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Doctor COMMONS. That is, we might retire all the gold certificates 2 Doctor MILLER. We might retire all of the gold certificates. But I think the uncertain quantity there is not what we may do, but what other countries may do. It looks at times as though there was a little disposition in Europe to think that the gold standard is not well buttressed unless there is a certain amount of gold in circulation, though, as yet, I think Switzerland is the only country where you get much visible evidence of that, I think what I believe you described as Form No. 2, where the gold that has been demobilized from circulation and mobilized as bank reserves in the central bank reservoirs is likely to continue. The indication is that before long in England the currency note and the Bank of England note are to be amalgamated. When that is done the new Bank of England note will be to a great extent a fiduciary note—based partly on credit and partly on gold.

The CHAIRMAN. Similar to our Federal reserve notes ?

Doctor MILLER. Similar to our Federal reserve notes in that a part :f the collateral back of the notes is of fiduciary character, but different in that no additional notes can be issued except against gold.

The gold exchange standard, I think, will not prove well adapted to the monetary ideas and requirements of the large commercial coun28 23 <

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Doctor MILLER. I do not know what the explanation of it is. My iirst thought was that there was probably a demand from points in some foreign countries for eagles and double eagles, and that those certificates were taken by the reserve bank and redeemed in order to get the coins actually specified for withdrawal. But apparently from this statement there has been/an increase of $20,000,000 of gold certificates in circulation. The amount involved is relatively so small that it is well within the limits of accidental fluctuations.

The CHAIRMAN. I have here in my hand the circulation statement of United States money of March 31, 1928, in which I notice the total outstanding gold certificates are $1,561,016,429. I will ask the reporter to put that in the record at this point.

(The statement referred to is as follows:)

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1 *

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3 1

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has been considerably increased by improved practices and understandings as to the nature of these operations. So that it seems a fair Inference tifoaJt we have now about as much gold, relatively speaking, under the credit structures of the chief gold-using countries as we had before the war, if we make allowance for differences in monetary practice on the part of banks and monetary habits on the part of gold-standard communities.

Doctor COMMONS. In other words, growing economy in the use of gold?

Doctor MILLER. Yes. Just let me add one sentence here, and that is—therefore, there is a pretty good outlook at the moment for the gold standard in the future or, let me better say, the new gold standard is going to function pretty well in the future. It is my disposition to counsel the committee to await actual developments under this new gold standard before determining whether or not it will be necessary to amplify the whole basis and scope of Federal reserve

•credit practice.

Doctor COMMONS. I take it your opinion in that respect is based upon your idea that owing to the economies of gold the trend of prices will remain about stable?

Doctor MILLER. I would say there, Doctor Commons, that I am not so much concerned with stability of prices, per se, as I am with prices that will induce and maintain a sound, healthy, active state of industry, trade, and prosperity, and well-being.

Doctor COMMONS. That might be accompanied by a fall ?

Doctor MILLER. That might be accompanied by a very slow fall of prices in certain circumstances, and it might require a slow and steady rise of prices in other circumstances. In other words, I do not regard the price level as in and of itself the test.

The CHAIRMAN. YOU speak of the improved use which gold is being put to in reserve banks. Is that due to the management of the gold and the cooperation that is taking place under the central banks of issue?

Doctor MILLER. That is a factor in it. But I think, apart from that, there has been a notable development. I should say that it is probably going to be demonstrated that central banks can operate safejy and successfully on lower reserve ratios than were thought requisite before the war. I would say that a factor in giving central banks in countries that may feel that they are still in a more or less uncertain position, courage in acting upon this new principle would be the belief that, if they got into an occasional jam, they might get assistance from other reserve or central banks, just as I think the fact that the reserve system provided a credit of $200,000,000 for the Bank of England—though it was never called upon—was a material factor in deciding Great Britain to go ahead and restore the gold standard in the spring of 1925. How much it actually contributed to the situation beyond giving them a feeling that in the event that they got into difficulties they could have recourse to the Federal reserve banks, of course, we can not tell. It may also have had its influence as an effective warning to speculators in exchange that any attempt to depress sterling by undue speculative sales could be counteracted by the Bank of England availing itself of its credit in this country.

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Doctor MILLER. I think that depends upon some other factors, such as how rapid the growth of population in this country, what our habits in the matter of food consumption, and so on.

Mr. STRONG. Taking in consideration all of those factors, what is your outlook?

Doctor MILLER. My general expectation would be that agricultural prices in this country are going to rise. I would not undertake, however, to say how much or how soon. We have recently seen a readjustment in the matter of cattle prices. I think there is likely to be a similar movement in prices of other agricultural staples in time.

Mr. STRONG. DO you believe that increased efficiency in industry will be accompanied by falling prices?.

Doctor MILLER. I think increased efficiency in industry is bound to bring about falling prices.

Mr. STRONG. And you look for increased prices of agriculture and decreased prices of industrial products?

Doctor MILLER. I think that is likely to be true, except in the case o,f such manufactured goods as are not susceptible of very much cheapening through improved technology or where the material constitutes a very large part of the expense of producing the commodity. There the situation is akin somewhat to an agricultural commodity or mineral product.

Mr. STRONG. In your opening statement—I want to get back to this gold-standard proposition for a moment—I understood you to say that the gold-exchange standard was passing away and the free-gold standard returning; is that correct?

Doctor MILLER. Yes; I do not know that I used the word Mr. STRONG. What do you mean by " free gold standard " ?

Doctor MILLER. I mean a gold standard substantially as Doctor Commons has described in Item No. 2, the one under which the central bank keeps its gold reserve in the shape of actual gold, either in its own vaults or ear-marked for its own account in some foreign country, in which it does not make much use of gold credits that it may have established in some other country but banks upon actual gold—gold actually in its own possession or segregated somewhere in the world, ear-marked as its property.

The CHAIRMAN. In other words, if all the gold was segregated in that capacity and they all adopted the same plan that the United States has adopted in the use of Federal reserve notes and the Bank of England is about to adopt, it would mean we have a contraction of two and a half times ?

Doctor MILLER. We have it already.

The CHAIRMAN. I know we have it already; but if put in general use the present supply of gold would go two and a half times as far, would it not ?

Doctor MILLER. Yes. But there probably would be some contraction due to the fact that in some instances now continental and othei foreign banks count as part of their reserves the balances which they have in New York or in London, and that the gold that lies at the base of that is utilized in New York or in London as part of its available gold supply.

Doctor COMMONS. That would also economize the gold, but that, I understand, is the system that you think is to be discontinued ?

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Doctor MILLER. In actual practice I think this is what happens:

A bank finds out after the close of business to-day that it is short in its reserves, not necessarily because it has made new loans that have depleted its reserve, but because moneys have been withdrawn by depositors, and it has got to go to the reserve bank and replenish its reserve. Now, so far as it knows, all that it needs to replenish is the deficiency that existed from the operations of the previous day. It borrows for one day. Under this plan it would have to borrow for seven days, and therefore starts business next day with an excess of reserves for which it has got to find employment. It pays the rate of discount on that, and it certainly is not going to carry it as idle reserve, and the most obvious use to make of it is to put it in the callloan market. It is a thing on which I am expressing a hasty opinion, but I am doubtful that it will accomplish very much, if anything.

Mr. STRONG. There is another question I want to ask you: Doctor Sprague in his testimony expressed a fear that the opposition of the Federal reserve system to the stabilization proposed in this bill would nullify its operations, even if this bill became a law. Do you think that is so ?

Doctor MILLER. Please state that again.

Mr. STRONG. Doctor Sprague in his testimony expressed the fear that opposition of the Federal Eeserve Board to the stabilization proposed in this bill would nullify its operation, even if the bill were passed by Congress.

Doctor MILLER. NO. Are you sure you have quoted Doctor Sprague correctly there?

Mr. STRONG. I do not know. Those are my notes. I just wanted to get your opinion on it.

Doctor MILLER. That carries with it the suggestion that the board would not follow an instruction of Congress in the best of faith.

Mr. STRONG. His idea was they were so opposed to it that they would nullify the operation.

Doctor MILLER. Oh, no.

Mr. STRONG. I did not believe that was a fact.

Doctor MILLER. Oh, no; they could be summarily removed from office. It is their, duty to do the best they can. There may possibly be grave misgivings on the part of some people as to what they could do under this bill.

Mr. STRONG. I want to ask you one final question: In your statement you made it plain that you are against the direction by Congress that the powers of the Federal reserve system should be used for stabilization of the purchasing power of money, but that the board and the Federal reserve system should be left free to use their judgment in experimenting with the use of the powers of the Federal reserve system; and I would, therefore, like to have you state to what purpose you wish to experiment in the use of the powers of the Federal reserve system. W*18^ is your objective?

Doctor MILLER. My objective, I would say, in what has been brought out in answer to several of Doctor Commons's questions, and, I think, in answer to inquiries by others in earlier days of this hearing, briefly, that I believe you will get on the whole a more competent performance from the Federal reserve system if you let it go ahead and develop a procedure that grows out of its own experience. That

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When you look at the review of certain of these periods and $ee that Federal reserve credit has been locked up to a certain extent in security loans it clearly indicates that thg Federal reserve system has not devised a technique as yet by which it can control and send credit the way you want it to go—into stabilizing commodity prices.

Mr. STRONG. If the system made a mistake in attempts to give us cheaper money in this country in order to facilitate foreign conditions, which result in increasing the brokers' loans, should not that problem be worked out without trying to maintain the policy of stabilization ?

Doctor MILLER. I regard that as one of the most perplexing problems in Federal reserve technique. I think that the remarks made around the table here at certain times have indicated that there is great difference in the attitude here on that matter.

In this country we have been accustomed to a free market for capital, a free market for funds. When we undertake to interfere with that, unless we do it pretty intelligently, with a full analysis of the consequences, both those that we desire and those we would not wish to provoke, we are undertaking to do more than we may appreciate.

Two years ag;o I expressed my ideas as to what might be done by way of legislative amendment to bring improvement. I still think that the Federal reserve act needs an explicit, definite, point-blank declaration against using Federal reserve funds, directly or indirectly, for any kind of speculative loans.

The CHAIRMAN. Doctor Miller, is it possible to ascertain what is a speculative loan sufficiently so that the board could act ?

Doctor MILLER. I think in a case of this kind you would throw upon the Federal reserve system the responsibility of having to satisfy itself as to what are the criteria of speculative loans, at least to the extent necessary to give some effect to a mandate of Congress.

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