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Senator HATFIELD. How much would you increase the present circulation ?

Mr. LEMKE. I should say it should not be less than $75 per capita to make banking in America safe.

Senator HATFIELD. Would that increase it?

Mr. LEMKE. That would make the increase to about seven or eight billion dollars.

Senator HATFIELD. That is, it would be increased to that point?

Mr. LEMKE. Yes. Of course, then taking out of that the amount in foreign countries, it would be increased, I believe, to about six billion.

Senator HATFIELD. That would be an additional two billion? Mr. LEMKE. Yes. Senator HATFIELD. Is that correct? Mr. LEMKE. Yes; that is correct. Now, then, section 4: The Federal Farm Loan Board is further authorized and directed to liquidate, refinance, and take up chattel mortgages and other farm indebtedness, existing at the date that this act takes effect, by making loans at the rate of 3 per centum interest per annum, secured by first mortgages on livestock used for breeding or agricultural purposes, to an amount equal to 65 per centum of the fair market value thereof, such loans to run for a period of one year, with right of renewal from year to year for a term of ten years: Provided, That any depreciation in the value of such livestock is replaced by additional livestock used for breeding or agricultural purposes, and the amount of the loan is reduced 10 per centum each year.

That proviso was suggested to me by a former president of the North Dakota Banking Association.

Senator HATFIELD. Just what will that do? You have read section 4.

Mr. LEMKE. If the mortgage indebtedness is more than the land is worth and this fellow has some livestock and he needs more to get that mortgage refinance, then he can place an additional mortgage on the livestock, but not otherwise, and that draws 3 per cent interest in place of 112, and he must reduce that indebtedness 10 per cent each year.

Senator HATFIELD. And how long to run?
Mr. LEMKE. Ten years. But he reduces it 10 per cent each year.
Senator HATFIELD. I see.
Mr. LEMKE. Then section 5:

The funds with which to liquidate, refinance, and take up existing farm mortgages and other farm indebtedness shall be provided by the issuing of farm-loan bonds by the Federal farm loan system, through the Federal Farm Loan Board and Federal land banks, as now provided by law, which bonds shall bear interest at the rate of 172 per centum per annum, if secured by mortgages on farms, and 3 per centum per annum if secured by chattel mortgages on livestock used for breeding or agricultural purposes. These bonds, after delivery to the Federal Farm Loan Board, may, by it, be sold at par to any individual or corporation or to any State, National, or Federal reserve bank, domestic or foreign, to the trustees of the Postal Savings Depository System or to the Treasurer of the United States. And it shall be the duty of the Federal reserve banks to invest their available surplus and net profits, after the dividends are paid to their stockholders

Which is 6 per cent by lawin such farm-loan bonds. Such profits to include the franchise tax now paid to the United States Government.

Senator HATFIELD. Now, what do you expect to accomplish by that section-just what it says?

Mr. LEMKE. Not entirely. After we have issued some of these reserve notes I am satisfied that some of these banks will buy the bonds. That is when we have enough money to do business. They have not enough money to pay for marriage licenses in some of these States, but when we get enough money to do business these banks will take some of the bonds, especially the local banks in rural communities.

Now, then, as far as the franchise tax, I am not informed how much that amounts to, but I think it amounts to considerable.

Senator HATFIELD. You feel that these bonds ought to be a very much better secondary reserve than some of these foreign bonds that the banks are using at the present time?

Mr. LEMKE. I certainly do, and even better than 40 per cent gold, because I can live on a farm but I can not live on gold.

Senator HATFIELD. I agree with you. Mr. LEMKE. Now, then, section 6: The trustees of the Postal Savings Depository System are authorized and directed to invest at least 40 per centum of the postal savings in such farmloan bonds, and all limitations upon the amount that may be deposited in the postal savings depositories are hereby removed. And such farm-loan bonds may be exchanged and delivered to depositors for their deposits in postal savings depositories as is now provided by law for investments of savings funds in bonds.

Now, the only change from the existing law is the requiring of 40 per cent to be invested in these bonds and removing all limitations from the amount that you may deposit in the postal-savings bank, and if there is any objection to that I am sure we will not insist too strenuously on leaving that in the bill. But there is an apparent demand that these restrictions be removed from the smaller investors, and so forth, and we thought it would be just as well to put it in here, at least we feel that there can be no objection that 40 per cent should be loaned on these

Senator FRAZIFR. What is the rate of interest paid in the postal savings now?

Mr. LEMNE. I think the banks pay 2 per cent.
Senator FRAZIER. But to the individual I mean.

Mr. LEMKE. The individual, I am not certain. I think it is, or is it 2 per cent? Does anybody know! ? Mr. C. C. TALBOTT. Two and one-half

per cent.
Senator HATFIELD. Paid the individual?
Mr. LEMKE. No; I think 2 per cent is what the bank pays.
Senator FRAZIER. Two per cent.

Mr. LEMKE. Two per cent is all that the depositor gets, I am sure of that. And they sell bonds at 2 per cent. These investment bonds are 2 per cent.

Senator FRAZIER. The question has been raised, if they pay the individual 2 per cent on the money, how can they buy these bonds?

Mr. LEMKE. Well, that will have to come down, perhaps, and to the extent that that question comes up, it is not so important to us, and if it becomes a serious question, we are willing to drop it, but I will say that the postal savings department is an agency of this Government, and if we can feed these millions of people that go to bed hungry every night, I do not see why an agency of the Government should be too insistent about getting a half per cent more or less interest, and since the banks claim there is too much money going into the post office now, that may remedy that particular phase of it. So I can see no real reason to object to it.

And I may state again that as a Government agency the post office should not attempt to make money out of misery, nor should the depositors of any Government agency.

Senator HATFIELD. And there should not be any opposition to it?
Mr. LEMKE. No; there should not.
Section 7:
In case all of said farm loan bonds are not readily purchased-

Now, this is the important section that I wish to call the committee's attention to

In case all of said farm loan bonds are not readily purchased, then the Federal Farm Loan Board shall present the remainder to the Federal Reserve Board, and the Federal Reserve Board shall forthwith issue and deliver to the Federal Farm Loan Board Federal reserve notes, as now provided by law, to an amount equal to the par value of such bonds as are presented to it. Such farm loan bonds to be held by the Federal Reserve Board as security in lieu of any other security or reserve.

That section simply means this, that in the beginning these bonds will be taken to the Federal reserve bank, and if the Federal reserve bank has not got Federal reserve notes enough Uncle Sam will give them those notes at 11/2 per cent interest. This time it is interest and Uncle Sam is going to get the interest and not the Federal reserve bank.

Now, certainly there can be nothing wrong about that. The United States will be given the benefit of 11/2 per cent interest and it was just brought out that all he gets now is the cost of printing.

I will say that 142 per cent, by the time this amortization plan is carried out and by the time one of them is paid off, Uncle Sam will have gotten $400 interest. I have looked that up. So, Uncle Sam, out of every $1,000 that is loaned when it is paid off, will have made a net profit of $400 at 112 per cent interest.

Mr. C. c. TALBOTT. You are going to put him in the banking business?

Mr. LEMKE. I am going to put him in the banking business, because it is the easiest business to make any money out of now, provided it is possible to make any money out of any business.

Senator NYE. Is that contrary to the spirit of the Constitution in any respect ?

Mr. LEMKE. No. The Constitution says the United States Government shall coin and fix the value of money, and here he is doing it. But this is the section which we consider the most important in this bill.

Then section 8.

Senator NyE. Mr. Lemke, this section in particular, that you have just read and discussed, that would end once and for all time, would it not, the dependency of the Federal land banks upon the bond buyers who have been for the most part in late years the eastern bankers who were in possession of the money?

Mr. LEMKE. Yes; it would end that for all time, and it would make our Government when pictured as Uncle Sam, a real uncle to 30,000,000 people in this Nation, and to 30,000,000 more who depend upon the farmers indirectly for support.

Senator NYE. And if that can be accomplished, then the Government becomes the dictator once again of the policies of the Federal land bank?

Mr. LEMKE. Absolutely; and the Federal land bank will function as an agency of the Government for the people of this Nation, and this Government, we feel at least, is our Government, and that the responsibility of government is placed upon all our shoulders and not upon a few who are interested in merely getting a financial grip and strangle all mankind, because I can not conceive that situation in which we are in will be tolerated or permitted much longer.

SEC. 8. The Federal Farm Loan Board and the Federal land banks shall turn over all payments of interest and principal on such farm-loan bonds, for which the Federal Reserve Board issues Federal reserve notes, to the Treasurer of the United States

You see, he gets his interest directand shall be by him kept and reinvested as a sinking fund in municipal or State bonds and in bonds of the United States Government, bearing interest at the rate of at least 3 per cent per annum.

Now then, if Uncle Sam wants to borrow money let him borrow his own money. He gets the interest back again. These payments are made to the Treasurer and he keeps this money and keeps it in circulation. We have provided in this bill, which is just as important, for putting this money into circulation provisions so that it can not again be deflated in the way it was done.

Nine-nine is a very important paragraph. [Reading:] Whenever the amount of money actually in circulation in the United States shall exceed $75 per capita, then the Treasurer of the United States, by and with the advice and consent of the Federal Reserve Board and the President of the United States, may retire Federal reserve notes in an amount equal to the principal paid on farm-loan bonds, for which Federal reserve notes were issued, not to exceed 2 per cent in any one year, of the amount of Federal reserve notes so issued.

In other words, we put a limitation where it can only be deflated 2 per cent and it can not again be deflated behind closed doors. They never would have gotten away with it the way they did the last time if the President of the United States and the Treasurer and the public had known about it and would have had to give their consent.

Senator McGILL. Why did you fix the figure at 2 per cent?

Mr. LEMKE. I would say that you can take 2 per cent out of circulation at one time without a jar. John Skelton Williams advised the Federal Reserve Board at the time it started deflation that it should deflate 5 per cent a year and spread it over a period of 20 years. So we feel that 2 per cent in one year is enough, but if there is any reason why it is not, it is easily changed.

Senator MCGILL. I was just curious to know.

Mr. LEMKE. The only reason is that I felt you could take 2 per cent out of circulation without affecting the commercial life of the Nation.

Senator NYE. Mr. Lemke, for the purpose of making that record clear, the contention offered by John Skelton Williams was in May

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of 1920, when that program of deflation was determined upon by the Federal reserve bank?

Mr. LEMKE. Yes. And at that time he told the Federal reserve banks that they would be responsible for suicides, murders, and the wrecking of the prosperity of the Nation; that they were pricking a balloon and getting it down, when what they should use was ballast and land it carefully and quietly. The warning was there, but no attention was paid to it.

Senator McGill. You said that the circulation maintained per capita should be at least $75. I am wondering just how you arrived at that figure.

Mr. LEMKE. I arrived at that figure in consultation and working on a similar bill with Senator Ladd and T. Cushing Daniels and John Skelton Williams, and they felt at that time, right at the close of the war, that $75 per capita circulation was necessary to maintain our standard of living and the prosperity and activity of the United States of America.. Senator HATFIELD. What has been the highest per capita ?

Mr. LEMKE. $53.01. But even at that time you Senators will remember that we had been kiting checks. The question is, can these checks run fast enough to meet their obligations each day without being caught?

Now, the only reason for having less is, if you and I were in the banking business we would want less because we could then charge interest on money we did not have.

Senator McGILL. I assume you figure $75 per capita is necessary to transact the business of the country.

Mr. LEMKE. Transact the business of this Nation.

Senator McGILL. I was just curious as to ascertain whether from any scientific method you had arrived at that figure.

Mr. LEMKE. I arrived at that from T. Cushing Daniels, who used it, by the way, in the Ladd bill that was introduced at that time and pigeonholed.

Senator McGILL. You do not happen to know just how they arrived at that?

Mr. LEMKE. He was our Assistant Comptroller of the United States Treasury with John Skelton Williams as Comptroller, and I do not know just what method they used to arrive at it, but they arrived at that amount, and I would say that some of the economists that have been referred to here, I believe, will agree with me that that is about the right amount.

Senator HATFIELD. Well, if they decided at that time that we should have $75 per person, we have had an increase in the population of this country to what extent, would you say?

Mr. LEMKE. I would say about to the extent of 10,000,000.
Senator HATFIELD. I think you are right.

Mr. LEMKE. Of course, if you wish to make that seventy, we would not fight very hard with you on that either.

Senator MCGILL. That is not the point. I was rather trying to ascertain how you arrived at that figure.

Mr. LEMKE. That is how I arrived at it.

Senator HATFIELD. Of course, all we have is information as to this bill, where he gets that, but we are trying to get your slant.

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