Senator COUZENS. What caused that reviving market? Was it because money was cheaper, or higher?

Undersecretary MILLS. As you know, Senator, short-term money has been very cheap for a long while, and I suppose gradually longterm money will become cheaper, but, in any event, beginning with the first of the year, there has been real evidence of a reviving bond market.

Secretary MELLON. It has been most largely because the industrial and commercial demands have been so small. There is not a demand for capital in industry sufficient to absorb a large part of it.

Senator COUZENS. I was wondering, then, if there is little or no demand for capital investments in industry, just what is holding back the development in utilities?

Secretary MELLON. It is expected that the ease in credit, or the lower rates, will stimulate the industrial and commercial demand.

Senator COUZENS. I do not understand where there is any industrial demand, because, from every bit of information I am able to secure, it seems as though the industrial facilities are over extended now. Why new capital for industrial expansion?

Secretary MELLON. Of course, there is a depression, and a readjustment going on, and the more available capital can be obtained, the sooner the industrial demand will take advantage of that.

Senator CoUZENS. But I do not see where there is a demand for industrial development, when every indication in the automobile industry, the shoe industry, and other industries is that they are now overextended. Just why do they need new capital for further extending facilities which they can not now use?

Secretary MELLON. There are many channels for the use of capital. For instance, there is a large road-building program. That entails the building of bridges across rivers. There is a large potential engineering demand. That rests upon obtaining capital at a rate which will justify the operation. A toll bridge, for instance, would have an estimate as to the population to take advantage of it, and, at a certain rate, the construction could afford to go on. But if the rate is too high it would not be justified. So the lower the rate the greater amount of that nature of undertaking or activity. It is stimulated by cheap credit.

Senator CouZENS. That rather draws a distinction between structural work and industrial manufacturing.

Secretary MELLON, I am speaking more of the absorption of capital. The availability of capital will stimulate operations. Senator CoUZENS. În construction.

Secretary MELLON. That is one thing-in construction, but also in many other activities.

Senator WALSH of Massachusetts. May I ask just one more question? If the issue of general securities is below normal, and money is cheap and plentiful, how can it be argued that the Government would have difficulty in floating a loan of this magnitude, and how would the floating of such a loan affect the general price level of bonds?

Secretary MELLON. Just the same as when there is a large volume of industrial loans. Usually, if the amount is too large for the amount of investment capital at the time in the market, there is congestion. Senator SHORTRIDGE. May I ask one or two questions? Mention has been made by the Undersecretary as to our national debt. What is the present national debt?

Undersecretary MILLS. A little over $16,000,000,000. Senator SHORTRIDGE. What was it some years ago, when it was at the highest peak?

Undersecretary MILLS. The figure of about $26,600,000,000 is usually used, as of August, 1919, but that really is not a true figure, because there was a balance of over one billion in the general fund, part of which was used during the course of that year to retire debt. I think the true figure is the figure as of June 30, 1919.

Senator SHORTRIDGE. And that was about how much?
Undersecretary MILLS. About $25,500,000,000.

Senator SHORTRIDGE. It has been reduced yearly by about what amount?

Undersecretary MILLS. It has been reduced, roughly speaking, for a 10-year period, I think, a little over $800,000,000 a year.

Secretary MELLON. A large portion of that was from war materials that were disposed of-salvage.

Senator SHORTRIDGE. From what sources do you get the money to apply to the reduction of the national debt?

Undersecretary MILLS. We get it from the sinking fund; we get it from foreign repayments; we get it from a number of miscellaneous sources; and we get it from the surplus.

Senator SHORTRIDGE. Is it regarded as a wise policy to continue to reduce the national debt as rapidly as we have been reducing it? Undersecretary MILLS. That is rapidly becoming an academic question, Senator.

Senator SHORTRIDGE. If you care to advance your opinion, what is it?

Undersecretary MILLS. I am one of those who believe that the policy of the Treasury for the last 10 years has been extraordinarily wise. That is, in times of plenty, take advantage of the situation and reduce your fixed interest charges.

Senator HARRISON. But there are a great many who differ with

you.

Undersecretary MILLS. That is what we have done. Now we have reached the point where times are not as good, and we are reaping the benefit. Even after taking into consideration the provisions of the sinking fund law, which, as you know, increases year by year by the amount of interest on the debt that has been retired even after making allowances for that, our interest charges this year alone are something like $257,000,000 less by reason of our debt-retirement policy.

Senator SHORTRIDGE. Assuming that we go forward, and that times are normal again, should we continue to reduce the national debt as rapidly as we have been reducing it?

Undersecretary MILLS. That is not going to happen, Senator. That is impossible.

Senator SHORTRIDGE. I was assuming that we would continue at the same rate. If you assume that, we would discharge the national debt as of about what date, looking forward into the future?

Undersecretary MILLS. Up to two or three years ago we had a time table which indicated that the national debt would be retired by 1949. That time table obviously has to be revised, in view of the fact that this year, for instance, there will be practically no reduction of the national debt. We are not going to reduce the national debt this year.

Senator WATSON. It will be reduced by the amount of the sinking fund.

Undersecretary MILLS. No, sir; we are not going to reduce it by the amount of the sinking fund.

Senator SHORTRIDGE. From all funds coming from all sources, you say we are not going to reduce the national debt this year?

Undersecretary MILLS. For the fiscal year 1931, the present indications are that the net reduction in the national debt for the year will be about $65,000,000, but my guess is that by the time the fiscal year closes, that will have disappeared, and there is a very fair chance of the national debt increasing in the fiscal year 1931.

Senator SHORTRIDGE. We have always had a national debt, have we not, from Washington's day to this hour?

Undersecretary MILLS. I think the history of this country will indicate that whenever we have had a national debt created through a war, we have made it our business to pay it off as rapidly as possible. We have paid it off, and that is why this country has been in a sounder condition when trouble came than practically any other country in the world.

Senator BARKLEY. By what amount have you reduced the war debt beyond the requirements of the sinking fund law, up to, say, January 1?

Undersecretary MILLS. Senator, that is a difficult question answer offhand. You would get a rough idea by the amount that has been retired from surplus, without going into the discussion of how far any debt repayments have been used. The surplus over the 10-year period is about $3,500,000,000. The amount of debt that has been retired through surplus over a 10-year period

Senator.BARKLEY. You mean you have retired three and a half billion more than your were required to retire under the law?

Undersecretary MILLS. Yes. But let me point out that during that period we also liquidated a lot of property that really represented capital assets.

Senator BARKLEY. How much of that three and a half billion was represented by property liquidated?

Undersecretary MILLS. A very large amount. We submitted the figures to the Ways and Means Committee two or three years ago, and we can bring them up to date and put them in the record, but I can not give them to you offhand.

Senator BARKLEY. Could you give it approximately?
Undersecretary MILLS. No, I could not.

Senator BARKLEY. Would it be as much as one billion dollars? Senator HARRISON. Do you mean to say, Mr. Undersecretary, that if you just applied the sinking fund and the miscellaneous items and the interest on the foreign debt, that we would have reduced it around five or six billion dollars? Do you mean that we will reduce it by the difference between the $9,000,000,000 and the $3,500,000,000 which you say you have reduced it by raising the surplus from taxation?

Undersecretary MILLS. Yes. The $3,500,000,000 of debt retired from surplus, I think, is a fair measure of the excess debt retirement, but even that amount was largely derived from the sale of capital

assets.

Secretary MELLON. There is this consideration, that the large retirement was accomplished in a time, you may say, of inflation,

when the retirement of a large amount each year was not as much of a burden on the country as it would be under present circumstances. Undersecretary MILLS. Senator Barkley, this is the statement made in the annual report for the fiscal year 1930:

The total of surpluses from the fiscal year 1920 to the fiscal year 1930, both inclusive, aggregates $3,459,000,000, all of which has been applied to the reduction of debt. In this connection, it is estimated that about one-half of these surpluses was due to realization on war assets, such as sales of surplus war property, sales and payment of railroad obligations acquired under the provisions of the Federal Control Act and the Transportation Act of 1920, and collections of back taxes, largely under the high rates prevailing during and immediately after the war period.

Senator HARRISON. And the difference was raised by overtaxing the people, on account of over estimates of the Treasury.

Secretary MELLON. What you call over-taxation was done at a time of inflation, when that was not as much of a burden as it would have been under normal conditions, or in a time of depression such as we have now.

Senator HARRISON. But, Mr. Secretary, the taxes were raised because of the estimates that were furnished to the Congress by the Treasury Department, which were not true estimates. That is a fact, is it not?

Undersecretary MILLS. They were the best estimates that could be made at the time.

Senator BINGHAM. Were the taxes raised? I thought they were lowered.

Senator HARRISON. They were not lowered sufficiently to take care of the surplus.

Senator BINGHAM. There is quite a little difference between lowering them as much as some people would like to have them lowered, and raising them.

Secretary MELLON. The lowering was divided between paying off the debt and reducing taxation.

Senator COUZENS. May I point out at this time the rather strange coincidence that the excess amount that was paid off beyond the sinking-fund requirement, on our national debt, is about the amount required to pay these bonus certificates now, so that, as a matter of fact, if we pay off the bonus now, we are just in the position we would have been in had we not paid off the excess amount, beyond the sinking-fund requirement, on the national debt.

- Undersecretary MILLS. In other words, we will wipe out the efforts of 10 years to reduce the national debt by a sound and carefully thought-out policy.

Secretary MELLON. The burden of payment at that time was not what it would be now.

Senator BARKLEY. But it does not increase the public debt at all. It simply shifts the character of about $3,500,000,000 from one type of obligation to another.

Undersecretary MILLS. I do not think that is strictly accurate, Senator. Paying three and a half billion dollars in 1931 is something very different from paying three and a half billion dollars in 1945. Senator COUZENS. May I ask when the Liberty bonds were issued? Undersecretary MILLS. Roughly speaking, they were issued over a 2-year period.

Senator COUZENS. When were they first issued?
Undersecretary MILLS. 1917.

Senator COUZENS. The Victory loan was the last issue?

I am

Undersecretary MILLS. The first Liberty loan issue was madeSenator COUZENS. I am not talking about the first one. talking about the Victory loan.

Undersecretary MILLS. 1919.

Senator CoUZENS. That was after the war?

Undersecretary MILLS. Yes.

Senator COUZENS. What was the extent of that loan?

Undersecretary MILLS. $4,500,000,000.

Senator COUZENS. And that was raised for what purpose?

Undersecretary MILLS. That was raised, in large part, to take care of a floating debt of about $6,000,000,000. That was more in the nature of a refunding operation than it was new money.

Senator COUZENS. I understood it was largely raised to pay off war indebtedness at that time, indebtedness that was owed to industry and others for material, and so forth, for the prosecution of the war. Undersecretary MILLS. It was, but, as I understand it, almost $6,000,000,000 of short-term paper had been issued gradually in anticipation of this funding operation.

Senator WATSON. Before Mr. McCoy died, I asked him these same questions, and in the last letter I ever had from him, he told me, in reply, that about three and a half billion dollars had been paid on the public debt over and above the requirements of the sinking fund, and that practically $1,750,000,000 of that had been raised by the sale of these war materials. He made the statement-and I am assuming he was fairly accurate about that-that the sinking fund alone would pay off the entire debt by 1946, without the addition of this three and a half billion.

Undersecretary MILLS. That is not an accurate statement.

Senator HARRISON. You did not answer the Senator from California a while ago when he asked you when the debt would be paid off if we kept up the pace in the payment of the foreign debt in the future that we have in the past 10 years.

Undersecretary MILLS. As I say, the time table indicated 1949. That was our estimate up to two years ago.

Senator HARRISON. But that does not answer the question. If we keep up the pace by paying off $9,000,000,000 in 10 years, the estimates I have seen are to the effect that it would take about 14 years.

Undersecretary MILLS. Yes; but I say that until we got into the present period of depression, figuring, as I remember it, on an average surplus of about $100,000,000 a year, and applying the foreign debt payments in their entirety to debt retirement, by 1949 the debt would have been retired. But those conditions are now completely altered. Senator SHORTRIDGE. Finally, I understand you to say that the Government will be called upon, as of March, 1931, to take up or pay $1,100,000,000?

Undersecretary MILLS. That is correct.

Senator SHORTRIDGE. Those bonds bear what rate of interest? Undersecretary MILLS. Those are 3-5 year notes, and they bear 31⁄2 per cent interest.

Senator SHORTRIDGE. When is it that the Government will be called upon to redeem or pay the $8,000,000,000 of outstanding obligations?