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STABILIZATION OF COMMODITY PRICES

MONDAY, MARCH 28, 1932

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON BANKING AND CURRENCY,

Washington, D. C. The subcommittee met pursuant to adjournment, at 10.30 o'clock a. m., in the Committee room, Capitol Building, Hon. T. Allan Goldsborough, presiding.

Present: Messrs. Goldsborough (chairman), Busby, Prall, Strong, and Beedy.

Mr. GOLDSBOROUGH. Gentlemen, members of the committee, Governor Harrison, of the Federal Reserve Bank of New York, was to have testified first this morning. He telephoned me on Saturday and said that he had a brother who was desperately ill and whom he could not leave, but that he wanted to come as soon as possible. He has great interest in the discussion.

Governor Meyer, of the Federal Reserve Board, called me up Saturday and said that he, in answer to an invitation which had been extended to him, desired to appear before the committee, but was not quite ready and suggested that he be heard next week. The subcommittee will act on that, but I presume what they will do will be to try to fix a date that will be suitable to both Governor Meyer and Governor Harrison and then hear them.

The purpose of the committee, however, is to bring some legislation before the full committee at the earliest possible date for action by the full committee.

This morning we have with us Prof. Irving Fisher and we will be very happy to hear Professor Fisher in his own way. When he completes his statement, we will probably want to ask him some questions. Professor Fisher, would you please give your name to the reporter and state your connections and your interest in economic legislation? STATEMENT OF PROF. IRVING FISHER, YALE UNIVERSITY, NEW HAVEN, CONN.

Professor FISHER. Mr. Chairman and gentlemen of the committee, my name is Irving Fisher, professor of economics at Yale. I have been a special student of money problems, particularly since 1911, when I published my first book on The Purchasing Power of Money. Since then I have published a number of other books more or less relating to the subject.

Mr. GOLDSBOROUGH. Will you give a list of them and when they were published?

Professor FISHER. Those that are particular related to this bill are: Stabilizing the Dollar, first published in 1920, I think. I am not This edition I have before me is 1925.

sure.

111442-32-PT 1- -22

333

The Money Illusion, published in 1928.
Why The Dollar Is Shrinking, 1914.
The Making of Index Numbers, 1923.

I appeared before the committee twice on similar bills, once in 1922 and once in 1926.

Mr. GOLDSBOROUGH. I think you also appeared in 1923 and 1924. Professor FISHER. Yes. There were two sets of bills, those introduced by Mr. Goldsborough and by Mr. Strong. I am very much in favor of this legislation or any legislation which will accomplish the purpose which, in a nutshell I think, is to enable the people now in debt to pay their debts and to pay those debts on the basis on which they contracted them, or more nearly so than at the present price level; that is, when the payments are translated in terms of cotton, wheat, or other commodities.

In fact, I think any legislation that will accomplish this purpose is by far the most constructive legislation with respect to the depression. It is by far the best form of farm relief and is not special legislation. It is by far the best form of antiunemployment legislation and is not special labor legislation. It is by far the best basis for balancing the Budget, for it would lead to the recovery which would restore the goose that lays the golden eggs. You can not tax a vacuum.

The other measures that have been tried, although good, are inadequate. The subsidy for public works to make employment, the moratorium for intergovernmental debts, the National Credit Cor poration, the Reconstruction Finance Corporation, the Glass-Steagall bill, which I think is the most constructive so far, and the antihoarding campaign, are all inadequate and need-as the capstone, or foundstion, or most important supplement-the passage of this bill or something that will accomplish the same purpose.

The bill embraces two main points. It raises the price level and stabilizes it after it is reached. Both of these, it seems to me, are necessary if we are to restore prosperity and maintain prosperity. I thoroughly believe that stabilization legislation is destined ultimately to come, that now is a golden opportunity which, if it is lost, will not come again for many years.

THE STABILIZATION MOVEMENT

This movement toward stabilization is not a new movement. Academically it goes back a long way. When I published my first book on stabilizing the dollar, I spoke in the preface of the various people who had preceded in this study. The earliest definite proposals similar to those in this bill were those of John Rooke, 1824, in a book called Inquiry Into The Principles of National Wealth, published in Edinborough, 1824, in which he said:

The regulation of the new system is that in whatever proportion the general and annual price of farm labor throughout the kingdom has a tendency to rise or fall, that rise or fall shall be counteracted by a reverse rise or fall in the current price of the gold and silver coin.

That is to be found on page 221.

Then Simon Newcomb, the distinguished astronomer or astron omer-economist, because he also wrote on economics, one of the leading men of science produced in this country, a former resident of this city, proposed very much the same thing.

Prof. Alfred Marshall of Cambridge University, who during his lifetime was the dean of economics in the world, had an article called "Remedies for Stabilization of General Prices," in The Contemporary Review for March, 1887. He gives two possible plans, one of which is similar to that in this bill.

Then, as I said in the preface, you will find a number of other people, including Dana J. Tinnes, of North Dakota; Mr. Shibley, here.

In 1913 one of the first drafts of the Federal reserve bill contained a proposal similar to the first section in this bill. That was put in by Senator Owen. You know the Federal Reserve Act was the Glass-Owen bill, but the stabilization provision was taken out by the conferees representing the House, during their conference.

Congressman Husted in 1919 introduced a bill for stabilization; Congressman Dallinger shortly after; Congressman Goldsborough in 1922; Congressman Strong in 1926. There were extensive hearings on both of these last two bills.

The idea of stable money has been promoted, but without recommendation for any method, by the Stable Money Association. This was organized merely to promote the idea of stabilization, being specially careful not to recommend any particular method, because there are so many methods to choose from and to disagree about.

The present president of the Stable Money Association is Frederick Delano, formerly of the Federal Reserve Board. Paul Warburg was one of the honorary vice presidents, formerly of the Federal Reserve Board. A number of men of great prominence were connected with it in one way or another. Among the founders we find the names of Bernard M. Baruch, R. Fulton Cutting, Pierre S. du Pont, George Eastman, Otto H. Kahn, Thomas Nelson Perkins, John J. Raskob, Alvin K. Simons (who has appeared before this committee), Alfred P. Sloan, jr., Silas H. Strawn, and Owen D. Young.

Among the honorary vice presidents are Nicholas Murray Butler, John W. Davis, Charles G. Dawes, William Green, Frank O. Lowden, Elihu Root, Sir Josiah Stamp, Paul Warburg.

These are only a few of many distinguished people who have been on record as favoring the idea of stabilization. Whether or not all of them or any of them would favor this particular bill, I do not, of course, know.

For every one person who was interested in this matter at the last stabilization hearing in 1926, I would be of the opinion there are now over 1,000 people interested. In fact, you have two great groups interested, the farmers and labor. Practically all economists, so far as I know, are in favor of stabilizing the dollar, although they are not yet altogether agreed as to what are the best methods.

Ex-Senator Owen quoted from the distinguished Swedish economist, Gustav Cassel, when he testified before this committee. I would like to quote from him also. In his book on Money and Foreign Exchange After 1914, published in 1922, Cassel (p. 254) says:

The only quality demanded of a monetary system which is of any importance for promoting the trade and general welfare of the world, is stability.

Reginald McKenna, who was formerly Chancellor of the British Exchequer, who is now president, or, as they say in England, chairman, of the Joint City and Midland Bank, the largest bank in the world

(unless it be exceeded by the Chase in New York or the Nations City), at the annual meeting, January, 1922, said:

The truth is of course that both (inflation and deflation) are bad. What is needed is stability, the point from which both alike proceed in opposite directions. When we have stability of prices we have a basis upon which trade can he carried on with confidence.

I quote from him again, or at any rate from his journal, The Midland Bank, Limited, Monthly Review, in an article called "The Problem of Gold Values Regulating Demand or Supply, 1927," where we find:

History has shown that apart perhaps from wars and religious intolerance n. single factor has been more productive of misery and misfortune than the high degree of variability in the general price level. This may sound like an extravagant statement, but so far from being of the nature of a demagogic outburst it is clearly demonstrable from the course of events in various countries ever since money became an important element in the life of civilized communities. A stable price level is a thing to be desired, second only to international and domestic peace.

There are other bankers who favor this. You had one appear before you the other day, and recently Dr. Royal Meeker, formerly labor commissioner, now my associate in New Haven, received this letter from a banker in Texas whose name I will not give, as I am not authorized; not that he would object, I am sure:

When the deflation scheme was put on 11 years ago and I began to explain to the boys the fallacy and the fearfulness of the thing, there were few men round here who understood what I meant. They are bright, well-informed, and thinking men, but they had never thought on that subject. Not many men alo did not pass the nineties had thought much about inoney and its relation to business; not many knew that there is such a thing as a "unit of measure" and that it can be and is monkeyed with, and that it has more to do with "success" of the average man than energy, enterprise, and economy.

*

It is discouraging and sickening to read all that stuff spouted by the inerudite about the fear of an "inflation." They simply do not know anything about the real situation. They do not even know where, when, nor how their own bread is buttered. Their policy has killed agriculture, and now the inability of agriculture to consume as well as to produce is killing all the industry and investments. The mountains of smaller unit debts stacked up during and right after the war (yes, there are billions still unpaid) are eating up all the purchasing and consuming power. That is the potent point. And there is no way of earth to "revive" business until a way is provided for the paying of these debts. When men can pay their debts then they can go ahead consuming; then business will move. And these smaller unit debts never can be paid except in the same kind of money. France, Spain, Italy, and Belgium had wisdom enough to know that and acted accordingly. Now practically all the farm mortgages in France are paid off and the people can go on with this business: while our nine billions of farm mortgages never can be paid if the present policy is persisted in.

I would like to quote from Lord D'Abernon on German Currency: Its Collapse and Recovery, 1920-1926. Lord D'Abernon is or was a banker before he was a peer. He was Minister of Great Britain to Germany in 1921 and for several years. I met him there in 1922.

There is a kind of ironical justice in the fact that the classes in Germany who in the end suffered the most heavy losses from inflation were those who were the

most favorable to it in the early stages. They imagined that loans contracted on a given date and repayable six months later in paper would be repaid by them on very advantageous terms, providing large note issues continued to be made. They not unnaturally held that a currency dispensation which facilitated such a pleasant business could not be wholly vile or radically unsound. As long as currency depreciation remains within moderate limits their calculation was sound, but the final result was that, when the ultimate crash came, all the profits which had been acquired through this astute calculation vanished in the catastrophe, and the excessive issues which they had favored led to the confiscation of so large a portion of their holdings that their temporary gains were more than swept away.

He was then speaking of the evils of inflation, but he was also against the evils of deflation. He was in favor of stabilization.

John Maynard Keynes, perhaps the leading economist of Great Britain to-day, a man whose advice, if followed, would have saved us a great deal of foolishness in regard to war debts and a great deal of foolishness in England in regard to resuming gold redemption without devaluation, and a great deal of foolishness in the last few years— his recent book on his efforts at "persuasion," shows on how many occasions his advice was rejected and ought to have been accepted. He said, in his article, Gold in 1923-that was the title of the article in The New Republic, February 27, 1924:

Currency reform has two objects: To remedy the credit cycle and to mitigate unemployment and all the evils of uncertainty, and to link the monetary standard to what matters, namely, the value of staple articles of consumption, instead of to an object of oriental splendor, it is true, and one to which Egyptian and Chaldaean bank directors attributed magical properties, but not otherwise useful in itself and precarious in its future prospects.

I would like also to quote from Prof. E. W. Kemmerer, a distinguished American economist who is sometimes called "the money doctor," because his advice has been so often sought and taken by other countries, especially in South America, for reforming their currencies. He was at one time president of the Stable Money Association, and at a meeting of the Stable Money Association, December, 1927, he said:

* * * The world sooner or later must either learn how to stabilize the gold standard or devise some other monetary standard to take its place.

There is probably no defect in the world's economic organization to-day more serious than the fact that we use as our unit of value not a thing with a fixed value but a fixed weight of gold with a widely varying value. In a little less than a half century here in the United States we have seen our yardstick of value, namely, the value of a gold dollar, exhibit the following gyrations: From 1879 to 1896 it rese 27 per cent; from 1896 to 1920 it fell 70 per cent; from 1920 to September, 1927, it rose 56 per cent. If, figuratively speaking, we say that the yardstick of value was 36 inches long in 1879, when the United States returned to the gold standard, then it was 46 inches long in 1896, 13.5 inches long in 1920, and is 21 inches long to-day.

Of course, it has a varied a great deal since then.

Mr. STRONG. I would like to state right there that Professor Kemmerer delivered a very splendid address before about 50 Members of the House, some of whom are here present, the past week, in which after telling us of the serious condition of the country and the world, his final advice was to do nothing about it.

Professor FISHER. Professor Kemmerer has enlisted the countries of most of the world to get on to the gold standard as the first step. toward stabilization. He, I believe, judging from what I have heard him say, is afraid that his advice to these people will not be under

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