very powerful means by which you could put into effect subsidy programs for the service of business for which your funds are expended irrevocably. That distinction between lending and the ordinary expenditures by the departments is a basic one and, in my opinion, it would be a perversion to use the power of the RFC for that purpose. It already has done some of that, I think. The criticism that I have made is simply an effort to help the RFC. Over-all it has done a very good job and has been administered very well, but every now and then, just like any other agency, it may make mistakes and we hope to be able to prevent them. I cannot get away at all from the idea that this could be used for the promotion of these programs in the same way that you use your existing appropriations, which is directly and fundamentally different from the basic purposes of a lending operation. You mentioned the coordination. You say:

It is most undesirable that variance should be tolerated between the general policies underlying the operation of the Corporation and those which underlie the broader Government operations of which they are a part.

If you pursue that thought, I think it is not your policies with which it varies. It might be the policies of the Federal Reserve System. If there is any agency which is closely associated with the activities of RFC, it would be that associated with credit because it is a credit and lending agency. It is truly that and not a subsidy or service agency. If it was going to be transferred because of that reason that you give, because of variance in basic policies, I would say that that would result in its going to the Federal Reserve, which has been given the power of determining our credit policy. I am not recommending that it go to Federal Reserve. I think it is better where it is-although in going to Federal Reserve it would retain more nearly its present character because Federal Reserve itself is an independent agency which is closely identified with the Congress rather than with the President. These are matters of degree, but there is a great difference between the status of a member of the Federal Reserve Board and yourself. Those members are independent, they also are for a definite long term, and if they disagree with the President they do not automatically resign. We have had the recent example of the former Chairman. I think that is a good thing. It goes back to your whole philosophy of government, the division of power. The Federal Reserve, therefore, is a separate and independent agency with some degree of independence from domination by the current political majority and the President.

The CHAIRMAN. May I suggest, according to the Secretary's interpretation of this plan, he actually has no power. He can only recommend and suggest. The Board would still be independent and could do what it wishes.

Senator FULBRIGHT. I think he is taking a very technical and legalistic approach. As a practical matter I believe they would follow For what other purpose is it done?

you.

Secretary SAWYER. They might be inclined to, as I said. Senator FULBRIGHT. I should say they very likely would be inclined to. To sum that up, I think this sort of thing, as with other reorganization plans, is fundamentally a slight move toward the destruction of our traditional system of checks and balances. It gets more away from the check of the legislative branch over the executive branch and

concentrates in the executive branch. That is the world-wide trend. It may be inevitable. I simply am not willing to make a contribution to it because I think the real essence of our Government, the unique part, has been the separation and division of powers among the three branches. That is why I am fundamentally opposed to this plan.

Secretary SAWYER. You said, Senator, if I may say one word more, Mr. Chairman, that you regarded this as a slight contribution to the destruction of the system of checks and balances. It seems to me it is a slight contribution to the destruction of the confusion which exists or has existed in Government agencies. It may represent a slight philosophical difference between you and me, but I cannot believe that in the long run there are many benefits to come from confusion and lack of control and authority. The theory of checks and balances as between the legislative and the judicial and the executive departments does not seem to me frankly to apply to the situation at all.

Senator FULBRIGHT. I should like to comment that I think it is true that confusion, a certain degree of confusion and inefficiency is characteristic and inherent in division of power. To be perfectly logical about it and to avoid all confusion, the easiest way is to give all power, complete and final, to the President, just as it is now in the Politburo. I imagine in the carrying out of their policies there is less confusion in Russia than in any other form of government. I agree with you that it does in a sense create and result in some confusion. I happen to think that is a small price to pay for the retention of the distribution of power and the division of power. I think there is fundamentally a difference between us. To be really efficient and to have no confusion we ought to turn all the power over to the Executive.

Secretary SAWYER. Please don't force me quite to the logical length that you have just indicated.

Senator FULBRIGHT. It is logical if you carry it out. That is the logical conclusion.

Secretary SAWYER. Under no circumstances will I accept the position of defending the Politburo, as you have said.

I would like to say one more thing if I may, Mr. Chairman, with reference to the Senator's statement about the areas in distress. As I think you know, I made a fairly extensive trip throughout the country last summer and fall looking into questions of employment, and so forth. For instance, when I was in New England where I listened to the governors and others talk about their problems, I received information which it seems to me might very well be usable in connection with a general loan policy. In other words, I think the information my Department gets, continues to get, with reference to areas that are in trouble might well be the basis for information to RFC in connection with its loans. That would not mean, of course, that any particular loan would be either demanded or perhaps even suggested by the Secretary of Commerce to the Board, but they were getting, I understood some months ago, at the rate of about 1,400 applications for loans per month. That was 2 or 3 months ago when their representatives met with me. I don't know what the rate is today. It does seem to me—and I don't want to prolong the discussion on a point that has been pretty well covered-that there is a perfectly logical and sensible correlation of effort there which would be brought about or which at least would be very much accelerated by the plan which is suggested.

I thank you very much, Mr. Chairman.

Senator FULBRIGHT. Mr. Chairman, he has raised a point which the committee is well informed about. We had that very question under discussion at length last year and this year again. There is an outstanding example of what you say, and that is the Waltham Watch Co. loan. It is my view that that is an example of the misuse of the lending power. You have other means to deal with unemployment. I think one of the principal reasons they went astray there was the urging by the executive to make that loan, and the principal reason was to prevent unemployment. The result has been disastrous to both the lender and borrower.

Secretary SAWYER. That is an argument against the present situation, not against what would be accomplished under the reorganization plan.

Senator FULBRIGHT. It is an example of what should not be done; and, if I understand you, it is what you propose to do on a bigger scale. Secretary SAWYER. On the contrary, I think perhaps I shouldn't say certainly-but perhaps, if this plan had been in effect, that loan wouldn't have been made exactly as it was.

Senator FULBRIGHT. Then I completely misunderstood the significance of your remark.

Secretary SAWYER. You certainly did if that is your conclusion. Senator FULBRIGHT. I thought you indicated it was a field in which we ought to use this power to grant loans. I completely misunderstood you.

Secretary SAWYER. I did not mean to suggest that we would assist. the RFC in granting a loan everytime some business was in trouble in a particular area. I hope I didn't give that impression.

Senator FULBRIGHT. I think that is where the direct use of public funds for the relief of distress is the proper approach, not to disguise a relief program as a lending program. To me there is a great distinction between the two. If we are going to do it, we ought to say frankly, "Here is your money for relief or to prevent unemployment as an expendable amount, not as a loan." That is the difference that I think we do not agree on.

Secretary SAWYER. The real answer, Senator, to the question of public distress or depression is not lending. I agree with you. Nor is it charity. The real answer is to keep business going at a profit all over the country so men can stay at work. That is the thing we try to do in the Department of Commerce.

Senator FULBRIGHT. Absolutely. What I think you ought to do is to be up here recomending that we provide some tax relief to small business. Instead of starting out at 21 percent, we ought to start out at nothing. Lending, I think, is a very erroneous way to solve that problem.

Secretary SAWYER. I suggested that very thing to the President 6 months ago.

Senator FULBRIGHT. I wish you could persuade him to do it instead of using this lending power where it should not be used.

Secretary SAWYER. Thank you very much, Mr. Chairman.
The CHAIRMAN. Thank you, Mr. Secretary.

All right, Mr. McCormick.

STATEMENT OF ROBERT L. L. McCORMICK, RESEARCH DIRECTOR, CITIZENS COMMITTEE FOR THE HOOVER REPORT

Mr. MCCORMICK. My name is Robert L. L. McCormick. I am research director of the Citizens Committee for the Hoover Report. Formerly I was assistant to the Chairman of the Commission on Organization.

Dr. Robert L. Johnson, chairman of the Citizens Committee, appreciates your invitation, Mr. Chairman, to appear here at this hearing and has asked me to represent him. With your permission, I shall read my letter of authorization from Dr. Johnson, as follows:

DEAR BOB: Owing to my prior commitments, will you be so kind as to represent the Citizens Committee, its 45 State committees, and other cooperating organizations at the hearing of the Senate Committee on Expenditures in the Executive Departments on reorganization plans relating to the Reconstruction Finance Corporation.

The place of the Reconstruction Finance Corporation, historically the largest of the Government corporations, and its subsidiaries in the Government structure is an important problem in any scheme for reorganization on a more efficient basis. The Commission on Organization of the Executive Branch of the Government gave considerable attention to this problem in its report on Federal business enterprises. The three reorganization plans under consideration which have to do with this Corporation are in part in harmony with the Commission's recommendations and in part at variance with them.

Your elaboration of the recommendations and the factors activating the Commission in making them should be helpful to the Senate committee in its task of passing upon the pending plans.

Sincerely yours,

ROBERT L. JOHNSON.

I shall address myself to plans Nos. 22, 23, and 24, all relating to the Reconstruction Finance Corporation.

Plan No. 22, which transfers the RFC subsidiary, the Federal National Mortgage Association and its functions to the Housing and Home Finance Agency, is in direct conformance with recommendation No. 11 of the Hoover Commission in its report on Federal business enterprises.

The CHAIRMAN. Mr. McCormick, I may suggest that the committee does not have before it a resolution of disapproval of plans 22 and 23. They have not been introduced as yet. This hearing is primarily on plan 24. However, there is no objection to your making references to the others if you wish to do so. I did not know whether you were of the opinion, possibly, that there was objection to plans 22 and 23; in other words, that those plans were before us under a resolution of disapproval. None has been introduced. I do not know whether a resolution against those will be introduced or not. It is perfectly all right for you to express your views on them.

Mr. MCCORMICK. Why don't I omit these sections, Mr. Chairman? I was attempting to be forehanded, but I guess I was a little too forearmed.

The CHAIRMAN. It is perfectly all right to let them go in the record. I just mentioned that. Of course, if a resolution should be introduced on both plans or on either of them, we will have the benefit of whatever your comments are about them.

Mr. McCORMICK. Then I will go on directly to plan 24.

Reorganization Plan No. 24, for the transfer of the Reconstruction Finance Corporation, exclusive of activities already referred

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to, to the Department of Commerce, and its supervision by the Secretary of Commerce, is directly counter to the pertinent recommendation of the Hoover Commission.

Certain of the issues here also may be broader than those relating to efficient organization. For example, the Hoover Commission chose to take a stand on the important legislative issue of direct loans. Its decision as to the proper place of RFC in the Government structure may have been influenced by its attitude on that issue.

However, it is important to realize that transfer of the now independent RFC to one of the Government departments or major agencies is consistent wtih a basic recommendation of the Hoover Commission for reduction in the number of agencies reporting directly to the President.

In its report on the Treasury Department, the Hoover Commission pointed out that the Reconstruction Finance Corporation, the ExportImport Bank, and the Federal Deposit Insurance Corporation are independent agencies reporting directly to the President, that the President cannot give the time necessary for their supervision, and that, practically, they are accountable to nobody.

Recommendation No. 3 in the Treasury Department report was as follows:

We recommend, therefore, that the supervision of the operation of the Reconstruction Finance Corporation, the Federal Deposit Insurance Corporation, and the Export-Import Bank be vested in the Secretary of the Treasury.

This recommendation as to the disposition of the RFC is in conflict with Reorganization Plan No. 24, which provides for transfer to the Department of Commerce instead of the Treasury Department. The Commission's report on the Treasury Department listed among that Department's responsibilities "advice in the conduct of credit institutions, and supervision of certain others," and "the periodic inspection of lending and other agencies in process of liquidation."

The Commission considered it appropriate that the RFC should be assigned to this Department.

A minority of the Commission, taking exception to the majority's criticism of direct loans, recommended that the RFC be transferred to the Department of Commerce, one of whose statutory functions is "to foster, promote, and develop the foreign and domestic commerce." The President's Reorganization Plan No. 24 is in accord with the viewpoint of the minority of the Commission. It may be noted that the President in his special message to Congress on small business on May 5 proposed a broadening of the lending powers of the Reconstruction Finance Corporation as one of a number of new credit aids to be administered in the Department of Commerce.

Perhaps the question here may lie in another problem than the purely organizational one. If the Congress favors liberalization of direct loans by the RFC, rather than curtailment, there is ground for transfer of this agency to the Department of Commerce, which is more concerned with the active promotion of business than is the Treasury Department. Such transfer, under the circumstances, might be considered as in conformity with the Hoover Commission's recommendation No. 12 in the report on general management of the executive branch for a grouping of agencies in departments by major

purposes.