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Furthermore, it is human that on a subject with which a man is not particularly familiar the last man that talks with him is very apt to influence his mind. I would say that this bill was very cleverly and very brilliantly drawn to accomplish that purpose. I do not say that that was your purpose, but it is drawn, I would say, in language of convenient vagueness.

Mr. STRONG. NOW, go ahead with your testimony.

Doctor MILLER. What do you want me to talk about ?

Mr. STRONG. The bill.

Doctor MILLER. What part of the bill?

Mr. STRONG. There is publicity to be discussed, and, after that, the studies.

Doctor MILLER. Yes; but I want to finish up on paragraph (h), which is the heart of the bill.

The CHAIRMAN. Before you do that, I would like to have you discuss these charts that you have here, because, as I understand it, these charts are a history of past happenings, which have a bearing on the decisions which the board makes or, at least, certain members of the board rely on them to govern the decisions they make. I think it is an important part of the operation.

Doctor MILLER. Mr. Congressman Strong, this is a chart that I have had prepared for my personal use, and it always stands on a table opposite my working desk. You will notice that it has no price curve on it.

The CHAIRMAN. Without objection, this chart will be inserted in the record at this point. It is headed, "Money Market Factors."

Mr. STRONG. But the chart does show the stableness or unstableness of the various money rates and bank credits.

Doctor MILLER. Exactly.

Mr. STRONG. And it purports to show brokers' loans. It shows that you are studying how you reach a stable situation.

Doctor MILLER. Where is the steadiness in that chart ?

Mr. STRONG. There is not any; and that is the reason you have that, to point to the unsteadiness of it.

Mr. BEEDY. I direct your attention to the line, Mr. Strong, in the center column, between the figures 10 and 5, which is fairly steady It is called "All other lines."

Doctor MILLER. NO ; "All other loans." That is a statement that is constructed from the reports of some 650 or 700 of the largest banks of the country that make a report every week to the Federal Reserve Board as to their condition.

Mr. BEEDY. Not members of the system?

Doctor MILLER. Oh, yes; they are members. They are the largest members in the reserve cities, and so on. They are the large banks, and they make a report weekly of the leading items in their condition.

The line that is marked "All other loans," you can roughly identify in your own mind as meaning commercial loans; that is, lending to borrowers for commercial, agricultural, industrial, and similar operations.

Now, of course, the striking thing in that chart, Mr. Strong, is the fluctuation in these various curves, great fluctuations.

–  –  –

the evening of one day, and were the guests of the Governor of the Federal Reserve Board at a luncheon the following day, and they left that afternoon for New York.

The CHAIRMAN. Were the members of the board present at this luncheon ?

Doctor MILLER. Oh, yes; it was given by the governor of the board for the purpose of bringing all together.

The CHAIRMAN. Was it a social affair, or were matters of importance discussed?

Doctor MILLER. I would say it was mainly a social affair. Personally, I had had a long conversation with Doctor Schacht alone before the luncheon, and also one of considerable length with Professor Rist.

After the luncheon I began a conversation with Mr. Norman, which was joined in by the other foreign representatives and, as I remember, by Governor Strong and perhaps one or two other officers of the Federal Reserve Bank of New York.

The CHAIRMAN. Was that a formal meeting of the board? Were minutes taken?

Doctor MILLER. NO.

The CHAIRMAN. It was just an informal discussion of the matters that they had been discussing in New York?

Doctor MILLER. Well, I assume so.

The CHAIRMAN. NO definite statement was made of that, however ?

Doctor MILLER. NO. I assumed that the purpose of the visit here was largely in the nature of a courtesy visit.

The CHAIRMAN. Was there a representative of the Federal Reserve Bank of New York present at the luncheon ?

Doctor MILLER. Oh, yes; two representatives of the New York bank, as I remember. It was quite a large party, including Assistant Secretaries of the Treasury and State Department and a number of other persons in official life here. It was mainly a social occasion.

As I remember, I was the only member of the Federal Reserve Board asked to say anything, and what I said was in the nature of generalities. The heads of these banks also spoke in terms of generalities.

As a conference the meeting did not mean very much, and I was left with a feeling after the luncheon adjourned that it was—well, not very satisfactory.

Mr. KING. Was the menu satisfactory?

Doctor MILLER. I mean that these gentlemen had been here and had said nothing in particular, and nothing in particular had been said to them.

Mr. KING. What did they want?

Doctor MILLER. Well, Mr. Congressman, that is sometimes a very difficult thing to find out. I wanted to find that out, and, as already stated, had talked with two of these gentlemen separately in my office. They were very candid in answers to questions. I wanted to have a talk with Mr. Norman, and, as I say, we both stayed behind after luncheon and were then joined by the other foreign representatives and two or three of the officials of the New York bank. But I was the only member of the Federal Reserve Board. The conclusion that I drew—not that this was said, but it was a conclusion I drew—was that these gentlemen were all pretty much concerned for one reason or another with the way in which the gold standard was then working. That was not said by anybody, but that was my read

–  –  –

and, as a matter of course, of open-market money rates, including the call rate.

The CHAIRMAN. Might I ask here if there was any conference between the open-markets committee and these bankers from abroad whom we have referred to ?

Doctor MILLER. Certainly not as a committee, so far as I am aware. They may have met them as individuals or possibly as a group, but not as a committee; no.

The CHAIRMAN. But apparently as a result of the discussion which took place, the open-markets committee responded to the suggestion which was made either in the conference in New York or here or somewhere while these gentlemen were here in connection with carrying out their views as regards open-market transactions and the lowering of the discount rate.

Doctor MILLER. Yes; I do not know whose idea it was. It may have been an idea that was simultaneously entertained by several of these men. My own belief is that the directors of the New York bank had for sometime been looking in that direction, and it may have been that it was because of this that the visit occurred. I do not know whether the original suggestion was presented from the other side; it may have been. About all that I would say, on the basis of my impression, is that the idea was very welcome on the other side. It was distinctly a time in which there was a cooperative spirit at work, a feeling that for one reason or another, and perhaps a variety of reasons, an easing of conditions was desirable.

Mr. KING. What medium of exchange do you usually use between those fellows that came across and the institutions that you speak about ?

Doctor MILLER. What do you mean ?

Mr. KING. I mean the open-market operations committee.

Doctor MILLER. What do you mean by " medium of exchange " ?

Mr. KING. I do not mean "medium of exchange." I mean "medium of communication." How did they get these ideas into their heads ?

Doctor MILLER. Sit around and talk about it.

Mr. STRONG, At a social dinner, I would say.

Mr. BEEDY. He has said that individuals of this committee Mr. STRONG (interposing). I appreciate that.

Doctor MILLER. I suppose that Doctor Schacht was in my office with me alone for about an hour and a half. I think I knew his mind pretty well, because I was struck with his singular candor and also his remarkable ability. He is far and away the ablest central banker that I know anywhere in the world, a man of commanding ability and solidity and with a minimum of illusionism in his mental make-up as a practical administrator.

Having talked with him at length, the thing that rather surprised me was that the things that appeared to come out of this visit later did not seem to fall in with the impressions I picked up from him as to his attitude, and subsequent reflection has led me to think that probably he stood somewhat apart, possibly, on some of these matters.

I do recall this particularly, because it falls in now, as it fell in then, with my own view as to what should be the official attitude of the Federal reserve system as regards the international situation. I

–  –  –

I think I explained the other day that the financing of the movement of commodities between countries is cheaper in proportion, to the extent that an importing country can buy the currency of the country from which it is importing cheaper. The effect of our low American rates was to raise sterling exchange, to raise sterling exchange from about $4.85 to $4.87%. In other words, our policy tended to increase the value of the pound by diminishing the value of the dollar as compared with the pound. The result was that importers in England, or anywhere in Europe, who were financing themselves through London, directly or indirectly, who wanted American dollars would find that they could get more dollars and cents, so to speak, for their pounds as the result of Federal reserve policy followed through the autumn than was the case hitherto or than otherwise would have been the case.

Mr. STEAGALL. Putting it in the language of the layman bluntly, what happened was that they made money a little cheaper?

Doctor MILLER. Yes; exactly.

Mr. STRONG. Made our money a little cheaper.

Mr. STEAGALL. That is a better way of expressing it.

Doctor MILLER. Exactly. I do not want to complicate the presentation too much, but if we turn to the international situation we find that the spread between money rates in the United States and Great Britain became wider after this new policy was adopted, so that it had the effect of diminishing shipments of gold to the United States; on the contrary, stimulating a movement of gold to Europe, where it would command a better current return. There are a considerable number of American banks that have funds that they shift from one market to another or from one class of investments to another, according to the return they can expect to get that actually make transfers to London, and it was those transfers that called, in part, for shipments of gold to cover their transfers.

In brief the operation was this: They sold gold credits in New York for sterling bills or sterling balances in London.

Mr. STRONG. Doctor Miller, I understand from your statement that you do not agree with or approve of the change of policy that was made by the Federal reserve system after the visit of the foreign bankers ?

Doctor MILLER. That is correct.

Mr. STRONG. Then would it not have been a good thing if there had been a direction that those powers given to the Federal reserve system should be used for continued stabilization of the purchasing power of the American dollar rather than to be influenced by the interest of Europe ?

Doctor MILLER. Well, I take exception to the term " influenced."

Mr. STRONG. YOU would, but I just wanted to get that answered.

Doctor MILLER. I would say that there is no such thing as stabilizing the American dollar without stabilizing every other gold currency. They are tied together by the gold standard.

Mr. STRONG. Then you approve of our efforts to stabilize Europe?

Doctor MILLER. I disapprove in toto of any mechanical formula in banking.

Mr. STRONG. I agree with you.

–  –  –

1 Preliminary.

Doctor MILLER. I would say, in answer to your question, that that is in part true, but not wholly so. Part of the gold that we have lost is gold that foreign governments, notably France, have been accumulating here for gome time. They are exporting it now.

The CHAIRMAN. This statement, I will say to you, shows the earmarking of that gold for the different months of 1927.

Doctor MILLER. But the total figure includes, I think, gold withdrawn either for exportation or for earmarking; that it, the form of statement put out regards the gold as lost; that is, for the time being, to the American credit system when it is earmarked and set apart as the property of some foreign government.

The CHAIRMAN. It is impounded and in storage. It is out of our system just as much as if it were out of the country.

Doctor MILLER. Yes.

The CHAIRMAN. In connection with these conferences which took place and which subsequently resulted in definite action, you referred to conferences in New York and conferences or a luncheon in Washington. I would like to ask you to put in the record the names of the people who were here from abroad at this luncheon in Washington—in fact, all who attended that luncheon.

Doctor MILLER. I will do the best I can. I think I can give you approximately the gentlemen here from abroad. I have already given you the names of Mr. Norman, of the Bank of England; Doctor Schacht, of the Reichsbank; and Mr. Rist, deputy governor of the Banque de France. There was also present one of the younger men from the Bank of France. I think he was in charge of statistical work, and in part also acted as a sort of interpreter. I do not recall that there were any others among the foreign guests at that luncheon.

–  –  –

Mr. STEAGALL. All that you say is interesting, but it is a little bit aside from the question propounded by Mr. McFadden. He asked the question as to who was responsible for this meeting.

Doctor MILLER. I can not answer that. I suppose that it would eventually come to this, that these men got together over there or otherwise conferred with one another and then cabled Governor Strong, " We would like to come over and have a talk with you." In that case you would say the meeting was at their instance.

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