INVESTIGATION OF ECONOMIC PROBLEMS THURSDAY, FEBRUARY 23, 1933 UNITED STATES SENATE, Washington, D. C. The committee met at 11 o'clock a. m. pursuant to adjournment on Wednesday, February 22, 1933, in room 335 Senate Office Building, Senator Reed Smoot presiding. Present: Senators Smoot (chairman), Watson, Shortridge, Thomas of Idaho, Metcalf, Harrison, Barkley, and Gore. Senator WATSON (presiding). The committee will be in order. We will first hear Mr. Garvan. STATEMENT OF FRANCIS P. GARVAN, PRESIDENT CHEMICAL Senator WATSON (presiding). State your name. Senator WATSON. Where do you live, Mr. Garvan? Mr. GARVAN. New York City. Senator WATSON. What is your business? Mr. GARVAN. I am a lawyer. Senator HARRISON. Mr. Garvan is the head of the Chemical Foundation. Senator WATSON. Yes; I know that. I just wanted to ask what your present relations are with the Chemical Foundation? Mr. GARVAN. I am still president. Senator WATSON. Now you may proceed and make any statement you have in mind. Mr. GARVAN. I know your time is very precious, and I am only going to take up just as little time as I can. You have asked what I think is the main trouble today. I would say lack of arithmetic and lack of morality. And on those two propositions I have come prepared to speak. I am convinced that one of the great causes of the panic in its inception, and the main cause of the long continuance and depth of our depression, is the fact that our credit system, the life-blood of the country, is in the hands of a few private individuals without restraint or regulation by the Government, and the further fact that these private individuals have now become controlled in their policies by foreign partners and foreign influences. The first of these facts was elucidated and proven in the report of the Pujo committee in 1912, and perhaps even better than the report, the significance of the facts developed there was set forth by Mr. Justice Brandeis in a little book entitled "Other People's Money," which was published in 1914. That these facts are as true today as they were then is proven by the fact that Mr. Brandeis has just consented to a new edition of that book without the change of one word. That after his twenty years of rich experience he is willing to reiterate without change his findings in his early book. 159450-33-PT 5——6 597 These findings were neglected by Congress. The war may have been the excuse, but it is only an alibi. That book showed clearly a cancer in our affairs, and called for a surgical operation. Since that time palliatives and alleviatives may have been applied, but the knife was not used. I believe that the cancer has grown. These private individuals first and immediately thereafter fed upon frightful war profits. These same individuals became the greatest profiteers of the war-one of the firms, it is said, to the extent of over $700,000,000. Their hold upon American business, American funds, American education, art, music, and ideas has grown steadily. And I believe it is now our duty to free our banking from private control. That it is a government function. The gold dollar and our credit system-you can use them interchangeably-are our first and most important public utilities. There are two functions of deposit. One, it is the money of the depositor which he should have the right to repossess himself of at any time. Two, each deposit constitutes a part of the well of credit or the savings of the American people. The caring and policing of that well to see that it is not poisoned, to see that it is not run off into waste places, and to see that it is not used in hostility to the best interests of the people, to see that it is available to all those who properly need it, is the business of government, and without such supervision we will have hereafter an increasing and more intensified succession of troubles such as we suffer from to-day. It is my recommendation, without making any reflection except the highest praise upon all the investigating committees of the Senate and the House and the Congress, which have been doing such splendid work, that we ask Mr. Justice Brandeis, in connection with this committee, and in connection with the new Attorney General, to form a committee which will bring the Pujo Committee's findings up to date. You can not investigate by a committee which can sit only a few hours a day with men like yourselves who are overcrowded and overwhelmed with the business of your Senatorial position, and yet that committee needs your ripe experience and your guidance. That the ripest and best mind to-day I believe is Mr. Justice Brandeis. If the reports in the papers are true and your Senator Walsh is to be the Attorney General, the Attorney General office has all the facilities without further expense to make a complete investigation, only having public hearings when the facts have been collated and properly examined into and tested. So that we may, as I say, bring the Pujo Committee hearing up to date. This becomes all the more important when we recognize the fact that the control of credit is not alone a domestic proposition, the control of domestic credit, but we have now got to take control of our international balances. These international balances are to-day in the hands of bankers who are English-American, French-American, German-American. The members of the American firms in many cases are members of the English firms. So that our international balances are something unknown, something secret; the transfers and the strains which are used before you as arguments for either cancellation of debt or other legislation, are an unknown quantity. I do not want to be thought for a moment or to be considered as criticising or to reflect upon any of the investigating committees. Of course we all agree that they are doing splendid work. No committee did better work than Senator Johnson's committee on the foreign loans. But it stopped at the short-term loans. The cry was raised that that would affect business, if you went into the short-term loans. The result is your findings are only a piece of it. The next thing you know $800,000,000 is still halted in Germany. You do not know how much is anywhere else. I picked up the report of the American Acceptance Council the other day, dated January 20, 1933, and I find an item there of shortterm loans in these days of stress based on goods stored in or shipped between foreign countries, goods that we have no possible interest in whatever-$227,000,000 to-day. In the first place the difficulty seems to be that the Government has no proper set of books. No balanced ledger has ever been made up. In 1922 the Department of Commerce started to make up a current account for the year, and that has been kept up, and of course is very useful. But no effort has been made to establish how we stood in 1922, and of course it is full of holes due to the private control of the sources of information. As I say, your short-term loans are absolutely incomplete, and I attempted in coming before this committee to obtain the information as to how much of our money was being loaned abroad to-day. Senator WATSON. When you speak of short-term loans, Mr. Garvan, do you speak of international loans? Mr. GARVAN. International loans. Senator WATSON. Not domestic? Mr. GARVAN. Yes; international. I was answered back that there was a statement made to the head of the Federal reserve bank, but that that was a secret statement. That it did not belong to the public. And therefore I can not judge of its completeness or incompleteness. Senator WATSON. Of course you do not speak of national loans. You speak of individual loans? Mr. GARVAN. I am talking about the banking loans. Senator WATSON. Yes; loans to corporations. Mr. GARVAN. Yes. Senator GORE. And you classify as short-term, loans of less than a year? Mr. GARVAN. Yes. I have done my best to bring together into a balance sheet the current accounts of the past 10 years. And I have made up a copy for each of the Senators. I will explain it, Senator Gore, as I go along with the items. Senator Harrison. This will be put in the record. (Condensed statement of the International account of the United States with the World, setting forth our net balance on current accounts, i. e., the balance to be settled by capital, long-term or shortterm movements; or gold, for the 10-year period January 1, 1922, to December 31, 1931; and statement of excess of exports of goods and services over imports of goods and services, and comparison of net favorable balances with new foreign loans made and net export of capital through foreign long-term investments, United States with world, are here printed in the record, as follows:) |