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Mr. STRONG. You would go along as you are doing now, would you

Governor MEYER. I do not think we can do anything more than we are doing, if you mean that.

Mr. STRONG. That is what I mean.

Governor MEYER. On the other hand, I do not think you. like to be ordered to run a race of 100 yards in 10 seconds.

Mr. STRONG. Well, I never ran that far within that time.

Governor MEYER. I know you do not expect impossibilities to in achieved; but I think in setting certain standards you ought w standards that are practicable, and what you have in mind is that is should be charged with doing what we are doing now to the efe3 that it is possible. I do not like either by definite or implied aubr. zation or direction to lead people to believe that a thing can be doma if it can not be done under any and all circumstances, even the it may be within our power to work in that direction.

Mr. STRONG. I would like to ask another thing. Congress is he is asked to pay off in advance the certificates we issued to service lin? of this country due in 1945. It is being urged that we can do the by issuing paper money based upon what gold is now in the Treas? I wish you could give us your opinion about that. It is a matta that is very perplexing to Members of Congress who would like it pay the certificates if they could.

Governor MEYER. I suppose there is a committee studying this! Mr. Congressman.

Mr. STRONG. I know, but you know about the gold in the Treas." and what it could do, and I think your opinion would be very value if you care to give it to us.

Governor MEYER. As an offhand opinion, I feel that the of the Budget is becoming a fundamentally important factor in building confidence in business. I should be reluctant to see a very heavy expenditure which could not be paid for out of tarativli this time. But I really have not been giving that particular yuerte special thought, although I have seen it mentioned in the papers I think the balancing of the Budget has become one of the 3* important things for this country.

Mr. STRONG. That is to protect our credit at home and abroad

Governor MEYER. Yes. And I think inflationary devices atura might be assumed to be beneficial are dangerous, because they are have a very different effect from what is expected.

Mr. STRONG. Can you tell us how much gold there is in the Tree ury which would be free to be used in guaranteeing such currency

Governor MEYER. I am told that it is $20,000,000.

Mr. GOLDENWEISER. That is not including the reserves of reserve banks.

Mr. STRONG. Well then, with that situation would you care to w what perhaps would happen if we should issue $2,500,000,000 murid of paper money?

Governor MEYER. I think that it would be most unfortunate fr". the point of view of the masses of the people of this country.

Mr. STRONG. Would it be liable to hurt our credit in foreign Out tries? Governor MEYER. Not only in foreign countries but at home

Mr. STRONG. You really think it would be an unwise thing to dy then?

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Governor MEYER. I do.

Mr. GOLDSBOROUGH. Governor Meyer, in various discussions of this proposed legislation it has been spoken of as an inflationary measure?

Governor MEYER. This bill?

Mr. GOLDSBOROUGH. Yes; I have seen it spoken of as an inflationary measure.

Governor MEYER. Well, you know that is a word that is pulled on everybody. If it is pulled on us, Mr. Chairman, why-

Mr. ĞOLDSBOROUGH. It is intended as a reflection on the propriety of the proposed legislation. Section 31, which is the first section of the bill-I think you have it right there, have you not, in front of

to you?

Governor MEYER. No; this is not that.

Mr. GOLDSBOROUGH. The first section of the bill directs the Federal Reserve Board and the Federal reserve banks to take all available steps to raise the present wholesale commodity level of prices as speedily as possible to the level existing before the present deflation and afterwards to use all available means to maintain such wholesale commodity price level. If you will turn to section 2, which reads:

If, in carrying out the purposes of the preceding section, the Federal Reserve Board and/or the Federal reserve banks, in selling securities, should exhaust the supply, the Federal Reserve Board is authorized and directed to issue new debentures.

The obvious purpose of section 2 is to assist the Federal reserve system if it should run out of bonds through the process of feeding them back into the market, and provides for an issue of debentures in order to prevent the price level from going above the pre-deflation price level

. I direct your attention to that because I think it is important for the Congress and the country to know that this is not intended to be an inflationary measure.

It is intended to be a stabilizing measure, and that the measure has no more interest in raising the price level than it has to keep the price level from going beyond a proper and legitimate point. Now, if I may for just a moment, I want to read from a speech that I made just 10 years ago, on May 23, 1922, in the House of Representatives, on a bill providing for stabilization:

I firmly believe that the purchasing power of money can be stabilized. I believe that the solution when we have it will be found to be simple, and I trust that that solution will soon be embodied in legislation. I never want to see agricultural and industrial enterprises struggling in the agony of a long period of falling prices or to see the young, active, bright business man, naturally uninformed as to political science, feel that he is rising to prosperity on the tide of rising prices only to find his business bankrupt and his hopes blasted in the inevitable crisis just beyond the peak.

I read this to accentuate the fact that this committee and I personally are not interested in inflation but simply in an endavor to create a fair and proper relation--reestablish a fair and proper relationship between debtor and creditor, and after that relationship is reestablished to make it impossible, because of these stabilizing influences, for business to expand in an unhealthy manner. Now, that is the purpose of the proposed legislation. This morning in a very full and interesting statement you called the committee's attention to the fact that other influences other than quantity of money and credit


and its velocity operated on price levels, and you undertook and very clearly state what some of those influences were. Now, is reason I am making this statement is because I want you to comma upon it. This subcommittee, I think, fully realizes the validity of influences which you mentioned. They realize fully that under une? tain conditions it would take more activity on the part of the Faire reserve system in the matter, for instance, of purchasing secunia than it would at another time in order to achieve the same feel But I believe that the subcommittee feels that under anything like ordinary conditions, with the enormous credit facilities of the Federal reserve system that by applying its powers courageously enough ard strongly enough the result can be achieved. A man may be steening his ship and because of conditions of wind and tide it may be more difficult for him to reach a given point than it would be under orbe conditions, but if he puts enough pressure on the rudder he can reach his port in safety.

This subcommittee does not think that if the Congress Federal reserve system to stabilize at a given point that the Federa reserve system could keep always the level at that point; hư? It believes it could measureably do that; and it also believes that it be price level could be measureably stabilized that business would be accommodated, and that a great many of these evils and difficult which you speak of would be obviated. We feel that if stabilizatina were made the North Star of the Federal reserve system that reas would then have the power to prevent these periods of inflation : well as periods of deflation from going beyond and getting out of hand and that is the theory I am sure upon which the subcommitter is considering this bill.

Governor MEYER. You understand, Mr. Congressman, that the open market committee which deals with open market operations ? composed of the governors of the 12 banks.

Mr. GOLDSBOROUGH. If they will not act, you have the power to change to another committee?

Governor MEYER. The Federal Reserve Board can only approve or disapprove the open market policies and operations proposed by the banks.

Mr. GOLDSBOROUGH. The Federal reserve banks are authorized to do the same thing?

Governor MEYER. Yes; but in talking of the board I want to ta understand that it is not a central bank.

Mr. GOLDSBOROUGH. If you have any suggestion to make anda! put in this bill in order to give you power

Governor MEYER (interposing). You would find that that was be opening a very interesting subject, which was discussed when the bill was passed, and you would not think it advisable for a membes of the board to come up here and urge that the powers which se* reside in the banks should be transferred to the board, would you Mr. GOLDSBOROUGH. I do not know. As a matter of fact

, it as pass legislation we use this language: "Federal Reserve Board a Federal reserve banks.” We have the idea that there would be s spirit of cooperation and that would accomplish the purpose.

Governor MEYER. When we get to talking about these things sometimes forget that the organization of the system was determin: after the most careful study by committees of Congress. There a

dosome powers reserved to the board and some to the banks, and some URETA lodged in the banks with the approval of the board. VDT Mr. GOLDSBOROUGH. It was suggested to the committee yesterday

by Governor Harrison that this legislation was unnecessary because full the system was now doing exactly the thing which was contemplated the

by the legislation.
Governor MEYER. When was this?
Mr. GOLDSBOROUGH. This was yesterday,
Governor MEYER. Oh, yes. Well, I think that is the purpose.

Mr. GOLDSBOROUGH. And we asked Governor Harrison when it began, and he said it began yesterday.

Governor MEYER. I think he was misunderstood if that is what he appeared to say. I think it has always been the object since I have been on the board to work in the direction you are talking about; but it has been a struggle against conditions at home and abroad and, as far as the particular present movement, buying Government securities, is concerned, it was started some weeks ago seven weeks ago.

Mr. GOLDSBOROUGH. But he said the policy had changed in the last day or so.

Governor MEYER. As a result of a conference called a week or 10 days ago. Naturally, the governors have to come from all over the l'nited States—some of them are several days' distant-and it takes them quite a little while to gather for a meeting. It was a question at the timeseven weeks ago-as to what should be the rate at which Government securities should be purchased.

Mr. GOLDSBOROUGH. Do you object to saying what the rate is now?

Governor MEYER. There is not any fixed rate, Mr. Congressman; it is movable and changeable. I do not have charge of the open market operations, as you know.

Mr. GOLDSBOROUGH. Now Governor Meyer, in this time of absolute economic destitution, do you not believe it would be a tremendously helpful thing if the Federal reserve system could declare a policy, if they could undertake to say that they were going to pursue a definite policy in the purchase of Government securities till a certain goal is reached? I talk to the bankers in my district and they say, "Oh, yes; we know they have been buying $25,000,000 of Government securities a week for the last few weeks, but they may start selling them next week; and, therefore, we do not know what to do."

Governor MEYER. I do not think they believe that. To reverse & policy and start to doing it the other way next week has never been done.

Mr. GOLDSBOROUGH. But the system does reverse its policies?

Governor MEYER. Yes; with change of conditions, but not with just a whimsical this-week or next-week attitude. That is out of the question; at least, as far as I know.

Mr. GoldsborOUGH. Now then suppose this bill were passed, this section 1 and section 2. I will leave out of consideration section 3 for the time being, and the responsible officials of the Federal reserve system should say to the press, “We have been directed by Congress to raise the price level to a certain point, and we are going into the open market and buy Government securities at the rate of, we will say, $25,000,000 a day, every business day, till that point is reached.”

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Do you not believe that that would have almost a magical effect is restoring confidence and would cause hoarded money to be withdrar: and the money put in circulation and cause the retailer to buy ine the wholesaler and the wholesaler from the manufacturer and the manufacturer from the raw producer and put people to work?

Governor MEYER. I am doubtful of the advantage and expedient of talk in connection with those matters, because the matters speak for themselves.

Mr. GOLDSBOROUGH. No; you do not understand me. I mean it to say and do it, both.

Governor MEYER. A great many things happen to interrupt and make changes necessary. I think you asked that question of Grote ernor Harrison. I read it in the paper. I do not think I will express it differently from his view. I think you would tie tha: hands. It takes flexibility out of the program. I think flexibility is vital and you know just as well as I do that conditions change ini time to time, and if you announce a program like that you depoire yourself of flexibility which you ought to retain. I would not en sider that a good or helpful thing to do.

Mr. GOLDSBOROUGH. You do not think it would restore confidro almost immediately?

Governor METER. No; I would not think so. I would not cougar it advisable.

Mr. GOLDSBOROUGH. Here is a question, Mr. Strong sugie and I think it is a good one. I do not know whether you ca?! answer it or not. The question is whether you feel that the Fedeis Reserve Board should have charge of the open market operations

Governor MEYER. I do not, to tell you the truth. But you kü'n better than I that the functions of the board and the banks baie been defined after very careful consideration and investigation ! the time of the passage of the act, and at various sessions of : Congress since then. I do not think it would be sound to trans' those powers. On the other hand, you have to realize that with a advantage of decentralization of powers you get some slowness , the working of the machinery. The whole banking system is bar on the idea of decentralization of power. It has been the histo1 policy of the people of the United States not to allow too great ca tralization of power, particularly in banking. I agree with the policy; but you can not expect the same quick action and the air prompt decisions from a decentralized power that you would inc a central bank, as conducted in European financial centers, where it board of directors of one bank directs the operations. In the interes of efficiency and wise administration there is, of course, & constant drift toward centralization of power. In the wise checks placed up centralized power which are fundamental in our Constitution, wed do not permit the centralization of power--and I do not think as ! whole we are wrong in that, though sometimes it costs time and inefficiency as well as delay. We have to stick to good principles, . even though we have to pay for them at times.

Mr. GOLDSBOROUGH. I gather from what you have stated to-da! several times that you feel we should have a central banking systettu unified banking system?

Governor MEYER. I am not talking about a central banking sy tem; I am saying that banks of deposit all over the United States

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