even probably, destroy goid parity, for gold to-day has little value e as reserves for the American Federal reserve system and the French de If gold should conceivably flow abroad, it could not flow in large quantit lack of demand there and would tend to flow back for its chief use here. over, if the gold parity should be disturbed, there would be no harm done, ma there is a prejudice against it.)

9. The reserve requirements of other banks may be suspended.

10. Following Colonel Rorty's plan, a subsidy could be given to borrowe banks, thus increasing the borrowings.

11. As an alternative to Rorty's plan, and to avoid the cry that might be r of subsidizing the rich producers, a plan has been suggested by H. B. Brou for subsidizing the deposits made by retailers-25 cents on the dollar for e dollar deposited-the subsidy to be supplied by the Government. This w enable the consumer to get the advantage of low prices while encouraging increase of deposits to raise price level.

**12. A penalty might be imposed upon banks not in debt to the Fer reserve banks at least once a year. This, or some other device, might be at break up the tradition that it is a reflection upon a bank to be in debt to Federal reserve bank.

13. Penalize members banks outside the Federal reserve system by per making a service charge for carrying their checks. The object would be to i all banks to join the Federal reserve system, and so strengthen and make safe the banking system of the country.

14. The gold content of the dollar could be reduced. In other words, the of gold could be raised. In order to prevent a raid upon the Treasury by t gold of the Government in anticipation of said increase of price and reselling to Government at the higher price, a suitable spread needs to be inserted t the buying and selling price.

*15. Put an embargo on gold as during the war. This would enable us to i the irredeemable money to a large extent without destroying gold parity, so : we would, in form, retain the gold standard. If desired, limitations or pr tions could be put upon the melting or industrial uses of gold, as also was during the war. This measure, however, while it might help America, w tend to hurt rather than help other countries, and indirectly react some unfavorably upon America herself.

*16. As Professor Persons has suggested, encourage the strong financial c porations instead of paying cash to pay as much as possible with discounts notes, thus increasing the volume of commercial credit.

**17. As Professor Persons suggests, avoid imposing a tax on bank chee The one thing we do not want to do is to interfere with the circulation of curre The velocity or activity of circulation can be increased in the following wa **1. A propaganda, through the President or otherwise, could be underta urging people to release their hoarded money, putting it into safe banks of t postal-savings banks. The President already has the requisite power to ut these savings to buy bonds.

*2. The Government could, as it did during the war, issue baby bonds denominations of $50, or even less, and those could be advertised at the same? that the postal-savings and antihoarding propaganda were undertaken. I bonds need not be new bonds, but merely the breaking up of existing thousa dollar bonds.

*3. There might be as an emergency measure-a guarantee of all bank de»of approved banks, said guarantee to be given by the Government or the Fe reserve banks (out of their large surplus), or mutually among the banks the selves, whose deposits are thus guaranteed, or any combination of these thre

4. Direct psychological encouragement, so far as actual facts permit, w scrupulous avoidance of exaggeration or anything that might make pas. countersuggestion, especially in view of the unfortunate failure of prev.

assurances.

5. While anything that will encourage confidence in parting with hoar money for other goods is desirable, it is well to remember that the same can be obtained by lessening the over-confidence in money itself. Any fear the money hoarded is unsound would actually help in these days.

Personally, I am quite willing to see adopted any of the foregoing measures raising the price level. Those that I would specifically recommend are mar with an asterisk, and those that I would even more especially recommer marked with a double asterisk. These statements of preference, in most cas are largely because of their quick availability rather than because they a merits superior to the rest.

inflation, justified by the previous deflation. As I said, I opposed Bryan in 1896 because he was going back too far and because of a very slow fall of prices. He wanted to go back to 1873. But it is a different thing when you talk about the change since 1929, with most debts hanging over from then till now. In 1896 there were practically no debts outstanding from 1873. It was absurd to go back to 1873 and would be still more absurd now. You might as well go back to Norman the Conqueror in 1066. But now, when you are talking about a recent deflation, with most of the debts hanging over, we certainly ought to go back enough to be sure that the average debtor and creditor are honestly dealt with.

Now, whether that is done by this bill or something else does not matter. I was asked by a man who is high up in the Government, when he became convinced that these were our needs, how we were going to accomplish the reflation. I said that I was not committed to any one way, that I was keeping my mind open, because I knew that Congress had its ideas and I was willing to fall in with anything workable. He said, "That is the whole question; how are you going to do it?" I said, "There are a great many ways. He said, "Won't you give me some of them?" I said, "I will write them out for you," and I wrote out 22 different suggestions. I have them here, so that they may go in the record. I do not have his permission to mention his name, although I do not doubt that he would give it. But I have here the manuscript detailing those 22 methods. I do not think it is worth while for me to read them all, for I have already taken so much time, but they are there. They include a great many things that have been done since. They include a good many things which some of you perhaps would not approve of, and a good many that I do not want myself if we can get along without them. I have preferences between them, and I have starred the ones I would advocate and double starred those that I would especially advocate, but I would be willing to have any or all of them, if necessary, because the important thing is to get that reflation.

(The memorandum referred to is reproduced below.)

We need first to raise the price level enough to let debtors pay their creditors on as just a basis to both as practicable; and secondly thereafter to stablize 'the prize level.

The raising of the price level must be done either (a) by increasing the circulating medium, or (b) by increasing its activity or velocity, which means, in particular, reducing hoarding.

The circulating medium may be increased in many ways:

1. The United States may issue new United States notes in purchase of United States bonds (or in purchase of silver or anything else, or paying its employees). *2. The Federal reserve may buy United States, bonds or other securities permitted, paying for them by Federal reserve notes or book credits.

**3. National banks could be given the bank note privilege as to the 12 billion dollars worth of United States bonds issued in 1931.

**4. Federal reserve may rediscount more freely, either by reducing the rediscount rate or by getting authority to increase the range of securities eligible for rediscount.

5. Federal reserve may release more "free gold" by getting authority to issue Federal reserve notes on deposit of Government bonds with the Federal reserve agent.

*6. Federal reserve reserve ratio requirements may be reduced as now authorized.

7. Other bank reserve ratio requirements may be reduced by special legislation. 8. Federal reserve requirements may be suspended entirely, leaving unaffected the reserve requirements of other banks. (This would not necessarily nor

even probably, destroy goid parity, for gold to-day has little value except as reserves for the American Federal reserve system and the French demand. If gold should conceivably flow abroad, it could not flow in large quantites for lack of demand there and would tend to flow back for its chief use here. Moreover, if the gold parity should be disturbed, there would be no harm done, much as there is a prejudice against it.)

9. The reserve requirements of other banks may be suspended.

10. Following Colonel Rorty's plan, a subsidy could be given to borrowers at banks, thus increasing the borrowings.

11. As an alternative to Rorty's plan, and to avoid the cry that might be raised of subsidizing the rich producers, a plan has been suggested by H. B. Brougham for subsidizing the deposits made by retailers-25 cents on the dollar for every dollar deposited-the subsidy to be supplied by the Government. This would enable the consumer to get the advantage of low prices while encouraging the increase of deposits to raise price level.

**12. A penalty might be imposed upon banks not in debt to the Federal reserve banks at least once a year. This, or some other device, might be able to break up the tradition that it is a reflection upon a bank to be in debt to the Federal reserve bank.

13. Penalize members banks outside the Federal reserve system by perhaps making a service charge for carrying their checks. The object would be to induce all banks to join the Federal reserve system, and so strengthen and make more safe the banking system of the country.

14. The gold content of the dollar could be reduced. In other words, the price of gold could be raised. In order to prevent a raid upon the Treasury by buying gold of the Government in anticipation of said increase of price and reselling to the Government at the higher price, a suitable spread needs to be inserted between the buying and selling price.

*15. Put an embargo on gold as during the war. This would enable us to issue the irredeemable money to a large extent without destroying gold parity, so that we would, in form, retain the gold standard. If desired, limitations or prohibi tions could be put upon the melting or industrial uses of gold, as also was done during the war. This measure, however, while it might help America, would tend to hurt rather than help other countries, and indirectly react somewhat unfavorably upon America herself.

*16. As Professor Persons has suggested, encourage the strong financial cor porations instead of paying cash to pay as much as possible with discountable notes, thus increasing the volume of commercial credit.

**17. As Professor Persons suggests, avoid imposing a tax on bank checks. The one thing we do not want to do is to interfere with the circulation of currency. The velocity or activity of circulation can be increased in the following ways: **1. A propaganda, through the President or otherwise, could be undertaken, urging people to release their hoarded money, putting it into safe banks or the postal-savings banks. The President already has the requisite power to utilize these savings to buy bonds.

*2. The Government could, as it did during the war, issue baby bonds, in denominations of $50, or even less, and those could be advertised at the same time that the postal-savings and antihoarding propaganda were undertaken. These bonds need not be new bonds, but merely the breaking up of existing thousanddollar bonds.

*3. There might be as an emergency measure-a guarantee of all bank deposits of approved banks, said guarantee to be given by the Government or the Federal reserve banks (out of their large surplus), or mutually among the banks them selves, whose deposits are thus guaranteed, or any combination of these three.

4. Direct psychological encouragement, so far as actual facts permit, with scrupulous avoidance of exaggeration or anything that might make possible countersuggestion, especially in view of the unfortunate failure of previous

assurances.

5. While anything that will encourage confidence in parting with hoarded money for other goods is desirable, it is well to remember that the same result can be obtained by lessening the over-confidence in money itself. Any fear that the money hoarded is unsound would actually help in these days.

Personally, I am quite willing to see adopted any of the foregoing measures for raising the price level. Those that I would specifically recommend are marked with an asterisk, and those that I would even more especially recommend are marked with a double asterisk. These statements of preference, in most cases, are largely because of their quick availability rather than because they have merits superior to the rest.

The above have been catalogued as possible ways of raising the price level. Most of these ways can also be used for stabilizing the price level after it is raised. Particularly, the Federal reserve could do as it used to do when dominated by Governor Strong's open market committee-buy and sell Government bonds so as to resist deflation and inflationary tendencies at any time. The change in the weight of the gold dollar can be put on a systematic basis, in accordance with the Goldsborough bills.

Doctor Edie has suggested that if we wish to avoid the "highbrow" discussion of the index number in measuring the price level, we can secure approximately the same result by feeding currency into circulation to correspond to the volume of trade the normal volume of trade, calculated on a 10-year basis, with an increase of about 4 per cent per annum.

The inter-governmental debts should, I believe, be canceled, or as nearly canceled as public sentiment will permit. If not, we should surely reduce our tariffs to permit the debtors to pay in goods.

Our banking system should have a thorough overhauling. Bank failures abroad are almost unknown. Bank affiliates should be controlled or abolished. Bank inspection at present seems to do more harm than good, as it is made in the interests of the individual bank as against the interests of other banks, thus encouraging banks to cut each others throats instead of to cooperate. Inspectors are apt to be especially strict in depressions when they ought to be especially lax, and would be if their advice were given not to an individual bank as against other banks, but to the banking system as a whole.

This can all be summed up by saying that in America we lack the psychology of central banking. Even bankers on the boards of directors of the Federal reserve banks often fail to take a central bank's point of view, which is usually the opposite of the individual bank's point of view.

Some banking agencies should be created, permitting or affording better facilities for financing small companies. At present there is a big hiatus between the very small companies, which can be financed by individuals, and the very large companies in which the unit of financing is a million dollars or more. For this intermediate group, it is very difficult to get the requisite financing.

Likewise, there should be provision for loans, the duration of which is intermediate between long-term bonds and short-term commercial bank loans.

Such measures would reduce the misleading appearance of liquidity, which commercial banks now have where short-term loans are made with the understanding that they can be renewed so as to become long-term loans. These oral agreements are very treacherous and make trouble in times of depression. Any liquidity which appears to exist should be actual.

The New York Stock Exchange should profit by the example of the London Stock Exchange in affording more time for settlements. In London there are fortnightly settlements instead of daily settlements.

Financing by preferred stock rather than bonds would help make for elasticity. We need a system which will bend and not break in a depression.

There should be, as soon as possible after the present hectic legislation is out of the way, an international conference called on the stabilization of price levels, the conference to consist of genuine experts who have studied the problem and not of banking technicians who have not studied the problem.

One objective is to get the Bank of International Settlements to take the lead in banking policy throughout the world, especially policies directed toward stabilization.

The experience in this depression of the countries which have gone off the gold standard and secured a rise in the price level has been encouraging. This applies to England, Japan, Sweden, and a dozen other nations. Sweden, it is announced, is, through its state bank, going to try to maintain a stable price level-the first nation avowedly to do so.

I believe it would be of great importance if the President, in some public statement, would declare in favor of a stable price level; that is, a stable purchasing power of the dollar as a preliminary objective. Another way of stating the same thing is to say that both inflation and deflation are evils and should be avoided. I believe that Governor Strong's policies would have been more frankly explained to the public had there not been a well-justified fear that the United States could not stabilize the price level without the cooperation of other countries. The price level is a money problem, and as money flows freely under any common gold standard, it is an international problem. It can only be within national control if a country has a standard of its own, such as a managed paper standard, or a gold standard with the weight of the monetary unit changing from time to

Mr. GOLDSBOROUGH. What is your conception of the value of this bill in relation to what you think ought to be done, and the best way?

Professor FISHER. I am in favor of it. I think it needs the addition of some sections, a little clarification. I am coming to that in a moment.

Mr. GOLDSBOROUGH. Proceed in your own way.

Professor FISHER. I have talked too much already.

Mr. GOLDSBOROUGH. No, you have not. Proceed in your own way.

Professor FISHER. The point is to translate from money into commodities, and to get a commodity dollar. I do not care whether you retain the gold standard or not, as long as you get a commodity dollar. I think there is a certain value in the gold standard. I would rather retain the gold standard than to lose it, if it can be prevented from misbehaving; but if you have to choose between keeping the gold standard in the sense of the dollar remaining 23.22 grains of gold, of course it is ridiculous to choose the former when the latter is really what you want. The only important object of the gold standard is to prevent undue inflation; in other words, to keep a certain amount of stabilization.

A "NORMAL" PRICE LEVEL

Mr. PRALL. I would like to ask you a question there. What is your definition of the normal price level?

Professor FISHER. I would say a price level is normal always relatively to where you are. The price level that is normal for to-day is different from the price level that was normal for 1920 or 1896 or 1865. The price level of 1920 was abnormally high because just before the price level had been falling; so that at that time we ought to have reduced it to find a normal. We did reduce it and reduced it too much. In 1896 the price level was abnormally low as at present. The actual price level to-day is highly abnormal because of the hangover of debts, and to make it normal you want to raise it to that point where it will most advantageously serve the interests of debtors and creditors, as I see it.

That is an abstract answer, rather than one that is concrete, but I think it can be made into a concrete answer if you would have a certain amount of study put on it, and I would recommend that before you recommend that section 1 as it now stands, which takes 1926 as normal, that you ask W. I. King or two, three or five men to act as a committee to make, at any rate, some kind of a rough estimate based on these statistics of debt and other things, and to bring in a report as to whether they think 1926 is reasonable from that standpoint. Mr. GOLDSBOROUGH. Professor King has already said that he did think so.

Professor FISHER. Well, I know, but that was a thumb-nail opinion. My present tentative opinion would be that it is not. But I am perfectly willing, as he would be, to change my opinion if the facts developed should justify it.

Mr. GOLDSBOROUGH. 1926 is not high enough. My conception of long-term debts is that they go back at least to the high prices of the war period, and some of them go way back of that.