many decades of better times. The manly and profitable thing is simply to accept this fact and take some constructive action.

The first step is to appoint a thoroughly representative unpaid Debt Commission of the highest quality. It should take in all of our groups and would have the responsibility of formulating for Congress a comprehensive and dynamic scheme.

Suggestion I:

(a) This Commission would plan a typical American door-to-door campaign the objects of which would be:

I. To get as much of the debt into the public's hands as possible and keep it there.

II. To get as much surrendered for cancellation as possible.

(b) To achieve I, the interest rate should be raised to 3, 4, or 5 percent. Bonds issued to individuals and private corporations other than banks and insurance companies should be only transferable to individuals or such corporations or the government and have long maturity.

The federal government as a matter of policy should minimize the holding of its own securities. State governments could have referendums authorizing the surrender of bonds for cancellation or the states could sell the new bonds for cash.

Persons and corporations owning bank deposits should be invited to take part of their deposits in the new bonds.

Persons having immediate cash rights against insurance companies, the same. Dividends and cash distributions could be made payable in part in the new bonds, especially unusual distributions.

(c) To achieve II, and after all practical steps have been taken to get the bonds in private direct-owning hands, a campaign would be put on to

(1) Solicit contributions of bonds for cancellation, thus reducing the debt so much.

(2) Annual campaigns to repeat the performance.

(d) Seek partial payment of all federal taxes in bonds other than those already used for this purpose and cancel them. This might be a fixed percentage, definitely allocable to that purpose. The advantage of this would be the adoption of a policy so that we could look ahead to a steady cutback.

Suggestion II:

(a) A campaign by the Debt Commission to secure a maximum voluntary conversion into non-interest-bearing bonds; an undertaking by the government to redeem a percentage each year equivalent in dollars to the interest saved plus a fixed amount from taxes, the latter made available through a drastic curtailment of federal expenses, undertaken as a part of the campaign.

(b) The campaign could also include voluntary surrenders for cancellation. Suggestion III:

The Congress could adopt the suggestions on political decentralization hereafter set out and, by collecting even a reduced volume of taxes, make rapid progress on the payment of the debt in the ordinary, orthodox manner.

The foregoing ideas are designed to stimulate national thinking and interest leading to prompt action.

I submit that the American people owe it to the 13 milion men and women who went to war to save their country to now put their backs into creating a condition in America for these men and women to live in which will in a measure requite their sacrifices. In fact, the veterans themselves could take on this campaign.

To pay (2) the expenses of the armed forces and veterans, I suggest another straight levy of the same character as stated under (1) above, based on presidential recommendations and supported by testimony before Congress.

To pay (3) the ordinary expenses of government and the amounts we can afford under budgets (4) and (5), additional taxes should be levied according to the recommendations of the Department of Economics.

In the handling of each of these five budgets, the Treasury operations would be limited to collecting and disbursing the levy. A national tax policy involves so many people and so many factors that it is a job entirely apart from the collection and disbursing of funds and should be formulated basically by the Department of Economics.

Concrete and specific points might well be borne in mind in determining sources of funds and amounts that might be available in the form of taxes without unduly undermining individual incentive. The following are important:

Have no income taxes on income less than $5,000 other than to support budgets (1) and (2) and possibly (5)—because about everything one buys is already loaded with taxes so that each person now actually uses a part of his cash to pay someone else's tax; because there are and probably will be excise or sales taxes to swallow up some more of the average family income; and because every man should be able to save a real part of his earnings, buy a home or a farm, enjoy life, and provide for the years after he retires. I have seen it stated that for a dollar of income to a Connecticut resident in 1945, 40 cents was absorbed by a direct tax burden of one form or another. I have been informed that the salary of a full professor at Yale University, in spite of a substantial dollar increase, has less net buying power than it did 35 years ago.

Levy no progressive taxes or surtaxes on income over $5,000. Surtaxes are unjust, unscientific, and benumbing. I emphatically deny that Congress should have the right to fix arbitrarily any surtax rate it sees fit in the absence of some acceptable standard. The success of the Western Tax Council, located in Chicago, indicates that there is a great body of people who share this view. The Council is sponsoring an amendment to the Federal Constitution to repeal the sixteenth amendment (authorizing income taxes) and to forbid Congress to tax incomes, inheritances, or gifts more than 25 percent, except in time of war.

Have no excess-profits taxes on corporations. This tax is unscientific and almost impossible to administer. By preventing the owners from plowing money back into the business, this tax very effectively hamstrings the new and competent company that we must look to for increasing employment. This tax nourishes and fosters unfair competition between new concerns and the big old companies with stable income. It has been repealed as of 1946 and it should remain so.

Section 102 of the Internal Revenue Code should be repealed or revised, for by penalizing companies for not distributing what the Treasury thinks is a sufficient part of their earnings it is very unfair to small companies that are privately owned. There are millions of these small companies and we want more and more. As it is, prudent, far-seeing managers who retain reserves for bad times or expansions are faced with excessive punishment. I also recommend that a straight exemption on corporate income up to $50,000 would stimulate the growth and stability of smal decentralized business.

No tax should be levied on corporate dividends. This type of tax is discriminating and unjust. However the problem of double taxation on corporate income is reached, more than one tax offends our basic principle. Relief from this tax will be effective in augmenting buying power and employment.

By putting into effect the above suggestions, which are but examples, great buying power could almost certainly be developed without cost to government or taxpayer. We shall spend our own money our own way, and as this will result in developing a maximum demand for the greatest variety of goods, it is sure to produce expanding employment.

There is, in addition to the foregoing, an imperative need for a joint commission representing the states and the federal authority to at once study the entire field of taxation with a view to delimiting in a general way suitable types of levies for the former and for the latter, for the purpose of eliminating conflicts. Success here will reduce the present harassment of the citizens and should tend to reduce materially the over-all tax burden.2

Mr. HEWES. The essence of lower taxation, of course, is political decentralization. That is where it comes in. Getting back to this free market, the next thing that is vitally important-and I have touched on it is financial aid. I do not believe that the United States Government should go into the matter of loaning risk capital, and I do not believe that the State of Connecticut should go into the matter of loaning risk capital. We are a self-reliant people in this

2 See Appendix V for a cogent analysis of the present situation, with recommendations prepared by a friend, Dr. Henry L. Shepherd, Ph. D., formerly Assistant to the Director of Research and Statistics, United States Department of the Treasury, and author of The Moneary Experience of Belgium, 1914–1936.

country. The question is how to create risk-capital pools without looking to the Government, and I have tried in this book, I have written a statute which any State could adopt, which provides for the rising of risk capital for new enterprises, and it has been up in the Connecticut Legislature twice.

So, in substance, the financial needs of small businesses are very important, and I don't think it is the business of the Federal Government to supply it.

The next thing and I am pretty near through, gentlemen. I appreciate your patience.

Mr. BALLINGER. I could ask one question here. Is it your feeling that the function of lending risk capital is being passed on to the Government? I mean in recent years.

Mr. HEWES. There is a lot of agitation for it, and, of course, the Government has gone into the risk capital business, and I don't think it should. I think the risk capital business is a private show, and it is so easy to put the hand out and try to get Uncle Sam to do something, and I personally am opposed to it.

The next point that I would like to make, briefly, is that for a man to enjoy the fruits of his labor in the small-business world, no matter who he is, we should have sound money in this country, because a man is building up an estate for himself or his family, and the constant wearing down of the buying power of the American dollar, which is exactly the same as has happened in every country in the world-we cannot escape from it unless we mend our ways-is a real detriment to the encouragement of private enterprise in this country, and I feel so strongly that we should go back on the gold standard. If that is not the best standard, some better standard, so that a small business conserving its assets, frugally running its business, shall have the buying power 10 years from now that it thinks it will have to meet the pay roll.

I know of a company that we represent, spent its entire surplus in 1932 and 1933 paying its employees, and they never let a soul go. They had the buying power saved up. If that buying power had only purchased about a third of what it did then, the people who were taken care of by that business would have been out of luck.

Another thing that I think we should have for a small business is equal access to foreign markets as well as domestic markets for the buying and selling of their products. That is an American tradition. It does not exist today, and I think it should exist.

So, I will just discontinue my testimony. I would like to say one more thing. I think I have indicated how I feel this committee can do really constructive things. They are drastic, but they are dynamic, and the time, in my opinion, for compromising and all of that is over with. If we are going to restore the small independent enterprise in this country, we have to do realistic things, and I think our efforts would be more successful if we dealt with the things that affect the life of the small enterpriser.

I would like to say one other thing, and then I will cease. Mr. Ballinger and I had some conversation on the phone about big business, and I am sure you had the pleasure of listening to my friend Ted Quinn out in South Bend, who wrote a book, I Quit Monster Business. The problem-Mr. Ballinger discusses at great length in his bookthe problem of the immoral, impractical, unethical, destructive influ

ence of monster business on the small enterpriser, cannot be overemphasized.

We have a client who is engaged in the fabrication of a particular metal, and he sells a very small part of the sum total of metal, fabricated metal, of that kind, and he buys the raw material from one or two companies that dominate the industry. This particular company, I know, because I am a director of it, does not dare alter its price rates because of the possibility of being shut off from the supply of raw material, so in the realm of what I call monster business and monster unionism and monster agriculture, the things that hurt us when we want to have a business of our own, I was very much interested to find Mr. Ballinger had arrived at exactly the same conclusion I have arrived at without my ever seeing his book. We have on the books a statute which is called, I think, Public Utility Holding Company Act, and it was enacted back in 1933 or 1934 or 1935, and that undertook to put the ring in the nose of the bulls that were in the public utility holding business. It did not destroy anything.

It brought about the distintegration of these companies and the restoration of their operating units to the people that owned them. In this so-called proposed congressional resolution, which I would like also to leave, I have tried to reorient peoples' thinking back to liberty instead of collectivism. In it, I have expressed the belief, as Mr. Ballinger does, that a simple statute along the lines of the Public Utility Holding Company Act which would undertake to eliminate from the life of the small business, the independent businesses in this country, the undue pressures of business and labor, would be a practical way of enforcing the free market.

The Sherman Antitrust Act, as I said in the beginning, is wholly inadequate. The Federal Trade Commission Act is not adequate because none of those acts deal with monsterism, and monsterism is not illegal in this country today, and yet it is the vice that is killing us off. I believe if this committee would consider as one of the sections in this proposed statute establishing the free market, Mr. Ballinger's own suggestion of attempting to define types of activities which were in support of equality of opportunity and types of activities which were in derogation of equality of opportunity, in analogy to the Public Utilities Holding Act, it would be a marvelous contribution which you gentlemen can make to our political liberty, because I agree with Mr. Ballinger, and I am sure you are of the same mind, that unless there are enough economically independent Americans, you cannot possibly have political freedom. It just goes by the board.

So I am delighted that you were kind enough to let me come down here and make my contribution to this thinking.

Mr. RIEHLMAN. Are there any questions?

Thank you very much, Mr. Hewes. We appreciate your coming down.

Mr. BALLINGER. Mr. Morris Ernst. Mr. Ernst is a very distinguished lawyer. I have known him ever since I have been in Government, 15 years. He is one of the most public spirited men I know. He is interested in public questions, particularly antitrust. He is also regarded in many circles as the heir to the Brandeis mantle because of his consistent and forthright criticism of bigness in business. In

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fact, he wrote a book called Too Big, which was a best seller and very widely read.

It is a great pleasure to present him to the committee.

Mr. RIEHLMAN. You may proceed.

STATEMENT OF MORRIS ERNST, NEW YORK CITY, N. Y.

Mr. ERNST. I am a "country lawyer" in New York City. I happen to be able to make a living, out of a segment of the 500,000 small businesses as distinguished from the 400 companies that own half of the resources of our Nation.

Mr. PATMAN. Say that again: 500,000?

Mr. ERNST. Five hundred thousand free enterprises in America; there are about that many, as distinguished from 400 that control onehalf of the resources of the United States. That is, corporations.

There are no personal devils in this situation. I happen to be a good drinking friend of many of the giants that head these empires. I imagine that most human beings, if they were in position of dominating an empire, would want to get still bigger, and I don't believe this is a political question at all.

I think this committee, dominated by Republicans, could really electrify the Nation as to the danger of bigness, if it would undo some of the harm which was committed, in my opinion. by the candidate on the Republican ticket in the recent election with respect to the survival of free enterprise in America.

May I say this, that there are two things involved: One is the spirit of man, and the other is dollars. I want to tell a story on each. I took the head of one of the big chains in to see Judge Brandeis while he was on the bench. The man was worried about the Supreme Court's activity on the chain tax legislation which, in effect, was an attempt to curb absentee ownership. The judge looked at him and said, “You have got about 90,000 employees. You have got about 16,000 stores; and you won't allow a single one of your managers, will you, to buy a loaf of bread or a can of peas except on direction from you in New York City?"

And the head of that chain said honestly, "Of course, I won't." And the judge said, "Do you see what you are doing? You are developing a race of robots. You are boiler plating the mind of the Nation, and the only wealth of society is the development of individual ingenuity, and it can't be allocated to a handful of people." And the judge went on and said, "I suppose if you went and opened a store of your own opposite any one of your chain stores, in 60 days you could compete the chain store out of business."

And this great merchant, very interesting person, forgetting his mission for a split second, said, "I could put him out of business in 10 days." That was the judge's point, that, "What you have done in effect," he said to this man, "is throttled the ingenuity of the little men of America."

The other story-I have permission to use the name-I give a party every year to my favorite Tory of the season, and one year I picked Wendell Willkie who was a great friend of mine. And at a party with Leon Henderson and Rex Tugwell, George Roberts (Willkie's attorneys, Stimpson's partner) Wendell wanted to get John Lewis there. He had never met him. I started to pick on Wendell Willkie, and I