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Mr. STRONG. YOU would want to try to do that, would you not ?

Mr. YOUNG. If you can not do something, I do not know that you would want to try it.

Mr. STRONG. DO you not think that the first duty of any financial system is to attempt to stabilize the purchasing power of its unit of value ?

Mr. YOUNG. It never has been.

Mr. STRONG. Should it not be?

Mr. YOUNG. NO, sir; I am not going to say that.

Mr. STRONG. Have you, meaning the Federal reserve system, not been doing that very thing?


Mr. STRONG. Doctor Miller advised us that last summer, when you wanted to bring about stability in the financial condition of other countries, you reduced the rediscount rate.

Mr. YOUNG. That is not entirely my understanding.

Mr. STRONG. If you do that for other countries, would you not do it for America?

Mr. YOUNG. I do not think that was done for other countries.

That was purely an American policy.

Mr. STRONG, IOU were doing it for America, then?

Mr. YOUNG. Yes.

Mr. STRONG. That is all this bill would have you do. Under this bill you would keep on doing that for America.

Mr. YOUNG. That had nothing to do with prices. I t simply made it easier for some people across the water to buy our exported products. It anticipated a situation that might have developed into a danger.

Mr. STRONG. Your purpose was to affect the European condition by leveling the discount rate and the exchange between our money and their money, was it not?

Mr. YOUNG. I think that was purely an American policy. I t was a very unusual situation, which has been covered repeatedly in these conferences. The choice was between taking action at that time or making it necessary for foreign countries to raise the discount rate, resulting in a lack of free movement of credit, which would have interfered to a certain extent with our export commerce.

Mr. STRONG. It was for the purpose of stabilizing the conditions in those countries.

Mr. YOUNG. I do not know why you continually use the word stabilize."

Mr. STRONG. YOU can use any word you please, if you can find another word that meets the situation as well.

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purchasing power of the dollar, so far as such purposes may be accomplished by monetary and credit policy.

That is just a direction that you use all of the powers you now have for the stabilization of the purchasing power of our money, as maintained in comparison with gold.

Mr. YOUNG. All right; what should have been our policy during the last six months? The commodity price index has not moved much in either direction. Should we have sat still and not done anything ?

Mr. STRONG. Governor, I have not the intimate knowledge of the Federal reserve system that you have, and it seems out of place for me to suggest what you should have done. I have the greatest confidence in you and the Federal Keserve Board, and I think that during the last three or four years the Federal reserve system has been using its policies and powers, as has often been stated by members of your board, very successfully toward the stabilization of the purchasing power of money. Now, whether you should have done anything under recent circumstances, I do not know. I t has been intimated that the rise in the discount rate was because of the inflated condition of the bond market. Frankly, I do not think that gambling and speculation on the bond market should be anything of very great concern to the Federal Reserve Board, unless they think it is coming to be a menace to the country. I believe that they have powers through their publicity and advisory functions to check that. If not, they should come to Congress for further legislation that would enable them to control the situation. I do not think that gambling in stocks and bonds is any cause for alarm as to the purchasing value of the dollar of the country. I do not think that the price of wheat going up or down or any other single commodity going up or down would call for action by the Federal Reserve Board, and I do not think that the index price number of commodities in general has changed very radically. Therefore, I would not have done anything unless by reason of unemployment, or owing to conditions that you would have an opportunity to determine through forecasting or from your charts of production Mr. YOUNG (interposing). What I am trying to bring out is this, that, in so far as the price level is concerned, for the last six months, at least, and, perhaps, further back than that, there has been a very slight fluctuation, of not over 10 points, perhaps, in all of those commodities.

That alone would not have prompted the Federal reserve system to take any action at all. I am willing to go along with you that you are not trying to have a price-fixing measure in so far as any particular commodity is concerned. But if I understand your bill correctly, you are attempting to have a price-fixing measure within certain limits—10 points or 20 points, or what not—in so far as all commodities are concerned.

Mr. STRONG. The purpose of my measure is to stabilize the purchasing power of money, measured by what it will buy in general of the things the people of this Nation have to buy. In other words, we have set up a monetary unit called the dollar. As that monetary unit changes in its purchasing power, so that it will purchase a considerable percentage more or less of commodities in general, accord

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commodity prices. That is what you have reference to when you refer to 1920.

Mr. STRONG. Of course, you have not pursued that policy very long.

Mr. YOUNG. Since last November—November 10.

Mr. STRONG. Did you change the discount rates last November?

Mr. YOUNG. We did not change any discount rates in November.

The rate changes were not made until February, or the latter part of January.

Mr. STRONG. That is what I thought.

Mr. YOUNG. Starting November 10, we failed to offset the earmarkings and exports of gold, which, of course, took a corresponding amount of funds away from the market. Between November 10 and January 1 we took $155,000,000 away from the market. Since January 1 there has been in the neighborhood of $500,000,000 taken away from the market, either by exports of gold, earmarked gold, or securities we have sold to the market. That makes a total of $650,000,000, which is partly offset by return of currency of approximately $200,000,000, leaving a net amount taken away from the market of $450,000,000.

Mr. STRONG. We have an immense surplus of gold here. I t has been estimated by very eminent members of your system that we could part with $1,000,000,000 of gold without very greatly affecting the gold reserve or the price level in this country.

Mr. YOUNG. I think that this country could lose a billion dollars' worth of gold. That is my own view.

Mr. STRONG. Could lose a billion dollars of gold ?

Mr. YOUNG. Yes; but not from here on. I should say from here on it would be about $600,000,000. What the result of that would be—psychological or otherwise—I can not tell; nobody can tell.

Mr. STRONG. But you do think, Governor, if we had inflation in this country, that if you tightened up money, both as to cost and to volume, that would tend to check it? As a business man and a banker, you think that is true ?

Mr. YOUNG. If you go high enough I think it would.

Mr. STKONG. On the other hand, if we had stagnation of business and the index of average commodity prices was going down, and there was furnished an adequate supply of cheap money, thg,t would tend to correct the situation ?

I wish, Governor Young, to assure you most positively that I also would not be a party to any action that would curb any agricultural prices from advancing to a point where they would bring a fair return to their producers. I am personally interested in agriculture as well as the Representative of an agricultural district, but the purpose of this bill has nothing whatever to do with attempting to regulate the prices of any single or individual commodities or group of commodities, its sole purpose being to direct that the Federal Reserve Board and system shall use the powers which Congress has given to them " for the stabilization of the purchasing power of money, so far as such purposes may be accomplished by monetary and credit policies," and inasmuch as you seem to have had an erroneous opinion regarding H. R. 7895, may I state that H. R. 11806, while different in form and wording, has for its objective the same purpose, for since the purchasing power of money can only be meas

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safe for the public to have it, but I do think the public is going to insist on knowing why a change of policy in the use of the powers held by the Federal reserve system is or has been made, and I am confident such publicity is necessary for the preservation of the Federal reserve system, which, T believe, has given to our Nation the best financial system on earth.

Before coming to Congress I was both interested in and attorney for the management of some power and electric light companies, and I found that the best asset that such corporations had was the confidence of the public which resulted in its good will toward the companies, and I always advised public-service corporations that employed me as their counsel that the best asset they had was not in their physical properties or their earning capacity but the good will of the people they served. That when they had that they could build safely.

Mr. YOUNG. That is true; I agree with you on that.

Mr. STRONG. And I advised that the way to win such good will is to take the public into their confidence. If they wanted to change rates, to tell the people the truth as to why they were to be or had been changed, I therefore think the Federal reserve system ought to be run on that same policy; that the people should know the cause or reason for a change of policy in the use of the powers which they have given to those who manage the Federal reserve system. Otherwise there will always be those who attempt to mislead the people regarding the Federal Reserve Board and the motives that prompt its change of policy in the use of its powers, as if the advice of the price forecasters does niot prove to be correct they will blame the Federal Reserve Board.

Mr. YOUNG. I think the fact is we do not attempt to predict. Our monthly bulletin carries a world of information as to our policies and everything else.

Mr. STRONG. I understand that. I do not say you should predict.

Mr. YOUNG. I say I think that is what the complaint is in the country now, that we do not attempt to predict. We can not overcome that.

Mr. STRONG. But I believe the public will have full confidence in the policies of the Federal reserve system if they are correctly advised of what policies are being carried out and the reason therefor.

It was with this thought in mind I placed the publicity clause, paragraph (1), in the present bill.

It was at first suggested that there should be immediate publicity of the reason for change of policies by the Federal reserve system, but my attention was called to the fact that publicity might some times interfere with the results sought to be obtained, and suggestion was made to me by officers of Federal reserve system, that such publicity should be made " a t such time, place, and in such detail, as may be deemed by the governor of the Federal Reserve Board to be most effective in furthering such purposes and at least once each year in the annual report of the Federal Reserve Board to Congress," which suggestion I adopted and is the language carried in the bill.

I do not care just what kind of publicity you have but I do think there should be publicity.

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The testimony of witnesses has resolved the questions relating to this bill into one of administration. All are substantially agreed on what may be termed the underlying economic principles. But the doubtful questions turn on the ability of the administrative authorities to know when to apply these principles, when to act, or to refuse to act, or to postpone action, or to hasten action. This is one of the main objections advanced against the bill and explains the desire of Federal reserve authorities to get back to the pre-war condition of an " automatic " gold standard where each country has possession of what it consideres to be an adequate gold reserve, and where the only exercise of judgment required of central banks is that of protecting that reserve by raising discount rates when gold is leaving, or is about to leave, the country and lowering the rate when gold is coming into the country. This " automatic " gold standard requires the discontinuance of the existing gold exchange standards, that is, of all legislation whereby the legal reserves of central banks may consist, partly or wholly, of bills of exchange stated in terms of pound sterling or of dollars, on balances owed to them by foreign banks in countries, like England and the United States which maintain adequate reserves of gold. By abandoning these gold exchange reserves—hardly thinkable in view of the impending world scarcity of gold—so that each country will acquire and protect its own exclusive gold reserve, it would follow that very little administrative ability would be needed, since attention would be given solely to the rather simple matter of regulating the export and import of gold by raising or lowering the discount rates.

This free gold movement, even before the war, was not, however, truly automatic in countries having central banks, but was partly automatic and mainly controlled, because it required positive action in raising and lowering the rate of discount by central banks in order to prevent too great a loss of gold to foreign countries or too great an acquisition of gold from those countries. Even this amount of control, which now seems automatic, and especially the necessity for timeliness, or quick action in control, was not discovered by the Bank of England which, prior to the great war, practiced it most successfully, until after the crisis of 1847. In the next crisis, of 1857, the Baiik of England put into practice the knowledge gained through painful experience, and consciously and quickly stopped the otherwise automatic outflow of gold by raising the discount rates.

The raising and lowering of the discount rate was not the only m/Bans of control under the pre-war so-called automatic gold standard.

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