a most constructive character, proposals in which both agricultural and industrial interests could meet.

If I could add anything to his valuable suggestions it would be that the program to accommodate a temporary situation by supplemented by one of permanent character through which we should consistently and persistently move to stabilize the volume and value of our agricultural lands, to contract and expand it according to the necessities of effective demand, to plan for the diversion of the present surplus lands into commodities which are now imported, and further to develop new utilization of existing lands and products. I believe that we should set up under a separate corporate structure a Federal Farm Reserve responsible for the contraction or expansion of both volume and values of the agricultural lands through open market transaction therein. I conceive in this an operation similar to that inherent in the Federal reserve system with respect to credit.

Artificial processes that aim to compensate producers for the difference between existing and equitable prices can be effective only through the use of public credit or through the transfer of the existing meager funds from one portion of our population to another. In one case it would impair our credit, in the other it would increase our fear of further drains upon our slender individual resources. In the consideration of these processes and the finances necessary to conduct them much thought has centered in the use of excise taxes in the belief that the commodities themselves should bear the burden of paying for the benefit devised in their behalf. This is a very difficult and dangerous procedure.

We must not overlook the fact that the process of commodity exchange is a very delicate and sensitive piece of machinery and that the existing competitive parities are the outcome of long years of adjustment. They are very sensitive in response to all influences. Over a period of time they have formed adaptations to the change of natural conditions and work most effectively.

To change this natural order by the interjection of any artificial processes would bring inescapable disablements between commodities, substitutes, and replacements and in the course of time inevitably divert the direction of the tax from the consumer to the producer.

Competitive parity as between commodities before the consumer is the essential of price economics. It can not be maintained in the presence of an excise which can not be applied with fairness to ali. It can not be applied to all. In many instances utilization, marketing, and distribution make it impossible, and in those circumstances some disparity is inevitable. Again, commodities differ among themselves vastly as to what proportion must bear the entire excise tax, and thus the tax tends to be multiplied to a point that destroys their place in the general order of commodity relationship.

DEBT SITUATION

Much attention concentrates upon the agricultural debt situation. To be sure, to a portion of farm owners the absolute burden is heavy, but with respect to other forms of private debt its volume and involvement are comparatively low. It is more a matter of income, or exchange equality, than the debt itself. The conscientious agricultural debtor is more interested in his ability to discharge his debt than in its refunding and realizes that were the exchange value of his products on an equitable basis he would possess the ability either to discharge the debt in time or to refund the debt himself if necessary. Again, the solution of the problem is to balance agricultural production with effective demand and thus bring about the enhancement of the price of agricultural products necessary to place their exchangeability on an equitable basis.

Serious consideration should be given to the plan which Mr. Baruch has advanced for redemption of farm mortgages on a discount basis through issue of low interest bearing sinking fund bonds with interest guaranteed by the Federal Government; but I see also the needs for alleviation in other fields.

ANTITRUST LAWS

The restraints upon modern industry by reason of our archaic and antiquated laws are both unnecessary and destructive. They should be revised to conform with modern requirements and necessities. Any dangers of monopolistic control, if they exist, can be combated without retaining the destructive forces of overcompetition and unethical business practice which these present laws impose. We have taken away from industry even the power of regulated discipline, which is the first and necessary accompaniment of every human effort. The continual pressure for existence under the forces of unrestrained overcompetition

makes each individual the victim of every new device or nefarious practice on the part of his competitor.

The welfare of the worker, as social unit and consumer, is recognized as a necessary and vital contribution to the financial success of industry, and yet the processes now imposed by the existence of these laws make labor sustain burdens for the benefits that accrue to others. We do not wish to hamper progress or advancement under which costs and prices are reduced and distribution made more effective, but at the same time there are possible measures of industrial rationalization that can bring to the worker a larger measure of reward and elimination of the hazards to which he is exposed through the varying degrees of industrial activity.

My observations lead me to suggest concentration of legislative effort upon a limited program of fundamentals aimed to restore public confidence. They embody:

1. World economic disarmament, to the end that international trade may be restored, with the normal exchange of goods in the open markets of the world. 2. Balancing of the national budget and international account on a basis that is not destructive to enterprise and individual initiative.

3. The maintenance of a sound currency on the gold standard.

4. A sound banking system.

5. A comprehensive agricultural program to meet both temporary emergencies and permanent situations.

6. The removal of unwholesome restraints upon industry through adaptations of the Sherman-Clayton Act in conformity with existing needs and conditions, and rationalization of industry under proper safeguards, with relief to labor from the increasing burdens which the present laws impose.

We have arrived at a time in our great national needs when political affiliations, self-interest, and all other considerations must give way to the national interest. The new administration should ask for and receive without stint unrestricted support, cooperation, and services from members of all parties and from leaders of agriculture, labor, finance, and industry, and from all loyal citizens that may be called upon for service. To permit any interference from whatever cause that may arise to impede the progress of restoration is unthinkable. It is a question now of the nation, first and last.

The CHAIRMAN. Mr. J. D. Stern.

STATEMENT OF J. DAVID STERN, EDITOR AND PUBLISHER PHILADELPHIA RECORD AND CAMDEN (N. J.) COURIER-POST

The CHAIRMAN. Give your full name and address for the record. Mr. STERN. J. David Stern, Philadelphia Record, Philadelphia, Pa.

In appearing before your committee I think it is usual for a man to qualify as an expert. While I am a student of money I am not an expert. I want to explain to you that the views that I wish to express to this committee I have expressed in my newspapers published in the most conservative cities in the United States for the past year and a half, and I have not expressed them just on the editorial page but on the front page with as much emphasis as I could place on them.

The CHAIRMAN. What papers?

Mr. STERN. Philadelphia Record and Camden Courier and Camden Post. And I can tell you, gentlemen, that the reaction to these views has been most remarkable and surprising even to myself. After a year and a half I have found a very favorable reaction. As a newspaper man of 30 years I can talk with certainty of the reaction of the public to what appears in my paper continuously over a year or more. And not only among the general public, but among the business men of Philadelphia I have found a growing response to and understanding of these views, which leads me to believe that the general public are

ahead of the bankers who have been dominating the fiscal policy of this country.

I believe the average business man of to-day has a clearer and more intelligent understanding of what is wrong with our monetary system than have the bankers or the so-called financial advisers of the Government. And I am just explaining to you that these views have been tried out on the public of Philadelphia and have not been found wanting over a year and a half.

My paper has advocated: Fight the depression as we fought the

war.

That is what I have come to urge upon your committee, as I have advocated it in my newspapers for the past year and a half.

The present economic crisis is as dangerous as any war-time crisis. It is causing more human misery than did the World War. Therefore, our Government is justified in resorting to war-time measures.

I believe I am paraphrasing the first witness before this committee, the Hon. Bernard M. Baruch, but Mr. Baruch did not follow through. He talked of a war-time emergency and then offered weak peace-time remedies.

We did not talk of balancing the Budget during the World War. We spent $45,000,000,000 in three years and went in debt $26,000,000,000. We were prepared to spend double and treble that amount if needed to win.

This Nation must fight depression with the same spirit and high purpose that made it victorious in every war.

It is as wicked and silly for us to talk about balancing the Budget in such a crisis as for the head of a family to talk about budgeting his household expenses when his wife and children are in dire need of medical attention.

Balancing the Budget is a bookkeeper's phrase. This Nation can not afford to be ruled by bookkeepers.

The national Government is a parasite upon national business. It is in the position of a commission merchant who prospers as his principals prosper. A commission merchant can not make business better for himself by raising his commission rate when business is on the decline. No more can the Government make itself whole by raising its taxes or commission on business when the general business of the Nation is on the decline.

Any attempt to balance the Budget by raising taxes during a period of extreme deflation is the worst possible policy that the Nation can pursue to aggravate its misery. It is like giving whisky to a victim of sunstroke.

Overemphasis of the phrase "balancing the Budget" indicates that the fiscal policy of this great Nation has been dominated by bookkeepers rather than by statesmen.

I have had two great disillusionments in my life. The first when, as a little boy I took a girl to a baseball game a very pretty little girl whom I admired and respected. I was shocked when she asked, "Why are the men running around the bases?" It had not occurred to me that anybody, let alone a very pretty girl, could be so ignorant of the rules of baseball.

The second great disillusionment was when I found that bankers, whom I had always looked up to as supermen of business, were as ignorant of the laws of money as the little girl of the rules of baseball.

I respect Mr. Baruch as an able and practical man of affairs, but he is typical of New York financiers in his disregard of scientific knowledge of the main thing he has been after-money.

In that disregard of the science of money by our leading New York bankers lies the key to the present depression. These bankers who made bad loans to Germany and worse loans to South America, who backed Insull and fell for Kreuger, and who, with colossal egotism have taken upon themselves the management of great mergers, gave the President bad technical advice, not from selfishness or malintent, because they have been sufferers in the depression, but from ignorance of the science of money.

We endow great universities and then fail to use the technical knowledge they have developed.

There is a famous passage by Walter Bagehot, English economist and publicist, where, after complaining that the directors of the Bank of England were not acquainted with right principles, he

continues:

They could not be expected themselves to discover such principles. The abstract thinking of the world is never to be expected from persons in high places; the administration of first-rate current transactions is a most engrossing business, and those charged with them are usually but little inclined to think on points of theory, even when such thinking most nearly concerns those transactions.

"Fight the depression as we fought the war," is more than a mere slogan or phrase. Specifically, we recommend that the President immediately declare a gold embargo and that in the enforcement thereof the Treasury Department temporarily suspend gold payment. Such action would follow the precedent of President Wilson, who, on September 8, 1917, pursuant to the power granted him by the act of June 15, 1917, declared a gold embargo. This action was taken the morning after the House of Representatives had unanimously voted a $11,000,000,000 war creait. President Wilson did not even wait for the Senate to concur, as it did on the following day.

If you turn to the newspaper files of September, 1917, you will be interested to note that the declaration of this gold embargo was news of secondary importance. Our people were occupied with the war. They gave scant attention to this technical ruling. I believe that the average man doesn't even know to-day that for four years, during and following the World War, we were practically, if not technically, off the gold standard. From 1917 to 1921 any one who demanded gold of his bank was referred to the United States Treasury. As far as I have been able to learn no one had the nerve to take any gold from the Treasury but "Ma" Bergdoll, the mother of the notorious Grover, who came down to Washington with a little black bag and browbeat the Treasury officials out of some.

Did this suspension of gold payment affect the credit of the Government? It did not. During the four years when you couldn't get gold for your money we floated twenty-five billion of Liberty and Victory bonds.

If you gentlemen want to interrupt me at any time do not hesitate to do so.

The CHAIRMAN. You may proceed.

Mr. STERN. I have advocated a gold embargo for a year and a half so that the Government should be free to issue major credits to arrest

the ever-increasing momentum of a self-accelerating deflation. If this deflation be allowed to continue to its ultimate conclusion, it must inevitably result in the wiping out of all credit, so that nothing will be left as a medium of exchange but actual cash currency. This would mean that the dollar would be worth twenty times as much as it was in 1926; the nickel of 1933 would equal a normal dollar. Before you had arrived at that point, if you allow this deflation to continue, you would have destroyed every financial institution in the country, insurance companies and banks, wiped out every debt, mortgages on homes and railroad bonds. That will be the result of following Wall Street's advice to let deflation take its course.

The men who oppose fighting the depression as we fought the war indulge in the most damnable demagogy to hamstring this Nation. They talk about starting the printing presses as though credit inflation means the printing of more paper currency. They must know that nothing is further from the truth. To-day our main medium of exchange is credit or bank deposits.

Economists and financiers who discuss quantity of currency as an essential price factor don't know the Civil War is over. There was

a time in the history of this country when its only medium of exchange was cash currency. The interchange of bank deposits by check is a modern invention, not over 40 years old to any great extent, which has so far displaced actual currency that 90 per cent of our business transactions are through the exchange of credits. Currency has become merely a supplementary and reiatively unimportant medium of exchange.

In normal times we have more than $55,000,000,000 of bank deposits and less than five billion of currency in circulation. What is more important, the velocity of these bank deposits or bank clearings reached the astounding total in 1929 of $720,000,000,000. It is this figure which regulates the value of the dollar-the velocity of bank deposits.

The amount of currency in circulation, or the amount of gold behind it, has little or no bearing on the value of the dollar.

Strange as it may seem, the more prosperous the country, the less currency in circulation, because more persons have bank accounts, use checks for trivial household transactions, and there is little or no hoarding.

Instead of gold regulating the value of the dollar, the quantity and velocity of credit regulates the value of gold. It is necessary to recognize these facts to appreciate that the present deflation is self-accelerating.

When a man borrows $1,000 from a bank, the bank puts $1,000 to his credit on its books, and thereby creates $1,000 of credit currency.

When the man pays off the note, $1,000 of credit currency is wiped out. Normally as people pay off their notes the bank creates new credit currency by making new loans to others.

But for the last few years the process has been one-sided. Old loans are being paid off, but very few, if any, new loans are being made, with the result that the quantity of bank deposits has dropped to $40,000,000,000, and the velocity of these credit dollars has dropped to less than $300,000,000,000 per annum.