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Doctor SPRAGUE. I think I have said enough.

–  –  –

Mr. STRONG. Might I suggest to you right there that I think you have a very wrong idea of Congress ? The majority of the men here agree that it is fairly easy to prepare proper legislation; the trouble is in getting it properly administered.

Doctor MILLER. Then, why does Congress go on creating more and more commissions and adding more and more to the discretionary authority of those that are already created ?

Mr. STRONG. TO try to get the thing done that the people of this country want done.

Doctor MILLER. Well, I am tempted to Mr. STRONG (interposing). For instance, I gather from your suggestion that you think the attitude here yesterday led us into fancies, while you were the only man who sat back and analyzed the question correctly and properly.

Doctor MILLER. I am not assuming any such arrogant attitude as that, I hope. But I do think that the latter part of the discussion yesterday developed this conclusion—that if you want to understand the Federal reserve system you must reckon with its human limitations. That is what I have in mind; its human limitations.

Administration is nothing except what the men who do the administering make it.

Mr. STRONG. Certainly.

Doctor MILLER. If they are ordinary men, it does not matter what you say to them; you will get an ordinary result.

Mr. STRONG. Certainly.

Doctor MILLER. If they are men of extraordinary ability, imagination, force, you will get an extraordinary result, no matter how little you say to them.

Mr. STRONG. In other words, one man will make a corporation and operate it under the law and make it a success, and another man will make it a failure ?

Doctor MILLER. Well, whether he makes it a failure or not, it becomes a failure in the one case and a success in the other, irrespective of what the law may or may not say.

Mr. STRONG. That is true.

Doctor MILLER. The most difficult think to exercise competently is discretion. When you come to matters touching the operation of the credit mechanism you have entered a field in which the exercise of discretion is peculiarly difficult, and the more difficult the problems that present themselves to a discretionary authority the less likely Mr. STEVENSON (interposing). Doctor, if you will permit me, as I understand, you are deprecating the tendency of Congress to commit matters more and more to the discretion of boards.

Doctor MILLER. I deprecate that personally, and I refer to it merely as an illustration.

Mr. STEVENSON. If we bring this discussion right down to the bill in hand, this bill rather tends to diminish that discretion and to make a mandatory direction to you, does it not ?

Doctor MILLER. I think not.

Mr. STEVENSON. That was the idea that I got out of it; that it was making mandatory what was merely implied in the present law, and therefore is in the discretion of the board.

–  –  –

since the troublesome period of 1920-21; that it is in a state of mental confusion largely because of surprise. " Surprise " usually comes, I think, as the aftermath of an undue indulgence of desire and expectation. You stand back when you see the fruition of the devil's work in your angelic plans; and, speaking personally, I have usually found Mr. STRONG (interposing). To do the angelic part of it?

Doctor MILLER. TO maintain an attitude of relative calm about situations in which there is a danger of an unconscious hysteria developing. I think one of the chief troubles with the Federal reserve system in 1920 was hysteria—hysteria in part due to the interference of Congress through a Senate resolution, with the maintenance of a well-balanced frame of mind in the Federal reserve system.

The CHAIRMAN. You liken that somewhat to the resolution that the Senate passed the other day, known as the La Follette resolution ?

Doctor MILLER. Well, I think the part of the resolution which calls for suggestions or proposals, if I remember correctly—you are referring to the resolution reported out by the Banking Committee?

The CHAIRMAN. Yes; the La Follette resolution on brokers' loans.

Doctor MILLER. The La Follette resolution itself I did not think very much of; but I thought you were referring to the report of the committee on the resolution.

The CHAIRMAN. I was.

Doctor MILLER. That, if I am rightly informed, asks the Federal Reserve Board to report to Congress what legislation, if any, is needed in order to protect the system against abuse by loans for speculative account, or something of that kind.

The CHAIRMAN. It infers that there is speculation existing, as evidenced by the large amount of brokers' loans outstanding, as a dangerous tendency, and refers the matter to the board for some report.

Doctor MILLER. Yes; for investigation and report.

The CHAIRMAN. And my question was whether you liken that kind of legislation to the resolution of 1920.

Doctor MILLER. NO. Part of it, I think, is altogether desirable.

I think it is a good thing to ask the board to report what, in its opinion, is necessary.

The CHAIRMAN. YOU do not consider that as an interference with the operations of the Federal reserve system ?

Doctor MILLER. I do not. But there is a part of the resolution which I think was referred to yesterday morning, which was the first time I had heard of it, that asks the Federal Reserve Board to direct the Federal reserve banks to admonish or advise member banks against making speculative loans, or something of that kind.

I regard that as—I would rather not have this go into the record, but if you feel it is an essential part, I have no objection Mr. STRONG. I think it had better go in.

Doctor MILLER. I regard it as an unhappy interference at this time. I do not think it will accomplish very much there. When you have a stock-market movement of the dimensions that this present market has attained, you either want to do nothing or you want to do something that has substance to it. I think that provision of the resolution will be construed as implying a temporizing attitude.

–  –  –

Doctor MILLER. I have in mind, vaguely, whatever happens to be the dominant influence in the Federal reserve system, and that is expressing itself in the line of policy undertaken. I t may to-day be this individual or group; to-morrow it may another. But wherever any important line of action or policy is taken there always will be found some one or some group whose judgment and whose will is the effective thing in bringing about the result. Their's is the ear which does the hearing for the system.

Personally, I feel a deep interest in the state of the European world. I first saw Europe shortly after I was out of college, and I have tramped hundreds of miles in Europe. I know it; I know the people; I know the country, its lovely valleys, its impressive beauty;

and above all I have a very tender and warm feeling for the peasantry of western Europe. But I also know something of European psychology. I have not traveled there simply for fun, but have observed something of their mental and emotional traits; also of the state of mind that the terrible war left behind it in Europe. I think I told you, Mr. Chairman, when I was before your committee two years ago, that I was about to go to Europe for the first time since the war to find out how long it would be before they began to show anxiety about the working gold standard, toward which they were then stretching out their arms as a sort of sheet anchor.

Let me add parenthetically that I saw very little indication of any concern or alarm at that time. A year later, however, it developed, and the European central bankers about a year ago, I think, were in a distinctly anxious frame of mind. I think they were in something of the frame of mind then that can be compared to the Federal reserve mind now. They were surprised. They thought that with the nominal return to the gold standard all would be well, and they found that that brought with it some new and difficult and very anxious problems. So that constituted again, if you please, in the general background of the situation in which Federal reserve policies were taken last summer what might be phrased as a desire to be helpful in, as I may put it, mediating the actual return to the gold standard. They had it and they did not have it. They had it on such a precarious tenure at the time that they might have found difficulty, especially in England, in doing justice to the credit requirements of English trade and industry and at the same time maintaining an atmosphere in the British community that would not be apprehensive as to whether or not the gold standard was actually on a solid and tenable foundation. So that was part of it.

Mr. BEEDY. YOU started out, Doctor, to give us the reasons assigned for the operations in the open market and the lowering of the rediscount rate, and you started by saying that they were official reasons.

I inferred that there might be other reasons. If so, I would like to have them, if you can give them.

Doctor MILLER. NO; I do not want to give that impression. I use that term as against " personal," and largely because you asked me a question upon which my own personal views did not fall in with the board's. I was opposed to what was done last year.

Mr. BEEDY. I understand. And then you were going to lead up to what there was in the present situation, having resulted from that policy, that now causes surprise to the system ?

Doctor MILLER. Yes, sir.

–  –  –

among the bankers there of gratification that we had lowered the discount rate when we did Doctor MILLER. Yes; no doubt.

The CHAIRMAN. Otherwise they would have been embarrassed, they felt, by a high rate in London, and they felt that it was a splendid thing for the United States to have done in that matter.

Doctor MILLER. There is no doubt that they appreciated it and that it was of substantial The CHAIRMAN (interposing). And they look upon our action as very helpful, and helped them to avoid a serious situation that was developing Doctor MILLER. Yes.

Mr. BEEDY. I wish I could interject this suggestion: That if we could restrain ourselves from breaking in upon witnesses so that they can not complete their sentences, I think the record would read better.


Mr. BEEDY. YOU started to make a statement which I think was quite important, and I want to bring it out. You said that it did result in substantial Doctor MILLER. May I have my answer read ?

(The reporter read as follows:) There is no doubt that they appreciated it, and that it was of substantial Doctor MILLER. Help in maintaining the London money rate at a lower level.

Mr. BEEDY. It was substantial assistance rendered England in a crucial time, was it not?

Doctor MILLER. Yes, sir.

Mr. STEVENSON. TO come back to the concrete subject, let me put this question: Suppose the pound sterling was selling at $4.50; what effect would that have upon our export trade ?

Doctor MILLER. I should say that if the pound sterling went to $4.50 next autumn, we would have a devil of a time in this country to get rid of our surplus produce.

Mr. STEVENSON. I am putting an extreme case now. In other words, the pound would only buy $4.50 worth of cotton instead of $4.85 worth, and, of course, it would tend to restrict the purchase of our commodities here.

Doctor MILLER. Of course, when you put it as extreme as that, I think you can eliminate the word " tend." It would.

Mr. STEVENSON. It would restrict it?

Doctor MILLER. Yes, sir.

The CHAIRMAN. I might interject something that I observed in London in talking with men who were considering that situation at that time, to give you their viewpoint.


The CHAIRMAN. There are two classes of thought in England on the question of stabilization—as to the time when they should have stabilized and the basis on which they should have stabilized. The industrialists of England felt that the stabilization was premature.

England is pretty well divided on that subject. The industrialists felt that if they did stabilize they should stabilize on a $4 basis rather than on the $4.86 basis; that that would thus have permitted

–  –  –

Mr. STEVENSON. A man wants to buy in New York a cargo of cotton. He has his money in London. The question of how much he can get for his draft on London in dollars and cents determines really what his cotton costs him, does it ?

Doctor MILLER. Yes; that is part of it. In addition, in this particular situation that we are discussing there is this factor: The low money rates obtaining in New York, especially for bills—so-called bankers' acceptances—during the crop moving and the crop exportation period, made it very easy to finance those operations. That is to say, a bill drawn against an exportation of cotton last autumn could be discounted in the New York market at 3 per cent, or even below 3 per cent, as compared with a London rate of 3% to 3%, or somewhere along there. At any rate, there was a spread of one-half to three-fourths of 1 per cent between the London and the New York cost of financing bills drawn in connection with the outward movement of cotton. But—and this is a thing that is very frequently overlooked Mr. BEEDY (interposing). Now, you are in the midst of a sentence;

but, to make it concrete, did that operation by our Federal reserve system actually result in a more favorable price to the cotton producer and the wheat producer?

Doctor MILLER. That is a matter of opinion; and especially is it a debatable matter whether it resulted in a better price being realized by the actual grower of the cotton or the grower of the wheat.

The CHAIRMAN. There was a little upturn in the price level of agricultural commodities immediately thereafter, was there not?

Doctor MILLER. Yes, sir.

Mr. GOODWIN. Was that anticipated by the board at the time they made that reduction?

Doctor MILLER. I do not feel competent to answer the question stated in that way.

I think it was certainly in the minds of some members of the board that it would strengthen the market for American farm products and probably result in better prices being realized for them.

The CHAIRMAN. And also go a long way toward helping the international situation?

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