heipful if we can-my view is that no human agency that has ane unlimited power in the matter of credit, and which bas en m. pressure inevitably brought upon it from various sources, can be rem upon to exercise at all times the judgment which is going to be to the best interest of the people as a whole: and that there should be someasure of control over the judgment of those who are to exer this enormous power. I think it is helpful to them. For insta we will leave out this question for the minute, of raising the pr level, and speak about stabilizing the price level.

Governor HARRISON. YES.

Mr. GOLDSBOROUGH. I feel that in anything like normal the specific directions to the Federal reserve system to use its per maintain a given price level will tend to decrease very greatly the periods, or stop these periods of expansion and these periods of oth tion which so destroy confidence and produce the very mental dition that you are speaking about. And I feel very strongly tha there ought to be legislation to stabilize the price level.

Now then, there is in this measure which we are considering a direction to raise the price level, and for the Federal reserve syste to use all its power for that purpose. I do not think in the count the country is now in we can rely upon the action of the Fect reserve system without the announcement of a policy. A batt may look at his bulletin on Saturday or on Monday morning and → that the Federal reserve system has during the previous werk p chased $25,000,000 worth of Government securities. But that O** not restore his confidence under present conditions because be dire not know what the board is going to do next week. And the men's condition of the individual banker is that he is trying to get in t can and lend as little as possible. If this legislation just as it is, w its mechanics corrected, were passed, the Federal Reserve Boar could call in the newspaper reporters and say that Congress has give us legislative directions to raise the price level to a certain point, and to use all our powers to that purpose, and we want you to ancor to banks and public men at large that we propose to go into the with the enormous reserves we now have available under the Ga Steagall Act and buy $25,000,000 of Governments every day the price approaches the level of that of 1926: and then we are g to feed those securities back into the market. My judgment is that if the bankers and business men knew that that was going to be the policy of the Federal reserve system, the anounced policy, it wo restore confidence immediately and I think that the small mercha in my town and in everybody else's town, knowing that that was the policy of the system, would immediately buy stock from the who saler and the wheels of business would turn, and I do not think ths: anything else except some policy of that kind is going to stop the decline. Now, I wish you would just comment on that.

Governor HARRISON. I am glad that you have particularized the discussion in that way, because I stated that I would elaborate ce some particular period as a basis of fair discussion, but I find that I' is difficult to go over past periods without provoking misunderstanding. The point I wish to bring out to the committee is that wha we wanted to do was often interrupted by factors beyond our contro and therefore no mandate to the system to raise the price level would by itself have been effectual.

Now, as to the particular problem, we have bought since the crash in the stock market approximately $800,000,000 to $850,000,000 of additional Government securities. There were periods when that procedure was checked or slowed up by various factors which if I attempt to elaborate now would provoke another discussion. There came a time, however, when after all the huge withdrawals of currency for hoarding purposes, and after the withdrawals of gold for purposes of paying foreign deposits, we had in the system a relatively small proportion of free gold as distinguished from our real excess gold reserve. That was due to a technicality of the act. I think it was a technicality of the act-others think that it is a fundamentally sound provision in the act. At any rate, because of that provision, whether a technical one or a wise fundamental one, there came a time after these other events when you would not have wanted us to buy too large an amount of Government securities lest we risk not our excess gold reserve, but our so-called free gold which is much less than the excess gold reserve. Even so, with that limitation and with the risk that the system's gold possibly would have been pinched between withdrawals of domestic deposits and withdrawals of gold from without, we have made fairly substantial purchases-between $800,000,000 and $850,000,000 of governments-since the fall of 1929. In addition to that, while I would have liked to proceed further and faster last year, I was adverse to doing so till we had the protection of the Glass-Steagall bill.

Now, as soon as we got that protection, the system agreed upon the purchase of Government securities at the rate of $25,000,000 a week, which has proceeded now for seven weeks. I may say we should have gone faster; others may say we should not have bought them at all. There is no field of human interest that I know of which is so subject to emotional debate as this one of economics and finance and while I myself am perhaps more sympathetic with speedier action, I understand the views of others who think we might have gone a little slower; $25,000,000 a week is not a small amount, especially when we have to realize the technique of the operation.

Mr. GOLDSBOROUGH. I merely used $25,000,000 a day as a matter of illustration.

Governor HARRISON. Yes, I understand; but I am trying to give you the position we are in. We bought that $25,000,000 a week for seven weeks. Perhaps we could have gone a little faster without clogging the banks by giving them too much excess reserve. If you give them too much excess reserve when they lack confidence it is just like flooding the carbureter of an automobile. It is a very

difficult balance of judgment to say how fast you should go or how slowly. It is hard to say in advance which ones are right. We can only judge that in the future. But one of the most important elements of success is confidence. With a let up in the hoarding of currency and gold exports, together with the great work of the Reconstruction Finance Corporation in helping to stop bank failures, and banker's mind is now a lot easier about his own position.

Mr. GOLDSBOROUGH. Do you think so? Have you gone out and talked with bankers?

Governor HARRISON. I think they are a great deal easier. Their attitude toward making loans and investments is noticeably more liberal. Because of our purchases of securities, and as a result of the return flow of currency you will find that the discounts in the system

have gone down from $850,000,000 at the end of June to abo $625,000,000 now. That does not sound like much, but in our expe rience in the Federal reserve system such a reduction in discounts of borrowings from the reserve banks operates as a real relaxation in the attitude of lending banks. We hope to get discounts down further Now, the question is, how much further we should go. Let us suppose we should go r-hundred millions further. The specific question you asked me was whether we should announce that we had deter mined to go x-hundred millions

Mr. GOLDSBOROUGH (interrupting). No; not whether you had de termined to go so many millions further, but that you had announced a policy after the passage of this bill that you were going to raise the price level to a certain point and you were going to continue to buy till that was done. That is a very different proposition.

Governor HARRISON. Yes; I think so. I think it is a very much more difficult proposition because I do not think there is any one power or authority in the world that can say they are going to raise the price level. There are so many factors to be taken into consideration; unless you have control of all of them (even human psy chology), you can not be assured you can raise it.

Mr. STRONG. You say that because of your action things are easing up. About a week ago a banker whom I do not know personally but I think he has got a good deal of information, came down from New York and said that things in New York were worse than they have been.

Governor HARRISON. What was he talking about?

Mr. STRONG. The minds of the bankers in New York, and the stock market has continued to sag since. That does not show that your action is helping conditions up there much.

Governor HARRISON. Put it this way Congressman: It is hard to appraise different individuals' minds; but during the last quarter of 1931 bank credit was declining in the country about 24 per cent per

annum.

Mr. GOLDSBOROUGH. Bank deposits were decreasing about $25,000,000 a week, were they not?

Governor HARRISON. I think you will find they were going down even faster than that. The total volume of bank deposits in the last quarter of 1931 was declining at the rate of approximately 24 per cent per annum. In the first quarter of 1932 that decline was pretty nearly at the same rate, possibly slightly less for the country as a whole. In the last three or four weeks the decline in bank deposits has levelled out so that it is almost flat now, and while it is difficult to particularize, when I said conditions were easing so far as loans and investment policies are concerned, I meant they were no longer getting worse and were just about holding their own. They can not go up until they stop the decline. With that checking in the decline

of the credits

Mr. GOLDSBOROUGH. You think that is due to increased confidence, do you not?

Governor HARRISON. I think it is.

Mr. GOLDSBOROUGH. My proposition is to help that.

Governor HARRISON. I have not one objective in mind that is different from that in the minds of every one of you. I think there never was a time when conditions deserved a more frank discussion of ways and means. The difficulty is that when you get in a hole

like this, so many minds feel so differently it is hard to get concerted action; and who may be wrong and who may be right is a matter of real debate. But having in mind the objective you have in mind, I think the Federal reserve has directed its policy just about as it would have done even if it had had a mandate from you.

Mr. STRONG. Nobody knows when you are going to change that policy?

Governor HARRISON. We are going pretty fast in the open-market purchase of Government securities. I think, on the other hand, there is a great part of the public who think we have gone too fast. Mr. STRONG. Who are they?

Governor HARRISON. When I say "public" I mean depositorsforeign depositors were alarmed when we spoke of buying securities, because it looked to them as if we were going to start a currency inflation, which was not true.

Mr. GOLDSBOROUGH. Take this particular bill: If you will allow me to interrupt you, it not only directs the Federal reserve system to raise the price to the level existing before the present deflation, but it directs the Federal reserve system to stabilize after reaching that point and then in section 2 it gives the system the additional power, in case they do not have, for instance, sufficient Government securities to feed out into the market themselves to issue debentures to further stabilize. Nobody can call that an inflationary measure— nobody who understands it, it seems to me. It is certainly not the intention.

Governor HARRISON. I think all this discussion of the word "inflation" is very unfortunate, because it has so many different connotations. For instance, in Europe and that is what caused a good deal of our trouble when we had the reaction against the dollar last fall, and when we had the reaction against the dollar in Januaryit was because of certain articles appearing in French and other European press, charging us with embarking upon a period of "inflation." I wish somebody had told us how we could have done it even if we had wanted it at that time. The talk about inflation at that time when business was suffering worse than it had ever suffered in any comparable period and when commodity prices had gone down and down, and when wages had been cut markedly, and security values were off nearly 75 per cent-the talk about inflation shows that those who use the word do not understand the conditions in this country.

Mr. STRONG. When they should use it? Are you going to take their advice, and advice of people who do not know one thing about it? Governor HARRISON. No; we have not taken their advice.

Mr. STRONG. I can not understand why when price levels are the lowest in history, I could excite anybody to talk about inflation? Governor HARRISON. I would like to discuss that. A minute ago when I used the word-when I said that the use of the word "inflation" is unfortunate I meant it.

Mr. GOLDSBOROUGH. Right at that point, there is one thing, it has been suggested that it would be very helpful in the matter of stabilization (after we get back on a normal basis) if the reserves of the member banks were raised and lowered automatically with the raising and lowering of the price level. Have you heard any discussion of that kind?

Governor HARRISON. No, sir; I have not. That is a thing would like to think over a little before I made any comment on it I mean that I do not think at this time any of us should discar anything right "off the bat" if there is a possible means of work out a solution. Off-hand, I do not react very favorably, but l would like to think it over before commenting on it.

Mr. GOLDSBOROUGH. In the discussion of this committee and the Congress there has been one thing uniformly held, and that is the the raising of the general commodity price level is essential. I& not refer to speculation in secutities at all, because I think if ye are going to regulate Wall Street we have to do it by different leg lation. I do not think that ought to be injected into the fisca system that is created for the purpose of protecting the busines interest of all the people.

When we were discussing the Reconstruction Finance Corporation bill before this committee we endeavored to find out whether the Federal reserve system thought that it would result in a raise of the price level. It was suggested that the measure would restore confidence and in that way it would put business to work and that that would have a healthful effect on the price level. The word "psychology" was used very many times, I think tremendously overworked both in that discussion and the Glass-Steagall discussion. Now, we can not tell what would happen if those measures had not passed. In my opinion we would have been in a worse condition than we are in now; but as far as the country is concerned they ea not see that either one of those measures has had any effect at sl because price levels have not been raised and business conditions have not improved.

So I believe that it is the very definite feeling of this committeea very definite feeling of the Members of the House-that we should pass some legislation which would raise the price level. If you want to call it "inflation" it does not make any difference to me except for the effect it might have on somebody else. Now, if this bill we have before us would result in raising the price level I believe we are going to report it out. If it will not, then I do not believe we w report it out. If it will not, we would like to know from you, at acknowledged expert, and other experts, what can be done to raise the price level. We think that is, I think and I believe that this committee is close enough together to each one of us to know the attitude of every other pretty well; and I think and have not the slightest doubt in the world about it, that if the Federal Reserve Board should announce the policy that they were going into the market and buy a certain number of securities each day or week as the case might be untill a certain price level was reached, and tha: after that they were going to stabilize the level, it would restore the confidence of the country almost like magic, and that within ninety days the country would understand that the difficulty had bee passed, and that we were on the way to rebuilding the country economically.

Now, that is my opinion and I believe that is the opinion of the committee.

see.

Mr. STRONG. That is mine.

Mr. BUSBY. I feel the same way about the matter as far as I can