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Doctor MILLER. I think I would say, and I am answering you now on the basis of subsequent information and impressions, and not contemporaneous ones; I think I would say the general situation in 1923 was not favorable to an inflationary or a dangerous inflationary development. Agriculture was flat, very flat. There was no r.eal recuperation of agriculture as yet in sight, and without that I am inclined to think that inflation was also not in sight.

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they actually came in and borrowed, so that you have, taking the year 1923 as a whole, and looking to the upper line—the heavy black line marked "Total bills and securities"—a fairly uniform trend for the year.

Doctor COMMONS. Begin back a little further—1922. The price increase began, as I think, in 1922, did it not?

Doctor MILLEK. Yes. I t began at the third week of 1922, as I remember it. The prices touched their bottom at the end of the year 1921, and then the movement was upward.

Doctor COMMONS. Was gold coming into the country at that time?

Doctor MILLER. Yes.

Doctor COMMONS. SO that those sales seemed to offset the gold imports ?

Doctor MILLER. Yes.

Doctor COMMONS. And the borrowings partly augmented the credits in 1922, up to the beginning of 1923; that is, the total bills and securities was augmented from $1,000,000,000 to, say, $1,300,000,000.

The rise of prices was going on from 1922 up to April, 1923.


The CHAIRMAN. Might I suggest that, if it is agreeable, we will shortly adjourn until 2.30 this afternoon.

Just before we adjourn I want to call the attention of the committee to an editorial that appears in the Journal of Commerce of New York. This paper is edited by H. Parker Willis, who was formerly secretary of the Federal Reserve Board and was one of those men who was actively engaged in the writing of the Federal reserve act.

Inasmuch as this editorial refers to matters which are pending before this committee, I am going to read this.

It is headed " International Bank Tinkering." [Reading:]

[Thursday, May 17, 1928]


Once again it is announced that there is to be a meeting of the heads of central banks, this time in a foreign country. Those who are "scheduled" to participate are the governors of the banks of France, Germany, and England, and also, it is reported, the executive head of one of the Federal reserve banks.

The announcement comes opportunely, just at a time when testimony on the part of a member of the Federal Reserve Board before the House Banking and Currency Committee has brought out the real nature of the deliberations of this same bankers' conference when it met in New York last summer and afterwards went to Washington for a brief discussion or "interchange of ideas " with the members of the Reserve Board. What is now planned appears to be a continuation of the meeting of last summer.

According to the official statement now definitely on file before the Banking and Currency Committee, last summer's conference was devoted largely to a consideration of discount rates. The foreign bankers desired to have a cut in our local discount rate here in the United States in order that they might more easily accumulate capital and gold in their markets, so they came to the United States and discussed the matter with one of the reserve banks. The subject was then informally talked over with the Reserve Board, no " record meeting " being held, according to the testimony now furnished. Thereafter a cut in discount rates was initiated at eastern reserve banks, and then the board was wrought upon by these same banking influences to the extent that it finally ordered the interior banks to cut their rate. Thus was inaugurated a general

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organizations, are being guided in their effort to control or manipulate discount rates?

Doctor MILLER. YOU are addressing that to me as a question ?


Doctor MILLER. I am not quite clear that I know what that means, " by what system." Do they mean by what system of conferences?

Mr. STRONG. International conferences.

The CHAIRMAN. I will quote this from the editorial:

It is also of fundamental importance to know by what theory, if any, the reserve system, and, for that matter, the central banking organizations, are being guided in their effort to control or manipulate discount rates.

Meaning, of course, that at this conference, apparently the subject of discount rates will be a part of the discussion.

Doctor MILLER. Well, the statement there, of course, assumes a degree of knowledge which the editor may or may not have. It assumes that a group of men are getting together for the purpose of "manipulating" discount rates. That may or may not be the case;

I do not know; but, in any case, I would be inclined to say that pretty strong language is being used in the term " manipulation."

I have this feeling, Mr. Chairman: The matter of conferences between the heads of central European banks and officers of the Federal reserve banks has been made the subject of reference two or three times in the course of these hearings. I think it is clear, from what I have said, that I have not personally been in the fullest sympathy with some of the things that have been undertaken or the way in which they have been undertaken, but I feel that if the committee is interested in the details in connection with that phase of Federal reserve bank operation, it is only fair to those who have been actively identified with those operations that they be your first source of information and your main source.

If, then, the committee feels that the subject is one of such importance as to merit further investigation, I should be very willing to be summoned here as a witness to explain my position, but I am not really in a position to answer some of these questions on the basis of positive information, and therefore I am afraid this record would look as though I was either pleading my ignorance or using my ignorance to construct a case against those of my colleagues, or officers of the reserve banks, or the reserve banks themselves, that have been actually' the sponsors) for the program or the action taken by the Federal reserve banks.

So that I feel, as a matter of simple justice to everybody in interest and in order to really get the information that you want and need, that it is not desirable that this subject should be made the matter of occasional reference, but should be a matter of systematic inquiry.

I am inclined to think that there is a great deal there that might well be the subject o,f methodical inquiry by the committee. I think that some good would come from it, but I doubt whether it could well come from these occasional inquiries addressed to me in connection with these matters.

Personally I am at your disposal. I want to answer candidly everything I can, but I do not' want to be in a position where my candor may perhaps lend itself subsequently to a different construction.

15029—28 21

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of the Federal reserve banks in refusing to gradually raise their redis* count rates at the time when this wild speculation was evidently beginning, and it would be very interesting to me to know just why the Federal Reserve Board did not check that very apparent tendency at the proper time, which has now gotten away from everybody.

Doctor MILLER. When was it apparent?

Mr. GOLDSBOROUGH. It has been apparent for two years.

Doctor MILLER. YOU are talking in new dimensions.

Mr. GOLDSBOROUGH. You asked when it was apparent, and I said for two years.

Doctor MILLER. When you asked the question, I supposed you had in mind this most recent phase of it.


agree with you, though I think, if I wrere Doctor MILLER. I quite in the privileged position of an outsider, I would be inclined to suspend judgment, final judgment, upon the developments that have been in progress in this country in the last four years until the whole chapter is written out. I am not at all convinced that we have not been going through a revolution in American business that may mean that we have got to reappraise a great many things in new terms. So that if I were in a position where I could forthwith indulge this privilege of an outsider I would want to see what the thing was going to eventually include.

It has been my consistent position, as a member of the Federal Reserve Board for a period of almost four years, that we were in danger of sowing the wind ultimately to reap the whirlwind, and I have not felt easy and comfortable about it.

Mr. GOLDSBOROUGH. There have been efforts made by certain members of this committee—in other words, there have been hearings here every year since 1922 on this question of stabilization and the effort to try to avert just what is about to happen, and my contention always was before the committee that unless we had some automatic process by which credit could be controlled, the pressure of business would overcome the will of the Federal reserve system and that it absolutely would get beyond control.

It has always been my theory that no set of men could possibly control the pressure of big business when it portrayed a condition when any appreciable raising of the discount rates would probably cause a panic or some terrible business calamity.

That has been my theory, and it was under that theory that I introduced the Fisher bill, which would produce, it seems to me, an automatic control of the situation.

The CHAIRMAN. I want to state here that what has been said in the statement I made is no attempt on my part to criticize any governor of any of the Federal reserve banks participating in the" conference referred to, but, realizing the importance of these conferences to the management of the Federal reserve system and this country, it has seemed to me important that the Federal Reserve Board should have knowledge of and authorize such conferences, and it is a matter of some surprise to us to find that no such authorization has been given. I do not know, except from the newspaper reports, as apparently Doctor Miller does not know, that a conference is about to take place to which the editorial in the Journal of Commerce has

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Mr. STEAGALL. Does that cover the entire list of transactions ?

Doctor MILLER. I think so. I think there have been informal suggestions that others might come along, but this, I think, exhausts the list of cases where credits actually have been arranged.

Mr. STEAGALL. What is the present status of the arrangement with the Bank of England ?

Doctor MILLER. I t has expired.

Mr. STEAGALL. What were the total committals under these arrangements to which you referred—something like $300,000,000 ?

Doctor MILLER. Not as much as that. Some expired before others began.

Mr. STEAGALL. DO you know just what transactions the governor of the Bank of England was having with the United States and our investors at the time that our banks were committed to this loan to them?

Doctor MILLER. I do not quite get you.

Mr. STEAGALL. I am wondering what other borrowings they were negotiating for contemporaneously with the agreement made with our banks.

Doctor MILLER. Well, you may have forgotten, Mr. Congressman, that part of the general arrangements that included the credit of $200,000,000 from the reserve system to the Bank of England also included credit arranged by private bankers for $100,000,000.

Mr. STEAGALL. That is what I was getting up to. I wanted that information from you, because I was not sure just where I got it.

The CHAIRMAN. I will say to the gentleman that it was put into the record by Governor Strong, of the Federal Reserve Bank of New York.

Mr. STEAGALL. I am testifying from my recollection of that, but my memory is not entirely clear about it. So our committal of an amount of $200,000,000 was substantially a contemporaneous transaction with that by which the Morgan banks loaned to the Bank of England $100,000,000?

Doctor MILLER. AS a matter of fact, I think neither credit was ever availed of.

Mr. STEAGALL. HOW was this loan to be handled through our banks ?

Was it not an arrangement with the 12 Federal reserve banks ?

Doctor MILLER. They were to participate; that is, they were to be given the opportunity of participating.

Mr. STEAGALL. I want to ask you one question aside from what we have been talking about. In sitting here listening to this discussion and thinking of this legislation and the obligations and duties that would be put upon the Federal Reserve Board, this inquiry has occurred to me, which is largely one of policy: I want to ask you what you think of the idea of providing for a member of the Federal Reserve Board from each of the 12 Federal reserve districts, my thought being, of course, primarly that you would have on that board at all times a representative of each district presenting the views and approaching questions arising before the board from the viewpoint of his environment and the people of his particular district.

Doctor MILLER. Of course, you now get that from the Federal advisory council. Each district sends a member, and they are meeting in Washington to-day.

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Doctor MILLER. That would depend on the membership of the board. It might work out that way at certain times, and at other times it might, perhaps be an obstruction to action. I think it would seldom work so as to give, through the agency of the Federal Reserve Board, a sense of direction to the Federal reserve system.

Mr. STEAGALL. I think I have your answer on that, and I want to ask you one other question. You referred to the ex officio membership of the board. That has been a question that has been running through my mind, as to whether the board should not have been entirely independent in that regard. I would like to hear your views on that and your reasons for the though you expressed a moment ago.

Doctor MILLER. I think my reasons are pretty well implied in what I said.

Mr. STEAGALL. I guess that is true, but I am wondering if you might want to enlarge upon it.

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