If I may go back a moment to give you the foundation of this general thesis, it is simply this: That as our money-and-profit economy operates, as a matter of recorded fact, periodically we come to a time when, for certain reasons-changing as they do from cycle to cycle, but for sufficient reasons-private enterprise does not have courage enough to make use of the resources of our credit facilities to a sufficient extent to maintain the purchasing power of the people, and it is solely for that reason that the decline in commodity prices takes place, and the decline, once it has set in, is, of course, cumulative. We get into the well known vicious cycle. In other words, the farther down we go in prices, the less the employment, and the less the wages. The less the wages, the less the purchasing power. The less the purchasing power, the lower the prices, and with every step down, down goes public confidence; and with every decline in public confidence is a decline in the willingness of responsible borrowers to make use of available bank credit; and there is, under our present banking system, no other way of getting into circulation adequate purchasing power to sustain employment and business. It either comes through the expansion of bank credit, through our private banking system, or it does not come at all. When we are in that condition there is only one agency that is powerful enough to take the necessary steps to use the available bank credit, and that is the Federal Government. That is the first point.

The second question is, How is the Federal Government to utilize the bank credit which it thus puts into circulation? One of the most obvious ways is through public works. As you see, the next question becomes, 'What kind of public works?' Personally, that is to me a less important question. The absolute and immediate necessity is the putting of money into circulation, where it will be spent for commodities, because that is the only way in which you can stimulate private industry to proceed to do its part toward using this bank credit, which has been available all the time; and, obviously, it will not be until private industry does its part, that we have permanent recovery.

The expansion of Federal expenditures must be temporary, and it must be for the purpose of adequately stimulating private industry to take the part which, for the last three years, it has utterly failed to take. So, I say the important thing is that you get the money into circulation.

The second thing is that, for obvious reasons, it is important that the money should go into circulation at the point of wages, so far as feasible, rather than at the point of gifts, or bonuses, or charity of any kind; first, because the unemployed want work: They do not want charity; and the second, because their self-respect and their morale is better maintained by work than by being supported in idleness; third, because in the very acts of employment, they create wealth. Whatever else happens, when you get through, you have the wealth which has been created.

What forms of wealth would you select? Obviously, whether in time of prosperity or in time of depression, you should endeavor to create those forms of wealth which would be of the greatest public value.

Senator FLETCHER. You want to build up the purchasing power of the people?

Mr. FOSTER. It is the crux of the whole situation. This business depression is exclusively a monetary phenomenon. It is not caused by anything else. The failure of business to borrow and expand wage payments is due to the failure of money to flow in the right channels and in the right amount. By money, of course, I mean bank credit, chiefly. We shall get out of the depression, therefore, solely by monetary measures.

Senator WAGNER. If I may interrupt you, let me say that in the bill before us now it is provided to enter into only those public projects which have already been authorized, a part of which has been done, such as flood control. All of them have been authorized and approved, and in many instances planned. There is not any haphazard selection for the purpose of making work, but they are all authorized projects, and we just continue right on with them.

Mr. FOSTER. That, therefore, fully meets my desires in the matter. As you know, Senator Wagner, I just came to Washington to attend another committee meeting, and was taking the next train back when I met you, and since then I have read your bill. I was familiar with the newspaper reports. I have now read the bill in detail and, to me, it seems thoroughly sound.

May I say, incidentally, that when the objection is raised to your bill that it necessarily unbalances the Budget if you put in an appropriation for these public works, it seems to me that somebody has misused the term "budget." No private corporation considers capital expenditures as part of the current Budget. The items which may, properly, under any system of accounting, go into the current Budget are items for interest or other carrying charges, depreciation and amortization, but not capital expenditures. You are merely confusing matters when you say that you can not balance the Budget and also make capital expenditures in the current year. Senator GORE. We have made these capital advances out of current income, though, as a rule.

Mr. FOSTER. It is nevertheless confusing to the rest of us.

Senator GORE. A revolution in our system, you might say, would spare the Budget from being unbalanced: yet it would be a revolution, after all. The people would say you were just changing the name of the thing in order to escape unbalancing the Budget.

Some economists, Doctor, allude to these business cycles as credit cycles. Do you not think it was the use, or abuse of credit, that helped to precipitate this panic in 1929?

Mr. FOSTER. That is another way of saying, Senator Gore, what I just said, that this major depression, and all major depressions, are exclusively monetary phenomena. They are not caused by anything else. Their roots are in the wrong volume of credit flowing in the wrong channels. That was the origin of this cycle.

Senator GORE. That opens a very wide controversy as to the cause and source of panics. My own impression would be that your solution is rather simple, to attribute it entirely to a monetary dislocation or disturbance.

Mr. FOSTER. I will ask permission to submit perhaps a 3-page statement on this subject to the committee. I had no opportunity to prepare for this, not knowing that I was going to appear before

you.

The CHAIRMAN. If there is no objection, that may be included in the record.

Senator WAGNER. As the Doctor said, I met him by accident here, and I just requested him to come before this committee, without having an opportunity to prepare.

Mr. FOSTER. May I say that this bill as proposed, and as drawn in detail, and as presented at this particular moment in our history, is entirely supported by the full body of economic theory which I indorse. To my mind, there is behind it, all the way through, an absolutely sound, demonstrated economic theory.

Senator WAGNER. The policy, Doctor, you know, has already been put into statutory effect by the law signed by the President a year ago last February, for doing most of our public construction during an economic slack.

Mr. FOSTER. Mr. Chairman, may I be permitted, in that connection, to say just this, that it seems to me that the opposition to the public works section of this bill is to a considerable extent due to temporary hysterical conditions, and not to sound reasoning. Three years ago, a very large proportion of the economists of the United States thoroughly indorsed the principle embodied in that bill. President Hoover indorsed it in three campaign speeches. He absolutely indorsed it fully. It has been in the platform of the Democratic Party. It has been indorsed by a unanimous vote of the American Federation of Labor. I personally went to New Orleans. to the annual convention of the governors of the States, in 1928, to present this to the governors, with the request that they cooperate with the Federal Government when the next depression should start, in the public works policy as embodied in your bill. To my certain knowledge, there was not a single governor present there who opposed this principle, and all those who spoke favored it.

Senator WAGNER. We incorporated the principle into legislation approved by the present President of the United States.

Mr. FOSTER. Again, I took pains to have the reports of that convention of governors in November of 1928, at New Orleans, recorded through a wide press clipping service. By actual tabulation, 97 per cent of the newspapers of the United States, in the fall of 1928, were in favor of the general principle. It is just as sound to use that measure in a depression to cure it, as it is in a period of prosperity to say that you are going to use it in a depression to cure it. The state of mind has changed; not the principle.

Senator GORE. I was at the convention of governors, and read one. of your books after that. I wonder whether your plan to project this building scheme into a period of depression, was intended to meet an ordinary depression, and whether you thought it was adequate. This is extraordinary. This is a cataclysm. It is undoubtedly like the upheaval of the Allegheny Mountains or the Rockies. Senator WAGNER. We waited too long to put this principle into effect.

Senator GORE. That may be true, Senator, but that does not affect the fact that we are in this sort of a situation now.

Senator GLASS. This is a depression that not only affects private industry and commerce and trade of every description, but it is a depression that has practically depleted the Public Treasury, so

that the Public Treasury has no money with which to do these things, and the only way it can get any money with which to do them is to make a further exaction upon industry that has sustained itself and still is in existence, and upon commerce that is current-and there is very little of that.

Senator GORE. It is a good deal like a transfusion of blood from one anemic to another.

Mr. FOSTER. May I speak to that point?

Senator GORE. Yes; so far as I am concerned.

Mr. FOSTER. My conviction, in that connection, is that the one thing that is necessary is a restoration of private business on the level it reached a few years ago, and that restoration is perfectly possible through the restoration of adequate purchasing power of consumers, since private business hangs and depends on consumer purchasing power. Consumption regulates production, absolutely. The producer looks to the consumer for his guidance. He is controlled by his markets. The markets are dependent upon the adequate flow of money to the consumer. The way out, therefore, is through maintaining that adequate consumer purchasing power. The Federal Government holds the key to the situation at the present time. When you have restored that purchasing power, then the repayment of the indebtedness of the Federal, Government becomes a simple matter. When we were prosperous, we not only succeeded in paying off our national debt at the rate of about $750,000,000 a year, but we reduced taxes at the same time. It shows what you can do.

Senator GLASS. Undoubtedly that is the correct theory. You have got to build up from the bottom. You can not build from the top. The only way that you can start people to purchasing is by restoring their confidence in the belief that industry is going forward and that commerce is going to resume its activities. The whole trouble seems to me to be an utter lack of confidence in those things, and a fear that has possessed individual concerns, corporations, and everybody, the Government included.

Senator COSTIGAN. Mr. Chairman, May I suggest to the witness that if we were at war, we should not hesitate to finance the contest, and that in a war on depression we ought to be willing to do the same thing.

Senator GLASS. In a war. I submit that until the World War most people volunteered their lives, and in the World War, by the draft system, we compelled everybody to offer his life. Now, they will not even offer one part of their compensation. The Senate right now is engaged in discussing that very problem. Nobody wants to be reduced. Everybody is willing for the other fellow to be reduced, but nobody is willing to be reduced himself.

Senator GORE. It seems to me, Doctor, that your solution is undoubtedly like saying that if things were different from what they are, they would not be what they are. That is undoubtedly true. I would like to get your reaction to this. This depression is world wide. It is raging in every country, and it is raging under every form of government on the globe. It seems to me that if it were due to governmental neglect, and that if government could mend it, or end it, some government somewhere would put an end to this

thing and set an example to others. I think that any government that could mend it, and would not mend it, would certainly be criminal, and it would justify a revolution.

Mr. FOSTER. I agree with you, and my conviction is that this Government can end this depression in the United States by adequate measures taken now, in commanding absolutely resources which are now immediately available. As Senator Costigan said a moment ago, if we were at war, the money would be forthcoming. If war were declared-as, pray God, it may not be-to-morrow morning, you would not hesitate a moment to appropriate $5,000,000,000, $10,000,000,000, or whatever money was necessary, and the whole country would be behind you. Unemployment would cease, and orders would go forth

Senator GORE. You would have an effective demand for stuff. Mr. FOSTER. You would create the effective demand.

Senator GORE. You have not that effective demand now. If you had, it would be responded to.

Mr. FOSTER. You would create the effective demand, by the process of putting money into circulation.

Senator GORE. I think Senator Glass put his finger on it. It is a matter of confidence. You must revive confidence. If people felt that they could buy something to-day, and could sell it six months from to-day for as much as they paid for it, you could get things in motion. Take stocks. There have been three major crashes and 9 or 10 small ones. People buy stocks, and they hold them for a while, and then sell them for less than they paid for them. Suppose a man wants to buy a piece of real estate to-day, and he has the money in the bank, $10,000, and he thinks the property is worth $10,000. He says, "If I lay off, I can buy that six months from now for less than I will have to pay now. If I buy it now, and sell it six months from now, I would have to take less than I paid for it." There lies the trouble with the whole business. It is a lack of confidence. How to revive that, I do not know. The fellow who is figuring on buying a $10,000 piece of property to-day, which he thinks under ordinary circumstances would be a good buy, will not buy it, because he is afraid that six months from now he would have to sell it for less, and if he holds off for six months, he can buy it for less than he would have to pay now. Suppose he inherited $100,000 to-morrow, and he had all the money in bank, $100,000. He still would not buy the property, because he would think he would have to sell it for less than he paid for it. It is a matter of confidence. As time goes on, prices have to hit the bottom and stay on the bottom long enough for people to be convinced that they are not going any lower. How long it will take, nobody can tell, but that has to be gone through with before you end this depression.

Mr. FOSTER. May I answer that?

The CHAIRMAN. Yes; briefly.

Senator WALCOTT. And, in your comments, add a suggestion or two that will pull us out of this.

Mr. FOSTER. Senator Gore, you seem to me to be fully supporting what I have said. You have placed lack of confidence at the center of it. That is obvious. You have placed the cause of the lack of confidence as steadily falling prices, of real estate, commodities,