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It is a big subject, gentlemen, and now this good old United States of America is in a position where the dollar is the determining factor of the price level of the world. We are the dominant nation, financially and otherwise. We are setting the price level in London, Liverpool, Hamburg, Berlin, and Paris. This is a tremendous responsibility, and that is why if this Federal Reserve Board can stabilize things and remain stable it means peace and prosperity, not only in the United States, but in the world; and you men know that when we have a panicky condition and a falling price level, as well as a deflation of currency and credit, it results in disturbance at home, in men thrown out of employment, in bankruptcy, in political rebellions—all of those things result from this.

Every argument is on the side of Mr. Strong. Every argument is for a stable price level and a stable volume of money and credit commensurate with the population and the business we are doing in the United States. Every argument is for it and there is no good argument against it.

I am discouraged with Doctor Miller. I am discouraged that a man of his caliber, a man holding the responsible position he holds and has been holding all these years on the Federal Reserve Board, should sit before us yesterday and say that he doubted if there was any man in the United States wise enough to administer the Federal reserve act. I was discouraged. I would not have said it. I do not believe it. I believe that we have brains and men in the United States 15029—28 14

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transaction every day of 120,000,000 of people, and we give the board the power to change the yardstick on us. I think that is a mistake, but we are getting along.

In the distribution of our wealth, I said that our fear was overproduction; in other words, we American people are so smart that we have produced ourselves into trouble.

Mr. BEEDY. That is right.

Mr. SHEARER. Doctor Miller discussed the other day whether you could induce people to eat more food or not. I do not think you can.

That is not a vital question, but I will tell you what you can do. You can put the business on such a basis that every man can get all the food he wants, and they do not get it to-day. We suffer from underconsumption, not overproduction.

Eight in my own little home town, where we are producing the best kind of corn-fed beef and hogs, and where hundreds of head of fatsteers are being fattened around the town, I happened to be talking with a very clean, decent citizen who is a clerk in a store. Last week he told me he could not afford to buy meat but twice or three times a week—right in the middle of where we are raising the meat.

If the industrial interests only knew of the enormous market that is awaiting them in the Middle West if our buying power was restored.

I told my friend Strong the other day that in all my travel from Frankfort to Washington, D. C, I had only seen one new barn. My friend Strong remarked, " If you will give me a monopoly of painting all the farm buildings from there to here, I will be a millionaire."

I wonder that the industrial interests do not see what an enormous market there is there.

Now, in this matter of distribution, our railroads are distributing our stuff very nicely now. We are getting splendid railway service.

Our telegraph and telephone are getting perfect. The third factor in distribution, viz, money, must be in insufficient supply. Money is the positive factor in distribution. The saturation point in consumer's needs has never been reached. Money in the hands of the consumer is the great distributor. So long as there are unsupplied consumers the cry of overproduction is an admission of the insufficiency of the greatest of all tools of trade, money—and becomes a case of underconsumption.

Fluctuation in the purchasing power of the dollar, either by changes in its volume or quality, is at the bottom of nearly all our economic ills. True, there are nonmonetary causes for varying prices in certain specific lines. Propitious weather may give increased supplies of food and fiber. Labor and time saving inventions may result in increased supplies of certain commodities, but these things are out in the open and known of all men and are to be expected.

Also, what is publicly known and understood rarely causes discontent. The unseen and usually unknown shifting of the purchasing power of money always makes trouble, and often those least to blame are made the culprits.

Whether buyer or seller, creditor or debtor, some one is always wronged by instability of the dollar. That is why this initial step toward stabilization provided for in the Strong bill becomes highly important.

As I said before, we farmers fear deflation. We have reasons to believe that it is the policy of the moneyed interests to gradually

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a pound for T-bone steak. I pay 70 cents a pound for it. In the meantime, since this left Kansas City and the railroads have put on their transportation costs and the middleman has had his part, as well as the retailer, you see what that costs me on my table.

Mr. SHEARER. That is your job, not ours.

Mr. BEEDY. It is everybody's job—this problem of distribution.

Mr. SHEARER. Our job is to produce it. Your job is to get it as cheap as you can. I do not want that laid on the farmers.

Mr. BEEDY. I am not trying to.

M. SHEARER. I would like to tell you this about your beefsteak, which I am giving to you as a fact: They have established a system now, which has started in the principal cattle markets—Kansas City, Omaha, and Chicago—of grading meat. They have first, second, and third grades. All the meat is inspected by the Government and stamped.

I went into our butcher shop last week. I was thinking about this very thing. I said, " Have you any graded meat ? " He said, " No;

I could not afford to buy it."

You are buying graded meat, first-grade meat. In my little town it would cost me 50 cents, probably, for second grade, or a little less.

I buy meat that was inspected as wholesome meat and healthy meat, but it is below the first three grades.

Mr. BEEDY. This steak that I referred to is steak that we say is from corn-fed cattle.

Mr. SHEARER. Certainly; but there are grades of corn-fed cattle.

I wish you would inquire, for your own satisfaction, the next time you buy steak, what grade it is, and look at the brand on it. You will see a blue brand stamped on it. It does not go by first, second, and third; it goes by " prime "—I can not remember the grades.

You watch it, and if it is prime or first class it will be way up. That means meat that is nicely mixed, that has been fed a long time. That means young meat, from a yearling, very tender and juicy, and the necessary amount of fat mixed in, and absolutely clear as to disease.

That is what it means.

Mr. STRONG. Let me say that you do not get that here at 70 cents a pound.

Mr. STEVENSON. NOW, speaking of that matter, of the price of meats, I have seen in this committee, and so has Mr. McFadden—I do not know whether Judge Brand was here or not—but he was on the committee—where we had exhibits of bills that were paid, of 33 cents apiece net for a lamb. They would ship the lambs, and they got 33 cents apiece net for them, and at the same time they had a bill of fare, right here in our own cafe, in which two lamb chops cost 60 cents, and the price received by the farmer was just equal to one chop and a tenth.

Since then, of course, matters have swung the other way; but it would not have been safe to have stabilized the lamb business at that time, would it?


Mr. STRONG. And we do not want to go back there.

Mr. STEVENSON. I do not either.

Mr. SHEARER. I have a great deal I could say, but I am not going to say it. This is a very large subject.

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would be to pursue such a policy as would even out those lines, would it not ?

Doctor MILLER. NO. I would say, in answer to your question, but looking at Mr. Strong, and having in mind doubtless some one or two reserve-bank officers who may have influenced him in drawing his bill, that one of the commonest mistakes, when people talk about stabilizing price level, is to imply that it means stabilizing money rates. I have occassionally[oc asionaly]seen something in reports of the openmarket committee to the effect that stable money rates, in relation also to stable business conditions, prices, and so forth, should be the objective of a certain policy.

Now, the only method, supposing that the thing is at all practicable, by which ordinarily prices could be stabilized would be by variable money rates. In other words, when the flow of credit gets to be too rapid, and prices tend to rise in terms of the quantity theory and the concept of this bill, the way to pull them back is by running money rates up and checking borrowing, thus reducing the volume of money in use.

Similarly, in terms of the conception of credit price stabilization, when things are running down, when prices are going off and you want to start a reverse movement with a view of coming nearer to stability, you cheapen the cost of money so as to induce borrowing and raise the price level.

Mr. BEEDY. On your chart, the lines which present the most violent fluctuations are found under " Money Rates in New York" and " Money Rates in the Principal Countries," but I notice the lines indicating " Loans " and " Investments " are steadily rising from 1922 to the beginning of 1928, while the line denominated "All Other Loans " and which you say may be grouped under the head of commercial loans, is fairly steady. In other words, as the rates of money rise and fall in big cities, the loans that are made on investments seem to take advantage of them and present quite a violent change, while industry in general does not seem to avail itself of these violent fluctuations, and that line is fairly even, there being no great rises or declines.

Doctor MILLER. Here [indicating on chart] is 1927, and this represents the volume of borrowing for commercial accounts.

Mr. KING. When you say " this " and point to the chart, it does not mean anything when we come to read the record.

Mr. BEEDY. He is referring to this line, indicating "All Other Loans."

Doctor MILLER. Yes; on the chart marked "Money-Market Factors." This line "All other loans " shows no marked changes during the year 1927; it moves on a level not appreciably different from 1926.

In the latter part of the year it would show, I think, a decline.

Is that correct, Mr. Riefler ?

Mr. RIEFLER. A slight decline.

Doctor MILLER. Notwithstanding the fact that the Federal reserve system pursued a policy of easing money, first through purchases of United States securities. This black line, the heavy black line, " U. S.

Securities," shows about mid year the beginning of this policy of purchasing securities, and you will notice how the curve rises.

15029—28- 15

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Mr. STRONG. I think that is true. That is what I do not want you to do, to experiment, but to proceed with these powers toward the policy of stabilization.

Doctor MILLER. I know what you want to have done; but very frequently the way to get it is not the direct way or not the way that assumes that a resolution or instruction will do it.

Mr. STRONG. DO you mean to say that the way to get it is not to direct that they shall use these powers toward that policy ?

Doctor MILLER. No; I do not say that the powers shall not be used.

Mr. KING. I want to make a protest, that the gentleman from Kansas has referred to the fact that a member of the Federal Reserve Board has changed the reading of this bill.

Mr. STRONG. I did not say the board. I said " system."

Mr. KING. While they have almost every power on earth they are not infallible.

Mr. STRONG. I said the Federal reserve system. Some of these amendments were made after a conference with the members of the board and of the Federal reserve system.

Doctor MILLER. The Federal reserve system is a pretty big organization. There are many persons in it. We have a considerable number of amateur economists, and from my point of view they constitute one of its dangerous elements.

Mr. STRONG. I agree with you.

Doctor MILLER. There are altogether too many in and around it for the good of the system, and there has been some influx into the Federal reserve mind of half-thought-out ideas—notions almost metaphysical in their character. These have penetrated the minds of some of the operators of the Federal reserve system.

Mr. STRONG. That is just what I am afraid of.

Doctor MILLER. And I venture to say that some of the men whom you have consulted do not know what this is all about. These are high-sounding and captivating words you are using in your proposed amendment.

Mr. STRONG. Of course, one of them has been Governor Strong.

Doctor MILLER. Of course, he is a very able man. But when it comes to economic insight and understanding, and when it comes to a program of economic statesmanship such as this bill contemplates— the most novel, the most untried, the most difficult—it calls for the exercise of power of analysis, of power of foresight, that is very unusual in any group of men anywhere, no matter what their experience or training.

Mr. STRONG. DO you mean to say that for the past three or four years the Federal Reserve Board has not been trying to use their powers for stabilization?

Doctor MILLER. I do not know it.

Mr. STRONG. Why do you employ these economists to prepare these charts for you if you are not trying to reach a policy of stabilization ?

Doctor MILLER. I might simply repeat what I explained in great detail before this committee two years ago, and what is explained in considerable detail in the 1923 annual report of the Federal Reserve Board, which is a fundamental document in the Federal reserve system as then understood and conceived. It contains a

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ticular subject I do not know that they understand just what they are about.

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