with reading that statement at this time, but I do say this, that I am going to tell you gentlemen enough for you to want to read every word in that statement, and I am going to leave it and I hope when I finish that you will do me the courtesy of making it a part of the record.

The CHAIRMAN. It will be made a part of the record as though you had read it.

Mr. COURTS. The first thing I want to talk about it that I am here to talk about equity capital, I mean risk capital, and risk capital is represented primarily by common stocks,

I want to say first a little about how this business works. I have been at it for 28 years, underwriting and distributing securities. That means we go out and get capital to start new business and finance old business and expand old business.

First of all, we are members of the national exchanges, we deal in all types of securities. We underwrite the securities of large nationally known corporations, but we do not make any real money out of that business. We hope to make our overhead and a little more. The real money comes when we finance John Jones down in Georgia for $300,000 or $500,000; that is the real service that we render. We cannot step out and do that without a lot of preparation.

We handle all types of securities so that we might operate in the various communities.

We have offices in 20 cities in the Southeast. We want to be in touch with everybody that has any money. We want to know what they are thinking about, we want to educate them to buy risk securities. People, particularly little people, do not leave cash lying around idle, they want that cash working. So, we get them to buy General Motors or United States Steel and every day we are getting them to do that, every day in the week.

When John Jones comes in and wants $300,000 to $500,000 in cash, the cash is not lying around idle, possibly we can find $100,000 or $200,000 in cash. If we do not find the cash we trade people out of General Motors and Standard Oil of New Jersey and in that way we get the money. We trade him out of those things which have the ready liquid market.

Let me say how the mind of the common-stock buyer works.

I thought of this on account of something that Senator Connally said.

Senator Hawkes, suppose you get ready to buy a piece of real estate in New Jersey. When you make that purchase you know that that real estate is not going to change rapidly. Whatever change comes about is slow, you may improve that property to get more earnings out of it. When you buy that real estate you bargain for it. When you get ready to sell it you call in your real-estate man. It may take him 6 months to find a buyer at the right price. You bargain for all of that. Now, let us take a look at American industry. One company comes up with a new gadget, a new invention, and they knock the props out from under their competitors. The next day the competitor comes up with something new, a new model, and does the same thing.

Your American industry is changing rapidly all day. Now, the man that buys into American industry, buys common stock subject to all the risks of the business, subject to the debts and liabilities and the change that goes on; that man knows he is taking a risk. If you told

that man one time that he did not have the right to change his mind, 5 minutes later, and come out of that risk you would never get him to go into it; that is just plain common sense.

A man is not going to take a risk subject to dynamic change all day unless he can change his mind.

Now, the day-to-day trading in common stock provides the great public market, it provides the market that absorbs the new issues that come out. If you do not have hundreds of firms like mine all over the country making this day-to-day market there would not be any market. Then if General Motors or some other corporation wants to come out with common stock, what would they have to do? They would have to come to firms like real-estate firms to go out and sell it, to merchandise it. A market does not exist, and they have to find buyers. You cannot finance American industry changing as rapidly as it changes with that kind of market.

Senator GEORGE. Do you think that you could take the statement of the Secretary of Commerce and go out and convince your trade that there was plenty of equity capital?

Mr. COURTS. Senator, I am glad you ask that question. I would like to ask the Secretary of Commerce how much of his income-after he pays taxes and living expenses-how much he has left to go into industry. I would like to ask the question of everybody in this room. How much have you left? You are in the same boat that I am. Nothing; practically nothing. You cannot do it.

Senator HAWKES. Mr. Chairman, you remember I asked the very question that Mr. Courts is asking today yesterday. I would have liked asking Mr. Harriman, who is part of the administration now, I would have liked asking him whether he thought his father would have developed the railroad system and left him the fortune that he left if he had operated under the present tax laws.

Mr. COURTS. I want to go into industry; I want to try to help develop something; and I do not have money left. Incidentally, I happen to be a man that works on earned income.

Senator HAWKES. Mr. Courts, you know it is unfortunate that a great many American people think of the stock exchange and the wonderful opportunity that exists through that exchange for anybody to convert a piece of paper into the thing they need promptly. They think it is nothing but a gambling venture. However, it is one of the fundamental things in life to keep that thing established so that, if a man dies and leaves a widow a few pieces of paper which is all that she and the family have to live on, that she can go, if you have confidence maintained in the United States, to sell that thing and convert it into cash and pay her debts and her bills in 5 minutes.

Mr. COURTS. Yes, sir.

Senator HAWKES. Instead of waiting for years in poverty to find a buyer.

When you break that confidence down and destroy it through keeping war taxes on in peacetime and taking away from men that opportunity, it is just too bad.

Well, take $100,000 in New York State and it leaves $29,000. A man got himself established on a living standard and he is living on his capital, not his income. Yet the whole community looks on him

as a $100,000 man and every charitable organization looks at him in just that way. It just is not American to keep this process going.

I am saying to you, every American I have talked to, little and big, is asking, "Why have we got to be going on under wartime taxes when we are presumed to be entering into peacetime?"

I agree, Mr. Chairman, with so much of what Mr. Schram stated that the psychology that the people recognize is that they want to go on in peacetime, rather than wartime, because of an extravagant wasteful government that is using the power to tax to destroy instead of using the funds to conduct a well-conducted government in the interests of the people.

Mr. COURTS. Senator, I am glad to hear you say that, but I am going further. I hope that I am going to prove to you that we are not going on that way.

Senator HAWKES. You and I both know we cannot go on in that way. Mr. COURTS. I want to get into the stock exchange itself. I try to show that you have to have a great public market for risk securities, common stocks.

The principal market place for those stocks is the New York Stock Exchange. I want to tell you something. For the last 10 years, the 10 years ended 1947, the average volume of shares traded on that exchange was less than it was in 1901. It was 60 percent of the volume in 1932, the worst depression year in all history. It was 60 percent or maybe a little more than that of the so-called normal year 1926.

I can give you all those figures and, as a matter of fact, it is attached to my article, the volume of trading and shares listed back to 1901. Back in 1901 there was less than 70,000,000 shares listed. Today there are 1,900,000,000 shares listed.

Today we are trying to finance American industry with the public market the size of 1901. If we were trying to finance Holland or France that public market would be all right, but not for this country. The CHAIRMAN. That is a very significant statement of facts. I think you have made a very significant statement of facts, there.

Mr. COURTS. I am not making a plug for my business or the stock exchange, I speak of it as a public market.

Now, the size of that market governs its ability to absorb these new issues when they come out.

I am going to show you what happened when these new issues came out. Take your Gulf Oil on January 2, 1948; that stock sold at 754 on the New York Stock Exchange. Shortly after it became known that they would have to sell something like 2,250,000 shares of additional common stock. The market for their stock promptly declined over the next few weeks to 584; that was a decline of approximately 23 percent.

During that same period your Dow-Jones Averages, which comprise 30 common stocks of 30 leading corporations, they declined about eight and a half percent.

Now, I have exhibits to show what happened to the Cincinnati Gas and The Texas Co. When your Gulf Oil stock declined it pulled all the oil stocks down, pulled them all along with them. That happened in spite of the fact that Gulf Oil earnings and the whole oil industry were at the highest on record because there had never been any earnings in history of such a high rate.

Those Gulf Oil earnings were not sufficient to take care of the expanding requirements and when they went to the public market to get risk capital the market could not supply it on reasonable terms.

The CHAIRMAN. Do you know what terms were talked about for that Gulf Oil stock?

Mr. COURTS. What terms?

The CHAIRMAN. Yes.

Mr. COURTS. Well, by the time they got to the market the price of the stock was 5834. They had to offer it to the stockholders at 51 to get them to take it.

The CHAIRMAN. What I mean is did they originally intend to offer it at the then market?

Mr. COURTS. Had you had a wholesome market they could have had that stock underwritten and gotten close to the market price for it. Some statisticians will sit here and tell you that when they put out additional stock they are diluting the common stock.

The CHAIRMAN. It depends on what they do with the proceeds. Mr. COURTS. If Gulf Oil proceeds in that way they need to have their heads examined. The put out new stock because they think they can increase their earnings.

Senator HAWKES. The point, Mr. Chairman, that I think Mr. Courts is making is that if you had confidence in the country there would have been plenty of concerns that the Gulf Oil Co. could have gone to and had them underwrite that whole issue of stock at one or two points under the market. That confidence did not exist so the Gulf Oil Co. ended up at selling at what?

Mr. COURTS. At 51.

Now I will tell you something else. Half of the stock-the people who owned it were not in a position to subscribe; that is, to pay for it and keep it. They did not have the money. They are some of the wealthiest people in the country.

Senator HAWKES. Because of their lack of confidence even if they had desired to subscribe to it, they were not willing to go and accept the risk of borrowing capital to pay for it.

Mr. COURTS. I do not think, sir, it was lack of confidence; it was their baby; it was what made them wealthy.

Senator HAWKES. I understand, but at the same time if you and I have an opportunity to buy something, and we have confidence in the market, that is going to reflect some degree of appreciation in value, some of us find the way to get the money, but they were not able or willing to do that because of their lack of confidence. Do you see the point I am making?

Mr. COURTS. But Mr. Eccles would not let you borrow but 50 percent. Where is the other 50 percent coming from, and it runs into millions?

As a matter of fact, I am wrong, it is 25 percent that he let you borrow.

Senator HAWKES. Mr. Eccles does not have any cotnrol over my borrowing from you. He only has control of what the stockbroker or what not can accept in payment for stock. I am talking about something that goes further than what you mentioned. I am saying that the lack of confidence, and I know what I am talking about, the lack of confidence in fair dealing between the Government and

the free enterprisers, if you want to call them such, the people who built this country and the business and industry of it, that lack of confidence has gone so far that they say, "Why should I go and dig up money or borrow it to buy thise thing, and if I have a loss it belongs to me, but if I have a profit a large part belongs to the Government?"

Do you agree with me?

Mr. COURTS. I certainly do.

I cannot help but say one thing, Senator, that even if you had the confidence under your present Federal Reserve regulations you would not be permitted to borrow enough money to go through with it and if you borrowed enough money, you could not save enough money to pay the loan.

Senator HAWKES. I agree with you.

Mr. COURTS. I would like to mention this American Telephone situation. There is a company whose stock of over 20 million shares is owned widely by trust accounts, widows, children, and employees. They are a public service company. They have had to go ahead and expand because the public was calling for the service.

They have run their debt up to $2,700,000,000, or nearly $3,000,000,000; that is one company. Now the equity is beginning to get thin. Their last financing was done as heretofore through debenture debt which debt is convertible into common stock.

In the past you have had a common-stock market such that the debt was converted and you would get rid of the debt and end up with risk capital; that has been the practice.

Suppose the present trend continues on so that the debenture debt cannot be converted? Then suppose the American Telephone system decided that they were desperate, that they had to have equity capital, three or four billion dollars of it. Suppose they went into the market and said "We are going to get this money at any price," just like Gulf Oil did.

What would happen? I can tell you, it would smash the market for all the utility stocks. It does not take much panic of that kind, or many things of that kind, to produce panic in your whole securities market and it does not take much panic of that kind to spread fear among the investors and consumers all over the country. That is the kind of thing that can throw us into a depression rapidly.

These corporations have to have risk capital right away and in a big way. I am not going into detail about risk capital being a good thing for the laboring man. The only way to increase real wages is to get more production, more profits.

If the corporations make their money, why Mr. John Lewis will see to it that his people get part of it, he can take care of himself to see that they get part of it. What I want to see is that the money is made. The way to do it is to see it made, have more machinery that will produce more and that requires risk capital so that they can afford to do these things.

Senator Connally asked a question, "Why should you not graduate the taxes on a corporation like you do on an individual?"

I will tell you the answer to that, it is simple. I am the treasurer of Southern Mills. We started that mill with about $20,000 of capital 25 years ago. We hit on an idea, we wanted to make knitted padding. There were only two or three people in the country making it and