in an average case, so John Doe got a $1,000 policy for that $400 credit, which he originally had, or two and one-half times the amount. Mr. Garner's proposal would give John Doe that $500 as of 1925, with 4 per cent interest, and that would amount, on February 1 of this year, which is just a few days away, to the sum of $632 on a $1,000 certificate. I do not think that is right. I do not think these boys should be forced or even asked to take 63 per cent of those certificates. That settlement amounts to 63 cents on the dollar. On a $1,500 policy, on the basis of 63 per cent, the veteran could take that and cash the policy. I do not think he should be asked to do that, because I do not think it is right.

Mr. Fish's proposal says, "Let the veterans borrow 25 per cent, and let it be noninterest bearing." The principle of that appeals to me very much, because it is the principle of admitting that it is all due now, but it proposes to pay only a small amount, because he says the Government is not able to pay any more at this time. However, he is admitting that it is all due, by making it noninterest bearing.

I do not think they should be restricted to 25 per cent. I think they should have it all, but not because of sentiment. I am not asking for a gratuity or a bonus, but they should have it all because it is all really due.

Another proposal that is interesting is the bill of Senator Vandenberg, of Michigan. Senator Vandenberg's proposition does not appeal to me, for this reason. It just grants them an additional loan, and it is a sufficient amount so that if they do not come back and pay it off and not one out of 10,000 will it will exactly consume the certificate when it is due in 1945, so the veteran will not get much out of his certificate. I am opposed to that for this reason.

These certificates should be changed. Congress will never be pleased with the way the veterans are treated under these certificates. Take the average certificate of a thousand dollars, issued in 1925. 1927 John Doe could borrow $88.15 on that certificate, which he did. The majority of them have borrowed on these policies. General Hines gave some testimony here the other day with respect to the number who had borrowed. He can not take into account the number who have borrowed through the banks. There is no check on earth on that. There is no way for him to get it except by direct contact with the banks. There is one bank that I know of, which, I have been told, held 70,000 of these certificates. They are making money out of them. They have been getting 6 per cent, and sometimes 7, on these certificates. The banks are not restricted to 6 per cent now. The Veterans' Bureau is, but the banks are not. Of course, they are restricted to 2 per cent above the rediscount rate, and the banks have been advertising. I can show you great big advertisements where they have advertised for these certificates, because they are just as good as a gold certificate. Some of these banks, as I say, have thousands of them, and there is no way of telling how many there are. The boys are in need, and they have been borrowing on these certificates. It is based upon 4 per cent compounded annually, whereas they have been paying 6 and 7 per cent. I borrowed on my own certificate. I looked at it the other day. I am paying 7 per cent interest on it. I did not know it, but I am paying 7 per cent interest on it. Many of the boys are doing the same thing. But suppose you are just paying 6 per cent, and that you will never be required to pay

more than 6, although the interest rate now is cheaper, and probably some of them are getting loans at 4, 4% or 5 per cent. We all know that it will soon be back to the basis where the boys are compelled to pay 2 per cent above the rediscount rate, and the difference in interest will soon consume that certificate.

In the case of an average certificate, at the end of two years he borrows $88.15. Next year when he comes back to borrow, on the average certificate he get $26.80, after paying his interest on the prior loan. The next year he gets $25.40. The next year it is less, and the year after that it is less, and so on down to the last year, when he is permitted to borrow only $19. At the end of the 20 years, when he goes in to have a settlement with the Government, he discovers that he has paid the Government $3 more in interest than he has received in principal during that time. In other words, the Government will get more out of it in interest than the veteran will get out of it in principal, and then the Government delivers to him $46, in the average case, and the debt is cancelled and the Government does not owe the man another penny.

I do not think Congress should be pleased with any legislation that will permit either the banks or the Government to make contracts with needy veterans that will cause those veterans to pay out $2 for every dollar they get back, on their own money. It is just not right, and I do not believe anybody can defend it, so I want to earnestly insist that this Congress seriously consider paying these veterans 100 per cent.

I know Congress will say, "Where are you going to get the money?" With all due respect to the Treasury Department, I do not think we should take the statements of the Treasury Department as final every time. I believe that you Senators, if you were going to be operated on, would want the surgeon who was handling the knife to take the attitude that he wanted the patient to live. Although Mr. Mellon is a great man and a great financier, we all know that his feelings about veterans' legislation, as manifest in the past, have been such that the mistakes he has made have been against the veterans' legislation. We all know that. As a matter of general reputation we know it, and I think we ought to take that into considerationnot that he is dishonestly making any misstatement, or not that he is intentionally or corruptly doing anything, but a man's feelings, in a way, will naturally cause him to make estimates that will be in accordance with his opinions. For that reason, we ought to take that into consideration in passing on his testimony.

Here is the way this money can be raised. This war debt is being retired too rapidly. Undersecretary Mills and Secretary Mellon made a very startling statement here yesterday when they admitted that during the past nine years the Treasury Department has paid on the national debt, in excess of the requirements of the sinking fund law, three and a half billion dollars more than the law says should have been paid. As one of the Senators suggested, it is just a happy coincidence that that is just the amount that is necessary to retire these certificates in cash now.

So, if the Senate and the House of Representatives should authorize the payment of these certificates in full, dollar for dollar, our national debt to-day would not be one dime more than Congress nine years ago expected it to be on this date.

So, why could we not use that money to do it? Just stop paying on this national debt for a while, and use the money we expected to pay on the national debt to retire the other debt, the adjusted service certificate, another war debt which is just as much entitled to liquidation. When we liquidate it, then we can go back to the old war debt, and we will be just exactly where Congress, nine years ago, expected

us to be.

Furthermore, if Congress does not want to do that, and if the bond market would not stand it, I want this Congress to consider seriously the issuing of a part of that in Treasury notes. Of course, whenever one suggests anything like that, he is usually called radical, or a communist, or a bolshevist, but I want to state seriously, as one who has given it much consideration, that Congress can well afford to consider issuing Treasury notes in payment of a slarge proportion of this. We have $346,000,000 worth of Treasury notes outstanding that were issued in 1863, and, as they are mutilated or destroyed, they are always replaced. What is back of them? Are they fiat money? They have no more back of them then we would have back of the notes you would issue for this purpose.

I make that suggestion for this reason. The Treasury Department says that we have $36.20 per capita in circulation, that is, circulating medium. Ten years ago we had $53. As you reduce the per capita circulation of money, you necessarily reduce purchasing power, and as you reduce purchasing power, the wheels of industry commence to slow up, and as they slow up, business is hurt and a depression comes on. So, the only way on earth we can hope to have a prosperous Nation, in my mind, is to have plenty of circulating medium. Although the Treasury Department says that we have $36 and more per capita in circulation, I do not believe we have that much money. My reason for that is this:

During the last 100 years we have had lots of money lost by fire, shipwreck, and in other ways, and the Treasury Department is assuming that not one dime is lost, but that it is in circulation, which is not

true.

Take the report of the Comptroller of the Currency on all the banks in the Nation. He shows that there is only about eight or nine dollars per capita in circulation in this Nation. That is counting what is on deposit in the banks. We do not know how much the people have in their pockets, but let us presume that they have half that much in their pockets, which I believe is going too far, but one guess is as good as another. That would make it only $12 per capita in circulation. So, I think that in connection with this big question, that other big question, the money question, should come into it, and Congress should seriously consider issuing Treasury notes, which they can do, to pay off a part of this indebtedness.

I thank you, gentlemen, very kindly for your attention and consideration. If any of you would like to ask me any questions, I should be very glad to try to answer them. I do not know that I can. Senator WATSON. Are there any questions?

Senator COUZENS. I would like to ask the Congressman if it is not a fact that the contraction in circulation takes place after the depression in business, rather than before?

Mr. PATMAN. Senator, I suspect you have given that sufficient consideration to have your own opinion about it, which I have no doubt,

would be better than mine. You say it takes place after the depression, rather than before?

Senator COUZENS. Yes.

Mr. PATMAN. I think it takes place at about the same time the depression comes on, Senator. I think that is part of it.

Senator BARKLEY. In view of the flexibility of our currency system, especially the Federal reserve system, which is supposed to be more or less automatically adjustable to the needs of business, do not the two things go along together?

Mr. PATMAN. Absolutely. I am glad the gentleman mentioned that. You see, the Federal reserve system has been contracting the currency for the last few years. Ten years ago we had over $3,000,000,000 of Federal reserve notes outstanding. We have now only a little over one billion. The word has been passed down through the Federal reserve system to close down, liquidate, and today banks all over this Nation are failing because they are refusing to accept what is good collateral, because they claim it is not liquid collateral, and they are absolutely destroying places of business and banks.

Mr. RANKIN. May I make a suggestion? In 1920 the contraction of the currency took place before the depression. The depression followed right on the heels of the contraction of the currency.

Senator CouZENS. Deflation and circulation are two different things. The fact that there is a depression obviously brings about a need for less money in circulation, and so it is perfectly obvious to me that the decrease in consumption takes place before the contraction of the currency. Mr. RANKIN. Also, when you contract the currency, it slows up business, as the gentleman from Texas has said. In 1920, when the order went out to raise the rediscount rate, and call these loansSenator COUZENS. We need not take up time discussing that. Senator GEORGE. I do not believe we could settle it.

Mr. PATMAN. I am very much obliged to you, Mr. Chairman and gentlemen.

Senator WATSON. We are very glad to have had the opportunity of hearing you.

Is Mr. Connery here?

Mr. RANKIN. May I suggest that before we hear Mr. Connery, we let the American Legion proceed?

Senator WATSON. Very well, if there is no objection. John Thomas Taylor.

STATEMENT OF JOHN THOMAS TAYLOR, LEGISLATIVE REPRESENTATIVE, AMERICAN LEGION

Senator WATSON. Proceed in your own way, Mr. Taylor, to make your statement.

Senator HARRISON. You are speaking now for the American Legion, are you not?

Mr. TAYLOR. Yes.

Senator COUZENS. May I ask the witness on what authority he is speaking for the American Legion now?

Mr. TAYLOR. As the representative of the American Legion on all legislation, Senator.

Senator COUZENS. Yes; but I recall that you appeared before this committee previously, and you also spoke for the American Legion. At least, you alleged you were speaking for the American Legion at that time, and you opposed the paying of the bonus at that time. I am asking you on what authority you are now speaking for the American Legion; by whose authority?

Mr. TAYLOR. I am the national representative in Washington on legislation of the American Legion.

Senator COUZENS. I understand who you are, but I am wondering on what basis you are now speaking on what edict from the Legionnaires.

Mr. TAYLOR. On the basis of the resolution adopted by the national executive committee last Sunday in Indianapolis.

Senator COUZENS. That is what I wanted to get at.

Senator HARRISON. If I were you, I would put that in the record. Mr. TAYLOR. I would like to read it. Reading:]

Whereas resolutions submitted to the national convention of the American Legion, held in Boston, Mass., favoring the payment in cash of the adjustedservice certificates, were tables because the American Legion was firmly opposed to initiating such legislation within itself, and because the first and major activity of the American Legion has been and always will be the care of the disabled and his dependents, whose welfare has been and must, of necessity, remain our first obligation; and

Whereas much legislation looking toward the conversion into cash of the adjusted service certificates has been initiated in the present session of Congress, and activities resulting therefrom, although originating in Congress, have been projected into individual posts and departments of the American Legion to such an extent that the national commander has found it expedient to call this special meeting of the national executive committee for the purpose of expressing the opinion of the American Legion, as requested by certain Members of Congress and demanded by the rank and file of the Legion; and

Whereas there is little doubt but that the immediate distribution and circulation of funds accruing and payable 15 years hence from such conversion would at this time materially assist in the relief of present distressful economic conditions and put new life into American business and would without any doubt whatsoever bring immediate relief to the hundreds of thousands of veterans, their dependents, who are now in sore distress and dire need: Therefore, be it

Resolved by the national executive committee of the American Legion, That we again declare and reaffirm as our first and major objective, legislation for the further relief of the disabled man and his dependents, and will take definite exception to any interference with, or delay in, the passage of such legislation; and be it further

Resolved, That the national executive committee indorses the principle of immediate cash retirement, on application, of the adjusted-service certificates, without choosing as between any of the specific bills now pending before Congress, it being the opinion of the national executive committee that the passage of such legislation would benefit immeasurably, not only the veterans themselves but the citizenship of the entire country, and would be an appropriate demonstration of the gratitude of the Nation to those who carried its arms in 1917-18.

INDIANAPOLIS, IND., January 25, 1931.

Mr. Chairman, that is the expression of the American Legion on this subject.

Senator COUZENS. May I ask you a question in that connection? You say you do not take sides, as I remember the resolution, with respect to any bill; but do I understand that the executive committee approves the full payment of the face value of the certificates?

Mr. TAYLOR. It approves and indorses the principle of immediate cash retirement, on application.

Senator COUZENS. That is, of the face value of the certificate?