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3. Reduce the rates of rediscount to, say, 3 per cent or less.

4. Other methods; publicity, etc.

How high could the average price level be raised in terms of index numbers?

How rapidly could this inflation be produced?

What forces would set the limit of rapidity at which inflation could proceed?

Exports of gold till the legal minimum is reached, etc.

If, on the contrary, the membership of the Federal Reserve Board. Federal reserve agents, and class C directors, wished to carry through a policy of deflation of commodity prices, what means could be used?

1. Retire Federal reserve notes and substitute gold certificates.

2. Sell securities.

3. Raise rate of discount Other methods ; publicity, etc.

How long could the average price level be reduced in terms of index numbers?

How rapidly could the deflation be produced?

What forces would set the limit on deflation? Gold imports. To What extent could these be prevented from getting into circulation ?

I f the United States has about 40 per cent of the world's monetary gold, and other nations are paying us about $1,000,000,000 in gold or equivalent gold exchange per year, do these facts indicate to you any greater power of the Fed

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On page 2, line 9, after the word " stable,'' add the word " average,'' so that i t w i l l read: "More Stable average purchasing power Of the dollar.'' On page 4, line 8, after the word " Of,'' add " the average of.'' Mr. LUCE. The second " Of,'' you mean ?

Mr. STRONG. Yes; the second "Of.'' That is, before the word " prices,'' in line 8, add the words " the average Of,'' S that i t w i l l O read : " Of existing Or proposed index numbers Of the average Of prices.'' On page 4, line 9, at the beginning Of the line, add the words " Of commodities '' and change the word " measures '' to " measurements,'' and after the word " t h e ' ' add the word "average,'' so that those two lines will read : " Of existing Or proposed index numbers Of the average Of prices Of commodities Or Other measurements Of the average purchasing power Of money.'' After the word " combination,'' on page 4, line 10, place a comma.

A t the end of line 11 of page 4 change the word "policies' to "policy,'' strike Out the period, and add "Of stabilization,'' with a period, so that the line w i l l read : " Federal reserve system as a guide in executing its policy Of Stabilization.'' A t the end Of the bill, Section 28C, add the words " except that the purposes Of the act Of 1913 shall remain,'' so that that section w i l l


SEC. 28C. Acts and parts of acts inconsistent with the terms of this act are hereby repealed, except that the purposes of the act of 1913 shall remain.

Mr. KING. What is the meaning of that?

Mr. STRONG. That amendment was suggested because some Of those with whom we were in conference On Saturday felt that that clause might repeal some Of the powers Or authorizations that they had in the act Of 1913.

Mr. MACGREGOR. Well, what does it repeal, as you leave it?

Mr. STRONG. I t repeals anything inconsistent with this act Only.

Mr.MACGREGOR.What is inconsistent with it?

Mr. WINGO. That is always the rule, without any definition.

Mr.STRONG.I know.

Now, gentlemen, I want to say that this present revision is now the twelfth revision of the sixth revision of this bill. I only mention this for the purpose of showing to the committee that I have made every effort that I knew how to try to meet the objections and suggestions that were made by the men who are conducting this great financial system; my purpose being to direct in the bill that the powers that they have now shall be used for the purpose of promoting the stability of the purchasing power of money, and further to direct that when they shall have made a change of policy they shall, as soon as they shall believe safe and proper, and at such time and place as they shall believe desirable, advise the American public why they made such change of policy. I believe i t is necessary that the people who own and run this great Nation should be taken into the confidence of the great system of finance that they have set up in this country.

Then there is directed a Study by the Federal Reserve Board and the Federal reserve banks Of the questions Set up in the bill.

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I Want to state to the members Of this committee that after two years Of study and work On this subject, and the efforts that I have made to meet the Objections Of the principal financiers and economists, both inside and outside the Federal reserve system, I realize that the various amendments that have been made to this bill w l l l have to be rewritten ; but this represents finally the result of the effort to cooperate with those men who are devoting their lives to the study Of this question, and I ask the assistance of my colleagues, after these hearings, in the final preparation of this bill, to the end that the purpose of directing the uses of the powers of the Federal reserve system toward the stability Of money may be properly carried in the bill, and also the clauses regarding publicity and investigation of the various questions set up in the bill may be retained. And after we have done that I hope that the bill may be favorably reported.

Mr.STEVENSON.W i l l the gentleman permit just one question?

Mr. STRONG. Yes, sir.

Mr.STEVENSON.As I understand, the gentleman says that probably a great deal of it w i l l have to be rewritten. Is not the very heart of this bill subdivisions (h) and (i) of the first section?

Mr.STRONG.Yes, sir.

Mr. STEVENSON. There might be a difference in phraseology there, but that is what you mean to do ?

Mr.STRONG.Yes, sir.

Mr.STEVENSON.The other things are all means to that end, as I understand it?

Mr. STRONG. Yes, sir.

Mr.STEVENSON.And you expect a great deal Of the Other to be rewritten ?

Mr. STRONG. Yes, sir. As a result of these hearings, i t is thought desirable to do so.

Mr.STEVENSON.But i f the bill passes, according to your ideas, it should contain the meat of subdivisions (h) and (i) ?

Mr.STRONG.Yes, sir.

Mr. WINGO. I n Order that I may follow the discussion, I would like to ask the gentleman from Kansas about the first proposed amendment in line 5, page 2. What is that amendment that you are proposing there ?

Mr.STEVENSON.Mr. Wingo was not here when you were reading those amendments.

Mr.STRONG.I t is, after the word " system '' on line 5, to add the the words " in addition to the purposes expressed i n the title of the Federal reserve act of 1913.'' Mr. WINGO. You propose, then, to amend the title of that act.


Mr. WINGO. You are going to add to i t ?


Mr. WINGO. Why use the words " in addition '' ?

Mr. STRONG. The Federal reserve system shall, in addition to those purposes, do the following Mr. WINGO. So you are going to amend i t by adding other purposes ?

Mr.STRONG.I t amends the law, of course. I t adds other purposes; yes.

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Mr. STRONG. I am not extending them.

Mr. WINGO. I want to follow you. Take the last amendment. You propose to repeal acts inconsistent with the terms of this act, except that the purposes Of the act Shall remain. I n other words, you repeal every provision of the Federal reserve act that is inconsistent with this act except the inconsistencies that go With the purposes of the act; is that it?

Mr. STRONG. Of course, that may be your interpretation.

Mr. WINGO. I am asking this, my dear sir -Mr. STRONG. I have said, Mr. Wingo -- I do not know whether you Were here Or not -- that that was a Suggestion made last Saturday at a conference with members of the Federal reserve System, and i t will be discussed i n these hearings ; and then, after we go into executive Session, as the result Of the information we get i n these hearings, We Will have to change that phraseology.

Mr. WINGO. I want to follow you, but I can not find Out What you propose to do.

Mr. STRONG. Well, I am trying to tell you.

Mr. WINGO. You do not understand my question. DO you propose to repeal all Of the provisions Of the Federal reserve act that are inconsistent With this act except that provision Which is inconsistent With the purposes Of the act?

Mr. STRONG. Why, I certainly want to repeal anything that would interfere With carrying out the direction set up i n the bill I have introduced and Which these hearings are to consider.

Mr. WINGO. A l l right; I have got it, then.

Mr. CANFIELD. Mr. Chairman, I notice that Representative Strong Said that he Sent Out a questionnaire to the witnesses.

Mr. STRONG. Yes, Sir.

Mr. CANFIELD. I would like to Suggest that he send a copy Of that questionnaire to each One Of the members, so that We may go over i t as We go along.

Mr. STRONG. I have two copies here. I can furnish One for each side Of the table.

The CHAIRMAN. GOV. Roy A. Young, Of the Federal Reserve Board, is here. We would be Very glad to hear Governor Young's Statement at this time.

Mr. YOUNG. Mr. Chairman and gentlemen Of the committee, the board, Of course, has considered this bill and discussed it, and the board would like to be represented by Doctor Goldenweiser, Doctor Miller, and Mr. Wyatt i f necessary. Doctor Miller is sick at the moment, but expects to be able to appear before the committee On Wednesday. I have been informed that there are some Witnesses here Who Would like to catch a train this afternoon, and the Federal Reserve Board is quite Willing that they should appear first, so that they can catch their trains.

Mr. WINGO. Governor, does the board approve this bill ?

Mr. YOUNG. No ; the board is opposed to the bill.

Mr. WINGO. That is What I Wanted to know. I had heard many rumors that they Were in favor of it.

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Where Congressman Strong has sought to meet that objection, namely, in paragraph ( h ), On page 2, the bill provides that the system shall use its powers to promote stability, and so on, So far as such purposes may be accomplished by monetary and credit policy.

I personally interpret that language to be a recognition of at least one of the objections which I made to the bill in its original form, but i t still leaves a certain possibility of misunderstanding by the public that this bill, instead of being a direction as to the effect of a monetary credit policy upon prices, extends far beyond that and is really an attempt to fix some stability in prices, which can not be accomplished by monetary policy alone. I t does provide an explanation to those Who are managing the Federal reserve system that they are not expected to do the impossible; I admit that, but I am not yet sure it will entirely obviate or avoid the possibility of some public misunderstanding of the purpose of the bill.

A t the time of the hearing in 1926, you w i l l recall that I did state that a very brief addition to the title of the bill, or the preamble, or a slight amendment to the Federal reserve act in the nature of a declaration as to the gold standard in its operation might accomplish all of the purposes as to prices which are capable of being accomplished by monetary policy and thereby avoid the difficulty of construction of language to which no one can give exact definition ; that is, the meaning of the words " inflation '' and " deflation '' and what is a stable price level, and so on.

Apparently, that Suggestion has been incorporated in the title to this act, but it is coupled with the other provision as to efforts to bring about stability by monetary policy. I would like to refer to that later, if I may, in connection with the questionnaire, but, in general, I still feel that everything important Which is sought to be accomplished by this direction of the Congress, or by this definition of policy by Congress, could be well accomplished, possibly with avoiding some misuderstanding, through a scientific application of the well-known principles of the gold standard.

That is about all I had in mind to say about that specific provision of the bill.

I would like to refer to paragraph ( i ), an important one, as to publicity. I t is a subject Which has engrossed and puzzled the responsible officers of the Federal reserve banks from the Very organization of the Federal reserve system.

To express exactly the way I feel about it, I Would like to divide the possibilities of publicity as to policy into three methods or Species of publicity. One is a statement in advance of the intention of the system as to What i t shall do in the future. The second is an explanation simultaneous With the adoption of any policy of the reasons for the adoption of the policy. And the third is a subsequent exposition of why something had been done in the past.

The language of the proposed act, I think, very clearly lodges the discretion as to what shall be stated and when i t shall be stated i n the governor of the Federal Reserve Board, who is the responsible head of the system. The language employed, which seems to me conservative, makes feasible a procedure under which I feel that much good can be accomplished in educating the public and the Con

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leagues in the system that they might feel called upon to express their own views for their own protection, especially at a time when a change in the discount rate is of great importance to the country.

Now, this argument applies to every effort to advise the country in advance of what the system proposes to do and, to a very slightly less degree, to any effort to advise the country simultaneously with the action, because no action by the Federal reserve system has instant effect. Any statement made at the time is a statement made in anticipation of the effect of the action anyway, So I frankly believe that the language in this section (i) is conservative, and, if not too much is expected in the way of explanation, I believe it may be helpful in educating the public as to the policies of the Federal reserve system.

I want to point out, however, in order that you may not by the slightest degree misunderstand what I mean, a very slight change that I understand Congressman Strong has made in the language.

In line 17 it reads.

Such decision or action, and reasons therefor, shall be thereafter published.

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