two who directly represent him, the Secretary of the Treasury, and also the Comptroller of the Currency, plus the President's constitu-` tional right to dismiss at will each of the other six members of the commission. Such is the decision of the Supreme Court in the Meyers case, decided in 1926 and reported in 272 Ü. S. Reports, 52.

My further duty is to point out that while continued deflation in the quantity of the people's medium of exchange has been the policy of the Federal Reserve Board and of the President during the period of the growing depression for the producing groups since July, 1929, yet we who have been protesting to the board and to the President have not been able to get much of any newspaper publicity, because of the leading of the Spirit, and mankind have been suffering. In the Congressional Record of February 10, 1931, in the appendix there is published my protest to the Federal Reserve Board and my protest to President Hoover against the continued deflation, and my charts are published; and in October and November, 1930, in the Wall Street Journal there are three lengthy protests against the deflation by a Canadian expert; also the July, 1930, bulletin of the Royal Bank of Canada (head office at Montreal) protested and I quote excerpts as a note.1

The deflation as a policy was continued by the Federal Reserve Board until so numerous were the closing of the banks in some of the agricultural States that the depositors in the surrounding banks hoarded their funds in such quantities that the Federal Reserve Board expanded the Federal reserve credit 130 per cent in three months-an increase of $1,200,000,000. That is, the board ordered the openmarket committee of the reserve banks to go into the market and buy Government securities and acceptances, along with the discount of acceptances in large quantities from the member banks. This is diagrammed in our chart 3, Federal Reserve Credit.

Then, strange to say, the Federal Reserve Board turned about and again deflated rapidly, resulting in falling prices on the stock market and for commodities at wholesale. In one month from October 21, 1931, the deflation was about a third of the expansion, accompanied by a 25 per cent drop in the average of 30 industrial stocks, and a 25 per cent drop in the price of wheat, which had shot up in price when the Federal Reserve Board had shown a policy of restoration of the price level.

Similarly the Federal Reserve Board's continuing deflation for the month following the enactment of the Glass-Steagall currency law,

"It is clear" says the bank, "that the present world-wide depression was occasioned by credit strin

gency.

"Between October and June the volume of credit extended by the Federal reserve banks fell from $1,621, 000,000 to $937,000,000 and the circulation of Federal reserve notes declined from $1,920,000,000 to $1,419,000,000. The contraction in the volume of the country's total circulation amounted to more than 11 per

cent. ⚫

"Whatever may be the direct relationship between quantity of money and prices, there can be no doubt that if the volume of circulation were immediately restored to the level that existed in November, the decline in prices since that date would be quickly counteracted.

44

immediate and decisive action on the part of the Federal reserve banks in putting new funds into the market in large volume is what is necessary to arrest the presentserious and protracted price decline and to change the present psychology of business.

"The only other means by which the reserve banks can effect the market, would be through the purchase of Government securities. The latest balance sheet shows that they hold $597,000,000 of such securities.

"If the reserve banks should increase these holdings to $1,000,000,000, the member banks would find their credit balances with the Federal reserve system increased by substantially a like amount. * In its

effect on business, surplus funds at the credit of the member banks, have the same influence as a corresponding increase in the note issue..*

"If any intelligent attempt is ever to be made to control price levels, there must be some objective, and, undoubtedly, so far as the United States is concerned, it was hoped that the index number of the price level might be maintained at around 100, which represents the average of prices during recent years."

STABILIZATION OF COMMODITY PRICES

February 27, which aimed to somewhat restore the price level, was accompanied by a 20 per cent decline in the prices of 30 industrial stocks after a 9 per cent rise the first 10 days after the approval of the bill; and stocks are still on the toboggan, April 4, 1932.

Now the only practical way that is open for Congress to end the growing depression for the producing groups, and end the increasing prosperity for the creditor class and the other moneyed interests, is the prompt enactment of the bill before this committee, the Golds borough bill, for the quick restoration of the quantity of the people's medium of exchange, so that the height of price level shall be restored to normal, and that then the price level shall be stabilized.

Unquestionably Congress can successfully end the present money war by quickly restoring the quantity of the people's medium of exchange, thus to restore a rising price level for commodities at wholesale, thereby to restore profitableness in business, thus to restore fulltime employment if Congress will proceed to enact legislation to bring about an equitable distribution between the competing groups in production. This session of Congress is a reform Congress, almost certain to succeed along the lines described in this paragraph. Such is the liberal program, in contrast with the conservative program, also described as the reactionist program.

PRICE LEVEL STABILIZED, 1913-1915

Proof that the price level can be stabilized is the fact that it was stabilized during 1913 to the autumn of 1915 by the Wilson adminis tration. (See chart 1, the Price Level.)

My suggestions as to the details of the Goldsborough bill are in the accompanying draft. Because the administrative body is evidently adverse to the policy to be instructed for by Congress I have inserted two sets of details, either of which will successfully end the present

money war.

(The amendments referred to are as follows:)

A BILL To end the injustice and depression for the producing groups, and end the unfair and excessive

prosperity for the creditor class

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Federal reserve law be amended as

follows:

"SEC. 14A. To end the injustice and depression for the producing groups, and end the unfair and excessive prosperity for the creditor class, the Government's commission, the Federal Reserve Board, is instructed to order the Federal reserve banks to quickly restore the quantity of the people's money and bank credit to where the height of the price level shall be restored from 62.9 on March 4, 1932, (Fisher's all-commodity index), to the height of July, 1929, and two points higher, 100, on the 1926 basis, the normal height; and then the Federal Reserve Board shall so regulate the quantity of the Federal reserve notes and reserve bank credit as to stabilize the price level at 100 as nearly as shall be possible, the variation to not exceed one per centum either way.

"SEC. 14B. To achieve these ends the Federal Reserve Board is instructed: "1. To order the Federal reserve banks to purchase securities in the open mar ket and pay for the same by issuing Federal reserve notes and other forms of reserve bank credit until the price level shall be restored to 95, and then to stabilize the price level at 100, by regulating the quantity of the Federal reserve notes and other forms of reserve credit and by a proper adjustment of the height of the rediscount rate. Section 16, paragraph 2, of the Federal reserve law is amended to authorize securities of the Federal Government to become suitable collateral for the issuance of federal reserve notes.

"2. Whenever the price level is below 100 the Reserve banks shall offer federal reserve notes to the banks, corporations, and individuals in exchange for securities of the Federal Government at the market price.

"3. The reserve banks shall at once purchase on the open market $2,000,000,000 of Government securities and pay by issuing Federal reserve notes, to be equitably distributed to the cities of the Union; and one month later if necessary to the restoration of the price level to 95, to issue enough more money, adjusted equitably among the cities, to quickly attain the desired end.

"4. To retain gold as standard money in connection with a stable price level at 100. Gold is to be driven abroad in vast quantities, to enable the former goldprice countries to resume the use of gold as standard money, thereby to restore a fixed par of exchange for the shipment of gold. The amount of coverage for the federal reserve notes and other forms of treasury notes of the United States shall be 1,000,000,000, and the Federal Reserve Board is instructed that if necessary for the maintance of said limit to reduce the quantity of gold in the dollar. The gold reserve of the Federal reserve banks and of the Treasury Department shall not be depleted by withdrawals of gold by corporations or individuals except for free export; and the reserve banks shall attract to themselves the gold in private hands. Gold certificates shall be retired, and gold shall not be deposited as collateral for Federal reserve notes. Gold shall not be used as a reserve against deposits in the Federal reserve banks. See Chart 4, Monetary Gold Stock in United States.

"Hereby there are amended the various parts of the law to conform to the preceding details.

"SEC. 14C. The price level index to which the Federal Reserve Board shall conform shall continue to be that of the Department of Labor previous to January 1, 1932, the index with 550 commodities, to be issued once a week. Each month there shall be issued an all-commodity index for each reserve district, the choice of commodities to be equitable as between producers of raw materials and manufactured products, and as between debtors and creditors, and preliminary to the final decision as to the commodities to be included to conduct hearings and publish the same.

"SEC. 14D. The Federal Reserve Board shall consist of three members, who shall be experts in the science of money and the stabilization of the price level, and who for at least three years shall have advocated the stabilization of our American price level. They shall be appointed by the President, with the advice and consent of the Senate, and hold office at the will of the President. The salary shall be $12,000 a year, payable monthly, plus actual necessary traveling expenses.

"SEC. 14E. The President's instructions to the Federal Reserve Board shall be in writing, and be placed in a book accessible to the public.

"SEC. 14F. The Treasury Department shall conduct its operations in conformity to the policy of the Federal Reserve Board.

SEC. 2. The short title of this act shall be "The stabilization of the price level act."

Mr. SHIBLEY. Mr. Chairman and members of the committee, I thank you.

Mr. GOLDSBOROUGH. We thank you, Mr. Shibley.

The subcommittee will adjourn subject to the call of the chairman. (Whereupon, the subcommittee adjourned, subject to the call of the chairman.)

APPENDIX

FORMAL STATEMENT OF HON. O. B. BURTNESS, OF NORTH DAKOTA, IN RE H. R. 20 AND H. R. 21

Now let me come specifically to the two bills to stabilize the buying power of money introduced by me on the opening day of this session. I will first refer to my H. R. 20, which is a fourth revision of a bill first presented in 1923. It has been before your committee longer than any other and was, I believe, the only bill for stabilizing the dollar introduced during the sessions of the last Congress. The principles on which it is based are set forth in my speeches printed in the Congressional Record, June 28, 1926, and March 2, 1931. The plan is further discussed and the bill explained in detail by its author, Dana J. Tinnes, of Grand Forks, N. Dak., in a statement which I will present on his behalf but if not sufficient time to do so will ask to have printed in the hearings following my remarks.

The bill in effect retains the gold dollar as the standard of uniformity, while setting up a composite goods-dollar as the standard of stability. Many confuse these two aspects of standardization and declare themselves for "maintaining the gold standard" when they merely mean maintaining redemption in gold, thus continuing a gold unit as the standard of uniformity, though they fully realize its unfitness to serve as a standard of stability.

We must differentiate these two aspects of standardization. Full standardiza tion implies not only assurance of uniformity, but assurance of stability in its essential quality, and the essential quality of money is its buying power. Every real yardstick is not only of the same length as every other yardstick but it is itself of the same length at all times. Every true pound weight is not only of the same weight as every other, but it is of the same weight at all times.

In the sense of uniformity our dollar is standardized. Every dollar, whether of paper, silver, or gold, is like every other in its essential quality-value. It is made so by its legal exchangeability, direct or indirect, with every other; for value is simply rate of exchangeability, and things readily exchangeable on equal terms, one for another, remain of the same value, which in money is called buying power. But in the more important matter of stability, our money is unstandardized. The gold dollar, and with it all media of exchange held at par with it by redeemability, changes in its essential quality, buying power, with every change in the buying power of the metal, gold. This is shown by the changes, not in individual prices, but in the average of prices which we call the price level. The only way we have of comparing the buying power of money at different perioda is by condparative measurements of the price level. For the price level and the buying pna of money are reciprocales; as one rises, the other falis; by region & R both may be held stable.

Since it is manifestly impracticable as well as undesirable to price £x all wor modities, thus stabilizing buying power indirectly, the dollar must be, BOL), NÅ directly, by regulation of its gold weight. And this is the natural way, for money should be the tool of commerce. One does not trim the foot to fit the MIK, DA fits the shoe to the foot. Believers in sound money agree that the doar i buying power in proportion to the weight of gold in which it is redene, N more gold will buy more goods and less gold less goods. It lojzy ban that any change in the dollar's buying power due to other cause can we wowot by prompt corrective regulation of its weight.

Gold coins no longer circulate. International trade balam we wish gold by weight, and all gold dealt out by the Treasury for use in art but suaustkature is in bars marked with their weight. Gold coins are to joteur 2 vONNVASADA, There remains no reason for coining them. Redemption in pod tady vi mean redemption in the weight of goid shown by the curress 12 13 14

this in mind it becomes clear that the weight of the dollar tisa na viaquat gold bullion dollar, can be regulated and so stabled by . funny promo adjustments of the mint rate.

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