billion the
next.
Secretary H umphrey. No. The next time it became effective was
the following year. It has been 23, 24, 23, and 24.
Senator K err. 1950 was the last year they pegged the market, you
said.
Secretary H umphrey. No; it was not effective—it begins, your
actual beginning of not pegging the market was 1952.
Senator K err. That is not what you said.
Secretary H umphrey. Well, they stopped it in 1952-----Senator K err. You looked at Mr. Douglas here the other day and
read the report of his committee where the point was reached in 1951.
Secretary H umphrey. That is right, and it began to be effective,
and in December of 1951, it was 23.8.
Senator K err. So the longer they have had it effective, the more
they have acquired.
Secretary H umphrey. No, sir; they stopped acquiring it.
Senator Kerr. If it was $23.8 billion-----Secretary H u m p h r e y . It was $23.8 billion, and it is now $ 2 4 #
billion.
Senator K err. Is that not more?
Secretary H umphrey. In all those years.
Senator K err. Is that not more?
Secretary H umphrey. Just a fraction as compared with going from
$2 billion—the difference, Senator, is this: They went from $2 billion
to $24 billion, and now they have gone from $24 billion to $25 billion,
and there is a lot of difference.
Senator K err. Yes, there is, and you know what it looks like to
me? It looks to me like they do not have to buy any more bonds to-
FINANCIAL CONDITION OF THE UNITED STATES
153
peg the market, but what they did was to arrange it so that both
they and other borrowers would get more interest-----Secretary Humphrey. Well-----Senator K e r r (continuing). At the expense of Uncle Sam and of
every interest payer in the Nation.
Secretary H umphrey. What they were trying to do, Senator, and
what they have been quite successful at— now, whether it is exactly
right or not, I am not prepared to say— I do not know what would
have happened, quite, if they had continued. But if they had gone
from $24 billion up, in their purchases of bonds, at the same rate they
went from $2 billion to $24 billion, I think our dollar would have
greatly depreciated, I think our cost of living would have soared right
through the roof, and I think you could have pegged your bond prices
at par. We would have saved a billion or $2 or $3 billion in interest,
and the American people would have spent billions and billions more
for the cost of living.
Senator K e rr . You know, Mr. Secretary, there are two things
about that.
In the first place, you are speculating now.
Secretary H umphrey. I am speculating based on history.
Senator K err. You are speculating now.
Secretary Humphrey. I know what happened during two periods.
In one we had a terrific loss in the dollar, we cut it in half, almost,
and we increased these bond purchases.
In the subsequent period, we held the bond purchases practically
level, and we held the cost of living practically level at the same time.
Senator K err. I will tell you something else-----Secretary Humphrey. And the dollar level.
Senator K err. I will tell you something else about cutting the price
of the dollar. We had a World War.
Secretary Humphrey. Yes. You had a lot of things.
Senator K err. Yes.
Secretary Humphrey. The thing that affected it-----Senator K err. You do not think it affected the value of the dollar?
Secretary Humphrey. It affected the amount of money you bor
rowed.
Senator K e rr . I say, you do not think it affected the value of the
dollar?
Secretary Humphrey. Not as much as the purchases of the Federal
Reserve as pegging the prices.
Senator K e r r . You think the war cost how much? How much did
World War II cost us? How many hundreds of billions?
Secretary Humphrey. I do not know, but I think it cost us a lot
more, probably, than it should have.
Senator K e r r . I asked you about that the other day. You should
not make those statements unless you are able to be specific about
them, Mr. Secretary.
Secretary Humphrey. Well, I think you are right.
Senator K e r r . You should not make those statements.
Secretary Humphrey. I think that is correct. I do not think
anybody can say what would have happened under other circum
stances.
Senator K e r r . I do not think they can, either. I do not think
even you or I could, smart as we are.
154
FINANCIAL CONDITION OF THE UNITED 8TATES
Secretary H umphrey. I think you are right about it. I might
come a little nearer than you. [Laughter.]
Senator K e r r . Y o u know what I think about that? I think that
is speculative. [Laughter.]
M r . Chairman, in view of the fact that you indicated you were
going to quit here at 1 o ’clock, and there are so many things I have
asked the Secretary for in the way of information, if you think it
appropriate-----The C hairman. We will adjourn at this time until Tuesdaj7morning
at 10 o’clock.
(Whereupon, at 1:05 p. m., the committee adjourned, to reconvene
at 10 a. m., Tuesday, June 25, 1957.)
INVESTIGATION OP THE FINANCIAL CONDITION OF
THE UNITED STATES
TUESDAY, JU N E
25, 1957
U nited States S enate ,
C ommittee on F inance ,
Washington, D. C.
The committee met, pursuant to recess, at 10 a. m., in room 312,
Senate Office Building, Senator Harry Flood Byrd (chairman) pre
siding.
Present: Senators Byrd, Kerr, Frear, Long, Smathers, Anderson,
Gore, Martin, Williams, Flanders, Malone, Carlson, Bennett, and
Jenner.
Also present: Senator Goldwater; Robert P. Mayo, Chief, Analysis
Staff, Debt Division, Office of the Secretary of the Treasury; Elizabeth
B. Springer, chief clerk; and Samuel D. Mcllwain, special counsel.
The C hairman . The Chair would like to announce that this
morning’s session will continue from now on until 12:30, and that there
will be an afternoon session from 2 to approximately 4:30.
Senator Kerr is recognized.
STA T E M EN T O F H O N . GEORGE M . H U M PH R EY SECRETA RY O F TH E
TREA SU RY — R e su m e d
Secretary H umphrey. Mr. Chairman.
The C hairman . Secretary Humphrey?
Secretary H umphrey. Mr. Chairman, I have available now a
number of the things that were asked for to be presented at previous
times, and the first thing, Mr. Chairman, is an item you asked for,
which is a comparison of budget expenditures for the years 1955 and
1958, which showed approximately an $8 billion increase that you
called attention to, and I have the details of that.
I will present that statement to you, and just refer to it very briefly.
You will see, for the benefit of all of the others-----Senator K err. Do you have copies of that?
Secretary H umphrey. I haven’t copies, Senator, but we will put it
in the record, and if you want copies we will have them reproduced
later. I just have these. But I will refer to it so it will be perfectly
plain to everyone.
This is a statement that the chairman asked for, showing the
increase in expenditures from the year 1955 to the proposed budget for
tneyear 1958.
The military expenditures went up during that period $2,776
billion; Agriculture, the Commodity Credit and the soil bank just
About offset each other, being $1.21 billion, a credit, and the other a
minus, the rest of Agriculture went up about $653 million.
96819 0—57-----11
155
156
FINANCIAL CONDITION OF THE UNITED STATES
Atomic Energy went up $483 million.
The Commerce Department, $277 million.
The Mutual Security went down $172 million.
The Export-Import Bank went up $344 million.
Health, Education, and Welfare went up $838 million.
General Services went down $319 million.
Federal National Mortgage Association went down $97 million.
The postal deficiency went down $298 million.
Veterans’ Administration went up $663 million.
The interest on the public debt went up $930 million.
And all other went up $1,714 billion.
Now, that last includes items on the sale of assets and a large number
of items, some of the detail of which is included in the No. 3 footnote,
some of the larger items, but mostly it is a mass of relatively small
items.
The C hairman. Under the committee rule, I may not interrogate
at this time. The material will be inserted in the record, at the place
where it was requested. I shall take it up in turn.
Secretary H umphrey. Fine.
(See p. 51.)
The C hairman. Senator Kerr has the floor now, and I will ask
auestions later on, but at this point as on page 51 it should be noted
lat $595 million in highway expenditures has been deducted from the
1955 total. With the figure included the 1955 total was, as recorded
by the budget, $64.6 billion. When the $1.8 billion highway ex
penditure estimate is added to the 1958 estimate, the total is $73.6
pillion, an increase of $9 billion, instead of $7.8 billion.
Secretary H umphrey. I have here a long statement, and I think the
chairman asked for this, a statement on the long-range commitments
and contingencies, the contingent items. It is a long statement. It
covers a large number of items. It runs into very substantial sums of
money.
The net of it— there is no practical way to add up totals because the
items are so confusing as to the degree of responsibility and what
would bring them into play.
It shows, generally speaking, that out of about $250 billion or
$275 billion of gross contingencies, there are about $100 billion of
our present Government bonds deposited as collateral, so that a lot of
this is security by our own debt or debt held by various agencies,
like trust funds and things of that kind.
It is extremely difficult to list all of the possible contingent liabili
ties. These are the legal contingencies. There might be, and I
believe perhaps could well be, other contingencies which would de
velop practically that may not be included in this list.
And, again, we will have that list mimeographed so that everybody
will have that.
The C hairman. It will be inserted in the record at the place where
it was requested, and I shall take it up later.
(See p. 80.)
Secretary H umphrey. N ow, Senator Kerr asked about floating
debt.
This statement I am submitting shows the marketable debt, matur
ing within 1 year, the total outstanding in December 1952, 1956, and
FINANCIAL CONDITION OF THE UNITED STATES
157
at the present time, that is, May 31, the last date, less that held by
the Federal Reserve and Government accounts.
The C hairman . The statement will be made a part of the record
at the place it was requested.
(See page 132.)
Secretary H umphrey. This shows a net held by the public, of debt
maturing in less than 1 year, of $42.9 billion in 1953, $45.6 billion in
1956, and $46.1 billion at the present time.
It also shows the nonmarketable demand notes held by the public
in savings notes in 1952, now all paid off; the F, G, K, and J savings
bonds, and the miscellaneous debt which has a demand prerogative,
and shows that those amount to $31.8 billion in 1952, $18.4 billion in
1956, and $16.8 billion at the present time.
This makes the total floating debt and demand obligations out
standing $74.6 billion in 1952, $63.9 billion in 1956, and $62.9 billion
at the present time.
Again, as I say-----Senator K err. I would like, if it is all right, Mr. Secretary, to dis
cuss these with you as we come to them.
Secretary Humphrey. Fine.
Senator K err. That means, as I read it, an $11.7 billion differential;
is that right?
Secretary H umphrey. That is right; less today than there was in
1952.
Senator K err. H ow much of that is in long-term bonds?
Secretary Humphrey. You mean-----Senator K err. H ow much of that differential that is not now in the
floating debt is in long-term bonds?
Secretary H umphrey. In the 1 year-----Senator K err. Well, this is a tabulation-----Secretary H umphrey. Actually maturing-----Senator K err. As I understand, this is a tabulation of the floating
debt as of these dates.
Secretary H umphrey. That is, this is the debt that we may be
called upon to pay within less than a year.
Senator K err. Well, it is what you referred to as the floating debt?
Secretary H umphrey. That is correct, that demand can be made
for payment within less than a year. Some of it automatically ma
tures; and some of it is payable on demand.
Senator K e r r . We still owe that $11.7 billion?
Secretary H umphrey. No. That has been reduced.
Senator K e r r . Well, we owe more now than we did-----Secretary H umphrey. N o; we owe less.
Senator K err (continuing). Than we did in December 1952, total
debt.
Secretary H umphrey. Oh, you mean the total of all debt?
Senator K err. Yes.
Secretary H umphrey. Oh, yes; yes, sir. The total of all debt is
higher than it was in 1952.
Senator K err . This is----- Secretary H umphrey . This is simply the debt-----Senator K err . I understand.
Secretary H umphrey (continuing). On which the demand for pay
ment can be made within 1 year.
Senator K err . What I am trying to find out is where it is now.
158
FINANCIAL CONDITION OF TH E UNITED STATES
Secretary Humphrey. It is right here, Mav 31.
Senator K err. I have not made myself clear. You still owe this
money-----Secretary H umphrey. Yes, sir.
Senator K err (continuing). In one form or another.
Secretary H umphrey. That is correct.
Senator K err. In what form is it now?
Secretary H umphrey. It is in longer term than 1 year or demand.
Senator K err. In how much longer term than 1 year?
Secretary H umphrey. Well, you did not ask that.
Senator K err. I know I did not.
Secretary H umphrey. I will have to try to find out. It will be
more than a year and up to 40 years.
Senator K e r r . Well, now-----Secretary H umphrey. Most of it, I would guess, would be in 5,
6, 7 years, something like that, in 3 to 7 years.
Senator K e r r . In 3 to 7 years?
Secretary H umphrey. Something like that. Of course, I am just
guessing at this, now.
Senator K e r r . But it is-----Secretary H umphrey. But it is more than 1 year, and we have
some that go to 40 years, and the others he somewhere in between.
The longest term is very small.
Senator K e r r . We have some that go 40 years?
Secretary H umphrey. I believe it is about 40 years; 1995.
Senator K e r r . That is 38 years.
Secretary H umphrey. That is what?
Senator K e r r . That is 3 8 years.
Secretary H umphrej. That is right.
Senator K err. How much of that?
Secretary H umphrey. It is relatively small, $2% billion.
Senator K e r r . Thoete and the 3#s are the only long-terms that
have been issued, are they not?
Secretary H umphrey. Those are the only two long terms.
Senator K e r r . How much are the 3 % ’s ?
Secretary H umphrey. $1% billion, a little over $1.5 billion.
Senator K e r r . So the 2 of them together total $4% billion.
Secretary H umphrey. That is right.
Senator K e r r . The overall increase in the debt is how much since
December 31, 1952?
Secretary H umphrey. To $276.7 billion from $267.4 billion— $9.3
billion.
Senator K e r r . So that $9.3 billion less $4.1 billion is $5.2 billion.
Secretary H umphrey. Deducting the long term; yes.
Senator K e r r . So that, if we contemplate that the increase in the
debt is in part represented by the long terms, and for bookkeeping
purposes we may just as well assume that some other of the refinanc
ing has been put into it, that leaves $5.5 billion of the increase, plus
$11.7 of the decrease in the floating debt, for a total of $17.2 billion
which has to be in the form of something more than 1 year and less
than long term.
Secretary H umphrey. I think that is about right.
Senator K e r r . I s t h a t r i g h t ?
M r. M
ayo.
T h a t is n 't fa r o ff, sir.
FINANCIAL CONDITION OF THE UNITED STATES
159
Secretary H umphrey. The total increase is $9 billion, but there is
a $17 billion increase outside the floating debt and long-term bonds,
somewhere in there.
Senator K err. It is now in a different form.
Secretary H umphrey. It is in a different form, that is correct,
different maturity.
Senator K err. What issues have you made of longer than 5 years
since you came in?
Secretary H umphrey. Mr. Burgess is really the person to answer
these questions, because he has all the data.
Senator K err. I know, but I am just seeking information.
Secretary H umphrey. Roughly, there is a $6 billion increase in the
E and H bonds.
Senator K err. E and H is $6 billion?
Secretary H umphrey. That is right. And special issues are up $6.5
billion. And, wait, there is one other item.
Senator K err. $6.5 billion-----Secretary H umphrey. Special issues.
Senator K err. When do they mature?
Secretary H umphrey. Well, those are varying maturities. That
goes into the trust funds.
Senator K err. I know, but are they due or callable in a year?
Secretary H umphrey. No. These are fund deposits. They are
bonds deposited in funds.
Senator K err. What I am trying to find out is their term.
Secretary H umphrey. Their term is mostly a year, or over.
Senator K err. Well now-----Secretary H umphrey. They turn over.
Senator K err. If their term is a year, would that affect this table?
Secretary H umphrey. N o; they are not floating debt. They are
longer term credit. They are fund deposits where the obligation
is for a much longer time.
Senator K err. In order that I may understand this now, and
let us see if my understanding is correct, you are referring to the trust
funds?
Secretary H umphrey. That is correct.
Senator K err. Of which you have control, and with reference to
which, as they accrue or as they-----Secretary H umphrey. Mature.
Senator K err (continuing)*. As they come in, you invest them in
Government securities of one kind or another?
Secretary H umphrey . That is correct. They are special issues
for that purpose.
Senator K err. Special issues for that purpose. Of what duration
are they?
Secretary H umphrey . Well, they are mostly for a year, because
we have annual interest adjustments, and they turn over with the
revisions in interest yearly.
Senator K err. What I am trying to find out— what is your name,
air?
Mr. M ayo . Mayo.
Secretary H umphrey. M-a-y-o, Mayo.
160
FINANCIAL CONDITION OF THE UNITED STATES
Senator K err. What I am trying to find out, Mr. Mayo, is this:
You say that you put $6 billion more in the special issues.
Mr. M ayo. Yes.
Secretary H umphrey. Six and a half.
Senator K err. Of 1-year duration when you turn them over.
Mr. M ayo. That is about right.
Senator K err. N ow, is that $6.5 billion included in this $62.9
billion?
Mr. M ayo. N o, sir.
Secretary H umphrey. No; that is not part of the floating debt.
Senator K err. But it is due within a year.
Secretary H umphrey. Well, it can be for whatever is proper. We
make it that because you have these adjustments that you make an
nually. But it can be made just as well for 5 years or some other
period.
Senator K err. Well, the reason you do not do that is-----Secretary H umphrey. There is no obligation-----Senator K err (continuing). That the law requires you to adjust
that interest?
Secretary H umphrey. It is a convenient way to do it.
Senator K err. Yes.
Now, this $6 billion, this first $6 billion, that you said was in E
and H bonds-----Secretaiy H umphrey. That is right.
Senator K err (continuing). They are callable at the will of the
lender.
Secretary H umphrey. That is correct.
Senator K err. And the $6.5 billion of special issues you turn them
over every year.
Secretary H umphrey. E and H, they keep turning over, that is
correct.
Senator K err. And the special issues, you keep turning them over?
Secretary H umphrey. That is correct.
Senator K err. N ow, the other $5.7 billion, Mr. Mayo, which is
that-----Secretary H umphrey. Here it is. In 1954-----Senator K err. All right.
Secretary H umphrey. In 1954, we issued 5- to 10-year bonds, of
various issues, totaling $21.7 billion.
Senator K err. $21.7 billion.
Secretary H umphrey. Some of those have come down in term, and
some are still over 5, and you would have to sort out each issue to see
just where you were.
Senator K err. How much of the $21.7 billion was longer than 5
years?
Secretary H umphrey. Well, the $4.6 billion we spoke of before,
you already have that.
Senator K err. No.
Secretary H umphrey. This is in the 5- to 10-year range. That
was in 1953.
Senator K err. What did you issue?
Secretary H umphrey. $4.6 billion.
Senator K err. For how long?
Secretary H umphrey. Somewhere between 5 and 10.
FINANCIAL CONDITION OF THE UNITED STATES
161
Senator K err. Y ou do not know— they are not bonds which are
payable at tbe end of 10, but callable at the end of 5 years?
Secretary H umphrey. N o ; they are different maturities. We
would have to get each issue.
Senator K err. I think he has it there in the Treasury Bulletin.
Secretary H umphrey. We have all of them here, if you want to
read them off.
Senator K err. I just want to know what you issued of 5 years or
longer, since you came in.
Secretary H umphrey. Well, let's start right at the top of the sheet
here and pick them out.
Senator K err. I tell you, that fellow M ayo can beat either you or
me. I have the Treasury Bulletin here, but I have to have someone
guide me through it.
Secretary H umphrey. So do I. We are equal. [Laughter.]
Senator K err. Maybe this fellow can guide us both.
Secretary H umphrey. Here you go right up-----Senator K err. Tell me, Mr. Mayo, so we can put it in the record.
Secretary H umphrey. Y ou pick out the ones that are over 5 years.
Mr. M ayo . In February of 1953, the Treasury issued a 5-year,
10-month bond of $600 million.
Senator K err. H ow much?
Mr. M ayo . $600 million.
Senator K err. All right.
Mr. M ayo . And then, of course, in May of 1953-----Senator K err. That is M ay of 1953?
Mr. M ayo . Yes. The Treasury issued this $1.6 billion of these
30-year 3Ks.
Senator K err. We have that in a separate category.
Mr. M ayo . All right, we will keep that separate. In November of
1953, a 7-year 10-month bond, $2.2 billion.
Senator K err. All right.
Mr. M ayo . In November of 1953, 5-year 10-month bond, $1.7
billion.
That is all for 1953.
Senator K err. All right.
Mr. M ayo . In 1954, February, 7-year 9-month bond, $11.2 billion.
Senator K err. $11.2 billion?
Mr. M ayo . Yes, sir.
Senator K err . All right.
Mr. M ayo . August, 1954, 6-year 3-month bond, $3.8 billion.
Senator K err. All right.
Mr. M ayo . December, 1954, 8-year 8-month, $6.8 billion.
Senator K err . All right.
Mr. M ayo . We have given you the 40-year bond. We will skip
that.
Senator K e rr . All right.
Mr. M ayo . That is all, over 5 years, I believe, Senator.
Senator K err. That had been issued?
Mr. M ayo . That is correct.
Senator K err. Well now, all of these except the December of 1954,
$6.8 billion, mature in 1961 or before; do they not?
M r. M ayo. That is correct.
Senator K e r b . And the December of 1954 mature
162
FINANCIAL CONDITION OF THE UNITED STATES
a t o . In August of 1963.
Senator K e r b . August of 1963.
Then to the degree that the floating debt as you have defined it is
less than it was on December 31 of 1952, there is actually a substan
tially larger amount that will be due within 5 years from this date.
M r . M a t o . Yes; close to 5 years. Some of it is closer; that is right.
Senator K err. All right.
Mr. Secretary, what is the next item, now, that you have there?
Secretary Humphrey. All right.
Senator Kerb. I wonder if we might do this: You know, we were
discussing when we left here, as I recall it, the amount that was due
within 5 years, and you were going to make a tabulation, I believe, of
the amount and classifications due in less than 5 years or callable by
the owner, as of December 31, 1952, and as of May 31, 1957.
Secretary Humphbey. Here it is; yes. We have that statement
right here.
Shall I read this for the record?
Senator Kerb. Yes, sir.
Secretary H umphbey. In 1953, I made the statement that nearly
three-fourths of this debt matures within less than 5 years or is
redeemable at the holder’s option.
This statement was based on an analysis of Federal debt outstanding
on December 31, 1952, which showed that 68.8 percent of the Fedem
debt outstanding was in this category.
By December 31, 1956, the percentage computed on the same basis
was 68.4 percent. That part of the puWic debt includes:
(1) All marketable securities maturing in less than 5 years, regard
less of the type of the holder.
(2) All demand debt, such as savings notes, savings bonds, includ
ing E and H bonds as well as F and G, J, and K bonds, depositary
bonds, matured debt, and noninterest bearing debt.
(3) Investment series bonds, both series A, which is redeemable
on demand, and series B, which is exchangeable on demand into
5-year marketable notes.
(4) Special issues to Government investment accounts, such as un
employment trust account, Federal Deposit Insurance Corporation,
Federal Housing Administration funds, and Federal Savings and
Loan Insurance Corporation, which accounts may involve demand*
type obligations.
Senator Kerb. Now, you were going to bring it as of May 31 of
this year.
Secretary H umphrey. I do not think we were, Senator. I do not
believe we can get it up that close, but we might.
I think we can. We have not got it, but we can try to revise it
to bring it to May 31, if that is possible.
Senator K err. It is a little hard-----Secretary Humphrey. We might bring it up to April.
Senator K erb. It is a little hard for me to reconcile this with what
seems to me to be the situation, because, on the basis of what you
have just told me here, everything that was due within 5 years at
that time, plus ah increase of how much in the debt?
Mr. M ayo. $9.3 billion.
Senator K ebr. $9,3 billion—is now due within 5 years or less,
$6.8 billion which would be due in 1963, according to this,
M r. M
FINANCIAL CONDITION OF T H E UNITED STATES
163
Mr. M ayo . That is right.
Secretary H umphrey. That is right.
Senator K err. And the 4%— —
Secretary H umphrey. The 4%-----Senator K err. Which is how much, Mr. Mayo? Is that right,4 %?
Secretary H umphrey. Of the two longs.
Senator K err. WTiich is $11.3 billion, plus anything that was due
in more than 5 years but less than 10 years; is that not right?
Mr. M ayo . That is right.
Senator K err. Was there no outstanding debt at that time due
within 5 and 10 years?
Mr. M ayo . Yes, there was. These are on different concepts, if
I may answer, Mr. Secretary.
Secretary H umphrey. You tell him just exactly what that is.
Mr. M ayo . This was done to illustrate the total of demand debt,
including the E- and H-bonds, this statement you have here, Senator,
in 1952. This is a classification that we no longer use. We have
preferred to use this floating-debt concept in more recent years.
We have, for your purpose, however, brought this up to date to
illustrate what it would be on December 31, 1956. It includes Series
E and H bonds, which the floating debt concept does not inculde
because that is a self-sustaining program. The sales and redemptions
are just about equal all the way along.
This includes certain types of Government investment account
special issues, which we have not included in the floating debt now.
Senator K err. Nor in the amount due within 5 years?
Mr. M ayo . They are in this amount due within 5 years, this old
concept that we are referring to here, because, technically speaking,
like unemployment trust account, you could have a wave of unemploy
ment which would make you pay much of that money out immediately.
So it is in a different-----Senator K err. Here is what I am trying to do: When the Secretary
came in, on innumerable occasions he was critical of his predecessor
and of the situation which he said he inherited, because, he said—
sometimes he said two-thirds and sometimes he said three-fourths of
the outstanding debt is either due within 5 years or redeemable at the
will of the owner.
Now he is about to leave this post, and he is going to have a successor
who will inherit a situation.
Secretary H umphrey. Perhaps I can clear this up for you.
Senator K err. And I was-----Secretary H umphrey. M y successor can be critical of me, because,
using this measuring stick, we have not made the improvement that
I would like to have made.
In these times of great demand for money, we have not been able
to extend our debt and to put out as much long-term paper as we had
hoped we might do, and as I think it is very desirable to do whenever
the opportunity will permit its being done.
Now, you can do it sometimes. Sometimes the market will take
the long-term securities, and sometimes the market will not.
We have had markets during a substantial part of the time— be
cause of the large demand for money and the high rate of prosperity—
where the long-term obligations could not be put out, and where it
was not desirable to put them out.
164
FINANCIAL CONDITION OF THE TfNITED STATES
We have made progress, Senator Kerr, but not as much as I hoped
we would be able to make. On this measuring stick we have about held
our own. On the floating debt we have done better and we have
put out some long issues.
Senator K err . Well, you see——
Secretary H umphrey (continuing). And we have about-----Senator K f. hr. Well, actually we have not held our own, on the
basis of your statement.
Secretary H umphrey. Well, we have come pretty close to it.
Senator K err . Because on December 31, 1952, according to this
statement, it was 68.8 percent of how much, Mr. Mayo?
Mr. M ayo. Well, that is approximately-----Senator K ekr. It is 68.8 percent of how much?
Mr. M ayo. Of $267 billion.
Senator K err . Of $267 billion.
Mr. M ayo. That is correct.
Senator K err . According to this statement of December 31, 1956,
it is 68.4 percent of how much?
Secretary H umphrey. Of a larger amount.
Mr. M ayo. $276.7 billion.
Senator K err. Of $276.7 billion, which means we had a greater
amount-----Mr. M ayo. That is correct, by this way of measuring.
Secretary H umphrey. A slight difference.
Senator K err (continuing). A greater amount outstanding on
the basis of this.
Secretary Humphrey. A very small amount.
Senator K err. I am not certain of this but it would seem to me
that as of May 31,1957, there would not only be a substantially larger
volume, but perhaps a larger percentage of the total, Mr. Mayo?
Mr. M ayo. We can figure that for you, Senator. The debt as a
total has gone down a little since December, and the shorter-term
debt has—
Senator K err. Gone up.
Mr. M ayo (continuing). Has perhaps gone up slightly according
to this definition.
Senator K err. Yes. At least as much as the debt has gone down.
Secretary H umphrey. Why don't we see if we can get the exact
figures as of May 31?
Senator K err . I think it would be very instructive.
Secretary H umphrey. I think we can get them, certainly as of
May 1, if not May 31.
(The material referred to was later submitted as follows:)
B y M a y 3 1 , 1 9 5 7 , t h e p e r c e n t a g e co m p u ted on th e s a m e b a sis w a s 6 8 . 3 percen t.
Senator K e r r . Y ou see, Mr. Secretary, what many would believe,
and I happen to be one of them, is that the policy which you helped to
implement and which has been accentuated by the Federal Reserve
Board, and in which you tell us that you completely support them*
has made it impossible to achieve the objective of switching
national debt to long-term bonds.
Secretary H umphrey. Well, I cannot agree that it is that policy
that caused it.
Senator K err . I see in yesterday’s Wall Street Journal—-and I
must say that I find myself in a rather peculiar situation here of
FINANCIAL CONDITION OF T H E UNITED STATES
165
quoting from that publication in an argument with you. [Laughter.]
Secretary Humphrey. Well, I do not know why you would not.
It is-----Senator K e r r . You and it have not been very far apart, usually.
I see this article headed as follows:
M
ore
F
ir m s
P
ostpon e,
K
il l
E
x p a n s io n
P
lans as
I nterest C
osts
Soar
One delays bond sale, calls market disorganized, new rate hikes forecast.
Uncle Sam is squeezed, too.
Tight money is twisting the plans of a growing number of American business
men. Some are postponing or canceling carefully laid expansion plans. Many
are keeping a closer eye on inventories so as to limit costly borrowing. Others are
reshaping financing plans in the hope of minimizing higher interest costs.
Mr. Chairman, I want this entire article put into the record at this
point, but I only want to read about two more paragraphs.
There’s no question that interest rates are high by any recent standards, no
matter where a businessman may turn. The banks' rate for their biggest borrow
ers, with the best credit ratings— the prime rate— is 4 percent, the highest it has
been since 1933. And that is only part of the story.
Up above is the statement:
B a n k e r s g e n e r a lly lo o k fo r in te r e s t r a t e s t o g o h ig h e r s till.
As money has tightened, more and more borrowers have found that, in the
banks’ eyes they no longer qualify for the minimum rate. Banks also have be
come more insistent that borrowers keep close to 20 percent of any money they
borrow on deposit with the banks a step that increases the actual cost of the
loans.
Then there was this very illuminating comment, Mr. Secretary:
Higher interest rates, of course, are pinching governments as well as businesses.
The Treasury last week had to pay 3.404 percent to raise $1.6 billion on its regular
offering of 91-day bills— the highest rate it had paid on such securities in 24 years.
State and local governments also are being forced to pay higher and higher in
terest rates to raise funds for schools, highways and other facilities. * * *
Tighter money is helping to defeat one of the prime aims of the Eisenhower
administration— to stretch out the average maturity of the Federal debt. One
purpose of the proposed stretchout was to cut down the size of the Government’s
future debt refunding chore. In addition, by offering longer term securities, the
administration hoped to place more of the debt in the hands of nonbank
investors. * * *
The current interest rate upsurge, with onlv minor interruptions, dates from
early 1955. As business began to pull out of the inventory recession of late 1953
and 1954, demand for credit grew— for rebuilding depleted inventories and building
new facilities. The Federal Reserve System, which during the recession period
had supplied the banks with all the funds they needed, and more, began to limit
the funds the banks had available to lend. Interest rates rose steadily.
In late 1956, the Federal Reserve hesitated, somewhat uncertain as to the
business future. But as business plowed ahead with tremendous rapid expansion
programs, (spending on new plant and equipment this year forecast at $37.4
billion, an increase of over 6 percent in 1956 high), the Reserve System took heart
and again grabbed the credit reins tightly.
Now, this writer says that—
Tighter money is helping to defeat one of the prime aims of the Eisenhower
administration. * * *
I would like to ask you, Mr. Secretary, if it is not a fact that there
is no way for you to know what you would have to pay to issue long
term bonds today?
Secretary Humphrey. I think that is right. I do not think the
market is available to sell long-term bonds, and I do not believe you
would want to try.
(The article reierred to is as follows:)
166
caypiuQjf or th e m m m otatis
T iobtu Monjbt—Mobs Fain P om oN } Kill EznnsioM Plans as Intbbbot
C om boas
ONB DSLATS BOND SALS, GALLS MABKBT DISORGANIZED,* NSW BATE HlUfl FOBS*
CAST—UNCLE SAM IB SQUSBSBD, TOO
A Wall Street Journal News Roundup
Tight money is twisting the plans of a growing number of American business
men.
Some are postponing or canceling carefully laid expansion plans. Many are
keeping a closer eye on inventories so as to limit costly borrowing. Others are
reshaping financing plans in the hope of minimizing higher interest costs.
Those are the major facts turned up by a Wall Street Journal survey of business
men and bankers in 13 major cities around the United 8tatee, as both bank
borrowing and bond financing costs continue to mount. Other findings:
Bankers generally look for interest rates to go higher still.
High interest rates—and the scarcity of loanable funds— chiefly deter marginal
projects; many companies are pushing ahead with expansion plans, convinced
that the resulting profits will more than offset the higher cost of money.
American businessmen and Federal, State and local governments are
finding it increasingly difficult and expensive to borrow money. This is
the first of two articles examining the impact of the steadily tightening
credit squeeze.
W i n s BANGE OF BUSINESSES
Reports of stymied expansion plans come from a wide range of businesses,
however.
“The recent rise in interest rates killed a SI million expansion program we had
planned,” says Gilbert Schnitzer, president of Industrial Air Products Co,,
rortland, Oreg., supplier of oxygen for industrial and medical uses. “ We haa
intended to open plants in other Northwest cities, but we simply can’t afford to
pay current bank rates.’1
“ We’re not bidding on some jobs we’d like to bid on, because if we get them we
would have to have new facilities/’ says an official of a southern California aircraft
company. “We think we’d have to pay too much for the money to finance the
new facilities.”
And the senior oredit officer of a major Chicago bank reports, “ Several of our
customers have reduced or postponed expansion plans because of high interest
rates, They hope to borrow later when rates are more favorable.” A number
of these companies he says, were utilities; one was a railroad.
There’s no question that interest rates are high by any recent standards, no
matter where a businessman may turn. The banks’ rate for their biggest borrow
ers with the best credit ratings— the “prime” rate— is 4 percent, the highest it has
been since 1933. And that’s only part of the story. As money has tightened,
more and more borrowers have found that, in the banks’ eyes, they no longer
qualify for the minimum rate. Banks also have become more insistent that
borrowers keep close to 20 percent of any money they borrow on deposit with
the banks—a step that increases the actual cost of the loans.
A
P b im e R
ate
B
oost?
More bad news for businessmen: Many bankers maintain that an increase in
the prime rate itself is overdue. Any such increase sooner or later would affect
all borrowers, since all bank rates are scaled upward from the prime rate.
When a businessman turns to the bond market for long-term loans to finance
expansion programs the picture, if anything, is even more bleak. The yields on
top-grade corporate bonas outstanding, as measured by Moody’s Investors Serv
ice, have averaged 3.7 percent so far this year. As shown by the chart below,
that’s higher than the annual average for any year since 1934. And the average
is sure to go higher, since the yields on new bond issues for several weeks have
been running well above 3,7 percent.
Only last week, Southern Bell Telephone Co. had to pay 4.91 percent when
it sola $70 million of 29-year debentures. That’s the highest rate paid by any
Bell System unit since 1930.
FINANCIAL CONDITION OF THE UNITED STATES
167
Michigan Consolidated Gas Co. last week paid 6.145 percent to borrow $30
million on 25-year first mortgage bonds. That's in sharp contract to the 3.39percent rate the Michigan utility paid on a $30 million 25-year bond issue less
than 2 years ago— in November 1955.
Kerr-McGee Oil Industries, Inc., this week will offer $20 million of debentures.
To make its securities more attractive in the current bond market, Kerr-McGee
has coupled to each $1,000 debenture a warrant entitling the purchaser to buy 5
shares of the company's common stock at $80 a share during the period from
April 1, 1958, to June 1, 1964.
The rise of bond market interest costs has been so swift that some companies
have simply thrown up their hands. Associates Investment Co. last Tuesday
postponed a $20 million debenture issue. The reason, according to E. Douglas
Campbell, treasurer: “ The disorganized condition of the market.”
Higher interest rates, of course, are pinching governments as well as businesses.
The Treasury last week had to pay 3.404 percent to raise $1.6 billion on its regular
offering of 91-day bills— the highest rate it had paid on such securities in 24 years.
State and local governments also are being forced to pay higher and higher interest
rates to raise funds for schools, highways and other facilities. The Dow-Jones
municipal bond yield index last week rose to 3.48 percent, the highest level since
October 1935.
Tighter money is helping to defeat one of the prime aims of the Eisenhower
administration— to stretch out the average maturity of the Federal debt. One
purpose of the proposed stretchout was to cut down the size of the Government's
future debt refunding chore. In addition, by offering longer term securities, the
administration hoped to place more of the debt in the hands of nonbank investors.
Banks prefer short-term securities; such purchases set the stage for further in
flation.
At the end of 1952, just before Ike took office, the average maturity of the
Pederal debt was 46 months. By mid-1955, the average had reached 55 months.
But, as money tightened, the Treasury decided it could not sell additional longer
term securities at any interest rate that it cared to pay. So it has relied more
and more on short-term issues. Result: The average maturity, as shown by the
chart below, had dropped 43 months by the end of last month:
168
VBUUK2AL OOHDmON OF THB DMITSD 8TATBB
The current interest-rate upsurge, with only minor interruptions, dates from
early 1955, As business began to pull out of the inventory recession of late 1953
and 1954, demand for credit grew—for rebuilding depleted inventories and build
ing new facilities. The Federal Reserve System, which during the recession
period had supplied the banks with all the funds they needed and more, began to
limit the funds the banks had available to lend. Interest rates rose steadily.
In late 1956,the Federal Reserve hesitated, somewhat uncertain as to the busi
ness future. But as business plowed ahead with record expansion programs
(spending on new plant and equipment this year is forecast at $37.4 billion, an
increase of 6 percent over the 1956 high), the Reserve System took heart and again
grabbed the credit reins tightly.
BORROWED RESERVE8
Just how strapped the banks are for funds showed up last week in the weekly
statement issued by the Reserve System. The banks are required to keep on
deposit with the Reserve System funds emial to a specified percentage of the de
posits on their own books; for the major N e w York City banks, for example, this
percentage is 20 percent. To meet these requirements, t h e banks this past week
had to borrow from the Reserve System a daily average of $1.1 billion.
When money began to tighten early in 1955, many businessmen decided to
finance expansion programs “temporarily”—sometimes for several years—with
bank loans. When money became more plentiful and interest rates eased, they
expected to raise long-term funds in the bond market.
Despite the fact that more than 2 years have passed with no drop in interest
rates, some companies persist on that course.
“There has been considerably more borrowing from banks lately by com
panies that do not want to commit themselves on long-term loans,” reports E. E,
Adams, president of San Francisco's Bank of California.
Under its normal financing pattern, Pittsburgh's Equitable Gas Co. this yew
could have sold debentures to provide the funds needed for a new $8.7 million
Detrochemical plant in Kentucky. But because of high interest rates, says C.
Mulholland, vice president and treasurer, the company early last month arranged
instead for an 11-month bank loan.
SHUN LONG COMMITMENTS
But a growing number of banks are turning away borrowers who want to ar
range new loans for expansion purposes or to renew' old ones. Several factors
underlie this trend. For one thing, with the prospect of still higher interest rates,
banks aren't eager to commit their funds for long periods at current interest rates.
FINANCIAL CONDITION OF THE UNITED STATES
169
“The money market still is uncertain,” says John Hay, president of the Michi
gan Bank in Detroit. “ Rates might go even higher, ana we don't want to get
locked in.”
Another factor is that the Reserve System for some time has been gently pres
suring the banks to avoid even temporary loans for capital purposes. The
System argues, with considerable conviction, that such loans feed inflation.
And, with the demand for bank credit still outrunning the supply, more and more
banks are finding it desriable to go along with the Reserve System.
Bankers, trying tactifully to shove customers into the bond market, emphasize
that businessmen may have to wait a long time for rates to come down. Went
worth P. Johnson, a senior vice president of Fidelity-Philadelphia Trust Co., goes
farther than most in that direction.
DROP IN 1961?
“ Once interest rates begin rising,” says Mr. Johnson, “ they rise for a period of
about 15 years before falling off again.” He figures the most recent low point
was 1946 (the downturn of 1953-54, he figures, was not sharp enough to interrupt
the overall uptrend). He concludes: “ It seems likely that rates should begin to
drop by 1961, according to all historical data available.”
Borrowers pushed out of banks have been largely responsible for the bondmarket squeeze. The squeeze has done more than send interest rates soaring.
Many bond dealers have found it impossible to sell their securities without mark
ing down prices— an action that in some cases has meant losses for the dealers.
To protect themselves to some extent, dealers are insisting that new bond
issues be made more attractive— both with higher interest rates and in other
ways. An example of the latter: When interest rates are high, some companies
sell bonds, fully expecting to refinance later when interest rates decline. Dealers
now, however, are stipulating in some cases that new bonds cannot be called in
and refunded for at least 5 years.
Unlike expansion loans, bankers find there’s no strong upward pressure under
inventory loans. Businessmen generally have been trying to hold their stocks
in check. The high cost of money is only one reason for this. Most products
and materials now are plentiful, so businessmen find it unnecessary to stockpile.
But interest rates still are influencing a number of inventory planners.
FO W LE R PLANS CUT
“ We plan to cut inventories 15 percent in the next 6 months to reduce operating
costs,” says Paul Fowler, president of Fowler Manufacturing Co., Portland,
Oreg., manufacturer of water heaters. “ We use a great deal of steel, and if we
can cut down the size of our orders and order at more frequent intervals, we won’t
have to obtain so many of these expensive loans.”
Aluminum Company of America, while it says it is not directly affected by
tight money, believes many of its customers are cutting inventories because of
high interest rates.
Many companies concede they’re concerned by tight money— but not enough
to alter any plans or programs.
/ ‘High money rates won’t affect our major expansion plans,” says Laurence F.
Whittemore, president of Brown Co., Berlin, N. H., paper and pulp maker.
“ Marginal projects wouldn’t be started, but we have none in that category now.”
Other companies unworried by tight money include those who finance operations
largely by retaining earnings. “ We generate enough cash within the company
to take care of all our needs,” says an official of a big Chicago-based manufacturing
concern.
RATE IN CREASES ASKED
A number of public utilities, while worried by higher interest costs, expect to
offset them through higher charges for their services; a number of rate increase
requests already are pending before State regulatory agencies.
Many businessmen are philosophical about tight money. With the present
top corporate tax rate of 52 percent, Uncle Sam pays about half of the higher
interest costs, figures W. A. Parish, president of Houston Lighting & Power Co.
Interest costs are deductible from income when a corporation figures its taxes.
Whatever the impact of high interest rates on business, one thing is sure:
Tight money feeds on itself. As businessmen begin to fret about the availability
and cost of credit, they rush to line up loans— sometimes months in advance of
actual need.
170
jtnahoial condition o f ra® iw m statbs
“ Even on the same interest rate, credit tends to set tighter on its own * * *
tends to accumulate more pressure,” says David M. Kennedy, president of
Continental Illinois National Bank « Trust Co., of Chicago. “ We’re seeing no
letup in the demand for borrowings.”
Senator K erb. D o you think you could sell them at a rate within
the legal limit?
Secretary H umphrey. I would not recommend trying to sell any
at all.
Senator K erb. Now-----SecretaryHuMPHREY. I do not think it is a proper time.
Senator K err. Well, is that not because of the tightness of the
money market?
Secretary H u m p h r e y . Well, partly that, and partly because of
the great use of money that is being made, the great demand for
money. ^
Senatyi^KERH. Regardless of what causes the tight-money market,
it is bec^ise of that situation that you would not try to sell longterms?
S e c r e t a r y H u m p h r e y . There is no complication about this, Senator.
The reaso n there is not a market for long-term Government bonds at
the kind f interest rates we would like to pay, or that we should pay
for that l^Ad of a security, is because there are so many other people
wanting to borrow money.
Now, when you have lots of people in the market wanting to borrow
monev and a lot of industrial concerns wanting to borrow money,
they bid for the money. And the only way we can take it away from
them would be to go in and bid and take it away from them.
Now, I do not think the Government would be wise to go in and
try to take money away from business and industry.
Senator K err. That adds up to a tight-money market.
Secretary H umphrey. There is a tight-money market, there is no
question about it, and the reason it is a tight-money market is because
it is better to have the cost of interest rising than to have the cost of
living going out of sight.
Senator K err, Well now, we are going to get to that in a little
while.
Secretary H umphrey. I think that those are the things you have to
keep in mind.
Senator K err. D o not try to detour me, Mr. Secretary.
Secretary H umphrey. I am not trying to detour you.
Senator K err. Yes; you are. We are talking about a situation in
which you tell the committee that you would not try to sell longterm bonds.
Secretary H umphrey. That is right.
Senator K err. And, for the moment, regardless of what causes this
tigbt-money market, it is the tight-money market which causes you
to reach that conclusion?
Secretary H umphrey. That is right. I do not want to go out and
bid for this long-term money.
Senator K err. This same article says:
In 1 9 5 6 , th e F ed eral R e se r v e h e sita te d , so m e w h a t u n certa in a s t o t h e b u sin e ss
fu tu re; b u t a s b u sin ess p lo w ed ah ead , th e R e se r v e S y ste m to o k h e a r t a n d a g a %
grab b ed t h e cred it rein s t ig h tly .
Now, that indicates that the Federal Reserve had something to do
with the tightness of the money market.
FINANCIAL CONDITION OF THE UNITED STATES
171
Secretary H umphrey . The Federal Reserve has a lot to do with it.
The Federal Reserve, by law, is the functioning body that influences
the amount of available creait and the amount of available money,
and it is their job, the Federal Reserve's job, to do that thing.
Senator K e r r . That is what I was trying to get you-----Secretary H u m p h r e y . And the Treasury either agrees with them o r
does not.
Senator K e r r . Y o u agree with them?
Secretary H u m p h r e y . At this time we agree with them pretty well
on what they are doing.
Senator K e r r . Y o u agree with them and have agreed with them?
Secretary H u m p h r e y . Pretty well. We have had some variations
in agreeing with them; but by and large, we think their policies have
been about right.
Senator K e r r . Regardless of the merits or demerits of t
tightmoney situation, then, the Federal Reserve Board is responsi 5for it?
Secretary H umphrey. Primarily responsible, yes; plus, c course,
the heavy "demand for money. That is their legal function.
Senator K e r r . And that has brought about a situation wh *e there
is more demand for the available credit than there is credit to meet
available demand?
Secretary H u m p h r e y . Well, you have to take into acc< nt both
demand and supply.
Senator K e r r . Well, I say-----Secretary H umphrey . And the demand has been exceeding the
supply.
Senator K err . And, as you said a while ago, compels the Govern
ment to compete with itself.
Secretary H umphrey . Well, or not to compete.
Senator K err . When its maturities come due, it has to borrow.
Secretary H umphrey . Then we compete.
Senator K e r r . You have to borrow.
Secretary H umphrey . That is correct.
Senator K err . And you do that every Monday morning.
Secretary H umphrey . W e do it every Monday.
Senator K e r r . Every Monday morning. And State and local
governments have to compete.
Secretary H umphrey . That is correct.
Senator K e r r . And when State and local governments and the
Federal Government, which together had over half of the total debt
in the Nation December 31, 1952, are in the posture of competing
with each other, and with both competing with industry for credit,
and the Federal Reserve holding the reins tight so that there is an
inadequate amount to meet the demand, it has to force the interest
rates up, does it not?
Secretary H umphrey . Of course-----Senator K e r r . I s that not the situation?
Secretary H umphrey . Just a moment—;—
Senator K e r r . L e t me a s k you just this question-----Secretary H u m p h r e y . Please-----.
.
.
.
Senator K erb . That is what makes it impossible, in this environ
ment, to sell long-term bonds?
Secretary H u m p h b e y . It makes it undesirable, and I do not want
to try.
96819 0—67-----12
172
FINANCIAL CONDITION OF THB UNITED STATSS8
Senator K err. I say therefore, Mr. Secretary, that the policy which
Hie Federal Reserve has implemented and now follows, and in which
you have supported them and do now support them— —
Secretary H umphrey, That is right.
Senator K err (continuing). Is what makes it impossible for you
to achieve the objective of putting this Government debt into long
term issues?
Secretary H umphrey. That is right, because I think we gain much
more in other ways. It’s the heavy demand for monev again.
Senator K err, But regardless of what you think it does for us——
Secretary H umphrey. We are not doing one thing because I think
we are getting a lot better off the other way.
Senator K err. In other words, we are getting a lot better off,
then, to-----Secretary H umphrey. With this high prosperity that is going on,
I think the way we are working, it is more desirable to have that than
it is to have no use for money, to have nobody wanting money, and to
have money a drug on the market so that we can get all we want for
any period of time we do want it.
Senator K err. When you came into office, Mr. Secretary, you said
the worst thing about the fiscal policies in the preceding administra
tion was that they had resulted in two-thirds or three-fourths of the
debt maturing or being callable in 5 years.
Secretary H umphrey. N o; I did not say it was the worst thing,
I said that was a thing that was desirable to correct as soon as it could
be done.
Senator K err. Y ou said that was the mess you inherited.
Secretary H u m p h r e y . That was one of the things. There was a
lot more to the mess than that. [Laughter.]
Senator K err. And your successor, if that is a mess, and to the
extent that it is a mess-----Secretary H umphrey. It is just a part of the mess.
Senator K err (continuing). And to the extent that is a mess-----Secretary H umphrey. Using your measurement, my successor is
going to find no improvement m that little part of it.
Senator K err. He is going to inherit a worse one than you did.
Secretary H umphrey. N o, it will be just about the same, but we
have cut the floating debt and put out some long bonds.
Senator K err. N ow then, Mr. Secretary, do you have a statement
there of the goods that are in short supply?
Secretary H umphrey. Yes, I have a substantial statement with
respect to that, but first, let me submit a short one for the record.
This is a statement of what issues are still outstanding that we have
not refinanced. You asked, you know, if there were some that had
not been refinanced, and here is a statement of the issues that have
not been refinanced. (Requested on p. 133.)
Senator K err. Yes, That is of the total debt in existence when
you came in?
Secretary H umphrey. That is right.
Senator K err. Yes.
(The table referred to is as follows:)
FINANCIAL CONDITION OF THE UNITED STATES
173
United States Government public marketable and nonmarketable issues outstanding
M ay 81, 1957, which were issued prior to Jan. 1, 1953
Amount outstanding
M arketable issues:
(billion* of dollar*)
Bills_______________________________________________________________ ______
Certificates_____ .___________________________________________________ ______
Notes__________ ___________________________________________________
1. 4
Bonds______________________________________________________________ 50. 2
Total____________________________________________________________
51. 6
Nonmarketable issues:
Savings bonds:
Series E and H ________________________________________________
Series F, G, J, K _______________________________________________
27. 8
12. 1
Total_________________________________________________ _____ _
39.9
Investment bonds:
Series A _______________________________________________________
Series B _______________ _____ __________________________________
.9
10.8
Total________ ______ ____________________________ ____________
Depositary bonds__________________________ ___________ _____________
11.6
.2
Total________ ______ ________ ____________________ _______________
51. 7
Total, public issues 1_____________________________________________
103. 3
1 Excludes special issues, matured debt bearing no interest, and non-interest-bearing debt.
Secretary H u m p h r e y . And it shows that there are here a total of
$103 billion of those issues that are still outstanding. They are just
certain issues.
Senator K e r r . I would think that there were more than that,
because we have all of the 2%s. Are they included in this?
Secretary H u m p h r e y . They are included; yes, sir. They are up
there in that $50 billion item.
Senator K e r r . That is the bonds?
Secretary H u m p h r e y . That is right.
Senator K e r r . In the “ Marketable issues” item.
Secretary H u m p h r e y . That is right.
Senator K e r r . The series E and H that have not been refinanced
are redeemable on demand.
Secretary H u m p h r e y . A t demand.
Senator K e r r . Series F, G, J, and K , tell us what they are.
Secretary H u m p h r e y . Those are savings bonds. We have stopped
issuing them now. They were bonds that were issued to large in
vestors.
Senator K e r r . Are they redeemable at the will of the holders?
Secretary H u m p h r e y . They are redeemable on demand. They
•re like savings bonds; we stopped issuing the big ones and only issue
bonds to smaller savers.
Senator K e r r . Investment bonds, series A . Is that what you
put into the special issues?
Secretary H u m p h r e y . No.
Senator K e r r . What are those?
Secretary H u m p h r e y . Well, these are-----^ Senator K e r r . When are they due? They have been outstanding
bere----
174
TOfeHCIAX. CONDITION OF THE UNITED STATES
Secretary H umphhey, Series A is due in 1965.
Senator K err. And series B?
Secretary H umphrey. Callable in 1975 and due in 1980.
Senator K e r r . 1975 to 1980.
Secretary H umphrey. Yes.
Senator K e r r . Then the only part of this which i s not going to be
subject to refinancing pretty soon, or which could be redeemed at
the will of the holder, is the $11.6 billion total of series A and B and
the $50 billion of bonds?
Secretary H umphrey. Well, these demand savings bonds are, of
course—theoretically, they can be, but probably will not.
Senator K err, They were what you referred to back in 1953 when
you said they are redeemable at the will of the owner?
Secretary H umphrey. That is right.
Senator K err. And they still are?
Secretary H umphrey. Still are, but the chances are they will not be.
They are extended.
Senator K err. Sure.
Do you know what chance you will have on that if you let this
interest rate get away from you? If you let that interest rate get
further away from you, those holders of 3 percent will say, “ I will
come and get my money and put it over in 6 percent investments."
Secretary H umphrey. There are lots of reasons why you would not
make those changes.
Senator K err. You say if it gets to 6 percent?
Secretary Humphrey. Yes. I thought you said if it got to 6
percent.
Senator K err. Well, this article I just put into the record said that
Michigan Consolidated Gas Co. last week paid 6.145 percent to borrow
$30 million on 25-year first mortgage bonds. That is in sharp con
trast with the 3.39 percent rate the Michigan utility paid on a $30
million 25-year issue less than 2 years ago, November 1955.
So when I talk about the 6 percent high-grade, class A bonds, I am
not talking about a possibility; I am talking about a reality here.
Secretary H umphrey. Well, I told you once before in a meeting that
these Government bonds, I believe, are the highest class security in the
world.
Senator K err. We have been talking about that.
Secretary H umphrey. And I am not anticipating they will pay 6
percent in the near future.
Senator K err. I am not, either, because the law says you cannot
pay over 4#.
I will tell you what I think, Mr. Secretary. I think that before we
hit that ceiling, both the Treasury and Federal Reserve are going to
be doing what they should have been doing before this, and you
do, too, do you not?
Secretary H umphrey. I think what we have been doing is what WV
should have been doing.
Senator K err. But before they-----Secretary H umphrey. Whether we will change or not, Senator, will
be just, as I said in my original statement—the policy is a flexible
policy. It must be a flexible policy to meet conditions as they exist
from time to time.
FINANCIAL CONDITION OF THE UNITED STATES
175
Senator K err. Y ou know that is a nasty word to the farmer, that
word “ flexible.”
Secretary H umphrey. I do not know whether it is nasty to farmers.
I t fits here.
Senator K err. Before you do that, will you answer my question?
Secretary H umphrey. I will just answer this one first.
Senator K err. Y ou are going to go back and read me some more of
that campaign speech. [Laughter.]
While your staff is looking for it, I will tell you what let’s you and
I do-----Secretary H umphrey. I will find it in just a minute.
Senator K err. I wonder if you would not answer this question:
D o you not think that the Treasury and the Federal Reserve will ad
vocate a change in policy at or before the time the required rate hits
that 4yAlegal ceiling?
Secretary H umphrey. I do not know. It will depend on condi
tions, and I hope they will have the courage and the ability to do
what they ought to do all the while, and not be pressured into doing
something wrong.
Senator K err. They will either have to do something or come to
Congress and ask Congress to raise-----Secretary H umphrey. Only if conditions justify the change.
Senator K err. I say, they will have to come to Congress and get
Congress to change the legal limit.
Secretary H umphrey. The legal limit is a good deal like the debt
limit, you know. You do what you have to do. I believe in these
limits, because I believe they are appropriate to work with.
But no limit is going to stop the Government from financing itself
if it has to, under whatever the conditions may be.
The Congress, when the pressures are such and the conditions are
such that the only financing the Government can do is at something
different than the limit, then the limit will be changed. That is only
commonsense. But I believe in limits now.
Senator K err. Y ou believe in limits?
Secretary H umphrey. I do. And the chairman will tell you that
nobody has worked harder to stick to the debt limit, and I believe in
it, and I do not want it abandoned. And we did not abandon it, and
we have held to it, and I hope we are going to live within it, and I
hope for all the future time they will live within it.
Senator K err. Would you do this-----Secretary H umphrey. But if the time should come when they could
not, you would have to do something about it.
Senator K err . Would you do this: Would vou agree that it would
be appropriate for the Treasury and the Federal Reserve Board to
reappraise its policy so as to make credit less tight in preference to
coining to Congress to ask for a raise in that legal limit of 4# percent?
Secretary H umphrey. They reappraise their policy daily, Senator.
These are the few words that I think cover the situation better than
anything else, and they are taken from the Douglas report which was
made about 7 years ago, and I will just read what they said in that
report.
Senator K err. Who was it who said, “ Oh, liberty, what crimes are
committed in thy name” ? [Laughter.]
I want to tell you, if Paul Douglas had known-----
176
FINANCIAL CONDITION OF THE UNITED STATHB
Secretary H t j m p h r e y . Let me read it.
Senator K err. The kind of a mantle that he was going to provide
for you boys to wrap yourselves in, I believe he would nave let his
tongue cleave to the roof of his mouth before he would ever have
issued those comforting words. [Laughter.]
Secretary H umphrey. I am sorry he is not here to hear me read it,
hut I am sure it will do you good to listen.
Senator K err. I will tell you right now, errors, sir, do not attain
any dignity even when repeated by one of such eminent prominence
as yourself. [Laughter.]
Secretary H umphrey (reading):
Timely flexibility toward easy credit at some times and credit restriction at
other times is an essential characteristic of a monetary policy that will promote
economic stability rather than instability.
That is the base upon which the Federal Reserve Board operates,
and I think it is the proper base.
Senator K err. Now that you have injected that at this point, I
want to show you a chart, Mr. Secretary.
I want to show you a chart because it is going to disclose to you that
a greater increase in the money supply in the years previous to your
time brought less increase in the Consumer Pnce Index than a lesser
E ercentage of increase in the money supply during the last 12 months
as brought under your administration.
Now, m 1949 through 1953, which includes the years of the Korean
war, the Consumer Pnce Index went up 2.2 percent per year. The
wholesale prices went up 1.2 percent per year. Industrial prices
went up 2 percent per year. The privately held money supply went
up 3.5 percent a year. The gross national product, according to the
President's Economic Report of 1957, on the basis of the dollars
adjusted to the 1956 price level, went up 4.8 percent a year. Unem
ployment averaged 3.5 percent a year.
Now, for 1956 plus 5 months of 1957 on an adjusted basis gives it
the posture of another year so as to make it a 2-year average.
Secretary H umphrey. I do not quite understand that. How do
you do this?
Senator K err. Well, this 2.6 per year average is on the basis of
1956, plus 5 months of 1957, to give it the posture of a year.
What did you tell us the price index had gone up in 12 months?
Mr. M ayo. Four points or 3.8 percent.
Senator K err. 4.4.
Points?
Secretary H umphrey. 3.8 percent.
Senator X e r r . But take ail of 1956 and that part of 1957 and give
it a 2-year average, and it is 2.6, If you just take the 12 months and
divide it by 2, it is 1.9 percent.
Secretary H umphrey. I see.
Senator K err. But if you take the additional period this year
that we have the record on and the 3 months of last year that was not
in the 12 months, it gives an average of 2.6 percent, as compared to 2.3
percent for 1949-53. In other words, the Consumer Price Indtot
has risen more rapidly in 1956 and 1957 than it did on the average
from 1949 through 1953.
FINANCIAL CONDITION OF THE UNITED STATES
R E L A T IV E
E C O N O M
IC
T R E N D S
1949 THROUGH 1953 4N0 1956 THROUGH MID 1957
I 1949 THROUGH 1953
( INCLUDING 3 YEARS OF KOREAN WAR)
Percent
5 .4 %
4 .8 %
22%
2.0%
1.2%
Wholesale
Price*
Industrial
Prices
Privately
Gross National
Industrial
Unemployment
Held Money
Product
Production
os ftocent of
Supply
{m 1956 $ )
. Civilian Labor Force
___________________ _________________ /
(annual average)
ANNUAL AVERAGE INCREASES
II 1956 THROUGH MID 1957'
Percent
5[--------3.8%
3.1%
2.6%
*8 *
2 .7 %
2.1%
Consumer
Prices
Wholesale
Prices
^
IndustnM
Prices
Privately
Held Money
Supply
Grots National
Product
(in 1956 $)
ANNUAL AVERAGE INCREASES
177
Industrial
Production
J
Unemployment
as tocent of
Cmlion Labor Force
(annual average)
178
FINANCIAL CONDITION OF THE UNITED STATES
The wholesale prices have gone up 3.1 percent as compared to
Industrial prices have gone up 3.8 percent as compared
to 2 percent. Privately held money supply has gone up 2.8 percent
per year in 1956-57 as contrasted to 3.5 percent per year during
1949^53, proving that a larger percentage increase of the available
supply of credit was not as inflationary as a much smaller increase in
the supply of credit has been in 1956-57.
The gross national product has only gone up 2.7 percent as com
pared to 4.8, and you yourself have saict that that is one of the primary
tests of the growth of the economy. Industrial production has gone
up only 2.1 percent as compared to 5.4 percent, and unemployment
has been an average of 4.1 percent of the total civilian labor force, as
contrasted to 3.5 percent.
So it seems to me, Mr. Secretary, there should be a reappraisal of
the money supply considerations which you told us should determine
the action of the Federal Reserve Board.
Secretary H umphrey. Senator, have you the 4-vear period average
figures to compare with the 4-year previous period average figures?
Senator K err. Yes; I do have. But you see-----Secretary H umphrey. Are you willing to put them up there and
show them?
Senator K err. I would be glad to. But the reason I use this,
Mr. Secretary, was this: I read into the record the other day the state
ment of the Federal Reserve Board in its report for 1952, which you
agree with, which said that economic stability or stability of pnces
had been attained in 1952.
Now, the fact about the business is, Mr. Secretary, that in September
of 1948—and if Mr. Mayo will get his Consumers Price Index I want
him to check me on what I am saying—in September 1948, the Con
sumers Price Index stood at 104.8. Twenty-one months later, in
June of 1950—have you got those figures, Mr. Mayo?
Mr. M ayo. One second and I will have that. Yes, sir.
Senator K err. Twenty-one months later, in June of 1950, the
Consumer Price Index was 101.8.
1.2 percent.
Mr. M ayo. That is right.
Secretary H umphrey. That is right.
Senator K err, Or a decrease actually during that 21-month period
prior to the Korean conflict of 3 points. The purchasing power of the
dollar was increased by 2.56 cents.
Secretary H umphrey. That is right.
Senator K err, And then in 1951 and 1952, according to the Federal
Reserve Board’s report that I read into the record, price levels were
constant, and you yourself said in June of 1953 in that interview that
1 read here to the committee the other day and put into the record,
when you were asked when did you think you could achieve a stable
dollar and you said, “ We have got a stable dollar now.”
Secretary H umphrey. That is right.
Senator K err. In 1953?
Secretary H umphrey. That is right.
Senator ^Cerr. Now, the reason that I have used 1956 and thus far
in 1957 is that that stability has been jarred. After achieving almost
2 years of stability, and proclaiming you were in a stable situation in
1953 and that you maintained it in 1954 and 1955, you certainly
had a foundation for continued stability. But we do not have it,
FINANCIAL CONDITION OF THE UNITED STATES
179
and the figures for the current period are the ones I have used here,
and I have used them because I think it is fair to compare them with
the 5 years— 1949 through 1953— which includes the Korean war years.
Secretary H umphrey. Well, you see, Senator, I think that it is the
same figures, just put up again in a little different way, that you used
the other day, where you compare an average period, a pre-1953
average period, with a worst year in a later period and make a favor
able comparison with that, as compared with the average in the later
period which is much better.
Senator K err . Well, it has this advantage, Mr. Secretary, it has
the advantage of being accurate, and the statement that you make
on your stability was not accurate.
Secretary H umphrey. Well, I will challenge that.
Senator K err. All right. Then we will Took at it together, and I
will let you determine whether it is accurate. In your prepared
statement you say:
W e h a v e a c c o m p lis h e d a t e m p e r in g o f in fla t io n a r y p r e s su r e s d u r in g t h e s e y e a r s ,
w ith a d e c lin e in t h e p u r c h a s in g p o w e r o f t h e d o lla r o f o n ly e ig h t - te n t h s o f a c e n t
in 4 y e a r s .
Is that your statement?
Secretary H umphrey . That is right.
Senator K err. I want you and Mr. M ayo to examine it and see if
it, according to the exhibit you gave us, represents 4 years or 3 years?
Secretary H umphrey. Well, it is the average-----Senator K err . It does not say the average. It says, “ with a
decline in the purchasing power.”
Secretary H umphrey. N ow , wait a minute.
Senator K err. Is this what it says?
Secretary H umphrey. Calendar year average; D o you read those
letters?
Senator K err. Why, sure.
Secretary H umphrey. All right. We will accept that.
Senator K err . Well, you cannot take the average of 1953 as
representing-----Secretary H umphrey . W hy not?
Senator K e r r . A s representing the increase in 1953. It is the base.
Secretary H umphrey. I am snowing the changes in the calendar.
This speaks exactly, if you will read the words.
Senator K erb . Yes, sir; you are showing the changes in the calendar
year.
Secretary H umphrey. I am showing the calendar year average for
each of 4 years.
Senator K e r r . Yes.
Secretary H umphrey. And the difference in the calendar year,
your difference is eight-tenths of a cent.
Senator K err . That is correct. That is not what your statement
says.
Secretary H umphrey. Well, I do not know how you can say it any
plainer. It is all written out just as plain as it can be.
Senator K e r r . It depends on whether you want to state it accu
rately or inaccurately.
Secretary H umphrey. It is just stated as plain as it can be, a
calendar year average.
Senator K e r r . It does not say that.
180
FINANCIAL CONDITION OF THE UNITED STATES
Secretary H umphrey. Calendar year average, and it states it.
Senator K err. I am talking about the statement. The calendar
year average is in the table that was put in there to substantiate the
statement. The statement says—
w ith a d eclin e in th e p u rch a sin g p o w er o f th e d o lla r o f o n ly e ig h t- te n th s o f a c e n t
in 4 yea rs.
Secretary H umphrey. That is right.
Senator K err. Now, actually the decline represented the difference
between 1956 and 1953, did it not?
Secretary H umphrey. Between what?
Senator K err. 1956 and 1953.
Secretary H umphrey. Just what it says, the difference between the
averages of those 2 years.
Senator K err. I s that correct that it was the difference between
1956 and 1953?
Secretary H umphrey. It is exactly what it purports to say, Senator.
It jpves you the average for-----Senator K err. Answer the question.
Secretary H umphrey. It gives you the average for 1953, 1954,
1955, and 1956.
Senator K err. H ow did you get the eight-tenths of a cent?
Secretary H umphrey. Y ou deduct the average from 1953 to 1956
and you find-----Senator K err. I think you deduct the average of 1956 from 1953.
Secretary H umphrey. That is right, and it is eight-tenths.
Senator K err. It is only three years in which it, of course-----Secretary H umphrey. l?our years.
Senator K err. Oh, no, it is the difference between the first and the
fourth, is that correct?
Secretary H umphrey. N o, it is not correct.
Senator K err. Ask Mr. Mayo.
Secretary H umphrey. We have taken the average for 4 years and
deducted-----Senator K err. And deducted the fourth from the first.
Secretary H umphrey. That is right.
Senator K err. All right. That represents a 3-year gain.
Secretary H umphrey. Well, but it is not from the end of the year.
It is the average of the whole year.
Senator K err. All right. And you averaged of the whole year?
Secretary H umphrey. That is right.
Senator K err. H ow long is it from January 1, 1953, to January 1,
1956?
Secretary H umphrey. You want to put in another year, is that
what you are seeking to do?
Senator K err. No, I am taking your figure.
Secretary H umphrey. Because if you want to put in another year,
it is perfectly easy to do it.
Senator K err. Yes, sir.
Secretary H umphrey. We have got 4 years.
Senator K err, Yes, sir.
Secretary H umphrey. And the average of each of the 4 years and
the difference-----Senator K err. And the decline in the purchasing power as you giv*
it here is the difference between 1953 and 1956?
FINANCIAL CONDITION OF THE UNITED STATES
181
Secretary H u m p h r e y . Yes.
Senator K e r r . I s that right, Mr. Mayo?
Mr. M ayo . That is correct.
Secretary H u m p h r e y . That is correct.
Senator K e r r . H o w long is it from any given date in 1953 to that
same date in 1956?
Secretary H u m p h r e y . It is a difference of 3 years of interim, but
it is 4 years, four calendar years.
Senator K e r r . Oh, yes. But your decline there has to be a 3-year
decline. Just ask any member of your staff if that is not correct.
Secretary H u m p h r e y . But if we take the figures on 4 years-----Senator K e r r . I just say ask anyone.
Secretary H u m p h r e y . But during the 4 years that is the decline
that has taken place during the 4 calendar years.
Senator K e r r . It is the decline when the average of 1953-----Secretary H u m p h r e y . It is the decline of the average of 4 years.
Senator K e r r . It is the decline in the average of 1953 to the average
of 1956, is that not correct, Mr. M ayo?
Mr. M ayo . Yes, that is correct.
Senator K e r r . Is that not a 3-year period?
Secretary H u m p h r e y . It is a 3-year period of 4 years. [Laughter.]
It is a difference of three.
Senator K e r r . Mr. Secretary, that is the only way that it can be
made accurate. [Laughter.]
Secretary H u m p h r e y . That is a perfectly accurate statement.
Senator K e r r . I want to tell you right now that is a rationalization
I had not contemplated even you would be capable of.
Secretary H u m p h r e y . Well, it is very good for you to find that out.
Senator K err. All right. Now, let us go to the shortage. Do
you have that statement?
Secretary H umphrey . I have a statement, a very full statement on
exactly what occurred which I will read, Mr. Chairman. It shows
exactly how this change took place.
Senator K e r r . Now, that is not what I wanted. I did not ask you
for another speech.
Secretary H umphrey . Well, you are going to get one. [Laughter.]
Senator K e r r . We are eventually going to get down to that point
of the tabulation of the shortages. The other day you gave me two,
line pipe and railroad passenger cars.
Secretary H umphrey . Yes.
Senator K err. All right. You make any speech you want to,
but we are going to get down to those shortages.
Secretary H umphrey . All right.
In response to a request from Senator Kerr on Friday, I promised
to provide the committee today with a more extended statement
describing the pressures which initiated the recent rise in the general
price level.
This rise began to show up at the wholesale level in mid-1955.
Senator K err . M ay we interrupt there?
Secretary H umphrey. What is that?
Senator K err . M ay I interrupt right there?
Secretary H umphrey. Yes, sir.
Senator K err . Where is the report of the proceedings on Friday,
the transcript?
182
FINANCIAL CONDITION OF THE UNITED STATES
Now you say:
In response to a request from Senator Kerr on Friday, I promised to provide
the committee with a more extended statement describing the pressures which
initiated the recent rise in the general price level.
What you promised to get me, Mr. Secretary, was a tabulation of
the consumer items in short supply.
Secretary H umphrey. Well, what we are seeking to do, Senator,
I think you and I both, what we are seeking to do is to bring out the
facts for the benefit of the committee to see what the pressures are
and how they operate, trying to develop the problem.
Senator K err. I think the committee is entitled to participate in
deciding what facts we want.
Secretary H umphrey. That is right, and so am I,
Senator K e r r . That is right, ana you gave us a tabulation.
Secretary H umphrey. And I will present it to you, you wanted to
know about this difference in price level, and now I am prepared to
present it to you.
Senator K err. Well, to go back now, you said that this inflation
was caused by a bigger demand than—I want to tell you, you put on
a promising act here the other day that was as good as I ever saw.
Secretary H umphrey. Well, I am doing the best I can to help you.
Senator K e r r . I w i l l read i t and t h e n you may see i t . [Reading.}
To go back now, you said that this inflation was caused by a bigger demand
than productive capacity could supply.
Secretary H umphrey. That is right.
S en a to r K
err
(r e a d in g ):
Secretary H u m p h r e y . That is right.
Senator K e r b . And the only one you have told me so far was Une pipe
Secretary H u m p h r e y . That is right.
Senator K e r b . What others?
Secretary H u m p h r e y . I will get you a list.
Secretary H umphrey. That is right.
Senator K err (reading):
Senator K e r r . Do you know of any other, Mr. Secretary?
Secretary H u m p h r e y . I will get you a list.
Senator K e r b . D o you know of a n y other?
Secretary H u m p h r e y . I will get you a list.
Secretary H umphrey. I have a list.
Senator K err (reading):
S e n a to r K
Secretary
it up.
[Laughter.]
e b b . D o y o u k n o w o f a n y o t h e r a t t h is m o m e n t ?
H u m p h r e y . I will bring a list which will have the
statistics to back
Then we had a little colloquy there.
Senator K e b b . D o you have any independent knowledge of any other avenue
of productive capacity in which this country is short of productive capacity?
S e c r e t a r y H u m p h b e y . I w ill b r i n g y o u a lis t .
Secretary H umphrey. I have a list.
Senator K err. Well, do you remember what it was to be a list of?
Secretary H umphrey. Yes, sir.
Senator K err. What?
Secretary H umphrey, It was to be a list of things that were in
short supply.
FINANCIAL CONDITION OF THE UNITED STATES
183
Senator K err. That is fine. And you have that there?
The C hairman . The entire statement will be made a part of the
record where it was requested. (See p. 115.)
Secretary H umphrey. I will just go ahead. I do not think you
would know how to use the list, so I am going to tell you how to use
it. [Laughter.]
Senator K err. I want to tell you that is a degree of candor to be
commended. It is an attitude of helpfulness that I had not antici
pated. [Laughter.] And it is a situation which we will let further
discussion itself verify or cast some doubt upon.
Secretary H umphrey. I am sure, Senator, you are seeking the
truth, as I am, and I want to show you just how I think this applies.
Senator K err. Fine.
Secretary H umphrey. This rise began to show up at the wholesale
level in mid-1955, and by early 1956, prices of consumer goods and
services began moving upward.
While the Wholesale Price Index has been relatively stable since
January, the Consumer Price Index has continued to move upward.
Now, what has caused this rise in our price level particularly during
the last year? This is the question with which we are all under
standably concerned, and to which I want to respond here.
During late 1955 and 1956, price increases stemmed basically from
a massive increase in capital expenditures. During this same period
there was a substantial accumulation of inventories, which accentuated
these price pressures.
As the accompanying tables indicate, the capital goods boom which
emerged in 1955 was of enormous proportions. Industrial construc
tion contract awards had increased 55 percent during 1955. The
volume of new orders for durable goods jumped 34 percent.
Percentage changes in unfilled orders; selected dates, major durable goods industries
From Janu From Janu From Janu From Janu
ary 1957 to
ary 1955 to
ary 1955 to
ary 1956 to
January 1956 January 1957 January 1957 April 1967 »
Durable-goods industries, total______________
Primary metals________________________
Fabricated metal products....................... —
Machinery *__
Transportation equipment..........................
Other durable-goods industries *___ ______
Selected commodities:
Railroad passenger cars.............................
Railroad freight cars....................................
Railroad diesel and diesel electric locomo
tives........ .......... .............................
-1-20
4-73
4-26
4-23
4-10
-3
4-11
4*6
4-9
4-16
4-12
-3
4-34
4-82
4-37
4-43
4-23
0
—3
-2
-1
-2
-5
—5
4*5
4-673
4-5
-2 3
4-10
4-499
-2
-5
4-76
—6
4-67
—5
* Preliminary.
* Includes electrical machinery.
professional and scientific instruments, lumber, furniture, stone, day, and glass, and m is
f Indudes
cellaneous.
Source: Office of Business Economics, Department of Commerce.
The percentage change in new orders for durable goods was as
follows: Durable goods, primary metals went up 31 percent; fabricated
metal products, 29 percent; machinery, 47 percent; transportation
equipment, 46 percent.
Senator K err. H ow much in the 2 years?
184
FINANCIAL CONDITION OF TBE UNITED STATES
Secretary H umphrey. In the 2 years, durable goods total went up
34 percent; primary metals went up 31 percent; fabricated metal
products, 29 percent; machinery, 47 percent; transportation equip
ment, 46 percent; and other durable goods, l l percent.
Though shipments increased very sharply, the backlog of unfilled
orders mounted rapidly for the hard-goods lines generally during 1955,
and continued to move upward through most of 1956. Indeed, by the
end of last year the backlog of unfilled orders was equal to more than 4
months of shipments at the December rate, and was 34 percent above
early 1955 levels.
Senator K erb. May I ask you a question right there?
Secretary H umphrey. Yes, sir.
Senator K erb. Now, is it not a fact that the so-called backlog of
unfilled orders is a tabulation or a compilation of orders, the delivery
dates of which are specifically set for sometime in the future?
Secretary H umphrey. That is right, and the general reason for
that is because they cannot get prompt shipment. That is the best
evidence I know of, inability to get prompt shipment.
Senator K erb. Well, you say the backlog is the best evidence?
Secretary H umphbey. That is the beet evidence of shortage.
Senator K err. Y ou and I know that when industry gets ready to
expand, it may not have all the money on December 31 to pay for all
it is expecting to get within the next*2 years, and if it got it all, the
construction organization would take maybe a year and a half or 2
years to do it.
Secretary H umphrey. Now, Senator, when you— —
Senator K err. Now, this backlog is not of materials the delivery
of which is past due, is it, Mr. Secretary?
Secretary H umphrey. Y ou have to find some index of what is a
shortage, and the best evidence of a shortage is an increase in the
backlog of unfilled orders, because that means that deliveries are
having to be postponed and people are getting their orders in so that
they will get delivery dates that they can meet.
Senator K err. Afl right.
Secretary H umphrey. The magnitude of these rapidly mounting
demands, concentrated in such a short time span, led to a sharp ^ee
in the price of producers’ equipment and in the prices of materials,
components ana supplies used in durable goods manufacturing. These
price advances, you will note, were much greater than those for prod
ucts less directly related to this capital goods boom.
Now, the durable prices, there is a tabulation showing the durable
S ods prices that went up during these periods, and during the period
>m January 1955 to January 1957, durable goods total went up 34
percent; primary metals, 82; fabricated metal products, 37; machinery,
43; transportation, 23; and so forth.
FINANCIAL CONDITION OF THE UNITED STATES
185
Percentage change in new orders for durable goods
Change during 1
1955
Durable-goods industries, total..........................................................
Prim ary metals........ .....................................................................
Fabricated metal products....................... ..................................
M achinery *........ ..........................................................................
Transportation equipment..........................................................
Other durable goods *...................................................................
+34
+ 32
+ 29
+37
+55
+12
1956
1955 and 1956
0
-1
0
+7
-6
-1
+34
+31
+ 29
+47
+ 46
+11
1 Change between fourth quarters 1954, 1955, and 1956.
* Includes electrical machinery.
* Includes professional and scientific instruments, lumber, furniture, stone, clay and glass, and m iscel
laneous.
Source: Office of Business Economics, Department of Commerce.
The course of this rapidly accelerating capital goods boom during
1955 can be traced in the various lists of shortages published from
time to time by the Association of Purchasing Agents, and that is the
list I have that I will give you in a minute.
At the beginning of 1955, only nine items of basic materials were
reported in short supply. This list built up persistently through
subsequent months until by March 1956, 17 items were listed in
short supply: aluminum, cellophane, cement, copper, nickel, paper,
selenium, steel products, titanium dioxide, steel pipe, steel plates,
structural steel, steel shapes, stainless steel, synthetic rubber, methanol,
and newsprint.
This list is, of course, illustrative only. The basic pressure on
resources was being exerted by the rapid increase in capital outlays
generally, and the even more rapid increase in new orders, unfilled
orders, and industrial construction contract awards beginning in 1955.
The increased prices of materials, components and supplies led to
cost increases for producers of other goods, such as consumer durables.
Consequently, even in lines of industry where demand was not
rising so rapidly, some price increases occurred, as producers passed
along at least some of the increased cost of materials.
Then it shows that wholesale prices increased very much less.
Wholesale prices of all items at that time were plus 6.8 points; farm
products, minus 3.28 points.
Senator K err. H ow much?
Secretary H umphrey. Minus 3.28 points.
Senator K err. Com products?
Secretary H umphrey. Farm products.
Senator K err. This says minus 3.2.
Secretary H umphrey. Yes.
Senator K err. Which is the correct figure?
Secretary H umphrey. 3.2 is correct.
Senator K err . All right.
Secretary H umphrey. All other products, plus 10.
Senator K err. What about food?
Secretary H umphrey. Processed foods is 0.5.
Senator K err . Half a point.
186
JWAXCIAI. CONDITION
or THX
TTNTTW) STATES
Secretary H u m p h r e y . That is right.
Now then, the selected groups of industrial prices, just for com
parison, was:
Rubber and rubber products, plus 8.2.
Pulp, paper, and allied products, 12.3.
Metals and metal products, 22.1.
Machinery, 18.1.
Nonmetauic minerals, 10.
Wholesale Price Index
[1M7-W-100J
Points change In the index
Price group
From January
1955 to January
1957
Wholesale prices:
All items..........................................
Farm products................................
Processed foods...... -............. —
All other (Industrial).....................
Selected groups of Industrial prices:
Rubber and rubber products........
Pulp, paper, and allied products.
Metals and metal products--------Machinery and motive products..
Nonmetauic minerals, structural.
+6.8
-3 .2
+.5
+10.0
+8.2
+12.3
+22.1
+18.1
+10.0
From January
1957 to April 1957
+ 0 ,3
+ 1 .3
0
+.2
-3
**.1
-11
+1,1
+ 2 ,5
Not only did prices of materials and supplies increase, but labor
costs rose substantially in 1956. Wage increases were sizable, and
output per employee man-hour failed to rise appreciably in 1956, so
that the higher wage costs per hour were more fully translated into
increasing costs of production.
Consumer prices generally did not begin to rise until early 1956,
and consumer commodity prices (aside from food) did not increase
until mid-1956, The rise in consumer incomes and in the demand for
consumer goods was substantially less than the increase in demand
for capital goods.
Ana I wfll just interpolate this: That the increase in employment
and the great expansion of capital goods was gradually supplying the
funds, the wages, to later press on consumer goods.
In general, the supply and capacity situation was also easier in the
case of consumer goods. However, rising employment and wage rates
led to an increase in disposable income of about 6 percent per year
between mid-1955 and early 1957, And this was large enough to
permit the pass-through to consumers of increases in the wholesale
prices of many consumer goods.
Then consumer goods, consumer prices:
All items moved, from June 1955 to December 1956, 3.3 percent*
and December 1956 to April 1957, 0.9 percent.
187
FINANCIAL CONDITION OF THE UNITED STATES
Consumer Price Index
Percent
change
Price group
June 1955December
1956
Consumer prices:
All item s___________ _____________ _______________________________________
C om m odities______
_____ . . .
.
...
F o o d ., _________ __________ ______________________________
A ll com m odities, except fo o d ____
____ ____
___
Consumer durables_____________ _____________ _____________ ____
Consumer nondurables_________ _________________________ _______
Services and r e n t ...
............. ..
. . .............................................
3.3
2. 7
1.3
3. 8
3. 4
4. 3
3 7
December
1956~April
1957
0.9
0
.9
.8
> .6
i.B
1.6
1 December 1956 to M arch 1956 used.
Source: Based on data from the Departm ent of Labor.
Consumer commodity prices, particularly those of durable goods
and of food, had been declining for a number of years prior to 1955.
Retail margins on durable-goods commodities had apparently been
falling for some time, making absorption of further cost increases
difficult.
Services prices, on the other hand, had been steadily rising through
out the postwar period. Many service prices are directly affected by
changes in wage rates without any offsetting effect of productivity
gains.
The recovery of farm prices from the low point reached in late
1955, and the continued rise in food-marketing margins, led to in
creases in food prices early in 1956. After June, other consumer
commodity prices joined in the rise, responding to a number of in
fluences— the earlier increases in wholesale prices, rising labor costs,
scattered increases in State and local sales and excise taxes, and in
some cases price increases (made possible by rising level of consumer
incomes).
In 1955, and again in 1956, the introduction of the new automo
bile models at higher prices also provided additional consumer price
increases, although the actual amount of the increase to the consumer
varied from place to place, and from time to time, depending on the
degree of dealer discounting.
,
.
With food and other commodities beginning to rise, and prices of
services continuing their rise, the whole Consumer Price Index moved
up in 1956. Despite the stability in wholesale prices during 1957 to
date, consumer prices have continued to increase
^
Senator K err . Do you happen to know what the increase was for
M ay?
Secretary H umphrey . The last figure which came out, I think
it was 0.3.
Senator K err . Three-tenths of a point?
Secretary H umphrey * That is right, 0.3, I believe.
Senator K err. It just came out this morning*
.
Secretary H umphrey . That is right. I think it is 0.3.# Consumer
prices have continued to increase, reflecting earlier rises in wholesale
prices, a further increase in food prices, and the steady climb of
-service prices and rents, evidencing the normal lag in the effective
timing of this pattern*
96819 0—57-----13
188
FINANCIAL CONDITION OF THE UNITED STATES
And that is the real meat in the coconut, the normal lag in the
effective timing of the pattern.
The major factors which led to the rise in industrial prices, beginning
in mid-1955, and to the rise in consumer prices, beginning in early
1956, were substantially modified during the first half of 1957.
The most significant features of the first half of 1957 have been:
1. The slowing up of the rapid increases in plant and equipment
expenditures which took place in 1955 and 1956.
2. The decline in inventory investment, from an annual rate of
$4.1 billion in the last quarter of 1956, to —$1.2 billion in the first
quarter of 1957.
3. An apparent resumption of gains in output per man-hour, after
a year in which only small increases were forthcoming. Although
wage rates have continued to rise sharply, the higher output per
man-hour has lessened their impact on costs of production.
4. Growing production and stocks of many raw materials, among
which the most important are the nonferrous metals—copper, lead
and zinc.
As a consequence, wholesale prices stabilized during the first 6
months of the year. Consumer prices, however, continued to in
crease, reflecting the normal lag to earlier increases in wholesale
prices, a seasonal upturn in food prices, and a continued upward
movement of service prices and rent.
The backlog of unfilled orders in some lines is decreasing, and the
pressure on deliveries and shortages is declining and, in many cases
has almost entirely disappeared.
Whether this is evidence of the effective restraint on inflationary
pressures by the policies we have pursued, it is as yet too early to
tell, but it may be that the natural correction is just beginning to
emerge. If this proves to be the case, our flexible policies will take
it into account as soon as the evidence is definite.
The tabulation shows—these are items reported in short supply by
members of the National Association of Purchasing Agents for those
months during 1955, 1956, and 1957 for which we have records and
it starts with relatively few. It increases to a large number, and then
it declines until now there are only four items that are in short supnlv
today.
Senator K e r r . What are those four items?
Secretary H u m p h r e y . This month it is nickel-----Senator K e r r . Wait a minute. Nickel.
Secretary H u m p h r e y . Steel plates.
Senator K e r r , Steel plates.
Secretary H u m p h r e y . Structural steel.
Senator K e r r . Wait a minute. Steel plates.
Secretary H u m p h r e y . Stainless.
Senator K e r r . Stainless?
Secretary H u m p h r e y . That is right.
Senator K e r r . Stainless steel?
Secretary H u m p h r e y . That is correct.
Senator K e r r , What else?
Secretary H u m p h r e y . Those are the four.
J ^ t o r K e r r . Well, I only got nickel, steel plates, and stainless
Secretary
H
um ph rey.
Structural.
FINANCIAL CONDITION OF THE UNITED STATES
189
Senator K err. Structural.
Senator H umphrey. Now, it has included at one time or another
during this period, it has included these items-----Senator K err. All right.
Secretary H umphrey (continuing). Which were in short supply:
Aluminum, electric equipment items-----Senator K err. Wait a minute. Have you a copy of that?
Secretary H umphrey. It is being mimeographed so you will have it.
Senator K err. Go slowly.
Secretary H umphrey. Aluminum; electric equipment items*-----Senator K err . What does that mean?
Secretary H umphrey. It is various items of electrical equipment.
[Laughter.]
Senator K err. Does that mean items like electric shavers or elec
tric ice boxes?
Secretary Humphrey. N o . This is motors, generators,, and elec
trical machinery of one kind and another.
Senator K err . Electrical machinery.
Secretary H umphrey. Yes.
Senator K err. Electrical machinery.
Secretary H umphrey. These are primary items. These ore not
consumer items. These are all primary items.
Lumber-----Senator K err. Lumber. When was that short?
Secretary H umphrey. Lumber was short in April o f 1956.
Senator K err. April of 1956?
Secretary H umphrey. That is right.
Senator K err. In that 1 month?
Secretary H umphrey. That is right.
Senator K err. Any other month?
Secretary Humphrey. N o .
Senator K err. All right. What else?
Secretary H umphrey. Bearings.
Senator K err. Bearings?
Secretary H umphrey. Bearings, machinery bearings.
Senator K err. When were they in short supply?
Secretary H umphrey. It is an important item. They have been
short 5 months.
Senator K err. Five months; all right.
Secretary H umphrey. Aluminum; if you want the number o f
months, aluminum was short almost all the way through.
Senator K err. Yes.
Secretary H umphrey . Practically every month.
Senator K err. But not now?
Secretar}' Humphrey. But not today.
Senator K err . Yes.
Secretary H umphrey. Brass, short in 3 months.
Senator K err. AH right.
Secretary H umphrey. Cellophane, short in 9 months.
Senator K err. All right.
Secretary H umphrey. Copper products-—that is products—
in 3 montlis; and copper was short in 10 months.
Cement, short 10 months.
Carbon-----
190
FINANCIAL CONDITION OF TH E UNITED STATES
Senator K err, Sir? What was that last?
Secretary H u m p h r e y . Carbon tetrachloride; just 1 month.
Senator K e r r . What i s that?
Secretary H u m p h r e y . Glass.
Senator K e r r . Carbon tetrachloride is a glass?
Secretary H u m p h r e y . No; glass is the next item.
Senator K err. What is that?
Secretary H u m p h r e y . It is a chemical, basic chemical, used in
industry.
f
Secretary H u m p h r e y . Tfiree months—wait a minute— I am on the
wrong line: 1 month.
Senator K e r r . What else?
Secretary H u m p h r e y . Glass, 5 months.
Senator K e r r . All right.
Secretary H u m p h r e y . Nickel, 21 months.
Paper-----Senator K e r r . I s that newsprint, now, or what?
Secretary H u m p h r e y . This is paper—industrial paper.
Senator K e r r . Industrial paper.
Secretary H u m p h r e y . 9 months.
Senator K e r r . All right.
Secretary H u m p h r e y . Steel products.
Senator K e r r . Consisting o f what you outlined there, plate-----Secretary H u m p h r e y . 6 months.
Senator K e r r . Structural?
Secretaiy H u m p h r e y . No; these are steel products, 6 months.
Steel alloys, 3 months.
Titanium dioxide-----Senator K e r r . What?
Secretary H u m p h r e y . Titanium dioxide, that is a thing they use
a lot of-----Senator K e r r . That is a consumer item?
Secretary H u m p h r e y . None of these are consumer items. These
«re basic materials.
Senator K e r r . I knew most of them were not, but I thought thia
one was.
Secretary H u m p h r e y . N o ; these are primary items.
Senator K e r r . Titanium dioxide?
Secretary H u m p h r e y . Titanium dioxide—it is the base of p a i n t ,
among other things—7 months.
Senator K e r r . All right.
Secretary H u m p h r e y . Steel tubing, 2 months.
Steel pipe, 8 months.
Steel bars, 1 month.
Steel plate, 13 months.
Structural steel, 14 months.
Steel castings, 2 months.
Steel shapes, 6 months.
Stainless steel, 10 months.
Then there is scrap and wide flange beams, 1 month .each.
Synthetic rubber, a month.
FINANCIAL CONDITION OF THE UNITED STATES
191
Fuel oil, a month.
Newsprint, a month.
Monel metal, that is a type of stainless, 5 months.
Senator K e r r . What was that fuel oil?
Secretary H u m p h r e y . Fuel oil was only 1 month.
Senator K e r r . What was after that?
Secretary H u m p h r e y . Newsprint, only 1 month.
Senator K e r r . All right.
Secretary H u m p h r e y . And zinc.
That is a list of items that we sought where we could find lists that
have some accuracy, and this is the best we could find with the
National Association of Purchasing Agents.
Senator K e r r . Which one of those items is a consumer item?
Secretary H u m p h r e y . Not any of them. They are all basic goods
to production and hence necessary to produce consumer goods.
Senator K e r r . Let me ask you this: There had been another item
in short supply all during these months, had there not?
Secretary H u m p h r e y . What?
Senator K e r r . Credit.
Secretary H u m p h r e y . Yes, sir.
Senator K e r r . That really has been a short item, has it not?
Secretary H u m p h r e y . Well, it has not been as available as the
demand, but it has been more available than ever before.
Senator K e r r . Now, Mr. Secretary, seriously, I would like to have
you tell me to what degree this compilation of short items is reflected
in the Consumer Price Index.
Secretary H u m p h r e y . I think, Senator, just as I have said in the
paper that I read to you, that the Consumer Price Index reflects these
shortages and this big development that we have gone through, and
I think that, as in all these cases, there is a lag. One of the most
difficult problems we have, any of us have, in trying to estimate future
trends is the application of lags that take place in the economy, and I
think if we do not recognize these lags, we will be— we can be very
well led astray.
On the other hand-----Senator K e r r . Let's look at the Consumer Price Index.
Secretary H u m p h r e y . I think changes are so great that it is very
difficult-----Senator K e r r . Let’s look at it. It is on page 23 there of your
Economic Indicators.
(The table referred to follows on next page.)
Secretary H u m p h r e y . Yes.
Senator K e r r . As I read that Consumer Price Index, it is made
up, No. 1, of foods, which I understand constitutes at least 30 percent
of what the consumer buys.
Secretary H u m p h r e y . And food has been very level during the
past year after a short rise of about 2 months.
Now, Senator, you will notice that food prices took a sharp rise
just about 2 months in 1956, and then it has been practically level
ever since.
Senator K err . All right.
Now, housing.
Secretary H u m p h r e y . Housing.
Senator EIchh. Rent.
Items reported in short Supply by members of the National Association of Purchasing Agents
__
___
Cement__
.
__
Carbon tetrachloride
__
Glass.......................
...........
Nickel......... .................................................... ............. ..........
Paper.... ...................
................................
Phthalic anhydride...
.
............................. ....
Selenium ...........
.............................................
Steel products
.
..........................
Steel alloys . .
................................... ....
Titanium dioxide.....
....................... ............
Titanium.
.
. .
............................ ....
Steel tubing.
. .
. ..................... ..........
___
Steel oars................................................................................
Steel plates................................. .............................................
Steel, structural.......................................................................
Steel castings............................................................................
Steel shapes........................................................................ ......
Steel, stainless........................................................................ ..
Steel scrap................ . .. 1.................................................
Steel, wlae flange beams...........................................................
Rubber synthetics...................................................................
M ethanol...............................................................................
Fuel oil .....................................................................................
Newsprint ............................................................ ...................
Monelmetal................ ............
........
..........................
Zinc............................................
.
.........................
i Net available.
X .... X
X
X .... X
X
X
X
X
X
X
X X
X
X .... X
X
X
X
X .... X
X
X
X
X .... X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X .... X .... X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X. ....
- . .X
..
X
X
X
X
X
X
X
X
X
X
*
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X .... X
X
X
X
X
X
X .... X
X
X
X .. .. X . . .. X
X
X
X .... X . . .. X
X ....
..
X
X
X
X "X
X X
X
X
X
X
x.
X
X
< I 1
X ....
X
X
I
X .... X .. .. X
X
X
X
X
X
X
X
X
X
X
I
| March
j
X .... X .... X
X
| January
X
I
December
X
....
X
j
X
X
X
X .... X X
X
X
X
X .... .... X
X
X
X
X .... X .... X X
X
Steel pipe
X
i
I November
X
< % i
►
»
s
September
X
1 I
1August
X
March
X .... X
February
j
Bearings.
Brass .
Cellophane
.
Copper products
....
I
January
Electrical vqtilpment Items
!
1
2
; December
*i■* !
Octobef
i
1067
j
1066
1056
X
X
X
X
FINANCIAL CONDITION OF THE UNITED STATES
193
Secretary H u m p h r e y . Wait a minute.
Senator K e r r . Rent has gone up substantially all the way through.
Secretary H u m p h r e y . Yes.
Senator K e r r . But there is no shortage in housing, is there, Mr.
Secretary?
Secretary H u m p h r e y . Rents have been going up gradually for quite
awhile.
Senator K e r r . Has not the construction of housing been going
down each year for 3 years?
Secretary H u m p h r e y . That i s right.
Senator K e r r . So there cannot be any shortage.
Secretary H u m p h r e y . Not generally.
Senator " K e r r . The only it em that you mentioned here that goes
into housing was lumber, and you say that was short 1 month.
Secretary H u m p h r e y . Well, housing starts are down, of course;
you know that.
Senator K k r r . Well, that is right.
Secretary H u m p h r e y . That is right.
Senator K e r r . X o w , apparel—
Secretary H u m p h r e y . So that rents, I think, have risen.
Senator K e r r . Apparel. That comes under textiles, does it not?
Secretary H u m p h r e y . Textiles, apparel. And you will notice—
Senator K e r r . They are in a very heavy surplus supply, are they
not?
Secretary H u m p h r e y . They have been relatively stable.
Senator K e r r . There i s a heavy s u p p l y , i s there not?
Secretary H u m p h r e y . Well, what we are talking about, what you
are trying* to talk about, is an increase in the cost of these items.
That is what- you are really talking about.
Senator K e r r . What did you say—
Secretary H u m p h r e y . N o w , the increase in cost of these items has
been brought about, as I tried to explain, by this great surge of
prosperity and by this great surge of activity that has taken place,
and the lag is just beginning to be effective in the spending for the
consumer items, and you can see it began about the middle of 1956;
up to the middle of 1956 it had been fairly level.
Senator K e r r . Mr. Secretary, you say here in a number of places
that insofar as any pressure in the supply of consumer goods is con
cerned, consumer price of food, services prices, and rent, and actually
now, Mr. Secretary, you just must admit there is not any shortage in
anv of those fields.
Secretary H u m p h r e y . There are increasing demands in all of those
fields.
Senator K e r r . But there is increasing surplus in most of them.
Secretary H u m p h r e y ' . Well now, wait a minute. I do not know
that I can go along with that.
Senator K s r r . Well, there is an increase in food and clothing.
Secretary H u m p h r e y . There is increasing volume, let’s p u t it
that w a y /
Senator K e r r . There is an increasing surplus in automobiles.
Secretary H u m p h r e y . Well, automobiles are not on here.
Senator K err . Well, it is a very substantial part of the consumer
price level, is it not?
194
FINANCIAL CONDITION OF T H E UNITED STATES
Secretary H umphrey. N o, I'm not sure they are in the Consumer
Price Index at all. Are they not in the semi-----Senator K erb. Ask Mr. Mayo about that.
Secretary H umphrey, Where are they?
Mr. M ayo. They are in the transportation item.
Senator K err. Then they are in it, are they not?
Secretary H u m p h r e y . They are in it.
Senator K err. But there is no shortage in them, is there?
Secretary H u m p h r e y . No, sir.
Senator K err. I heard you talking about the great increase in
durable goods, that is, home appliances, freezers, iceboxes, T V ’s.
There is no shortage in any of those?
Secretary H umphrey. There is not. There was, but there is not
now.
Senator K err. I know there is no shortage, in plywood, because
there is one member of this committee who is tremendously interested
in it, and he has called our attention to the fact that it is another
item in surplus supply.
The point I am making, Mr. Secretary, is that it seems to me that
you have confused the effect of a boom in capital expenditures and
{ ilant expansion, with pressures reflected in the Consumer Price
ndex.
Secretary H umphrey. That is what gave the impetus to it, that is
what supplied the money, put the money in circulation to put the
pressure on these other prices.
Senator K err. Fine.
Another thing you were going to get for us was the itemization of
the $313 million of purchases of direct public and guaranteed securities
covered in the Treasury release on its operations for the month of May.
Secretary H u m p h r e y . Yes, sir.
Senator K e r r . Do you have that?
Secretary H u m p h r e y . I have that right here.
The C h a i r m a n . Without objection it will b e placed in the record
at the place it was requested. (See p. 132.)
Secretary H u m p h r e y . There are pluses and minuses, as you will
see, in the list, and I will put that in the record.
Senator K err. A s I understand, that was the net.
Secretary H u m p h r e y . That nets out at $313 million. The b i g
item is the purchase of the 1%-percent notes of $363 million. Most <n
the rest are minuses.
Senator K e r r . May I s e e that tabulation?
Secretary H u m p h r e y . Yes, sir.
Senator K e r r . The 1 % ’ s due May 15, 1957, was that the issue that
you refunded, Mr. Secretary?
Secretary H u m p h r e y . Yes; that is the last one refunded.
Senator K e r r . Was that the $4 billion refunding?
Secretary H u m p h r e y . That is right.
Senator K e r r . N o w , is this-----Secretary H u m p h r e y . These were in connection with that refund*
ing.
Senator K e r r . The Treasury bought from the holders of those*
1^-percent securities $363 million worth of them; is that right?
Secretary H u m p h r e y . That is right. That i s correct.
Senator K e r r . Is that amount included in the $1,150 billion?
FINANCIAL CONDITION OF THE UNITED STATES
195
Secretary H umphrey. N o ; it is not.
Senator K err. The other day when I said that there was about
$1.2 billion of them that were not converted, you kind of got on me,
because you said it was not but a billion, one hundred fifty-some-million.
Secretary H umphrey. N o ; I do not think —
Senator K err . Well, you corrected me.
Secretary H umphrey. Well-----Senator K err . Was that not it, Mr. M ayo?
Secretary H umphrey. I do not recall it.
I think what I said was that the total outstanding, not converted,
was the $1,156 million, but there is this additional amount which
was purchased by the Treasury.
Senator K err . They could not have been converted, could they?
Secretary H umphrey. Oh, yes. These are converted and still out
standing.
Senator K err . How could they be converted by the holders if you
bought them from them?
Secretary H umphrey. Well, these are now in funds.
Senator K err. But I say, in that refunding how could they have
been converted, if you wanted them, if you bought them?
Secretary H umphrey . N o ; because the trust funds that own them
converted them.
Senator K err . But the private holders of them could not convert
them after they had sold them to you?
Secretary H umphrey. N o; they could not.
Senator K err . So that in reality, the Treasury supported its pro
gram there by its becoming the purchaser of $363 million of that re
fundable item ; did it not?
Secretary H umphrey. That is correct.
Senator K err . And that, plus the billion, 100 how much, Mr.
Mayo?
Mr. M ayo . $1,156 million.
Senator K err. That was the $1,156 billion?
Secretary H umphrey. That is right.
Senator K err. And $363 million. Actually, then, there was moio
than a billion and a half---- =Secretarv H umphrey. That is right.
Senator "Kerr (continuing). That were not converted-----Secretary H umphrey. Not by the original holders.
Senator K err (continuing). By the original holders.
Secretary H umphrey. That is right.
Senator "Kerr . N ow, would not that operation, Mr. Secretary, be
in the nature of the Treasury supporting its own issues?
Secretary H umphrey. It did.
Senator K err . Well, then, what is there sinful or evil about the
Federal Reserve supporting the issues?
Secretary H umphrey. I do not think there is anything sinful
about it.
Senator K err . Well, did you talk with them about that issue before
the date for the refunding?
Secretary H umphrey. Well, we talk to them all the time about how
it will be aone and what will be done about it, and how much credit
196
FINANCIAL CONDITION OF T H E UNITED STATES
will be available, and it is a thing that we discuss every time before
any financing. It has to be. You cannot put these-----1 uy any of these?
Lot buy any?
Secretary H umphrey. N o. You cannot put these tremendous
amounts of money out without knowing the kind of market you are
going to be in and what the demands are.
Senator K erb. That is the point of the argument.
Secretary H umphrey. These are big transactions.
Senator K err . They are, and they are going to get bigger.
Secretary H umphbey. Well, I do not know.
Senator K ebb. I saw in the paper the other day, and I would like
to have you tell me, it said the Treasury had reappraised the situation.
It had intended to offer about 4 to 6 billion in the last of June and
during July-----Secretary H umphbey. No.
Senator K err (continuing). But they were going to just offer about
half that.
Secretary H umphrey. No. We never-----Senator K ebb. The New York Herald Tribune was in error?
Secretary H umphrey. They were.
Senator K ebb. You saw the story?
Secretary H umphbey. No; I did not see it.
Senator K ebb. Did you see it, Mr. Mayo?
Mr. M ayo. I did not see the story.
Secretary H umphbey. I did not see it. I am just taking what you
say. You know, the newspapers often know more about our business
than we do.
Senator K erb. Well, I want to say this: I read more about it in
them than I can get from you, and it seems to be more available.
Secretary H umphbey. I think that is right.
Senator K ebb. But my experience has proved to me that they make
errors.
How much are we goingto have to refinance in the next 12 weeks?
Secretary H u m p h b e y . Well, it is just the August issue, the $ 1 6
billion.
Senator K ebb . What is that $16 billion?
Secretary H umphrey. It is two issues. It is a 2% percent note-----Senator K err. I mean, what was the term there? What was the
term of those issues being refunded?
Secretary H u m p h r e y . The first one, issued in July 1956, $ 1 2 billion,
and $56 million was a 2% percent 1-year note. That is to be refinanced
now.
Senator K e r r . What interest did it draw?
Secretary H u m p h r e y . 2%.
Senator K e r r . What i s the other to be refunded?
Secretary H u m p h r e y . The other is a 2 percent note-----Senator K err. How much?
Secretary H u m p h r e y (continuing). Issued in February 1955. It m
$3,792 billion; call it $3.8 billion.
Senator K e r r . $ 3 . 8 billion.
Secretary H u m p h r e y . Issued in February of 1955.
Senator K err. That, then, is about a 2-year and 4-month issue.
FINANCIAL CONDITION OF THE UNITED STATES
197
Secretary H umphrey. Something like that; 2 years and 6 months.
Senator K err. What rate of interest did it draw?
Secretary H umphrey. T wo percent.
Senator K err . What are you going to offer to replace it?
Secretary H umphrey. I do not know. We are selling $3 billion
tomorrow for cash, and-----Senator K err. What are you selling tomorrow?
Secretary H umphrey. We are selling tax anticipation Treasury bills
running 264 days.
Senator K err . Have you ever sold any of them before?
Secretary H umphrey. Oh, yes.
Senator K err . Of that duration?
Secretary H umphrey. Yes, sir. Well, I do not remember the exact
number of days.
Senator K err . I s it not a fact that that is the longest term tax
anticipation bill that has ever been offered by the Treasury in its
history?
Secretary H umphrey. Well, it might be by a short time. We try
to fit them into tax dates, you see.
Senator K err . What rate of interest are they going to draw?
Secretary H u m p h r e y . I do not know. We are going to l e t t h e
market settle that. It is to be an auction.
Senator K err . Y ou are out there just bare, bold, and alone, and
just going to pay them what they make you?
Secretary H umphrey. That is right.
Now, yesterday we sold $1.6 billion regular weekly bills, and the
rate was down a little. The rate yesterday was 3.231.
Senator K err . 3.231.
Secretary H umphrey. And it was down from the week before.
Senator K err . 3.409
Secretary H umphrey. Yes, 3.40.
Senator K err. The $16 billion that are coming due in August, how
much was the annual interest cost on them? Can Mr. Mayo figure
that for me?
Secretary H umphrey. We can figure that out.
Mr. M ayo . 2% percent on $12 bulion is $330 million and 2 percent
on $3.8 billion is $76 million.
Senator K err . What do you think, Mr. Secretary, you will have to
pay on when you do that?
Secretary H umphrey . Well, if we sold these at the same rate as we
did yesterday, on that assumption it would be an increase of less
than 1 percent, I think, on the average.
You see, you have got to figure a weighted average.
Senator K err . Let's see, you sold them yesterday at 3.23, and last
Monday 3.40. Are you going to sell 1-year notes on this; is that
what you are going to sell?
Secretary H umphrey. That is right— tax anticipation bills.
Senator K err . On the $16 billion? And if, let us say, that it is just
between the two, Mr. M ayo, 3.30, what will the interest be?
Secretary H umphrey . Wait a minute. You are talking now about
something different. I thought you were talking about what we were
•filling tomorrow.
Senator K err . I am talking about this $16 billion.
198
rm xtm Ah condition of irai tooted « ( a w
Secretary H u m p h r e y . I d o not know what we are going to do with
that. That is still in the offing.
Senator K err. What is that?
Secretary H u m p h r e y . You can make any estimate you want to
on that.
Senator K err. I want to make the one that you think is the most
nearly accurate.
Secretary H u m p h r e y . I am not prepared to make any estimate on
what we are going to do when we come to that. We are not ready to
make a decision with respect to that, and I am certainly not going to
guess ahead of the market, and you do not want me t-o guess ahead
of the market.
Senator K err. I do not want you to guess.
Secretary H u m p h r e y . You do not want me to.
Senator K err. But I thought after 4K years here, that you would—
when is that due; when are you going to have to do that?
Secretary H u m p h r e y . It will be between now and the 1st of August.
Senator K err . It is going to be within the next 30 days?
Secretary H u m p h r e y , Yes.
Senator K err. I want to tell you right now, I am always in the
Sosture of owing a little money, but I and the bankers go ahead to
guring out between now and maturity what they are going to do to
me, and they do you, too.
Secretary H u m p h r e y . Yes.
Senator K e r r . I bet you know right now just within three-tenths
of a percent what you are going to have to pay.
Secretary H umphrey. If I ao know, Senator, I am not going to
advertise it before I sell some securities, and you do not want me to.
Senator K err. Is the Federal Reserve going to assist in that?
Secretary H u m p h r e y . Well, I hope they mil be considerate.
Senator K err. Let us assume you have to pay 3.30, Mr, Mayo,
how much will the increased interest on that $16 billion be?
Mr, M ayo. 3.30 times the $15.8 billion coming due gives $521
million.
Senator K err. That will be, then, a little over 25 percent higher
or an annual increase in cost on that one item alone of $125 million a
year; is that correct?
Mr. M ayo. $115 million.
Senator K err, $115 million a year.
M r . M a y o . Yes, on that assumption.
Secretary H u m p h r e y . You had one other-----Senator K err, I had a request for a tabulation of the reduced
market value of Government bonds outstanding as between June 30,
1952, and the latest figures available.
Secretary H u m p h r e y . Here is the statement.
The C h a i r m a n . Without objection it will be made a part of the
record where it was requested. (See p. 140,)
Senator K err. I s that $1,487 billion?
Secretary H u m p h r e y . That is right.
Senator K err. T o what amount of outstanding does that appl^
Mr. Mayo?
Secretary H u m p h r e y . $267 b i l l i o n .
Senator K err. Well, there has not been any depreciation in IB
bonds, has there?
FINANCIAL CONDITION OF THE UNITED STATES
199
Secretary H umphrey. No. The marketable bonds are $148 billion.
Mr. M ayo . That was as of December 1952.
Senator K err. I asked for the figure as of June 30.
Mr. M ayo . You have it both ways.
Senator K err. Where is that?
Mr. M ayo . The other, just to the right.
Secretary H umphrey. The final column over there, June 21, 1957.
Mr. M ayo . $7,199 billion.
Secretary H umphrey. Look to the next to the last column on the
right.
Senator K err. Y ou mean the market value is down $7 billion?
Secretary H umphrey. That is right, $7.2 billion.
Senator K err. And that applies to what part of this debt, Mr.
M ayo?
Secretary H umphrey . $160 billion.
Senator K err. What?
Secretary H umphrey. $160,331 billion.
Senator K err. In other words, since June 30, 1952, or in a period
of 5 years, the holders of the long-term Government bonds have
sustained a loss in the market value of their holdings of $7.2 billion?
Secretary H umphrey. Well, no, that is not quite right. There is
a billion and a half of that which was in the preceding period.
Mr. M ayo . A billion and a half was before December 1952.
Senator K err. H ow is that?
Mr. M ayo . A billion and a half of that loss was prior to December
31, 1952.
Senator K e r r . I am talking about June 30, 1952.
Secretary H umphrey. Of the total loss in market value as of
today, or as of June 21, that total was $7.2 billion.
Senator K err. Yes.
Secretary H umphrey. N ow , of that, $1.5 billion— I am using round
figures-----Senator K err . Occurred between June 30, 1952, and December 31,
1952?
Secretary H umphrey. Occurred prior to December 1952.
Senator K err. No, during the last half of 1952.
Secretary H umphrey. No. Since the Federal Reserve-Treasury
accord, between the accord and December of 1952. That was in
1951. From the middle of 1951 to December 31, 1952. It occurred
prior to January 1, 1953.
Senator K err. Where is the figure that shows the decrease since
June 30, 1952?
Secretary H umphrey. Well, all you have got to do, is it not, is just
deduct a billion and a half-----Senator K err. Not if the billion and a half occurred prior to June
30, 1952.
Secretary H umphrey. Well, this is a December 31 figure instead
of a June figure, that is the difference here. It i$ not split in the
middle of the year.
Senator K e r r . The reason I put it on that basis, Mr. Secretary,
is that the fight was on in the last half of 1952, and after the result of
the election, the advocates of the policy of supporting the bonds and
cooperation in connection with the Government issues really put into
effect the policies which have been followed since that time.
200
FINANCIAL CONDITION OF TH E UNITED STATES
Secretary H umphrey. I did not think the elections had anything
to do with this at all.
Senator K err . Didn't you really? [Laughter.]
I am glad you smiled when you said that. [Laughter.]
Secretary H umphrey. We will, split that year for you, but we
weren’t even in Washington during that 6 months.
Senator K err . All right.
n
xr------------ t iQ not know just how we can do it, but
(The information requested is as follows:)
The market value of Treasury marketable securities, on June 30, 1952, was
$139,985 billion, or $0,330 billion below their par value of $140,315 billion*
Senator K err. I take it it would be quite simple.
Secretary H umphrey. According to my list, Senator, you have
just one more paper here, I believe.
Senator K err. All right; what is that?
Secretary H umphrey. That is the paper on the Federal cash pay
ments to the public, which you gave us in the list of things you wanted.
Senator K err. No; receipts and expenditures.
Secretary H umphrey. That is right.
Senator K err. Yes.
Secretary H umphrey. It was cash payments.
Senator K err. Y ou made the statement that you had reduced
Federal expenditures.
Secretary H umphrey. That is right.
Senator K err. And I have been trying to find out how much.
Secretary H umphrey, That is right. And I have got it for you
right here. I checked the items so that you can try to help find
them here.
The Chairman. Without objection it will be inserted in the record
at the place it was requested.
(Seep. 126.)
Secretary H umphrey. This total shows the total cash receipts ard
expenditures according to a list of items which you gave me which
includes not only the expenditures of current operation but it also
includes expenditures by some of the trust funds from their income or
assets, as they have to pay money out.
Senator K err. N o; I did not ask you for that.
Secretary H umphrey. Well, that is the total cash out .
Senator K err. What I asked you for was total cash and receipts
by the Treasury.
Secretary H umphrey; Well, the Treasury has to write the checks
for them all, so we have put them all in.
Senator K err. All right. Now, major national security in 1953.
$50,507 million?
Secretary H umphrey. That is right.
Senator K ep.p,. In 1958 it is estimated at $43,570 million?
Secretary H umphrey. That is right.
Senator K erb. International affairs was $2,177 million?
Secretary H umphrey. 1958, $2.9 billion.
Senator K err. $2,923 million?
Secretary H umphrey. That is right.
Senator K err. Veterans’ services and benefits, $4,883 million,
and $5,648 million?
FINANCIAL CONDITION OF T H E UNITED STATES
201
Secretary H umphrey . That is right. That is one of the funds that
includes some expenditures from the trust fund.
Senator K err. The veterans’ benefits?
Secretary H umphrey. That is right.
Senator K err. You mean that this is not a statement of what the
Treasury itself received and disbursed?
Secretary H umphrey. No. Some of this was taken out of trust
funds. Some of these disbursements were taken out of trust funds.
Senator K err. Well, how much in 1953?
Secretary H umphrey. Well, we have not got that. We will get
that exact figure for you.
Senator K err. I would like to get it for 1953 and 1957.
Mr. M ayo . $600 million in 1957 and 1958.
Secretary H umphrey. We will have to get it exact.
Senator K err. H ow much?
Mr. M ayo . $626 million in 1958.
Senator K krr. H ow much?
Mr. M ayo . $626 million.
Senator K err. H ow much in 1953?
Mr. M ayo . I will have to look that up, sir.
Senator K err. Has he got it there?
Secretary H umphrey. No.
(The information requested in as follows:)
I n t h e fisc a l y e a r 1 9 5 3 d is b u r s e m e n t s fr o m t h e v e t e r a n s ’ life in s u r a n c e t r u s t
f u n d s w e r e $ 6 6 0 m illio n .
Senator K err. The agriculture and agricultural resources are
$2,953 million and $4,890 million?
Secretary H umphrey. That is right.
Senator K erk. Interest, $4,715 million and $5,498 million?
Secretary H umphrey. That is right.
Senator K err. I thought vou told us the other day it was $7.3
billion.
Secretary H umphrey. You see, Senator, you talk about cash. You
wanted cash disbursements.
Senator K err. That is right. But now we have it and I want to
see about this interest.
Secretary H umphrey. The difference is mostly interest accruals to
trust funds.
Senator K err. All right.
Secretary H umphrey. The difference is accruals to trust funds.
Senator K err. Contemplating the accruals as having been added,
what was the figure for 1953?
Mr. M ayo . It is the budget expenditure.
Senator K err. Y ou have it?
Mr. M ayo . The computed interest was $6.2 billion as of December
1952 and it went to $7.3 billion 4 years later.
Senator K err . And over here instead of $5,498 million, it would
be-----Secretary H umphrey. $7.3 billion, the budget expenditure figure.
I think it is about $1 billion up. $7.2 billion is about the round
figure, is it not? 1 think it is $6.5 billion and $7.3 billion.
Senator K err . It is $7.3 billion.
Mr. M ayo . It is actually $6,504 billion to $7.3 billion.
Secretaiy H umphrey. $6.5 billion to $7.3 billion are the real figures.
202
FINANCIAL CONDITION OF TH E UNITED STATES
Senator K erb. Here, interest on the public debt-----Secretary H umphrey. Wait a minute.
Senator K err. The estimate you gave was $7.3 billion.
Secretary H umphrey, That is the estimate for 1958.
Senator K err. We are talking about 1953 and 1958.
Secretary H umphrey. That is $7.3 billion; $6.5 billion and $7.£
billion.
Senator K err. You said $6.2 billion.
Secretary H umphrey. Well, $6,504 billion for actual expenditures,.
That is for 1953.
Senator K err. $6,503 billion and $7.3 billion?
Secretary H umphrey. That is about right.
Senator K err. Then the public assistance is $1,439 billion and
$1,684 billion?
Secretary H umphrey. Wait a minute. You skipped the trust fund.
Senator K err. Yes. The trust funds were $4,580 billion and
$10,550 billion?
Secretary H umphrey. That is right.
Senator K err. Is there any other item in there that should bedifferent from the budget expenditures?
Secretary H umphrey. Well, highways, of course, is not in the
budget.
Senator K err. Well, are highways in this figure?
Secretary H umphrey. Yes, sir, highways are in here. If you will
look down-----Senator K err. Well, but highways are an item with reference U>
which you have income and outgo.
Secretary H umphrey. Well, that is correct. You asked for them
and we put them in.
Senator K err. If you will indulge me the courtesy of figuring these
on the basis-----Secretary H umphrey. Sure.
Senator K err. Of what the actual receipts and expenditures are.
Secretary H umphrey. I am trying to get exactly the way you
want it.
Senator K err. Now, then, the only difference that should exist
here for bookkeeping purposes in differentiating 1953 from 1958
would have to do with veterans' services and benefits, social insurance
trust funds, and the interest on the public debt?
Secretary H umphrey. Well, I think that is the big thing. There
is a little in the housing, but those are the principal items.
Senator K err. Now, this shows for 1953, $76,773 billion?
Secretary H umphrey, That is right.
Senator K err. And for 1958, $82 billion------Secretary H umphrey. $83 billion.
Senator "Kerr. $83 billion.
Secretary H umphrey, $76.8 billion and $83 billion.
Senator K err. And on the veterans’ benefits now, there is not going
to be a substantial difference in the-----Secretary H umphrey. That might be, I would think-----Senator K err. It would be substantially the same?
Secretary H umphrey. There will be some difference, but not a big
item.
FINANCIAL CONDITION OF T H E UNITED STATES
203
Senator K err. So that actually we should reduce 1958 by $6
billion?
Secretary H umphrey. That is right.
Senator K err. For the------Secretary H umphrey. It is just about a standoff if you eliminate
the interest which is a credit.
Senator K err. If you take off the difference in the so-called insur
ance trust funds and add the difference in the interest-----Secretary H umphrey. Well, the interest, you see, is just a credit; it
is a book item. You are talking about cash items.
Senator K err. I understand. But if you are talking about cash
items, Mr. Secretary, on the basis of your statement here-----Secretary H umphrey. Your difference-----Senator K err. On the basis of your statement here, there is $6.2
billion more in 1958.
Secretary H umphrey. The cash items, you see, that you asked for
here are $6.2 billion-----Senator K err. That is the total cash income and outgo, is it not?
Secretary H umphrey . Eight on this statement just as it is written.
Senator K err. Right here.
Secretary H umphrey. Not as it is changed, just as it is written.
Senator K err. On that basis, you are going to spend $6.2 billion
more in 1958 than you spent in 1953?
Secretary H umphrey. Except that there is $6 billion of that and
a little better than $6 billion that comes out of trust funds and not
out of income.
Senator K err . If we take that off, we are going to spend $267
million more plus the additonal amount that you owe for the interest.
Secretary H umphrey. Well, that is not a cash item. It is just
about-----Senator K err . That is like those boys that were burying their
father the other day I told you about.
Secretary H umphrey. That is right.
Senator K err . The only reason it is not cash is that you put your
I O U in for that year?
Secretary H umphrey. That is correct. That is right. It is just
about a standoff between the two.
Senator K err . It is about a billion more, Mr. Secretary.
Secretary H umphrey. What is that?
Senator K err. It is just about a billion more.
Secretary H umphrey. N ot on cash transactions, which is what you
asked for.
Senator K err . Well, it is $6 billion more on cash transactions.
Secretary H umphrey. Of which $6 billion comes out of trust
accounts.
Senator K err . That is right.
Secretary H umphrey . Trust account.
Senator K err . But added to it must be the difference in the inter
est you owe?
Secretary Humphrey. What we owe and what we pay are two
.different things. If what you are going to do is put it on an accrual
On what we owe, then you have got an entirely different statement;
then a number o f these other things would be changed.
96819 0—57-----14
204
FINANCIAL CONDITION OF THE UNITED STATES
Senator K err. Y ou are departing from the actual cash receipt*
and disbursements because of the difference in the social insurance
funds; and I am not objecting to it because I think it is a valid adjust*
ment.
Secretary H umphrey. That is right. I think so in both cases.
Senator K err. And I am sure you acknowledge that the extra sum
we owe for interest is also a vaUd adjustment.
Secretary H umphrey. It is not a cash item.
Senator K err. But it is a‘valid adjustment. We are adjusting off
$6 billion which is an actual cash item, are we not?
Secretary H umphrey. Well, I think, Senator, that you have either
got to go on your budget basis or you have got to go on a cash basis.
We will go either way, but you can not do part one and part the other
and know where you come out.
Senator K err. If you go on a cash basis, Mr. Secretary, your dis
bursements are going to be $6 billion more in 1958 than they were in
the Korean war, 1953?
Secretary H umphrey. That is correct.
Senator K err. Y ou said the other-----Secretary H umphrey. Of that $6 billion-----Senator K err. Then the statement you made the other day that
you had decreased Federal expenditures on the basis of 1953 and 1958
is not accurate.
Secretary H u m p h r e y . I beg to differ with you. I think it is accu
rate because I do not think this is the way to figure it because I do not
think these figures-----Senator K err. These are the cash receipts and outgo?
Secretary H u m p h r e y . No, you are talking about income and outgo.
When you spend part of your outgo-----Senator K err. I offered to do that; then you backed away from me
on the interest.
Secretary H umphrey. When you spend part of our outlay in trust
accounts, I do not think----- Senator K err. It is a cash receipt, is it not?
Secretary H umphrey. No, it is not a cash receipt.
Senator K err. You mean you do not get that $10,550 billion
from the American people?
Secretary H u m p h r e y . We got it years ago, and it is now being paid
■out. That is no part of this year s transaction on the income side.
That is previously-----Senator K err. Y ou and I had better talk to our staff.
Secretary H u m p h r e y . That is money that came in before and it is
now being paid out.
Senator K err. You mean these trust funds?
Secretary H umphrey. That is right. That is a checkout of trust
funds.
Senator K err. Well, is not that a checkout of the Treasury to the
trust funds?
Secretary H u m p h r e y . These are payments to people, not to a
fund; and they are charged to the fund. They are not charged to
income.
Senator K err. Then they are paid out of the fund, are they not?
Secretary H umphrey. That is right. They are paid out of the fund.
That is what I am saying.
FINANCIAL CONDITION OF THE UNITED STATES
205
Senator K err. Well, this is Federal cash payments by the Treasury.
I thought I asked for before-----Secretary H umphrey. That is correct. We write the check, but
part of it is charged to the fund and part of it is charged to our income.
Senator K err . All right. Then giving effect to that-----Secretary H umphrey. If you take that out, you take out-----Senator K err . If you take out $6 billion there, you are still going
to spend $267 million, on the basis of this statement, more in 1958
than was spent in the Korean war year of 1953.
Secretary H umphrey. Y ou spent $200 million more, less what you
take out of the veterans’ accounts.
Senator K err. Plus your accrual that you owe on interest.
Secretary H umphrey. Well, I do not know how-----Senator K err. The difference between $6.5 billion and $7.3 billion,
which is $800 million.
Secretary H umphrey. That is an accrual account, and it is not a
cash account. I do not know how you can mix them up and come
out with a story.
Senator K err. The only way you do it is that you are the debtor
and the trustee for the creditor; that is the way you do it. You are
the trustee for the trust accounts?
Secretary H umphrey. That is right.
Senator K err . And instead of paying them as Secretary of the
Treasury, the interest you owe them, you give them an I O U.
Secretary H umphrey. Well-----Senator K err . Is that not right?
Secretary H umphrey. That is right. I think what you have to do,
Senator, I think you either have to go on a budget basis or have to go
to a cash basis. If you go on a cash basis, what this statement shows
is this: This statement shows that there is a difference, an increase of
$200 million in the expenditures in 1958 over the expenditures of 1953,
the cash expenditures of 1953 less the fund items, that are included in
the other items.
Senator K err . That was your administration in power during all
of the year 1953, was it not?
Secretary H umphrey. That is right— calendar 1953.
Senator K err . What is the last full Truman year?
Secretary H umphrey. 1952.
Senator K err. 1952?
Secretary H umphrey. Yes.
Senator K err . H ow much more will your 1958 be than the last full
Truman year?
Secretary H umphrey . Well, let me see here. About $8.3 billion.
Senator K err . About $8.3 billion, plus the differential in the in
terest?
Secretary H umphrey. Well, I cannot go for your differential in
interest.
Senator K err. Just indulge me, in view of the fact that you put
your I O U in there it does mean by putting that in there, that would
pe $8.3 billion plus about a billion more interest or about $9.3 billion,
is it not?
Secretary H umphrey. That is about the figure, less, there are a
few other items here, varied items.
Senator K ekr. So your statement-----
206
#3ttfAHCIAI> CONDITION OF T B » UNITE© STATES
Secretary Humphrey, I would say around $8 billion just as a
round figure.
.
Senator K err. So your statement, Mr. Secretary, that this admin
istration has reduced expenditures is one that has to be explained and
understood and applied rather technically m order for it to stand on
Secretary H umphrey, N o ; I think not, I think that the budget
figures just speak for themselves.
Senator K err. If the budget figures speak for themselves, you
Spend-----.
j .
Secretary H u m p h r e y . What you are trying t o do i s to confuse the
issue by taking out a lot and——
Senator K err. If the budget figures speak for you, you spent
$9 billion more in 1958 than in 1952. You spent a billion more in
1958 than was spent in 1953 during half of which time you were in
charge and determining what was spent.
S e c r e t a r y H u m p h r e y , Of c o u r s e , y o u a r e s t a r t i n g w i t h a fic tio n
r ig h t o ff th e b a t.
Senator K err, What is it?
Secretary H u m p h r e y . Because 1958 is an estimate. 1957, if you
really want to get at the figures, what you ought to take, I believe, are
the budget figures between 1953 and 1957.
Senator K err, Then take the budget figures between 1952 and
1957.
Secretary H u m p h r e y . Well, t a k e t h e b u d g e t f i g u r e s b e t w e e n 1952
and 1957.
Senator K err. All right. How much more did you spend?
Secretary H u m p h r e y . Let me see how much that was. You ought
to take 1952, which was the last Truman year, and you ought to take
ours.
There you are, splitting this into half years.
Senator K err. Splitting what into half years?
Secretary H u m p h r e y . Well, this budget year.
Senator K err, N o. Let us take 1952 and 1957. You have got
it there. You did not want- to take 1953 and 1958,
Secretary H u m p h r e y . 1953 was h a l f gone, you see, when we came
t h e 1953 budget.
*
Senator K err. That is true. But you could have reduced the
expenditures in 1953, had. you wanted to.
Secretary H u m p h r e y . Well, no-----Senator K err. The Secretary of Defense the other day told the
Defense Department to reduce expenditures by $4 billion between
then and the last of the fiscal year, did he not? [Laughter.]
Secretary H u m p h r e y . I would like to see that figure.
Senator K e r r . Give us the difference between 1952 and 1957.
Secretary H u m p h r e y . If you split the middle of the year-----Senator K e r r . No. Let us take 1952 and 1957.
Secretary H u m p h r e y , If you split the middle o f the year.
Senator K err. Y ou have not got the amount there that was spent
before December 31 and what was spent afterward. Take 1952
and 1957.
Secretary H u m p h r e y . All right. We will split it.
Senator K err. N o. Take 1952 and 1957.
Secretary H u m p h r e y . We will take the calendar year. We came
in January. Let us be fair about this. We will take the calendar
FXNANCIAJj CONDITION OF T H E UNITED STATES
207
year, the expenditures for the calendar year of 1952, which brings us
up to the day we got here. I will give you the days in January.
Senator K err. Twenty days.
Secretary H umphrey. Twenty days, excuse me. I am not versed
in that. I will give you the 20 days and we will not talk about that.
We will just take the calendar year 1952, and the expenditures were
$70,682 billion. The expenditures in 1956 calendar year were $67,216
billion. So that is $3,466 billion less.
Senator K err . That you spent in calendar 1956?
Secretary H umphrey. Y ou spent in the calendar year before we
got here up to December 31, without counting the 20 days, you spent
$70,682 billion.
Senator K err . $70,682.
Secretary H umphrey. N ow , we spent in the calendar year, the last
calendar year, $67,216 billion.
Senator K err . Which does not include what you spent on roads.
Secretary H umphrey . That is right.
Senator K err. H ow much was that?
Secretary H umphrey. What were the roads? We will have to add
that. I suppose they must have been $700 million or $800 million.
Senator K err. I would suppose they would be a billion.
Secretary H umphrey. I do not believe they would be quite that,
but they might, somewhere in there, $700 million or $800 million.
Senator K err. Y ou are not going to like these figures before we get
through with them.
Secretary H umphrey. I am not? [LaughterJ
If you split it in half, it is $575 million.
Sienator K err. That is 6 months' expenditure?
Secretary H umphrey. I am talking about the fiscal year, and you
have got to split that to bring it back. It was $497 million.
Senator K err . $500 million?
Secretary H umphrey . Yea; $500 million.
Senator K err . H ow much more was the interest which is not
reflected here?
Secretary H umphrey . What do you mean?
Senator K err . I mean how much more was the interest on the
public debt that you put your I O U in?
Secretary H umphrey. The full amount of interest is figured in the
budget.
Senator K err . Oh, no; it is not.
Secretary H umphrey . Oh, yes; it is.
Senator K err . Is it?
Secretary H umphrey. Yes.
Senator K err. That is figured on the accrual basis?
Secretary H umphrey . Yes. There are no tricks in that.
Senator K err . That gives you $67,716 billion, compared to $70,682
billion?
Secretary H umphrey . That is right.
Senator K err . That is practically $3 billion.
Secretary H umphrey . $3 billion.
Senator K err. What was the difference of those 2 years in defense
expenditures?
Secretary H umphrey . Well, you can get it pretty dose here. De
fense expenditures, of course, are down.
208
FINANCIAL CONDITION OF TH E UNITED STATES
Senator K erb, Sure they are. That is the reason I said jo u are
not going to like these figures when you get through with it.
Secretary H umphrey. We are talking about spending money and
how you sp$nd it-----Senator E err, Well, in making a comparison, if you are talking
about spending money, I am going to show in this record what part
of it was for national defense.
Secretary H umphrey. All right.
Senator K err. The average of 1952 and 1953 was $47 billion, and
the average of 1956 and 1957 is $41 billion. So that would leave a
differential of $6 billion more that the defense program cost in cal
endar 1952 than it did in calendar 1957.
Secretary H umphrey. You are just charging us with doing a better
job in defense than we are doing. It is very complimentary.
Senator K err. No, I am not, because whether you remember it or
not, we were in the Korean war in 1952.
Secretary H umphrey. Policing action, as I recall it.
Senator K err. Well, there was quite an argument, and, as I
remember, you were on the other side of that argument in November
of 1952. Were you one of the voices in the country saying it was a
police action?
Secretary H umphrey, No; I was not.
Senator K e r r . You were not?
Secretary H umphrey. No.
Senator K err. And in November of 1956, as I remember, in
November of 1956, as I remember, you ran a campaign on the basis
that the country was at peace.
Secretary H u m p h r e y , That is right.
Senator K err. All right.
Secretary H u m p h r e y . Now, Senator, l e t us be fair about this.
What you started out to do was to prove my statement was wrong
that I said we were spending less in our last year than you were
spending in your last year.
Senator K err. That is not what you said. You said, “ We have
reduced Federal expenditures.”
Secretary H u m p h r e y . That is what I said, we have reduced them,
and, as compared with your last year and compared with our last year,
we spent $3 billion less. And we all a^ree to that, so let us let it stay
right there.
Senator K err. But on the basis of nondefense expenditures, you
spent $3 billion more.
Secretary H u m p h r e y . Ifs, ands, and buts, but the fact is we spent
$3 billion less in our year than you did in yours.
Senator K err. But on the basis of 1958, you are going to spend
substantially more.
Secretary H u m p h r e y . I h o p e not, but w e w i l l s e e .
Senator K err. On the basis of your own estimate.
Secretary H u m p h r e y . Ye3.
Senator K err. So if we take into consideration the reality of the
year in which we now are operating, you are going to have to-----Secretary H u m p h r e y . We are not there yet.
Senator K err. You are going to have to put a footnote on that
statement, “ P, S. As of December 31, 1957” -----Secretary H u m p h r e y . We are not there yet.
FINANCIAL CONDITION OF THE UNITED STATES
209'
Senator K err . “ This estimate will have to be amended.”
The C hairman . The committee will recess until 2 o'clock.
(Whereupon, at 12:40 p. m., a luncheon recess was taken until 2 p. m.j
A F T E R N O O N S E S S IO N
The C hairman . The committee will come to order.
Senator Kerr?
Senator K err . I am sure the committee would be interested, and
I am confident that the people here would be interested, in knowing
that the leading slugger of the National League is in the room; Stan
Musial, of St. Louis. Mr. Secretary, if either one of us could bat as
well as that old boy does, we could come out in good shape.
Secretary H umphrey. Let's put him up here, and we will go back
there.
Senator K err . Let's see; there was one other item you were going
to bring back.
Secretary H umphrey. That is right, and that item, the last one, is
the estimated changes in the gross public and private debt since
December 1956.
Senator K err . Yes, sir.
Secretary H umphrey. Have we a copy of this for the Senator?
Senator K err. I do not have them.
Secretary H umphrey. It seems as though they are getting them
typed, but I will read it to you, Senator, and then t will hand it to you.
Senator K err. All right.
The C hairman . Without objection it will be inserted in the record
at the place it was requested. (See p. 146.)
Secretary H umphrey. The individual mortgage debt— now, this is
from December, you asked for, from December of 1956 to Mav 1
of 1957.
Senator K err . Yes. On December 31, 1956, we had $793 billion.
Secretary H umphrey . $783 billion.
Senator K err . I believe he told me $793.
Secretary H umphrey. $783% billion.
Senator K err. I see.
Secretary H umphrey. That is made up as follows: $131% billion
mortgage debt, which increased $4% billion to M ay 1; $42 billion
consumer, which went down $0.5 billion to M ay 1; $34 billion in
“ Other,” which is estimated to be the same.
So, the total of individual has gone up from $207% billion to $211%
billion, or up $4 billion.
The corporate was $249% billion; it has gone to $255 billion; it is
up $5% billion.
State and local government were $50 billion; they have gone to
$52% billion; they are up $2% billion.
So that the total, other than Federal, is $507 billion; has gone to
•519 billion; and is a plus $12 billion.
Now, the Federal has gone from $276% billion to $275 billion,,
which is a minus $1% billion.
v So that the total has gone from $783% billion to $794 billion, and
it is up a total o f $10% billion.
Senator K e r r . I want to thank you very much for providing this,,
which, as I understand it, is the best estimate that your staff could
make.
210
FINANCIAL CONDITION OF TH E UNITED STATES
Secretary H umphrey. That is right.
Senator K err. And it is helpful. The oilier day, by process of
applying the increased interest rate already in effect on that part of
the public debt which has been refinanced, the public debt in its
entirety, it was estimated that the increased cost of servicing the
public debt, over and above what it was in 1952, would be about $4
billion a year.
Secretary H umphrey. If it was all refinanced at present rates.
Senator K err. Yes, sir.
Secretary H umphrey. Yes, sir.
Senator K err. N ow, this indicates a total private debt of 519 less
52%; does it not?
Secretary H umphrey. That is right.
Senator K err. $466% billion.
Secretary H umphrey. That is right.
Senator K err. The increased interest which individuals pay has
actually gone up more than the interest which the Federal Govern
ment pays, has it not?
Secretary H umphrey. Well, it might be. I am not absolutely sure.
Senator K err. I mean, when we find out what interest Uncle Sam
is paying, everybody else, of course, pays more, and, as one goes up,
the other one goes up a little bit more than that one does.
Secretary H umphrey. I believe it may have.
Senator K err. I believe our estimate was, on the part you had
refinanced, the increase had gone up about 1.75 percent.
SecretaryHuMPHREY. If we took it all, yes.
Senator K err. I mean on the part which has been. I believe what
you paid last Monday was 3.40; and the average for 1952 was 1.76.
Is that right on the nose?
Secretary H umphrey. That must be close.
Mr, M ayo. That is right on the nose for bills.
Senator K err. Then the increase is 1.64,
Mr, M ayo. That is correct.
Senator K err, How much would just that amount of increase, Mr.
Mayo, be on the private debt, that is, if you did not go up any more
than the interest rate on the public debt has? $7 billion, would it not?
Secretary H umphrey. It is $7 billion plus.
Mr. M ayo, That is right.
Senator K err. A little over $7.5 billion, as I get it.
Secretary H umphrey. I was taking it at 1
Senator K err. N ow, you do not think that interest rates are goil^|
to be reduced much in the near future, do you?
Secretary H umphrey. I do not know just what you mean
the “ near future,” Senator.
J
Senator K err. Well, in the next few years.
Secretary H umphrey. Not in the next few weeks. I do think that
there is a chance for interest rates to come down over a period of
months.
Senator K err. You know you talked about-----Secretary H umphrey. Over a period of years.
Senator K err, Y ou talked about unpaid obligations that the
Government had, c. o. d. items that had not been collected for when
you boys came in.
Secretary H umphrey. Yes, sir; $80 billion.
FINANCIAL CONDITION OF THE UNITED STATES
211
Senator K err. If you add the $4 billion on the public debt and
about $750 million on State and local, which would be 1% percent on
$50 billion, and $7% billion on the private debt, you know, it looks to
me that this policy may leave the American people as individuals and
stockholders and taxpayers, with a continuing obligation of about
$13 billion a year for the foreseeable future over and above what they
were paying in 1952, in excess interest.
Secretary H umphrey. Well, I suppose that would be possible, but
I would not think that it would be likely.
Senator K err. That is a pretty substantial continuing obligation,
is it not, and that will have to be reflected in the price of everything
the consumer buys, will it not, Mr. Secretary?
Secretary H umphrey. Just a minute, Senator. I have got to get
this straightened out.
Mr. M ayo says the figure we used on interest rates is only the
increase on Treasury bills. The total isn't up that much.
Senator K err . What I asked you was the difference in the going
rate of interest as you are now refunding, and the comparable rate in
1952 on the same class of debt.
Mr. M ayo . Well, that is just Treasury bills, you see, and there
has been more fluctuation in the rates on Treasury bills than there
has in the total debt.
Senator K err . Well, sure. This $103 billion, that was out when
you came in, the interest rate on that has not increased.
Mr. M ayo . What I mean is the change from 4 years ago on Treas
ury bills to their present rates is higher than the change on other
parts of the debt. It is a greater change.
Senator K err . There is not much difference, Mr. Secretary, and
I will tell you how I arrived at that.
Now, your long-terms in 1952 were being financed, I believe, at
2% percent, were they not?
Secretary H umphrey. That is about right, I think, 2.68. That is
awfully close. You guessed 2%. It is 2.68.
Senator K err . N ow, last Friday, long-terms were selling to yield
3.90.
Secretary H umphrey . That would be 1% percent higher.
Senator K err . That would be 1.30.
Secretary H umphrey . If you take 1% as the total on that basis, it
would not be far out of the way.
Let Mr. M ayo figure here a minute, and we will just see. I think
it probably is not too far off.
That is just under 1 percent.
Senator K e r r . I do not know what the 3#s were selling for, but
the longer terms were selling last Friday at 3.90. I put that in the
tecord.
Secretary H umphrey . 3.67 was the figure.
Senator K err . On one-----Secretary H umphrey . That was on-----Mr. M ayo . The Friday opening was 3.67 on the 3#s; 3.64 on the
B’a.
Senator K err . Go right on down.
Mr. M ayo . Well, those are the two longest.
Senator K err . Those are about $4.5 billion.
M r. M ayo . That is right.
212
FINANCIAL CONDITION OF THE UNITED STATES
Then the Victories, which are the December 67-72’s, 3.69; 3.75
for the September 67-72’s; 3.71 for the June 67-72 s; 3.80 for the
March 66-71’s.
Those are our longest term bonds.
Secretary H u m p h r e y . Those are the long-terms.
Senator Kerb. Was that on the opening in d a y t
M r . M a y o . This was the opening.
Senator K e r r . I put into the record an article from the New York
Herald Tribune, the headline of which was that—here is the Washing
ton Post on June 21. What day was that?
Mr. M ayo. That was Friday.
Senator K err. It says 2%’a 62-59, selling to yield 3.90.
Mr, M ayo. That is correct.
Senator K erb. The Treasury 2%’s due m 1969, callable in 1964,
were selling at a yield of 3.91.
Mr. M a y o . That is right.
Secretary H u m p h r e y . That is right.
Senator K err. Well-----Mr. M a y o . The longer ones are the ones that we read off. The
intermediate ones are the ones you just read.
Secretary H u m p h r e y . The longer ones yielded less.
Senator K err. If you are going to average them out, 3.80 is about
what the long-terms are selling to yield.
Mr, M ayo. Yes.
Senator K err. And in 1952, it was—sometime during the year
they were selling at par, were they not?
Secretary H u m p h r e y . Y ou can say 1 percent to be sure. The
difference is over 1 percent.
Senator K e r r . $3.5 billion $4 billion a year, is what it is.
Secretary H u m p h r e y . That is correct.
Senator K e r r . And 1.64 percent on $466 billion of private debt is
$7,5 billion; and 1% percent on $50 billion of State and local is $750
million; and $7.5 billion and $750 million is $8.5 billion, plus about
3% to 4, will get you up to $12 billion, is that right?
Secretary H u m p h r e y . That is right.
Senator K e r r . And it seems to me that that is the heritage that the
taxpayers and stockholders and borrowers are going to receive from
this policy as of today.
Secretary H u m p h r e y . Of course, there are an awful lot of people
receiving that, as well as paying it. You have always got to have that
in mind, too.
Senator K e k r . There are a lot more borrowers than lenders.
Secretary H u m p h r e y . I do not know. By the time you get through
the people who participate in the loans, there is an awful lot of interest
paid on Government bonds. There are 40 million individual holders,
and by the time you get through counting the people who are partici
pating in pension funds and all sorts of funds of various kinds, you get
up into many, many millions of people who get the benefit out of
interest.
Senator K e r r . You know what that reminds me of, Mr. Secretary?
Secretary H u m p h r e y . Not the boy who put in the I O IPs?
Senator K e r r . What is that?
Secretary H u m p h r e y . Not the boy who put in the I O IPs?
FINANCIAL CONDITION OF THE UNITED STATES
213
Senator K e r r . No. This is really worth something. That reminds
me of what Mr. Roosevelt used to say: “ Well, what of this national
debt? All of it is owed to some of us.”
Secretary H u m p h r e y . D on't let me remind you of Mr. Roosevelt.
Let's just stop right there. [Laughter].
Senator K e r r . A s I understand your testimony, the Government,
securities market can only be stabilized if the Federal Reserve in
creases its portfolio of Governments, which thus increases the money
supply and causes prices to rise; is that one of the bases you laid
down here with reference to the Federal Reserve supporting the
Government securities market?
Secretary H u m p h r e y . Well, I do not know that I expressed it
just that way.
Senator K e r r . If I did not-----Secretary H u m p h r e y . What does that say?
Senator K e r r . A s I understand your testimony, the Government
securities market can only be stabilized if the Federal Reserve supports
the market.
Secretary H u m p h r e y . I think that is right, or if the demand for
money falls off.
Senator K e r r . And if the Federal Reserve supports the market,
then you said that that will increase the money supply and cause
prices to rise.
Secretary H u m p h r e y . Yes.
Senator K e r r . Then I would like to have you explain-----Secretary H u m p h r e y . Under existing conditions.
Senator K e r r . Then explain to the committee why Governments
sold at par or better from 1945 to 1949, although the Federal Reserve
reduced its holding of Governments from $24.9 billion to $18.9 billion.
Secretary H u m p h r e y . Because you have entirely different condi
tions. I said this would obtain under existing conditions. The
existing conditions are that there are a great many citizens in one
form or another who are seeking money, who are borrowers and
are in the borrowing market.
You go back to davs when the citizens are not seeking money, and
the Government is the only borrower, and it takes the pressure off
the market and the whole picture completely changes.
It is just how many buvers there are for money, how many borrowers
there are for money, i f you have a lot of borrowers, why, you will
push it up. If you have a few borrowers, it will automatically go
down or stabilize.
Senator K e r r . We had a greater percentage of increase in the money
supply, we had a greater annual increase, percentagewise, in the
nionev supplv in 1949 through 1953, then we have had in the last. 18
months.
Secretary H u m p h r e y . Y o u did not have the same demand for
borrowing.
Senator K e r r . Well, you know why the tightness of demand was
not there: Because they increased the available supply.
Secretary H u m p h r e y . Well, there was not nearly so much borrow
ing going on there. The number of dollars borrowed was verv much
less.
Senator K err . Let's see if there was not. The available money
supply, I believe, for 1949 was $174 billion, and it went up to $180.6
billion in 1950, and $189.8 billion in 1951, and $200.4 billion in 1952.
214
IWAHCIAI, CONDITION OF T H B UNITED O T A T M
Now; that is actually on the basis that you figure where you said
that if you have 3 years, that makes 4.
Secretary H u m p h r e y . That i s right.
Senator K e r r . You remember?
Secretary H u m p h r e y , Yes.
Senator K e r r . There was not only a greater amount of actual
increase than there had been from 1956 to the first quarter of 1957,
but the percentage was much larger.
Secretary H u m p h r e y . Well, I have to get the years here*
Senator K e r r . Mr, Mayo will correct me if I am wrong.
That is the total money supply, and surely not in the form of
currency or gold.
Secretary H u m p h r e y . But it is not the total borrowing, either.
What I am talking about is the total borrowing.
Let us look, let us go back and look---- Senator K err. According to your estimate here, the total bor
rowing, 5 months in 1957, has been $10.5 billion.
Secretary H u m p h r e y . No, Let’s look back here.
Senator K e r r . Is that not right?
Secretary H umphrey. No. Look at page 36, and I think that may
give you the picture.
In the 4 years-----Senator K err. Wait a minute.
Secretary H u m p h r e y . You have got 3 sets of 4 years on page 36.
Senator K e r r . What page are we going to?
Secretary H u m p h r e y , Page 36.
You have got 3 sets of 4 years. Now, your borrowings increased in
the first 4 years.
Senator K e r r . Y o u have got 3 sets of 4 years; that will be 12 years.
Secretary H u m p h r e y , That is right.
Senator K err. On page 36.
Secretary H u m p h r e y . That is right.
Senator K err, The increase from 1944 to 1948-----Secretary H u m p h r e y , If you take-----Senator K err (continuing). Was how much?
Secretary H u m p h r e y . Take the item “ Total (other than Federal),”
and it is the private borrowing in that case, plus the State and local,
was $64 billion.
The next 4 years, it was $127 billion.
Senator K err. All right. Let’s take those 4 years.
Secretary H u m p h r e y , Yes.
Senator K e r r . 1948-52.
Secretary H u m p h r e y , 1948-52, it was $127 billion.
Senator K err. Let us see what the change was in the ownership
of bonds by the Federal Reserve.
What years are we going-----Secretary H u m p h r e y . 1948-52.
Senator K err. In 1949, it was $18.9 billion. In 1950, it was $20.8
billion.
Secretary H u m p h r e y . $24.7 billion. It went u p a billion and a
half dollars.
Senator K err. All right.
Now, during that time, private debt went up here, debts other than
Federal, $127 billion.
FINANCIAL CONDITION OF T H E UNITED STATES
215
Secretary H u m p h r e y . It was $127 billion.
Senator K e r r . It went u p from— that says the increase.
Secretary H u m p h r e y . That i s right.
Senator K e r r . So that is how much it went up. It did not go up
to that in the holdings of the Federal Reserve.
Secretary H u m p h r e y . That is right.
Senator K e r r . So it went up $127 billion, with only an increase
of a billion dollars.
Secretary H u m p h r e y . A billion and a half.
Senator K err . $23.3 billion to $24.7 billion, $1.4 billion.
Now, to show you that they do not— that that is not the controlling
factor, according to your own statement there, it went up $137 billion
in the next 4 years, 1952-56.
Secretary H u m p h r e y . That i s right.
Senator K e r r . During which time Federal Reserve holdings only
went up $200 million.
Secretary H u m p h r e y . That i s right.
Senator K e r r . S o they d o not have to greatly increase their
portfolio in Governments.
Secretary H u m p h r e y . Again, I say it depends entirely on what
the demands are for money, and how rapidly they come.
Senator K e r r . But the record is that from 1945 to 1949, Govern
ment holdings by the Federal Reserve went down from $24.9 billion
to $18.9 billion.
Secretary H u m p h r e y . That is right.
Senator K e r r . That i s the record, i s it. not?
Secretary H u m p h r e y . That is the record,
Senator K e r r . In your testimony here, you have developed a kind
o f puzzle in my mind" and I believe together maybe we can resolve it.
In your testimony you said:
As the cost of money rises * * * there is more incentive to save that money
and to put it out at rent * * *
You also said:
Now, as you stimulate the savings, why, of course, that generates more money
for use in the development of the country, in the building of equipment and
machines, and increasing the productive power of the people.
In other words, you were outlining the principle, and defining it or
establishing it, that one of the principal objectives or benefits of
permitting interest rates to rise was to stimulate savings in order to
increase investment and capacities.
Secretary H u m p h r e y . That is right.
Senator K err . Yet, you told the chairman:
. * * * there is a deterrent effect that rises from an increase in the cost of
interest, in that people are deterred from taking on obligations that require that
additional payment. They do not expand quite so rapidly or they do not expand
inventories quite so rapidly, or they become more cautious.
Secretary H u m p h r e y . That i s right.
# Senator K err . A s I understand it, you are saying that increasing
interest rates discourages investment s o ' as to not create inflation.
Secretary H u m p h r e y . That is right.
N omt, as between the two-----Senator K err . I want you to tell us how, on the one side—:—
Secretary H u m p h r e y . It is perfectly simple.
216
FINANCIAL CONDITION OF THE UNITED STATES
Senator K err (continuing). Increasing interest rates encourages
savings to make it possible for more expansion-----Secretary H umphrey. That is right.
Senator K err (continuing). And at the same time, when you
increase them, you discourage investment and deter expansion.
Secretary H u m p h r e y . And between encouraging the savings and
discouraging expenditures, you finally bring them to a balance. You
operate from both ends, ana you come to a balance. That is exactly
where you want to be, and produce some stability.
Senator K err. That is all right, Mr. Secretary. It may be that
that just makes it perfectly clear.
Secretary H umphrey. Well, it makes it perfectly clear to me. The
way you get a balance is to work from both ends, and finally you
meet in the middle and balance it out.
Senator K err . In other words, encouraging them in one way and
say you can expand— —
Secretary H umphrey. Encouraging one group to save, and another
group not to expand too fast, and then between them you bring the
savers and optimists together, and between them you have got a
balanced position.
Senator K err. I want to tell you, sir, that I am glad you do under
stand it. [Laughter.]
Secretary H umphrey. I do.
Senator K err. And I will not worry about it, because there just is
not any use of both of us worrying about it.
Secretary H u m p h r e y . That i s right.
Senator K err. N ow, is there special provision in the tax law treat
ing with gains and losses resulting from bank transactions in Govern
ment securities?
For instance, if a bank sells a million dollars worth of long-term
Government bonds for which it paid par, at say 85 cents on the dollar,
is that a deductible loss against current income for tax purposes?
Secretary H u m p h r e y . I do not remember, Senator, whether it is a
deductible loss against current income or capital gains, but it is one
or the other.
Senator K err. Can you find that?
Secretary H u m p h r e y . It is a deductible loss, but whether it is
applicable to current income or capital gains, I am not sure.
Senator K err. And there is nobody here to tell us?
Secretary H u m p h r e y . No, we do not have any tax people here.
Senator K err. Put me on your staff, because I can tell you.
Secretary H u m p h r e y . Well, g o o d . What is it?
Senator K err. It is a deductible loss against current income.
Secretary H umphrey. All right.
Senator K err. I will tell you what I would like, if it is possible:
I know many banks who in December of 1956 sold substantial quan
tities of governments, early in December, at about 89 or 90, which
was the price at which they were then selling, taking a loss against
their current taxable income for 1956. A week or so later, they went
into the open market and replaced in their portfolios the bonds they
had sold with others of a similar maturity date. By these trans
actions, if they sold a million dollars’ worth of bonds, they showed a
loss of $100,000, saving themselves $52,000 in taxes for that year.
FINANCIAL CONDITION OF THE UNITED STATES
217
But when they made their financial statement for December 31
they put the bonds for which they had paid about 89 or 90 in at par.
That is permissible for a bank, is it not, to carry Government bonds
at par?
Secretary H umphrey . I think that is right, except that if they buy
at 89 or 90 that is the way they go on the books. They don’t go on at
par in that case.
Senator K err . So that, if there were billions of dollars of such
transactions, it meant that the Government lost hundreds of millions
of dollars in taxes last year, by reason of the fact that the banks were
permitted to take what amounted to a paper loss, taking advantage of
the depressed condition of the bond market.
Now, if I am correctly informed as to the law, if they keep those
bonds until maturity, let us say, in 10 or 15 years, they pay a capitalgains tax o f 25 percent on the difference between what they paid for
them and the 100 cents on the dollar that they will receive from the
Government at maturity.
Assuming that what I have told you about what they can do and
did do is correct, do you not think that that is a penalty the Govern
ment bears by reason of the policy of management of the public debt
now in effect?
Secretary H umphrey . I think it is the penalty of the failure of
proper tax law, if that is the way it works. I doubt whether they
ought to get the deduction of losses against current income and then
pay capital gains on profits.
Senator K err . Has there been any recommendation of the Treasury
that you know of?
Secretary H umphrey . I do not know, but I will find out.
Senator K err . You are going to issue next week, did you say about
$3.6 billion o f 283-day tax anticipation certificates?
Secretary H umphrey . Tomorrow.
Senator K err . Tomorrow.
Secretary H umphrey . $3 billion.
Senator K err . In the New York Times of M ay 17, 1957, there is
a story about a Treasury offer of a billion-and-a-half-dollar issue.
“ 119-day tax bills to be sold on bidding to meet drain on cash hold
ings.”
Secretary H umphrey . When was this?
Senator K err . This was announced M ay 16.
Secretary H umphrey . Well, M ay 16.
Senator K err . Of this year.
Secretary H umphrey . Yes.
Senator K err , (reading):
Details of the new offering will be released Friday morning. Today's announceBient said banks could pay for the new bills by establishing a credit for the Govern
ment in the Treasury tax and loan accounts they hold. This makes it unnecessary
for them to pay for the bills until the Treasury calls for the cash. Meanwhile,
they will collect interest as an added incentive.
Will that same privilege be available on this $3 billion issue?
Secretary H umphrey * Yes, sir.
Senator K er r . If I understand that correctly, Mr. Secretary,
what that means is this: The Treasury's tax and loan funds are kept on
deposit by the Government in the banks and the Treasury then pays
the banks interest on that money.
218
FINANCIAL CONDITION OF TH U U N ITED STATES
Secretary H umphrey. We pay interest on the bonds, and then
draw out tne money out of their account as we need it.
Senator K err. D o you write checks on private banks?
Secretary H umphrey. N o, it goes through the Federal Reserve
account.
Senator K err. You do not do that without giving the bank
notice?
Secretary H umphrey. N o, we give the bank notice. I have for
gotten exactly how much. It vanes among banks.
Senator K err . Of notice?
Secretary H umphrey. Yes, on withdrawals.
Senator K err. What it amounts to-----Secretary H umphrey. What it amounts to is we get all the money in
1 day and we spend it over a period of time, whatever it may be.
Senator K err . Mr. Secretary, have you got somebody here who
can tell us how much notice you give that bank before you draw on it?
Secretary H umphrey. It’s payable on demand. You will have to
ask Mr. Burgess that. He can tell it to you exactly.
Senator K err. Will you let me put my own estimate in the record?
Secretary H umphrey. Yes.
Senator K err. Not less than 7 days.
Secretary H umphrey. I cannot tell you exactly what that average
notice is, but it is a comparatively few days.
Senator K err. But during those days, whatever it is-----Secretary H umphrey. During those days they have both the money
and the bond.
Senator K err. During those days the Government pays interest
to the bank on the deposit which the Government has made in the
bank?
Secretary H umphrey. It pays interest on the bond.
Senator K err. Well, but they buy the bond by giving you deposit
slips?
Secretary H umphrey. That is right.
Senator K err. They do not part with any money?
Secretary H umphrey. That is right.
Senator K err. Now, on the issue you put out in—what was the
big tax anticipation issue you put out in the fall of 1953?
Secretary H u m p h r e y . I would have to look it up. I c a n n o t
remember. Just before w e leave this last question, that is t a k e n into
account, you know, in determining the rate which people bid for the
bond, for the tax and loan deposit, so we get a little better rate because
of that fact.
Senator K e r r . Whatever the rate i s , that bank gets interest on
your deposit for the time they have it?
Secretary H u m p h r e y . For t h e period the bond is there, but we pay
a lesser rate over the whole period than we would pay if that privilege
were not granted.
We think t;iat it is a proper way to sell the security.
Senator K e r i l Do you know of any other depositor in the United
States that pays a bank interest on the money that he has deposited
in the bank?
Secretary H u m p h r e y . Everybody who sells a bond issue g e t s p a i d
for their bonds on a certain day and they put the money in t h e bank
and they do not draw it all out the same day.
FINANCIAL CONDITION OF THE UNITED STATES
219
Senator K err . N o------Secretary H umphrey . And they are paying interest. Wait a
minute. They pay interest on the bond just the way the Government
does, and they have their own money laying in the bank.
Now, anybody who sells a bond issue, you yourself will have a lot
o f money in a bank tomorrow or the next day.
Senator K err . But just for a day or two.
Secretary H umphrey . Not for a day or two.
Senator K err . Not for 2 weeks?
Secretary H umphrey . It will be there for whatever it is, just for a
day or two, and you will be paying interest on the bonds just the way
the Government does.
Senator K err . Do you know why I have got to keep 20 percent of
what I borrow at a bank?
Secretary H umphrey . N o, I do not; but it is a common practice.
Senator K err . Because of your fiscal policies: [Laughter.]
Secretary H umphrey . I get blamed for an awful lot, but I did not
know I was to blame for that.
Senator K err . Whatever rate of interest I pay that bank, I have
got to pay them 25 percent penalty because they only let me check
on 80 percent of it, but I have to pay them interest on 100 percent of
it, and I want to tell you that they can thank you and Mr. Burgess
and the Federal Reserve Board for that subsidy that they get from
every borrower in this Nation, including the Government.
Secretary H umphrey . No. The Government has no 80 percent
limitation or no time limit. We can draw it and we do draw it exactly
as we need it.
Senator K err . But there is a difference between you and me. I
can check her out when I get it, and you have got to give that bank
7 days notice before you even check on them. Did you know that?
Secretary H umphrey . Yes, I know that, except that I don’t agree
the average notice is 7 days.
Senator K err . All right.
Now, this issue you put out in 1953 of tax anticipation certificates.
Secretary H umphrey . Yes.
Senator K err . When was that and how much was it?
Secretary H umphrey . It was on the 15th of July, and it was
$5,902 million.
Senator K err . Was that handled the same way?
Secretary H umphrey . Well, I would not be surprised.
Senator K err . M y recollection is that it was.
Secretary H umphrey . It probably was, but I am not sure.
Senator K err . D id that issue have a coupon on it, Mr. Secretary?
Secretary H umphrey . Yes.
Senator K err . W hereby the Government continued to pay inter«st on that $5 billion how much.
Secretary H umphrey . $5.9 billion.
Senator K e r r . For a period of time after the tax holder had sur
rendered it to the Government in lieu of taxes for its face value plus
accrued interest?
Secretary H umphrey . I think it did. It went for a period of
iron® the 15th to the 22d of March.
http://fraser.stlouisfed.org/
96819 O—57-----15
Federal Reserve Bank of St. Louis
220
FINANCIAL CONDITION OF TH E UNITED STATES
Senator K err. In other words, the banks that handled that not
only got interest on the money, part of which time they still had the
money-----Secretary H u m p h r e y . Whether it was a bank or a corporation o r
individual, whoever it was, they all got the same.
Senator K e r r . Oh, no.
Secretary H u m p h r e y . Oh, yes, they did, and these certificates——
Senator K err. Y ou do not deposit with individuals.
Secretary H u m p h r e y . Well, the individual can buy it.
Senator K err, I know, but then when he does, he gives you a
check for it. He does not give you a deposit slip for it.
Secretary H u m p h r e y . That is right.
Senator K err. So there is that difference.
Secretary H u m p h r e y . That is right.
Senator K err. But the taxpayer who bought that and turned it in
on the taxpaying date following— —
Secretary H u m p h r e y . That i s right.
Senator K e r r . Got credit for all he paid for it, that is for all the
Government got for itr plus the interest on it until it was surrendered,
and then, in addition to that, he got a coupon which, if he clipped and
kept it for 7 days, he could get interest for 7 days after he surrendered
the bond?
Secretary H u m p h r e y . That is correct; that was a 7-day period.
Senator K err. I s that on all these?
Secretary H u m p h r e y . No. Those are different things that are
done. It is on a good many of them.
Senator K err. I think Mr. Mayo tells you they are on all of them.
Secretary H u m p h r e y . It certainly is on most of them.
Senator K err. Do you think it is good fiscal management?
Secretary H u m p h r e y . Yes, I do. I think it all is in the rate. I
think it all depends on what the rate is when you sell these securities.
It is just a matter of the computation of interest.
Senator K err. Y ou know we private fellows have to sweeten up
the kitty for these fellows.
Senator H u m p h r e y . Yes.
Senator K e r r . If I were you, I would look into it to see if they were
not getting to you.
Secretary H u m p h r e y . See what?
Senator K e r r . If they were not getting to you.
Secretary H umphrey, I will be very glad to let you sell the bonds.
Senator K err. If I had one institution that was the source of all
credit and another one that used about a third of all credit, I would
get them acquainted with each other so that the one who was determin
ing what the other had to pay for interest would operate on the basis
that they are some kin to each other, rather than blood enemies.
Secretary H u m p h r e y . When we have to borrow money, as you
well know, you have to meet what the market demands. And what
ever the market happens to be, you have to meet that. You work it
out about to that, or you do not sell your bonds.
Now, I am sure that your experience is no different than mine, and
I am sure you would be an excellent Secretary of the Treasury, but I
would not want to be a Senator. [Laughter.]
Senator K e r r . Well, now, Mr. Secretary, there is not anybody in
here today who could be any better Secretary of the Treasury than
FINANCIAL CONDITION OF THE UNITED STATES
221
you. You see, the difference between you and a lot of these officials
who have been down here is they did not know what the Federal
Reserve was doing to them. [Laughter.] You do, and you are en
couraging them in it. [Laughter.]
Now, you said that the purchasing power of the dollar had declined
only eight-tenths of a cent in 4 years— and I found out 3 years and
4 years are synonymous there.
Secretary H umphrey. And figured it in three.
Senator K err . Did you hear the statement read by the chairman
the other day of what Mr. Wilson said, that it took $38.5 billion to
buy in 1958 what $33.4 billion bought in 19o4?
Secretary H umphrey. I did not happen to hear that statement,
but I would not be surprised.
Senator K err . Was that correct, Mr. Chairman? Was that the
statement made by the Secretary of Defense?
The C hairman . Yes, sir. It was so quoted in the newspapers.
Senator K err . That is a little more than eight-tenths of 1 percent;
is it not?
Secretary H umphrey . Well, we went over those figures this morn
ing, Senator.
Senator K err . I know, but we did not have this application.
Secretary H umphrey . Well, but-----Senator K err . What we did this morning was we were talking
about whether it was 4 years or 3 years.
Secretary H umphrey. N o. What we did this morning was to talk
about the kind of things and when the prices in various kinds of things
took effect. They didn't all at the same time. The purchasing power
of the dollar was not affected equally in all sorts of things and the lands
of things that the Defense Department was buying, largely because
of their very large purchases, there was a greater pressure on those
prices than on anything else, and I think their prices-----Senator K err . Y ou mean the more volume they buy, the higher
the unit price?
Secretary H umphrey . Well, the more you try to buy in a hurry, the
more you are apt to pay for it.
Senator K err . Well, now, I am not saving in a hurry. I notice the
other day the Secretary of Defense told the Secretary of the Air Force,
“ Just slow down and just postpone $4 billion. We are not going to
spend it this fiscal year.”
Secretary H umphrey . I think he has slowed down a little, but we
have been buying a lot of things in a hurry, and I think we should have
bought them in a hurry.
Senator K err . Have you got the President's Economic Report
there for 1957?
Secretary H umphrey . Yes, sir.
Senator K err . Let Mr. Mayo see what your statement discloses
as to the prices of Government goods and services as between 1952
and 1956.
That was actually the 4 years, Mr. Secretary, that you were talking
about when you showed $3 billion-----Secretary H umphrey. Nineteen what?
Senator K err . 1952 to 1956; what the index-----Mr. M ayo . For the Federal Government.
Senator K e rr . Prices of Government goods and services for 1952 is
119.
222
FINANCIAL CONDITION OF TBM UNITED STATES
Secretary H umphrey, 119 looks like here.
Mr. M ayo. Federal.
Senator K err. What was the 1956?
Secretary H umphrey. 127.8. It was up about 8.8. That is all
Government purchases. That is all Federal buying. That is not
just militant
Senator K err, Well, that is right.
Secretary H umphrey, That is right. So that would not be up as
much as the military, I do not think.
Senator K err, But it was a good deal more than eight-tenths of
1 percent.
Secretary H umphrey, Oh, yes. That is the kind of things—^ou
see, the great bulk of it is military, and those are the kind of things
that had the first price rise.
Senator K err. May I see that now, just a moment.
Secretary H umphrey. Yes, sir.
Senator K err. What is this column, Mr. Mayo, that says ^Gov
ernment product’ '?
Mr. M ayo. That includes State and local, sir, as well as Federal,
Senator K err. It shows 1952 to be 124.7 and 1956 to be 149.4.
Mr. M ayo. 149.4, That is gross Government product.
Senator K err, What does that mean, “ implicit price deflator” ?
Secretary H umphrey. I do not know what that is.
Senator K err. Well, all right.
Mr, M ayo. All I know is what it says here for Federal, State, and
local.
Senator K err. You gave us some figures on how you had increased
savings percentagewise, on page 32.
Secretary H umphrey. Saved $75 billion in 1956.
Senator K err, What I am looking for is that percentage.
Secretary H umphrey. That is the percentage of savings of dispos
able income. Let us get disposable income.
Senator K err. Yes. I believe I said:
D u r in g th e 4 y e a r s o f t h e E isen h o w er a d m in is tr a tio n , o u r p e o p le h a v e s a v e d
m ore b o th in term s o f d o lla rs a n d in rela tio n t o d isp o s a b le in co m e, 7 .1 , a s co m
p a red t o 6 ,4 .
Do you have the figures there percentagewise for 1951 and 1952?
Secretary H umphrey. Well, you start here in 1948. Wait a
minute.
Senator K err. Where do you get that, that you were quoting from?
Secretary H umphrey. From the economic report; it is page 136.
Senator K err. I mean, is this the economic report?
Secretary H umphrey, Yes, sir. It is the economic report, page
136.
Senator K err. What does it show for 1951?
Secretary H umphrey. For 1951, it shows 7.8.
Senator K err. And 1952?
Secretary H umphrey. 1952 is 8,0.
Senator K err. What years during the Eisenhower administration
exceeded those?
Secretary H umphrey. 7.9 is the next year.
Senator K err. That is 1953, 7,9?
Secretary H umphrey. Yes.
Senator K err. 1954?
FINANCIAL CONDITION OF T H E UNITED STATES
223
Secretary H umphrey. 1954 it is 7.0.
Senator K err. 7.0. 1955?
Secretary H umphrey. 1955 it is 6.1.
Senator K err. And 1956?
Secretary H umphrey. 1956 it is 7.3.
Senator K err. If you compared the 4 years of the Eisenhower ad
ministration with 1951 and 1952, you would get an entirely different
result; would you not?
Secretary H umphrey. Well, we averaged it for the two 4-year
periods, and the two 4-year periods are the figures we gave you here.
Senator K err. I understand. I am not disputing that you did.
Secretary H umphrey. If you will take the average of 4 years with
the average of 2 years, you will get 7.1 as against 7.9.
Senator K err . The fact is if you will take the situation as you
found it when you came in, you found the people saving 8 percent
of their disposable income, and as of this time, they are saving less
than 7 percent of it, are they not?
Secretary H umphrey. Well, no, they were up over 7 for last year.
Senator K err . I am talking about the first quarter of 1957 when
it was only 6.9 percent.
Secretary H umphrey. It has been running along about 7 or 8
percent right along.
Senator K err . But there has not been a year during the Eisen
hower administration in which the people saved as high a percent of
their disposable income as they did in 1952, has there?
Secretary H umphrey. Wait a minute. Not for a whole year; no.
They have done it for quarters, but not for a whole year. They have
been within one-tenth.
Senator K err . That is right. One year.
Secretary H umphrey . Several quarters have been higher.
Senator K e r r . Now, then, Mr. Secretary, I would like to go back
to this chart up here because I think we have not paid enough attention
to it. You gave me this morning a list of items that had been in
short supply in recent years. In the years during which unemploy
ment was 4.1 percent of the civilian labor force, and in the years or
period during which consumer prices went up 2.6 percent, wholesale
prices went up 3.1 percent, industrial prices went up 3.8 percent, and
the privately held money supply went up 2.8 percent. D o you
remember those items you read me this morning?
Secretary H umphrey. Yes, I do.
Senator K e r r . I would like for you to tell me which one of those
items was in as short supply in the 1956-57 period as in 1949-53?
Secretary H umphrey . Well, I do not know as I can go back that
far. Y ou see, you are going way back there into another period.
Senator K err . Well, it is the period you were comparing it to.
Secretary H umphrey . M y figures do not go back that far.
Senator K err . Those are the years that included the Korean war.
Secretary H umphrey . I have not got any figures back that far.
M y figures just go for 2 years.
Senator K err . Would you hazard a guess that a single one of the
items that you said was in short supply in the last 18 months was not
in shorter supply during that time?
Secretary H umphrey . Well, I do not know.
Senator K err . What do you think?
224
FINANCIAL CONDITION OF TH E UNITED STATES
Secretary H umphrey. I have not any idea. I do not know.
Senator K err. What do you think?
Secretary H umphrey. I say I just have not any idea. I just do not
know.
Senator K err . What about aluminum? Do you not think it was
as short in supply during the Korean war as it has been in the last 18
months?
Secretary H umphrey. I would think so, but it has been short right
along.
Senator K err. Bearings, brass, copper products, steel products,
titanium dioxide, steel scrap, rubber—do you not imagine, if you
checked into it, that every one of those items was scarcer during the
Korean war than they have been in the last 18 months?
Secretary H umphrey. I do not know. You have got to check
them, you know, to find out, I really do not know.
Senator K err. Well, now, if you want to, if you think there is any
chance that that tabulated list was in more abundant supply during
the Korean war than during the last 18 months, I would appreciate
your bringing back the record and reading it to us.
Secretary H umphrey. I will check it.
Senator K err. Let us assume just for the sake of this discussion
that they were in shorter supply, and that is not an unreasonable
assumption, is it?
Secretary H umphrey. Well, certainly not as to some of them. I
think as to others, perhaps it is.
Senator K err. A s to whichever ones it might be, you will tell me?
Secretary H umphrey. We will check up.
(The information requested is as follows:)
T h ere w ere sh o rta g es d u rin g 1 9 5 0 a n d 1 9 5 1 b u t th e in te r p r e ta tio n o f sh o r ta g e s
in p eriod s o f d irect c o n tro ls w ill, o f cou rse, differ fro m t h e in te r p r e ta tio n of
sh o r ta g e s a t o th er tim e s of h e a v y d em a n d s, so n o c o n c lu siv e co m p a riso n se em s
p o ssib le.
Senator K err. On the basis of this chart, it looks to me that the
item that was in truly scarce supply during the last 2 years is right
here, credit, privately held money and credit.
Secretary H umphrey. Credit?
Senator K err. Because during the 1949-53 period the money
supply went up 3.5 percent a year. During the 1956-57 period it
has only gone up 2.8 percent a year.
Assuming that the basic commodities that you referred to this
morning were in scarcer supply during the Korean war than during
the last 18 months, it seems to me that it is going to be a little difficult
to explain how it was that with industrial production increasing 5.4
percent, compared to 2.1 percent, with the gross national product
going up 4.8 percent compared to 2.7 percent, with 3.5 percent un
employed as compared to 4.25 percent unemployed in the past 18
months—it seems to me that it is going to be very difficult to explain
how it was that the consumer prices and wholesale prices and industrial
prices went up substantially higher during this 18 months than it did
during the 5 years, 1949-53.
Secretary H umphrey. What period during that time did you have
price and wage controls on?
Senator K err. During 1949, 1950, 1952, and 1953.
FINANCIAL CONDITION OF T H E UNITED STATES
225
Secretary H umphrey. Yes, you had price and wage controls on,
did you not?
Senator K err . Let us see if we did.
Now, my recollection is that price controls terminated in 1946.
Secretary H umphrey . I do not remember exactly, but I think
that's right.
Senator K err . Is that correct? That is my recollection.
Secretary H umphrey. Yes. That's right for the period after
World War II. But you're talking about the period during the
Korean war?
Senator K err . 1949, 1950, 1951, 1952, and 1953.
Secretary H umphrey. Well, we had price and wage controls on
during the Korean war.
Senator K err . Well, now, let us check that, Mr. Secretary.
Secretary H umphrey. Well, they were on when we came in. They
went on in early 1951 and we took them off.
Senator K err . Wage controls?
Secretary H umphrey. First thing we did was to release controls.
Senator K err . Wage controls?
Secretary H umphrey. Yes, wage controls and price controls were
on, and allocations were on, and you had a lot of things that were on
at that time, a lot of physical control.
Senator K err . They had regulation W?
Secretary H umphrey. Sure, and you had price controls.
Senator K err . I will tell you what you do.
Secretary H umphrey. We had thousands of people administering
them, as I remember it.
Senator K err . Suppose you tell us in the morning what wages
were controlled during those 5 years.
Secretary H umphrey. I will see exactly what controls there were,
but there were a lot of controls on at that time.
Senator K err . All right.
Secretary H umphrey . One of the first things we did was to take
them off.
Senator K err . I think that the real shortage, as of today, Mr.
Secretary, as I said a while ago, is the shortage in credit, and the result
of it, in my judgment, has been almost catastrophic, because during
this time, according to the Department of Commerce and the Council
of Economic Advisers, we have had some rather amazing, and I think
very detrimental, results. For instance, during that time labor's
share of the national income has gone up 3.7 percent, which is a very
limited amount.
Unincorporated business' share of the national income has gone
down 4.5 percent. The farmers' share of the national income has
gone down 36.5 percent. Corporation profits after taxes, their share
of the national income has gone up 16.4 percent. And the net interest
share of the national income has gone up 40 percent during the ad
ministration of these policies. These results mean that the oppor
tunity was made available and has been taken advantage of for big
business to reinforce its position and greatly expand its percentage of
the national income; for the farm industry as a whole to be almost
bankrupted; for small business to be greatly impaired; and for those
whose business it is to lend and collect interest to increase their share
o f the national income by 40 percent.
226
FINANCIAL CONDITION OF T H E UNITED STATES
Secretary Humphrey. D o you not think you ought to add to that
list the cost of living?
Senator K err. Well, the cost of living in the last 18 months, accord
ing; to Mr. Mayo there, has gone up 4 percent.
Secretary H umphrey. Let us take the same period you are taking.
Just put it in for the same period.
Senator K err. I am talking about the last 4 years.
Secretary H umphrey. Just add the-----Senator K err. I am talking about the last 4 years.
Secretary H umphrey. So am I talking about the last 4 years. Let
us put it in to the last 4 years, and I think it will fit very well into
that tabulation.
Senator K err. Well, that certainly is your opinion, and you are
entitled to it, and that is just what you put down into this record,
and I thought that it was well for me to put into the record a brief
observation of what I thought the policies had done to the various
elements of the economy.
Secretary H umphrey. I am sure you want to put in the whole
picture, so you just add it all in— all 4 years, not just one.
Senator K err. If we get in all of your viewpoint and all of mine,
we will have nearly all of it.
Secretary H umphrey. I think that is right.
Senator K err. Thank you very much, Mr. Secretary.
Secretary H umphrey. Thank you very much.
Senator B ennett. Mr. Chairman, while we are at a break between
witnesses, there have been three very interesting charts presented to
us. Is it going to be possible for the rest of the committee to have a
copy of that chart?
Senator K err. They are going to stay right here, and my purpose
was for them to go into the record.
Senator B ennett. I was wondering how they were going to get
into the record and when.
Senator K err. I would like, then, Mr. Chairman, to ask permission
that they be made a part of the record at that point in the record where
they were first referred to and then later referred to. (See p. 177.)
Senator B ennett. Will they be copied, photographed?
Senator K err. They would have to be. They will have to be to
get them into the record.
Senator B ennett. I just wanted to be sure they were going to be
in the record in chart fonn, and not simply in schedule form.
Senator K err. Yes, sir.
The C hairman. Senator Martin has advised the Chair he would
prefer to start in the morning. He thinks he can make better progress
at that time.
Senator M artin, I think we can make time without breaking in.
The C hairman. The committee will now recess until 10 o'clock
tomorrow morning.
Secretary H umphrey, That is very agreeable to me.
(Whereupon, at 3:20 p. m., a recess was taken until 10:30 a. m.,
Wednesday, June 26, 1957.)
INVESTIGATION OF THE FINANCIAL CONDITION OF
THE UNITED STATES
WEDNESDAY, JUNE 26, 1057
U nited States S enate,
C ommittee on F inance ,
Washington, D. C.
The committee met, pursuant to recess, at 10:30 a. m., in room 312,
Senate Office Building, Senator Harry Flood Byrd (chairman) pre
siding.
Present: Senators Byrd, Kerr, Frear, Long, Anderson, Gore, Mar
tin, Williams, Flanders, Malone, Carlson, Bennett, and Jenner.
Also present: Robert P. Mayo, Chief, Analysis Staff, Debt Division,
Office of the Secretary of the Treasury; Elizabeth B. Springer, chief
clerk; and Samuel D. Mcllwain, special counsel.
The C hairman . The committee will come to order.
Senator C arlson. Mr. Chairman, before you start, I was interested
this morning in an article in the sports section of the Washington Post,
by Bob Addie. I do not know how many caught it. It reads this way:
Harry Byrd stepped off the train just in time to pick up a victory for the Detroit
Tigers last night as the visitors came up with 3 runs in the 10th to beat the Sena
tors, 7 to 4.
Senator G ore . Mr. Chairman, may I also call attention to the fact
that yesterday our distinguished chairman received a letter addressed
to “ Senator Aldrich.” [Laughter.]
The C hairman . The Chair recognizes Senator Martin.
Senator M artin . Mr. Chairman.
STATEMENT OF HON. GEOROE H. HUMPHREY, SECRETARY OF
THE TREASURY—Resumed
Senator M artin . I think you have a copy of the statement I am
about to make.
Secretary H umphrey. Yes, sir.
Senator M artin . Mr. Chairman, this committee is fortunate to
bave a man of the courage, ability, and understanding of Hon. Harry
F. Byrd to lead us in this most important investigation, which can
mean so much for the well-being o f our country. While we do not
alwavs agree on political philosophic^, yet I have gpeat admiration
for the ability and objectives of the distinguished senior Senator from
Oklahoma, Robert S. Kerr.
This committee, composed of men from all parts of the Nation and
representing many political ideals, should brine forth recommendations
which will improve the monetary and fiscal policies of the United
States. That will be my objective, and I know that it will be the
objective of m y colleagues on this committee.
227
228
FINANCIAL CONDITION OF THE UNITED STATES
Mr. Chairman, we all greatly appreciate the time that the Secretary
of the Treasury has given to this committee. I have been greatly
impressed with his superior knowledge of the financial problems
confronting the United States. America is most fortunate to have a
man of his ability and patriotic inclination willing to head one of the
most important departments of our Government.
Before questioning Mr. Humphrey, I want to make some brief
comments.
One of the most difficult functions of a free government is to
maintain a stable currency. At the same time, it is one of the most
important objectives of government. Inflation has the power to
crush any economy upon which it fastens its grip and, thus, it can
destroy a nation.
In fact, more great nations have been overthrown by inflation than
by invading armies or destructive bombs. A nation destroyed by a
military force can rebuild itself, but a nation where incentive of the
individual is destroyed has very little opportunity of recovery.
Let us look at the inflationary figure and the dollar purchasing
power.
As shown by the Consumer Price Index, the inflationary figure
rose from 59.4 in 1939 to 119.3 in 1957.
In 1939, the dollar was worth 100 cents in purchasing power. In
flationary pressure during World War II forced the value of the dollar
down to the level of 78 cents.
The decline continued during the postwar years, and at the be
ginning of 1953 the dollar represented only 52 cents in purchasing
power. For a time it appeared that the value of the dollar had been
stabilized at that point, and for the next 3 years the index remained
practically unchanged.
However, in 1956, the downward trend was resumed and the value
of the dollar sank gradually, month after month, going down to 50.3
in March of this year.
Unfortunately, the spiral of inflation is still creeping upward, and
in May of this year the value of the dollar dropped to 49.7.
Let us briefly look at the causes of inflation. They fall into several
categories:
1. Excessive governmental expenditures, deficit financing, a stagger
ing burden of debt, printing press money, and unsound fiscal policies.
Inflation from these causes is one of the reasons for the high Federal
budget that now confronts us.
2. Increase in labor costs with a corresponding increase in the cost
of production. There is no danger when rising wages are accompa
nied bv corresponding increased productivity. Inflation results when
overall productivity does not keep pace with rising wage levels.
3. Too much expansion of business and purchases by Government,
corporations, and individuals on borrowed money, particularly money
borrowed from banks.
Mr. Chairman, the size of our Government and the debt of the
United States are of deep concern to the people of our country. The
increase of all kinds of debt was set forth in your statement at the
opening of these hearings and totals $800 billion, which is an increase
of $200 billion, or 33 percent, in 4 years.
This is so important that I feel it should be repeated.
FINANCIAL CONDITION OF THE UNITED STATES
229
According to an official Department of Commerce report issued on
May 27, the American people, at the end of last year, owed a total
of $803 billion in gross private and public debt. This total is an
average of about $4,700 for every man, woman, and child in the
Nation, or about $18,800 for the average American family of four
persons.
Net corporate debt went up from $93% billion in 1946 to $208
billion at the end of 1956.
People have been buying out of tomorrow's paycheck. At the end
of 1945, they owed less than $6 billion; which in 1956 consumer debt
had increased to $42 billion.
Net State and local government debt has increased from $13K
billion in 1945 to $42.7 billion at the end of 1956, and has greatly
increased since that time.
4.
The great expansion of Government. More than 7 million are
now employed at the three levels of government. They are not
producers. This payroll puts into circulation nearly $40 billion per
annum.
Let us briefly look at the results of inflation:
1. The dollar loses its purchasing power. This damages all with
fixed incomes and inflicts severe hardship on millions of our people.
The person with a pension, social security, or interests on savings
cannot escape the evils of inflation.
There are now in the United States more than 16% million on
social security, corporation and Government retirement, veterans'
pensions, veterans' survivors benefits, and military retirement pay.
Many are widows and orphans.
2. Values built over a lifetime, or even over generations, are
reduced or wiped out by inflation. Continued inflation is a tnreat
to the economy. It ultimately can lead to disaster and economic
collapse.
Those damaged by inflation include the many millions of savers in
the United States, the owners of bonds, owners of life-insurance
policies and savings accounts. Men and women paying into social
security make up another great list of savers. Ten million are now
receiving social-security benefits.
3. Another danger brought on by inflation is the difficulty of
industrial replacement. An individual or a company in the past,
laid aside so much per annum for replacement of plant, machinery,
and equipment. The dollars they have accumulated for that purpose
are now deflated and do not have the value necessary to purchase the
new equipment.
4. National debt and national expenditures are another great cause
of inflation, particularly when financed by sales of securities to banks.
Experience has shown that there is no limit to human desire for
goods and services, but there is a limit to the means by which these
desires can be satisfied.
We must remember that even though we are the richest nation on
earth, there is a limit to our resources. We are not rich enough for
everyone to have everything he wants. Therefore, when Government
attempts to carry out competitive political promises and undertakes
to supply the wants of groups and individuals, the cost is certain to
Wceed available revenues.
230
FINANCIAL CONDITION OF THE UNITED STATUS
In that event, increased debt is the natural consequence, and
inflation is brought on unless a definite policy of debt management
and retirement is adopted. This calls for fiscal and monetary disci
pline and a high level of official responsibility, but it is the only safe
course.
Mr. Chairman, we all enjoy prosperous times, but we want that
rosperity to be based on sound monetary and economic policies,
rosperous times have often caused the people to become overly
confident and even reckless.
There have been many financial depressions, panics, recessions, or
crises during the history of the United States. Let us briefly review
some of them:
The panic of 1819 was caused by the policy of the Government
fostering reckless purchases of public land on credit.
In 1837, we had a crisis which was also the result of speculation in
frontier farmlands. Again, too much borrowing.
In 1857, the crisis was brought about by speculation in real estate
and by the new railway lines opening up over the country. Again,
too much borrowing.
The collapse of 1873 was the aftermath of speculation in railroad
stocks and frontier lands. Again, too much borrowing.
‘
"
11 *'
“ ism in borrowing money
would not be able to
P
The 1907 crisis was caused by violent speculation making heavy
demands on banks and discount rates rose to an abnormally high
point. The $500 million borrowed in Europe added to our difficulties.
The crisis of 1929 was the result of excessive speculative activity in
the stock market. Again, too much borrowing.
I have great confidence in the American people when they under
stand a problem. This hearing is not for the purpose of advancing
any political party or individual, but it is to help build a better ana
stronger America.
Mr. Chairman, yesterday afternoon, we talked a little bit about
controls. I want to state that controls for World War I were ended
November 9, 1946, by President Truman.
Maybe I should remark that it was a few days after the election,
and the election of 1946 was based mainly on two things: Communism
in Government, and price controls.
We had controls put on January 26, 1951, for the Korean war; and
on February 2, 1953, President Eisenhower announced his intention
to let the price control authority die on April 20, 1953.
I felt, Mr. Chairman, that ought to be in the record.
Now, Mr. Secretary, is it not true that the inflation which has cut
the purchasing power of the dollar in half since 1939, has hurt the
holders of marketable United States Government bonds far more than
the decline of the market price of the bonds below 100?
Secretary Humphrey. That is correct.
Senator M artin. Did not by far the greater part of this inflation
occur while bond prices were pegged and interest rates were kept low?
Secretary Humphrey. That is correct, Mr. Senator.
Senator M a r t i n . Mr. Secretary, how many billions of dollars of
the United States Government bonds are in form which renders them
immune from market fluctuation?
FINANCIAL CONDITION OF THE UNITED STATES
231
Secretary Humphrey. Just 1 minute, sir.
It is all of the savings bonds, special issues and nonmarketables.
I will have the figure in just a minute. $114.9 billion.
Senator M artin . Now, Mr. Secretary, are these not the bonds
that are held by the great mass of people?
Secretary Humphrey. That is correct. Savings bonds are held by
about 40 million people.
Senator M artin . In the case of marketable United States Govern
ment bonds, will not most holders either hold them to maturity or
until the market prices have recovered, with the result that they will
not sustain any losses?
Secretary Humphrey. Anyone who does hold them to maturity, of
course, sustains no loss.
Senator M artin . Well, are they not held by a group-----Secretary Humphrey. They are largely held by holders or institu
tions that do not sell them at losses except for special purposes, or
where it is advantageous for them to do so.
Senator M artin . They usually buy them because they have a
certain amount of money to invest, and they figure that the United
States is about the safest investment that they can make, the bonds
of the United States are about the safest investment they can make?
Secretary Humphrey. It is the best investment in the world,
Mr. Senator.
Senator M artin . Mr. Secretary, have there not been wide fluctua
tions in the prices of marketable United States Government bonds in
the past?
Secretary Humphrey. There have.
Senator M artin . And in every case, did not the holders of the
bonds get 100 cents on the dollar at maturity?
Senator Humphrey. The Government has always paid a hundred
cents on the dollar at maturity.
Senator M a rtin . Are not freely fluctuating interest rates, in effect,
the safety valve of the monetary system?
Secretary Humphrey. That is correct; if you are going to operate
in a free economy, you must have fluctuating interest rates.
Senator M a rtin . In other words, is it not likely that measures
taken to keep interest rates low will create pressures within the system
which will lead to an explosion of inflation?
Secretary Humphrey. That is one of its causes.
Senator M a rtin . Am I correct in understanding that the alterna
tives to the Federal Reserve type of control which let interest rates
rise in response to demand for money, are more inflation, resulting
from the unrestrained creation of additional money?
Secretary Humphrey. That is correct.
Senator M artin . And second, regimentation in the form of specific
controls, including not only controls over specific commodity prices
but also controls which would limit or prevent certain types of borrow
ing or compel additional savings?
Secretary Humphrey. Well, just as soon as you eliminate the
natural controls, you have to substitute artificial controls or you will
have a swing that will be so wide that it will be disastrous.
Senator M artin . And, Mr. Secretary, we also could have voluntary
controls, but that is a very difficult thing to do.
Secretary Humphrey. It is extremely difficult.
232
FINANCIAL CONDITION OP THE UNITED STATES
Senator Martin. Of course, it is the thing that the President, in
his message on the state of the Union, suggested that corporations
and individuals would restrain borrowing as much as possible.
Secretary Humphrey. You can have, I think, Senator, voluntary
restraint, but you cannot have real voluntary control.
Senator Martin. It would be impossible, almost, to have a control
that would be sufficiently effective unless you had a large police power,
something which the American people would resent——
Secretary Humphrey. That is exactly-----Senator M artin (continuing). Very greatly.
Secretary Humphrey. That is exactly right. You would have to
go into rigid physical control, arbitrary controls, if you remove the
present federal Reserve monetary controls and eliminated their
operation.
Senator Martin. For example, we tried here a few years ago what
President Hoover termed a “noble experiment,” the 18th amendment,,
and we had a large police force, verv able attorneys in our Department
of Justice, and very courageous juages. But, nevertheless, the people
did not want to be controlled into their desires, in what they wanted.
Secretary Humphrey. Except during war periods which everyone
recognizes axe most unusual and requiring most unusual handling,
arbitrary controls have never worked.
Senator Martin. Well, of course, the ideal thing would be if cor
porations and individuals would control their borrowing so we would
not have high interest rates, and things of that kind. But that seems
to be impossible.
It seems to be impossible to have regimentation and controls, and
then about the onlv thing left is a plan which we now have, which
was the result of a hearing of this committee about 50 years ago, and
that is the Federal Reserve Board.
Secretary Humphrey. That is right.
Senator M artin. Mr. Secretary, I notice that in your statement,
you say that you have conducted your affairs so as not to interfere
with the Federal Reserve monetary policies.
Would you tell me just how you have worked with the Federal
Reserve, and what the relationship between the two organizations is
at the present time?
Secretary Humphrey. Well, as to the way we work, it is just the
simple, ordinary way in which two groups of people with independent
responsibilities would normally attempt to cooperate.
We have a system which has worked all the time we have been here
in which Mr. Martin comes over to the Treasury and we have a visit
every Monday at lunch; and then on Wednesday, as a rule, Mr.
Burgess and 2 or 3 of our people go over and visit with the Federal
Reserve Board and their staff.
So that we have a constant contact between the two organizations
all up and down the line, so that each knows what the other is talking
about and what the other is planning.
Now then, in our movements we discuss, each of us with the other,
what we plan to do and how we plan to do it. We hear what the
other has to say about it. Sometimes we can take into account
criticisms; sometimes we get very worthwhile criticisms that lead us
to alter our opinion somewhat.
Other times, we find that we stick to the opinions that we originally
had, and proceed.
FINANCIAL CONDITION OF THE UNITED STATES*.
233
But we operate together, each with his own final responsibility, but
each knowing what the other is doing and each hearing the position
of the other before final determinations are made.
Senator M a rtin . Your association with the Federal Reserve has
been considerable.
Now, the legislative and the executive and the judicial in Govern
ment are entirely separate, but at times they cooperate in order to
strengthen and improve the things of our country.
Secretary Humphrey. I think it is the most satisfactory way,
Senator Martin, to have two departments of the Government who
have responsibilities, independent responsibilities, working with each
other, and we have had a very satisfactory relationship in working with
Mr. Martin.
Senator M a rtin . M r. Secretary, in the questioning yesterday, the
Senator from Oklahoma indicated that he felt that the Treasury
faced extremely difficult problems, and I think introduced into the
record a day or two ago an editorial from the Wall Street Journal.
I am sure that that paper reaches a good many men in business.
But, with your permission, Mr. Chairman, I would like to read, or
rather, place in the record an editorial from the New York Times
of June 6, 1957. This editorial speaks relative to the work of the
Secretary as it relates to financing of our Federal obligations, the
difficulties he has had, and so forth, and I think it will be very helpful
to the members of the committee to have it before them.
The Chairman. If there is no objection, it will be inserted in the
record.
(The editorial referred to is as follows:)
[N ew Y o r k T im es, June 6,1957]
A
P r o b le m
Is
N ot
a
“ C r is is ”
When he takes over the reins as Secretary of the Treasury as successor to
George M. Humphrey, Robert B. Anderson will take over at the same time a
number of pieces of unfinished business that rate the designation of “ problems.”
Generally speaking, these problems are to be found in the area of debt manage
ment. They are the sort of problems that might be expected to beset an adminis
tration that (1) inherited a huge public debt, consisting in the main of short term
obligations, and (2) has been compelled to do its refinancing for 2 years now under
conditions of uninterrupted prosperity and tightening money rates.
It would be unrealistic to deny that these represent very real practical diffi
culties, and certainly they have constituted a major setback to the Treasury in its
lans to put the Federal debt on the sound permanent basis it wants to see it.
lut when political opponents and other critics of the administration employ the
term “ crisis” to describe this situation, publicly lament the danger of rising Gov
ernment interest costs and speak darkly of the “ threat to Government credit,”
they are being even more unrealistic.
Interest charges on the Federal debt amount at the present time to roughly
$7 biUion a year, and certainly this is a very substantial figure, judged by historic
standards. But let us keep things in perspective. Only a very smaU fraction of
that figure is attributable to the present and recent high cost of money. Lest
we forget, the Federal debt, which is now in the neighborhood of $280 biUion, was
only $50 biUion as recently as at the end of 1940. No nation can increase its
public debt by nearly fivefold, even under artificially easy interest rates, and not
expect a pretty spectacular rise in that part of the budget representing interest.
What is the answer, then? If you are to believe those critics who, one suspects,
are less worried by the Government refinancing problem than the inconveniences
to which they find themselves subject as a result of tight money it lies in a return
to cheap money. There is no question that such a program would help simplify
the immediate problems of the Treasury; but to stop there is to consider only one
side of the balance sheet.
§
234
FINANCIAL CONDITION OF THE UNITED STATES
The purpose behind the current policies of our monetary authorities is the
prevention of all-out inflation. As against the effect of a restrictive monetary
policy in this $7 billion annual figure, it is necessary, therefore, to consider for a
moment what a removal of the anti-inflation brakes could mean in terms of Gov
ernment costs as a whole.
A glance at the most recent figures on the gross national product shows spending
on goods and services by the Federal Government alone to be running currently
at an annual rate of approximately $50 billion a year. A rise in prices and living
costs, everything else being equal, therefore would mean an increase of $2.5 billion
in this figure; a price inflation of 10 percent would mean an increase of $5 billion,
and an increase of 14 percent would raise it by $7 billion, the amount of the total
“ burden” of carrying the public debt.
This is the simple basic arithmetic behind the fact that, while the Treasury
may not be particularly happy with conditions as they are, it realizes that, though
it may not be able to finance, for the time being, on as favorable terms as it would
wish, it is not complaining about the Federal Reserve Board’s monetary policies.
And it is not complaining because it knows that despite the immediate cost of those
policies they represent the best insurance man has yet devised against the infinitely
more costly danger of inflation.
Senator Martin. Mr. Secretary, the Senator from Oklahoma in the
course of his interrogation gave me the impression that he felt the
recent rising trend of interest rates might go on into the future for an
almost unlimited period.
It was my understanding that he made certain calculations or asked
you to make certain calculations on the assumption that all of the outstanding debt be refunded at present rates or even higher rates.
Do you believe that it is reasonable to assume a continuation of the
present interest rate level or a continuing increase in that level for the
next few years or indefinitely into the future?
Secretary H u m p h r e y . No; I think that it is apt to b e very mis
leading and contrary to historical fact, to pick any particular trend
say ^ is going to continue for any particular period.
The trend moves in a jagged line rather than in a straight fine.
Senator Martin. And the Government moves along similar lines to
business movements and individual movements?
Secretary H u m ph r ey . That is exactly right. Pressu res develop,
and counteracting pressures develop with them, and after a while the
counteracting pressures have an influence on the original pressures,
and you move back in another direction.
So that I personally do not think there is any reason to expect that
there will never be any change in the present direction. As a matter
of fact, as I said yesterday, I think there is every reason to expect
tnat we will fluctuate in the way in which we move forw a rd .
benator Martin. Mr. Secretary, have savings been low during the
past 4 years?
&
Secretary Humphrey. No. I think savings have been high during
the past 4 yeans.
Senator Martin. In your statement, you made a point which,
seemed very important to me. You say that the higher interestrates paid m the past few years have encouraged greater savings.
iJunng the 4 years 1953 to 1956, inclusive, our people saved more>
both m term s o f dollars, $75 billion of personal s a v i n g compared to
$56M bdhon in the preceding 4 years, and in relation to disposable
^ r iS ls
PCTCent “
C° m pared to 6 4 Percent, resp ectiv ely, in the
? feel very strongly that the only way we can improve our living
standards is through increased productivity, and the only way we can
increase productivity is by increased savings, and the investment of
FINANCIAL CONDITION OF THE UNITED STATES
235
those savings in new tools, machinery and equipment which'jenable
the working man to produce more goods per hour.
Now, that was discussed yesterday. Would you go just a little
further into that, Mr. Secretary, because I feel that it has a very
important bearing on the possible conclusions of this committee.
Secretary Humphrey. Well, savings, Senator Martin, are stimu
lated, first, by earnings. When there are good earnings, and good
employment, then savings are stimulated. Also stimulating savings
are better rents for the money, which is interest, a better return on the
money. And another necessary element is a feeling of security in
the value of the principal.
If you do not have any earnings, why, you do not have anything to
save. If you do not get any rent for your money, why, it is not
worthwhile.
If you have saved money, even though you have it and yon can
get high interest, if you are fearful that your principal will not be
returned to you, you will not continue to save. You spend the money
and turn it into goods if you are afraid the value of the money will
shrink away.
So that it takes a combination of those things to stimulate savings;
and when you have such a condition of affairs, that is when savings
move up.
Now the whole world is short of savings, and the whole world is
short of capital. This is not just in this country alone, but every
where in the world.
Senator M artin . Well, Mr. Secretary, we are having inflation all
over the world, practically every nation.
Secretary Humphrey. Many countries have inflation that far ex
ceeds our own.
Senator M artin . That is right.
Secretary Humphrey. And where inflationary pressures are far
greater. There are many countries in rather serious condition.
They also are short of money. They are short of funds. They all
want to buy more tools, more equipment. They all want to supple
ment their labor with physical aids of one kind or another—power,
machinery, and transportation.
There is hardly a country in the world which has not been here
seeking help from us, as well as in their own fields, to get more capital
to invest in more tools to make more and better jobs.
Our job is to see that we have enough in this country. We have a
million more people coming to work every year. There is no way in
the world that anybody can make the kmd of wages that we pay in
this country unless he can earn them. You cannot get more than
you can earn except over a limited period.
And if you are going to earn the high wages we pay here, you have
to have tools. You have to have equipment to work with. You
have to have all of the things that our modem inventions have pro
vided to work with to give you the earning power to permit the kind
of wages we want in this contry and the kind we ought to have, and to
maintain and increase our standard of living.
Senator M a r t i n . Thank you, M r . Secretary.
In the discussion yesterday, there was some colloquy about the
relative rates of savings in relation to disposable income during this
96819 0 — 57------- 16
236
FINANCIAL CONDITION OF THE TJNOTJD STATES
administration and the preceding 4 years. Emphasis was placed,
however, on only 2 preceding years.
I note that in 1947, savings as a percent of disposable income were
only 2.4 percent; in 1948, only 5.3; in 1949, only 4 percent; and in
1950, only 5.9; as compared to an average of over 7 percent during the
past 4 years.
I am particularly impressed with the rate of savings during the
past 4 years, in view of the fact that savings are almost high in a period
of war, and generally decline thereafter as they declined from 25
percent of disposable income in 1944 to 2.4 percent in 1947.
The fact that savings for the past 4 years are higher, represent a
larger proportion of disposable personal income than in the preceding
4 years, is doubly remarkable.
Secretary Humphrey. Of course, Mr, Senator, when you have as
we have had in previous times, periods when you have limited goods
that you can buy, and controls on what you can spend, why, naturally
those conditions tend to increase savings rather than spending.
Senator Martin. Mr. Secretary, has credit been unduly curtailed
during the past 4 years?
Secretary Humphrey. I think not.
Senator Martin. I would like to read these figures, and you correct
me if they are not right, if I am incorrect:
First, contrary to the impression that some people seem to have,
the amount of credit has not been reduced in the last 4 years, but
substantially increased. It increased $146.5 billion from December
31, 1952, to December 31, 1956,
As I would figure that, it would amount to an increase in 4 years of
about 23 percent. Are those figures, which I have given you, correct?
Secretary Humphrey, I think that is correct. It is up about a
quarter, I would say.
Senator Martin. About 25.
Now, I would like to make this statement: The fact is that ap
proximately 93 percent of this additional credit came from savings,
and that only 7 percent came from an expansion in the money supply,
and on page 36 of your statement you point out that this compares
with 88 percent from savings and 12 percent from the expansion in
money supply in the period 1948-52, and only 75 percent from savings
and 25 percent from increased money supply in the period 1944HL8?
Secretary Humphrey. That is correct.
Senator Martin. Mr. Secretary, I have been impressed, while listen
ing to these hearings, with two related items; namely, (1) the extent
to which inflation robs almost all of our people; and (2) the importance
of personal sayings as an anti-inflationary force.
Most individuals endeavor in one way or another to provide for
their later years. Millions have sought protection through life and
other forms of insurance. Many persons are covered by private pen
sion plans, social security, retirement systems, and so forth.
In addition, the Government has instituted a series of programs to
aid the less fortunate, including aid to dependent children, to the
blind, the disabled, and veterans.
Mr. Secretary, do you not think there is a strong national interest
to protect these private and public programs of insurance and protec
tion of the individual?
Secretary Humphrey. I certainly do.
FINANCIAL CONDITION OF THE UNITED STATES
237
Senator M artin. Do you think it is more important that those
dependent on these various programs should be protected by a rela
tively stable price level, or that interest costs should be artificially
kept down?
Secretary H u m p h r e y . Well, I think that the movement of interest
is one of the principal things which helps to protect them, and I think
they are the people who are least able to look after themselves, and
they are entitled to the maximum of protection that we can give.
Senator M artin. Mr. Secretary, I am not asking you to verify
these figures, because these are figures that I have secured from the
various bureaus downtown, and I feel they are accurate.
There are 106 million life-insurance policyholders as of December
31, 1956. Are these savers?
Secretary Humphrey. They certainly are.
Senator M artin . Mr. Secretary, there are 14 million persons
covered by private pension plans in 1956, according to the Depart
ment of Health, Education, and Welfare. Do you consider these as
savers?
Secretary Humphrey. They are.
Senator M artin . Mr. Secretary, there are 10 million persons re
ceiving social-security benefits in June 1957.
Secretary Humphrey. They are.
Senator M artin . Mr. Secretary, there are 2% million persons
receiving old-age assistance.
Secretary Humphrey. They are interested, they are very interested,
in the protection of the value of the dollar, but I do not know whether
you would call them-----Senator M artin . They would be very greatly damaged by deflated
dollars.
Secretary Humphrey. That is correct.
Senator M artin . There are over 600-----Secretary Humphrey. And I think that also is true of the preceding
classifications.
Senator M a rtin . That is correct.
There are also over 600,000 families receiving aid for dependent
children. They would also be adversely affected by deflated dollars?
Secretary Humphrey. That is correct.
Senator M a rtin . There are over a hundred thousand receiving aid
to the blind, and they would be greatly damaged by a deflated dollar?
Secretary Humphrey. That is right.
Senator M a rtin . And there are almost 300,000 receiving aid for
total and permanent disability. They would be adversely affected
by a deflated dollar?
Secretary Humphrey. That is correct.
Senator M a rtin . There are 1,165,855 veterans drawing pensions
•• of March 31, 1957. They would be greatly affected by a deflated
dollar?
Secretary Humphrey. They would.
Senator M a rtin . And there are oyer 2 million veterans receiving
Oompensation for service-connected disabilities. They would be ad
versely affected by a deflated dollar?
Secretary Humphrey. They would.
Senator Mabtin. And their survivors, about 385,250—they would
we affected by the deflated dollar?
238
FINANCIAL CONDFTION OF THB UNITED STATES
Secretary H um phrey. Everyone who has a fixed dollar income is
adversely affected by the shrinkage of the dollar.
Senator M a r t i n . Well, you have in addition to that, those r e c e iv in g
railroad pensions, pretty nearly 700,000; civil-service retirement,
270,000; military retired status, almost 200,000. They would all be
affected?
Secretary Humphrey. They are all affected.
Senator M a r t i n . I am told that there are about 40 million holders
of E-bonds.
Secretary Humphrey. That is correct.
Senator M a r t i n . And of course they would be affected by a de
flated dollar.
Secretary Humphrey. That is right.
Senator M a r t i n . Now, that adds up to 180,755,592.
I realize that there-are a great number of those that are in two
categories.
Now then, we have in the United States 52,539,396 savings accounts,
and they would be affected?
Secretary Humphrey. That is correct.
Senator Martin. And that should, of course, be added to the 180
million that I indicated a moment ago, with of course many duplica
tions in that total figure.
Mr. Chairman, I would like to introduce into the record at this
time an editorial from the Wall Street Journal which the Senator from
Oklahoma and all of us read, sometimes very critically, and some
times—it all depends on whether we approve of what it says.
But this editorial, the subject is “The Forgotten People,” and they
go into what I have just discussed. I would like to have it printed in
the record.
The C h a i r m a n . If there is no objection, it is ordered.
(The editorial referred to is as follows:)
[Wall Street Journal]
R e v ie w and O utlook
THE FOB GOTTEN PEOPLE
Almost everybody is now familiar with the fact that when the monetary
authorities take to the printing press the victims of this generosity are the citizens
of modest means who depend on their insurance, their pension funds, and their
personal savings to safeguard their future.
Almost everyone, that is, except some politicians. If, in President Roosevelt’s
solicitous phrase, there are any forgotten men, they are the ones who during his
administration were beguiled by the dream of “ How to Retire on $100 a Month91
and, let us say, entrusted their savings to the bonds his Treasury was then selling
in large number. Those people, at any rate, have learned the difference between
money and a paper dollar.
Curiously, these are still the forgotten people. Today the villain of many a
politician is something called hard money, meaning simply that of late the supply
of it has been kept fairly stable while the demand for it has been growing. Result:
Those who would borrow must pay a higher price.
To a great many politicians this is just a nefarious plot to enrich somebody
called the bankers. It is supposed to be all the fault of the Government’s mone
tary policy—why is it so stingy about printing dollar bills?—and it is supposed to
be a terribly wicked thing to do to the little people.
That is one reason why we hope some attention will be paid to the remarks of
Secretary Humphrey to the Senate Finance Committee. Among other things.
Mr. Humphrey reminds the Senators that not aU of*their constituents find hard
money a hardship.
FINANCIAL CONDITION OF THE UNITED STATES
239
Most people are savers as well as borrowers; unlike their Government, the
generality of Americans still attach some virtue to thrift. Many people have
savings in bonds of the Government of the United States. Many have their
money in banks, in savings and loan associations, and in insurance annuities.
Many are taking a part of today's pay in contributions to pension funds for the
future.
As far as these citizens are concerned, the bankers, the insurance companies,
and the managers of the pension funds are trustees. But the real trustees are
the Government’s managers of money, including the Secretary of the Treasury.
The bankers, the insurance companies, and the pension managers will pay out
dollar bills tomorrow, as scheduled. The value of those future dollars depends
on the money managers.
Mr. Humphrey points out, as is true, that these citizens may profit directly
from higher interest rates; the brokers of money will pay the citizen more to save
his money. But that is only a small part of the point. The real gain is not in
the higher interest rate itself, but in the reason for the higher interest rate—
namely, the fact that so far the money managers have resisted the temptation to
make money cheap by cheapening it.
Governments being what they are, we cannot say how long that resolution will
be held. But at least the Senators have learned there is one Government official
who remembers their forgotten constituents.
Senator M artin . Mr. Secretary, of course we have, on the other
side, the number of borrowers. These others are pretty generally
savers.
Of course, there is much duplication in this, but I feel it is only
fair that it be inserted in the record.
There are 121,209,300 who we would jberm as borrowers in our
country. Of course, they are interested in a low interest rate; but,
on the other hand, Mr. Secretary, should they not also be interested
in stability—that when they arrange a loan, they figure the future is
stable?
Secretary Humphrey. I think that stability is a very great benefit
to all of the people, with the possible exception of very agile specu
lators.
Senator M artin . I feel that is a very true statement.
Yesterday, Mr. Secretary, my good and distinguished friend from
Oklahoma spoke about banks requiring the borrower to keep a
certain percentage of the loan that he receives in the bank.
Is that not just a business practice which has gone on over the
years? It is not just forced, but if a man expects to get accommoda
tions from a bank, he is expected to do his business at that bank?
Secretary Humphrey. That is correct. It has been in vogue for
a long time in varying degrees.
Senator M artin . Yes, that is correct; there is no question about
that.
Now, Mr. Secretary, we will take up another line.
Is it not true that the total supply of goods and services did not
increase as fast as the total supply of credit and money which entered
the market for those goods?
Secretary Humphrey. I think that is right.
Senator M a rtin . In the current market, products and services
generally are scarce only in the sense that they cannot be bought at
tower prices or those of a year ago?
Secretary Humphrey. Well, wherever prices have advanced, of
course they cannot be bought for the same prices they had a year ago,
and that affects a lot of goods.
240
FINANCIAL CONDITION OF THE UNITED STATES
Senator M artin. The price of goods has gone up because of in
creased costs of wages, raw materials, transportation, and so forth;
is that not correct?
Secretary Humphrey. I think cost is at the bottom of it, and cost
and demand are the two things, I think, that most largely affect
price.
Senator Mabtin. Inflation should not be applied to any particular
product or products, but relates to the whole economy, all types of
goods, and so forth?
Secretary Humphrey. That is what we are talking about; yes, sir.
Senator M artin. Mr. Secretary, I have some statistics taken from
the June issue of Economic Indicators; and I would like at this time,
Mr. Chairman, to read these and ask the Secretary to make whatever
comment he may desire to make.
Gross national product increased from $390.9 billion in 1955 to
$412.4 billion in 1956, and $427.1 billion rate in the first quarter of
1957, a 9.3 percent increase in the period from 1955 to the first quarter
of 1957.
Personal consumption expenditures increased from $254 billion in
1955, $265.7 billion in 1956, and $275 billion rate in the first quarter
of 1957, an 8.3 percent increase from 1955 to the first quarter of 1957.
Compensation of employees increased from $223.2 billion in 1955,
to $239.1 billion in 1956, and $248.7 billion rate in the first quarter of
1957, an 11.4 percent increase, 1955 to first quarter 1957.
Disposable personal income increased from $270.6 billion in 1955,
$286.7 billion in 1956, to $295.4 billion rate first quarter 1957, a 9.2
percentage increase, 1955 to first quarter 1957.
How do these rates of increase compare with actual production
rates of goods and services covered by the Consumer Price Index?
Secretary Humphrey. Well, you mean how does the increase in
wages and total income compare with the increased production?
Senator Martin. If you want to compile that and put it in the
record----Secretary Humphrey. I think that is what we had better do,
because this will take a little computation, Senator, to figtpe it out.
Senator Martin. I think it is very important the committee have
it when we go----Secretary Humphrey. If we may do so, we will figure it out and I
will bring it back and put it in the record.
(The information referred to is as follows:)
Increases in selected economic indicatorsf 1955-67
[In billions of dollars)
Calendar year
Gross national product.......................................... .
Consumer expenditures.................................................
Disposable personal income................ ..........................
Compensation of employees................................... ........
im
1966
390.9
254.0
270.6
223.2
412.4
265.7
286.7
239.1
1957,1st
quarter
(annual
rate)
427.1
276.0
295.4
248.7
Percent
change,
1965-67,
1st quarter
+9.1
+8.1
+9,2
+11.4
FINANCIAL CONDITION OF THE UNITED STATES
241
Senator M artin . While the means taken to check inflation have
helped to cause rising interest rates and increase the total interest
outlay of the Federal Government, is it not practically certain that
the checking of inflation has saved the Government much more money
in its other expenditures than it has had to pay out in additional
interest?
Secretary Humphrey. Many times.
Senator M a rtin . Is this not true, also, of nearly all other borrowers,
including State and local governments, business concerns, and
individuals?
Secretary Humphrey. It is true for everyone.
Senator M artin . Should not special measures designed to sustain
or stimulate particular parts of the economy be reserved largely for
use in times of lessened business activity?
Secretary Humphrey. What is that?
Senator M a rtin . Should not special measures designed to sustain
or stimulate particular parts of the economy be reserved largely for
times of lessened business activity? For example, Mr. Secretary,
many have advocated over the years that Government ought to do
its work when things are down, and, when things are up, should
leave that for individuals and private industry.
Secretary Humphrey. I think, of course, it is always helpful if
Government expenditures, such as can be postponed, do not compete
in times of high activity in the private economy, because it simply
puts that additional pressure on the private economy.
That does not mean that you can suspend Government operations,
but it does mean that anything the Government can do toward leveling
out its own activities is a very helpful thing, because it removes part
of the competition for men and materials and money.
Senator M a rtin . There was a school of thought in governors
conferences several years ago, and you will note that the President,
in speaking to the governors conference Monday evening, suggested
that, if the States would assume some of these liabilities, it would
decrease the cost to the Federal Government.
Of course, the unfortunate part is, the Federal Government has the
choice of taxes, and then what is left goes back to the States and the
local government. That is an unfortunate situation.
A few years ago—they are talking now about a conference—the
chairman and myself and a few others met in conferences for 2 or 3
years, I think, Mr. Chairman, trying to work out something along that
line, but it was most difficult to accomplish anything. I am not sure
but that you, too, Senator Kerr, might have been on that conference
at one time.
# Mr. Secretary, is it not ture that interest rates have risen materially
m other countries as well as in the United States?
Secretary H u m p h re y . It is true.
Senator M a r t i n . Is it not true that higher interest rates benefit
Bullions of savers, both as to interest returns and protection of savings
from depreciation resulting from inflation? We discussed that a little
m detail, but I wanted to-----Secretary H u m p h re y . That is true •yes, sir.
Senator m artin. It is helpful, really, as to both?
Secretary H u m p h re y . That is right.
242
FINANCIAL CONDITION OF THE UNITED STATES
Senator Martin. Do changes in interest rates in themselves have
much effect in restraining or stimulating borrowing by business
concerns?
Secretary H u m p h r e y . Over a period of time, I think t h e y d o .
None of these things are effective immediately. There is a lag in th e
effect that they have, and, over a period, they will become effective.
Senator Martin. Would a material increase in savings relieve
tight-money conditions?
Secretary Humphrey. It would.
Senator Martin. Have the actions of the Federal Reserve and the
Treasury encouraged or discouraged savings?
Secretary H u m p h r e y . We are trying to do everything we can to
encourage savings. We believe that our activities are encouraging to
savings. We think we have the conditions under which the stimula
tion of savings is best promoted.
Senator Martin. Mr. Secretary, do you think a year-by-year
inflation of 2 or 3 percent would discourage savings?
Secretary H u m p h r e y . Well, Senator, I do not believe that there is
any way you can have a creeping inflation. I just do not believe
there is any power which will permit you to be just a little bit inflated
all the time. I think, if you pursue that course, and unless you
attempt to reverse that course, it will get beyond control.
It has been the history of every country in the world, so far, that
it has been impossible to have just a little bit of controlled inflation.
Now, over a long period of time, prices may rise. But what usually
happens is that the quality and kind of goods so change that it is
almost impossible to get longtime price comparisons.
Senator Martin. Of course, Mr. Secretary, there are a lot of indi
viduals, corporations, and so forth, that like easy money. For ex
ample, we talk about housing. Men who are building houses now are
complaining of tight money because, of course, if we have easy money,
their sales are easier. I am just using that as one example. There
are many others.
/
Secretary H u m p h r e y . If you could just have the benefits of easy
money without the obligations and the detriments of easy money,
why, of course, everybody would like it.
Senator M a r t in . Just like everybody now wants to curtail, they
say, Federal expenditures. They want to reduce the budget. But,
in my letters, I get a very good letter to reduce expenditures, and then
in the last paragraph, “But we need----- .”
Secretary Humphrey. “But not for me.”
Senator Martin. “We need to build a dam here for flood control
on this,” and I am talking about Pennsylvania people now; I am not^
referring to anybody else. Would not, if we had a little inflation
every year, would that not make it harder and harder to finance the
public debt?
Secretary H u m p h r e y . It would. I think controlled, creeping infla
tion is just an idle dream. 1 do not think you can control it to have
it come out that way. And I think it is a good deal like taking just
a little dope.
Senator M a r t in . One highball may not be so bad, a lot of doctors
prescribe that; but when a fellow takes several, he is in trouble.
Senator A n d e r s o n . What was the answer? I did not hear you.
[Laughter.]
FINANCIAL CONDITION OF THE UNITED STATES
243
Secretary H u m p h r e y . I think the answer should be, the witness is
disqualified. [Laughter.]
Senator M a r t i n . M r . Secretary, do you believe the average saver
is just as interested in maintaining the value of his savings as he is in
the interest rate he will earn, or even more so?
Secretary H u m p h r e y . He is even more so.
Senator M a r t i n . Mr Secretary, has your Department ever figured
the real net return to investors, say, on E-bonds or any other bonds,
Government or private, taking into account also the effect of inflation?
Before you answer that, I would just like to use this illustration:
A $750 investment in May 1942, was to mature in May 1952, with a
value of $1,000, or an effective interest rate of 2.9 percent.
In 1952, what do we find? To get an equivalent value to the $750
of 1942, the investor would have to get about $1,400, but he got
$400 less. Also, out of the $250 cheaper dollars earned as interest,
the lowest income-tax payer would have had to pay about $50 in
income tax. So he actually only got $950, compared to $1,400
necessary to equalize his $750 investment value in 1942.
The $950 repayment represents about a $450 loss in real purchasing
power. It figures out that that investor, instead of making a real
rate of return of 2.9 percent on his investment, that small investor
has lost about 2.9 percent a year, instead of a gain.
Secretary H u m p h r e y . Well, I think that again, if we might have
the privilege of checking it out, it would be desirable.
Senator M a r t i n . I f that is agreeable with the chairman.
Mr. Chairman, I have been talking about the high cost of Govern
ment and of inflation, and a young farmer stopped me some time ago
and said, “I would like to give you a good illustration.”
He said, “Ten years ago, I bought a bond, paid $750 for it. The
other day I cashed it, and got my $1,000. When I bought that bond
in 1942, I could have bought a Ford car or Chevrolet. Now,” he
said, “it won’t buy half of a Ford or Chevrolet.”
And I thought it was a very, very good illustration of what inflation
does to us.
But you will give us your calculation?
Secretary Humphrey. I will.
(The information referred to is as follows:)
The attached table illustrates the net effect of inflation between May 1942
and May 1952 on the purchase of a series E savings bond— or any other fixed
dollar obligation, like a corporate bond, a municipal bond, or a savings account.
Restoration of confidence in the purchasing power of the dollar is an added
incentive to save in all of these forms of investment.
Effect of inflation on a $750 investment at 2,9 percent made in M ay 194&
in M ay 1952
and
maturing
Consumer Adjusted for
Without
price
price adjust prices (May
changes
1942-100)
ment
Cost (May 1942)
...............................................
Value at maturity (May 1962)................................-.............
$750
1,000
+250
Effective interest rain I fnAmmt)
*.
Percent
$750
014
100.0
162.8
—136
+62.8
-2 .0
2.9
....
i Compounded semlannnally.
244
FINANCIAL CONDITION OF THE UNITED STATES
Senator Martin. Mr. Secretary, I think we have this, but I think
it is important to have it clearly:
How many holders of E bonds do we have?
Secretary Humphrey. I think it is about 40 million.
Senator M artin. I think that is right. I think that is what we
have.
Mr. Secretary, do you not think these investors are far more in
terested in protection of the capital investment than in the cheap
money, low interest rates, advocated by many?
Secretary Humphrey. Well, I believe it is far better for them.
Senator martin. When they would understand the situation as to
what it means, they would be much more interested in their invest
ment than they would be in the interest rate?
Secretary Humphrey. In the stability of their investment.
Senator Martin. That is right.
Secretary Humphrey. Yes.
Senator Martin. Mr. Secretary, is it not the purpose of restrictive
monetary and credit control to protect these savings as well as all
other savings?
Secretary Humphrey. That is the purpose of it.
Senator Martin. Does not the experience after World War II
teach us artificially induced low interest rates and swollen credits at
any time, must be paid for by inflation?
Secretary Humphrey. I believe that is inevitable.
Senator Martin. Is this not, in effect, a kind of defrauding of all
who make savings provisions of any kind?
Secretary Humphrey. Well, it is an injury. I do not know that
you can say there is a fraud, but it certainly is an injury.
Senator Martin. I am using the word “fraud” because a very fine
economic commentator made the statement, I just read it last night,
that he considered it the greatest swindle that was ever imposed upon
the American people.
Now, I would not want to go that far, but it shows how many
people are beginning to think about these things.
Mr. Chairman, I am having a tabulation or an estimate made
which will show the many billions, several hundred billions, perhaps,
which have been lost by all who have saved since the inflation began
in the early 1940's to date, and I hope I may present it to the com
mittee and for the record. The effect of inflation upon millions of our
citizens is appalling to contemplate.
I would like to submit it at a later date.
Mr. Secretary, have you any comments to make on the large num
bers of bankruptcies which have been referred to in these hearings?
Secretary Humphrey. No; I think not. I think that the bank
ruptcy and failure figures were brought out. Most of these bank
ruptcies weren't business failures.
There are other failures than just business failures. And I think
we had those figures all put in the record the other day.
Senator M artin. Mr. Chairman, I appreciate your courtesy in
permitting me the opportunity of examining the Secretary of the
Treasury.
And, Mr. Humphrey, I want to thank you for your help and, I
think, the fine and intelligent manner in which you have answered
these inquiries.
FINANCIAL CONDITION OF THE UNITED STATES
245
Mr. Chairman, in my opening statement I said that I hoped this
committee, and I felt that we would because we represent so many
different ideas of political philosophy and things of that kind, that we
would get together and make some recommendations which would be
helpful to our country.
Because the fact is, Mr. Chairman, the greatness of our country,
the reason we have been able in less than 200 years to clear out a
wilderness, to cut the timber and put it into useful purposes, to explore
the mines, to build bridges across these great rivers, it has all been
done because the people had an incentive to save their money and to
put it into things that would be useful for all our people.
Mr. Chairman, there never has been anything like it in the world.
And, personally, I feel that it is because of the free economic policy
that we have enjoyed in our country.
Of course, we have had a hard-working, thrifty people, and again,
I feel that we will be able to make some recommendations which may
be helpful in stabilizing our economy.
Personally, I feel that the great danger in our Nation today is too
much government. We have too much government at all three
levels, the Federal, the State, and local. But it is largely because
the people demand it.
In our country, it is we, the people, who are the Government. And
if we can arouse, in this committee work, if we can arouse a greater
interest in the financial condition of our country, and the individual
responsibility, I think this hearing will be very well worth while.
Thank you very much.
The Chairman. Thank you, Senator Martin.
The Chair recognizes Senator Frear.
Senator F rear. May I inquire of the chairman how long we will
run or propose to run today?
The Chairman. We will run so long as the situation in the Senate
permits. There will not be an afternoon session.
Senator F rear. We will not have an afternoon session?
The Chairman. There will not be an afternoon session. I have
not been advised as to whether there will be a calendar call.
If they call the calendar, I assume we can run until noon.
Senator F rear. Mr. Chairman, I hate to delay this, but would you
rmit me a few minutes to take some figures over the telephone
fore testimony, with the permission of the Secretary?
Senator B ennett. Mr. Chairman, I suggest we take a 10-minute,
seventh-inning stretch.
(Short recess.)
The Chairman. The committee will come to order.
The Senator from Delaware, Senator Frear, is recognized.
Senator F rear. Mr. Secretary, before starting to ask my few
questions, I want to reiterate a statement I made on previous occasions,
and that is that I have great respect for your ability in business, your
devotion to America, and as Secretary of the Treasury.
In spite of our differences, I believe you have made an outstanding
tod enviable record as Secretary, and personally, I am sorry that you
*re resigning.
I*8t Wednesday, I believe, you stated in your testimony during
orator Byrd's questioning that, and I quote:
G
lJ*«Bure8 of inflation increased during the last 12 months due to higher income
greater desires for goods and services.
246
FINANCIAL CONDITION OF THE UNITED STATES
Is it not true that there is a surplus in most all goods, especially
farm products, automobiles, most types of steel, household appliances,
soft goods, and others?
Secretary Humphrey. They are beginning to be looser, in freer
supply all along the line.
Senator Frear. You did give to the Senator from Oklahoma yester
day, I believe, those goods that were not in surplus.
Secretary Humphrey. I gave him a list of various things that had
not been in surplus, and various dates when they were not.
Over the past 3-year period, I think.
Senator Frear. Yes, sir.
If I remember correctly, during the hearings on the Internal Revenue
Code of 1954, when you appeared before this committee, you testified
that it was your opinion, I believe, that in lieu of increasing personal
income taxes as a reduction to taxpayers generally, you thought it
better to give a reduction in taxes to corporations or to large businesses
in order that that money might be used to increase the facilities of
production of this country.
Secretary H u m p h r e y . Well, Senator, the tax reduction at that
time was largely to individuals. It also went clear across the board.
Now, I think perhaps the testimony you are referring to might be
at the time we took off the excess-profits tax. You remember that
was scheduled to come off first under existing legislation.
But you see, the corporation tax was not reduced. The taxes
reduced were the individual taxes.
Senator Frear. 1 am gomg to get into taxes a little bit later in
your testimony.
Secretary H u m p h r e y . I am talking about rates.
Senator Frear. Later in your testimony.
What I am trying to gather now is this: Is it or is it not true that
it was your opinion at that time that in lieu of greater tax reduction
to the individual, we should take into cognizance that if we do give
any tax reduction, it should go to the people who have facilities for
increasing production?
Secretary H u m p h r e y . Well, I do not know that I can recall the
figures now, but just roughly, that was about $7 billion of tax reduc
tion involved.
Senator Frear. Let us not get into that, Mr. Secretary.
Secretary H u m p h r e y . Now, you----Senator Frear. Really, I want to get down to questioning on that,
and I am afraid this will not bring out the point I am leading up to
right now.
Secretary Humphrey. I think perhaps what we had better do is
to—if you want to get into the tax field—I might get Dan Smith to
come in, who has afl these figures. It is awfully hard for me to try
to keep them in mind for 2 or 3 years. But, as I recall it-----Senator Frear. I am going to ask you questions on the $7.5 billion.
ir e y . I can only answer you by giving you, as
Senator Frear. This is your theory or opinion?
Secretary Humphrey. No.
Senator Frear. If I am wrong in that, I want to be corrected.
Secretary Humphrey. You are wrong in that. I favored a tax
reduction all across the board. I have favored an individual tax re
duction.
FINANCIAL CONDITION OF THE UNITED STATES
247
We did not have a corporate tax reduction in rates. I favored
individual tax reductions across the board.
Senator F rear. Yes, sir.
S e cre ta ry Humphrey. I fig u red if w e d id h a v e an excise ta x re
d u ctio n , th e n I fig u re d w e o u g h t to h a v e so m e re a d ju stm e n ts in the
co d e fo r p a r tic u la r h a rd sh ip s w h ic h a ffe c te d b o th in d iv id u a ls an d
businesses.
Senator F rear. Yes, sir.
S e cre ta ry Humphrey. Now, th a t was b y fa r th e sm a llest p a rt o f
the to ta l r e d u c tio n .
T h a t w a s a b o u t, as I reca ll it, all o f the r e d u c
tion s in th e c o d e r e v is io n — all o f th e re a d ju s tm e n ts b e n e fitin g b o th
in d iv id u a ls a n d bu sin esses— to ta le d a b o u t $1.4 b illio n o u t o f th e $7
b illion .
Senator F rear. Do you recall—I think it was between you and
myself, Mr. Secretary—when we were debating the advantages and
disadvantages of raising the personal exemption on income taxes?
The Democrats were in the minority and I was sitting over on that
side; the light was pretty hard on my eyes over there and I was not
quite sure of the reflection of your face at the time.
Secretary Humphrey. Oh, yes.
Senator F rear. And I thought it was your statement, or your
opinion, at the time, rather than raising the personal exemption, that
if and when we were going to give some tax easement it might first be
applied to the producers of goods. That was general.
Secretary Humphrey. No, that was the last thing that was applied.
Now, I objected to the increase in the exemption, and I still object
to that.
I think that the proper method of tax reduction relates to rates, and
I think that rates are the first things to be investigated.
I think that any tax reduction, any proper tax reduction, should go
all across the board. It ought to affect every single taxpayer, and
every single taxpayer ought to have his share of whatever is done.
Senator F rear. Yes, sir.
Well, in your refuting that piece of legislation or in your objections
to that piece of legislation, did you in any way state that you thought
some relief should be given to the producers of supplies and materials?
Secretary Humphrey. I think one of the things to be taken into
account in balancing out an across-the-board reduction, is the things
that will stimulate further activity.
That is one of the elements to consider.
Senator F rear. Was it not your opinion at that time that we had
quite a large reservoir of money in the hands of people that they
wanted to spend, and without an ample supply of products and sup
plies and other manufactured goods in this country, that it would
tend to inflate, because they would be bidding against each other for
these materials and goods that were available, and rather than to
have it that way, that is bidding against each other, it might be better
to increase the production of this country to avoid it?
Secretary Humphrey. Well, of course, I think that we must look
forward in this country to increasing our facilities. We must look
forward to increasing jobs; to make more and better jobs is one of the
principal objectives of this country, and by having more and better
jobs, that is the best way to get more money in the hands of the people.
Senator Frear. Also during that time, during those hearings, I
248
FINANCIAL CONDITION OF THE UNITED STATES
believe we had the rapid amortization before us, or at least it was
discussed at that time----Secretary H u m p h r e y . N o . I think you are thinking the right
line, but using the wrong words. It was not rapid amortization. That
did not come up at that time. That was all done prior to that time,
and I was objecting to it, not as part of the law, but in its application.
What we were talking about was a revision of the depreciation.
Senator F r e a r . Yes. We did have----Secretary H u m p h r e y . We did revise the method of depreciation.
Senator F r e a r . Yes, that was in that code. But during the debate
on that, was not rapid amortization brought into the picture at that
time?
Secretary H u m p h r e y . No.
Senator F r e a r . Y o u do n ot recall it?
S ecretary H u m p h r e y . I d o recall there w as n o change in rapid
am ortization at that time at all.
Senator F r e a r . Mr. Secretary, I recognize that perhaps there was
not any change in that, but during the hearings and during the debate,
did we not discuss rapid amortization at that time?
Secretary H u m p h r e y . Well, I really do not recall it. I doubt it,
Senator, because it was not a subject that would be germane to the
issue at all.
Senator F r e a r . Sometimes we get off the track a little bit. [Laugh
ter.]
Secretary H u m p h r e y . I stand corrected to that extent.
Senator F r e a r . But you do not recall any discussion on the rapid
amortization?
Secretary H u m p h r e y . No, I do not recall it.
As I recall, the situation with rapid amortization was this: That
law was passed in connection with the war, and it was for the purpose
of----Senator F r e a r . Which war?
Secretary H u m p h r e y (continuing). O f providing war materials.
Senator F r e a r . Which war?
Secretary H u m p h r e y . It w as during the Second World War, I
believe, that it started.
Senator F r e a r . Yes, sir.
Is it not true that we had a rapid amortization or something similar
to that in depreciation in World War I, and the World War II situa
tion was somewhat similar to what we had done in World War I?
Secretary H u m p h r e y . As I recall it, in World War I, it was done
in quite a different way. And then in World War II we had the rapid
amortization, and then I took the position, I think, before this very
committee, Mr.^ Chairman, with the chairman’s backing, that that
should be curtailed, that it had outlived its usefulness and we ought
to curtail rapid amortization, and we went to work about 3 years ago
to curtail it, and we have curtailed it very materially since then.
Senator F r e a r . That was the theory of depreciation that we had
in World War I and World War II, was it not?
Secretary H u m p h r e y . No. This rapid amortization was a special
provision that was outside----Senator F r e a r . When d id that come into effect?
Secretary H u m p h r e y . I will have to look up the date of that. It
was a war measure, and I will find the date and give it to you. (The
FINANCIAL CONDITION OF THE UNITED STATES
249
emergency amortization during World War II was authorized by the
Second Revenue Act of 1940, approved October 8, 1940.)
Senator F rear. Yes, sir.
Now, what did we do to that act in the Revenue Code of 1954?
Secretary Humphrey. We did not touch it, as I recall, Senator.
Senator F rear. Did we do anything to it between World War II
and the revenue code change to it?
Secretary Humphrey. It was reenacted in the Revenue Act of 1950
for the Korean conflict. Perhaps the chairman can help me. But I
do not recall any change in that law at all except what we did, which
I instigated, to reduce it, to reduce its application and its use because
I thought it was no longer useful, and it had outlived its original
purpose, and I recall no change proposed in that law in any way until
the chairman introduced a bill here about 2 months ago to curtail it.
Senator Frear. When did it get the name “rapid amortization”?
Secretary Humphrey. At the time enacted.
Senator F rear. It is depreciation?
Secretary Humphrey. No, it is not depreciation; it is rapid amor
tization to stimulate increased productive capacity.
Senator F rear. It was done for a specific purpose?
Secretary Humphrey. That is correct.
Senator F rear. As I understood it, it was to stimulate the effort
on the part of some of our people to produce war materials.
Secretary Humphrey. That is exactly right.
Senator Frear. And it was mainly for erecting buildings or making
machines or something that would be of no use to the domestic econ
omy of the country and only for war purposes?
Secretary Humphrey. That was the original understanding.
Senator F rear. That was the original understanding and that
continued on during the Korean war?
Secretary Humphrey. Yes, it did.
Senator F rear. And it has been practically the same except for
the modifications, as you suggest and the chairman has suggested
aince that time?
Secretary Humphrey. That continued on until we started its cur
tailment about 3 years ago in practical application, and closed out one
goal after another until it was reduced to say 15 goals or something
of that kind from a great many, thus reducing its scope to very insig
nificant amounts, at the time the chairman introduced a bill of his in
the Senate here about 2 months ago, 3 months ago.
Senator F rear. Yes.
#Secretary Humphrey. Restricting it to about its present applica
tion.
#Senator Frear. What is the difference between the rapid amortiza
tion which requires a certificate from the ODM and the changes in
depreciation that were made in the Revenue Act of 1954?
Secretary Humphrey. Well, it is quite different. The depreciation
changes were a method simply of computing the timing on when you
fot your money back on an investment you had made, that applied to
•*erybody.
Senator F r e a r . Y e s .
Secretary H u m p h r e y . N o w , the rapid amortization applied only to
■P*a*l people who were awarded certificates that came within the
250
FINANCIAL CONDITION OF THE UNITED STATES
terms of a narrow law. But the depreciation provisions applied to
everybody.
Senator F r e a r . And the rapid amortization can only be accom
plished through certificates of the ODM?
Secretary H u m p h r e y . That is correct.
Senator F r e a r . But----Secretary H u m p h r e y . Under circumstances prescribed in that law.
Senator F r e a r . Yes. I think they are circumscribed, maybe not
too adequately.
Secretary H u m p h r e y . That is what I thought.
Senator F r e a r . N o w , the depreciation schedule as it was passed in
the Revenue Act of 1954, did you approve that?
Secretary H u m p h r e y . Yes, I d id.
Senator F r e a r . Do you think either of these acts, because of the
utilization at that time, is the cause now of any shortages or over
supplies?
Secretary H u m p h r e y . You mean either shortages or oversupplies?
Senator F r e a r . Yes, sir. In your opinion, which way did it react,
if it had a reaction?
Secretary H u m p h r e y . Well, I think the rapid amortization stim
ulated production of goods that were originally intended for war
purposes.
You see the great difficulty of that law was when you get into a
war there are a great many things that are applicable to or necessary
for the conduct of a war which are not just shells and guns. There
are many necessary things in a war economy. So that there were a
number of things of that kind that were stimulated.
O n the other hand, there were a great many other things that are
desirable in the economy that could not participate in it at all and
that got no benefit from it. So that you had a cleavage b e tw e e n the
people who could get it and the people who could not get it.
Now, while you are fighting a war, you wanted to stimulate the
people who were helping particularly with the war, but to carry that
on after the war and to have a prejudice against a large n u m b er of
people who could not get the benefit, and yet who were active in the
economy, I thought was improper, and, therefore I fought for the
curtailment of its application, which was accomplished.
Now, depreciation is entirely different. Depreciation applies to
everybody all the time. That is a part of your regular a ccou ntin g
procedures, and the only change that was made in the depreciation
was to permit it to be taken in the early stages over a som ew hat
shorter period by an alternate system. You could do it either way.
You could take it in the regular way or you could speed it up^&nd
take it a little faster in the earlier periods than in the later periods.
Senator F r e a r . That application is general as you have stated,
just like the proposed application for tax reduction by giving »»
increase in personal exemption; is it not?
Secretary Humphrey. That goes to everybody.
Senator F r e a r . It is across the board?
Secretary Humphrey. That goes to everybody in business. It
across the board.
Senatop Frear. And you approve of the first but not the second?
Secretary Humphrey. When you are giving tax reduction, I thin£
you should cover everybody as widely as you possibly can.
FINANCIAL CONDITION OF THE UNITED STATES
251
Senator F rear. Mr. Chairman, if you will permit me, I have
several more questions in my mind regarding this, but I want to be
sure of a few facts before continuing in this vein. May I proceed with
other questions I have and come back to these later if we run over?
Secretary Humphrey. Fine.
Senator F rear. If that is agreeable to you.
The Chairman. You may ask questions in the order you choose, sir.
Secretary Humphrey. Fine.
Senator F rea r. I did not want to interrupt the train of thought of
the Secretary.
Secretary Humphrey. Well, that is all right.
Senator F rea r. I shall try as best I can, Mr. Secretary, to follow my
questions in the manner in which they were presented in your state
ment of June 18 before this committee. You have a copy, if you want
to follow it, it might be better.
I am referring to your statement presented to the committee on
June 18, 1957.
Secretary Humphrey. Yes.
Senator F rear. And all questions, when I refer to the statement,
will mean this one, sir.
Secretary Humphrey. That is right*
Senator F rea r. You have family income at $5,200 as of the aver
age. That is the first line.
Secretary Humphrey. Yes.
Senator F rea r. Does that include farm families?
Secretary Humphrey. I believe it is all families.
Senator F re a r. That is all families?
Secretary Humphrey. Yes.
Senator F re a r, Now,; you stated farm income per worker. That
is in the second full paragraph, farm income per worker last year was
$1,762.
Secretary H umphrey, Yes.
Senatoi* F rea r. Why did you use “worker” in the paragraph
referring to farmers \yhen you did not in the overall?
Secretary Humphrey. Well, it is because it is that way in the
tabulations, in the tables.
Senator F re a r. Which does it mean, sir?
Secretary Humphrey. Well, it is just what it says. It gives the
farm income per worker.
Senator F rea r. Well, what was the farm income per family in
1952? Was it $1,862 or $5,200? That is what I am trjdng to deter
mine.
Secretary Humphrey. Is what?
Senator F re a r. Which of those two figures was it?
Secretary Humphrey. $5,200 is every family. That is in the
tabulation, that shows of all families in America.
Senator F re a r. Then there were more workers in the farm family
than in the industrial family?
Secretary Humphrey. Well, not necessarily. Ycu see, there is
a n average figure. This does not say that every family has it. So
there are families below this and there are families above it.
Senator F re a r. Then the $5,200 applies to all families?
Secretary Humphrey. That is correct.
96819 0 — 57------- 17
252
FINANCIAL CONDITION OF THE UNITED 8TATES
Senator Freak. But when we get down to the other, the farm
income per worker was $1,862. That is per worker?
Secretary H u m p h r e y . That is per farm worker.
Senator F r e a r . But the farm income per family averaged $5,200?
Secretary H u m p h r e y . No, not the farm income. That is both city
and farms, all the families.
Senator F r e a r . Yes, sir. Well, that is what I meant to say, if I
did not put the question properly.
Secretary H u m p h r e y . N o w , perhaps the farm income per family
might have been the same as the farm income per worker and the
average would still be this as it is offset by higher city family earnings.
Senator F r e a r . That is what I want to find out.
Secretary H u m p h r e y . Or maybe there are two workers in the
family. The two figures are not comparable because the two tables
are not comparable.
Senator F r e a r . Yes, sir. I am trying to understand them.
Secretary H u m p h r e y . I do not know how we can get them com
parable because the figures in the tables are not comparable figures.
Senator F r e a r . If it is within the realm of possibility, and not too
much trouble, would you give me the average farm family income?
Secretary H u m p h r e y . We might get that from the Department of
Agriculture. I do not think you can get it out of these figures, but
we might get it from them. We will see.
When the following was subsequently received for the record it was
further discussed. (See p. 271.)
D e a r S e n a t o r A n d e r s o n : In answer to your question this morning as to esti
mates of farm income per worker and operators’ net per farm income, the Eco
nomic Report of the President, transmitted to the Congress January 23, 1957,
has a summary table on income of the farm population, 1929-56, which show*
farm income per worker as $1,711 for 1955 and $1,862 for 1956. The 1956 figures
especially were based on such preliminary materials as were available to iu
through December at the time, but such changes as we have made since or have in
prospect indicate that these are still relatively good figures, with much of the
increase in 1956 accounted for by the fact that the estimated average number of
farmworkers fell from 8,237,000 in 1955 to 7,869,000 in 1956.
The economic report for January 1957 also carried a preliminary estimate of
operators’ net income per farm of $2,268 for 1955 and $2,422 for 1956. These
figures relate to about 5 million farms in 1955 and to about 4,900,000 farms in 1956.
I have not been able to check the figure of some 7 mUlion farm families which
you indicated had been mentioned to you by someone recently. Our estimate m
of March 1956 was 4,900,000 farm-operator families and 700,000 farm-laborer
families, making a total of about 5,600,000 farm families.
Meanwhile, all of the above figures are of course necessarily tentative and will be
subject to some slight changes when we issue our revised farm income estimates
based on a complete summary of sales, inventory, and such other check data as we
have been able to obtain over the last several months.
These revisions will be released on or about the 16th of July.
Yours very sincerely,
O. V. W e lls , Administrator.
Senator F r e a k . Now, in your statement you say:
The record of the past 4 years is also one of increased leisure. There has been
a 19 percent increase in the amount of time Americans took for their vacations.
My question is, Mr. Secretary, Does this include Members of Congress,
the Cabinet, and the President? [Laughter.]
Secretary H u m p h r e y . I think, Senator, it includes everybody but
the Secretary of the Treasury.
Senator F r e a r . That is a fair answer. [Laughter.]
FINANCIAL CONDITION OF THE UNITED STATES
253
Secretary Humphrey. I know it does not work for me, and I will
even include the Senators in that too.
Senator F rea r. Well, I wanted you to, sir.
In the second paragraph on page 3 you mention substantial con
traction in defense expenditures. It is the third line.
Secretary Humphrey. Yes, sir.
Senator F re a r. What were expenditures for defense in fiscal years
1956, 1957, and 1958 estimated?
Secretary Humphrey. Well, the contracting was done before that.
Senator F rear. Yes, sir; but this is— I see.
Secretary Humphrey. You see, if you go to 1953, the expenditures
were $50 billion. Then they came to $47 billion, then to $40 billion,
then to $40 billion, and then to $41 billion, and now to $43 billion.
What this is referring to, Senator, is the fact that we dropped down
from a level that we had been at during the Korean war.
Senator F re a r. That is acknowledged-----Secretary Humphrey. And the economy withstood that.
Senator F re a r. That is acknowledged, Mr. Secretary. My ques
tion: Is not 1958 higher than either 1956 or 1957?
Secretary Humphrey. Oh, yes.
Senator F re a r. That is your estimate?
Secretary Humphrey. That is correct.
Senator F re a r. And that is the alarming part of it, that it is on
the increase, but that is a fact; is it not?
Secretary Humphrey. That is a fact; yes, sir.
Senator F re a r. In your statement you state:
This great widespread confidence of the people in the preservation of the
individual freedom of choice, in their jobs—
and so forth. Do you have that, sir?
Secretary Humphrey. Oh, yes.
Senator F re a r. D o you think the right to work is a preservation
of individual freedom of choice?
Secretary Humphrey. Well, I do not know just what you mean.
I think this: that in this country, you can work: where you want to
work. You pick the job, you pick the places where you want to go,
the kind of work you want to do. That is the thing you cannot do
in Russia, and it is the thing you cannot do in a lot of other countries.
Senator F re a r. Yes. But I would rather-----Secretary Humphrey. I would say generally an American has a
freedom of choice. He may not get exactly the job he wants to get
and perhaps not the pay he thinks he is entitled to, but he has freedom
to choose.
Senator F re a r. Well, the right to work is one of the individual
freedoms of choice.
Secretary Humphrey. T o decide what you will engage in and where
you will do it.
Senator F re a r. I think that answers the question.
Also:
The average tax burden of each American citizen went up from $36 in 1939 to•413 in 1952—
what was the average tax burden for each American citizen in 1957?
Secretary Humphrey. Well, in 1957—we ought to be able to esti
mate that right quick. All you have to do is divide the total number
254
FINANCIAL CONDITION OF THE UNITED STATES
of people into the total number of dollars. About $416. It is almost
the same.
Senator Frear. Well, the increase in the average tax burden after
the individual tax reductions in 1954, are still about the same then?
Senator Humphrey. Well, I would think that would be correct.
Senator Frear. In other words the individual taxpayers' burden
was relieved somewhat in 1954 and now it is back up to where it was
back in 1952; is that correct, approximately? You say $416?
Secretary Humphrey. Well, yes, I think that is right, because you
have a higher income, and the higher the income, of course, as you
well know, the more the tax.
Senator Frear. Yes, sir. We referred to——
Secretaiy Humphrey. On the same amount of money. If you
were to take, Senator, the tax paid this year per capita, per average
taxpayer, as compared to the tax paid before tne tax reduction on the
same amount of earnings that he had before the tax reduction, you
would find that it would be less, but because he is earning more money
today than he was then, he is paying more dollars on the same amount
of earnings.
Senator Frear. Of course, I like those words “tax burden.”
Secretary Humphrey. I like it, too. You could even say heavy
burden.
Senator Frear. In your statement you mention one of the goals set
by the administration with regard to taxes in 1953 was, and I quote—
reducing Federal expenditures to the safe minimum.
That is the second line of the heavy print on page 9.
Secretary Humphrey. Yes, sir.
Senator Frear. What is a safe minimum, in your opinion, as it was
expressed by the President? I think they were the words expressed
by the President.
Secretary Humphrey. Well, that is one of the most difficult things
there is to determine in this Government. The expenditures required
to give us military security in this world as compared with the threat
of our enemies is one of the most difficult things in the world to decide.
I myself think that the country is extremely fortunate to have a man
like the President, who is so skilled and versed in military affairs and
in the threat to security throughout the world, to try to reach this
very intangible, indeterminate kind of a thing, to try to prepare, to
make sure that we have what is an adequate and not an excessive
military posture as compared with what we might have to meet.
Senator Frear. Well, I agree with you in some respect, I think we
are rather fortunate in having the present occupant of the White
House as President. However, I agree with you that there is a range
of debate in what the safe minimum may be.
Secretary Humphrey. There very definitely is.
Senator Frear. That may differ between individuals.
Secretary Humphrey. That is right.
Senator Fiiear. And it may differ between generals of the Army.
Secretary Humphrey. It does. The generals have all kinds of
ideas [laughter], and you have to trust somebody. I think we are
very fortunate in having that kind of advice and help in trying to
reach a conclusion.
Senator F rear. Yes, sir.
FINANCIAL CONDITION OF THE UNITED STATES
255
Is your opinion the same as that of the President? You quoted
him here, and I assume that it is; is that true or not?
Secretary Humphrey. He is the best authority I know of.
Senator F re a r. Well, you agree with it?
Secretary Humphrey. Well, when I do not know myself, I go to
the very best authority there is.
Senator F re a r. Your agreement is the same as the President?
You agree with him on this?
Secretary Humphrey. I agree.
Senator F re a r. You do not always agree with the President?
Secretary Humphrey. Not always.
Senator F re a r. But you do on this one?
Secretary Humphrey. Yes, sir.
Senator F re a r. I think that statement opens the door to a few
other questions, but I am not going to pursue those at the moment,
Mr. Secretary, because I know everyone is anxious to get through as
rapidly as possible.
Next, in your statement, “Increase the supply of goods,” Mr. Sec
retary, the farmers have increased the supply of goods despite the
soil bank, and their—that is, the farmers7—prices are pretty low.
Do you think increased supply of farm products helps to check
inflation?
Secretary Humphrey. I do not think you help check inflation by
an increase of something that is already in excess supply. Where
there is a shortage or a fear of shortage, then I think an increase in
supply is helpful. But when you have an excess of supply, the fact
that you increase the excess, I do not think is helpful. And that is
the case in some of the farm products.
Senator F re a r. I am glad to hear that clarified, because in this you
do not make that exemption or exception, because it says, “to increase
the supply of goods,” but you would exempt it where there is an
oversupply?
Secretary Humphrey. In general.
Senator F re a r. I ask you to refer to your statement, “The debt is
being reduced,” do you include the amount owed by the Government
to the civil service retirement fund?
Secretary Humphrey. I do not know just exactly—I do not
think I understand exactly what it is you mean, Senator.
Senator F re a r. I am not an authority, but I will do my best to
give you the background that I have, Mr. Secretary.
Secretary Humphrey. All right.
Senator F re a r. The civil service retirement fund is composed of
resources from members of the civil service employees and the Govern
ment in some type of a matching fund or a matching program.
Now, the Government employees, that is, those who are in the
civil service retirement fund, have deducted from their wages their
pension or retirement funds each time they get a check.
Secretary Humphrey. That is right.
Senator F re a r. Now, the Government at times pays its part as it
has agreed to by statute. Now, then, my question to you is: Does
that, when you say the debt is being reduced, does that include after
Or before the Government made its payment to the civil service
retirement fund?
Secretary H u m p h r e y . I t is after it made its payment.
256
J2NANCIAL CONDITION OV TH* UNITED STATES
Senator Frear. After it has made its payment?
Secretary Humphrey. Yes, sir.
Senator Frear. Well, now, will you give me for the record the
amount of appropriations requested by your administration year by
year from 1954 to 1957, inclusive, that is, for the civil service retire
ment fund?
Secretary Humphrey. Yes, sir, we will supply those to you, I
think, to save your time.
Senator Frear. If I might, may I try to help you supply them now?
Do you have the 1954 report of the Civil Service Commission?
Secretary Humphrey. Whatever figures you have, we will take.
Senator Frear. I would like Mr. Mayo to look at these figures.
The only difference between the question I asked you, I think
and that book, is, and you may not have them, is my statement; was
the budget request for those figures and that is what the Government
actually appropriated, sir.
Secretary Humphrey. I do not see the budget listed here.
Senator Frear. The budget is not listed, as I say. That is the
difference between my question and the book.
Secretary Humphrey. I think we would have to get figures outside
the book here to answer your question. Would we not have to get
the budget figures?
Senator Frear. My question was on the budget figures, yes.
Secretary Humphrey. Yes. I think we would have to get that.
Let me ask you, Senator, if this is what you mean. Maybe we can
answer it this way. Contributions, total contributions, on salary
deductions is $570 million plus; Government appropriations is $237
million plus. You are thinking there was a difference?
Senator Frear. That was for 1 year, but I asked you to go back
to 1954. That was the year, I thmk—the fiscal year 1954, the first
year that you claim a full year for a budget, your administration?
Secretary Humphrey. That is right.
Senator Frear. 1954.
Secretary Humphrey. And it dropped down very low that year.
Senator Frear. That is only about $33 million, if I remember, but
I am not sure of the figures.
Secretary Humphrey. That is right.
Senator Frear. But what I want to know is what the budget
request was for that year and each of the following years?
Secretary Humphrey. We will have to get that. That is not here.
We will supply that to you.
Senator Frear. A great deal of my questioning does hinge on the
answers that you are going to give to that, Mr. Secretary, and if we
are not going to be able to----Secretary Humphrey. Can I answer your question this way: That
these total contributions over the whole life of the fund have been
$5.6 billion, in round figures, and payment by the Government so far,
all appropriations from 1920 on have been $3.6 billion. So there is a
difference there of about $2 billion that is not included in the debt.
Senator Frear. Yes, sir. But I am attempting to show, Mr.
Secretary, that the claims that you have made about the debt is
being reduced, when you add these figure in, I think we will get ft
little different picture.
Secretary Humphrey. In other words, if you added in the difference
here of about $2 billion. But that is over a 37-year period. Of course,
FINANCIAL CONDITION OF THE UNITED STATES
257
the difficulty in this, Senator, is that it is a great problem as to whether
you should do it on an insurance computation.
Senator F r e a r . Actuarial?
Secretary H umphrey. Actuarial computation as to whether you
get a fund that is big enough to cover all your demands or to pay
currently.
Now, there are two ways of doing these things. One is the strict
actuarial computation, 'the other one is a sufficient fund to provide
against a run of heavy current claims.
Senator F r e a r . Yes, sir.
Secretary H u m p h r e y . And then a current payment.
Senator F r e a r . That is right. But is not this in the statute?
Secretary H u m p h r e y . Well, I cannot tell you that. I think it is.
Senator F r e a r . You will recall, Mr. Secretary, that last year we,
I think, passed a bill, and the President signed it and made it into a
public law, that each agency now must contribute its share and include
it in its appropriation, rather than having the budget request for the
total amount.
Secretary H u m p h r e y . For the total, that is correct.
Senator F r e a r . It has been in existence, I believe, for 1 yearSecretary H u m p h r e y . That is correct.
Senator F r e a r . And I think the ills we had in the past will b e
corrected by that statute.
Secretary H u m p h r e y . But you still have the basic problem, I
think, as to whether that share is an actuarial computation or whether
it is a share of current expenditures behind a sufficient backlog. You
see, you still have that basic problem before you decide, and that is a
very difficult problem.
Senator F r e a r . Yes, sir. But I believe the statute says, and I
may be in error in this, but I believe the statute says that the budget
request should include the appropriation to this fund, each year.
.Secretary H u m p h r e y . On an actuarial b a s i s ?
Senator F r e a r . It may not, the statute may not claim an actuarial
basis.
Secretary H u m p h r e y . I do not think it does.
Senator F r e a r . But in addition to that, I think the statute also
states that it must pay its interest to the fund annually.
Secretary H u m p h r e y . Well, I see enough of what you are driving
at so we will get the figures and present them to you. I see what you
are trying to reach.
Senator F r e a r . All right, sir. I think then we had better just
hold this until you have your figures, Mr. Secretary.
Secretary H u m p h r e y . We will and we can get that for you.
Senator F r e a r . With the permission of the chairman and you,
Mr. Secretary, we will pass over that, temporarily. I do not want to
skip anything, so I want to be sure to mark these, and it will only take
a moment.
Secretary H u m p h r e y . All right.
Senator F r e a r . Mr. Secretary, what is your opinion about a
mandatory public debt ceding reduction?
Secretary H u m p h r e y . What is that. Senator?
Senator F k e a r . What is your opinion about a mandatory public
debt ceiling reduction?
258
FINANCIAL CONDITION OF THE UNITED STATE*
Secretary Humphrey. Well, I do not believe, Senator, that a
mandatory reduction in the debt ceiling each year would do much
good.
Now, that is, perhaps a little inconsistent with my feeling that the
resent debt ceiling is a proper thing to have, and I have fought to
old to the present debt ceiling because I think that the restraint the
present debt ceiling gives to the Executive, to the Congress, to every
one concerned is a very wholesome thing to have, and I think that it is
like breaking through a sound barrier; there is an explosion when you
go through it, and there ought to be one.
It has weight with public sentiment, and I think it is a deterrent to
spending over and above that amount. So, I am in favor of it.
On the other hand, to say that that ceiling ought to be brought
down bv any specific amount every year, I think, is quite idle, because,
after all, what you do each year is pin the hands of the Executive and
the Congress, between them, at least, and, ultimately, the final respon
sibility rests with the Congress. And the Congress I do not believe
would be particularly restrained in doing the things they felt were
required of them to do by just having some arbitrary elimination
gomg on every year in that ceiling.
Senator Frear. Well, the President, or the Executive, can go up to
the ceiling without authority from the Congress, can he not?
Secretary Humphrey. No. Nobody can spend a dollar of this
Government’s money without the authority of the Congress.
Senator Frear. Through appropriations?
Secretary Humphrey. In any way.
Senator Frear. But is it not the responsibility of the administra
tion to submit a budget on which appropriations are based?
Secretary Humphrey. That is correct.
Senator Frear. Then the initiative comes from the administration.
Secretary Humphrey. Well, the request comes from it, but you do
not need to give it to them.
Senator Frear. Well, they are trying awfully hard not to right now.
I do not know how successful we are going to be.
Secretary Humphrey. I do not, either.
Senator Frear. I think you agree with me, Mr. Secretary; I give
you great credit for that.
Secretary Humphrey. I do agree.
Senator Frear. And I believe it is something we should go at very
sincerely.
Secretary Humphrey. I think it should be done with great restraint,
and I am for it.
Senator Frear. But, unless the debt ceiling is reduced in some form
or another, we are not going to crack that sound barrier, be6ause it is
my opinion that the administration can have complete authority to
go up to that, if the Congress approves the appropriations submitted
or the requested appropriation submitted by the administration.
Therefore, we are not going to get the public sentiment unless we crack
the sound barrier, ana, if we reduce our ceiling, we are going to call
attention to the public more directly; so, therefore, I think the}7 are
going to insist we reduce the ceiling rather than leaving it up to the
administration and Members of the Congress.
Secretary Humphrey. I think there is something in what you say.
I have to go along with that, to a certain extent. My feeling about it
E
FINANCIAL CONDITION OF THE UNITED STATES
259
at the present time is that we are having trouble enough to get within
what ws have got, and there is not much use lowering it until we get
along further. Now, if we happen to get $5 billion below it someday,
then maybe I think I would turn around and be on your side.
Senator F r e a r . Then the reduction of the public debt is one of the
best ways to fight inflation, and that is on page 23 that you say that.
Secretary H u m p h r e y . It is a wholesome restriction that I believe
in.
Senator F r e a r . And you think this would fit into the picture?
Secretary H u m p h r e y . On the other hand, I must say there,
Senator, it really is not effective except as it affects the psychology
of the situation.
Senator F r e a r . I think that is pretty effective.
Secretary H u m p h r e y . And I think that is pretty important.
Senator F r e a r . You do not lay aside the psychology of the Ameri
can taxpayer, Mr. Secretary.
S e c r e ta r y H u m p h r e y . I c e r ta in ly d o n o t.
I t h i n k i t is v e r y
im p o r t a n t .
Senator F r e a r . I think you do not, either. I think our opinions
are practically the same. In your statement, you say:
In 1954, in order that the people might benefit from the substantial reduction
in Government expenditures, we brought about a tax cut that has provided them
with annual savings of about $7.5 billion.
What do you mean by “we” in that statement, Mr. Secretary?
Secretary H u m p h r e y . It is right in the preceding few words:
The Eisenhower administration and the Congress, working together, have
already made possible the greatest single tax cut in history. Then we did this.
That is, the administration and the Congress, working together.
Senator F r e a r . Includes the Congress and the Executive?
Secretary H u m p h r e y . That is what it says, Senator.
Senator F r e a r . All right. Now, then, is it not true that over
two-thirds of the $7.5 billion were reductions by law enacted during
the previous administration?
Secretary H u m p h r e y . Well, there were reductions by law, whether
it is exactly two-thirds or not, but there were substantial reductions
that had been voted previously that we had not yet been able to make
good on. Some had been postponed until, as I say here, by the
administration and the Congress working together, we made possible
the taking effect of those things.
Senator F r e a r . Let us analyze that just a minute. What were the
reductions that made up the $7.5 billion, as you stated?
Secretary H u m p h r e y . Well, what we want are the expenditures.
Senator F r e a r . We are talking about tax reduction.
Secretary H u m p h r e y . Yes. But the thing that made it possible
was the reduction in expenditures, total expenditures. Here they are.
Senator: 1953, and I will just read the first figures because that will
make it easy, $74 billion; next year, $67 billion.
Senator J'rear. I do not think you understood my question, Mr.
Secretary. My question was: What were the reductions, what made
up the reductions of the $7.5 billion? That $7.5 billion included
certain things. What were they?
Secretary H umphrey* Y ou mean in the taxes themselves?
Senator F rear. In the reduction in taxes.
260
FINANCIAL CONDITION OF THE UNITED STATES
Secretary Humphrey. In what the taxes were?
Senator Frear. Yes, sir.
Secretary Humphrey. Oh, yes. First, there was the excess-profits
tax.
Senator Frear. H ow much was that?
Secretary Humphrey. A s I recall it, that was about $1.8 billion.
Senator Frear. The excess-profits tax?
Secretary Humphrey. Yes.
Senator Frear. Y ou stated that was about $1.8 billion?
Secretary Humphrey. That is my recollection.
Senator Frear. Yes, sir.
Secretary Humphrey. I will have to check these, because I had
not thought about them for 2 or 3 years. But as I recall it, it was $1.8
billion. Then we had $1 biUion, as I recall it, of excises, $2 billion and
$1 billion, of excises. We had about $3 biUion of straight individual
income tax reduction, and we had about $1.4, as I recall it, of adjust
ments. That is $7.4 biUion, and that is close enough.
Senator Frear. I think, as a matter of fact, your $1.8 biUion actuaUy is $2 bUlion.
Secretary Humphrey. What is that?
Senator Frear. I think the first figure you gave me of $1.8 was
$2 billion.
Secretary Humphrey. WeU yes, it must have been.
Senator Frear. WeU, now, can you teU me when that was enacted,
that from which the decrease was made possible, and when it expired?
Secretary Humphrey. It expired, I do not quite know what you
mean by that. These tax laws were enacted at different times.
Senator Frear. That is right, sir.
Secretary Humphrey. The excess profits tax was scheduled to go
off first, and it was postponed. You see, it was supposed to go off in
the middle of the year and we got Congress to postpone the reduction
untU the end of the year. That went off December 31 of 1953.
Senator Frear. That is right. You postponed it for 6 months,
from June 30, as you recaU?
Secretary Humphrey. Yes.
Senator Frear. When was the law, the excess profits tax law,
enacted, and did it not have a termination date at the time of its
enactment?
Secretary Humphrey. Yes; it did, and it would have terminated
6 months earlier, and we extended it.
Senator Frear. So that the termination date was in the law that
was enacted by the previous administration?
Secretary Humphrey. Yes; but it was carried on and then released.
Senator Frear. I think “yes” was the right answer, Mr. Secretary.
Secretary Humphrey. That is right. Then the excises, there was
$1 billion off on the excises, and that occurred on April 1, 1954.
Senator Frear. Yes, sir. I can concur wholeheartedly in that,
that I think that was the act of 1954 that gave the taxpayers the
benefit of $1 biUion.
Secretary Humphrey. And if you wiU recall, I protested against
it. [Laughter.] I begged you not to do it, but you did it just the
same.
Senator Frear. I was not going to bring that out.
Secretary Humphrey. Well, I am glad to have that brought out.
FINANCIAL CONDITION OF THE UNITED STATES
261
Senator F re a r. All right, sir, that now accounts for-----Secretary Humphrey. Then there was $3.2 billion in the tax reduc
tion bill on individuals’ taxes, and then there was $1.4 billion on the
tax revision bill. There were four different steps in the proceeding.
Senator Frear* I think the only difference we have in our figures
is that you have $1.8 billion instead of $2 billion, and I have $3 billion
instead of $3.2 billion.
Secretary Humphrey. That is close enough.
Senator F re a r. May I ask a question or two on the individual
income tax reduction?
Secretary Humphrey. Yes.
Senator F rear. When did that expire? The reduction that was
granted then expired on what date?
Secretary Humphrey. I think that must have been December 31.
I cannot be sure.
Senator F rea r. Would that not be 1953?
Secretary Humphrey. I cannot be sure. It is 1953 or 1954. If
you have got it there-----Senator F re a r. Well, I like to have you concur in my figures.
Secretary Humphrey. I am just trying to remember something
from 3 years ago.
Senator F rea r. I believe it was on December 31, 1953.
Secretary Humphrey. All right.
Senator Frear. Do you agree to that?
Secretary Humphrey. Yes.
Senator F rear. And the same question, that was in the law enacted
by the previous administration that gave the termination date—that
was the law of 1951, if I remember correctly.
Secretary Humphrey. And we did not ask to have it extended.
Senator F rea r. You did not ask to have it extended. So that is
$3 billion that expired by statute.
All right, sir. We have gotten $6 billion out of that $7.4 billion.
You are still going to give me a little more, $1.4 billion.
Secretary Humphrey. That was the code.
Senator F re a r. Sir?
Secretary Humphrey. $1.4 was the code revision.
Senator F rea r. All right, sir.
Secretary Humphrey. But you know you could not have had any
of it unless somebody saved it, and we finally between us got it saved,
and that is what made it possible. Without that, you could not have
had it at all.
Senator F rear. I agree, but there are two pressures that might
cause you to save it, too. It might have originated from the admin
istration, and I will give you credit for that, which you tried to do,
and I think also, that there might be some credit given to the tax
payers.
Secretary Humphrey. Well, I am not trying to point out just
where in detail. I am simply stating a fact of what happened.
Senator F re a r. Yes, sir.
Secretary Humphrey. This is what happened.
Senator F re a r. Well, there are usually causes for those things that
happen, and I know you want to give credit wherever it is due, you
always have been that way, sir.
262
FINANCIAL CONDITION OF THE UNITED STATES
Now, in this $1.4 billion in the Revenue Code of 1954, what amount
of that went to individuals?
Secretary Humphrey. I think I will have to get the figures on that.
I do not dare trust my memory.
Senator Frear. If I said $827 million—I believe that is correct
because it is quoted from the report. As a matter of fact, I think we
can give you that and let you refer to it.
Secretary Humphrey, rfo. I think I would rather get the figures.
And I will do that. I will bring them back this afternoon as to just
how it works.
Senator Frear. All right.
And, also, when you bring those figures in----Secretary Humphrey. Also on the $1.4 billion.
Senator Frear. Well, this is part of the $1.4 billion I am referring
to, Mr. Secretary.
Secretary Humphrey. I see.
Senator F r e a r . The part of the $1.4 that went to individuals and
that which went to corporations.
Secretary Humphrey. I see. You said there were $800 million
something out of the $1.4 billion to individuals?
Senator Frear. I believe it is $827 million.
Secretary Humphrey. Well, that might be correct. If it is not, it
would not be far off.
Senator Frear. And the corporations received $536?
Secretary Humphrey. That would not be far off.
Senator Frear. You can see this is going back to some previous
questions we had of which you are going to supply some information
a little later, Mr. Secretary.
Secretary Humphrey. Yes.
(The Secretary subsequently advised: “The figures referred to by
Senator Frear are correct.”)
Senator Frear. In your statement, you state:
Many of us belong to a pension system and our benefit payments tend to in*
crease as interest earnings rise.
My question, Mr. Secretary, is: Do you think this is fiscal responsi
bility when you increase Government interest rates in order to give
greater benefit payments?
Secretary Humphrey. Well, we do not do it for that purpose, but
this is part of the effect.
Senator Frear. That is the effect?
Secretary Humphrey. That is right.
Senator Frear. But that is included in the fiscal responsibility, ia
it not, sir?
Secretary Humphrey. That is part of the effect. Of course, tha
greatest effect is the stability of the money they get from the pension.
It is highly important and can amount to much more than the interest.
Senator Frear. Senator Byrd has already asked questions on your
statement under this heading, “We Have Reduced the Government
Debt.”
Now, the little question I have can be answered “Yes” or “No/' if
you care to.
Secretary Humphrey. Yes.
Senator Frear. Is not the present administration's proposed budget
for fiscal year 1958 the largest peacetime budget in history?
FINANCIAL CONDITION OF THE UNITED STATES
263
Secretary H u m p h r e y . Well, I think I will answer that, “Yes”. You
can beg the question on it as to the Korean war budget, but I think I
will answer it “Yes”.
Senator F r e a r . Just to g o back to that little word we had, “ w e , ”
including the administration and the Congress, do you want to include
Harry Truman in that “we” ? [Laughter.]
Secretary H u m p h r e y . In what connection?
Senator F r e a r . I will leave that up to you. [Laughter.]
Secretary H umphrey. I might like to know the connection.
Senator F r e a r . Maybe we had better drop that.
Next, you further state:
During the past 25 years, far from restricting credit to housing, the Govern
ment has greatly increased the volume of credit available to this industry.
I would just like to ask a few questions on this matter for the record,
with your assistance, sir.
These I think you can do rather rapidly, Mr. Secretary.
It is true, is it not, that the statute creating the Federal Housing
Administration to insure eligible home mortgages was enacted on
June 27, 1934?
Secretary H u m p h r e y . I think so.
Senator F r e a r . Which, of course, is a previous administration?
Secretary H u m p h r e y . That is correct.
Senator F r e a r . It is also true, is it not, that the Servicemen's
Readjustment Act of 1944 providing for the guaranty or insurance of
veterans’ home mortgages was also passed under previous adminis
trations?
Secretary H u m p h r e y . That is correct.
Senator F r e a r . I s it not also true that the direct loan program for
veterans’ housing was enacted in 1950, previous to the present admin
istration?
Secretary H u m p h r e y . I think that is correct.
Senator F r e a r . I also gather that the present administration is
iving no support to proposals to increase the effectiveness of that
irect loan program, is that true?
Secretary H u m p h r e y . I think it is true.
Senator Frear. At least, Mr. Stone of the Veterans’ Administration
so indicated in that respect.
Secretary H u m p h r e y . He said so.
Senator F r e a r . Is t h a t n o t true? Is it not true that under these
programs, all of which are still on the statute books, more housing
starts were made in 1950 than in any other year from 1934 to the
present?
Secretary H u m p h r e y . I think that is correct.
Senator F r e a r . I s it not true that in 1957 nonresidential housing
starts had declined to a seasonally adjusted rate of 990,000 units?
Secretary H u m p h r e y . That is right, f o r May.
Senator F r e a r . I s it not also true that 665,500 units of the 1950,
Korean war year, the 1950 starts, were financed without direct
Government assistance, that is, neither FHA nor VA nor publie
housing?
Secretary H u m p h r e y . Well, I am sure, if you say so, it w a s . I
cannot verify that from my own knowledge.
Senator F r e a r . If, Mr. Secretary, there is any mistake and you
read over these, I would like to have them corrected.
f
264
FINANCIAL condition
of the united states
Secretary H u m p h r e y . I am sure i f you say so, that is correct*
Senator F r e a r , And, of course, the question is, then, is it not true
that while 665,000 units in 1955 starts were financed without direct
Government assistance, in 1956 only 634,200 units of the 1956, which
was a peacetime year, starts were so financed?
Secretary H u m p h r e y . Well, that sounds about right, too.
Senator F r e a r . Does not this indicate that even apart from
Government financial aids to housing, the amount of housing starts
has declined?
Secretary H u m p h r e y , Oh, yes, they have declined.
Senator F r e a r . Therefore, will you agree that leaving the Govern
ment aids to housing aside, your present monetary and fiscal policies
are not accompanied by an increase but rather show a decrease in
residential housing starts?
Secretary H u m p h r e y . Well, that is true, right, just in the last short
period here, but I think that over the total average number—the
total over a period of years, if you will take 3-year periods or 4-year
periods, you will see they took effect in this 4-year period. And
I think if you will look, Senator, at the last line in the last full para*
graph, you will see that I say, everything I say here, I add this sen
tence: “That was true under the prior administration; it is true
under this administration.”
Senator F r e a r . Yes, sir.
Secretary H u m p h r e y . In other words, I am not trying to claim that
this housing business all took effect under this administration.
Senator Frear. No, sir.
Secretary Humphrey. It did not; it took effect under both.
Senator F r e a r . I do not want to have that impression left either.
I think what I am trjring to bring out, Mr. Secretary, is that there
was this, and the significant part is now the change in the opposite
direction, and I think we are trying to level the point at May or
June of this year.
Secretary Humphrey. That is right. And right now, or certainly
a fewmonths ago, there was a declining trend. Now, that has changed
just within the last month or so. But it has only been up very
recently.
Senator F r e a r . I s it not also true that during the same period
Government-aided houses declined from 730,500 units started in 1950
to only 486,000 units started in 1956?
Secretary H u m p h r e y . The big decline was in the Government-aided
houses. The regularly financed houses kept pretty much on an e v e n
keel.
Senator F r e a r . I may state if you want to check these that the
figures I have came from the economic report of January 1957.
Secretary H u m p h r e y . They sound as though they fitted r ig h t in*
Senator F r e a r . During the same period from 1951 to 1956, d id n o t
the number of farms in the United States decrease from 5,520 m illio n
to 4,9 million?
Secretary H u m p h r e y . I think that is right.
Senator F r e a r . But during the same period, did not farm real
estate debt as a percentage of real estate value increase from 7 percent
to 8.8 percent despite the fewer number of farms?
Secretary H u m p h r e y , I would think that would b e very logical.
S e n a to r F r e a r . A s I s a id b e fo r e , i f y o u fin d a n y im p e r fe c tio n s in
th is , y o u w ill c o r r e c t th e m .
FINANCIAL CONDITION OF THE UNITED STATES
265
Secretary H umphrey. I will bring them to your attention.
Senator Frear. This would indicate we have fewer farms but more
farm debt and fewer additions to our nonfarm housing supply.
Secretary H umphrey. I think that is right. I think we Have fewer
farms. I think they are becoming more mechanized and with more
equipment in order to be more productive, and that naturally in
volves additional money to equip them.
Senator Frear. Do you also agree that significant factors in housing
are the amount and quality of shelter rather than the absolute
amount of housing financed expressed in dollars? In other words, if
an increase in dollar volume of financing does not increase, that is,
produce an increase in number and quality of housing, it seems of no
great significance to concentrate on an increase in housing industry
credit?
Secretary H umphrey. I do not quite know what you mean by that.
I am sure of this, Senator-----Senator Frear. We are talking about page 37.
Secretary H umphrey. I am sure that the quality of housing in the
last couple of years is moving up rather than down. They are run
ning into a little higher quality houses in the last couple of years, and
they are more costly.
Senator Frear. It is what the credit dollars will buy rather than
their absolute amount which is important in the availability of hous
ing goods and services?
Secretary H umphrey. They are buying a little less now because
the cost of housing has gone up. On the other hand, the demand is
for a little better houses.
Senator F rear. Now, Mr. Secretary, if we use that yardstick, how
do you claim your current monetary and fiscal policies are resulting
in success in the field of housing?
Secretary H umphrey. I think that during this period housing was
in very large volume, the largest volume that it has ever been.
Now, I think that our policies and during that same period the cost
of housing was rising, the latter part of the period, the cost was rising
very rapidly. I think our policies are tending to stabilize and will
tend to stabilize the cost so the price of the house will not go up so
much, and in that way it will again stimulate the development of
additional housing.
Housing was getting to a place where it was beginning to price
itself out of the market.
Senator Frear. Has that condition changed materially?
Secretary H umphrey. Well, I do not know as you can say it has
materially changed, but I believe it is beginning.
Senator Frear. You think there is a trend in the other direction?
Secretary H umphrey. If you get over here on to page 46 where it
is discussed in a good deal of detail.
We have been all over it before, but it shows quite a bit as to the
relationship between the interest cost and the material and labor
costs. The material and labor costs, just to put it in a word, have
increased very much more rapidly than the interest costs have in the
total cost of a house.
Senator Frear. I think that opens up further questions, but for
the sake of going through, and I guess we will be back again tomor
row, we will just finish these questions on housing, and then if there
266
WNANCIAL CONDITION OP THE UNITED STATES
is anything you want to add to the record, you will have the
opportunity during the recess to do it.
Secretary Humphrey. Fine.
Senator Frear. You note the number of conventionally financed
housing units in the first 5 months of 1957 were slightly higher than
in the corresponding period for 1956, but let us look at the record to see
how the 1956 and 1957 starts compare to earlier years far more produc
tive in housing starts.
In the entire year of 1956, there were 634,200 nonfarm houses
started under conventional financing.
In 1955, this number was 639,900.
In earlier years, back to 1950, the statistics are as follows, at least
as I have them: 1954, 618,400; 1953, 659,700; 1952, 647,300; 1951,
607,900; 1950, 665,500.
In these same years, the component of housing financed with FHA
or VA aid was obviously much higher than at present, as you have
noted.
Secretary Humphrey, That is right.
Senator Frear. To keep the levels of housing starts up to the
million-plus per year level contemplated by the Congress as long ago
as 1949, the component of conventionally financed housing starts
should increase rather than remain constant or decrease.
Why has this not happened, since there is no restrictive statutory
limit on the conventional home mortgage interest rates?
Secretary Humphrey. WeU, it apparently is just about a level kind
of demand here at certain prices, and just looking it it—I am not an
expert on housing, but just looking at it—I would say that is about
the normal demand for houses of this class and kind.
If you build them for that many years at about that rate, why,
that is about where you are heading.
Senator Frear. There are several reports which show that the need
and demand in many respects caU for about 1,300,000 per year.
Secretary Humphrey. WeU----Senator Frear, Do you disagree with that?
Secretary Humphrey. WeU, I do not know. I am no expert on
housing.
Senator Frear. Yes.
Secretary Humphrey. But I think that is pretty high.
Senator Frear, Do you believe there are any significant shortages
of buUding materials or building labor that would hamper home
construction if adequate financing were to be channeled into that
field?
Secretary Humphrey. I think it would depend upon the amount
that you put in. If you built anything in the last few months, or
the last year or so, you know that an awful lot of complications arise
in trying to get deliveries and in getting the thing done.
As I said yesterday, that is getting better. You see, the labor,
the materials, between the heavy construction and the lighter con
struction, the materials are quite different.
The labor does interchange to a greater extent than the materials
interchange, and I would say that I have seen no evidence of any
great excess of building labor.
Senator Frear. I assume the administration adheres to the declara
tion of national housing policy embodied in the Housing Act of 1949,
FINANCIAL CONDITION OF THE UNITED STATES
267
which sought to realize the goal of a decent home and suitable living
environment for every American family.
At least, I have seen no requests from the Administration for a
change in that declaration of policy.
Secretary H u m p h r e y . I do not think there is any.
Senator F r e a r . In the same policy, the Congress also declared the
need of housing production toward this goal to enable the housing
industry to make its full contribution to an economy of maximum
employment, production and purchasing power.
I assume the administration adheres to that policy, also, since it
has requested no change in that statutory declaration, either.
Secretary H umphrey. I think that is right.
Senator F rear. In view of the admitted substantial drop in resi
dential housing starts in 1956, and so far in 1957, compared with most
years since 1949, how does the administration propose to achieve the
goals of the congressionallv declared national housing policy?
Secretary H umphrey. I think it is just simply that you cannot do
everything at once, and you move ahead in varying degrees. You do
not want to shift too much, but when we have this terrific building
program in the heavier lines, why, you naturally expect that it would
take something away from the other lines.
And it will not be long, in my opinion, before there is some shifting
in that, and you will see the other beginning to move, largely de
pendent upon costs.
Senator F rear. If, as you have said on page 40 of your statement,
if the result of a free money market is to limit housing finance to those
who can pay higher down payments and higher interest rates, what
remedies do you suggest to move more financing selectivity into the
field of housing construction in order to help meet the statutory goal
of the current national housing policy?
Secretary H umphrey. I think that the whole thing will adjust itself
over just a relatively short period.
Senator Frear. In other words, you think that-----Secretary H umphrey. I do not think you can do everything at once,
and I do not think it is wise to try.
Senator Frear. No, sir. But the trend is in the opposite direction
now.
Secretary H umphrey. Just temporarily.
Senator Frear. You think that is only temporary?
Secretary H umphrey. I think so.
Senator Frear. You do not think, from a really practical stand
point,- that the administration is abandoning the national housing
policy?
Secretary H umphrey. I do not; no, sir.
Senator F rear. In your statement you claim Government has
greatly increased the volume of credit available to the housing industry.
Yet, you later note there is only a relatively limited supply of
mortgage credit available for VA-guaranteed loans, and insistence on
higher down payments on FHA loans at the higher 5-percent interest
rate.
We have already noted the VA and the FHA programs worked well
at lower interest rates from 1949 until recent years.
You conclude your comments on housing on page 40 by claiming
that prospective home buyers who are prevented from becoming
actual home buyers under your present monetary and fiscal policies
96819 O— 57------- 18
268
FINANCIAL CONDITION OF THE UNITED STATES
should be consoled, because they could not buy homes, anyway, under
runaway inflation.
You seem to conclude with no attempt to help these potential
buyers become actual buyers.
Have you no constructive solution to offer to these potential home
owners and the home-building industry, apart from your implied
suggestion that statutory interest rates on VA mortgages should be
raised, which would increase the cost of the home still more to the
buyer?
Secretary H u m p h r e y . Well, it would increase it only slightly, and
the real answer, of course, as I said a minute ago, the real answer is
the shifts in the economy that continually take place, and you shift
from one thing to another which, as I have already said, I think
will be developing if it has not already started.
Senator F r e a r . Mr, Chairman, I think that concludes my question
ing, except the questions that may be brought up when the Secretary
bnngs in his answers.
The C h a i r m a n . Do you wish to continue tomorrow?
Senator F r e a r . I do not believe it will take more than 5 or 1 0
minutes. It will just depend upon the information the Secretary
brings in.
Secretary H u m p h r e y . We will try to bring it in so you do not
have to.
The Chairman. Senator Frear will have the floor tomorrow morn
ing.
The Chair would like to announce that the committee will not meet
this afternoon.
We shall meet tomorrow morning, and tomorrow afternoon if
possible.
On Friday the committee must consider other legislation.
The committee will continue this hearing Monday and Tuesday of
next week, and then adjourn until the first of the following week.
Secretary Humphrey. Fine.
The Chairman. Mr. Secretary, I asked you the other day to furnish
a list of the contingent liabilities, and your opinion as to what part of
these liabilities may become actual liabilities. In order to relieve
ou, I have a list tentatively compiled by the Comptroller General,
will send you the list.
Secretary Humphrey, I gave you a list yesterday which I compiled,
and I would be very interested to see the Comptroller General's Ust
to see how close we can check them.
The Chairman. If you wish to work on the basis of this list, I will
send it to you.
Secretary Humphrey, Fine.
(The list was transmitted to the Treasury Department staff, June
2 7 , 1 9 5 7 .) (See p. 2 6 9 .)
Senator Kerr. Mr. Chairman, as I understood your request in
that regard, it included a tabulation of obligations or expenditures by
the Government outside of those included in the official budget
statements.
Secretary Humphrey. Official debt statement.
The Chairman. Yes,
Secretary Humphrey. These are things that, as I understand it,
are outside of the official debt.
Senator Kerr. I thought you asked also, Mr. Chairman, for
expenditures outside of the budget.
f
FINANCIAL CONDITION OF THE UNITED STATES
269
The Chairman. That is right, expenditures under authority to
spend directly out of the debt.
Secretary H umphrey. Expenditures as well as obligations.
The Chairman. Yes.
Senator K err. Or by the Treasury, outside of the budget.
Secretary H umphrey. I did not understand that. So I am glad
you brought that up, because I understood it was the liability you
were talking about, not liability plus expenditures.
Senator K err. The statement that tne Comptroller General fur
nished may not have included what we have just mentioned.
Secretary H umphrey. I think what you asked me, I believe,
Senator Kerr, what you asked were the—let’s see, he said:
I would like you to furnish to the committee the total amount of the contingent
liabilities of the Government, and then give your opinion as to the possibility of
these contingent liabilities becoming actual liabilities.
It did not relate to expenditures.
Senator K err. If I had not thought it was included, I would have
asked for it.
Secretary H umphrey. We will, then, if you want it, include it.
But I do not think it was previously requested.
The Chairman. I would like for it to be in a separate statement.
Secretary H umphrey. We have given you material on contingent
liabilities and we also will give you our comments on the Comptroller
GeneraPs tabulation.
The Chairman. Will you work from the statement tentatively
compiled by the Comptroller General?
Secretary H umphrey. We will take that as a basis and check.
The Chairman. Thank you, Mr. Secretary. When the statement
on long-range commitments and contingencies is received it will be
placed in the record where it was requested. (See pp. 80 and 156.)
(Secretary Humphrey subsequently submitted the following for
the record:)
T
reasu ry
C
om m ents
on
C
C
o n t in g e n t
om ptroller
G
L
Statem
ia b il it y
en eral's
O
ent
C
o m p il e d
by
f f ic e
We have reviewed the material on contingent liabilities which we understand
was -prepared by the Comptroller General's office, including the following
summary:
[In millions]
Item
General contingent liabilities of the Government:
Loans and mortgages guaranteed or insured by the Government.
Government insurance in force.
__
..
___________
Postal savings deposits ___________ ______ _________________
Federal Reserve notes (face amount)_______ ___ __________Obligations issued by Government agencies
- ... t
Commitments to make, guarantee, and Insure loans, to purchase
mortgages, etc.
Unpaid subscriptions.___ ___ ___ _________________ *
Other........
............................................................ .............
Unused borrowing power of Government agencies.... ........ .
Trust fund contingent liabilities. ........ ................ - .......- - - .......
Total. .
............................. *..........
Date
Gross
amount
June 30,1956
__ do..........
___ do..........
...... do— .
__ do. _
__ do..........
$38,107
200,012
1,771
25,524
2,680
6,942
____ do...........
__do_____ -
2,575
1.331
do
Various____
Public
debt
securi
ties held
$407
72,768
1,748
23,758
278.942
48,433
271,254
98,681
508,629
131,027
32,346
We have a number of comments to make about these figures and the explana
tory notes which accompany them.
In response to the statement attached to these figures that “ there is no require
ment that sdl long-range commitments and contingent liabilities of the United
270
TOTAHCIAVCX)NDmON OF THB UNTTBD STATES
States Government be reported regularly to the Treasury Department or any
other agency/’ let us point out that the Treasury Department has been compiling
figures on long-range commitments and contingencies and reporting these from
time to time to congressional committees since 1945. Such figures are secured
from Government agencies by the Treasury through various reporting require
ments of the Department which were codified in the form of Department Circular
No. 966f dated January 1, 1956, The resultant data as of December 1956 have
already been made a part of the record of these hearings in answer to a request
by the chairman.
As will be noted in the Treasury’s statement of long-range commitments and
contingencies, we do not attempt to add up all of the various contingencies in the
way that the Comptroller General's statement does, as we do not believe that such
totals have any significance. The only conditions which would create the need
for the Government to make good on any substantial part of these contingencies
would be national financial disaster and world upheaval. If the Government
should be required to pay any such obligation it would only be after allowance for
offsetting assets, with many of the assets in the form of Government securities.
Government guaranteed or insured loans and mortgages (including commit
ments), Government insuranoe in force, Federal Reserve notes, postal savings
deposits, and unpaid subscriptions, involving, as they do, a variety of degrees
of responsibility, all have a place in any overall appraisal of the Government’s
financial condition. At the one extreme, the Government has specific statutory
liability in respect to Federal Reserve notes. At the other extreme, the legal
liability of the Government for the insurance undertakings of the FDIC or the
F8LIC is limited to the insurance fund and Treasury loans. Nevertheless, in
appraising the Government’s financial condition, we have generally included a
reference to the FDIC and FSLIC as a part of the Government’s “ long-range
commitments and contingencies.” Others of the listed items fall between these
two extremes. In most cases, the possibility of the Government being required
to make any substantial outlay is remote.
The following items in the statement have never been considered by the
Treasury to be properly included in such a list:
In million*
1.
2.
3.
4.
Obligations issued to the public by Government agencies--------------- $2, 680
Other________________________ _____________________________
1,331
Unused borrowing power of Government agencies________________ 48, 433
Trust fund contingent liabilities____________________________ __ 271, 254
Total____ ______________________ _____ ______ _______ _ 323,698
The reasons for the exclusion of the above items from the Treasury statement
on long-range commitments and contingencies are as follows:
1, Obligations issued to the public by Government agencies
These represent debt obligations of the banks for cooperatives, the Federal
home loan banks, the Federal intermediate credit banks, and the Federal National
Mortgage Association. These obligations are not guaranteed as to either principal
or interest by the United States. They are direct liabilities of the issuing agencies,
and are purchased and held on the basis of the financial strength of the issuing
corporations. (Furthermore, if there were any liability on the Government, and
there isn’t, it would be limited to any excess of these agency debt liabilaities over
the amount of Government securities and other assets owned by the issuing
agencies. These assets are not listed as offsetting items in the Comptroller
General’s tabulation.)
£. Other
These items represent $1,179 million of undelivered orders and contracts, $138
million of grants, and $14 million of other items.
Undelivered orders represent future deliveries of goods and services for which
the Government will presumably receive full value. They are a part of the whoftft
financial picture of the Government, but the Treasury does not list them as con*
tingent liabilities any more than do commercial or industrial firms list their
obligations to pay for future deliveries of merchandise. Upon delivery, they wfil
become not contingent liabilities but direct liabilities and payment for them will
be made from the general fund of the Treasury, in effect, as taxes receivable actu
ally materialize as budget receipts.
FINANCIAL CONDITION OF THE UNITED STATES
270a
3. Unused borrowing power of Government agencies
This authority of Government agencies to borrow from the Treasury is not
considered by the Treasury as being in the nature of a contingent liability although
it—along with the carryover balances of appropriations from one year to another—
may become the basis for a real liability some time in the future.
fiven if it were proper to include such items as contingent liabilities, the amount
of $48,433 million of unused borrowing power presented in the Comptroller Gen
eral’s statement is apparently overstated by $28,558 million, which represents the
total of mortgages that could be insured by Federal Housing Administration*
This latter item does not represent cash borrowing authority from the Treasury.
Any mortgages insured by that agency which go into default are replaced by FHA
debentures, which securities are guaranteed as to both principal and interest by
the Government and which, at the time of their issuance, are included as part of
the Federal debt. They are, therefore, a real rather than a contingent liability
once they are issued. Also, there appears to be double counting involved because
the first item in the Comptroller General's statement, “ Loans and mortgages
guaranteed or insured by the Government,” already includes $19,152 million (out
of the maximum possible $28,558 million) of outstanding insured FHA mortgages
on June 30, 1956.
4. Trust fund contingent liabilities
The Comptroller General's statement includes $271,254 million as “ Trust fund
contingent liabilities,’7 including $251,000 million for the Federal old-age and
survivors insurance trust fund.
This represents the unfunded liability of the old-age fund, as computed actuariallv, to be payable over a long period of years. It is not a present liability. An
evaluation of future trust fund obligations should be coupled with an evaluation
of future trust fund income to be meaningful.
Furthermore, the Congress intended that this program should be completely
self-supporting and specifically provided that benefit payments were to be made
only from the fund.
Secretary H umphrey. Thank you, Mr. Chairman.
(Whereupon, at 1 p. m., the committee adjourned, to reconvene
•at 10:30 a. m., Thursday, June 27, 1957.)
IN V E S T IG A T IO N
OF
THE
THE
F IN A N C IA L
U N IT E D
C O N D IT IO N
OF
STATES
T H U R S D A Y , JU N E 2 7 , 1 9 5 7
United States Senate,
Committee on Finance,
Washington y D . C.
The committee met, pursuant to recess, at 10:30 a. m., in room 312,
Senate Office Building, Senator Harry Flood Byrd (chairman) pre
siding.
Present: Senators Byrd (chairman), Kerr, Frear, Long, Anderson,
Gore, Martin, Williams, Flanders, Carlson, Bennett, and Jenner.
Also present: Robert B. Mayo, Chief, Analysis Staff, Debt Division,
Office of the Secretary of the Treasury; Elizabeth B. Springer, chief
clerk; and Samuel D. Mcllwain, special counsel.
The Chairman* The committee will come to order.
The Chair recognizes Senator Frear.
Senator Frear. Thank you, Mr. Chairman.
STATEMENT OF HON. GEORGE M. HUMPHREY, SECRETARY OF
THE TREASURY— Resumed
Senator F rear. Good morning, Mr. Secretary. I trust you had a
good night's rest, without interference.
Secretary H umphrey. Just worrying over your questions, Senator,
that is all.
Senator F rear. I am sure that was no worry to you. [Laughter.]
Mr. Secretary, yesterday, when we were discussing the farmworker
income in 1956 in your report, I understand the Senator from New
Mexico received a letter from the Department of Agriculture clari
fying some of those figures.
W ould you object if that were made a part of the record at the
proper place in the testimony?
Secretary H umphrey. I believe that is very desirable.
The Chairman. If there is no objection, it will be inserted in the
record at the place it was requested. (See p. 252.)
Secretary Humphrey. Do you have the copy?
Senator Frear. No, sir; I do not.
Secretary Humphrey. Shall I read it, or hand it in?
Senator Frear. Just as you like.
Secretary Humphrey. I might just as well read it.
: In answer to your question this morning as to esti
of farm income per worker and operators' net per farm income, the Eco
nomic Report of the President, transmitted to the Congress January 23, 1957,
a summary table on income of the farm population, 1929—56, which shows
farm income per worker as $1,711 for 1955 and $1,862 for 1956. The 1956 figures
D e a r S e n a to r A n d erson
m a te s
271
272
FINANCIAL CONDITION OF THE UNITED STATES
especially were based on such preliminary materials as were available to us
through December at the time, but such changes as we have made since or have in
prospect indicate that these are still relatively good figures, with much of the
increase in 1956 accounted for by the fact that the estimated average number of
farmworkers fell from 8,237,000 in 1955 to 7,869,000 in 1956.
The economic report for January 1957 also carried a preliminary estimate of
operators' net inoome per farm of $2,268 for 1955 and $2,422 for 1956. These
figures relate to about 5 million farms in 1955 and to about 4,900,000 farms in 1956.
I have not been able to check the figure of some 7 million farm families which
you indicated had been mentioned to you by someone recently. Our estimate as
of March 1956 was 4,900,000 farm-operator families and 700,000 farm-laborer
families, making a total of about 5,600,000 farm families.
Meanwhile, all of the above figures are of course necessarily tentative and will be
subject to some slight changes when we issue our revised farm /income estimates
based on a complete summary of sales, inventory, and such other check data as we
have been able to obtain over the last several months.
These revisions will be released on or about the 16th of July.
Yours very sincerely,
0. V. W e l l s , Administrator.
And, Senator, this checks out the figures we were talking about
yesterday.
Senator Feear. Mr. Secretary, does that not, according to the
estimate, prove that the total income of all farmworkers was less in
1956 than in 1955?
Secretary Humphrey. Where are these two figures here?
Total farm income figures are not here, Mr. Senator.
Senator Frear. No, sir, but if we estimated and multiplied the
number of workers by the income, or divided, as the thing may be,
I think we will find the total, overall amount would be less for all
farmworkers* income.
Secretary Humphrey. You see, both the number of farms and
workers went down, but whether total income went down, I just
do not know.
This indicates, Senator, that the number of workers went down
and the amount of income went up.
Senator Frear. That is right. And if we multiply the number of
workers in 1955 by the income as stated in your report, and the
workers in 1956 by the income stated in your report, I think you
will find that the total would be less in 1956.
Secretary Humphrey. Well, these figures indicate the opposite.
These figures indicate that the workers' income was a little less in
1955 than it was in 1956.
Senator Frear. In the Economic Indicators for June 1957-----Secretary Humphrey. The figures I was referring to were on page
187 of the Economic Report. And that is operator's farm income.
Senator Frear. Yes, sir.
If you will have Mr. Mayo turn to page 7, I think that is next to
the last right hand column, and you will see the 1955 dollars are
$2,385 net income per farm; 1956 is $2,364; and for the first quarter
of 1957----Secretary Humphrey. $2,384; $2,364.
Senator Frear. Yes, sir. You see those two figures?
Secretary Humphrey. Yes, sir.
Senator Frear, And it is a small amount, but less.
Secretary Humphrey, Well, the total was a little less.
Senator Frear. Yes, sir.
Secretary Humphrey. But, you see-----
FINANCIAL CONDITION OF THE UNITED STATES
273
Senator Frear. If you will refer-----Secretary H umphrey. But, you see, the number of people you
divide into that also went down.
Senator Frear. Yes, sir.
Secretary H umphrey. So the people might get more, even though
the total was less, the lesser number of people.
Senator Frear. That is right.
Secretary H umphrey. If the people went down a little faster than
the money, then per person would go up.
Senator Frear. I think that is actually what it did, per person
went up, but the total workers’ income was decreased.
Secretary H umphrey. That is right. But there were fewer workers,
so that the individual worker got a little more.
Senator Frear. That is true, as I see it.
Now, on that same page, 1957, the first quarter, gives the figure of
$2,340. That is the last figure down there.
Secretary H umphrey. Yes.
Senator Frear. Which is a little bit less than the $2,364 the
previous year.
Secretary H umphrey. Again less, but also it might be more per
worker.
Senator Frear. Yes, sir.
That means that fewer farms got less per farm, however.
Secretary H umphrey. Well, no, because farms decreased, too,
the number of farms went down.
Senator F rear. I think if we multiplied that out, it may not be
too much, but it will be a little less.
Secretary H umphrey. I see.
I think per farm and per worker is moving up a little, although the
total is moving down.
But the other side of the coin is that the worker, farm worker, who
previously was on the farm, is now working somewhere else, so that
nis income appears in some other place.
Senator F rear. Well, I think there is probably some substance to
that, sir. However, the figures that we have given-----Secretary Humphrey. It is a shift.
Senator Frear. You agree that the figures you have just given are
fts accurate as you know how to get them?
Secretary Humphrey. I think that is right.
Senator "Frear. Yesterday, Mr. Secretary, I
think we skipped over
the questions that pertained to your testimony as given on page 22,
and you were to supply some figures in response to my first question on
that page.
Secretary H umphrey. Yes, Senator. I think that the first thing
you asked for was the Government contribution to the civil service
retirement fund.
Senator Frear. May I just restate the question.
Secretary Humphrey. Yes, if you will.
Senator Frear. I think I asked for the amount of appropriations
Requested b y your administration, year b y year, from 1954 to 1957,
inclusive, for the civil service retirement fund.
Secretary Humphrey. I have that here.
In 1954, the figure as submitted in the budget document of January
1953, which was never changed and which was carried through,
$427 million.
274
FINANCIAL CONDITION OF THE UNITED STATES
That figure, because of the Kaplan committee’s investigation which
was going on with the Congress, was reduced when it came to the
matter of appropriation, because it was thought best by the Congress,
and there was no objection from the administration, to await the
determination of the Kaplan committee’s findings, and that $427
million was reduced to $31 million.
In 1955, the request was made for $30 million, and the appropriation
was $30 million, awaiting the Kaplan report.
By the 1956 budget, the Kaplan committee had made a report;
the request was increased to $216 million, and the appropriation was
$233 million.
In 1957, the request was for $295 million, and the appropriation
was for $525 million.
And in 1958, the request was for $641 million; and that is, of course,
pending.
Senator Frear. Yes, sir.
What is the Kaplan report?
Secretary Humphrey. The Kaplan Committee was appointed to
review the retirement policy for Federal personnel, and they were
studying what these amounts should be and what the revisions should
be, and so forth, and studying this subject.
Senator Frear. I assume when you said the administration agreed
that the appropriation not be made to the fund, that you concurred
in that.
Secretary Humphrey. Well, you mean me, myself?
Senator Frear. Yes, sir.
Secretary Humphrey. As Secretary of the Treasury?
Senator Frear. Yes, sir, as Secretary of the Treasury.
Secretary Humphrey. I have no recollection of it. But I have no
doubt I did. There was no objection from the administration.
Senator Frear. During the time that appropriations were tempo
rarily set aside, so to speak, did the Kaplan Committee or Congress
suggest that this money be made up later on, that is, the Government
contributions to the fund, since they were not going to contribute for a
year or 2 years, as the case was here? Was there any statement,
either from the administration or from Congress that these shortages
in contributions would be made up in future years?
Secretary Humphrey. I do not know, Senator, whether it was or not.
Senator Frear. You say in 1956 the budget request was $216
million.
Secretary Humphrey. That is right.
Senator Frear. And the House raised it to $237 million, is that
right?
Secretary Humphrey. $233 million was the amount appropriated.
Senator Frear. $233 million. That is not too far off, but the Civil
Service Commission’s report of 1956 states $237 million. We will
not quibble about that.
Secretary Humphrey. There might be an error somewhere.
Senator Frear. But it is close enough.
Was it anticipated by the administration, the Budget Bureau,
and/or the Secretary of the Treasury, that these deficits would be
made up?
Secretary Humphrey. Well, I will say so far as I personally was
concerned, it was not. But I cannot answer that. Mr. Folsom was
in the Treasury during this particular time, and this was his particular
FINANCIAL CONDITION OF THE UNITED STATES
275
field, and the basic subject they were considering was whether, and
to what extent, it was practical to put money into these funds.
If you went to strict insurance calculations, you would accumulate
these funds very rapidly, and the question was whether it was desira
ble to do that and build some great fund, on these theoretical basis
of these calculations; or, having accumulated a sufficient backlog in
the fund to meet any foreseeable emergency, the thing to do was to
revise it down onto a more nearly pay-as-you-go basis.
And the result of the discussions was sort of a compromise.
Senator Frear. Yes.
Was that not the intent of the statute, to make it on a pay-as-yougo basis, Mr. Secretary.
Secretary H umphrey. No. You see, this is all highly theoretical.
It is all what sombody computes will occur years hence.
Senator F rear. I recognize that. But there has to be a computa
tion for the contributions by the civil-service employees; and at the
same time, there should be and apparently has been a computation
for the Government participation in the retirement fund.
Secretary H umphrey, Employee payments are about $2 billion
more, cumulative over the period, than the Government payments.
Senator Frear. Yes, sir. That is right.
Apparently the Kaplan report—which I am not familiar w^ith-----Secretary H umphrey. I am not, either.
Senator Frear, Apparently it did recommend that the Govern
ment make annual appropriations to the fund, since you or the Bureau
of the Budget has requested them since that time.
Secretary Humphrey. Well, actually, I am sorry that I cannot
answer the detail of what went on, because, as I say, Mr. Folsom had
charge of this. I personally did not.
Senator F rear. Yes.
Secretary H umphrey. And I have no definite recollection about it.
Senator F rear. Yes, sir.
Has the request of the Budget Bureau been put into effect and
Confess had made the appropriations for the year 1954, how much
would that have increased the Federal deficit for that fiscal year?
Secretary H umphrey. About, a little less than $400 million, three
hundred and ninety-odd-million dollars.
Senator F re a r. Then your deficit for that year was how much?
Secretary H umphrey. 1954, $3.1 billion.
Senator F rear. Yes, sir.
Secretary H umphrey. This would have made it about $3.5 billion.
Senator F re a r. $3.5 billion; yes, sir.
Now, the same for 1955. You made a request for $30 million.
Secretary H umphrey. The request was for $30 million, and the
appropriation was for $30 million. That was the agreed basis, ap
parently.
Senator F re a r. Yes, sir. So that had the same thing applied in
1955 as in 1954, how much would that have increased your deficit
for 1955, if you can give it?
Secretary H umphrey. Well, the request and the amount appropri
ated were exactly the same in those years. There was no difference.
Senator Frear. Yes; I recognize that, sir. But-----Secretary H umphrey. You mean if we had requested again in 1955,
the same------
276
FINANCIAL CONDITION OF THE UNITED STATES
Senator Frear. Had you followed the previous administration’s
plan of requesting it, and I assume the plan during the first year
of your Administration, since vou did request it but because of the
Kaplan report you did not follow through, assuming that the initial
request had prevailed how much would that have increased your
dencit for 1955?
Secretary Humphrey. Well, if you had had the same amount—
you see, this is all a very highly technical, theoretical computation
that you are working with here, which gets into all kinds----Senator Freak. I agree, but it proves the point.
Secretary Humphrey. But if we had used, as you suggest, exactly
the same request for 1955, of $427 million, that was made in 1954, you
would have had another $400 million deficit.
Senator Frear. Then what would that have made your deficit for
the year 1955?
Secretary Humphrey. It would have gone from $4,2 billion to
$4.6 billion.
Senator Frear. In 1956, you requested and received, as I under*
stand it-----Secretary Humphrey. We requested $216 million and got $233
million or $237 million, whichever it was.
Senator Frear. You reported a surplus in 1956, did you not, in
the budget?
Secretary Humphrey. Yes, sir, $1.6 billion.
Senator Frear. $1.6 billion. Well, had the same figures applied
as you had used for the 2 previous years-----Secretary Humphrey. It would have been $200 million less.
Senator Frear. Or $1.4 billion.
Now then, in 1957, you requested $295 million.
Secretary Humphrey. That is right, and we got $525 million.
Senator Frear. And you got $525 million.
The $525 million, I assume, will be included at the end of the
fiscal year.
Now, how much of a deficit or surplus do you anticipate for 1957?
Secretary Humphrey. Well, we do not have our figures yet.
Senator. But it is going to be around a billion dollars. I cannot tell
within $200 million of $300 million----Senator Frear. That is a surplus, sir?
Secretary Humphrey, That is right.
Senator Frear. You anticipate a billioft-dollar surplus, or there
abouts?
Secretary Humphrey. One way or the other from a billion dollars.
Senator Frear. Does that include your contribution to the civilservice retirement fund?
Secretary Humphrey. That will include whatever the appropriation
was.
1
Senator Frear. If we take those 4 years together, how much would
that change the total of your surplus or deficit of the 4 years?
Secretary Humphrey. It would be about $800 million, I think;
would it not? There is 4 and 4 is 8, and 2 is 10, less 2 here is 8. I
should think about $800 million.
Senator Frear. What does that make your budget for the 4 years?"
Secretary Humphrey. Make what?
Senator Frear. What does that make your plus and minuses for
the 4 years, in the Federal budget?
FINANCIAL CONDITION OF THE UNITED STATES
277
Secretary H umphrey. We will have to add that up.
I do not know what to use for this year. Do you want to use the
budget figure? I suppose that it-----Senator F r e a r . If the billion dollars is close enough we can use
that.
Secretary Humphrey. I do not know whether it will be a billion
200 or 300 or 400 or 800 or 900 million. I would think that prob
ably—let’s put a billion and a half in to figure it. That would be—
actually, we have had deficits of $7.3 billion and credits of about $3
billion. We have a net deficit of about $4 billion.
Senator F re a r. I wish you could promise me that you will have
credits, and I would be happier about it. It will only total about
$2.6 billion?
Secretary H umphrey. Well, it will be somewhere between $2.6
billion and $3 billion.
Senator F re a r. So that even at your figure of $3 billion, the deficit
for the 4 years is something over $4 billion.
Secretary Humphrey. That is right.
Senator F r e a r . I think it would hardly be fair to assess the total
deficit of the civil-service retirement fund to the past 4 years, so it
should be only 25 percent or 20 percent, I do not know the exact
figure; but the question is, Do you and the administration now, as
requested in your 1958 budget of $641 million, believe that the Gov
ernment should supply its part in cash to the retirement fund?
Secretary Humphrey. I believe there is— and again, now, I am
speaking not of my personal knowledge, because somebody else has
been handling it, but I think the Budget Bureau and the committee
and Congress and other people have arranged that there will be higher
amounts in order to offset this difference-----Senator F r e a r . Yes.
Secretary Humphrey. Over a period.
Senator F r e a r . In order at least , to make up for the 2 years in
which only $30 million was put in, therefore it is anticipated, that it
will be brought up to date?
Secretary Humphrey. It will be brought forward over a period.
Senator F r e a r . It will be brought forward over a period in the
future.
Secretary Humphrey. That is correct.
Senator F re a r. Of course, it is by statute now that each agency has
to include cash contributions in the respective budgets.
Secretary Humphrey. The present budget puts it all back to the
agencies themselves. There is no lump figure, but each agency con
tributes its own.
Senator F r e a r . So this $641 million is a contribution of all of the
agencies.
Secretary Humphrey. That is correct. It is spread all through
the budget.
Senator F re a r. Yes.
Who handles the investments for the civil service retirement fund?
Secretary Humphrey. Mr. Burgess.
Senator F re a r. It is in the Treasury Department?
Secretary Humphrey. It is in Treasury; yes.
Senator F re a r. What are the investments of the fund?
Secretary Humphrey. Well, they are all Government special
issues.
278
FINANCIAL CONDITION OF THE UNITED STATES
Senator Frear. The same policy is followed in the fund for the
retirement of civil service employees as you follow in the social
security fund?
Secretary Humphrey. That is right.
Senator Freab. Yes, sir.
In other words, you take out the cash and put in Government
bonds.
Secretary Humphrey. Same general policy.
I think it might be well to just tell a little incident about that, as
a part of this*
A number of years ago, 2 or 3 years ago—it seems a lot longer,
these are a very long 4 years, so it seems longer [laughter!—but 2 or 3
years ago, a businessman was a little critical of the fact that we took
the money, as he said, out of the funds and put in an I O U, which
is not an I O U, it is a Government obligation. And I asked him
if he did not have a pension fund, and he said he did. And I asked
him what his pension fund was invested in. He says, “Ours is in
vested in Government bonds." I said, “So is ours.”
There has been a lot of criticism.
Senator Freab. He was a satisfied customer after that.
Secretary Humphbey. But it is entirely unjustified, the criticism.
Senator Freab. If you refer to the 1956 Annual Report of the Civil
Service Commission, why was the interest in 1956 less than the 3 pre
vious years, even though the principal was higher each year?
Secretary Humphrey. I think you will have to ask Mr. Burgess
about that. This is Mr. Burgess’ function to handle these things, and
I cannot give you the detail. He will save a lot of time in answering
them.
Senator Freab, Yes. All right, sir.
Mr. Secretary, what programs suggested by the President have
not been enacted by the Congress?
Secretary Humphbey. I do not think I could tell you in detail,
Senator.
Senator Fbeab. One of them, you know, was Federal aid to educa
tion.
Secretary Humphbey. You mean that were suggested in the present
budget which have not yet been enacted?
Senator Frear. No. The programs that were originally suggested
by the President, either in his state of the Union message or-----Secretary Humphrey, For this year, or the whole 4 years?
Senator Freab. The whole 4 years.
Secretary Humphbey. I couldn’t tell you right offhand.
Senator Frear. I see.
You do not know whether Congress has enacted all of the programs
suggested by the President?
Secretary Humphrey. No; I do not think so. I can think of one
that means a great deal to me that was not enacted, and that w a s
putting the Post Office on a pay-as-you-go basis. [Laughter.)
Senator Frear. I think that is a very good one.
Secretary Humphrey. It is one I have been very interested in.
Senator F r e a r . The President could have corralled a lot of e x tm
support, I think, had his suggestions been in a little different form*
We will not debate the Post Office Department now, Mr. Secretary*
But had those programs been put into effect, what difference do you
think it would nave made in the budget?
FINANCIAL CONDITION OF THE UNITED STATES
279
Secretary H umphrey. I could not tell you. The Post Office would
have helped us quite a lot.
Senator Frear. That would have been one in your favor.
Secretary Humphrey. Yes, sir.
Senator Frear. I suppose, just as a parting shot, we ought to go
after something, Mr. Secretary. [Laughter.]
Yesterday, President Eisenhower asked business to refrain from
increasing prices. Do you believe the steel industry should comply
with the President’s request?
Secretary H umphrey. I do not know whether he asked them not
to increase at all, or not. I think what is intended, and I think what
is correct, is that this matter of inflation is a very, very serious problem
for all of us, for everybody in this country, and I think that the
Government cannot do the job alone and should not be expected to.
I do not think the Government can do any of these economic jobs
alone.
I think that the economics of this country are very, very largely
dependent upon the conduct of the people of the United States anil
what they do.
And the people of the United States, and specifically, I think, both
employers and employees, in making their demands either for wages
or for prices, should take into account not what is going to happen just
in the next quarter or the next half-year or the next year, Dut they
should take into account the effect of their actions on the whole
economy. Within the limits of successful business operation and fair
wages—you are entitled to both, and this country will not be any
good without both—but within the limits of a reasonably successful
operation and fair wages, that longer-term view should be taken and
the demands of both should be harmonized, as far as possible, looking
to the longer-term views instead of what is going to happen just next
week.
Senator F rear. Do you think in the President's request yesterday
that (he should have excluded the fanners? In other words, he
referred only to business. Is farming a business in that category; or
is it not?
Secretary H umphrey. I assume he was talking about business,
not-----Senator F rear. Business industrial, and not farmers?
Secretary H umphrey. Yes. That would be my assumption.
Senator F rear. But you certainly feel the farmers should not
refrain from getting a little more of the consumer’s dollar on these
increased prices?
Secretary H umphrey. I do not know too much about it, but I think
the farm problem is a little different problem from what is called the
business problem.
Senator F rear. Yes, sir; I recognize the problem is different, but
the money in his pocket means just as much as it does to the industrial
man.
Secretary H umphrey. What I mean is this, Senator: You would
not have exactly the same things; it is a different problem. You
would have different ways of gettmg at the problem.
Senator F rear. I concur in that statement very, very much. As a
matter of fact, I think perhaps we have tried to do things for different
types of industry as they relate to farming, and maybe to farming
direct, and have not been too successful in it.
280
FINANCIAL CONDITION OF THE UNITED STATES
I will make this the last one, and this is from memory:
I believe earlier in your testimony, you indicated that the people
of this country, including the industrialists should refrain from sub
sidies as far as possible.
Then you went on to say that, all of these people who had been
affected by budget cuts were here crying on the shoulders of the
administration, saying that it was all right to clip the budget for some
body else, but not where it affected them.
I think during that conversation you said to your knowledge, that
no group of industrial people or no segment of our economy had so
far come forth requesting that subsidies be eliminated.
Secretary Humphrey. That their own subsidies-----Senator Frear. Their own subsidies be eliminated.
Secretary Humphrey. I have not seen any.
Senator Frear. I think in some testimony before this committee,
a couple of farm groups did state that they were in favor of no Federal
subsidies whatsoever for anybody, and that they would agree to start
the “no subsidy” appeal if there was some indication that industry
and others would follow it up.
I just think those farm organizations, at least, should be given a
little credit for their initiative in trying to eliminate Government
subsidies.
Secretary Humphrey. I think that is right.
Senator Frear. Thank you, Mr. Secretary, for your kindness in
answering the questions, and the manner in which you have answered
them,
I think after we have read this record, that they will be very re
flective. Thank you.
Secretary Humphrey. Thank you, Senator Frear.
The Chairman. The Chair recognizes Senator Williams, of Dela
ware.
Senator Frear. This is a Delaware day. [Laughter.]
Senator Williams. Mr, Secretary, first I vovla like to refer to
questions asked by my colleague in connection with the civil service
retirement system, and I think this should be put into the record in
order to clarify it at this point. The Hoover Commission in studying
the reorganization of the Government found that we had about 18
to 20 different retirement systems and made a recommendation that
a committee should be appointed for the purpose of studying these
retirement systems with the thought perhaps of consolidating them.
In 1052 Congress passed a resolution setting up such a Committee
and appropriated $250,000. President Truman appointed this Com
mittee, of which Mr. Kaplan was the Chairman.
In 1953 the Committee asked for an extension to complete its work,
and President Eisenhower asked for an additional appropriation ox
$167,000, which Congress approved. He then reappointed the gams
Committee to continue the work, and pending the report of that
Committee, Congress did hold up appropriations.
Now, the Committee in their report to Congress made the recom
mendation that we should combine these systems and the civil service
system all with the social-security system, which proposal was rejected
by Congress.
SecretaryHuMPHREY. That is right.
Senator Williams. And in place of that, Congress passed a law
putting the contributions of the employees on a fixed 6K-percent rate,
FINANCIAL CONDITION OF THE UNITED STATES
281
and we fixed the Government’s contribution at §}{ percent, which is
mandatory! and your budget estimate this year of six-hundred-miUionsomet-hing dollars is an estimate only, but it is payable identically,
I mean in direct proportion to the amount of salaries paid?
Secretary H umphrey. That is right.
Senator W illiams. This rate is fixed under the law, and whether
there is an accumulated deficit or whether there is not is something
the Congress will have to face in the future, I suppose.
Secretary H umphrey. At some other time.
Senator W illiams. At some other time.
Secretary H umphrey. Thank you very much.
Senator W illiams. Furthermore, under the law, the investments
are required by law all to be in Government bonds?
Secretary H umphrey. Yes, sir.
Senator W illiams. I thought it should be cleared. It just so hap
pens I have here the report, but we will not go into the trouble of
reading that report here and the recommendations.
Secretary H umphrey. That is right.
Senator W illiams. Mr. Chairman, I was interested in a report
that came out this morning, or a release to the press, which I think
should be commented upon. It is a report of the Subcommittee <*n
Fiscal Policy of the Joint Economic Committee of the House and
Senate, under the chairmanship of Congressman Mills. It is com
prised of Congressman Curtis of Missouri; Senator Douglas, a member
of this committee; Senator O’Mahoney; and Senator Goldwater.
I wrould like to read just an excerpt from this report, because they
rather strongly endorse the monetary policies of the administration
as I interpret it. This report reads—I am reading from page 2 of
the report:
Inflation is a grave economic problem facing the American economy today.
Failure to deal with it forthrightly will result in increasing hardships for millions
of Americans. It will impose the costs of economic instability on future genera
tions by making achievement of steady economic progress increasingly difficult.
And continuing reading over on another page of the report, it says:
The basic problem is an inadequate level of savings out of current income. An
ever-increasing volume of real savings is needed to meet the economy's require
ments for replacement of plant ana equipment under inflated prices ana for
growth based upon full exploitation of rapid technological advances. Fiscal and
monetary policies should be directed toward encouraging a higher level of volun
tary real savings under the present conditions of inflationary pressure.
Since these objectives have not been fully accomplished, public policies to cope
with increases in the price level must take the form of general fiscal and monetary
restraints on the expansion of total spending. It is recognized that the burden
of such restraints may not be evenly distributed throughout the economy. The
burden of inflation, however, is far more inequitably distributed. The alternative
to general fiscal and credit controls is some form of direct Government control
over wage and price determination. The use of this type of control would produce
results as bad, if not worse, than the inflation against which it would be directed,
and should be avoided.
I was wondering, Mr. Secretary, if you would care to comment on
this report at this time?
Secretary H umphrey. I testified before that committee on Friday,
June 14, and I was very gratified and pleased to read the report that
that committee made, because the committee’s report is exactly along
the lines of the policy that we have been following. It follows the
policy that we have been following plmost exactly, and it recommends
that it be continued.
http://fraser.stlouisfed.org/
96819 0 — 57------- 19
Federal Reserve Bank of St. Louis
282
FINANCIAL CONDITION OF THE UNITED STATUS
Senator Williams. That is the reason I thought it was worth calling
to the attention of the committee.
Secretary Humphrey. I think it is very desirable to have this report
for your consideration. They heard a large number of outside wit
nesses as well as the administration witnesses.
Senator Williams. Mr. Chairman, I think it would be well—it is
very short—if here we might have made a part of the record this
complete statement.
The Chairman. If there is no objection, it will be inserted.
Senator Kerr. I reserve the right to object, Mr, Chairman. I see
no reason to clutter up this record by including within it a rather offi
cial lengthy document. It can be med.
Senator Williams. I will withdraw the request, but the part I
wished included is only a page and a half.
Senator K err. I have not objected. I will reserve my right to
object.
Senator Williams. Y ou may be right.
The Chairman. The secretary to the committee says it would be
duplicating. So it will be filed.
Senator Williams. In the interests of economy, then, we will
withdraw it.
Senator Kerr. Still reserving the right to object, and that is the
only way I can speak at this time, Mr. Chairman, I hope that the
members of the committee will read that report, because I think,
if they carefully discern it, they will find from it what should not be
in our report.
Senator Williams. The reason I was asking that it be put in as
art of the record was that 1 thought the committee should read it,
ut we will see that the committee is supplied with copies.
Mr. Secretary, a lot has been said during recent months, and in
particular during the recent days before this committee, as to the
question of high interest rotes, and the question has come to my mind
as to whether or not interest rates are high if we go back and compare
them over a period of prior years, or whether we just are considering
interest rates high today because we are comparing them with two
periods in which there were artificial controls in operation?
Secretary Humphrey. I think the latter is the case, Senator.
Senator Williams, For instance, we compare interest rates today
with the period between 1941 and 1951, at which time they were
supported at par by the Federal Reserve System. Is that not true?
SecretaryHuM PHREY. That is correct.
Senator Williams. And, prior to 1941, going back to around 1920,
I think it was, Government bonds were partially tax exempt—is
that not correct?—and some of them were wholly tax exempt?
Secretary Humphrey. That is right.
Senator W il l ia m s . Therefore, the tax-exempt feature of those
bonds would make a great difference in the comparative rates? In
other words, if Government bonds were tax exempt today, we would
have a more-----Secretary Humphrey. You would have a lower interest rate.
Senator Williams. A lower interest rate. Now, to pursue that
thought: How does the interest rate on municipals today compare
with what it was 20 or 25 years ago? I think that information is in
the President’s Economic Report.
E
FINANCIAL CONDITION OF THE UNITED STATES
283
Secretary Humphrey. Your high-grade municipal bonds from
Standard & Poor’s—and I will just read the years. This begins with
the year 1929 and goes on to the present, so I will just not read the
veal's, but the amounts, and you will get the wav thev fluctuated:
4.27, 4.07, 4.01, 4.65, 4.71, 4.03, 3.40, 3.07, 3.10, 2.91, 2.7f>, 2.50, 2.10,
2.36, 2.06, 1.86, 1.67, 1.64, 2.01, 2.40, 2.21, 1.98, 2.00, 2.19, 2,72, 2.37,
2.53, 2.93. That 2.93 is at the present time. That was 1956.
Senator W illiam s. In other words, State— I mean municipals—
are-----Secretary Humphrey. They have increased in the past year again
to— thev run this year starting with January at 3.40, 3.26, 3.32, 3.33,
3.52, 3.44, 3.44, 3.51, 3.57, 3.64, and 3.70 on June 8.
Senator W illiam s. They have averaged this year around 3.75; is
that about right?
Secretary Humphrey. Just a little less than that. They are around
3.75 now, and they might have averaged a little less than that.
Senator W illiam s. And the period 1929 to, say, 1939, that 10-year
period, they averaged a little better than 4 percent; is that right?
Secretary Humphrey. Yes, for that period.
Senator W illiam s. In the early thirties?
Secretary Humphrey. That is right. They were all better tliaa 4
percent.
Senator W illiam s. Of course, municipals are tax exempt; but in
reality they are financing today on a comparative basis cheaper than
they were in that period; is that not true?
Secretary H umphhky. Yes, sir; that is correct. The low point
was reached in 1946, and they have been going up steadily since 1946r
almost steadily.
Senator W illiam s. Yes. But, at the low point in 1946, Govern
ment bonds were being supported at par?
Secretary Humphrey. That is correct.
Senator W illiam s. And interest rates were being kept at an arti
ficially low level, which would have had an effect on them?
Secretary Humphrey. That is right.
Senator W illiam s. How are the interest rates on AAA corporation
bonds?
Secretary Humphrey. Well, they follow the same pattern^ almost
exactly, and they start with 4.73, 4.55, 4.58, and they finish with 3.36r
and down to the end here at 3.82.
Senator W illiam s. But they, too, based upon Moody’s reports of
AAA bonds, are lower today than they were in the average of thoseprior years?
Secretary Humphrey. Yes, sir. They got up as high as 5.01 in
those years.
Senator W illiam s. Now, I asked you, Mr. Secretary, to compile a
record of the interest rates on Government bonds alone. Do you
have that report there with you?
Secretary Humphrey. You are talking about the------Senator W illiam s. The public debt.
Secretary Humphrey. Public debt over how long a period?’
Senator W illiam s. I asked you to go back as far as reasonable',,
and will not ask you to read all the record, but you could summarize’
it, perhaps, and we will incorporate the whole report in the record.
I think you went back a hundred years, did you not?
284
FINANCIAL CONDITION OF THE UNITED STATES
(The table referred to, “Computed interest rate on the public debt
and yields on long-term Governments,” is as follows:)
Computed interest rate on the public debt1 {1865—1957) and yields on long-term
Governments (1919-6?)
[Percent per annum]
June 30
1855185618571858,
1850.
1860.
18611862,
1863
1864.
1865.
186618675868.
1860.
1870.
1871.
1872.
1873.
1874.
1875.
1876.
1877.
1878.
1879.
1880.
1881.
1882.
1883
1884.
1885.
1886
1887
1888
1889
1890
1891
1892.
1893
1894
1895
1896
1897
1898.
1899
1900.
1901
1903
1903
1904
1905
1906
1907
Computed
rate
6.53
5.88
5.88
5.47
5.36
5.32
5.63
6.03
5.91
5.80
June 30
Long'term
yields*
1908.
190 9 .
1910.
191 1 .
1912.
191 3 .
191 4 .
1915191 6 .
6.21
6.29
6,20
1917..
1918.
5.86
5.83
5.83
5.83
5.77
5.78
5.73
5.67
5.66
5.49
5.32
4.44
4.60
4.61
3.96
3.88
3.95
3.98
402
4.15
4.16
4.14
4.14
3.87
1921.
1922..
19231924..
1925.
19261927.
1928.
1929.
1930.
1931-
3 .9 1
194 5
.
194 6
194 7
1948..............
194 9
.
195 0
1951..............
195 2
195 3
.
195 4
195 5
.
195 6
1957:
M ay 31.
June 25..
3.91
4.00
4.07
4.06
4.06
4.06
3.90
3.28
3.02
2 .9 6
2 .7 9
2.70
2.70
2.60
2.42
191 9 ..
1920.
1 93 2 ..
1933.
1934.
1935.
1936.
1 93 7 .
1940...............
194 1 ... .
194 2
194 3
194 4
Computed
rate
2.35
2.33
2.33
3.33
2.36
2.96
2.36
2.37
2.38
3.12
3.91
4.18
4.22
4.34
4.24
4.21
4.18
4.10
4.09
3.90
3.88
3.95
3.81
3.57
3.50
3.35
3.18
2.72
2.56
2.58
2.59
2.60
2.58
2.52
2.28
1.98
1.93
1.94
2.00
2.11
2.18
2.24
2.20
2.27
2.33
2.44
2.34
2 .3 5
2.58
2.75
Long-term
yields*
4.70
5.56
5.26
4.19
4.34
3.96
3.79
3.68
3.35
3.36
3.66
3.25
3.14
3.67
3.20
2.95
2.70
2.66
2.74
2.52
2.14
2.34
190
•2.44
2.45
2.49
2.34
2.17
2.24
2.42
2.32
2.34
2.64
2.61
3.05
2.52
2.86
2.U
3.49
3.64
1Interest-bearing,
* Average of monthly average for June and July each year, 1919 through 1952; June 30 each war, UNB
through 1956.
1 Partially tax-exempt, 1919 through 1941; fully taxable 1942 through 1957.
Secretary Humphrey. Yes. This is on the Government debt and i l
goes over a very long period of time at 6 percent and 5 percent.
Senator W i l l i a m s . I would suggest just in order that we might save
time, we just take 10-year intervals. They are in blocks there where
you can give them.
Secretary Humphrey. These seem to be in 5-year intervals.
Senator Williams. All right.
FINANCIAL CONDITION OF THE UNITED STATES
285
Secretary H u m p h r e y . Yes, these seem to be in 5-year intervals. I
can put them in 10-year periods and come pretty close.
Senator W il l ia m s . All right.
Secretary H u m p h r e y . Starting way back with 1855 to 1865, it
was all between 5 and 6 percent, more nearly 6.
Senator W il l ia m s . It started out in 1855 at 6.53 percent?
Secretary H u m p h r e y . That is right.
Senator W il l ia m s . And it got down as low as 5.80 during that 10year period?
Secretary H u m p h r e y . It got down as low as 5.32 at 1 period.
Senator W il l ia m s . Yes.
Secretary H u m p h r e y . It would be between 5 and 6, averaging
just under 6.
From the year 1865 to 1875, about the same thing would be true,
the high point there being 6.20, and the low point was 5.73.
The next period, 1875 to 1885, it would be around 5 percent. The
top was 5.67 and the low was 3.95. Wait a minute. It was 3.88.
From 1885 to 1895 it would be around 4 percent, a little better
than 4 percent. The high was 4.16 and the low was 3.87.
From 1895 to 1905, it' began to drop down. It went from 4.07
down to 2.70, and that would average around 3 percent, a little
better than 3.
From 1905 to 1916, was a low period. It went from a high of 2.70
to a low of 2.33, an average of about 2.5 percent.
From 1915 to 1925 it was running up again and would average over
3.5 percent, I would say. The low was 2.37 and the high was 4.34,
but many more 4’s. It was above 4 percent for the greater part of
the time.
Senator W il l ia m s . During those intervals there were some long
term bonds sold as high as 5.56, is that correct?
Secretary H u m p h r e y . That is correct. The long-term bonds sold
at 4.70, 5.56, 5.26.
Senator K e r r . What period was that? Pardon me, I did not get
that?
Secretary H u m p h r e y . Well, in the year 1920 there were long
term— 1919 was when the long-term bonds were sold at 4.70; in 1920
at 5.56; in 1921 at 5.26; 1922 at 4.19; 1923 at 4.34; and 1924 at 3.96.
Then from 1924 on—well, let us take the next 5 years now. It is
a little easier to compute. The next 5 years—from 1925 to 1929—the
average would be about 3.75 percent, or between 3.75 and 3.5 percent.
The next 5 years, 1930 to 1934, would average about 3.5 percent.
The next 5 years, 1935 to 1939, would average about 2.75 percent.
The next 5 years, 1940 to 1944, would average about 2.25 percent,
I would say, a high of 2.58 and a low of 1.93.
Then from 1945 to 1949 the average would be a little over 2 percent.
And from 1950 to 1954 the average would be about 2.35, between
2.25 and not as high as 2 .5. Then in 1955 it was 2.35, and in 1956
it is 2.58.
Senator W il l ia m . Mr. Chairman, I would like to make this entire
chart a part of the record because I think it does show that throughout
the history our interest rates have fluctutated from a high of 6.5
percent.
Secretary H u m p h r e y . Over 6.
286
FINANCIAL CONDITION OF THE UNITED STATES
Senator W illiams . Down to around 2.25 to 2.5 at times; and that
these fluctuations have occurred on 2 or 3 different occasions from the
low to the high during this period.
Secretary Humphrey. We have been up and down 2 or 3 times.
Senator Williams. Those conclusions are safely supported from
that report.
SecretarvHuMPHREY. A number of times.
Senator Williams. And based upon the record of how rates on
municipals have declined it can be said that interest rates on Govern
ment bonds today are high only because we are comparing them with
two artificially low level periods of interest. Would you agree with
that?
SecretarvHuMPHREY. I think that is about right.
Senator Williams. Would you recommend that the Government
go back to the policy of the Federal Reserve System's supporting
Government bonds?
Senator Humphrey. I would recommend very positively against it
as a standard practice.
Senator Williams. And that position was concurred in by the
report of this committee to which we referred just a few moments
ago?
SecretarvHuMPHREY. That is correct.
Senator Williams. Are there not only two ways, you might say,
in which interest rates could be forced at a lower level; one would be
to go back to the old policy of supporting all Government bonds, or
perhaps the printirg of some money to pay off these bonds?
Secretary Humphrey. Or a much reduced demand for money.
Senator Williams. Yes.
Mr. Secretary, perhaps this is in the record before, but just who
owns our national debt when we speak of this $7 billion interest that
is being disbursed? Who gets that money?
Secretary Humphrey, i es, sir, I can tell you who owns the debt
and, of course, the ones who own the debt would be the people who
get the interest.
Government investment accounts own $54 billion.
Senator Williams. Those are mostly the trust funds, such as the
civil service retirement fund?
Secretary Humphrey. That is right.
Senator Williams. Social security fund, and the other trust funds
administered by the Government?
SecretarvHuMPHREY. That is correct.
Senator Williams. And to the extent we pay larger amounts of
interest into those funds, we would automatically have to appropriate
less money ultimately to make them good if there was a deficit?
r
SecrataryHuMPHREY, That is right.
Senator Williams. And, on the other hand, if interest rates were
reduced to those trust funds, our obligations to appropriate would he
greater?
SecretajyHuMPHREY. Might be increased if we ran a deficit.
Senator Williams. Federal Reserve banks—I will read the figures
to the nearest billion instead of getting into detail.
Secretary Humphrey. These figures are all as of December 31,1956.
Federal Reserve banks, $25 billion.
Senator Williams. Might I ask you at that point, the interest that
is paid in earnings of the Federal Reserve bank-----
FINANCIAL CONDITION OF THE UNITED STATES
287
Secretary H umphrey. Comes back 90 percent to the Treasury.
Senator W illiams. Ninety percent of that comes back to the Treas
ury?
Secretary H umphrey. That is right.
Senator W illiams. Yes, sir.
Secretary H umphrey, Less expenses. They pay their expenses,
and 90 percent of the rest is paid back.
Senator W illiams. Yes.
Secretary H umphrey. Commercial banks, total of commercial
banks is $59 billion. Now, that is divided, if you care, between vari
ous kinds—reserve city banks and other banks but it is commercial
banks.
Senator W illiams. That is all right?
Secretary H umphrey. Yes. Total about $59 billion.
Life insurance companies, $8 billion; other insurance companies,
$5 billion; mutual savings banks, $8 billion; savings and loan associa
tions, $3 billion; State and local pension funds, $5 billion; corporate
pension trusts, $3 billion.
I am reading in each case the rounded figures.
Senator W illiams. That is right.
Secretary H umphrey. Which comes out to $91 billion.
Now, those are private financial investors.
Senator L o n g . Could I ask at that point the chart be placed in t h e
record?
The Chairman. The chart will be put in the record.
(The chart, “Ownership of the public debt,” is as follows:)
288
hsbwcial condition of the tooted states
Ownership of the public debt, Dec. SI, i960
Amount held
Billions of
dollars
Percent
Qovei^ment investment accounts:
Federal old-age and survivors insurance trust fund.
Railroad retirement account.......................................
Federal employees retirement funds............... - ........
Veterans life insurance funds......................................
Unemployment trust fund..........................................
All other......................— ..........................................
21.8
3.6
7.3
6.7
9.1
5.5
Total............ ..............................................................
Federal Reserve banks............... ................................ —
54.0
20
24.9 ____________9
Private financial investors:
Commercial banks:
.Federal Reserve members:
Central Reserve d t y banks...........................
Reserve d t y banks..........................................
Otber banks.............. - ..................................
Noomember banks......... - .....................................
8.3
17.6
22.4
11.1
Total, commercial banks,................................
Life insurance companies................ - ..........................
Other insurance companies.........................................
Mutual savings banks.............................................. —
Savings and loan associations......... ...........................
State and local pension trust funds............................
; Corporate pension trust funds...................................
Total, private financial investors............................
8
1
3
2
3
2
3
6
8
4
59.4 ___________ 21
TT
5.3
8.0
2.8
4.9
2.8
3
2
3
1
2
1
90.7 ___________ 33
Otber Investors:
Individuals (including personal trusts):
E to d H savings bonds.........................................
Other savings bonds...............- ............- ...............
Marketable securities, etc............ .......... ..............
U.4
8.7
16.5
15
3
6
Total, individuals.............................................Nonfinancial corporations........ ................. ................
State and local governments i____________ _______
Nonprofit institutions, etc.......................................
Foreign and international accounts...........................
66.6
19.2
10.8
2.7
7.7
24
7
4
1
3
Total, other Investors................... *- _____________
107.0
39
Total, public debt....................................................
276.7
100
1 Other than pension trust funds.
Secretary H u m p h r e y . That is $91 billion that go to private in
stitutions, of which $59 billion are banks.
Now, other investors—these are individuals—the E and H bonds,
$41 billion. The other savings bonds, $9 billion. Marketable secu
rities, $17 billion. Or a total for individuals of $67 billion.
Now, then, the nonfinancial corporations, which are business corpo
rations and others, $19 billion. State and local governments, $11
billion. Nonprofit institutions, $3 billion. Foreign and international
accounts, $7 billion. Or those other investors are a total of $107
billion.
So that the total of private nonbank investors are about $138 billion*
The banks are about $60 billion, and that plus the Federal Reserve ii
about $85 billion. And that adds up to a total of $276 billion of
total debt.
Senator W i l l i a m s . Mr. Chairman, I would like to have that chart
put in the record in its entirety at this point, because I think it should
be noted at this time that of this debt, $54 billion is paid to the trust
funds operated by the Government, and, of the other $90 billion item,
FINANCIAL CONDITION OF THE UNITED STATES
289
about $30 billion of it goes to insurance companies, and it is individual
Americans who own most of the insurance.
Secretary H u m p h r e y . That is right; again, to go back-----Senator W i l l i a m s . To go back again, the same thing is true of the
corporate pension trust funds and about $40 nillion of E and H bonds
and other savings bonds, which include J’s and K’s, I understand, are
guaranteed at par and have fixed interest rates so far as the American
people are concerned, and there is only the remaining portion of it
which is subject to any fluctuation or demand as far as sale is con
cerned?
Secretary H u m p h r e y . As to what?
Senator'W i l l i a m s . That are subject to fluctuations on the market,
that is on the open market, that is the part that is not in the invest
ment trust funds?
Secretary H u m p h r e y . Oh, n o ; that is not correct.
Senator W i l l i a m s . They are not-----Secretary H u m p h r e y . The part in the funds are not-----Senator W i l l i a m s . They are fixed?
Secretary H u m p h r e y . They a r e fix e d .
The C h a i r m a n . The Chair has no objection to insertion of the chart
in the record, but for the record, did the Senator from Delaware say
that these trust funds were owned by the Government? Is it not
a fact that some trust funds are not owned by the Government?
How are the social security and railroad retirement funds classified?
Secretary H u m p h r e y . The Government is the custodian of the fund,
I think, is the proper way to put it.
The C h a i r m a n . When such a table is placed in the record will it
show those which are exclusively owned Government trust funds, and
those for which the Government is only the custodian?
Secretary H u m p h r e y . We will itemize t h a t .
Senator W i l l i a m s . I might say, Mr. Chairman, these are not put in
as Government-owned trust funds, but Government Investment
accounts of which we have charge.
The C h a i r m a n . The Senator stated they were Government-owned.
Senator W i l l i a m s . I did not mean to state Government-owned,
but operated.
The C h a i r m a n . The Chair raised the point only to clarify the
record.
Senator W i l l i a m s . They are not Government-owned, but there is
a Government responsibility behind them.
The C h a i r m a n . If there is no objection, with that modification,
the table will be inserted in the record.
Senator W i l l i a m s . However, I do not think we can escape the
fact that the civil service retirement fund and the social security fund
are to a certain extent responsibilities of the Government, and, as
was pointed out before, if either of them gets into difficulty, I am sure
the Government will be promptly asked-----Secretary H u m p h r e y . To make good.
Senator W i l l i a m s . T o make good.
Now, Mr. Secretary, I would like to discuss the purchasing power
of the dollar briefly here, and I asked you to prepare a chart here
and I .would like to" refer to that.
I asked the Secretary to prepare this chart, which shows the pur
chasing power of the dollar and how it has changed since 1939. It
290
FINANCIAL CONDITION OF THE UNITED STATES
shows that 10 cents was lost prior to our entering World War II,
between the period of 1939 and 1941; and 13.5 cents was lost during
World War II, that is, the period 1941 to 1945.
Secretary H u m p h r e y . That is correct.
Senator W i l l i a m s . And 18 cents was lost from August 1945 to
June 1950?
Secretary H u m p h r e y . That is right.
Senator W illiams. And 6.5 cents was lost between June of 1950
and July of 1953?
SecretaryHuMPHREY. That is right.
Senator W i l l i a m s . And 2 cents was lost since the Korean war up
until April 1957, is that correct?
Secretary H u m p h r e y . That is correct.
Senator W i l l i a m s . And you will agree with me that this is#an
alarming trend. While we are glad to see it is leveling off since
1952, that is, the rapid tendency downward, the recent 2 cent decline
is a matter of great concern and should ba to all of us, do you not
think?
Secretary H u m p h r e y . I think that is right, Senator, although this
line looks very level on this chart. The matter of the last 12 months
is a matter we should be paying strict attention to, as we have been,
and I said these swings occur in the economy, as they always do.
This will level off again.
Senator W il l i a m s . It was the recognition of this danger of the
downward trend that was behind the policy of the Federal R e s e r v e to
let interest rates seek a little higher level?
SecretaryHuMPHREY. That is correct.
Senator W i l l ia m s . Mr. Chairman, it has been s u g g e s t e d I put this
chart into the record.
^ The C h a ir m a n . If there is no objection the chart will be included
in the record, but it should be made clear that from April 1956 to
April 1957, 2 cents or 4 percent of the purchasing power of the dollar
was lost in inflation.
Senator W i l l ia m s . That is correct.
The C h a i r m a n . I think it should be clearly indicated that this
chart was----Senator L ong. Would it be in order, Mr. Chairman, to continue
the line there to bring it up to the present date? I think the chart is
very helpful.
Secretary H u m p h r e y . It does go to the present date, I believe,
n you will just look at the thick line, then you will see a little dot.
lhen it bnngs it right to the day.
Senator L ong. Would it be correct then to say as of now you have
a 50-cent dollar compared to a 100-cent dollar in 1939?
Secretary H u m p h r e y . 49.71 is the exact figure.
, w
Ihe C h a i r m a n . The 49.67 cent present value should show clearly*
becretary H u m p h r e y . That is drawn right on the chart if y ou
would look at it.
Senator Long. I do not object to it. I would be dad to see the
£ fc"J th« record- It would be very helpful.
Senator W i l l i a m s . I think—and that is the purpose of putting i j
thin
.r6cor^T~ y while it does show a certain even line, it ^
m w T .i! ! ! ^
6*ves 118 concern. The 2 cents which*
as the chairman has pointed out, is a 4 percent drop.
FINANCIAL CONDITION OF THE UNITED STATES
291
Secretary H umphrey . That is right.
Senator W illiams . But it'is'the trend we want to stop, and we
want to stop it before it gets out of control.
Secretary H umphrey . And as the chairman has pointed out, and
applicable to these questions about creeping inflation of the other
day, a 2-cent drop on a 50-cent dollar is twice as much as a 2-cent
drop on a 100-cent dollar.
Senator W illiams . I do not think we can overemphasize that.
Secretary H umphrey . So it doubles up.
Senator W illiams . That is correct.
The C hairman . Without objection and with that modification, the
chart will be inserted.
(The chart, “Purchasing power of the dollar, 1939-57,” is asfollows:)
292
---------------------------------------- C W T t
FINANCIAL
CONDITION
OF THE
UNITED
STATES
PURCHASING POWER OF THE DOLLAR 1939* 57
FINANCIAL CONDITION OF THE UNITED STATES
293
Senator W i l l i a m s . Mr. Secretary, there has been some question
raised that perhaps the monetary policies of higher interest rates may
have had some adverse effect on housing and perhaps the administra
tion had been unwise or the Federal Reserve Board had been unwise
in promoting these higher interest rates on the basis that it would
curtail building of new houses, and I was interested in a speech that
was made a couple of days ago by Mr. Roy M. Marr, the president of
the United States Savings & Loan League, at which time he was
speaking before the New England convention of savings and loan
associations, and Mr. Marr made the statement, and I will quote here
from the report on his speech. He said that the Government’s tight
money policy in the mortgage market has “kept the lid from blowing
off the housing market.”
Would you care to comment on that statement, and do you think
there would have been danger in the loose money policy as far as the
housing industry was concerned had it not been checked?
Secretary H u m p h r e y . I think there is no doubt, Senator Williams,
that the cost of housing was rising quite rapidly in these latter years,
and I think that if additional pressures had continued that the cost of
housing would have continued up even faster than it has been going up.
Senator W i l l i a m s . You think that those building houses, while
they are paying higher interest rates-----Secretary H u m p h r e y . They would have paid a lot more in other
costs.
Senator W i l l i a m s . In the actual cost of construction?
Secretary H u m p h r e y . That is correct. And I think the figure in
my statement, that I read previously, conclusively demonstrated that.
Senator W i l l i a m s . I noted that they did, and that is the reason I
called attention to his statement, because it supported that position
even more affirmatively than you put it.
Mr. Chairman, I have here just that portion of Mr. Marr's speech,
a page and a quarter, from which I have just read, and I want to
have that put into the record.
The C h a i r m a n . What is it?
Senator W i l l i a m s . Mr. Marr’s statement before the United States
Savings & Loan League in which he defended the administration’s
monetary policy and said had it not been for the higher increased
interest rates, tne lid would have been blown off so far as the housing
industry is concerned.
The C h a i r m a n . Is there any objection? If not, it will be received
for the record.
(The extract from the speech of Roy M. Marr is as follows:)
E x t r a c t F rom S p e e c h o f R o y M . M a r r , P r e s id e n t o r th e U n ite d S ta te s
S a v in g s a n d L o a n L e a g u e . D e l iv e r e d J u n e 24, 1957, B e f o r e t h e N e w
E n g la n d C o n f e r e n c e o f S a v in g s & L o a n A s s o c ia t io n s a n d C o o p e r a t iv e
B a n k s a t Y o r k H a r b o r , M a in e
T h e recen t reviv al in housing starts, in th e face o f a con tin u ed " t ig h t m on ey ”
m ortgage m arket, suggests th a t the housing in du stry is n o t as d epen den t u p on
G overn m en t help n ow as som e groups believe it is. W e are goin g t o build close
to a m illion new houses in 1957, despite th e fa c t th a t G overn m en t insured an d
guaranteed loans are less a ttra ctiv e n ow t o in vestors th an th ey have been a t
alm ost a n y tim e since W orld W a r II.
T h e housing in du stry w as so bu sy fo r th e first 10 yeara a fter W o rld W a r I I
elim inating th e N a tion ’s housin g shortage, th a t th ere w as little atten tion given t o
the vita l qu estion o f ju st h o w m u ch influence th e G overn m en t sh ou ld h av e in
294
FINANCIAL CONDITION OF THE UNITED STATK8
housing. But the housing shortage is over, and it is time to take a long look where
we are headed.
While much of the Government’s help in housing was desirable and commend
able, not all of its aid was an unmixed blessing. I believe any objective observer
would have to agree that some of the Federal program to make plenty of “ easy"
credit available to home buyers has been at least partly responsible for the
inflationary spiral in housing costs. The rise in home building costs since World
Wor II has been greater, namely 85 percent, than the rise in the cost of living
which is 53 percent and in per capita income, which is 50 percent.
As these cost increases came along they were translated into price increases for
new houses. To help sell the houses at higher prices, Congress was implored and
steadily reduced downpayment requirements, first on GI loans, and later on FHA
loans. This procedure sold houses, but it also promoted inflation in housing costa
and prices, since it delayed a showdown in the vital issue of how to stop the con
tinual trend upward in building costs.
Even during the years 1953 to 1956 while price levels and the cost of living
remained largely stable, construction costs continued to mount at the rate of 4 to
6 percent a year. If it had not been for the tightening credit conditions in the
mortgage market during this period and in 1957, there is no telling just how high
building costs would have skyrocketed by now. The widely discussed and some
times condemned “ tight money” policies actually kept the lid from blowing off.
Senator W illiams. Mr. Secretary, do you think it is a fair state
ment made by some that the result of a 50-cent dollar is, in effect,
a 50-percent repudiation of the public debt?
Secretary H umphrey. Well----Senator W illiams, Perhaps “repudiation” is not the proper word,
but would you say-----Secretary H umphrey, It does certainly definitely affect the man
who, at the time the dollar was worth a dollar, bought a security
with it. He certainly has lost in the purchasing power of his money
that he had at that time.
Senator W illiams. I think it was one of the Rothschilds, I do not
have his exact quote, who once stated that inflation was a painless
method of extracting the life savings from the people without using
the unpopular procedure of levying taxes.
Do you think it is possible for a government to adopt an inflationary
policy and syphon the earnings or the savings from the people away
from them in such a manner?
Secretary H umphrey. It is not only possible, Senator Williams, but
it has been done. It has occurred in a good many foreign countries.
Senator W illiams, And right-----Secretary H umphrey, Where life savings have been completely
wiped out.
Senator W illiams, And the depreciation in this country of the
dollar to approximately 50 cents has eliminated half the savings in
this country?
S e creta ry H u M P H R E Y . I t m o v e s in th a t d ir e c tio n .
Senator W illiams. As far as the purchasing power
of the dollar is
concerned?
Secretary H umphrey. It moves in that direction; yes, sir.
Senator W illiams. Would you go so far as to classify inflation as
a hidden or a concealed tax?
Secretary H umphrey. Well, I do not know. It is so easy to get
mixed up in technical terms. There is no question that it is a loss i&
value. Now, whether you would define it as a tax----Senator W illiams. Well, it is not exactly a tax?
Secretary H umphrey, I do not think it is strictly a tax, but it dom
reduce the value of savings that people have made.
FINANCIAL CONDITION OF THE UNITED STATES
295
Senator W i l l i a m s . If an administration or a government, whether
it be our Government or any government, wished, they could, through
deliberate inflation, take tne savings away from the people without
their consent?
Secretary H u m p h r e y . They could wipe out all of their savings
without their consent.
Senator W i l l i a m s . That is correct.
Now, Mr. Secretary, in connection with the $4 billion refinancing
problem which you had a couple of months ago, at which time a
portion of that was not subscribed for and which transaction has been
discussed previously here, I would like to ask this question: You
offered these 5-year bonds at that time to the holders of the bonds;
was that not true?
xt
rm
-1
They had two choices.
Senator W i l l i a m s . Could anyone who was not a holder of one of
the bonds have a right to subscribe?
Secretary H umphrey. He could not subscribe directly to either
of the issues that were offered. He could have indirectly done it
by purchasing the previous security from one of the holders and using
it to come in, but this was a privliege that was given to holders of
those maturing securities.
Senator W i l l i a m s . Holders only?
Secretary H u m p h r e y . And unless you were a holder either through
previous purchase or through purchase at the time, you could not
subscribe.
Senator W i l l i a m s . In other words, we read sometimes of the bond
issues being heavily oversubscribed 2 to 3 times. In this instance
it could not have possibly been oversubscribed and it could only be
undersubscribed to some degree?
Secretary H u m p h r e y . That is exactly right, there could r.ot have
been any oversubscription.
In that connection perhaps I want to report on the sale of bills
we made yesterday which has been discussed. I have the figures
here which were released today. The $3 billion that we offered for
sale yesterday, and, as you will recall, Senator, was not a turnover
such as the one you have just been referring to. This was a sale
that was open to the public for public bidding. These were $3
billion of tax anticipation bills that would run for 264 days, to be
dated July 3 of 1957 to mature on March 24 of 1958, and they were
offered on June 24, and the books were open at Federal lieserve
banks on June 26. The results were as follows:
The total applications were a little over $4.5 billion for the amount
of $3 billion which was accepted.
The range of the competitive bids was from a low of 3.20 percent
to a high of 3.56 percent, or an average for the total of $3 billion
that was accepted of 3.485 percent.
Senator W i l l i a m s . I did not catch that.
Secretary H u m p h r e y . 3.485 percent was the average interest on
the bids that were accepted.
Senator W i l l i a m s . How does that compare with your previous
financing of similar bonds?
Secretary H u m p h r e y . The short-term bills, the 90-day bills, were
3.40 a week ago Monday and 3.23 last Monday.
296
FINANCIAL CONDITION OF THE UNITED STATES
Now these subscriptions were—and these will all be published—
were well spread out throughout the country among the various
Federal Reserve d stricts.
Senator W illiams. The reason that I have brought the question
up and in connection with the other issue is because I think there has
been some misunderstanding as a result of the fact that the previous
bond issue was not oversubscribed, as is customary with Treasury
issues.
Secretary H umphrey. It could not be oversubscribed because only
people holding those bonds could possibly participate.
Senator W illiams. And on this recent issue anyone could bid, and
that is the reason it was oversubscribed?
Secretary H umphrey. That is correct, yes.
Senator W illiams. N ow, Mr. Secretary, who actually gets hurt
worse as a result of inflation or devaluation of our currency in the
country, what classes of people get hurt worst?
Secretary H umphrey. The person who is hurt the worst, Senator,
I believe, is the individual citizen who is a relatively small saver, who is
not a speculator, who is not conversant with and active in financial
markets, but who is just a good common citizen of America, and the
respected right kind of a citizen of America who is trying to save to
protect himself and his family with some nest egg for the future for
the purpose of sending children to school or to cover sickness or getting
ahead, promoting his own position, and who is unable to and not
qualified, and does not want to, study financial markets and/or be in
and out of markets and all that sort of thing.
He is the fellow who really gets hurt in inflation.
Senator W illiams. It could be said that the man who can really
afford it the least gets hurt the most?
SecretaryHuMPHREY. That is exactly right.
Senator W illiams. Is it not also true that in the history of all
these instances where we have had wild inflation that the extremely
wealthy of the country involved are usually the ones who come out the
best in that their investments are usually in fixed assets?
Secretary H umphrey. The fellow who comes out the best is the
speculator.
Senator W illiams. Yes.
Secretary H umphrey. The next are the fellows who have advice
and help in the handling of their affairs, and who are people of larger
affairs; the people who really get hurt are the people who are just
going along about their own business doing the right kind of a job
and being the fine citizens of the country.
Senator W illiams. And whose security is pretty much tied up
either in life insurance, pension account, social security, or retirement
systems or some type?
Secretary H umphrey. That is right.
Senator Williams. And he is usually the fellowwho gets it theworst?
Secretary H umphrey. He is the fellow who gets it the worst.
Senator W illiams. Y ou made the suggestion in your opening
statement before the committee here, or in reply to one of the ques
tions, I forget which, that inflation grows in a degree proportionate to
the prosperity of the country, and while I think I understood what
you had in mind----Secretary H umphrey. I do not recall.
FINANCIAL CONDITION OF THE UNITED STATES
297
Senator W i l l i a m s . That we are bothered with inflation as a result
of our prosperity.
Secretary H u m p h r e y . I do not think I said inflation grew. I think
I said the inflationary pressures grow'.
Senator W i l l i a m s . The pressures of inflation?
Secretary H u m p h r e y . That is right, the pressures tending toward
inflation; and the more prosperous you are, Senator, the more watchful
you have got to be to see you do not succumb to those pressures.
Senator W i l l i a m s . I think I understood what you meant by that,
but I would like to ask this question now: Is it possible for a c o u n t r v
to have wild inflation in a period of depression or a recession?
Secretary H u m p h r e y . Well, you usually do not have wild inflation
in those periods.
Senator W i l l i a m s . Well, the reason-----Secretary H u m p h r e y . It is perfectly conceivable that, having
succumbed to the pressures of inflation in a period of prosperity, and
started the printing of money, that that might be continued dear 011
through a depression, and keep going on and 011 and 011 until you had
the whole economy completely destroyed.
Senator W i l l i a m s . Well, that is the point I wanted to bring out,
because I was of the opinion that while you could have the pressures of
inflation in a period of prosperity-----Secretary H u m p h r e y . The result might go right on through.
Senator W i l l i a m s . Correct. The result might extend.
Secretary H u m p h r e y . The pressures would not be as heavy, but
as it accumulated, those pressures would continue and-----Senator W i l l i a m s . And has not that been the historical result of
inflation in many of the countries of the world?
Secretary H u m p h r e y . That is exactly what has happened in a g o o d
many places.
Senator W i l l i a m s . Do you have a record of what has happened in
some of the other countries in recent years?
Secretary H u m p h r e y . Well, of course, one of the most spectacular
was China. I do not happen to have a record on China. That was
very spectacular.
Senator W i l l i a m s . And was it not the result of prosperity?
Secretary H u m p h r e y . That finally wound up in disaster, in com
plete disaster, when it finished.
Italy has had a very marked inflation in comparatively few years.
Italy, what you bought for $1.64 in 1937 you paid $112 for last
December.
Of course, we are not talking about dollars.
Senator W i l l i a m s . In their currency?
Secretary H u m p h r e y . Their currency.
Senator W i l l i a m s . That is percentagewise?
Secretary H u m p h r e y . But expressed in terms o f their currency.
Senator W i l l i a m s . Percentagewise. I think that in that period-----Secretary H u m p h r e y . In other words, things cost 68 times as much,
let me put it that way.
Senator W
il l ia m s .
Yes.
Secretary H u m p h r e y . In whatever it was.
In France you went from 4.27 to 103.
Senator W
il l ia m s .
96819 0 — 67------- 20
Dollars?
298
FINANCIAL CONDITION OF THE UNITED STATES
Senator H u m p h r e y . Relative to dollars.
Senator W i l l i a m s . Relative to dollars.
The C h a i r m a n . Can I ask what year that was?
Secretary H u m p h r e y . That was from 1937 to December of 1956.
The figures that I am giving you are during that period.
That was 24 times as much.
Senator W i l l i a m s . Yes.
Secretary H u m p h r e y . In Belgium you went from 25 to 105, or
4 times as much.
In the Netherlands, from 38 to 110, or 3 times as much.
In the United Kingdom, from 44 to 114, or about 2% times as much.
In Norway, from 45 to 111, or 2%
In Denmark, from 48 to 114, again 2%.
In Sweden, from 49 to 111, about 2%.
Canada, 54 to 104, or twice.
United States, 54 to 103, or twice.
Switzerland, 59 to 105, or something less than twice.
Senator W i l l i a m s . I would like to put that complete chart in the
record, Mr. Chairman, because it shows that inflation is not a problem
confined to the United States alone but that it is one confronting
many of the other countries as well and one which has wrecked many
of the governments of those countries.
Secretary H u m p h r e y . It is worldwide, Senator, and where it is not
fought against, where it is not controlled, it ultimately lands in com
plete disaster.
We are fortunately in the low brackets. We are in one of the places
where it has been controlled the best.
Senator W i l l i a m s . And we are largely in the low brackets or will
stay in the low brackets because we are recognizing the problem and
are taking what at the time may be unpopular steps to correct it; is
that not true?
Secretary H u m p h r e y . That is correct.
The C h a i r m a n . When you insert that in the record, would you put
in Turkey and Greece or some of the Middle East countries?
Secretary H u m p h r e y . Yes, sir; we would be very glad to. We
will be very glad to do that.
Senator W i l l i a m s . I happen to have one for Brazil. I do not
think Brazil is in your report. We can add that to it, too.
The C h a i r m a n . Add the South American countries.
Senator W i l l i a m s . I had asked for information for more of th o s e
countries, but this was all that was available at this time.
The C h a i r m a n . Make it as complete as possible.
Secretary H umphrey. Mr. Chairman, we will add that and several
others.
(The cost of living indexes are as follows:)
FINANCIAL CONDITION OF T H E U N ITED 8TA TES
299
Cost of living (or retail price) indexes for selected countries
Increase, 1937 to
December 1956
R eported index
(1953-100)
D ecem D ecem
ber
ber
1956
1952
1937
Greece.....................
Italy ...................
France *............ ......
B razil.....................
T u rk ey...................
Belgium __________
Metfiertftnds_____
United K in g d om .
N o rw a y..................
D enm ark...............
Swed'Hi................. C anada...................
U nited States____
S w itzerla n d ._____
10.25
1.64
1 4.27
*14.00
26.00
25.00
38.00
44.00
45.00
48.00
49.00!
54.00;
54.00
59.00
91
100
101
88
99
100
98
99
99
101
101;
100
100!
101!
Per
cent
M ultiplica
tion o f prices
126 +50,300
+ 6,729
103 +2,312
189 + 1.250
139
+435
+320
105
+189
114
+159
+147
4 114
+138
+127
104
+ 93
103
+ 91
+78
105
112
110
111
111
5C4.0 tim es.
68.3 tim es.
24.1 tim es.
13.5 tim es.
5.4 times.
4.2 tim es.
2.9 tim es.
2.6 tim es.
2.5 times.
2.4 times.
2.3 times.
1.9 times.
1.9 times.
1.8 times.
1 Index for 1938.
* T h e index for France, w h ich is based on selected retail prices in Paris alone, ha3 currently been artificially
held d 'w n b y the G overnm ent through subsidies and other devices.
• Index for 1939. A ll figures are for Sfto Paulo.
4 January 1957.
Source: International Financial Statistics.
The following figures for Italy, covering retail apparel and food prices, are
cited as an example of wartime and postwar inflation in Europe:
i 1938
A pparel..................
Food
January 1946 January 1947
100
100
(*)
3.399
5,479
4,644
July 1950
Jan;
Janvar..
19o3 j
July 1956
6,212 ;
5.514
5,844
6.617
0,202
7,405
1 1939 not available.
5 N ot available.
Data for Brazil, one of the few countries for which published index figures are
av?ilable for an extended tiwe period and for varied categories of commodities,
indicate an inflation problem in Latin America:
F ood
1939
1046,
..............
1*46
1947
1950.
...................
ary 1953 . . . .
1956 *................
100
245
312
373
438
641
1,352
H ousing
C lothing
100
270
358
483
481
669
1,126
100
301
369
400
457
612
1,287
Fuel
100
441
316
319
400
497
811
M ed ical
care
T o b a cco
100
207
280
353
407
459
1,068
100
1*
237
251
311
369
802
H ousehold T ranspor
cleaning
tation
articles
100
243
253
317
457
552
1.303
100
115
123
147
278
278
973
1 C onverted roughly to 1939 base.
Senator W i l l i a m s . In connection with this same subject, Mr. Chairwan, I will put into the record—I will not trouble to read it—a story in
Newsweek of July 1,1957, by Mr. Henry Hazlitt, entitled, “The Great
Swindle.” It is a rather interesting tabulation showing the degree of
inflation in ail of these countries throughout the world.
The Chairman Do you offer that for the record?
Senator W i l l i a m s , (would like to insert that in the record.
300
FINANCIAL CONDITION OF THE TJNITEP STATES
The Chairman. If there is no objection, it is so ordered.
(The article, The Great Swindle, is as follows:)
(Newsweek, July 1, 1957]
BUSINESS TIDE
The
G r e a t S w in d le
By Henry Hazlitt
A year ago (Newsweek, June 25, 1956) I printed here, under the above title,
table showing the depreciation, in terms of domestic purchasing power, of the
currencies of 53 countries in the 10 years from 1946 to 1955. This table had
been compiled by Franz Pick. He has now carried it forward, for the 9-year
period from January 1948 to December 1956, in the 1957 edition of his Currency
Yearbook. I present the results below, showing the depreciation of 56 currencies
in that period.
It is important to keep this appalling worldwide picture constantly before our
minds. For it reminds us that inflation is nothing but a great swindle, and that
this swindle is practiced in varying degrees, sometimes ignorantly and sometimes
cynically, by nearly every government in the world. This swindle erodes the
purchasing power of everybody's income and the purchasing power of everybody’s
savings. It is a concealed tax, and the most vicious of all taxes. It taxes the in*
comes and savings of the poor by the same percentage as the incomes and savings
of the rich. It falls with greatest force precisely on the thrifty, on the aged, ou
those who cannot protect themselves by speculation or by demanding and getting
higher money incomes to compensate for the depreciation of the monetary unit.
W HY INFLATION?
Why does this swindle go on? It goes on because governments wish to spend,
partly for armaments and in most cases preponderantly for subsidies and handouts
to various pressure groups, but lack the courage to tax as much as they spend.
It goes on, in other words, because governments wish to buy the votes of some of
us while concealing from the rest of us that those votes are being bought with
our own money. It goes on because politicians (partly through the second- or
third-hand influence of the theories of the late Lord Keynes) think that this is the
way, and the only way, to maintain “ full employment,” the present-day fetish
of the self-styled progressiveness. It goes on because the international gold
standard has been abandoned, because the world’s currencies are essentially paper
currencies, adrift without an anchor, blown about by every political wind, and at
the mercy of every bureaucratic caprice. And the very governments that are
inflating profess solemnly to be “ fighting” inflation. Through cheap-money
policies, or the printing press, or both, they increase the supply of money ancl
credit and affect to deplore the inevitable result.
The following table is based on official cost-of-living indexes, many of which
understate the real extent of currency debasement. Russia and its satellite
countries are omitted because disparities between actual and “ official” price levels
are so wide and the statistics are meaningless. The American dollar, to which
so many other currencies are ostensibly tied, itself shows a depreciation of 16
percent in the period. The British pound sterling, the world’s most importaOl
trade unit, lost 34 percent, the French franc 52 percent, the currencies of Chfli,
Paraguay, Bolivia, and Korea, from 93 to 99 percent.
FINANCIAL CONDITION OF TH E
CURRENCY
U N ITED STATES
301
S H R IN K A G E
Percentage decline in purchasing power of monetary units, January 1948December 1956
Dominican_____________________
2 Norwegian_____________ ________ _33
Egyptian_____ ____— _________
6 New Zealand......................................33
Portuguese____________
_____
6 Spanish_________ '_______________34
Haitian J______________ _________
8 United Kingdom________________ _34
Swiss__________________________
10 Thailand______________ _______ ____35
Ceylonese_______ _ ______________
11 Turkish________________________ _36
Burmese_______________________
12 El Salvador________________ _____40
Dutch Antillean________________
12 Nicaraguan___ ______ ___________ _40
Ecuadoran.......................................
13 Mexican_______ __ ______________45
Pakistan_______________________
14 Colombian_____________________ _46
Belgian______________ ________ 15
Uruguayan........................................ 48
United States...... ..........._________
15 Finnish........................... ................... 49
Indian__ ________ _____ _____ ____ 15 Icelandic___ ____ ______________51
West German__________ ________ 18 Australian______ ______________ _52
Venezuelan___________________ _.
19 French____ ____________________ _52
Hong Kong_____ _________ ,___ __ 23 Japanese..______________________55
Guatemalan__________ __________ 23 Austrian_______________________ __55
Canadian.______ _______________
25 Peruvian__________________ ______55
Italian-._________ _____________
25 Greek__________________________ _58
Honduran. _*_____ ___________ 26
Indonesian_____________________ _59
Coata Rican_____________________ 27 Israeli........................... .....................66
Irish___ ___i ________ ___________ 28 Brazilian_______________________ _70
Malayan.. _____________________
28 Argentine_________________ _____ _73
Danish____ •„___________________
29 Taiwan______________ _____ ______85
Swedish____ _____ ______________
29 Chilean________________________ _93
Netherlands____________________
30 Paraguayan____ __________ _______96
South African____________ ._____
31 Bolivian________________________ _99
33 Korean............................................ .. 99
Iranian_______________ _______ . .
Senator W illiams . Mr. Secretary, the present high interest rates
are being defended by the administration, and I think properly so, as
anti-inflationary, but now in order to know what effect they have had
on the consumer prices, I would like to ask you to furnish for the record
at tliis point the consumer index for the years 1939 through 1957 along
with statistics showing the purchasing power of the dollar for the
same period.
You had those in your previous report, but I think it would be
important to have it again at this point in the record. We will then
have the trend of cost of living in this country as well as other countries
Secretary H umphrey . I will see if we can not get it right away.
Senator W i l l i a m s . It is pages 18 and 19.
Senator H umphrey . I have the tabulation here. It is more de
tailed than the one in my statement.
Senator W i l l i a m s . I see.
Secretary H umphrey . And this shows the calendar years beginning
with 1939 and running through each calendar year* through 1956.
Then it shows the figures quarterly for 1956, beginning with April
1956, and its shows the months, January, February, March, and April
of 1957. And it shows the price index for each of those years and
months, the percentage of the change in points and the change in
percent, in the purchasing power of the dollar and the change for each
of these periods, and I can read any part of it that you would like.
Senator W i l l i a m s . I would suggest you just make whatever
comments you wish, and we will then put the complete report in the
record at this point.
Secretary H u m p h r e y . Well, it shows the same percentages of
reduction
that we have discussed previously.
302
FINANCIAL CONDITION of
thk united states
Senator W i l l i a m s . Yes.
Secretary H u m p h r e y . Except that this d o e s it not in groups but
for every year. It is all shown for each year, and for the months I
have referred to.
The Chairman. If there is no objection, it will be inserted. But
it should be noted that the Consumers Price Index figures in this
table are on a 1947-49—100 base and the value of the dollar figures
are on a 1939=100 base.
(The tabulation, “Consumer prices and purchasing power of the
dollar, 1939-57,” is as follows:)
Consumer prices and purchasing power af the dollarf 1939-67
Consumer prices
Calendar yeaw
price Index
(1947-49100)
Purchasing power of
d olla r1
Change in index
Point*
1999.................................................. .......... — .
1949...................... ............................................
1950.............................................................. .
1951.................................. ................................
1952......................................................... ..........
1966................................................. .............
19B6—April.............. ........................................
October...... ................................ ..........
1967—January........... . - ........... - ..........
February.........— ............. ......... --March.....................................— - —
April....................... ..............................
59.4
59.9
+ 0 .5
62.9
+ 3 .0
69.7
+ 6 .S
74.0
+ 4 .3
75-2
+12
76.9
+ 1 .7
83.4
+ 6 .5
95.5
+12.1
102 8
+ 7 .3
101 8
-1 .0
102.8
+ 1 .0
111 0
+82
113.5
+ 2 .5
114 4
+ .9
114.8
+■♦
114.5
-.3
116. 2
+ 1 .7
114.9
117.0 ..........+ * T
117.7
+■7
118.2
+■5
1187
+ .«
118 9
+ .2
119.3
+■ ^
Percent
+ 0 .8
+ 5 .0
+10.8
+ 6 .2
+ 1 .6
+ 2 .3
+ 8 .5
+ 14 .5
+ 7 .6
-L 0
+ 1 .0
+% 0
+ 2 .3
+ .8
+ .3
" .3
+ 1 .5
+ 3 .8 '
Cent*
100.0
99.2
94.4
85.2
80.3
79.0
77.2
71.2
62.2
57.8
58.3
67.8
53.5
52.3
51.9
51.7
51.9
51.1
51.7
50.8
60.5
50.3
50.0
50.0
49.8
Otace
-as
-4 .8
—9,2
-4 .9
-1 .3
-1 .8
—6,0
-9 .0
—4.4
+ .5
-.6
- 4 .3
-1 .2
-.4
-.2
+ .2
- .8
-1 .9
1 As measured b y Bureau of Labor Statistics Consumers’ Price In cte, assuming ftarch&sing bower at
100 cents in 1939.
Source: Department of Labor.
Senator W illiams. I would like to refer to your statement in which
you said—
We first balanced the budget and then entirely eliminated planned deficits.
The budget in effect when we took office in 1953 produced a $9.4 billion deficit,
and the budget proposed for the fiscal year 1954 caUed for a $9.9 billion deficit.
Our administration immediately went to work with the help of the Congress to
reduce the planned deficit for fiscal 1954, and indeed the final deficit, $3.1 billion,
was only one-third of that anticipated by the prior administration.
Now, in connection with that I would like to review with you just
what steps have been taken by the administration to accomplish this
objective and make the comparison with the actions taken by the
receding administration, because they have been compared earlier,
would like to start out with this question: What was the debt at the
time that you took control in 1953, in January 1953?
Secretary H umphrey. At the end of 1952, December of 1952, it waa
*267.445 billion.
Senator W illiams. $267,445 billion?
{
FINANCIAL CONDITION OF THE UNITED STATES
Secretary H
Senator W
303
Yes.
What was your cash on hand at that time?
um phrey.
il l ia m s .
SecretaryHuMPHREY. $6,064 billion.
Senator W illiams . That would be a difference of about $261 billion,
is that correct?
Secretary H u m p h r e y . That is c o r r e c t .
Senator W i l l i a m s . What were the contractual obligations or un
expended appropriations outstanding at tha: tirnc?
Secretary H u m p h r e y . About $80 bil.ion.
Senator W i l l i a m s . Do you consider these contractual obligations,
in effect, obligations of the Government, contingent liabilities?
Secretary H u m p h r e y . Well, they are not. strictly contingent lia
bilities, but, in general, they, of course, are obligations that have to
be provided for. Some can be reduced, as we did at that time, my
recollection is, that about $11 billion were canceled off that year, ana
then the remainder was substantially reduced in the next few years.
Senator W i l l i a m s . What was the debt on June 30, 1946?
Secretary H u m p h r e y . 1946; that was December 31 that I gave you.
Senator W i l l i a m s . Whatever comparable figure.
Secretary H umphrey . Well, the comparable figure, if you want it
calendar year.
Senator W i l l i a m s . W e l l , w e w ill put it January 1, 1947.
Secretary H u m p h r e y . December 31.
Senator W illiams. Have you got June 30; that was the figure I
had here.
Secretary H u m p h r e y '. I can give you both.
Senator W i l l i a m s . Let us have June 30, then.
Secretaiy H u m p h r e y . June 30 of 1946, p r a c t i c a l l y $270 b i l l i o n ,
$269,898 b i l l i o n .
Senator W i l l i a m s . In other words, between t h e period June 30,
1946, and Januarv 1, 1953, the debt had dropped $2.4 billion, is that
right?
Secretary H
u m p h r e y *.
That is right.
Senator W i l l i a m s . What was the cash on hand on June-30, 1946?
Secretary H u m p h r e y . It was high, $14,238 billion.
Senator W i l l i a m s . $14,238 billion. Cash on hand w a s $14.2, and
when you took over it was about $6 billion, is that correct?
Secretary H
um phrey.
That is c o r r e c t .
Senator W i l l i a m s . Therefore, while the debt between 1946 and
1953 had dropped $1.4 billion, the cash had dropped $8.2, is that
correct?
SecretaryHuMPHREY. That is correct.
Senator W i l l i a m s . What were the contractual obligations o r unex
pended appropriations outstanding on June 30?
Secretary H
um phrey.
In 1946?
Senator W i l l i a m s . 1946.
Secretary H u m p h r e y . I do not have those with me, Senator.
. Senator W i l l i a m s . I happen to have them here, which I will put
m the record. The figures were obtained from the Library of Congress
and they gave it $28,022,633,816.
The C h a i r m a n . The Chair objects to putting those figures in the
record as “contractual obligations.” They appear to represent only
unexpended balances in appropriations which were not necessarily
under contract. And as of June 30, 1946 much of that money was
304
FINANCIAL CONDITION OF THU UNITED STATES
in funds deobligated by cancellation of war contracts. It would
seem that to cafl those balances “contractual obligations” would be
misleading, and the Chair hopes the Senatpr from Delaware will not
insist upon such an insertion in the record.
Senator W illiams, I had not asked to put it in tlia record, Mr.
Chairman.
The C hairman. The Chair misunderstood;
Senator W illiams. No. I just quoted the figure 01 contractual
obligations as furnished by the Library of Congress at that time, and
I think if you will just wait until I get through,, you will find I am not
just defending these as being fixed obligations of the Government but
that I am trying to establish the fact that it is an unusual event for the
Government to carry this large amount of unexpended obligations, in
other words, it is not normal. It has only been in recent years that
we have had any such amounts carried forward.
The C hairman. I ask the pardon of the Senator for interrupting
him, but it was understood that he had asked to have it inserted in the
record.
Senator W illiams. No, I had not. In fact, to save time, I will not
ask to put anything into the record.
These unexpended appropriations on June 30, 1956, were $28
billion at that time, and the cash on hand was $14 billion.
Secretary H umphrey. 1946?
Senator W illiams. In 1946, unexpended balances were $28 billion,
and during the period 1946 and 1953 they had increased from $28
billion to $83 billion on January 1, 1953; is that correct?
Secretary H umphrey. Well, that is what those figures-----Senator W illiams. Approximate?
Secretary H umphrey. That is approximately it.
Senator W illiams. What in that same category are the unexpended
appropriations as of today, or the most recent day you have?
Secretary H umphrey. I think about $46 billion.
Senator W illiams, About $46 billion. And they dropped from
$83 billion down to $46 billion?
Secretary H umphrey. That is about it—very roughly.
Senator W illiams. That is a drop of about $37 billion.
Do you think it is possible for this to be brought down further in
light of the fact it was only $28 billion at the end of June 30, 1946,
wnich was a period very close to the end of World War II when
conceivably there could be more excuse for it being higher than than
it would be in peacetimes. Am I correct in that assumption or not?
Secretary H umphrey. I am not sure, Senator.
The problem, of course, is this, and our great problem today is this:
that the expenditure per unit for these defense items is so great—$8
million for a B-52, millions of dollars for a single airplane, or a terrific
sum for an aircraft carrier. The value of the units has increased so
that it is pretty hard to keep enough units ahead in the backlog to
have what you need coming along and yet get this total amount o f
money down to where you would Tike to have it.
Senator W illiams. I noticed that---- Secretary H umphrey. I am not saying there cannot be any improve
ment made because we are still working for further improvement*
But as you go down, it gets that much harder. Every time you drop
a little, it gets that much harder.
FINANCIAL CONDITION OF TH E
UNITED
STATES
305
Senator W illiams . I had the Library of Congress compile this to
show whether it was customary or historical to carry these large
amounts of unexpended balances, and it seems it has not been; that
they reached their alltime high presumably in 1951 and 1952.
Secretary H umphrey . That is right.
Senator W illiams . They now are on the way down, and I am glad
to see they are on the way down. Is it not a fact, with this large
amount of unexpended balance remaining or unexpended appropri
ations, Congress has, in effect, lost control of the spending policies?
Secretary H umphrey . Well, their control has been impeded. I
would not say that they had lost it, and, of course, you have to have
this in mind. Senator: We are now spending a great deal more money.
Both administrations in these later years have been spending a great
deal more money in total, and as your total expenditures go up, why,
of course, your forward commitments go up with it; so that it would
not be possible to have as low forward commitments if you were
spending, let us say, $60 billion as it would if you were spending
$6 billion.
But I do think that every effort should be made to reduce them as
far as possible in order to let the Congress have a closer control, the
closest possible control over the expenditures.
Senator W illiams . It has been pointed out by many, including the
chairman the other day, and I think correctly so, the fact that even
though we at this session reduced appropriations we will say by $3
billion to $4 billion, spending next year as a result of these unexpended
obligations could even be higher than it was this year. Is that not
true?
Secretary H umphrey . I think it could.
Senator W illiams . Y ou think it could?
Secretary H umphrey . I think it could, and it is something you have
got to watch every minute.
Senator W illiams . Do you have any recommendations as to how—
and first I want to congratulate you on the progress you have made
because I think bringing those down from $83 billion to $46 billion
which is quite an achievement—but do you think they can be brought
down lower, or do you know of anything that we could do in Congress
to help bring them down lower?
Secretary H umphrey . Well, under the present system, it is just a
matter of working at it continuously. I am not sure myself that the
other system is not a better system—the system of accrual accounts
with authority to contract and annual appropriations—there has been
a great deal of discussion of that. A couple of years ago, with the
approval of the chairman of the Finance Committee here, and with
the approval of the chairman of the Senate Appropriations Com
mittee—and with some approval of the Ways and Means Com
mittee— we finally got hung up in the Appropriations Committee of
the House in trying to put in a revision of the syst em of appropriations,
total appropriations, and the method of handling them, which I think
would have been a great step forward in giving a better, not only a
better control but a better knowledge of the Congress from which they
could exercise control of the finances of this country.
Senator W i l l i a m s . I am in agreement with you, and I was bringing
this out because I think that supports the position you took over
before the committee.
306
FINANCIAL CONDITION OF THE UNITED 8TATX8
Secretary H umphrey. We started that, as I recall it, nearly 3
years ago, was it not, Mr. Chairman, and we worked at it; I thought a
year and a half ago we pretty nearly had it done; and then it ran onto
some rocks.
Senator W illiams. Even without that, you have made substantial
progress in bringing it down.
Secretary H umphrey, That is correct.
Senator W illiams. N ow, to get back to the other point, I would
like to get to, on the cash differences of the expenditures: On June 30
of 1946 our national debt was $269.8 billion, and they had cash of
about $14.3 billion. Therefore, the reduction in the debt of $1.4
billion during the period between June 30, 1946, and December 31,
1953, is more than offset by a reduction in cash of $8.3 billion.
Secretary H umphrey. That is correct.
Senator W illiams. N ow, what is the cash on hand as of your nearest
date today?
Secretary H umphrey. Today?
Senator W illiams. And your debt.
Secretary H umphrey. Let us see, June 24, I think that is the last
day we have a figure for.
Senator W illiams. What was your cash?
Secretary H umphrey. The balance was $5,320 billion.
Senator W illiams. That is the cash. $5.3, What was your debt?
Secretary H umphrey. The debt as of that day was $270,587 billion.
Senator W illiams. That would leave a net of $265.2 against $261.4
when you came in?
Secretary H umphrey. I think that would be about it.
Senator W illiams. Now, at that time in 1953 the contributions to
the road-building fund were made out of direct appropriations?
Secretary H umphrey. That is correct.
Senator W illiams. Now, they are carried as a trust fund, is that
not true?
Secretary H umphrey. That is right, from additional taxes. That
is partially additional taxes.
Senator W illiams. That is right. How much is in that trust fund
as of today?
Secretary H umphrey. I might not be able to get it for the day, but
maybe for the first of the month.
Senator W illiams. Well, as closely as you can.
Secretary H umphrey. We can get it close enough.
There are a lot of papers in this Government. [Laughter.J
I guess we had better get it for you, Senator,
Senator W illiams. You can furnish that for the record.
Secretary H umphrey. I will furnish it.
We ougfit to be able to give you the estimate for June 30.
Senator W illiams. That ought to be fairly close.
Secretary H umphrey, Yes, fairly close. The January budget
estimate of the fund balance was $400 million.
Senator W illiams. In the road building trust fund?
Secretary H umphrey. Yes, That would be an estimate, and that
is an estimate.
Senator W illiams. During this same period between, we will say,
June 30, 1946, which was practically the end of the war, and up to tne
present time, the Government has disposed of a lot of surplus property
FINANCIAL CONDITION OF THE UNITED STATES
307
in the sale of various surplus war property and surplus rubber plants,
and so forth?
Secretary H umphrey . That is correct.
Senator W illiams . D o }^ou have a breakdown of the amount that
has been received for the surplus property throughout these years,
and, if not, could you furnish that for the record?
Secretary H umphrey . Yes, sir, I am sure we could furnish it. I do
not know that we can give it to you without delay, but we can cer
tainly furnish it, and we will.
Senator W illiams . Yes. If you could, and as to the years in
which that was received, I would like to have it.
Secretary H umphrey . Fine.
Wait a minute. We have it here. This goes for a period of years.
Senator W illiams . If you do not have it here.
Secretary H umphrey . I think we will check it for you.
Senator W illiams . Yes, that will be all right if you furnish it for
the record.
Secretary H umphrey . Yes.
(The matter requested is as follows:)
Sale of surplus materials or activities, fiscal years 194.6 through 1949
[In m illions of dollars]
1046
proceeds from surplus p roperty in U nited S ta te s............ ...................
Net proceeds from surplus p rop erty in foreign areas.....................................
Proceeds from surplus vessels........... ................................... _............................
Proceeds o f sales or dispositions from strategic and critical materials
s to ck p ile _______ __________ _________________ ________ ______________ ___
Recoveries, defense aid, com m odities, supplies and services............. .........
R ecovery o f costs, national defense, war, and reconversion activities,
RFC
■Sale o f scrap and salvaged surplus materials................... .............
Services and expenses reverse lend lease.................. ..................__
O ld con dem ned surplus prop erty, N a v y D ep artm en t..... .........
C ap ita l oqulp m en t (includes trucks, horses, e tc .)-------- -------Ordnance m aterial (w ar)........ ............. ................... ..................—
Proceeds of G overam en t ow ned securities, sale o f war supplies.
-Surplus^ecsonal p r o p e r t y . . ..................................... ...................
T o t a l.
X
o t k ,— F igures
1047
1048
549.2 1,914.7 2,004.8
14.1
305.1
473.1
625.1
750.2
8.8
316.5
71.0
60.4
51.4
100.0
5.0
.2
40.3
15.0
.3
71.6
2 .3
25.7
34.3
.7
.2
1.8
20.5
33.5
.2
.4
24.8
6.6
.4
2.4
696.6 2, 910.3 3,392.4
are rou nded and w in n ot necessarily add to total.
1040
640.1
308
FINANCIAL CONDITION OF THE UNITER STATES
Sale of surplus materials or activities, fiscal years 1950 through 1957
[In millions of dollars]
1951
1952
1953
1954
1965
1956
1957 esti
mate
(January
1957 bud*
get)*
106.6 149.1
06.6
37.4
51.5
67.5 143.4
510
32,3
43.5
53.0
77.0
58.8
445
18.4
33.5
34.1
51.8
437
60.6
5,7
1L6
29.3
20.5
1.7
4.2
3.0
38.0
38.5
1090
Net proceeds from surplus property in United
States, ...........- ...................... .................................
Net proceeds from surplus property in foreign
areas.........................................................................
Proceeds from surplus vessels__________________
Proceeds of sales or dispositions from strategic
and critical materials stock p ile..........................
Net proceeds from surplus property in foreign
areas, act Oct. 3,1944, foreign exchange conver
sions______ _____ _____ '___ ______________ :___
Net proceeds from excess property in foreign
areas, act of June 30* 1949, foreign exchange
conversions....... ............... .......... .......... ........... .....
Recoveries, defense aid, commodities, supplies
and services.,.............- ................. .......... ..............
Recoveries, defense aid, commodities, supplies
and services, foreign exchange conversions____
Recovery of costs, national defense, war, and
reconversion activities, R P C . „ _______ _______
Sale of scrap and salvaged surplus materials____
75.7
51.9
22.2
29.8
2.1
1.6
4.2
.3
24.9
33.2
53.2
100.0
1.5
1.6
2.0
1.2
50.1 113.6 113.0 184.9 390.3
27.1 11.7
5.3
5,6
4.6
73.7
94.1
95.9'
T ota l...............- ................. ............................. 336.2 316.1 373.4 311.0 346.0 615.5 517.3
320.1
8.1
25.0
8.8
13.8
22.2
32.1
1 Budget estimates.
N ote .'—Figures are rounded and will not necessarily add to totals.
Senator W illiams, A s these surplus properties were sold, surplus
war goods, the receipts were put into the Treasury in the general
fund, is that correct?
SecretaryHuMPHREY. That is correct.
Senator W illiams, And they were, in effect, nonrecurring income?
Secretary H umphrey. That is correct.
Senator W illiams. And the deficit, while it reduced the deficit
to that extent, had the property not been sold, the deficit would have
been greater, whatever years these were?
Secretary H umphrey. I think that is right, except for this, Sena
tor: that this is a sort of a continuing thing.
Senator W illiams. That is right.
Secretary H umphrey. While you say it is a one-shot credit, that
is true as to the particular item; but there are so many items that the
Government has that, with continual work at it, you keep finding
new items year after year.
There are credits year after year, although they are for different
items.
Senator Wtilliams. Yes. I recognize that, and perhaps as we have
sold one, we have built something else.
Secretary H umphrey, We build something else, and a little while
later we sell that and build something else.
Senator W illiams. I was speaking of that from a reflection of the
cash position of the Government that it was a cash income at the time
it was sold.
Secretary H umphrey. That is correct. It is a cash income, and as
to any particular unit, it is a one-shot item, but the units keep re
curring; other units keep recurring to a point where it is almost
a continuous item.
Senator W illiams. Yes. But-----
FINANCIAL CONDITION OF TH E
UNITED
STATES
309
Secretary H umphrey . In vaiying amounts.
Senator W illiams . Of course, in disposing of the war surplus
plants-----Secretary H umphrey . It gets larger when you have a war and
lesser when you have not.
Senator W illiams . In 1950 Congress adopted the Mills plan, which
was an accelerated plan for payment of taxes for corporations. I would
like to ask this question: Was not the net effect of the Mills plan
the advancement of corporate taxes by one-half fiscal year before it
was completed-----Secretary H umphrey . That was the objective.
Senator W illiams . That was the objective, and it was the accom
plishment. But was not the net effect financially of that plan that it
advanced about $8 billion more in the period in which that plan was
operating than would have been collected had the Mills plan not
been adopted?
Secretary H umphrey . I think that is right. It advanced it from
one fiscal year to the other.
Senator W illiams . That is right, and that advancement resulted in
an accelerated income; I think the figures figured by Mr. Burgess-----Secretary H umphrey . About $1.5 billion a vear, as I remember.
Senator W illiams . About $1.5 billion a half-year, but the cumula
tive total was around $8.8 billion all together brought in between the
period of 1950 when this plan was adopted; and the net effect of it
practically vanished at the end of the 1956 fiscal year?
Secretary H umphrey . That is correct.
Senator W illiams . And that-----Secretary H umphrey . Well, the net effect vanished a while before
that,
Senator W illiams . The bulk of the effect-----Secretary H umphrey . There was a very little—after the fiscal
year—after June 30, 1955, there was practically no change.
Senator W i l l i a m s . That is correct.
The only corporations that had an odd fiscal year were brought in
to even it up?
Secretary H umphrey . Just minor adjustments.
Senator W i l l i a m s . During that period it was really we had about
an $8.8 billion nonrecurring income coming in during that period?
Secretary H u m p h r e y . That is right. In fiscal years. It does not
change the total dollars, but it did increase the amount per fiscal year.
Senator W i l l i a m s . And the report of the Budget Bureau as to the
deficit at the end of each fiscal year as it is shown in their reports,
during that period, would have been changed and would have been
about$8.8 billion greater deficit had it not been for the Mills plan
adopted, or some such similar plan?
Secretary H umphrey . I think that is correct.
Senator W i l l i a m s . H o w m&ny—^speaking of deficits and budgets—
hoty many times has the budget been balanced in the last 30 years?
Secretary H u m p h r e y . Thirty years is quite a while. Let us see
here.
This table goes from 1929 through 1957, with estimates for 1957
Mid 1958.
Senator W i l l i a m s . There have been how many periods in which
that budget has1been balanced?
310
FINANCIAL CONDITION OF THE UNITED STATES
Secretary H u m p h r e y . What were the years there?
That is two. Then there is a
series of 16 deficits from the period from 1931 to 1946, both inclusive.
Then in 1947 there was a surplus of $754 million. In 1948 there
was a surplus of $8.4 billion.
Senator W illiams. That was the “do-nothing” 80th Congress,
They did not do bad on balancing the budget, did they?
Secretary H umphrey. $8.4 billion.
Then there are 2 years of deficit. Then in 1951 there was a surplus
of $3.5 billion.
Senator W illiams. 1951?
Secretary H umphrey. Yes, sir.
Then there are 4 years of deficit; and then there are 3 consecutive
years of balanced or anticipated balanced budgets.
Senator W illiams. In other words, since 1930, we have had six
balanced budgets; is that correct?
Secretary H u m p h r e y . I think that w o u ld be right.
Senator W illiams. Two in 1947 and 1948?
Secretary H umphrey. T wo in 1929 and 1930.
Senator W illiams. Well, 1929, 1930.
Secretary H umphrey. And two in 1947, 1948. That makes four.
Then one in 1951.
Senator W illiams. And three under this administration?
Secretary H umphrey. Then three in a row.
The C hairman. Two are anticipated; they have not yet-----Secretary H umphrey. Two of them, I think, are real.
The C hairman. As of this date only one is actual. The balance
for fiscal years 1957 and 1958 are estimated----Secretary Humphrey. Well, one.
The C hairman (continuing). For the record.
Secretary H umphrey. We are 3 days off, Mr. Chairman.
The C hairman. One of the three is a year off.
Secretary H umphrey. Yes.
The C hairman. That one was included.
Secretary H umphrey. The one a year off is simply the budget
estimate.
The C hairman* But that is included in your list, is it not?
Senator W illiams, That list was prepared by counsel-----Secretary H umphrey. Mr, Chairman, if you want to be specific
about it, the balancing of the budget is tne presentation of the budget,
and a balanced budget has been presented. Now, whether it will work
out in practice or not, remains to be seen.
The Chairman. Actual balance occurs only when income is
excess of outgo. There is a vast difference between balanced budgM
estimates ana actually balanced budgets. In the past 25 years tham
have been more of the former than the latter.
Secretary H umphrey. A great many of them. That is right.
The C hairman. I beg your pardon, Senator Williams, I just
wanted to make it clear that in this list of balanced budgets two are
anticipated. One may be 3 days off, but the other is a year.
Senator W illiams. I think that the one for 3 days can be accepted.
Secretary H umphrey. I will underwrite one of them, but not the
other, for sure.
Senator W illiams. Eliminating the other, then we have the situa
tion where it was balanced in 1929 and 1930, is that right?
It was balanced in 1929 and 1930.
FINANCIAL CONDITION OF THE UNITED STATES
311
Secretary H u m p h r e y . That is right.
Senator W i l l i a m s . And it was balanced again in 1947 and 1948?
Secretary H u m p h r e y . That is right, and balanced again in-----Senator W i l l i a m s . In 1951?
Secretary H u m p h r e y . 1951.
Senator W i l l i a m s . And it was balanced again-----Secretary H u m p h r e y . In 1955 and 1956.
Senator W i l l i a m s . 1955 and 1956?
Secretary H u m p h r e y . No. 1956 and 1957.
Senator W i l l i a m s . 1956 and 1957.
So when you boasted of the balanced budget, you had two balanced
budgets under your belt, and you had a historical record of being
associated with an administration which had balanced some budgets
prior thereto?
Secretary H u m p h r e y . That is correct.
Senator'W i l l i a m s . I think that it is . I would like for that complete
chart to be put into the record, because I think it is well for us to pay
attention to that since unquestionably the Government deficits over a
period of years do contribute to inflation.
Senator H u m p h r e y . Perhaps more than anything else.
The C h a i r m a n . There is no objection to that chart being put in,
but the reference to so-called obligations and unexpended balances
should be clarified.
Secretary H u m p h r e y . Have we got a chart on that?
Senator W i l l i a m s . There has been no request to put such a chart in.
The C h a i r m a n . I understand, but the Senator read figures of
eighty-odd and forty-odd billion dollars which may be balance figures
but not necessarily obligation figures, and it is not clear whether that
is the total of the unexpended balances. They appear to represent
only balances in appropriations. That is by no means the total of
all unexpended balances. For example, they do not include balances
in authorizations to spend out of the debt.
Senator W i l l i a m s . I do not know whether it is or not, but this
chart was prepared by the Library of Congress in Washington here,
and it is our Legislative Reference Service, and it was prepared in
reply to my request or inquiry f6r the various Federal financial data:
their letter reads:
In reply to y ou r recen t in qu iry fo r various F ederal financial data, th e follow in g
in fo rm a tio n is su b m itted : N o. 1. U n exp ended ap propria tion s.
And he has in parentheses, “General and special accounts.”
The C h a i r m a n . What is the total of that?
Senator W i l l i a m s . On June 30, 1946, it was $28,022,633,816. On
June 30, 1947, $17,720,154,104. On June 30, 1948, $19,632,952,700.
And on May 31, 1953, actual, $9l,2S0,853,215. And on June 30,
1953, at that time it was estimated it was $83,298,436,271.
The C h a i r m a n . There is no objection to the Senator reading it
into the record, but the record should be clear as to what the figures
represent, and that unexpended appropriations are not necessarily
firm obligations.
Senator W i l l i a m s . This was furnished by the Library of Congress,
and the reason I was bringing this up was to show during the period
of 1946, 1947, and 1948, we did operate the Government, assuming
they are right over there—and if they are not, we had better get
Another staff to do the job—we operated with unexpended appropria
312
FINANCIAL CONDITION OF THE UNITED STATES
tions ranging from $17 billion to $28 billion, and later they ran up
as high as $91 billion, and dropped back to $83 billion around 1953
at the time he came in-----The C h a i r m a n . Senator, unexpended balances in appropriations
are one thing, but appropriations are only one method of authorizing
expenditures. Other methods include the growing practice of au
thorizing expenditure out of debt receipts, which requires no appro
priation. There are balances in this category. There are balances
in revolving funds. There are balances in contract authorizations,
and so forth. The total of these balances now is approximately $70
billion, but this cannot be called $70 billion in firm obligations at this
time. The chair makes this point in the interest of a complete and
clear record.
Senator W illiams. I would like to have the record printed because
I believe we should have it before us.
(The tabulation, “Budget receipts and expenditures,” is as follows:)
Budget receipts and expenditures
[In millions]
Fiscal year
1929.
19301931,
1932
1933.
1931.
1936.
1835.
1937.
1938.
1939.
1940.
1941.
1942.
1943.
Budget
receipts
$4,033
4,178
3,116
1,924
2,021
3,064
3,730
4,069
4,979
5,610
4,996
5,144
7,103
12,655
21,067
Budget ex
penditures
Surplus or
deficit ( - )
$3,299
3,440
3,577
4,699
4,623
6,604
6,521
8,493
7,756
6,792
8,858
9.062
13,282
34.046
79,407
$734
738
-4 6 2
-2.736
-2,602
—3,630
-2,791
-4,425
-2,777
-1,177
-3,862
-3,918
-6,159
-21,490
-57,420
Fiscal year
19441945..
194619471948..
1949..
1950..
195119521953..
1954..
19551956..
1957 V
19581
Budget
receipts
$43,635
44,475
39,771
39,786
41,488
37,696
36,495
47,568
61,391
64,825
64,655
60,390
68,165
70,628
73,620
Budget ex Surplus or
penditures deficit ( ' )
$95,059
98,416
60,448
39,032
33,069
39,507
39,617
44.058
65,408
74,274
67,772
64,570
66,540
68,900
71,807
-$51,423
-53,941
-20,676
754
8,419
-1,811
-3 ,122
3,510
-4,017
-9,449
-3,117
-4,190
1,626
1* 728
1,813
1 Estimated.
The C h a i r m a n . I did not recall that there was a balance total of $91
billion in appropriations alone.
Senator W i l l i a m s . I do not know whether there was or not, I am
only reading the official report.
The C h a i r m a n . If there were appropriations large enough to result
in carryover of $91 billion, they must have been to the military for
conduct of war.
Senator W i l l i a m s . What were they at the time we came in, Mr.
Secretary?
Secretary H u m p h r e y . The figure from the budget report was $78.4.
The C h a i r m a n . Would you break them down by departments?
Secretary H u m p h r e y . We could do this, Mr. Chairman.
The C h a i r m a n . I think you will find there is authority to spendiHIt
of debt and so forth, in addition to balances in the appropriations. 1
Secretary H u m p h r e y . It might be, but it would be relative if we
used these figures, and I will just put these figures in, they would have
the same deficiencies or credits.
In 1953 there was $78.4. In 1954 they were $67.8. In 1955 they
were $52.1. In 1956 they were $46 billion.
Senator W i l l i a m s . The point I am making is, without going into
the discussion as to whether the items therein should be classified as
FINANCIAL CONDITION OF THE UNITED STATES
313
unexpended balances or something else, they are comparable figures
for the different years for that particular category that you are talk
ing about.
Secretary H umphrey. The ones I have just read are comparable.
Senator W illiams. Comparable. And-----Secretary H umphrey. Those are the budget figures for each year.
Senator W illiams. Those are the budget figures, and whether the
Library of Congress got those figures correct or incorrect, they are
the same as yours. I never made any estimate, they were compiled
upon my request by the Congressional Library.
The C hairman . No one is more critical of these carryover balances
than I am, but I do not understand that reduction in them can
accurately be counted as savings.
Secretary H umphrey. No.
Senator W illiams. No.
Secretary H umphrey. Mr. Chairman; no. There is nobody, as I
am glad to testify, there is nobody who has been more critical of
these—of the size of these balances or who has been of greater assist
ance to the administration and to me than you have personally in
trying to get them down, and with other Members of Congress, Sen
ator Williams and others, in trying to get them down; and we have,
that is one place where we have made some progress in reductions.
Senator W illiams . I think the chairman is correct they do not
represent savings, but I do think they are an item which should be
brought under control, and I think, Mr. Secretary, that you have
done an excellent job in bringing them under control. As you bring
the unexpended appropriations down to a more realistic figure com
parable to what was done in prior years, we will have a better control,
both executive and Congress, over the expenditures of the Government,
Secretary H umphrey. I think that is right.
Senator W illiams. I do not think we will have any control over
the expenditures until we do.
The C hairman . I concur with Senator Williams in that and that
is what some of us, including Senator Williams and the Secretary
have been trying to do. As I recall, Mr. Secretary, when you came in,
you gave much attention and effort to reducing the balances.
Secretary H umphrey. That is correct.
The C hairman . But reduction in balances is not directly reflected
as savings in terms of the actual cash position of the Treasury. I think
the chief objection to excessive balances is that they cause Congress
to lose control over expenditures. Spending agencies can use an un
expended balance at their will, subject to some limitations, of course*
Secretary H umphrey. It certainly helps in better control.
The C hairman . I know Senator Williams did not intend it, but I
do not want the record to leave the impression that reduction in these
balances as such can be counted as reduction in spending or actual
sarings.
Senator W illiams. They were not put into the record with the
thought they were reductions in spending or actual savings. But let
us put it t.hia way: They can well be reductions and savings over a
period of years if they are brought under control; is that not correct?
Secretary H u m p h r e y . That is correct.
Senator W i l l i a m s . And to the extent they are outstanding, t h e y
can all represent expenditures if neither the Congress nor the adminis
tration makes any effort to curtail them?
96819 0 — 57------- 21
314
FINANCIAL CONDITION OF THB UNITED STATUS
SecretaryHuifPHBET. That is correct.
Senator W illiams. Therefore, it can be said when you have got
$80 billion or $90 billion outstanding, it can be expenditures and it
can be a savings when we bring them under control.
As to the statement that as they are brought down under control,
they do not represent immediate savings, I am in agreement.
*
The C hairman. They are not down under control now.
Senator W illiams. No.
The C hairman. Even forty-odd-billion dollars in appropriation bal
ances alone-----Secretary H umphrey. I s pretty high.
Senator W illiams. Is too high.
The C hairman. Results in substantial loss of expenditure control.
I think this is one of our great problems, I thoroughly agree with
Senator Williams. We have discussed this repeatedly. Some way
should be found to reduce unexpended balances and give Congress
control over expenditures. Until around 1944 or 1945----Secretary H umphrey. 1944.
Senator W illiams. But the fact we operated the Government in
the years 1946, 1947, and 1948 with unexpended obligations of only
$17 billion to $28 billion, I think, could well be looked at. The fact
that it was operated with that amount at that time shows that it can
be done, and I think the fact, Mr. Secretary, that you had brought it
down from eighty-billion-odd-dollars to forty-billion-odd-dollars
is a step in the right direction, and you should be commended
for it; however, I agree fully with the chairman, we should not sit
back and take too much pride in that because it is still far too high,
and I have supported his position many times. We have got to
bring these outstanding balances under control.
The Chairman. The only reason I took the liberty to interject
was to be sure that the record did not create the impression that
reduction in balances, desirable as it is, necessarily results in direct
and immediate savings. As chairman, it is my responsibility to
make the record as accurate as possible. There may be, as Senator
Williams says, some savings in the future.
Secretary H umphrey. It is a step toward saving.
The C hairman. That may develop. But reductions in balances
and savings are neither synonymous nor simultaneous.
Senator W illiams. In that point we are in complete agreement.
But we are holding these hearings with the hope of working out
something that can help us in the future, and not for the immediate;
The C hairman. Much credit is due this administration, Secretary
Humphrey in particular, and to Senator Williams for the progress
made to date in reducing balances.
I apologize for interrupting.
Senator W illiams. No. I think it is well enough to get that point
clear.
Mr. Secretary, I would like to refer to your statement, and I will
read the paragraph to which I am referring:
In 1954, in order that the people might benefit from the substantial reduction
in Government expenditures, we brought about a tax cut that has provided thextt
with annual savings of about $7.5 billion.
FINANCIAL CONDITION OF THE UNITED STATES
315
Then continuing you said:
More than 60 percent of that reduction went to individuals. Every taxpayer
benefited.
Now, in some of the questioning during the committee hearings!
questions have been asked concerning this tax reduction as to whether
or not it was possibly a contributing factor toward inflation; and
reference was also made to the tax reduction, which occurred around
1948 as having perhaps been somewhat responsible for inflation;
and I would like to ask you this question:
Do you think that tax reductions in a period when the budget is
balanced are inflationary?
Secretary Humphrey. I think it depends, Senator, 011 other things
besides just the balancing of the budget as to what the contribution
of the pressures might be.
By and large if the tax money that is taken from the people is used
by the Government for the purchase of goods or services that do not
in any way contribute to the supply of goods and services available
for public purchase, then I think that a tax reduction which would
go to the people and would become available for increasing the supply
of services available to the people would be deflationary.
If it were the contrary, if the opposite were true, under circumstances
of high employment, of high prosperity, it might be inflationary.
Senator W illiams . In other words, you feel that when we-----Secretary H umphrey . In other words, you have to take more into
account than just the fact of a balanced budget.
Senator W illiams . I agree with you. But in a situation where
you have a budget balanced to the extent that you can make a rea
sonable reduction in the debt, it is advisable, if you can, to pass the
tax reduction on?
Secretary H umphrey . What was that?
Senator W illiams . When you have a budget surplus sufficiently
whereby you can make a reasonable contribution on the national
debt, would it not be wise at that time, if you have enough left over
after doing that, to pass it along in the form of a reduction?
Secretary H umphrey. 1 think that is correct.
Senator W illiams . Do you not think it would be a dangerous
philosophy for any administration to adopt, where it would even be
suggested, that the way to control inflation in this country would be
to adopt a high-tax program, or one that would siphon off the excess
spending money, as some of them put it, from the taxpayers in the
form of high taxes?
Secretary H umphrey. It would be extremely dangerous if the
money was used by the Government for purposes that were not
productive of goods and services for the people.
Senator W illiams . It would be equally inflationary for the Gov
ernment to siphon it off in taxes, and then spend it as a Government
expenditure?
Secretary H umphrey . It might be much worse, depending on what
they did with it.
Senator W illiams . The suggestion or the question was asked as
to whether these tax reductions went to the group that needed it
most, and I think you made the statement that you felt it went to
316
FINANCIAL CONDITION OF THE UNITED STATES
all individuals and helped those of low incomes as much as it did
those with large incomes; is that correct?
Secretary H umphrey. That is correct.
Senator W illiams. And particular reference was made to the
exemption status, whether or not the exemptions could be raised from
$600 to $700, and I think your testimony in that connection was
quoted a couple of times here, and I would like to ask this question:
When was the exemption raised from $500 to $600, this present
rate? Was that not in 1948 by that “do-nothing Congress”?
Secretary H umphrey. I cannot tell you, sir. I will have to check.
1948 is correct, he says.
Senator W illiams. 1948.
The exemption now is $600 only by virtue of the fact that they were
raised at that time, and if I recall correctly, over the veto of the
President.
Secretary H umphrey. I do not have that in mind.
Senator W illiams. I was particularly interested in this, and this
report I have was assembled by a member of our staff: I asked him
to get the historical record of personal exemptions, because I think
that this Administration or any Administration is interested in seeing
that the exemption be as high as possible. I read from this report it is
interesting to note that in 1913, on March 1, when the first Federal
income tax law was adopted, the exemption at that time for single
persons was $3,000, and for a married couple, was $4,000.
In 1917, that was dropped to $1,000 for a single person, and $2,000
for a married couple.
In 1921, it was left at $1,000 for a single person, but the exemption
for married couples was raised to $2,500, and that stayed in effect
until 1924.
In 1925, and continuing through 1931, the personal exemption was
raised to $1,500 for a single person; to $3,500 for a married person,
and at that time the credit given for each dependent was $400.
In 1932, and continuing through 1939, it was reduced to $1,000 for a
single person, $2,500 for a married couple, and $400 for each de
pendent.
In 1940 the personal exemption was reduced from $1,000 to $800 for
a single person, and for a married couple was reduced from $2,500 to
$2,000, and the exemption for dependent children was the same, $400.
In 1941, a single person exemption was further reduced to $750. A
married couple was reduced from $2,000 to $1,500, and exemptions
$400, the same, for dependents.
In 1942, that was reduced to $500 per single person, $1,200 for a
married couple, and exemption for dependents, $350.
In 1944, it was left at $500 for a single person, and reduced to $1,000
for a married person, and $500 for the dependent children. And the
$500 single-person exemption and $1,000 married-couple exemption
which was adopted in 1944 was the all-time low in exemptions, and
this trend was only reversed in 1948 when it was raised to $600 and
$1,200.
In 1948 it was also raised to $1,200 exemption to those over 65 and
the blind.
Do you see any possibility of that being raised further in the fonK
seeable future?
FINANCIAL CONDITION OF THE UNITED STATES
317
Secretary H umphrey . Of course, that will all depend on when
money is available, when a surplus is available for the payment of a
tax reduction.
When that time comes, I personally think that more attention should
be paid to a revision of rates than to a shift in exemptions.
Senator W illiams . I pointed these exemptions out at this time
because I thought the historical record of how the exemptions had
been treated would be good for the committee, as well, in their deliber
ations, and also it was interesting to note that those who were criti
cizing you the otber day for not having raised them higher, their
administration had never raised exemptions when they were in power.
The last increase in exemptions was in 1948, the “do-nothing
Congress” again.
Also, I refer to the first tax bracket or the normal tax rate which
today is 20 percent, that is considered the tax which is applicable to
the low-income group; is that correct?
Secretary H umphrey . That is correct.
Senator W illiams . What was that rate when you came into power?
Secretary H umphrey . What was the 20-percent rate?
Senator W illiams . In 1952, the normal tax rate, the first bracket.
Secretary H umphrey . 22.2. It was a 10-percent reduction, 22.2;
that is correct.
Senator W illiams . That was in 1952, and you dropped that to
20 percent?
Secretary H umphrey . That is right.
Senator W illiams . D o you happen to have before you the his
torical background of those rates?
Secretary H umphrey . I have not, but we will get it.
Senator W illiams . I have it here, and we will put it in the record,
because this is the tax which is most applicable to the low-income
groups; is that not true?
Secretary H umphrey . That is right.
Senator W illiams . It started out in 1913 at 1 percent.
Not many
of us can remember that year, but we would all like to try that rate
again.
It was raised to 2 percent in 1916; and in 1918 it was raised to 6
percent. In 1919 and 1920 it was dropped back to 4 percent.
In 1923 it was dropped to 3 percent. In 1924 it was dropped to 2
percent. In 1925 it was 1% percent.
In 1928 it was 1% percent. In 1929 it was one-half of 1 percent.
And in 1930 and 1931 it was 1% percent. In 1932 it was raised to
4 percent. In 1940 it was 4.4 percent.
►4
In 1941 it was raised to 10 percent. In 1942 it was raised to 19
percent. In 1944, it was raised to 23 percent.
In 1946 it was dropped to 19 percent; and in 1948 it was dropped to
16.6 percent—the “do-nothing Congress” got active again.
In 1950 it was 17.4 percent; it was raised. And in 1951 it was
raised to 20.4 percent.
In 1952, it was raised to 22.2, which was an alltime high, or repre
sented an increase of 550 percent in that 20-year period.
And I ask the question again, if that increase in that normal
bracket does not represent the tax which is most applicable to the
low-income groups of America?
Secretary H
um phrey.
That is correct.
318
FINANCIAL CONDITION OF THE UNITED STATES
Senator W illiams. In other words, it was a 550-percent increase
in that g ro u p of the applicable rate, as well as a reduction in their
exemption from $1,000 to $500 for a single person during that same
period.
Secretary H umphrey. That is correct.
Senator W illiams. So I do not think that the record of our critics
or your critics on that particular point has been too good when it
comes to considering their actual legislation dealing with the lowincome groups.
Would you agree with that?
Mr. Chairman, I would like to put this chart into the record, too.
The C hairman. If there is no objection, it is so ordered.
(The chart referred to is as follows:)
Individual income tax: Combined exemptions and credits for married person with S
dependents and first bracket tax rate, 1913-54 1
Income year
1913-15....................................
1916..........................................
1917...........................................
1918...........................................
1919-29.....................................
1921-22.....................................
1923..........................................
1924...........................................
1925-27......................................
1928.......................... ...............
1929...........................................
1930-31.....................................
Combined
exemptions
and credits
$4,000
4,000
2.600
2,600
2,600
3,700
3.700
3.700
4.700
4.700
4.700
4.700
First
bracket
rate
1.0
2.0
2.0
6.0
4.0
4.0
3.0
2 0
1.5
1.5
.5
1.5
Incom e year
1932-33
1931-39
1940
1941
1942-43
1944-45
1946-47
1948-49
1950
1951
1952-53
1954
1 Before de luctions and disregarding earned income credit.
* $500 cro iit for each dependent allowed against surtax which begins at 20 percent.
In com puting 3 percent normal tax.
Combined
exemptions
and credits
3.700
3.700
3.200
2.700
2,250
*2,500
2,500
3.000
3.000
3.000
3.000
3.000
Fiist
bracket
rate
4.0
4,0
4.4
10.0
mo
23.0
mo
16.6
17.4
20.4
22.2
20.0
.
Such credits not usfid
Senator W i l l i a m s . Mr. Secretary, do you think—I asked this
question before—do you think that tax increases, as such, over a period
of years, either increases or decreases as such, have much relation to
inflation if they are geared to balanced budgets or to balancing the
budget?
Secretaiy H u m p h r e y . Well, as I said, Senator, I do not think the
only consideration that affects the inflationary or noninflationary
effect is the balanced budget. I think there are other things, too.
But they certainly are less effective in connection with a balanced
budget than without it.
Senator W i l l i a m s . Do you have any information there as to the
number, the changes that have been made in our tax stru ctu re , in
creases or decreases, over a period of time?
Secretary H u m p h r e y . No; I have not. Again, we can g^ it*
It is simply I did not bring a lot of tax data here. I did not k n o w we
were going to get into a tax inquiry. But I will be very glad to Set
anything you want.
Senator W i l l i a m s . The question had been brought up as to the
implications of these two reductions, and I thought it w o u l d be wau
to get that information.
Secretary H u m p h r e y . Yes.
Senator W i l l i a m s . Would you wish t o c o m m e n t any fu r t h e r asi
t h e distribution o f this $7.5 bulion tax reduction; a s to the categories*
FINANCIAL CONDITION OF THE UNITED STATES
319
Secretary H umphrey . Well, this distribution was discussed the
other day, and I can divide it this way: The total was $7.4 billion
embraced in these various reductions.
Now, of that, as nearly as we can allocate it, there was $2.8 billion
that went to business of one kind or another; there was $4.6 billion
that went to individuals.
Of that—I think that is the main division.
Senator W i l l i a m s . I also have here a chart, which I will read into
the record and only comment on briefly, which shows that since our
first Federal income tax was enacted, in 1913, we have had 10 reduc
tions in taxes throughout those periods.
Those reductions are as follows: The first one was in 1919— taxes
were reduced; that is, for individuals I am speaking of—in 1922 there
was a reduction; in 1923 there was a reduction; in 1924 there was a
reduction; in 1925^ taxes were reduced; and in 1928 they were reduced;
in 1929, they were reduced. And during that period we did have
balanced budgets; and, therefore, I do not think it could be charged
that they were inflationary.
The next tax reduction was in 1946, and the next one was in 1948,
and then this administration had the one in 1954.
During that same period, we have had 15 increases.
In 1916, taxes were increased; in 1917, they were increased; 1918,
they were increased. They were increased in 1930, 1932, 1934, 1936,
1940, 1941, 1942, 1943, 1944, 1950, 1951, and 1952; they were in
creased.
So I think if we will examine the record here, we will find the effect
of lowering the taxes when the budget was balanced was certainly
not inflationary, and whether—of course, the increases, the bulk of
them, were in a period when the budget was substantially unbalanced,
and whether that had too much effect or not, I do not know.
But certainly I think we could be in agreement that taxes themselves
should not be utilized as a source of siphoning off the money of the
people just to curb inflation.
Secretary H u m p h r e y . I agree.
The C h a i r m a n . The committee will be in recess until Monday
morning at 10 o’clock.
(Whereupon, at 12:55 p. m., the committee recessed, to reconvene
at 10 a. m ., Monday, July 1, 1957.)
IN V E S T IG A T IO N
OF
THE
THE
F IN A N C IA L
U N IT E D
C O N D IT IO N
OF
STATES
M O N D A Y , JTTLY 1, 1 9 5 7
U nited States Senate ,
C ommittee on F inance ,
Washington, D. C.
The committee met, pursuant to recess, at 10 a. m., in room 312
Senate Office Building, Senator Robert S. Kerr presiding.
Present: Senators Kerr (presiding), Long, Smathers, Gore, Martin,
Williams, Flanders, Carlson, and Bennett.
Also present: Robert P. Mayo, Chief, Analysis Staff, Debt Division,
Office of the Secretary of the Treasury.
Elizabeth B. Springer, chief clerk; and Samuel D. Mcllwain, special
counsel.
Senator K e r r . The committee will be in order.
The Senator from Delaware?
Senator W illiams . Thank you, Mr. Chairman.
Mr. Chairman, I have gone over most of my questions that I had
planned to ask. and I think the bulk of the questions, after conferring
with the Secretary, can more appropriately be addressed to Mr.
Burgess when he comes down, or the Chairman of the Federal Reserve
Board.
Therefore, I shall defer questioning at this time and turn it over to
Mr. Long.
I would like to make this statement, though, since this represents
perhaps the last appearance the Secretary will make before this
committee, when these hearings are concluded: As one of his admirers,
I would like to join with his many friends in expressing regret at your
decision of separating from the Government, and express to you my
congratulations at the excellent job you have done as Secretary of
the Treasury.
STATEMENT OF HON. GEORtitE M. HUMPHREY, SECRETARY OF
THE TREASURY—Resumed
Secretary H umphrey . I appreciate that very much, indeed,
Senator, very much.
Senator W illiams . I will withhold the remainder of my questions
for the other witnesses, Mr. Chairman.
Senator K e r r . The Senator from Louisiana, Mr. Long.
Senator L o n g . Mr. Secretary, I am sorry this may be the last
Ume I will have the occasion to examine you, particularly. While in
Government, you have been most courteous to us, and supplied us
With information we have attempted to obtain.
321
322
FINANCIAL CONDITION OF THE UNITED STATES
You explained how high interest rates help some people and hurt
others.
Is not the same thing true, at least to a considerable extent, of
inflation? It helps some and hurts others?
Secretary H umphrey. Yes, I think that is true, but I think not
nearly to the same extent. 1 would think far more people are hurt by
inflation than are helped by it.
Senator Long. Does it not oftentimes depend upon where a person
stands? For example, just by a textbook study of economics, I gain
the impression that any person who is in position to havre his income
adjusted may have some net gain. For example, a workingman who
gets a cost-of-living increase when prices rise, but continues to make
fixed payments on his home, may be somewhat ahead because there
happens to occur some degree of inflation.
Of course, I am not speaking of a person with fixed income, in which
case a person is not in position to adjust himself to price increases.
But those who get an adjustment to increase their income as a result
of inflation, insofar as they owe some fixed debt, are helped by it, are
they not?
Secretary H umphrey. 1 suppose there are people who are helped by
it. I think mostly, after a period, it is people who are very agile in
their trading, in their ability to trade and adjust.
Senator L ong. The point is that perhaps to a lesser extent, but the
same thing is true to a considerable extent, there are some people who
are helped by inflation as well as those who are hurt.
Secretary H umphrey. I think that is correct.
Senator L ong. Is not the principal objection to inflation the social
injustice to those on fixed income and those whose incomes are heavily
weighted by assets in savings accounts, cash or banks?
Secretary H umphrey. Well, I think inflation hurts a great many
people and, over a period of time, all except a comparatively few, are
hurt by it.
Senator L ong. It does not particularly hurt the Government in
trying to service or pay off the national debt, does it? I mean, if we
had not had such inflation, with the huge debt we have, it probably
would be much more difficult to service or reduce.
Secretary H umphrey. If we did not have an inflation, we would
not have as huge a debt.
Senator L ong. We would have a lot of it, even if we had not had
inflation, would we not, and it would be more difficult to service
or reduce?
Secretary H umphrey. Well, I do not know. That, of course, is
a subject of conjecture, and nobody can tell. If we had not had
the inflationary prices, why, we would not have had as big a debt, and
whether it would be harder to pay a smaller debt or not, I am not
prepared to say.
Senator L ong. My principal objection to inflation is the social
injustice that occurs to a lot of people, although I think it does help
quite a few, but I think it is quite an injustice on the whole, because
it creates more injustices than it does good.
Secretary H umphrey. I believe that is right, Senator, and I think
the unfortunate part of it is that it is most harmful to those least
able to bear it.
Senator L ong. With regard to interest rates, considering high
interest rates entirely on their own account, and separate from the
FINANCIAL CONDITION OF T H E UNITED STATES
323
problem of inflation, is there not a considerable amount of social
injustice in high interest rates?
Secretary H umphrey . Is there not?
Senator L ong . Is there not, yes.
Secretary H umphrey . Well, I think anything which gets unduly
out of line can cause difficulties, yes.
Senator L ong . I have always been somewhat on the low-interestrate side since I read that quotation where Christ chased the money
changers out of the temple. It seems to me as though, in the main,
6 percent, 8 percent interest, with people trying to buy homes, that
sort of thing, is not socially desirable.
It seems to me to be desirable to have the interest low.
Secretary H umphrey . Y ou can certainly get interest rates so high
that it is not right.
Senator L ong. Y ou have told us that high interest rates discourage
borrowing, and to that extent tend to be anti-inflationary. But does
a rising interest rate not also encourage lending? In other words, a
person who can get a high interest rate is more inclined to lend than
otherwise.
Secretary H umphrey . I think that is right; it stimulates savings,
too.
Senator L ong. To the extent that high interest rates encourage
lending, would they not be inflationary?
Secretary H umphrey . Well, it is not the lender that causes the
inflation. It is the creation of the debt and the spending of the money
which causes the inflation.
Senator L ong. The point I have in mind is that while it might
tend to discourage somebody from borrowing money, it encourages
another to lend, and in that respect one tends to offset the other; is
that not correct?
Secretary H umphrey . Well, to some extent.
Senator L ong . Mr. Secretary, you have supplied me with a con
siderable amount of information that we will put in the record later on.
There is additional information which I would hope you could
obtain for us, and I do not know where we can get it except from your
Department, and I would like to have you supply this for us.
I do not believe you are going to have much of it available at the
moment, and some of it will take a considerable amount of study. I
will be glad to supply you these questions.
Secretary H umphrey . Fine; and we will get the information and
bring it back.
Senator L ong. I would like to know, for example, what have been
the changes in interest rates, year by year, since the beginning of 1950
and on into the middle of 1957, in the case of new borrowings on the
part of homeowners.
Do these figures include discounts; and, if so, how much discount,
and what is the effective rate of interest considering the discount?
I am asking that as at the beginning of 1950 because interest rates
did not begin to rise just when your administration came in. They
began to rise in 1950.
I would like to know what have been the changes in interest rates
in the case of new borrowings on the part of farmers from the begin
ning of 1950 to mid-1957.
The same thing for unincorporated business.
324
FINANCIAL CONDITION OF THE UNITED STATES
And I would like to know the same thing for consumers in obtaining
installment credit and noninstallment credit.
Then on the basis of these trends, what would you now compute to
be the current annual rate of interest charges, in dollars, on all out
standing indebtedness other than public borrowing, and how does that
compare with the figure in 1950 and 1953?
Aiso, what would this amount now be, in dollars, if all outstanding
indebtedness other than public borrowings were at current rates of
interest?
Further, how many years would it take before refinancing put auch
outstanding borrowings under current rates, assuming no further
increase in interest rates, and what would be the percentage of the
total nonpublic indebtedness refinanced in 3, 5, 10, and 15 years?
I would like to know, also, what has been the dollar trend in busi
ness investment in plant and equipment and construction since the
start of 1950, the start of 1953, and on until the middle of 1957.
Further, a rough approximation of how these investment trends
would break down according to corporate and noncorporate invest
ment, and according to business size and corporate structure.
For example, what proportion of this investment had been under
taken by firms with assets in excess of $100 million, and what pro
portion by firms with assets in excess of $1 billion.
That is a big job, but I think you have assistants over there who
can do it. It is a big job, but it seems to me this is information this
committee should have.
Secretary H umphrey. It sounds like a big job, but we will go to
work on it.
Senator Long. Thank you so much.
(The information referred to is as follows:)
Question: What have been the changes in interest rates year by year since the
beginning of 1950 and on into the middle of 1957 in the case of new borrowings on
the part of homeowners? Do the figures include discounts, if so how much and
what is the effective rate considering discount?
No satisfactory figures are available to show average interest rates paid on
mortgage loans, particularly the more significant figures that take into account
the sale of such loans at discounts.
Some information on the trend of mortgage rates in recent years, taking dis
counts into account, may be gained from Federal Housing Administration opinion
surveys made at various times in the years 1953 to date, indicating typical prices
offered for FHA-insured home mortgage loans. Prices compiled from these
surveys are shown in the following table, with computed yields based on the
assumption of an effective maturity of 15 years for a 25-year mortgage, after
allowing for amortization.
The usefulness of these figures is rather limited, however, since they cover but
one area of the national mortgage market, they are based on opinions rather than
actual transactions, the basis for the survey has changed somewhat over the
period, and the difficulty of computing accurate yields is complicated by amortiza
tion and prepayment problems.
FINANCIAL CONDITION OF TH E U N ITED STATES
325
Average typical prices offered for FHA-insured (sec. 203) home mortgage loans 1
and indicated yield to effective maturity, for selected dates
U nited States
Indicated
average
average yield
price per
to effective
$100
m aturity 1
Date (1st day of m onth)
percent loans:
1953—J u l y .._________________________________ ________________ ____________
O ctob er__ ____ *________ _ __________ _____________ _________ _ . . .
1954—January__________________ _______________ _________
_____ ______
A p ril...... ................ .................................. . ........................... ...................
J u l y „ , _ .................................................................... .......................................
O ctober . .
_____________________
*. ____________ _____
1966—J a n u a ry -...............
.
......
.....................
- . ........ .....
A pril
__ _______________ __
_
____ _____________ ______
J u l y ...
................................................................................ ..............
A u gu st___ ______________ ___________________________________________
Septem ber............................ . ................................................ .................. ...
O ctob er___
__________________________
_____________________
N ovem b er_______
.
______ ___________________ ______ ______
D ecem b er. _________________
_______________ ____________
1956—January.
______________________ ________________ ____________
F ebruary................... ....... ...................................................... ..........................
$98.7
97.1
97.7
98.9
99.4
99.5
99.5
99.3
99.0
98.9
98.7
98.4
98.2
98.0
98.2
98.2
Percent
4.70
4.94
4.85
4.67
4.50
4.58
4.58
4.61
4.65
4.67
4.70
4.74
4.77
4.80
4.77
4.77
W eighted to reflect p rob
able volum e o f transac
tions
M a rch ____
A p ril_____
M a y ...........
June...........
J u ly______
A ugu st___
September.
O c to b e r .. _
N ovem ber.
D ecem b er.
8 percent loans:
1067—January.
F eb ru a ry..
M a rch ____
A p ril..........
98.4
98.6
98.3
97.8
97.6
97.6
97.1
96.7
96.5
96.0
4.74
4.71
4.76
4.83
4.86
186
4.94
5.01
5.04
5.12
97.2
97.3
97.3
97.5
5.44
5.42
5.42
5.90
1 In m arket areas o f F H A insuring office cities; im m ediate d elivery transactions. Beginning January
1056, data are specifically for mortgages w ith 25*year m aturity, 10 percent dow n paym en t,
* A m ortization is assumed to reduce a 25-year m ortgage to an average effective m aturity o f 15 years.
Source: Federal H ousing A dm inistration data, and derived com putations.
Q uestion: W h a t h ave been the changes in in terest rates on th e pa rt o f farmers
from th e begin ning o f 1950 to d a te to m id-1957?
A vera ge in terest rates paid b y farm ers fo r real-estate an d n on-real-estate loans,
as estim ated annually b y th e D ep artm en t o f A griculture, are given in th e follow in g
table.
Interest rates on loans to farmers for selected years
Year
1046____
1060......... ........................
1961.................. ...................
1982.........
Real-estate
N on-realestate lo a n s 1
lo a n s 1
Percent
6.0
6.4
&4
6.5
Percent
4.6
4 .5
4.6
4.6
Year
1053......................................
1054....................................
1055....................................
1056.....................................
Real-estate
N on-reallo a n s ’
estate lo a n s 1
Percent
6.6
6.5
6.5
6.6
Ptrcent
4.7
4.7
4.8
4.8
1 Non-real-estate loans b y banks to farmers, estim ated average rate for year.
* Rate on form mortgage d eb t, all lenders, as o f Jan. 1.
Source: D eportm ent o f Agriculture.
Q uestion: W h at h ave been the changes in interest rates on the part o f unin*
^orporated business from th e beginning o f 1960 to date— t o m id-1957?
W e kn ow o f n o com pilation o f interest rates on loans to u nincorporated business.
H ow ever, som # indication o f the trend in su ch rates m a y be seen in a Federal
326
FINANCIAL CONDITION OF THE UNITED STATICS
Reserve Board compilation o f interest rates on short-term business loans, classi
fied by size of loan, as given in the following table.
Bank rates on short-term business loansf 19 cities
[Percent]
Size of loan (thousands of dollars)
All
loans
1946—March________________________________________
June.......... .......... ................................ ......................
September............ .
................ ......... ...............
December_______
_________ _________
1990—M arch..................................- ....................................
__ ____ _
______________________
June
September__________
______________________
December ______
____________ __________
1951—M arch.........................................................................
June ......................... ....................... ..............
September__________
______________________
December_________________________ _____ _____
1952—M a r c h ........................................................................
J u n e ................. ........................... - .......... - ...............
September__________ _ ______________________
December _____
_________________________
1953—M arch___ ______ ___ __________________________
June
.
___ . . _______________________
Septem ber..______ ____________________________
December_______ _________________ _________
1954—March..........................................- .............................
June _______ _______ _______________
____ -September____________________________________
December__________________________ __________
1955—M arch................... ....................................- ...............
J u n e _________________________________________
_________
September________ ______________
December__________ ______ ________ _____ _____
1956—M arch.........................................................................
J u n e _________________________________________
September____________ _______ ________ ____ __
December_______ ____ ____ _______ ___________
1957—March_______________________________________
2.1
2.0
2.0
2.1
2.60
2. €8
2.63
2.84
3.02
3.07
3.06
3.27
3.45
3.51
3.49
3.51
3 54
3.73
3.74
3.76
3.72
360
356
3.55
3.54
3.56
3.77
3.93
3.93
4.14
4.35
4.38
4.38
1-10
4.1
4 2
4.0
4.4
4.45
4.50
4.51
4.60
4.68
4.73
4.74
4.78
4.85
4.93
4.91
4.88
4.89
4.98
5 .ri
4.98
4.99
4.97
4.99
4.92
4.93
4.92
4.98
5.01
5.05
5.18
5.30
5.32
5.38
10-100
3.1
3.1
3.1
3.2
3.54
3.65
3.63
3.73
3.88
3.93
3.99
4.05
4.16
4.21
4.22
4.21
4.25
4.38
4.4')
4.39
4.37
4.35
4.32
4.29
4.29
4.29
4.44
4.52
4.55
4.69
4.86
4.91
4.94
100-200
200 and
over
2.3
2.2
2.1
2.1
2.94
2.94
2.95
3.10
3.27
3.32
3.36
3.49
3.66
3.72
3.74
3.77
3.75
3. 91
3.93
3.96
3.94
3.89
3.82
3.84
3.83
3.83
3.99
4.14
4.13
4.34
4.52
4.63
4.59
1.7
1.7
1.7
1.8
2.31
2.39
2.34
2.57
2.76
2.81
2.78
3.03
3.24
3.29
3.27
3.29
3.32
3.53
3.54
3.57
3.52
3.37
3.32
3.31
3.30
3.33
3.56
3.75
3.74
3.97
4.19
4.20
4.21
Source: Federal Reserve Board.
Question: What have been the changes in interest rates on the part of con
sumers obtaining installment credit and noninstiulment credit from the beginning
of 1950 to date to mid-1957?
We know of no compilation of interest rates on loans of this type.
Finance charges on installment loans vary from one locality to another and
with respect to the terms and conditions on specified transactions financed. So
far as we are aware, the only general data on finance charges are contained in tt»
recently published study of consumer installment credit by the Board of Gov*
ernors of the Federal Reserve System. This study includes an index of finano*
charges based on information reported by a sample of sales finance companies
which operate on a nationwide basis. The iniex measures financing costs to th#
purchaser per $100 of unpaid balance of a 12-month contract on a low priced
popular model passenger car. On a 1946 base of 100, the index was 99 in 1963
and 105 in 1956. For further information on this subject, see pages 49-60 of
Consumer Installment Credit, part I, volume I, Board of Governors of the
Federal Reserve System, 1957.
Question: On the basis of these trends, what do you now compute to be the
current annual rate of interest charges in dollars on all outstanding indebtedness
other than public borrowings, and how does this compare with the figure at the
beginning of 1950, 1953?
We know of no compilation of data that would provide the basis for authori
tative figures on total interest charges on outstanding private indebtedness.
Question: What would this amount now be in dollars, if all outstanding indebt
edness other than public borrowings were at current rates of interest?
Question: How many years would it take before refinancing puts such now
outstanding borrowing under the current rate, assuming no further increases in
interest rates?
327
FINANCIAL CONDITION OF T H E UNITED STATES
We are unable to supply estimates in answer to these questions, since the neces
sary information is not available on the rates of interest paid on the outstanding
indebtedness in the various categories, nor on what the current rates would be.
Question: What have been the dollar trends in business investment in plant
and equipment and construction since the start of 1950, 1953 and on into the
middle of 1957?
Question: Will you make a rough approximation of how these investment
trends break down according to corporate and noncorporate investment, and
according to business size within the corporate structure? What proportion of this
investment has been undertaken by firms with assets in excess of $100 million?
In excess of $1 billion?
Business investment in plant construction and equipment for the years 1948
to date is given in the accompanying table. A breakdown is shown as between
corporate and noncorporate investment. We are unable, however, to supply
figures or estimates of corporate investment by size of firm, for we know of no
available compilation of such figures.
Business expenditures for plant and equipment 1948-56
(In billions of dollars]
Calendar years: i f
1948 __________
1949....................................
195 0
.......................
195 1
.............
1952 ____ _
___
1953_____________
1954.............................. .
C orp o
rate
N on
corpo
rate
Total
$18.8
16.3
16.9
21.6
22. 4
23.9
22.4
$3.3
3.0
3.7
4. 0
4.1
4.4
4.4
$22.1
19.3
20.6
25.6
26. 5
28.3
26.8
C orp o
rate
Calendar years— C on.
1955._ ..............................
1956_____ ____________
Quarters:
1957 (annual
rates):
1st quarter......................
2d Q u a r t e r ________ _______
$24.2
30.0
(l)
0)
N on
corpo
rate
Total
$4.5
5.1
$28.7
35.1
0)
(0
36.9
37.3
1 N ot available.
Source: Securities and Exchange Com m ission and D epartm ent o f C om m erce.
Senator L ong . With regard to the problem of inflation itself, you
recognize, of course, that there are other ways f>is problem could be
approached. For example, the Federal Reser.e has powers over
rediscount rates; it has powers over the amount of reserves a bank
must carry, and, while I do not believe the powers exist at this time,
Congress could, if it wished, give price controls to an appropriate
agency to the extent that it wished to, or that it should authorize
credit controls.
It would seem to me, if any were to be considered, that the indirect
methods mentioned above certainly would be more appropriate at
the present time than price controls.
What is your reaction to the appropriateness of these various other
measures which could be used to control inflation?
Secretary H umphrey . Well, I think they all, except the physical
controls, have been employed in an appropriate way. Of course, Mr.
Martin is the .expert on that, but I think they have changed the dis
count rates and the reserve requirements from time to time, and those
are all controls which the Federal Reserve, in the proper exercise of
its functions, can carry out.
Senator L ong . D o you believe that the reserve requirements
should be increased?
Secretary H umphrey . I think that all has to fit into a pal t em,
and that is strictly within Mr. Martin's field of activity. That is
something that the Treasury does not control, and I would suggest
you ask Mr. Martin.
Senator L ong . Y ou do not feel in position to comment on that?
328
FINANCIAL CONDITION OF THE UNITED STATES
Secretary H umphrey. I think that is strictly within his field of
activity.
Senator L ong. Of course, that does affect your responsibilities and
your ability to finance and manage the Federal debt, does it not?
Secretary H umphrey. It certainly does, and, in fact, any action of
the Federal Reserve Board does affect us. But, nevertheless, they
are an independent agency that operate by themselves.
Senator L ong. Inasmuch as they are supposed to be an independ
ent agency, it seems to me it is more appropriate I ask you the ques
tion, however, because you are the man who has to advise the Presi
dent on these functions.
Secretary H umphrey. Not on these. That is the Federal Reserve
function.
Senator L ong. Are you not his principal financial adviser, though,
as far as the Cabinet is concerned? They do not sit in at these Cabi
net meetings with him, and you do. And, I imagine, when he has a
fiscal-policy problem, he asks you.
Secretary H umphrey. The Federal Reserve Board reports to the
Congress and not to the President,
Senator L ong. Does that not make you even more so the man to
advise the President on those matters?
Secretary H umphrey. If it were desirable to change the law, or
something of that sort, yes, I think that would be. But there has
been nothing of that kind, that I know of.
Senator L ong. Have you considered recommending any type of
credit controls?
Secretary H umphrey. It has been considered 2 or 3 times, and the
Federal Reserve Board made a very elaborate study on it. I think
the President's economic advisers took the matter up, and I think
you will find on one of their reports some comments with respect to
it. Each time, it has been decided it was not a desirable thing to do
under the circumstances existing at the time.
Senator L ong. Of course, part of your judgment on that would be
guided by the fact that you, perhaps, do not believe that credit
controls are an appropriate measure to control inflationary tendencies
in peacetime, but they should only be resorted to in emergencies.
Secretary H umphrey. Well, it is pretty hard, Senator, to make an
ironclad ride on these things, but I certainly would not feel that, up to
the present time, it was desirable to put in physical controls, credit
controls. We had them in wartime, and we abandoned them, as you
know. I do not believe there has been anything up to this time which
would justify their being put back in force. I do not favor it.
Senator L ong. Looking at the single problem of a man buying a
house, I had some misgiving about voting for the last housing bill to
reduce downpayments, as it did seem to me we were not doing a man
a favor in reducing down payments if it would contribute to higher
interest rates, on the theory that, for example, an increase of 1 percent
in interest on a $10,000 house would cost a man more than $1,000 by
the time he paid his mortgage out.
It would not be doing him any particular favor to reduce his down
payment by $200 or $300 if the effect of that would be to contribute
to an increase in the interest rates, and thereby require him to pay
about $1,000 more by the time he got through buying the house.
We should certainly consider those problems when we consider the
amount of the downpayment, should we not?
FINANCIAL CONDITION OF TH E UNITED STATES
329
Secretary H u m p h r e y . I think that is right.
Senator L o n g . Mr. Secretary, you supplied us with certain material
which I requested, and I appreciate it. It was, for the most part,
everything I was seeking to obtain. I believe there are 1 or 2 respects
in which you were not able to supply me just what I wanted, and
perhaps you might be able to get the rest of it.
There has been so much said about these inflationary tendencies
that occurred in earlier years that I thought it might be well to
review those and review the factors which contributed 16 them.
For a while we have had quite a bit of discussion of the degree of
the inflation, but very little has been said about the cause.
You have supplied me with the actual percentage increases in gross
national product, the increase in civilian employment, the Federal
budget position, year by year, and the budget expenditures and the
budget surplus.
It seems to me it would be well to place in the record at this point
the gross national product, in 1956 prices, and annual rate of increase,
from 1940 to 1957, and I will ask that that be placed in,the record
at this point.
(The document referred to is as follows:)
Gross national product, in 1956 prices, and annual rate of increase, 1940-57
Period
Calendar years:
1940___
........ ................ .
1941.............................................................................
1942......... .................... ......................................... .......
1943............... ........................................ ......................
1944................................................. .............................
1945........................ .................. .............................
1946...............................................................................
1947...............................................................................
1948...................................................................... .........
1949.......................................................
.......... ............
1950............................................................ ..................
1951................................................................................
1952..............................................................................
1953....................................................................... .
1954......... ......................................... ..........................
1955........................ ........................................ .............
1956....... .......................................................................
lit quarter: i
1956................................................. ............................
1 9 6 7 .............................................................................
Gross
national
product
Billions
$213.7
247.2
278.7
309.6
332.6
325.7
290.6
289.6
302.7
301.8
329.9
354.2
366.6
381.6
374.6
401.7
412.4
(*)
(*)
Percentage change, year to year
-1-15.7
+ 1 2 .7
+11 .1
- 2 .1
- 1 0 .8
-.3
+ 4 .5
-.3
+ 9 .3
+ 7 .4
+ 3 .5
+ 4 .1
—1.8
+ 7 .2
+ 2 .7
+ 9 .0 percent for 5 yeans.
+ 1.9 percent for 7 years.
+ 3 .0 percent for 4 years.
$
*>
(*>
1 Seasonally adjusted annual rate.
* N ot available.
Source: Departm ent o f C om m erce.
Senator L o n g . I asked for this in constant dollars because it seemed
to me that would be about the only way to calculate it to gain some
perspective of the point.
I notifce during the years 1940 through 1945, inclusive, there was a
9 percent annual average increase in the gross national product; the
greatest increase occurred during the early war years.
That tended to create great inflationary pressures, did it not?
Secretary H u m p h r e y . I think— well, that is one o f the things that
occurred.
Senator Long. During the middle period, from 1946 through 1952,
inclusive, there was a 1.9 percent average annual increase for those 7
years.
http://fraser.stlouisfed.org/
96819 0 — 57------- 22
Federal Reserve Bank of St. Louis
330
FINANCIAL CONDITION OF THE UNITED STATES
And during the period 1953 through 1956, inclusive, there was
a 3 percent annual average increase for those 4 years; and I believe
that so far the average annual rate for 1956 and 1957 is running about
2.7 percent. That is not shown in these figures you supplied me, but
the figures I have available indicate that.
Secretary H umphrey. For 1956, this tabulation shows 2.7; yes, sir.
Senator L ong. Yes, sir.
Now, we did not have much choice about expanding our gross
national product during those war years, and it was completely
desirable, was it not?
Secretary H umphrey. Oh, yes; I think so.
Senator L ong. And when you expand at the rate of as much as
15 percent, as we did in 1941, 12 percent in 1942, 11 percent in 1943,
and 7.4 percent in 1944, that is so much greater than our average
rate of national product expansion that it does place a great amount
of pressure upon our industrial capacity, and those are inflationary
pressures, are they not?
Secretary H umphrey. They are inflationary pressures.
Senator L ong. And against that, it was almost inescapable there
would necessarily be a considerable amount of inflation.
The 3 percent average from 1953 through 1956, plus the 2.7 increase
most recently, does not create any such pressure upon our economy,
certainly not to compare with a 9 percent increase pressure, does it?
Secretary H umphrey. I think that is right, but we had unused
capacity right up to the war.
Senator L ong. And, that being the case, it would indicate that
during those war times, there was a very great pressure upon our
facilities to produce; there was a tremendous increase in national
product which did impose a tremendous inflationary pressure.
Here is a table which you supplied me with respect to civilian
employment, and the annual increases during the years 1940 to 1957.
I ask that this be put into the record at this point.
Senator K err. Without objection, it may be inserted in the record.
(The table referred to is as follows:)
Civilian employment and annual increase, 1940-57
Period
Calendar years:
1940 ................................... - ..................................
1941
...................... - ......................... ...............
1942____ ________ _________________ ____ ____
1943 .................................................. .....................
1944 .....................................................................
1945 .................................................... ...... ........ .
1946 ..................... ...................... - ........ ...............
1947 ..................- .............................. ....................
1948 .......................................... .............................
1949 ......... ............................. ....................... ........
1950_______________________ ______ - ........ ........
1951................................................. .....................
1952 ................................................ .......... ........
1953............... .......... ........ ..................................
1954 ......... .......... .................................................. .
1955.................................. .......... ...........................
1956............................ .........................................
1st 5 months:
1956 ....................................... ...........................
1957 1............................................................. .........
i On basis*comparable with earlier years.
Source: Department of Commerce.
Number
(thousands of
persons, 14
years of a?e
and over)
Percentage change, year to year
47,520
50,350
53,750
54,470
53,960
52,820
55,250
58,027
59,378
58,710
59,957
61,005
61,293
62,213
61,238
63,193
64,979
+ 6 .0
+6 8
+ 1 .3
—.9
—2.1
+ 4 .6
+ 5 .0
+2 3
—1 1
+21
+ 1.7
+ .5
+ 1 .5
—1 6
+3 2
+ 2 .8
63,555
64,062
+ .8
+2.2 percent average for
5 years.
+2.2 percent average for
7 years.
+1.5 percent average lor
4 years.
FINANCIAL CONDITION OF TH E UNITED STATES
331
Senator L ong. There again, we find there was an increase.
Secretary H umphrey . I just haven't that paper yet, Senator. We
will have it in just a second.
You go right ahead.
Senator L ong . There was an average annual increase of 2.2 percent
in civilian employment during the years 1940 through 1945—the
computation I have had made is 2.5 percent—and in some years the
increase was as much as 6.8 percent ; and even that does not make
allowance for the increase in working time.
As you recall, there was a great amount of overtime employment
during that period.
Secretary H umphrey . Well, you see, we were going at that time
right from a period of large unemployment into a period of substantial
employment. If you go back to 1938 and 1939, there were between
9 and 10 million unemployed, just prior to this time, and then as the
war needs took effect-----Senator L ong . What would be the figure for 1940 for unemployed?
Secretary H umphrey . That is right where the change began.
Here are the unemployment figures:
Beginning in 1938, it was 10.390 million; in 1939, it was 9.480
million; in 1940, it was 8.120 million; in 1941, it was 5.560 million.
It was going from a time of great unemployment which extended over
a long period of time, to high employment during the war.
Senator L ong . During the war years, even with those large in
creases in civilian employment, we were also recruiting a vast amount
of our manpower in the armed services, were we not?
Secretary H umphrey . That is right.
Senator L ong . This wartime strain on the civilian labor force is
just common knowledge, because you know as well as 1 do we were
recruiting people from among housewives, old people-----Secretary H umphrey . Mothers.
Senator L ong (continuing). Almost everyone we could find, and
labor was extremely short.
Secretary H umphrey . That is right.
Senator L ong . In order to recruit labor during wartime, to get
women to quit their homes and go to work, and to induce people who
were not in the labor force to join the labor force while so many men
were in the service, we had to pay to get those people to do it, unless
we were going to recruit them the way of Stalin or Khrushchev, the
way they go out and tell people, “You are it.”
In order to pay people to do it in our American way, we had to
increase our payrolls and our rates of pay by a considerable amount,
did we not?
Secretary H umphrey . That is right.
Senator L ong . Do we have those pressures at the present time to
contribute to inflation?
Secretary H umphrey . Very much less.
Senator L ong . In 1956 and 1957, we have been increasing civilian
employment by about 1.5 percent as an annual average, and we have
only about 3 million people in the armed services. There is not a
great factor of overtime employment now.
Would this not be just about within our average rate of expansion
on an annual basis?
332
FINANCIAL CONDITION OF THE UNITED STATES
Secretary H umphrey. Tlie employment we have had during this
period has"been very high, I think perhaps higher than the average,
but it is nothing like wartime pressures.
Senator L o n g . I asked for a statement of the Federal budget
position for the fiscal years 1940 through 1958. You have supplied
me with that, but I wanted those figures computed on the basis of
constant dollars because I thought this would enable us better to
analyze inflat ionary pressures.
You have supplied me with the Federal budget position based on,
not what I would call constant dollars, because that calculation was
not made by you except with regard to the purchase of Federal goods
and services, but you have supplied me with the calculation based on
current dollars and I have that table here and will ask that it be put
into the record at this point.
Senator K err. Without objection, that may be done.
(The table referred to is as follows:)
Federal budget positiont fiscal years 1940-68
[In billions o f dollars]
Fiscal year
Actual:
1040 ..............
1941 _
..............
1943
1944 . . . .
1945 ..............
1946 .........
1947...............
1948 .............
1949 ..............
Net
budget
receipts
5.1
7.1
12.6
22.0
43.6
44.5
39.8
39.8
41.5
37.7
Budget
expend
itures
Surplus (+ )
or
deficit ( - )
9.1
13.3
34.0 1942
79.4
95.1
96.4
60.4
39.0
33.1
39.5
- 3 .9
—6.2
-2 1 .5
—57.4
—51.4
-5 3 .9
-2 0 .7
+ .8
+ 8.4
- 1 .8
Fiscal year
Actual—Con.
1950________
1951_________
1952.......... .
1953 .............
1954........ ......
1955................
1956................
Estimated:
1957................
1958...............
Net . Budget SjlipJi*s(+)
budget
expendor
receipts
itures
deficit ( —)
36.5
47.6
61.4
64.8
64.7
60.4
68.2
39.6
44.1
65.4
74.3
67.8
64.6
66.5
—3.1
+ 3.5
—4.0
-9 .4
—3. i
—4.2
+ 1.6
70.6
73.6
68.9
71.8
+1.7
+ 1.8
Senator L o n g . I notice that during the war years there were tre
mendous deficits.
For example, in 1942, the deficit was $21.5 billion. In 1943, the
deficit was $57 billion. These deficits are expressed in current dollars
Do you believe that we could have avoided those deficits?
Secretary H u m p h r e y . Well, I amnot in any position to say, Senator.
We had a war on our hands, and we had to prepare for war, and I am
not in any position to say that it was well done or poorly done. We
did what we thought was required, and we were all working at it,
Senator L o n g . Well, it occurrs to me we might have been able to
do it a little more efficiently. I saw some evidence of waste where I
was, and perhaps you did where you were. But in time of war, I do
not think we were going to try to save a few nickels if it might reduce
our fighting capacity.
Secretary H u m p h r e y . That is right. And while I think you saw
some waste and I saw some, and probably everybody else did, maybe
a few days’ extra speed was worth it.
Senator L o n g . We had some pretty good people who made a
record, and have gone ahead since that time, who did what they could.
I am sure, to keep the costs down. I think Mr. Knudson, of General
Motors, did, and I am sure General Eisenhower did all he could over
in Europe to hold the costs down, and General MacArthur did what
he could in the Pacific.
FINANCIAL CONDITION OF TH E UNITED STATES
333
But with a budget deficit running $21.5 billion in 1942, and $57
billion in 1943, in current dollars, if you adjusted those figures to uni
form 1956 dollars, a $57 billion deficit as of 1943 would compare to a
deficit of almost $100 billion now, would it not?
Secretary H umphrey . Well, perhaps it would.
Senator L ong . And the same thing would be true, to a lesser degree,
of the $51 billion deficit in current dollars in 1944?
Secretary H umphrey . Well now, wait a minute. I do not think it
would be as much as that, quite, but it might be a substantial increase.
Senator L ong . Well, it would certainly be at least 50 percent more,
expressed in uniform 1956 dollars.
Secretary H umphrey . The 1944 budget dollar-----Senator L ong . The dollar was estimated at about a 75-cent dollar,
about an 80-cent dollar in 1940 by the chart Senator Williams put into
the record, compared to a 50-cent dollar now.
Secretary H umphrey . Well, your 2 big years are 1944 and 1945,
and the dollar was a 77-cent dollar then, as compared with a 50-cent
dollar now. That is a one-third shrinkage.
Senator L ong . Yes.
Secretary H umphrey . So you perhaps could increase this by a half.
Senator L ong . No. If the dollar shrunk one-third from 1944^45
to now, the dollars spent in 1944-55 must be increased 50 percent to
translate them into 1956 dollars.
Secretary H umphrey . I would guess it would be about a half upon
that basis.
Senator L ong . The computations I have had made, expressed in
uniform 1956 dollars, come to a deficit of about $39 billion in 1942,
about $97 billion in 1943, about $85.5 billion in 1944, and about $90.6
billion in 1945. Perhaps your people can give you some suggestions
as to making a computation.
Secretary H umphrey . I do not believe we can make a calculation
without a terrific amount of work, because, you see, you have to
readjust all your revenues on a new base and everything else. We
can give you, as we did on the following table, the cost of goods on a
level-dollar basis.
Senator L ong . Here is what I was thinking-----Secretary H umphrey . But to make up a budget on a level-dollar
basis, if we went into that, and to get one which is anywhere near
right is a terrific job.
Senator L ong . What I was attempting to do was just to gain some
perspective about this matter, and it seems to me about the best way
to do it would be to say what was the deficit in dollars at that time
in current dollars, and then to translate it into 1956 dollars for pur
poses of comparison. In terms of 1956 dollars, as I have had it
computed, the average annual deficit, 1943-45, was well over $90
billion.
Secretaiy H umphrey . That would not be right.
Senator L ong . H ow far wrong would you guess it to be?
Senator H umphrey . If you would do it on this rule-of-thumb
basis, you would increase it about a half. But I do not know whether
that would take into account all of these other calculations which you
have to make. It is a very complicated thing, Senator, when you
start to get into it.
We tried, and it got awfully complicated.
334
FINANCIAL CONDITION OF THE UNITED STATES
Senator L ong. Well, one of the purposes-----Secretary H umphrey. I do not believe there is a quick way to do it.
Senator L ong. On your subsequent table, just on the purchases
of services and goods alone, you estimated, in terms of 1956 prices, that
the purchases would have amounted to $131.4 billion in 1943, and that
did not include a great number of Government services. It did not
include interest on the debt, veterans’ benefits, and public assistance,
and various other things.
We were paying less than half the cost of the war during that time
out of current taxation, were we not, somewhere in that vicinity, and
the balance by borrowing?
Secretary H umphrey. I think that is about right during the last
years of the war.
Senator L ong. But the precise amount is not too important to the
question I have in mind, because here is the point I am thinking of:
Even a deficit of $57 billion in 1943 in 1943 dollars was a deficit of
enormous size, contrasted with a small surplus now. Even if you
used your one-third calculation, you would get a 1943 deficit of about
$76 billion in 1943 in 1956 dollars. Actually, the correct adjustment
lifts the $57 billion to $97 billion, as I have had it computed.
Secretary H umphrey. I just do not know for sure about that,
because, you see, you have your income also affected, as well as your
expenses—I do not think you just pick out one figure and apply a
ratio to a single figure. You have got to apply your ratios to every
thing.
Senator L ong. Might I suggest, Mr. Secretary, that you-----Secretary H umphrey. I really do not think, Senator, that I could
give you any quick figure here which is any good. We looked it over.
And if you just adjust one set of figures, it leaves out entirely the
calculation of the other set of figures.
So you have to go through and adjust it all, and that is a terrific job.
Senator L ong. Well, it does not make too much difference to me
how you calculate it, because I do not think your answer is going to
be too far different, whether you attempt to go through and take every
item, one by one, or whether you just say the purchasing power of the
dollar declined a certain percentage, and you multiply by your ratio.
To me, it does not make too much difference. I just want to gain
some perspective of the matter.
Secretary H umphrey. But you cannot take a net figure and multiply
that by the ratio without adjusting both sides. You have got to ad
just both revenues and expenditures, and I am not sure but what you
would come out pretty near the same place.
Senator L ong. Well, if you take—:—
Secretary Humphrey. You cannot just adjust the cost side and le& v *
the revenue side out. You have got to adjust them both. And if
you adjust them both, I am not sure you will not come out in the"
same position.
Senator Long. As a man who did not have a doctor of philosophy in
economics, I would start out by taking our revenues in a war year,
and subtract that figure from our expenditures, and then attempt to
translate the deficit into 1956 dollars. This method does take account
of what you call both sides. If the expenditure and revenue sides
were adjusted separately, subtraction would give the same figure as
merely adjusting the deficit. That is what I was trying to drive at,
FINANCIAL CONDITION OF T H E UNITED STATES
335
to see, first, how much we went into the red in those war years, and
then to calculate from that how much of a deficit that would have
been based on uniform 1956 dollars, thus making the comparisons
more meaningful by adjusting for price change.
Secretary H umphrey . Well, it is a very tricky calculation, and I
cannot do it. You can't just take the revenues the way they are
published. Maybe you can, but I cannot. We tried, and we could
not get anything which we thought was satisfactory.
Senator L ong . Well, would you, then, supply me, with regard to
the subsequent table you have here, where you show the Federal
Government purchases of goods and services in 1956 dollars, with the
Government income during those years, to correlate with those
calendar years, and would you supply me, in terms of current dollars,
with the amounts which were spent on the items which were not
included, which would be interest on the public debt, veterans'
benefits, public assistance, and so forth?
Those figures should be available.
Mr. M ayo . In current dollars?
Senator Long. In terms of current dollars, as of that time.
Secretary H umphrey . What do we do? Do we use the tax rates
in effect at that time, or the tax rates in effect at this time?
Senator L ong. The tax rates as of that time. What I am attempt
ing to arrive at, Mr. Secretary, is a calculation, for purposes of per
spective, to see what the inflationarj7 pressures were as of that time
compared to now. I would like to arrive at the deficit during those
years in terms of 1956 dollars, so we could have better indication as
to what the inflationary pressures were as of that time.
Secretary H umphrey . We will see what we can do, but I -----Senator L ong. The question I was getting to is, looking at a $57
billion deficit in 1943 in terms of the then dollars, which would be a
far greater deficit in terms of 1956 dollars, and similarly as to the
$51 billion deficit in 1944, the $53.9 billion deficit in 1949-----Secretary H umphrey . 1945*
Senator L ong . 1945, pardon me—certainly we would both agree
that those created tremendous inflationary pressures.
Secretary H umphrey . I think that is right.
Senator L ong . N ow , compared to that, in 1956 and 1957 to date,
the Government does not have a deficit; it has a surplus.
Secretary H umphrey . That is right.
Senator L ong . D o we, then, have anything like even the beginning
of the pressure of deficit financing to compare to anything we had
during those wartime years?
Secretary H umphrey . No, sir. It is in very much better control
now than it was then.
Senator L ong . In fact-----Secretary H umphrey . It is in better control now, Senator, than it
has been for many years, wartime and no wartime. You go back a
long time to get it in as good control as it is today.
Senator L ong . Here is your statement of the Federal Government
purchases of goods and services. I would suggest putting those in the
record at this point, even though I would like to have the additional
calculations to give the whole picture.
Senator K err . Without objection, that may be done.
(The table referred to is as follows:)
336
FINANCIAL CONDITION OF THE UNITED STATES
Federal Government purchases of goods and services, in 1956 prices, and annual
changes, 1940-57
[In billio n s of dollars]
Period
Change, year to year
Amount
Calendar years:
1940 J______
194 1
..
194 2
194 3
.
194 4
................................................
1945..
194 6
..
1947
194 8
194 9
195 0
195 1
195 2
195 3
..
1954.. .
195 5
.
195 6
1st q u a r te r: 1
195 6
195 7
15. 2
3 3 .3
9 0 .9
131.4
147.2
123. 1
30. 1
2 1.0
2 7.3
3 1.6
2 6 .7
4 4 .2
5 8.1
6 4 .9
5 2 .2
4 8 .3
47.0
+ 18. 1
+ 5 7 .6
+40. 5
+ 15. 8
-2 4 1
- 9 3 .0
-9 . 1
+ 6 .3
+ 4 .3
-4 .9
+ 1 7 .5
+ 1 3 .9
+ 6 .8
- 1 2 .7
-3 .9
-1 .3
+ 2 1 .6 a v e r a g e for 5 years
—9.3 a v e r a g e for 7 years.
—2.8 average for 4 years.
(tl
<
2)
1Seasonally adjusted annual rate.
* Not available.
Source: U. S. Department of Commerce.
(The additional material previously referred to follows:)
It is not possible to take the Federal deficit in current dollars and convert it
directly to dollars of constant purchasing power, and get an answer that has
any real meaning. The only way to approach the problem of what the Federal
budget surplus or deficit would have been under the theoretical condition of
constant dollar purchasing power would be to pick a base—say 1956 dollars—
then work out independently both budget expenditures and budget receipts m
constant prices, and then subtract receipts from expenditures. It is possible to
work out figures on budget expenditures on a constant dollar basis, although it
would take considerable time since no official figures have ever been developed.
In attempting to convert budget receipts to a constant dollar basis, however, a
great many new problems would enter the calculations.
Federal Government revenue cannot be converted to constant dollars for a
period of years by a simple adjustment for changes in the purchasing power ot
the dollar. This is true both for total receipts and for receipts from the separate
tax sources. In the case of the most important receipts source—the individual
income tax the deduction for personal exemptions, as a dollar amount fixed
by statute, would be a very large constant figure unaffected by price changes.
Of even more importance, the progressive rate structure would
simple price adjustment. As an example, in 1944 a married man with three
dependents, earning $5,000 would have paid $630 in Federal income tax. Con
verted to 1956 dollars, his income for 1944 would have been $7,900. Since t e
increase in overall prices was 58 percent, his income tax, however, would be up
111 percent, instead of 58 percent, because the tax would have risen to a>l>***
as a result of applying 1944 tax rates and exemptions to the higher income.
An attempt to convert the 1944 income tax receipts to the 1956 price level Dy
assuming that the increase would equal the price rise of 58 percent would tn
be very misleading.
Serious problems would also occur in the case of the corporation i n c o m e tax,
particularly in the area of fixed costs, such as depreciation. Several of
most important excise taxes, notably on liquor and tobacco, are specific taxes
(per gallon, per unit, etc.) and the revenues are not directly affected by P ,
changes. For the foregoing reasons we are unable to supply the requester
calculations.
Senator L ong. And here is the statement which you supplied
•of the private money supply and the
change, 1940 to
I will ask that this be put into the record at thifl point
FINANCIAL CONDITION OF THE UNITED STATES
337
(The table referred to is as follows:)
Private money supply 1and annual change, 1940-57
{In billions of dollarsl
Period
£ n d of D e c e m b e r:*
1940...............................................................................
1941................................................................................
1942........ .............................................................. .........
1943...............................................................................
1944................................ ..............................................
1945..._.........................................................................
1946...............................................................................
1947................... ...........................................................
1948................................................................................
1949................................................................................
1950...............................................................................
1951............. ..................................................................
1952................................................................................
1953..............................................................................
1954................................................................................
1955................................................................................
1956................................................................................
April:
1956................................................................................
1957................................................................................
A m ou nt
Change, year to year
42.3
48.6
62.9
79.6
90.4
102.3
110.0
113.6
111.5
111.7
118.2
124.4
129.0
131.1
134.1
137.7
139.3
+ 6 .3
+ 1 4 .3
+ 16 .7
+ 1 0 .8
+ 11 .9
+ 7 .7
+ 3 .6
-2 .1
+ .2
+ 6 .5
+ 6 .2
+ 4 .6
+ 2 .1
+ 3 .0
+ 3 .6
+ 1 .6
133.1
134.7
+ 1 .6
+ 12 .0 average for 5 years.
+ 3 .8 average for 7 years.
+ 2 .6 average for 4 years.
1 D em and deposits adjusted and currency outside banks.
a T h e end of D ecem ber figures are seasonally the highest of the year.
Source: Federal Reserve Board.
Senator L o n g . We find that there was a tremendous increase in
the money supply during wartime. This was in current dollars, year
by year.
The increase in money supply, for example, was $6 billion in 1941;
in 1942, it was $14.3 billion; in 1943, it increased by $16.7 billion;
1944, it increased by $10.8 billion; 1945, bv $11.9 billion.
Such huge increases in the money supply probably did create still
additional inflationary pressures, particularly when compared to the
much Bmaller amount of money supply that existed as of that time.
How would you-----Secretary H u m p h r e y . If we had gone on in the way we were going,
aad I am not saying there is any occasion for it, but if we had con
tinued, as you have indicated, at the rate we were going, this country
would have been just like some of these other countries; our dollar
would have been practically worthless. We would have had a terrible
catastrophe in America.
Senator L o n g . Yes.
Secretary H u m p h r e y . There is no doubt but what inflationary
pressures have been very greatly reduced.
Senator L o n g . There was an average annual increase of $12 billion
during those war years in the money supply.
Without allowing for the difference in the value of money as of
today, during the period 1953 through 1956 there was an average
annual increase of only $2.6 billion in the money supply. In other
words, the increase was about one-fifth as much during these more
recent years as it was during those war years.
Secretary H u m p h r e y . It has been a great stabilizing influence.
Senator L o n g . That would also indicate much less inflationary
Pressure from the increases in money supply during these recent yearsthan during the war years?
338
FINANCIAL CONDITION OF THE UNITED STATES
Secretary H u m p h r e y . The inflationary pressures have been very
greatly reduced, and we have had a much more stable condition.
Senator L o n g . The next item you supplied me with is a statement
of the Consumer Price Index, and the annual changes, 1940 to 1957.
I notice, during the war years 1941 through 1945, the average increase
was 3 points, or 5.2 percent, during those 5 years. It was 5.2 points,
or a 5.8-percent increase, during the 7 succeeding years, and it was
0.7 point, or 0.6 of 1 percent, as an average for the 4 years 1953
through 1956, and it was about 1.5 percent in 1956, and May 1957
indicates about 3.6 percent above May 1956.
It looks like it might be growing somewhat more rapidly during the
last month or so.
(The table referred to follows:)
Consumer Price Index, and annual change, 1040-57
Change, year to year
Period
Index
(1947-49= 100)
Points
Calendar years:
194 0
.
194 1
.
194 2
194 3
194 4
.
194 5
.
194 6
.
194 7
194 8
.
194 9
.
195 0
.
195 1
.
195 2
.
195 3
.
195 4
195 5
195 6
M ay:
195 6
195 7
.
Percent
59.9
62.9
69.7
74.0
75.2
76.9
83.4
95.5
102.8
101.8
102.8
111.0
113.5
114.4
114.8
114.5
116.2
4-3.0
+ 6 .8
+ 4 .3
+ 1 .2
+ 1 .7
+ 6 .5
+12.1
+ 7 .3
- 1 .0
+ 1 .0
+ 8 .2
+ 2 .5
+ 0 .9
+ 0.4
- 0 .3
+ 1.7
+ 5 .0
+ 10.8
+ 6 .2
+ 1 .6
+ 2 .3
+ 8 .5
+14.5
+ 7 .6
-1 .0
+ 1 .0
+ 8 .0
+ 2 .3
+ 0 .8
+ 0 .3
- 0 .3
+ 1 .5
115.4
119.6
+ 4.2
+ 3 .6
f3 .4 points or 5.2 percent,
average for 5 years.
f 5.2 points or 5.8'peroent
average for 7 years.
,+0.7 point or 0.6'percent
average for 4 years.
Source: Department of Labor.
Secretary H u m p h r e y . Well, that is not just for the month. That
isrfor the period May to May, for 12 months. But it has gone much
more rapidly in this last 12 months than it had for the preceding 4
years.
In the preceding 4 years, we had a very stable situation. The
economy was on a very stable basis, one of the most stable bases we
have had for many years, and it lasted over that 4-year period.
Within the last 12 months, we have had this move upward that we
talked about the other day.
1? Senator L o n g . Here is the question that occurs to me: If you com
pare the war years, where you had this tremendous increase in the
money supply, in the amount of civilian employment and production,
and because of the war tremendous increases in expenditures and
enormous Government deficits—and I do not know how you could
have avoided them—if you compare these war years with the absence
of any comparable inflationary pressures in the most recent years,
how can you account for a 3.6 percent increase in the cost of living
this]last year as compared with only 5.2 percent increase during war
time when you had all of these tremendous inflationary pressures?
FINANCIAL CONDITION OF THE UNITED STATES
339
Secretary H umphrey. Well, I think I answered that as best I could
the other day when I read into the record a very complete statement
as to just why I thought it had occurred*
Senator L ong. Can you give me, in general terms, why it has
occurred?
Secretary H umphrey. Senator, I can go right back to that. That
is all set out in great detail, in answer to Senator Kerr, and I can read
it again if you would like, but that is the answer.
Senator L ong. Could you summarize it?
Secretary H umphrey. I do not think so. I think that it takes a
full explanation. You just cannot say it in a word. I was very
careful to try to get it exactly as I thought it was, and I gave it.
Senator L ong. Well, would you regard keeping consumer price in
flation at the 5.2 percent annual average level during those 5 war
years as being a good record, as against all the many inflationary
pressures that existed as of that time?
Secretary H umphrey. Well, frankly, I do not think I am in position
to answer that. I do not see any reason to criticize it or comment on
it, frankly.
Senator L ong. If you do not have any suggestions as to how it
might have been improved upon-----Secretaiy H umphrey. Well, you cannot go back. It is a fact that
that is what happened. It occurred. You know exactly what the
facts are, and there they are. There is nothing you or I can do about
them. They are there, and I do not think that it gets us anyplace
to go over it.
Senator L ong. Viewing all of your discussion of the inflation that
occurred during the war period, I do not see why we had all this
discussion if it is not to be enlightening to some extent, or if there
is nothing we can learn from this period, or if you cannot find anything
that was wrong or that you think should have been changed or
different. I would like to have your advice as to how you think those
years might have been improved upon.
I was not a part of the Government. I do not think you were, either.
We were doing the best we could in other capacities.
Secretary H umphrey. That wTas a war period, and I do not see a
thing to be gained, Senator, by you and I sitting here discussing
what might or might not have been done during the war.
Senator L ong. Then why did you-----Secretary H umphrey. I frankly do not know about it.
Senator L ong. Why did you make considerable reference to those
years in your opening statement?
Secretary H umphrey. I stated facts. I stated the facts just as
you have.
Senator L ong. Well, in stating those facts, you do not offer any
criticism as to how it might have been different or how it might have
been otherwise?
Secretary H umphrey. Not at all. I am simply reciting the facts
as they occurred. I see no point in criticizing it or commending it,
either one. It is a fact, and we stated the facts to have them in review.
Senator L ong. It does seem to me, when you review the inflation
that occurred during wartime, with great inflationary pressures,
without saying that anything different could have been done then,
you shed no light on why we have had a 3.6 percent inflation during
340
FINANCIAL CONDITION OF THE UNITED STATES
the past 12 months. We have no Government deficit, we have no
genuine pressure on the labor force, we have no great increase in the
money supply. WTiat do you think is causing all this inflation we
are having now?
Sem‘taiy H umphrey. I answered you that just a minute ago.
Senator L ong. It is not—could it be an increase in the money
1° ^
‘
1 1
’y a very small increase, comCould that be it?
Secretary H umphrey. Why no, Senator, I answered juat a minute
ago, and I will be very glad to go through it again if you would like
to have me. It is right here, and I can read it right over again.
Senator L ong. Would you just tell us what are the highlights of
that as to why we are having this great pressure now?
Secretary H umphrey. I will read it all.
Senator L ong. This inflation-----Secretary H umphrey. I will be glad to read it all and then you can
select what you think is desirable.
Senator L ong. Why do you not read it for your own benefit and
lift out what you think would be enlightening. It seems to me it
is not necessary to read that statement if you have it before m the
record.
Secretary H umphrey. Senator, I think I gave you a careful analysis
of what I believed was the situation. I did the very best I could.
I will be glad to do it over again, but that is my analysis of what I
think is the situation today, and I do not care to do it any other way.
except to state it the way I believe it is, in full text.
Senator Long. Well, would you pass me that statement and I will
just take a brief look at it. If it has been read for the record, I was
not here.
Secretary H umphrey. Yes, it is all in the record.
Senator L ong. I would not like to fill the record up with it again.
Based on this statement here, if I understand this statement, you
believe that most of these increases, most of these inflationary pres
sures, seem to be related to the demand for durable goods and indus
trial expansion?
Secretary H umphrey. That is the way it began.
Senator Long. D o you believe that the increase in interest rates is
contributing to holding down prices on industrial expansion?
Secretary H umphrey. I believe it is helping; yes, sir.
Senator L ong. In what industry do you believe that—and I take
it that you believe it is desirable to postpone at this time further in
vestments or expanded investments in plant machinery, equipment,
and other durable goods?
Secretary H umphrey. Just some of it, there is some postponing.
Senator L ong. D o you think industry is postponing $pme of these
plans?
Secretary H umphrey. I think some industries are postponing,
definitely.
Senator L ong. In the main, which ones?
Secretary H umphrey. Well, in the main I think the most obvioos
one is machine tools.
Senator L ong. Nevertheless, we do have larger expansion plant
going on in most of the industries, in a great number of them, do wt
not?
FINANCIAL CONDITION OF T H E
UNITED STATES
341
Secretary H umphrey . We have large expansion plans that are in
course, now.
Senator L ong . I believe that the information that I want on that
subject is more detailed in the questions that I supplied you in the
beginning, and, therefore, we can look at that when those calculations
are prepared.
Secretary H umphrey . Thank you, Senator.
Senator L ong . N ow , with regard to the cost of housing, is that not
increased by an increase in interest rates?
Secretary H umphrey . Yes, I think it is increased somewhat by
interest rates.
Senator L ong . I do not know how you calculate it, Mr. Secretary,
I have got just a rough approximation that I made during an examina
tion of it here the other day on the increase in costs in interest rates on
housing.
In the prepared questions that I have handed you there, I have
asked for the average increase in housing, in interest on housing loans,
but I do believe I have a calculation here of about what the difference
is in interest rates on houses which I will find in just a moment.
I calculated, Mr. Secretary, just the difference, for example, on a
20-year mortgage between a 4-percent mortgage and a 5-percent
mortgage, and the difference in mortgage costs would be $1,294.91
on a 20-year mortgage. Now, that is a difference of about, well, it
amounts to about 12 percent of the original investment by the time
it is paid out.
Now, the same thing on a 25-year mortgage for $10,000 would be
$1,694, and if we had one of these long-term veterans’ type mortgages,
the difference would be $2,249.78.
Do you believe that the increase in financing on housing has in
creased as much as 1 percent?
Secretary H umphrey . You mean from 4 to 5 percent?
Senator L ong . A s much as 1 percent, let us say, from 1950 to the
present time.
Secretary H umphrey . Well, I think I had better check it* I cannot
tell you whether it has or not. That is in part of your questions you
asked here.
Senator L ong . Yes; I have asked that, and I believe it is necessary
for the regard.
Secretary H umphrey . I think we had better get the answers to
those questions and we will do that. I cannot tell you right off the bat.
Senator L ong . Now, assuming there is that much difference—and
I know it is as much as 1 percent different in Louisiana, where I
trying to do some financing myself right now; I am in process
of buying another home and I am paying at least 1 percent more
than I was paying some time ago—for a man buying a $20,000 home,
he could be paying as much as $4,000 extra by the time he paid off
the mortgage. Of course, in a short term, a shorter term, let us say
for a 20-year mortgage, he could be paying as much as $2,500 more,
*nd that is not too big a house that you get for $20,000.
That is a very serious matter, it would seem to me, for a person
buying a home. D o you find it that way?
Secretary H umphrey . I suppose that is about $10 a month on a
*20,000 house.
Senator L ong . Well, by the time you pay the------
342
FINANCIAL CONDITION OF THE UNITED STATES
Secretary H umphrey. On the other hand, Senator if that helps
to hold down the other costs of the home, the other costs of the home
which are so much greater than the interest costs; if the interest cost
helps to hold it down, I think it is very worthwhile.
Senator L ong. Do you think the higher interest costs are going to
hold down the cost of labor? Is not labor going to bargain for an
increase every year and try to get a better working contract if it can?
Secretary H umphrey. I think that higher interest costs tend to
level the whole thing out, and I think it affects all costs over a period of
time.
Senator L ong. I would like for you to explain to me how is a
higher interest cost going to cause a laboring man to ask for less wages?
Secretary H umphrey. Well, as the whole thing levels out, as your
whole industry levels out, I think you will find that that is the
way it will work. It always has worked that way, and I believe over
a period that it will again.
Senator L ong. It seems to me, Mr. Secretary, if I were a laboring
man—suppose I was doing what the junior Senator from Louisiana
right now is doing, trying to buy my wife a larger home, and I proceed
to sell the house I have got and buy a larger house, but in doing so, I
have got to pay about an extra $10 a month in rent, that is, in interest
charges on that home. Then would that make me ask for a lesser'
wage increase because then I was having to pay more of my paycheck
on interest on that home?
It would seem to me I would be demanding more.
Secretary H umphrey. Not right at the moment, but over a period,,
as the whole thing levels out, all your costs will begin to level out..
It will help to level them out.
Senator L ong. Well, now----- Secretary H umphrey. It would not do it all alone.
Senator L ong. As far as that laboring man bargaining for the wage,
he is going to ask more if he is having to pay a higher interest on his
own home, he is going to want more wages to build someone else’s
home, is he not?
Secretary H umphrey. It will depend pretty largely on what theother costs of the home are, what amount they have gone up, and how
much the other costs keep within reasonable bounds.
Senator L ong. Let us take the materials that go into that home.
If the man who is cutting that lumber and timber is having to borrow
some money to stay in business, as most of these fairly small concerns
do, is he not going to try to pass along that increased interest charge
in the price of his product?
Secretary H umphrey. Yes. And to that extent, as I said the other
day, to that extent the interest is inflationary. On the other hand,.’
if there is less demand for his lumber and the lumber sales are strung
out and there is less demand for lumber, it will tend to stabilize the
selling price of his lumber and it will tend to keep the lumber from ris
ing in price. If the lumber does not rise in price, it will tend to keep*
the whole thing steady and will decrease the cost of his house.
Senator L ong. He is certainly going to try to pass that along, is
he not?
Secretary H umphrey. That will all tend to level out, and interest
is relatively so small a part of the total, as I pointed out, that the:
difference if you can save $50 in the cost of the lumber and it costs
FINANCIAL CONDITION OF T H E UNITED STATES
343
you $3 or $2 in the cost of the interest to do it, why, I think it is well
worthwhile.
Senator L ong . Is it desirable that we reduce the number of houses
built? And if I understand correctly, you say to reduce the demand
for his lumber you have got to cut back on housing construction, have
you not?
Secretary H umphrey . That is right, that is what is happening.
Senator L ong . D o you think that that is desirable, to cut down on
housing construction?
Secretary H umphrey . I do. I thinl: it is far better to have more
houses available at reasonable prices than to have the price go through
the roof so nobody can buy a house.
Senator L ong. D o you have any indication to tell us that houses
are costing less because less of them are being constructed?
Secretary H umphrey . I think they are costing less than they would
have cost if you just let it go, yes, sir. I think if you let all of the
demand for housing come on, I think you will further push up the
price of the house and the price of the housing will go up much faster
than the price of the interest. So you will be way ahead as compared
to the price of the house and the price of the interest.
Senator L ong . Do you feel, with a decrease in housing starts, with
the housing industry starting 21 percent less than it did a short time
ago, that an increase in housing starts would be inflationary?
Secretary H umphrey . What do you mean, what increase?
Senator L ong . I mean according to your statement here, your
housing starts are down about 21 percent over what they were a short
time ago.
Secretary H umphrey . D o you mean if we were building 1,500,000
houses instead of a million? If we were building 1,500,000 houses
this year instead of a million?
Senator L ong. I think it is 900,000 as against 1.3 million some time
ago, and that would be about 21 percent, less than the figures to
which you had previously referred.
Secretary H umphrey . That is right. If we were trying to build 3.3
million houses right now, as well as the other things we are doing in
this country today, I think it would be very inflationary. It would
be another thing to add to the inflation, and it would add to the cost
of your house.
Senator L ong . Suppose we do not go that far in one step. We
are 21 percent below what we were doing a few years ago in terms of
housing. Suppose we took up half of that slack, and increased housing
starts by about 10 percent, and that lower interest charges were part
of that picture. Would you regard it as being inflationary that we
just went and moved 10 percent back up toward what we were achiev
ing some time ago?
Secretary H umphrey . Nobody can tell you, Senator, which straw
it is that breaks the camel's back. You can keep putting a straw on
at a time until finally the back breaks and nobody can tell you which
straw it was, whether it was the first one or the last one. So that I
cannot tell you at exactly what point—and you cannot, either, and
nobody can—at exactly what point you get this added pressure. But
I am sure, very sure, that if you attempt to, if you want to illustrate it,
if you attempt to double or if you attempt to increase by 50 percent
the amount of housing that we are building, you would increase the
cost of houses, and you would increase them very substantially.
344
FINANCIAL CONDITION OF THE UNITED STATES
Senator L ong. Y ou say if I attempted to increase double or by
50 percent, but if we increased by only 10 percent the number of
housing starts, and mind you, we would still be far below the capacity
to which you referred-----Secretary H u m p h r e y . Well, I cannot tell you, Senator.
Senator L ong. Would that be inflationary?
Secretary Humphrey. I cannot tell you which straw breaks the
earners back. If we went back to w
@FedFRASER