Mr. RICHBERG. The name is Donald R. Richberg; address, 333 North Michigan Avenue, Chicago, Ill. My occupation is that of a lawyer.

I appear here particularly, Mr. Chairman, as counsel for the Railway Labor Executives' Association, and, in a measure, representing certain other organizations supporting this bill.

If it meets with your approval, I would like to make a brief statement regarding certain underlying principles which seem to me to support this bill and then expand that as you may desire.

Senator CoSTIGAN. Please do so.

Mr. RICHBERG. This bill, S. 4947, which has been introduced by Senator Costigan, and simultaneously by Representative LaGuardia in the House as H. R. 12885, undertakes to give immediately a purchasing power of from $300 to $500 to some 7,000,000 unemployed heads of families whereby they will be able to buy the necessities of life for themselves and their dependents during the next six months. It follows the lines of a bill which was recently indorsed by the Railway Labor Executives' Association. Since I had much to do with the drafting of that bill I should like to make it clear that the program for relief of unemployment and unemployment distress embodied in the bill before this committee is not the product of any one individual or any one organization, with which I know the chairman is in agreement.

It is the product of the thought and labor of many economists, lawyers, bankers, and civic and industrial organizations, which was finally translated into this bill by its official sponsors-Senator Costigan and Representative LaGuardia.

Without committing anyone to the support of this measure, except those who formally have approved it, let me state that in my own work upon this bill I have consulted with and utilized the aid of not only the railway labor organizations and representatives of the American Federation of Labor, but also representatives of farm organizations, of the American Legion, of civic and charitable relief agencies, of the unpaid Chicago teachers-for whom I may say I am also acting as counsel-and individual leaders in finance and business, including the heads of some of the largest banks and business enterprises in this country. Therefore, before discussing the details of this bill let me summarize the ideas which underlie this legislative proposal.

There is to-day general agreement upon two essential principles which are the foundation of this bill.

First, credit which is normally used to increase production should be used to increase purchasing power in this period of unprecedented business stagnation.

Second, the only remedy for unemployment is to put men to work. In all the relief measures which have been given the serious consideration of Congress up to date are certain unhappy limitations:

First, direct charitable relief only partly alleviates misery. It does not stop the continuing production of misery. A comprehensive national dole, providing mere subsistence indefinitely for the unemployed would not lift us out of the depression. A partial dole will only serve to dull our consciences and to detour our good impulses.

Second, loans to banks, railroads, and business enterprises may delay bankruptcies and receiverships but will not increase employment or purchasing power. The values of stocks and bonds are not enhanced when a corporation goes further into debt. A bank is not made solvent by borrowing money with which to pay depositors. The loans of the Reconstruction Finance Corporation may postpone but will not prevent disaster. Other more constructive forces must be invoked to reverse the downward trend.

Third, loans for new public or private construction should stimulate employment and increase purchasing power. But the merit of such a program depends largely on its volume and its speed, which are both uncertain. A little new work, a trickle of added purchasing power will not bring about a general business revival. And without the stimulus of a rapid, widespread improvement it will become more and more difficult to induce either public or private borrowing for new production. There can be little encouragement to launch new self-sustaining, income-producing projects when billions of capital now invested in existing enterprises are idle and profitless because of the lost purchasing power of the masses.

The statements just made summarize the difficulty of financing new employment in order to create new purchasing power. The bill before you aims at eliminating this difficulty by reversing that economic process. This bill proposes to finance a new purchasing power and thereby to create new employment. It has one supreme merit in that its primary objectives will be attained and its primary benefits will reach the masses of the people. It will positively relieve the distress of a vast majority of the unemployed. It will furnish a nation-wide insurance against privation in the coming winter. It will increase employment rapidly and provide work in the near future for a large percentage of the unemployed. We may debate over its ultimate effects; but we can not argue long over the immediate results of its enactment.

Let us summarize the bill by sections.

The CHAIRMAN. Please proceed in your own way.

Mr. RICHBERG. Sections 1, 2, 3, and 4 create a corporation known as the United States Exchange Corporation, similar in organization and method of functioning to the Reconstruction Finance Corporation but having for its purpose putting credit behind purchasing power instead of behind productive power, and, I may say, Mr. Chairman, that throughout the bill the detail of the operation of this corporation shows, or rather, follows not only the general method, but the exact language of the Reconstruction Finance Corporation act wherever applicable.

The corporation will have a board of directors consisting of the Secretaries of the Treasury, Commerce, and Labor and six presidential appointees. Also there will be an advisory council representative of all interests in the principal economic activities of the Nation. We might for convenience call this corporation U. S. E. C., which initials stand, not only for its official name, but also for its object: United States emergency credit.

Section 5 provides that the first duty of U. S. E. C. will be to make an emergency survey-within 30 days-of the existing demands upon essential industries for the necessities of life which are not being satisfied because of lack of purchasing power, in order

to determine the character and volume of purchases which would result from establishing a credit of $500 each for unemployed heads of households, and the maximum increases of employment which could be produced in response to such purchasing power.

Section 6 provides that on the basis of this survey U. S. E. C. will arrange through local agencies to extend credits to cover six months' necessary purchases for unemployed heads of households in amounts not exceeding $300 for an individual, plus $100 for each dependent, but not exceeding a total of $500 for each household head.

Section 7 provides that U. S. E. C. will license producers, distributors, and transporters who will agree to accept its credit certificates at face value and conform to regulations concerning the terms and conditions under which purchases shall be made and goods or services produced. All purchases on credits must be made through such licensed producers, distributors and transporters.

I may remark at that point, referring to the bill, Mr. Chairman, that this is not a limitation in any real sense because the act provides that all responsible producers, distributors and transporters, shall be entitled to become and remain licensees so long as they carry out agreements with the corporation and comply with its regulations. The main purpose of this is simply to provide against discounting credit certificates issued by the corporation, in order to have them received at their face value and cashed in the manner provided in the act.

Secondly, a reason for the license is in order to prevent any taking advantage of the influx of orders which would result from such a large extension of credit; that is, taking an unfair advantage.

Necessarily, the effect, Mr. Chairman, of such an increase in purchasing power will be to increase commodity prices. Certainly a very desirable result and not one to be retarded within reason.

Section 8 provides that such licensees must agree (1) not to reduce wage scales below those effective June 1, 1932, and (2) to conform to other regulations to insure the furnishing of goods and services at reasonable prices under proper conditions.

Section 9 provides that credit will be extended to applicants signing notes for repayment on or before 10 years after date, with a low but increasing rate of interest-1 per cent first year, 2 per cent second year, 3 per cent third year, and 4 per cent thereafter.

Payments will be made for goods by such notes accompanied by corresponding credit certificates signed by local agents of U. S. E. Č. Credits shall be allotted to States either in accordance with their populations or the need for relief. That is provided to be determined by the corporation. If the total requests for credit exceed $3,000,000,000, which is the total credit facility of the corporation, reductions in amounts allotted to the States will be made proportionately.

At this point, I might say, inasmuch as the machinery here, which is rather simple but may not be clearly explained by this brief statement, the purpose is this, that purchasers through the ordinary channels of retail purchase will obtain the necessary goods and services. which they are permitted to buy with the aid of this credit. These are designated groups of goods and services. They will obtain them on their notes. These notes would not be accepted at face value by the ordinary retail merchant, but they will be supported by the

credit certificates of the United States Exchange Corporation in the same amount as the notes and will be eventually redeemable, that is, cashed through the corporation, as provided later in the bill. In other words, the credit of the individual is substantially indorsed to the amount of the allotment of credit and for the purchase of designated necessary goods and services. It is not in the nature of a bank loan whereby the individual obtains a sum of money to spend as he sees fit, but it is the extension of credit to the individual for the purchase of necessaries of life, and that would have two effects. In the first place, it will insure the relief of actual distress, and, in the second place, it will prevent the waste of such loans in needless expenditures, and in the third place it will canalize the purchasing power of the individuals in certain lines of fundamental necessaries which will, as a matter of fact, stimulate the business of the producers of such necessaries.

Section 10 provides that borrowers employed during the life of U. S. E. C., which is 10 years, will agree and their employers will be required, to deduct 10 per cent of wages, to be paid to U. S. E. C. until any notes of such borrowers have been paid.

Just as an indication, Mr. Chairman, of the extent to which that would insure repayment of the obligations, I would like to point to certain groups of unemployed at the present time. There are some 800,000 railway workers with whom I am particularly familiar, normally needed for the operation of the railroads and now unemployed. These men are recognized employees, appearing on fur lough lists of the railroads, subject to call. Inevitably, with the revival of business, these men will be called back. There is no difficulty whatsoever in providing for the collection of the notes of these men through their employers, and I may say that that group represents at the present time something near one-tenth of the unemployed of the country. To show the manner in which the financing negotiations would operate, assume the borrowing of $400 by such a present unemployed worker, with a deduction from a wage of say $1,400, of 10 per cent a year, which would mean the entire amount would be repaid with interest in approximately three years.

Now, I can speak of another class with whom I am particularly familiar, the unpaid Chicago school-teachers, who can be properly brought within the terms of this bill. Of course, not only such school-teachers but other public employees not being now paid are perfectly good security for such loans.

Then, I may refer to the large army of unemployed veterans who are entitled to adjusted compensation eventually, and it is a very easy proposition to provide for advancing this money to such veterans and securing it by the present credits which they have as a matter of fact with the Government. In addition to these groups there will come to mind naturally a vast army of skilled workers, of salesmen, of unemployed persons of substantial, recognized standing in their communities who furnish about as good security as could be imagined for the repayment of a loan under these conditions.

Senator CoSTIGAN. Under what sections of the bill would the teachers and veterans respectively come?

Mr. RICHBERG. I think, Mr. Chairman, if I may make the suggestion, that that section of the bill, section 6, which provides for extension of credits to unemployed adults, while that is capable

under the bill itself of further definition by regulations of the corporation, I may suggest at this point it might be desirable to clarify the extension of the credits therein provided, to such persons as the school teachers and unemployed farmers for example, if there is any question as to what is covered by the words "unemployed adults." This does not necessarily mean a person subject to an employer, but a person who is employed in a gainful occupation. That could be clarified, I may suggest, and made perfectly certain by the addition of such a statement or sentence as this, to section 6, which I suggest at this time for your consideration at the end of section 6. I simply suggest it for your consideration.

The term "unemployed adults" as used herein (which may be further defined by general regulations of the corporation) shall be construed so as to authorize the extension of credits to any person capable of self-support but unable to purchase necessaries of life because of inability either to obtain employment or compensation for services performed or goods produced.

That could be made effective through the regulations of the corporation.

Now, in regard to the unemployed veterans, I would state that in section 10 provision is made for payment out of future employment by employers of those borrowers.

It would be possible to extend that a little further by the addition of one sentence at the end of the section, which I will suggest for your consideration in the following language:

The corporation is expressly authorized to prescribe and enforce general regulations requiring any borrower to secure the payment of his notes out of any of his financial resources which may be so utilized without causing the deduction of more than 10 per centum per annum from his future earnings.

That would provide security, not by a particular regulation as to an individual borrower, but by general regulations such as those applying to veterans who have Federal compensation coming to them, and other groups. It would permit advancement on the basis of existing financial resources provided such advances did not operate to deduct more than 10 per cent from future earnings.

That would, for example, permit, in the case of the Chicago school teachers, assignments of their credits in whatever form that might be authorized to protect the loans so that when those credits were made good by the municipality the Federal corporation would be repaid.

Senator CoSTIGAN. Your suggested amendments, Mr. Richberg, will be taken under consideration by the committee.

Mr. RICHBERG. I will proceed, Mr. Chairman, if that is agreeable, with the analysis of the few remaining sections of the bill.

Section 11 provides that U. S. E. C. will be authorized to extend credits to licensed producers for the employment of additional workers to fill orders received. Credit certificates after orders have been filled, accompanied by purchasers' notes, will be honored by U. S. E. C. and paid either in cash or by transfer of U. S. E. C. bonds equal in value to the face value of such credit certificates.

In that section is the substantial basis for the credit here extended, and that provides for the eventual cashing by the United States Exchange Corporation of these credit certificates when presented by the producers or distributors; in other words, by large ultimate recipients of these. Then they are to be honored by payment either