Assisting this main stabilization process is a continuous regulation of the supply of currency to the needs of business, additional currency being issued as the need for it increases. These additional issues can not cause currency i tion, for they are put out only at times when the decrease of the mint rate show a rise in the value of the redemption metal, gold. Since all credit extended payable in currency, this steadies the use of credit the country over and lessee the need of weight adjustments.

Let me illustrate the operation of this plan: The present depression began: the month of July, 1929. Had this bill gone into effect before the end of that month, the weight of gold to be paid out for a dollar on August 1 would have bee reduced slightly to counteract the downward pressure on prices shown during the preceding day. For a dollar calling for less gold would buy less goods, thus te to sustain the price level. And on every day thereafter there would have been a similar slight raise of the mint rate so long as the downward pressure of the price level continued.

It is not to be expected that each of these infinitesimal daily weight adjustments would be at once fully effective in blocking the decline. But any so-called a there might be would be due to the smallness of the adjustments and would be taken up as soon as by cumulation it became noticeable. Also, no price-lerei trend is continuous, or unbroken. There are days or weeks when inflation depression tendencies are temporarily checked. Sometimes, as in August, 193. the trend is checked and, as in September of the same year, it is reversed. Wit our daily measurements of price level tendencies, many such checks or reversals will be shown which are now ironed out in the monthly averages. And each of such checks or reversals will absorb whatever lag may then exist.

Could the slump of price level have continued two and a half years while the dollar in which price is measured was growing lighter and while the supply money in circulation was being prevented from shrinking? This would not be change but prevention of change. The bullion dollar would change frequenty in its gold weight to prevent change in its only essential quality-buying power And blocking change in the value of the gold unit would at the same time state the currency and with it all credit extended and all contracts written in terms of that currency.

I have shown what would have been the effect had this bill been adopted before the present depression began. Should it be passed now, it would prevent price-leve disturbance in future and the existing price level would ultimately become the fair and normal level. But prevention of future unfairness would not relieve those who now suffer from a load of debt laid upon them by this depressi To relieve them a debt-adjustment section is suggested by Mr. Tinnes in the statement to which I have referred. Adjustment of debts by such plan would by reduction of interest charges on public bonds, make possible a great reductice of taxes. Some might question the practicability of such debt-adjustment pro sion and some its constitutionality. In any event either it or the plan proposed in H. R. 21 seems necessary to take care of the interests of debtors at this time of an abnormally low price level. It simply becomes a question as to which is the more practical way of handling it.

My remarks thus far relate to H. R. 20, the revised form of my original b This measure could go into effect without the least disturbance of business and it would cause no additional bookkeeping in any line. The fluctuations in the value of gold which would still occur would then be shown by change in the price of gold instead of, as now, by inverse change in the general price level. Th currency and credit in use in trade would become more stable in its buying power than the gold, so the metal no longer would be desirable as a hoard of wealth. There would be an increased use of "lawful money" of the Government in bank reserves. Gold used as collateral against loans would be subject to the same limitations as other collaterals. The "gold clause" in monetary contracts would become obsolete, for the creditors no longer would need protection against inflation nor the debtor against depression. As shown in my speech of March 1932, there would be a great decrease in speculation in gold values. But if passed under present conditions it should, in justice to debtors, include the debtadjustment feature to which I have referred.

The companion bill, H. R. 21, is an adaptation of H. R. 20, intended to fit the conditions then existing, without the need of the debt-adjustment feature. It aims to deflate the dollar by raising the commodity price level to the stage at which the bulk of existing debts were incurred. It was written just before Cogress convened. The buying power of money was already inflated 50 per cent as compared with the beginning of 1926 and more than 43 per cent as compared

The

with July, 1929, which was the month the present depression started. average of prices had gone down 31 per cent in 28 months with no prospect of its being checked for months ahead. An avalanche is more easilystarted than stopped.

The proposed raise of 35 per cent would take up little more than four-fifths of the inflation of the dollar since the present price slump began and less than twothirds of its inflation since January, 1926. Such a raise seemed fair. Were it not that prices were still falling, more allowance might have been made for debts contracted in the two years past though, from the debtors' viewpoint, most of these were but renewals of former indebtedness. The price slump continued until about the 1st of February. According to the index of the Bureau of Labor Statistics, wholesale prices continued declining throughout December and January. Even during the last week of January the drop was as great as one and one-third per cent. During February there was no decline. Should this let-up prove to be more than temporary, a less price advance might result in the greatest good to the greatest number. For new debts are being incurred and new contracts being entered into daily and older debts liquidated. Possibly the 35 per cent advance proposed should be changed somewhat. This could be effected by a slight verbal change in the bill. However, that is a detail which can be worked out by the committee in a way deemed most fair in the interests of the general good.

The 35 per cent raise proposed is effected mainly by the devaluation of the gold dollar in section 1, reducing its weight to 1 gram 250 milligrams, with a ratcheting proviso in section 6 which prevents any downward adjustments of the gold dollar until after the average of commodity prices shall have been reduced to the desired stage. The bill also increased the volume of Government currency sufficiently to prevent money shortage being caused by the devaluation of the unit. Government money is but a minor part of the supply of trade media. Should its volume at the start be insufficient to carry out the purpose of the bill, more currency will be added and all of it provided with not less than 40 per cent backing.

A bill to amend the Federal reserve act to induce cooperation by the Federal reserve system was written to accompany this bill but the new bills by Congressmen Goldsborough, Strong, and Ramseyer so nearly covered the same ground that it was not at first introduced. I did, however, introduce it on Monday, March 14, as H. R. 10487. Such legislation should grant no new powers to the system but should guide it in the exercise of powers already possessed. Fundamental functions of the Government, such as controlling the weight of the unit of value by regulating the price of gold, should not be surrendered to any privateprofit-earning corporation. Neither should wise reserve requirements be virtually nullified by permitting banks to fix their own reserve ratio as proposed by one group. I am not asking you to report H. R. 10487, but I urge you to consider its provisions believing that some of them at least should be included as amendments to the Strong or Ramseyer bill if you report either thereof. The general purpose is similar. It gives a mandate to the Federal Reserve Board to raise the price level to the stage at which the greater part of existing indebtedness was contracted, but not less than 25 per cent.

Silver, in H. R. 21, is given liberal treatment, for the currency is made payable in either gold or silver at the option of the Treasury; and in the redemption fund the proportion of silver carried may be larger than that provided for in H. R. 20. But silver is still dealt out not at a fixed ratio to gold but at its current market price.

A necessary part of the bill is the provision in section 1 making notes, bonds, etc., containing the "gold clause" payable not in a specified weight of gold but in "lawful money of the United States," i. e., in money representing bullion dollars of the gold weight current at the time of payment. In contracts for future delivery of a given weight of the commodity, gold, the amount should be stated in terms of weight.

If written in terms of dollars, with a gold clause added, it becomes a trap for the unwary. This provision in section 1 is needed to protect those who have "gold clause" notes outstanding against them. The deflation of the dollar would not fully protect them as debtors if they were still compelled to pay their dollar obligations in gold at the old weight. We are told by Professor Fisher that he was assured by Chief Justice Taft that Congress has the power to nullify the gold clause in such contracts. This seems startling but I believe it is a correct statement as to the power existing in Congress as distinguished from States.

The first paragraph in section 12 is intended to prevent speculation at the expense of the Treasury; and this is the only feature of the bill which will not do all it is intended to do. For while section I mullifies the gold clause in notes and

other monetary contracts, it will still be possible for people holding gold befor the bill goes into effect to realize directly or indirectly, more for it than it cost them.

There is a remedy for this which will completely do away with gold profiteering Had this simple remedy been applied years ago other nations would doubtless have followed suit and the free gold market would have been, in a large degree restored. It would have prevented the vast impoundments of the metal and cutsequent enhancement of its valure which have been one of the main causes of our economic depression. The remedy which I shall propose and which, for conven ience, I shall call section 17 of the bill, may be considered radical by many. But it is radical only in the sense that it is fundamental and goes to the root of the evil.

Measures not justifiable in the case of other commodities may properly be used to prevent speculation in the redemption metal. The only way to quickly restore our commodity price level to the debt-incurrence stage is to deflate the dollar by reducing its weight, accompanying this by proper regulation of the currency volume as provided in this bill. If this sharp devaluation makes possi ble gold profiteering, then obviously the thing to do is to tax away the profit on such operations.

TAXING AWAY PROFITS ON HOARDED GOLD

I therefore submit for your consideration, the addition or insertion at a proper place of the following two paragraphs. The first will prevent speculators profiting by buying gold before the bill goes into effect and selling it thereafter. Both paragraphs will operate against speculating in the metal at any time in the future.

"SEC. 17. Upon the first day of the second month after passage of this act every person and firm in the United States who since its passage shall have sold or traded refined gold in any form or forms to the amount of 1,000 grams of more, shall render to the Monetary Standard Division a true and accurate report showing the entire profit on such sales or trades. every month thereafter, every person and firm whose sales of refined or assayed And upon the first day of gold purchased before or within sixty days after passage of this act and not included in a previous report, shall have aggregated 1,000 grams or more, stall render to the division a similar report of profits derived therefrom. Upon receipt of said reports, the division shall levy against such person or firm a tax equal in amount to the entire profit thus reported. The tax so levied shall be paid in gold at the mint rate in effect on the date of this report, and the gold so paid in shall be added to the redemption fund.

"Upon the first day of every month after passage of tais act, every person and firm owning or controlling refined or assayed gold in excess of 1,000 grams shall render to the division a true and accurate report showing in grams the aver age daily amount of gold so owned or controlled during the month last past Should the mint rate have shown a rise in the valure of gold during said month, the division shall levy against such owner of gold a tax equal in amount to the rise in valure of the gold so owned or controlled. The tax so levied shall be paid in gold at the mint rate current on the date of the report; and the gold paid in shall be added to the redemption fund."

The first paragraph of this so-called "Sec. 17" is designed, as stated, to bar speculation due to the devaluation of the dollar. It would leave no incentive to redeem gold certificates while the bill was going through the legislative process of enactment. The second does not hinder trading in gold later, but taxes swar profits on gold hoarded during an advance in its valure. Hoarding, at best, is an interference with supply demand trade in the metal. The tax would not apply on gold held at times when it is not rising in valure. The first paragraph is, in my judgment, essential and the second worthy of serious consideration. These are the provisions I referred to earlier as a suggestion to perfect section 3 of the Goldsborough bill under consideration.

Opponents of deflation of the unit may suggest the happy thought that enact ment of this bill would benefit not only American debtors but also foreigners owing debts due in dollars. That I readily admit and in reply say it is an added argument in its favor. Are not our European debtors entitled to such a benefit? Their debts to us were entered into when the dollar was much cheaper, as meas ured in goods, than it now is. We oppose cancellation of foreign debts to us but can we, with good face, oppose their payment in dollars of about the same buying power as the dollars they borrowed. In any event any devise or change

in conditions which will increase the price level will to like effect benefit the foreign debtor.

The redeemability of our currency should be maintained, but not on the discredited fixed-weight gold standard. Justice to debtors, taxpayers, and property owners demands that the grossly inflated dollar be deflated. I feel the automatic plan proposed by H. R. 21 is sound in every respect. When some such plan is adopted there will be a demand for suspension of redemption in gold until the price level gets back to normal, but would it end there? Suspension is dangerous, for we have no assurance that redemption would be resumed on a proper weight basis when prices become normal and no safeguard afainst a recurrence of our present maladjustments.

Most of the countries of Europe are off the gold standard and their price levels have gone up, with considerable temporary advantage to their people. But, of course, redemption must be resumed on some level or their currencies will go the way of the Kaiser's mark. Should they revalue by deflating their gold unit at some fortunate point, as did France, they may become prosperous. Should they do as did England a few years ago, push their price level down and their debts up by greatly overvaluing their units at the time of redemption, they will suffer. England's suspension later raised her price level, thus enlivening business and relieving debtors of at least a part of the unjust burden laid upon them by the forcing down of prices. Business has picked up despite the raising of the bank rate to 6 per cent and the restriction placed upon foreign trade. An Economic Survey by Handelsbanken, one of the two great banks of Sweden, has the following: "England's suspension of the gold standard gave a certain impetus to the economic life of the country. A similar effect was felt in other countries that released their currency. The contrary was the case in the gold-standard countries."

Suspension is not desirable for us, but unless we enact legislation along the lines I propose we may find it to be the only way to throw off the incubus of a fixedweight gold standard. The thinking public must learn to distinguish between maintenance of redemption in gold and the maintenance of a fixed weight of an unstable metal as our standard of stability. Should suspension become necessary it might be followed by redemption on a fair level and thus do substantial justice temporarily.

On the other hand the only system that can give us real monetary stability not for a few months, or a few years, but permanently, is the establishment of an all commodity standard that will operate automatically and will leave little or nothing to human discretion but will be administered by the government itself. Only in that way will Congress perform its full duty under the constitution to regulate the value of money.

I confidently submit for your earnest consideration and approval either one of these two bills, H. R. 20 or H. R. 21, as well thought out legislation based upon sound economics to serve as a basis for your work to bring about the reform so sorely needed. Enactment thereof would permit debtors to retire their indebtedness, would safeguard the securities held by creditors, including all financial institutions, would greatly minimize the age-old struggle between capital and labor by doing away with changes in the cost of living, would reduce the hazard of all business enterprises by taking on the gamble involved in fluctuating general price levels (fluctuations in the value of gold), would remove the key log in the jam blocking restoration of prosperity, would end the tremendous losses incurred by creditor and debtor classes in the past whenever the price level has increased or decreased, and would greatly minimize, if not absolutely prevent, recurring depressions in the future.

These and many more will be the good results of any legislation permanently providing a monetary unit constant and stable in buying power. This committee, Congress, and the country are confronted with no task of as transcending importance as that of providing at once and for all time to come an "honest dollar."

STATEMENT BY DANA J. TINNES, OF GRAND FORKS, N. DAK., AUTHOR OF THE BILL TO STABILIZE THE BUYING POWER OF MONEY, H. R. 20, SPONSORED BY CONGRESSMAN BURTNESS

Whatever the chief cause of the present depression, the central banks thus far have failed to stop it. If we are to have price level stability, we must make our currency what it was intended to be, a purely national monetary system. The free gold market is a thing of the past. We must cut our money unit free

from foreign monetary entanglements by making the weight of our gold reder.p tion unit subject to regulation by the guidance of a scientific price index number paying out at all times a dollars worth of gold for a dollar; more when got cheapens and less when, for any reason, it becomes dearer.

The money of a country can be stabilized independently-nationally—and no other way. Cooperation by other countries in a movement for approximate stability of all moneys might be desirable as an aid to real stabilization of nati zai units; but it could not be a close approximation if based on a world index number For a world index could be but a compromise between the various domestic price levels, and a unit based thereon would be really stable nowhere.

To be desirable, such cooperation must not aim at establishment of a wer currency; nor at the pegging of exchange rates on national currencies. Esc nation must be left free to stabilize its own money in terms of domestic baya power. No country should be made to suffer for the financial mistakes or deeds of others, nor should the domestic price levels of weaker countries be dragged up or down, particularly down, at the "discretion" of the financia and commercially dominant.

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Neither should such cooperation involve the valorization of the money metas by any group of financiers or experts, whether Government appointees or se appointed. For, as clear-headed Elizur Wright wrote long ago: "The creati of the best possible measure of debts * is a function of the soverei * * * and any such class * * * that should get control of this great function would be in fact the governing power, with the national govern ment as its subaltern." Matchless business foresight could be displayed by the who thus held the power to have their forecasts fulfilled.

power

MONETARY STABILIZATION MUST BE NATIONAL

Each country must stabilize separately its own unit. A world index could! constructed by which each country's price level could be adjusted to the avers of all. But this would make them all unstable in terms of domestic buying power. Neighboring countries with common free markets within the same tarif walls may have a common currency; but between countries not so situated there must always be exchange rates, shifting with the trend of trade, with credit co ditions, and with other influences which now affect them. However, with the cheapening and speeding up of means of communication and transportation and the possible lowering of tariffs, the price levels of the various countries will difer less and this will tend somewhat to steady exchange rates.

Should a secondary money, a monetary Esperanto, seem temporarily desirabi for use in foreign trade, we have it at hand in the gram of gold, uncoined. Such unit, under the name 'gram-d'or," was proposed by the present writer in the American Economic Review in 1918. Three years later, an Englishman forward as a world unit another weight of gold, one and two-thirds grams, ba it the "pois-d'or," abbreviated "dor."

The gram-d'or, or to adopt the briefer name, the dor, would be worth at the present mint rate about 60 cents. A larger denomination, the "kildor," abest $600, would be useful in large transactions and in statistics. The par of excha between the stabilized dollar and the gram of gold would be shown each day by the current mint rate. Such a unit, being a fixed weight of gold, would be suitable for long-time transactions which should be in terms of a stabilized grat For generations the pound sterling has been the international medium of change, and this has been a disadvantage to us. To make our dollar the word medium would disadvantage the British, and no other country would be wh satisfied with either the pound or the dollar. The dor, specially favoring te should be acceptable to all. Amounts called for in international trade w appear automatically in grams, the weight in use in most of the countries of the civilized world.

Bridging the gaps between the moneys of the various nations, the dor would serve as a medium for simple and uniform exchange quotation. For, artificially "pegged," exchange rates will fluctuate as in the past. Should it found desirable to peg the rates between safely solvent nations, this could be done with the dor without interference with the national units, stabilized or stabilized. The gram-d'or proposal, though advanced by the same author not, of course, included in the Burtness bill. It is mentioned here because oppe nents of real stabilization have used the supposed need of an international mon as an argument against passage of the bill named. It meets whatever demand there may be for a world currency without handering the urgently needed stabd

tion of national units.