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of money saved has decreased, year after year. It doesn't make any difference why. It is a fact. Out of the gross interest that an individual receives he first must pay a tax, and even in the first bracket, this puts a pretty decent nick into the rate of interest. Out of what is left, if the man is prudent, he should set up a reserve, a reserve to repair the principal value of the savings that he has invested. If we follow Professor Schlicter's idea of a 2 to 3 percent creeping inflation a year, then the average man should save, out of the interest he receives, 2 or 3 percent of that interest after income taxes. Clearly, even in the first income tax bracket a 4-percent interest rate on Federal Government securities offers a man hardly more than a chance to break even.

Actually, he hasn't been able to break even because as long as the Government demonstrates that it is going to continue to issue additional securities, directly or of the type involved here, a weight is going to fall on the bond markets and those securities, if they are other than short term, will continue to decline in price as a general thing. So the chap who invests his money in Government securities that are taxable hasn't had a ghost of a chance of breaking even anywhere along the line.

Now, by investing in municipal securities the individual at least has one chance. He is not going to pay taxes on the interest he receives. That is of some importance. It particularly is important as long as municipalities continue to add to their indebtedness and the Federal Government does the same because interest rates required on both will rise, but at least a portion, the State and municipal portion, of the debt that is created will have a better chance of going into the hands of individuals. If you cause some portion of this tobe-created debt to take the form of taxable, quasi-governmental securities, two things will happen.

First of all, it is unquestionable that you will create more water and sewer and nonprofit hospital facilities. I don't doubt that. But the additional debt creation is apt to be by some municpalities who today are handling their credit with perhaps no more success, shall we say, than the State of Michigan. Individuals are not going to provide a ready market for the securities that will be issued by the Government through its agency.

But a ready buyer will be provided these local governments. So you will get more debt created for the purposes of this bill. The Government will issue more of its obligations. More of its obligations will be going into the banks.

That brings me back to what Marriner Eccles said, “Unfortunately all the economy has to divide are the goods and services it is able to produce.” That includes water, sewers, and hospitals.

I am in favor of the purposes of this bill, and I think the chairman does a service in calling the need to the attention of the Congress, but the Congress has to recognize that if bills such as this are going to be passed, there must be some clear limit on the amount that ultimately will be involved.

Some predetermination of the priority of these needs over others must be made or you will have created a wide open basket. Bills of this kind preferably will not provide for Federal finance, via taxable securities, that are going to end up in the banks in lieu of tax-exempt securities that may end up in the hands of individuals. .


We are in a serious state, as far as national finance goes.

Last week, Government securities, in which we try to make a market, were quoted to yield 444 percent. If we are going to have an increased volume of business activity throughout the balance of this year and next, as I hope, and if we are going to enjoy high levels of economic stability and low employment over the future, you gentlemen know as well as everyone else at we will meet with increased demands for borrowed money, increased demands that debt securities be taken up by insurance companies, savings banks, and commercial banks. The Government cannot compete in such a market. If it tries to do so we are going to see U.S. Government securities sell to yield 5 percent, maybe more.

We are beginning, gentlemen, to play for keeps in the field of Government security finance.

Thank you, sir.

Mr. SPENCE. Mr. Lanston, you agree that probably the greatest basic need for municipal facilities is in the field of water supply and sewage disposal?

Mr. LANSTON. We certainly have a need for water and sewer and hospital facilities.

Mr. SPENCE. You haven't made any investigation as to whether or not the municipalities, particularly the small municipalities, are able to obtain funds for this purpose, have you?

Mr. LANSTON. No, sir; but I think the IBA provided some good statistics on that.

In many cases, as you know, a number of those securities rarely get into the statistical records. They are taken up by the small banks, and that's that.

I really think there is a pretty fair market—at a price, everything has to have a price.

Mr. SPENCE. But the very small cities don't have established credit. Don't you think they have a great deal of difficulty in endeavoring to float their securities?

Mr. LANSTON. Well, it is all relative, Congressman Spence. What is small? If you say under 10,000 population, which I think is in the bill, you still have to be specific.

Frankly, I have been buying some municipals and when I told that to a visiting foreign friend he said, "What, you are buying municipals, despite what you think of the outlook for the currency of your country? I think that is really the funniest thing I ever heard of.”

But I will tell you something, I wouldn't buy any of the small municipals. Do you know why? The rate of return they offer is too low. I would rather buy the big ones. Their rate of return is higher.

Mr. SPENCE. You don't believe that at the present time the Government would be justified in assisting municipalities in obtaining any of the facilities, however necessary?

Mr. LANSTON. I think the facilities are necessary. The question as to whether the Government should assist, is a matter of personal, as well as governmental, philosophy. I am very fond of the chairman and I hate to say that my philosophy runs counter to his in that. I believe that more of us need to stand on our own feet; to look less to all of us in the aggregate—the Government. When we get through, we only have so much we can do for ourselves or for one another.

Mr. SPENCE. I thoroughly agree with that, but I think that some of the smaller municipalities cannot stand on their own feet.

Mr. LANSTON. Right now, the State of Michigan, which is not small, apparently is having some difficulty, so I would question whether it is a matter of size. It is rather a matter of prudence in the handling of their financial affairs.

You know, there are some other things-excuse me, sir.
Mr. SPENCE. Go ahead.

Mr. LANSTON. We need some other things, too. We need highways. Frankly, I would rather have the water and the hospitals than some more turnpikes. But somebody has got to set up some allocation for our needs. We can't afford everything.

According to Business Week, this week's edition, about a billion dollars is going to have to be added to the coffers of the highway trust fund over the short term.

I simply quote them, I don't know whether it is true or not: Congressional sources say: Lawmakers on Capitol Hill are leaning toward bond issues as a way to raise more money for the highway program.

Then there is another need. Here is a curious thing that may amuse you, and I think it is of pertinence in the overall picture. Also in Business Week, the edition of April 25, there is an article headed “The Santa Claus Story." May I read it?

Mr. SPENCE. Yes.
Mr. LANSTON (reading):

A Business Week reporter visiting in Illinois recently stopped to talk with a farmer beside the road, and that is how it happened. At the time the reporter returned, it was with a much better understanding of why the Eisenhower farm program, still inherited from Truman, isn't working out. The conversation went something like this:

“How long have you been here?
“About 8 years.'
“Just how much land do you have?”

“Just over 300 acres. Good land, too. It paid for itself with the first six crops.”

"Where do you market your crops, your wheat and corn? Where do you sell them?”

“I don't sell them. You see those storage bins over there on the other road? I deliver everything I produce right there, and the Government takes over. Fact is, I haven't sold a bushel of anything since I bought the place."

Forgive me for introducing that, but if you wish to find a way wherein, in real cases of need, and there are few, I think, sir, the Federal Government might, with a closely prescribed bill, be justified in advancing the laudable purpose you have in mind-why can't the Congress do something about that sort of farm spending?

Mr. SPENCE. Don't you consider that provision in the bill which provides that the loan shall be made on securities of such sound value or so secured as to reasonably assure retirement or repayment, a desirable provision? Doesn't that have any effect upon your philosophy ?

Mr. LANSTON. I am sure you had it in mind as being a limitation, sir. I wonder, however, whether it would really work. Somebody must give definition to those words, and I think both of us would like to see the definitions before we would really want to pin ourselves down on that.

But nonetheless, one provision of the bill calls presently, I guess, for about a 3-percent overall cost.

Mr. SPENCE. 27.

Mr. LANSTON. 275. Well, that would really make sure that the billion dollars authorized by this bill would be gobbled up very quickly. And then how are you going to defend against the demands of the chap who said, “Well, it took me a little bit more time to get our nonprofit hospital program going”? Are you going to shut him off? Or do we find another bill introduced to enlarge the amount of this authorization?

Mr. SPENCE. Suppose we were to raise the interest rate. Would that be persuasive to you?

Mr. LANSTON. It would not be persuasive to me, sir, because having in mind the relative unattractiveness of holding currency in a country that has demonstrated it is no better able to handle its finances than we have here, I don't believe you would find any buyers other than the banks, in size, for the obligations the Treasury, in effect, would have to issue to get its money back.

Moreover, there is a chance that as the Government tries to borrow itself into ruination, the interest costs on State and municipal new issues will rise further. That, at least, holds the advantage of attracting some of the savings of individuals. And I truly believe we must keep some of this new debt out of the banks.

Mr. SPENCE. Well, there is a very serious condition which prevails in the United States with regard to the pollution of our rivers. I think it has been pretty well demonstrated that unless the smaller cities can obtain adequate sewerage facilities and water supplies, that that condition is going to continue, because they will continue to cast their raw sewage into our rivers.

Don't you think that a public purpose such as that might justify some Federal help to these little towns that can't comply with the program?

Mr. LANSTON. I am sure it is a reasonable approach, sir. I just have difficulty-although I am purely a layman in this aspect to things—I have difficulty figuring out how we would really limit the bill to the real cases of need and keep the others out. I am afraid this bill would not do it. Suppose that, down the line, below the city of Chicago, for example, there are the needs of which you speak, and it becomes desirable to meet them.

Those chaps are quick on the trigger, and there are some others, according to the IBA report, whose "plans already are on the boards and they are ready to go—but what do you do to the chap who came in to you just as that billion dollars is used

Are you going to shut him off? Or do we follow what seems to be the case in Government, namely, produce a second billion dollars? And where do we draw the line after that?

The matter might be less pressing, may I say, sir, if we weren't throwing away $6 billion or $7 billion every year, helping to keep Mr. Garvey out in Kansas City in Cadillacs, and in oil wells.

Incidentally, I saw a figure the other day, attributed to Mr. Stans of the Budget Bureau. Commitments made this year, according to Mr.


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Stans, will involve us in a spending figure of $82.9 billion for next year. So, in these matters we are dealing with more than this year's budget.

One of my friends, who is a very brilliant chap, observed the other day to me, “You know, a great nation, such as ours, cannot maintain its place in the world if it needs a super boom to bring its receipts up to its expenditures."

We are following Lord Keynes' way here. Only we follow him only as it pleases us. We spend money in recessions and we overspend in prosperity. In Great Britain they have discarded the Keynes theory.

The economic adviser to a large London bank was in the other day and we were talking about the brilliant manner in which Great Britain met its currency problems. He said, "You know, the increase in bank rate from 5 to 7 percent was very good medicine, but I have often thought and still believe that the most cogent factor in re-creation of confidence by the people in our government, and in gilt-edged”-as they call their government and other obligations—“was Thornycroft's statement that if it is necessary for us to live with some unemployment to preserve the pound, we will."

He added, “When will any such attitude be evidenced by your Government?

And I told him I didn't know.

Mr. SPENCE. I think your philosophy is sound in that respect, but by the provisions of this bill we could do the same things for our local communities that we have been doing for foreign nations.

Mr. LANSTON. Perhaps we should do neither.

Mr. SPENCE. Much of the money provided to foreign nations is used for the exact purposes that would be authorized under this bill for local communities. Is there any distinction? Do you draw a distinction between those two?

Mr. LANSTON. Yes, but I could only draw this distinction. As I put in one of our weekly letters, it seems strange for us to spend a lot of money in foreign aid, for which I am 100 percent in favor, while at the same time we turn around and slap those nations in the face by putting voluntary curbs on their exports, and by raising our tariffs against their goods.

It is difficult to rationalize between the way some of our foreign money is spent, and the fact that we may not be able to afford the expenditure you propose. Nor am I saying we can't afford this. I am really not qualified, Mr. Congressman, as you know, to say whether we can or cannot do this. Maybe we should do something along the lines you propose, if we can afford it, not with a wide-open bill such as this. May I add that there are many, many, many worthy causes and many people appear before the Congress with a plausible and even heart-rending story of need. But we do not have an unlimited purse, either, and we can only divide what we produce.

So if we must have these things in a limited fashion, then we cannot do some of the other things. And certainly we should not be throwing our money away on a farm program that is bankrupt. That is one of my pet subjects. I must come back to it, sir.

Mr. SPENCE. Well, you have no doubt, I suppose, that much of the grants and loans we make to foreign nations are used for the very purposes provided in this bill?

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