Atlantic City and sent for me and he and I went over the bill. The language of that bill is Governor Strong's language nearly every word of it. That was the bill wherein he provided for a study of the Federal reserve system. We have all realized since that some of the officers of the system required more information about the system and the use of the powers Congress had given them. He was so positive that that bill ought to be accepted by the Federal Reserve Board that he arranged a meeting here in Washington, and I and the chairman of this committee attended that meeting. It began in the morning-I can tell you the exact date because it is the date of my first speech on the subject. I came down to the House and made my speech and went back and spent the afternoon with the board and Governor Strong. At that conference Governor Strong's statement was the same as yours is now. He had been doing a very good job of stabilization with the open market and rediscount rates Of course, he said as you have said, that "if there were a war or something very unusual should happen it might not be so successful," but under ordinary conditions it would be. Now, you are proceed ing upon that theory. We could not get the Federal Reserve Board to look with favor upon the bill. They took the same position you do-"Do not direct us to do anything; let us do it; we know how now and we are going to do it."

Governor HARRISON. As I remember the terms of that bill I do not think I was opposed to it, Mr. Congressman.

Mr. STRONG. I do not think you were.

Governor HARRISON. What I think the difficulty is in this particu lar bill is the specificness with which the object is defined, and the implication that the Federal reserve system has the power to attain that objective and to feel the responsibility for failure to attain that objective.

Mr. STRONG. The Federal Board was going along very well in 1926 to 1929, and we failed to pass the bill. The reason we failed to pass it was because the dollar was on speaking terms with everybody, and now it has got so high that everybody wants to get it down.

Now, we have this bill and its purpose is to make the price level of commodities go back to the place where the producer can sell what be has and pay his debts. The purpose of the present situation is to force the farmer to pay his debts with 30-cent wheat, it would compel every man to pay his debts at the depreciated commodity price level. Consequently we put into this bill that if you can go back to conditions in 1926 and stabilize there, we think you ought to do so.

Now, what I am getting at is this: You take the position now that all things being equal, no wars or famines or anything like that, you could stabilize pretty well by use of the open market and the discount rate. Simply because you have not done so from 1929 to this date we feel certainly the time has come when the Federal Reserve Board should be given directions by Congress to so use its powers. Cot gress built this system. The members of the Federal reserve syste did not build it. We placed these powers in your hands. Certainly we made a mistake when we did not direct your use of them. We did not. We feel they have not been properly used. Banks have been wrecked, business houses have been wrecked; factories have closed down; people are out of work, and everything financially is in chaos. Now, we feel you all have had plenty of time to wander around, and

you ought to now use the powers Congress has given you to stabilize the purchasing price of the dollar. But as you said the Federal Reserve Board did not agree with you in 1929, and members of the Federal Reserve Board did not agree with Governor Strong in 1920. The first time I had very much conversation with him was at dinner downstairs. He was telling me how he believed in this thing and how it could be done, but that they ought not be bound down too close. I said to him, "Where were you in 1920?" He hesitated a little bit, and he said, "In Washington." I said, "Were you with the Federal Reserve Board?" He looked me in the eye and said, "Mr. Strong, I was; and with all the power I possessed I tried to prevent that resolution." I said, "Governor, if this bill which I propose had been on the statute books then you could have pointed to it and told those gentlemen not to pass that deflation resolution because it would be against the law."

That is the first time I got him interested in helping to suggest wording for a bill. He was afraid of this jealousy of the Federal Reserve Board. He was afraid if he helped me to prepare a bill he would destroy his standing with the Federal reserve system. Several weeks after the bill was introduced we had expected that when Governor Young came before the committee he would say something in favor of the bill. He came and stood at the head of this table, and Mr. Wingo asked him his position on the bill, and he said, "We are opposed to it." Then you come along now and tell us that in 1929 the board did not agree with you; that you were right and they were wrong. Now, it seems to us that after this experience in history we ought to have reached the time when we should do that which we should have done when we passed the law-"direct the Federal Reserve Board how to use the powers we have given them." We have given them the powers to regulate the volume of money in circulation among the people of the United States. We have given them the power to regulate the cost of it by the rediscount rates; we have given them the greatest powers ever given to any group of men except in matters of life and death and liberty. Now, after all this experience we still believe that we ought to direct the policy to which such powers should be used. You are pulled here and yon by one group of bankers or another; or, at least, they try to influence you. Now, we say, "Do not look at the stock market, but look at the index of commodity prices and let that be your guide," you will have something to go by. If you take the guide of what you think is best to-day, to-morrow, and the next day, you have no objective, you get nowhere. So we believe that you should try to use these powers to stabilize money to commodity prices. I can not see any harm that could come about through doing that. I do not see why we should not try it. I do not see what worse could happen than has happened since 1929.

Now, what I want to know is, what do you think would be wrong in passing a bill simply directing the use of the powers we have given you toward stabilizing the purchasing power of our dollar.

Governor HARRISON. Suppose we had had the bill two or three years back?

Mr. STRONG. Yes.

Governor HARRISON. And the stock market had broken as it did? And then the commodity price level began to fall off, do you think

it would have been possible for us through the use of the open market to stop that decline in commodity price level?

Mr. STRONG. I think before it got too high you could have stopped it, and I think when it broke you should have come out with a prompt policy to purchase securities, right along and decrease the discour rate.

Mr. GOLDSBOROUGH. Governor Harrison, you remember the firs: of 1930 it seemed that the market was rising and we were getting back to normal conditions, till after the market operations stopped"

Now, you say you are going into the open market and buy $25000,000 a week, and how long you are going to continue you say you do not know. I imagine you do not know what position you are going to take. Therefore, I think we should direct that you continue trying till the better price level is reached, otherwise you being one of several, your associates might say: "Now, we have bought enough of these bonds." Whenever you quit buying these bonds the price level is going to sag.

Governor HARRISON. Of course, you are assuming that we have unlimited power to do it, but in face of world conditions it might be impossible to get up to that level of 1926. We can use our credit, but we can not be sure of the effect on the price level. You would not have us go ahead indefinitely diluting our gold reserve if the only result of it was clogging up the banks with excess reserves which the banks would not use. It is perhaps less difficult to control an inflation than a deflation, because you can not make people buy goods if they do not want to, no matter how much credit you give them. Mr. STRONG. Especially if they have not the money?

Governor HARRISON. We can give it to the banks, but we can not be sure as to how far they will have confidence to use it.

Mr. STRONG. If we have come to the point where the banks are not going to function and use the facilities we have given them and help business of the United States, it is about time the Governmer: of the United States should take over that system. I do not believe in that, but if the bankers of the United States are in such frame of mind-now that Congress has passed the Reconstruction Finac Corporation and the Glass-Steagall bill-that they are saying, "we can borrow this money and lend it to business to go ahead but we won't do it," it is about time the Government took over the system.

I have always been an earnest friend and supporter of the Feders reserve system. I believe it protected our dollar in the World War and made it the best dollar in the world. But I am fast getting to the point where I think the bankers of the United States have too much to do with the Federal reserve system. I commence to doubt whether or not the Government should put into the hands of men who deal in money, for profit, the facilities to regulate the volume and price of the money to the people and I wonder if the bankers are not too close to the Federal reserve system; and if we should not put business men on that system instead of bankers.

Governor HARRISON. I think it is very necessary for the record here first to show that we deny the challenge that we are influenced by the banking group of New York. I do not think we are. I w tell you the reason why

Mr. STRONG. What influenced you when you said you differed with your associates in 1929 and they overrode you?

Governor HARRISON. The Federal Reserve Board overrode us. There are only three directors of the Federal Reserve Board that are bankers. That is the class A directors.

Mr. STRONG. Those are the fellows who run the banks? Governor HARRISON. No; they are not the ones that run the banks. Mr. STRONG. The others are class B and class C directors? Governor HARRISON. Class B directors are the ones who represent business and class C are appointed by the Federal Reserve Board to represent the public at large. There has never been a time when I think the policies of the Federal Reserve Bank of New York have been dictated by the banking community as distinguished from our board of directors. And I do not think there is any way you can get confirmation of that any better than by talking to the directors themselves or to the New York banking community.

And if the time ever comes when Washington or New York or any other place justly feels that the New York Reserve Bank is controlled by the banking community rather than by our interpretation of the best interests of the country, I do not want to be in the bank.

Mr. STRONG. I was directing my criticism not to your bank, but I am talking about the system. Do you remember that during Mr. P. G. Harding's administration they came down to us and got us to put in a step-rate proposition?

Governor HARRISON. Yes.

Mr. STRONG. And they told us they wanted to control the banks in New York City, and they did not put it into effect in New York but put it in effect out in Kansas?

Governor HARRISON. I think it was a mistake.

Mr. STRONG. It was a mistake. The more I discuss this proposed legislation with bankers and business men the more faith I have in it, the more I believe when we give the Federal reserve system these great powers we should have given them some direction for their use, and I believe now that we have given them a pretty fair trial and they have not been any use to the country except when Governor Strong used them for stabilization. I feel that we should pass this law. Now, we have gone just about as far on deflation as this country can go, and I want to say to you, from conferences which I have had with other Congressmen, the point is about reached where the people are going to have some inflation. They have been deflated till they are about ruined. We are going to have some inflation or we are going to have some very drastic legislation, and I think this is about as wise a thing as we could do; to direct the Federal reserve system to use the powers they have to influence some inflation and then give us stabilization of commodity prices through a dollar of stable purchasing power.

Governor HARRISON. I do not believe there is anybody in this room more sympathetic with your desire than I am to correct conditions that have become intolerable throughout the country and the world. There has never been a time when we have had an economic crisis that affects a greater number of people or as great a number as this one does, or which has resulted in a greater number of unemployed that this one has resulted in. I do not think there is any better task that the Congress of the United States or the people could put themselves to than to remedy that situation.

I do not think there was ever a time when it was more necessary for the bankers and members of the Federal reserve system to exert

every influence to solve this problem. I hope and pray we may fin! some way that will do it. I believe as far as we are able to do it we are now aiming in the right direction.

It is my desire to be just as helpful and cooperative in attaining what you are trying to attain as I can be, Mr. Congressman. My judgment is not just a stubborn resistance to being told to do some thing. If I thought that was the way to do it I would be for it and for it a thousand per cent.

Mr. STRONG. I have got so much confidence in you that I am willing to give you a direction to back you up.

Governor HARRISON. My only question is whether or not you can do it in some fashion

Mr. STRONG. I believe in your heart you can do it, you are trying

it now?

Governor HARRISON. I hope it will be successful. I think if there should be any legislation on this subject, the more general and less specific the better, because otherwise the people will have given us a mandate which may never be carried out, through nobody's fault.

Mr. STRONG. That might be, but I do not think any bill we have ever had here has been given any more critical study than the one that Governor Strong wrote, and I believe he is the world's bes expert. He changed every little word, here and there, and yet when we came to the Federal Reserve Board after an all-day conference, they came to this committee and said, "We are opposed to it." When we asked them why, they said, "Well, because we do not know whether we can do these things or not; and we ought not to be dietated to." It is the same old excuse and it does seem to me it is pretty nearly worn out.

Governor HARRISON. And I am just as anxious as you or some of the members mentioned here to do what we can through appropriate and wise channels rather than through unwise and uncontrolled

channels.

Mr. STRONG. I want to say to you that I know of no man in the United States that I have more confidence in as the head of the New York Reserve Bank than yourself, but unfortunately there are not enough of you to fill all offices in the Federal reserve system. Governor HARRISON. I appreciate that, but I do not think it is quite deserved.

Mr. STRONG. I want to ask you one other question: Have the governors of the Federal reserve banks availed themselves of the Glass-Steagall bill by purchasing government bonds rediscounting their eligible paper and trying to relieve the situation or have they simply used it in their banking business in purchasing sufficient bonds to cover their commercial paper? Do you think they have really tried to bring about some inflation through the facilities afforded by the Glass-Steagall bill?

Governor HARRISON. I think every dollar of bonds we have bough: since the passage of the Glass-Steagall bill has been under the assur ance of that bill that we can use government securities as collateral to notes if we have to use them. The fact that we have not had to use them does not mean that we have not realized that when necessary we can use them.

Mr. GOLDSBOROUGH. I believe that one of the reasons why the subcommittee is thoroughly convinced it is on the right track s