as a mass is defeating its own aim. So in this effort to get out of debt, though, of course, is not voluntary-it is forced by the creditors. If the creditors did not force people to pay their debts during falling prices, they would not lose so much money. If they would give moratoriums, the price level would not fall, the dollar would not enlarge so much, and the possibility of payment would be much greater.

There is a conflict here between the individual and the mass, just as in the competition in international armaments. If every other nation is arming--at least, this is my view-we have to get into the game and compete; one nation can not lag behind, or it will be overwhelmed some day; and yet it is perfectly true that the very efforts to defend themselves against each other that make the danger of war all the greater. So you either have to compete with the rest of the world in armaments, or combine with the rest of the world in disarmament.

Gentlemen, there has been no liquidation since 1929. We are more in debt now than we were then. That is the mystery of the depression. People think that they are getting out of debt, and they wonder why this depression should go on because there has apparently been some liquidation. However, there has not been any, because we have allowed the dollar to swell, and it is all because of this thinking in terms of a dollar, and assuming that a dollar is a dollar, that it is the same thing from one time to another; it is that same old money illusion, and that is so important that I would like to dwell on it a little bit with respect to inflation, just as I have dealt with it in respect to deflation. I have written a book under the title, Money Illusion, in which I tried to present this whole subject of stabilization from that angle.

In 1921, I think it was, I visited Germany to see whether they had the money illusion; at least that was one of my main objects, because that was a case when the mark was falling very fast and when everybody in the United States knew it; even school boys knew that the mark was falling, but the Germans did not know it, because they were too close to it.

Mr. GOLDSBOROUGH. They thought the prices were rising.

Professor FISHER. They simply thought in terms of commodities. Prices were rising, the prices of wheat, sugar, and everything else, and they sought the cause in the wheat, or the sugar, or in everything else.

Professor Roman and I interrogated some 25 people in Germany; I mean the people that we met in the stores, the average citizens, all intelligent people, and there is a higher level of intelligence in that country perhaps than in any other, we only found 2 people out of that 25 of course, we did not count the professors of economics; they understood perfectly well-who had any inkling that the mark had fallen. One of those was a German-American who had looked at it from the outside, as we had. We can not see ourselves as others see us. The other was an accountant, who was accustomed to looking at such things, with a high degree of intelligence. But the other 23 did not have any such idea.

I remember spending an hour talking with two who kept a shop in a little suburb outside of Berlin. and I talked with them. We found that, in terms of

intelligent women Professor Roman dollars, the prices

were very low. I bought a trunk for $1.50. I felt almost ashamed that I was so robbing the woman of her goods, but if I had asked her why prices were so low, she would have looked at me aghast, not knowing what I meant. In terms of marks prices had been going up very fast, to about 50 times as much as before the war (and after that they went up to a trillion times). I said to her, "why are your prices so high?" She thought I was going to call her a profiteer, and said, "It is not my fault. For instance, that shirt I just sold you will cost me as much to replace as I am selling it to you for." I thought that was rather foolish. I asked her why she sold it to me when she was going to pay the money right out again. "But I made a profit on that shirt," she said, "because I bought it for less."

She had not made a profit; she had made a loss, if she had reckoned in dollars, or in wheat, or cotton, or anything that was real in this world; but, reckoning it in terms of marks, she simply saw that she had bought that shirt for 50 marks, or whatever it was, and sold it for 60, but the 50 marks that she paid for it were bigger marks, worth more six months before, than the 60 marks that she got from me. She was keeping her accounts on a false standard, just like everybody else who thinks of money, assuming that it is constant, as we have s right to assume, as we assume every other unit to be is constant.

Here is another instance showing the conflict between the view from the outside and the inside of a country. I know of an American woman who owed a mortgage in Germany, and after the war, she went over there and went to the banker and said that she wanted to pay off "that $7,000 mortgage." He said, "My dear lady, that is not a $7,000 mortgage; it is a 28,000 mark mortgage" (which, of course, before the war was the same thing as $7,000). He said, "All you have to do is to pay those 28,000 marks, and that is about $250." She said, "I would not think of cheating like that; I have to pay that $7,000." He could not see it; he did not see why she had to pay any more than she contracted to pay, and legally that is true; she only had to pay 28,000 marks. She insisted on paying $7,000, and he thought that she was very quixotic yet even she was making the same mistake in a lesser degree, because she was not thinking straight. Instead of marks, she was thinking in terms of dollars, but if she had thought in terms of market-basket dollars, or commodity dollars, wheat, corn, or cotton, she would have found that she would have to pay some $12,000 to satisfy her conscience. So you have there three standards.

This money illusion is the root of the whole thing, and that makes a mystery of the depression, and it makes it difficult to put through any legislation on it, because people do not understand what the real problem is. I suppose that if you talked to the men high up in the Government about the United States debt here, they would all insist that it had been reduced, that it was at the maximum in 1919, when it was $25,000,000,000, that it got down to a minimum about a year ago and has gone up a little bit now, where it is at $18,000,000,000. They say, "We have reduced our debt from twenty-five billions to eighteen billions; that is a reduction of 28 per cent." But that is an illusion. That debt is not going to be paid except out of the farmers' cotton, or wheat or hogs, or out of the manufacturers' cotton cloth, or out of sugar, and so forth. All the taxes, all the sales that constitute the wherewithal with which

to meet that debt, come out of commodities. In terms of commodity dollars, translating our present dollar by means of an index number of commodity prices back to the 1919 dollar, we find that our debt to-day, instead of being $18,000,000,000, is, in terms of 1932 dollars, over $35,000,000,000, or more than $10,000,000,000 more than when we started.

England owed us $4,600,000,000 when the settlement was made in 1925. She has paid us $1,000,000,000 in interest and $175,000,000 off of the principal, so the debt in terms of dollars has been reduced by that $175,000,000 and is now $4,425,000,000, as I remember it. So that probably almost all Englishmen and Americans think that the English have really liquidated some of that debt; but they have not. England has apparently paid off 4 per cent of her debt, but really now, in 1932, owes us more than 50 per cent more.

The only kind of debt that has been really partly liquidated that I have been able to find in any of these categories of debt is brokers' loans, and even brokers' loans are largely shifted. There are a lot of debts that people had through brokers that they now have through banks but brokers' loans as such have been largely liquidated, and on the basis that they have been liquidated in money by 90 per cent, translated into market-basket dollars they have been liquidated by perhaps 80 per cent. That is the only place where there has been any reduction whatever. But brokers' loans were never very much, not over ten billions out of some two hundred billions in the country, and all the other categories have been increased.

France reduced her debt to us by 4 per cent, but really increased it 50 per cent. United States private loans abroad are now 9 per cent more in dollars than they were, but in actual market-basket dollars 64 per cent more. State and local public debts have increased, in dollars, 20 per cent, and people are alarmed about that, but on the basis of market-basket dollars they have increased 80 per cent. Our Federal Government, as I have already mentioned, has reduced its debt between 1919 and 1932 by 36 per cent, but really the indebtedness has increased, in terms of 1919 dollars. Comparing 1929, the increase is 57 per cent.

Conbining our Federal, State and local debts, they have increased 12 per cent in current dollars, but in stable dollars 68 per cent. Bankers' loans to business men other than brokers have been decreased or liquidated by 18 per cent since the crash, but really in terms of commodities they have increased 23 per cent. Corporate loans have been decreased-we have not very good statistics on them-from 10 to 20 per cent, but have really increased from 30 to 40 per cent. Farm loans have nominally decreased, as nearly as I can figure it in current dollars, 20 per cent, but really, in terms of stable dollars, 75 per cent, and in terms of farmers' prices much more than that. Of course much of the decrease is through foreclosures.

Now, it is hard to give a general total, and I shan't try to, but we may say this, that the debts before this thing started, say 1928 or 1929, in this country were much more than $200,000,000,000 and that much less than $50,000,000,000 has been paid in liquidation, leaving much more than $150,000,000,000 payable, which is equivalent to much more than $230,000,000,000. So that, even at the very worst111442-32-PT 1--24

and these are rough figures-there has been an increase of $30,00 000,000, and probably a good deal more than that, in terms of the dollars of 1928 and 1929, probably an increase of from 15 to 25 per cent.

So the effort of this country to liquidate has not liquidated, but just the opposite. It has put us deeper in debt.

THE DOLLAR DISEASE PREVENTABLE

But that was only because we allowed the price level to drop. It was not inherent in the process of liquidation. That process of liquidation was allowed to go uncompensated. When people paid off their debts at banks, they destroyed the currency, and there was no effort to restore that currency, to make it up. If only somebody had come forward and filled that gap by going in debt to the banks, it would have met the difference. Of course, nobody is big enough to do that; Henry Ford could not have done it, nor John D. Rockefeller.

Mr. GOLDSBOROUGH. But society itself, symbolized by the Federal reserve system, could have done it.

Professor FISHER. That is exactly what I was going to say. Mr. GOLDSBOROUGH. I beg your pardon; but, having it at the tip of my tongue, it had to come out.

Professor FISHER. People say, and naturally, "We have to let this thing work itself out." But it is not working itself out; it is working itself in. These bankers who think it is are simply deluded by the money illusion. They say there has been some liquidation, and that we should let it go on. The further it goes on, the less it goes on. It is liquidation that does not liquidate, but that increases it if you are going to let it go on uncompensated.

Why should we not have a dollar that is a dollar? Why should we penalize all the honest men to-day because a few people overspecu lated in 1929? People say that "it served them right," but if they, the stock market speculators, were to be punished we certainly have overpunished them by adding to their troubles the increase in the dollar, and what is worse we punished everybody else as well who was in debt. Why let a ten billion dollar debt infect a two hundred billion dollar debt with the dollar disease?

Take Ivar Krueger, whom I mentioned as having committed suicide the other day. He was the best informed business man I ever met. I think he was probably the best informed business man in this whole world. He knew business conditions all over the world, and yet he was caught just because he was so active that he thought he could depend on his knowledge of affairs, but he left out one thing; he assumed that money was going to be stable. If he had been justified in that assumption, he would not be a suicide to-day. There are people who say, of course, that he was rich and they do not care about the misfortunes of the rich, but a bankruptcy carried with it a great deal of misfortune to the poor. The people who are being punished now mostly are the innocent bystanders, not the guilty parties, not the people who overspeculated.

Contrast what has happened with what happened in Florida during the boom. There you had a great many people going through the same performance, and more. The Florida boom was by far more

false than the speculation of 1929, in my opinion. I think there is a lot of justification for the stock speculation of 1929. I think our present view is greatly distorted. There was a "lunatic fringe" there and quite a big one, but nothing like what there was in the Florida boom. People got so excited there boosting real estate, buying it to-day to sell to-morrow, not seeing where it would ever earn anything and not caring as long as more suckers would come along to buy. But finally somebody was called for the mortgages and the thing began to crash like a house of cards. Yet that did not disturb the country much, but only a few people. They were not southern people, but northern people who had gone down there and speculated in Florida real estate.

Why did it not upset the whole country? Because it did not change the dollar. The dollar was kept stable by the efforts of the Federal reserve at that time, that is, during the period of stabilization. People did get a great retribution who were so foolish as to get into that speculation, but they did not involve you and me and the rest of the country, because their actions were not allowed to change our dollar. There was this compensatory action going on.

You may say it is natural for prices to fall. Well, it is natural on an excursion steamer for the people to rush from one side of the boat to the other to see the sights, and sometimes the boat capsizes. It is natural, but does that mean that we ought to let it happen? No. Where there is danger of that, they have sailors rolling a heavy roller the opposite way, so that, if the crowd gets on one side, they compensate by rolling that weight to the other side to right the boat, to prevent its capsizing. They are doing hard work; they are going just the opposite of the crowd. What we want is a roller run by the sailors of the Federal reserve, to keep our boat from upsetting. Now, let me take another illustration, for this thing is so important I hope you do not mind, I am not merely talking to you men who are far above the average in understanding the question, but these hearings will go to your colleagues who have not studied it, and to a great many people, and I do want to make it just as clear as I can. Mr. GOLDSBOROUGH. Proceed in your own way.

Professor FISHER. I talked with an oil man not long ago about this thing, and this was all Greek to him. He said, "I do not know what you are talking about," because he was thinking in terms of dollars, and could not get out of that habit.

"Why," I said, "let us forget the dollar and talk about barrels of oil. Suppose you had contracted to deliver 1,000 barrels of oil, and that you had your oil stored in a warehouse in rubber barrels, which we will suppose for the sake of this grotesque example that I am going to give you just to give you a clear physical picture— are automatically filled by stopcocks, and automatically shut off when the level gets to the top of the barrel; so they are kept full.

"Now, out of your contract to deliver 1,000 barrels of oil, you pay off, 100 barrels; we will take them out of the outer row of barrels. You go back next day and find that it is 'natural' for rubber to expand. You have taken away some of the support of the 900 barrels left. They have expanded and, with the automatic filling, they were all kept full of oil. You now have 900 barrels there, but you have practically the same amount of oil as you had in your 1,000 or You have paid 100 units of your debt, and have only 900 units

more.