believe it is the duty of a State and the community to look after its own people.

Senator WAGNER. We all agree to that.

Secretary MILLS. As I understand, that is the American form of government. But I would not assume to dictate to any State how it should perform its own duties. But I do say in a great emergency

Senator GLASS (interposing). But you would withhold aid from a State if it had not performed its functions to the point of approval by the Reconstruction Finance Corporation?

Secretary MILLS. Well, if you want to put it in that form, yes. But I would

Senator GLASS (interposing). Well, you put it in that form.

Secretary MILLS. I should like you to write a bill, if you will, applying the general tests which we should carry out, and then realize that we are dealing with an emergency, and that you have to assume that men will act with reasonableness in administering the very important duty imposed upon them by the Congress. After all if this Congress creates an emergency fund to relieve destitution and gives it to the Reconstruction Finance Corporation or any other body of men, if they stand obstinately on a strictly legal decision, the people not getting relief, they will be answerable to this Congress, and for that matter to a much higher tribunal. But the point is, are you going to invite them to come in and get this money, or are you going to apply tests which will insure the States getting the money in case of need providing the circumstances warrant it?

Senator GLASS. I would not invite them or let them. I am far above your judgment, particularly on these schemes.

Senator BULKLEY. In the text of your bill is it perfectly clear that you are not requiring the Reconstruction Finance Corporation to apply these tests strictly?

Secretary MILLS. If you want to write that in, all right. No one has any pride of authorship in writing a bill.

Senator BULKLEY. I am not talking about pride of authorship. But I want to know what your bill means.

Secretary MILLS. Oh, the idea is that what you should, or Senator Wagner or anyone else, lay down certain principles and directions which the draftsmen attempts to follow as best he can, and if the language does not seem to have accurately carried out those instructions, or if the language is in such form as to restrict them too much, it is easy to rewrite the bill. The main point is, what do we actually expect as a result? The object which I seek to attain is, that if a State actually needs money before you gentlemen come back here, if you leave us at all [laughter], before you actually come back here, to meet a situation of destitution, that there will be a fund available which can be used and which will be used to meet those purposes. That is what I want to do.

Senator BULKLEY. I think you may assume that my purpose is to give relief. But I am trying to find out

Secretary MILLS (continuing). Now, then, I would say that if you write a law so as to invite all of the States to come in during the course of summer and get the $300,000,000 for relief purposes, there will be a terrible temptation to do it.

Senator BULKLEY. That is rather a general statement that we have been over. I am trying to get this reconciled with the idea of the

Reconstruction Finance Corporation's board of directors having any discretion in the matter at all. I do not think that is reconcilable with your statement that the funds will be promptly forthcoming on a certificate of the governor of a State.

Secretary MILLS. If you want to make it subject to approval you may permit an appeal to a higher court if you want to.

Senator BULKLEY. Oh, no.

Senator GLASS. This provision of the bill proposed by the Secretary, as I conceive, gives complete jurisdiction and complete discretion to the Reconstruction Finance Corporation. It says that the corporation may make emergency loans for relieving unemployment to a State upon a showing to the satisfaction of the corporation as to the necessity for funds for such purpose, and that all reasonable means of otherwise obtaining such funds have been exhausted. Secretary MILLS. That is the loan section.

Senator GLASS. Yes.

Secretary MILLS. There are three sections.

Senator GLASS. I understand that, and that is the loan section. Secretary MILLS. Yes.

Senator BARKLEY. The loan section is the only one that applies to this $300,000.

Secretary MILLS. Oh, no. There are three sections and we provide three ways. First a State has bonds that it can put up and borrowSenator BARKLEY (interposing). Well, it is a loan in any section. Senator GLASS. The same language applies to other sections. Secretary MILLS. Senator Glass, I will admit very freely that we place the final decision in the Reconstruction Finance Corporation, because you have to place it somewhere.

Senator GLASS. All right.

Senator BARKLEY. You have to do that or set out in the law the things to be done so as to make a definite description of conditions under which they can obtain it.

Secretary MILLS. I do not think it necessary to do that.

Senator BARKLEY. You have either to do that or leave the discretion in the board.

Secretary MILLS. You have to do what you do in the case of every law. You must lay down certain general broad principles and instructions and directions, and then you have to lodge the carrying out of those directions in certain human beings. That is all. That is what it comes down to. That is what all government is and you can not escape it.

Senator GORE. On that point let me ask. As to State bonds and municipal bonds wouldn't their market price afford some guide for the credit of a particular State?

Secretary MILLS. I do not think so to-day, because the whole bond market is in such a state and the people are so reluctant to lend, particularly to States and municipalities, with some rare exceptions, that I do not think the actual quotations of bonds safely represent to-day the credit of a State.

Senator GORE. Here is the point I was coming to

Secretary MILLS (continuing). I know of States with perfectly good credit that can not sell a bond to-day.

Senator GORE. The point is this, the lower the price of the bonds and the worse the State's credit the more they would be entitled to assistance under this act, wouldn't they?

Secretary MILLS. I think so.

Senator WAGNER. I would like to go to the question of self-liquidating projects

Senator GORE (continuing). Any State or city whose bonds are selling at par could hardly qualify under this act.

Secretary MILLS. Any State or city with bonds selling at par— well, I think they would find it very hard to justify a request; yes. Senator BARKLEY. And if under the law they had issued all they could issue, what about that?

Secretary MILLS. That is one other factor.

Senator GORE. Whether or not they had issued bonds up to the limit?

Secretary MILLS. If they had not exhausted their legal borrowing power and their bonds were selling at par, I can see no reason why they should not sell bonds to the public rather than to the Reconstruction Finance Corporation.

Senator WAGNER. We are agreed that the $300,000,000 ought to be made available, and the method comes up for consideration-I mean the method of distribution-and on that you disagree with the bill I helped to introduce to the extent not to accept at face value the certification of a governor that there is need, and that the Reconstruction Finance Corporation ought to inquire into the assertions made in the certificate to ascertain whether an actual need exists. That is what it means, does it not?

Secretary MILLS. I would prefer to have my testimony stand as representing my opinion rather than to have it interpreted.

Senator WAGNER. On the idea of a particular rule or proposal as to a self-liquidating project, let me ask you this question: I think the only difference between the proposal made in the bill introduced by Senators Robinson, Pittman, Walsh, Bulkley and myself which you called the Wagner bill

Secretary MILLS. I did not mean to deprive the other Senators of any credit, but used that term for the sake of brevity.

Senator WAGNER. The only difference between your proposal and mine is that you want to extend the power of the Reconstruction Finance Corporation to make loans to private industry.

Senator BARBOUR. That is required in my bill.

Senator WAGNER. I was referring to the bill that I read this morning proposed by the Secretary of the Treasury. Do you mean by that that they

Secretary MILLS (interposing). That is not the only difference. Senator WAGNER. In principle it is the only difference.

Secretary MILLS. But in the matter of draftsmanship I think your bill is too loosely drawn for me to accept it. I do not think a project "shall be deemed to be self-liquidating if such project may be made self-supporting and financially solvent and if the construction cost thereof will be returned in a reasonable period" is an adequate test. I do not want a loan made on any "may be loans" but I want to know that they are self-supporting.

Senator WAGNER. That is a very important difference in the two bills and I think the committee would be very much interested in that proposal. As I understand it, and if I am wrong about it, I am sure you will correct me, you propose to give authority to the Reconstruction Finance Corporation to make loans to private industry in the

case of any project in which the Reconstruction Finance Corporation regards it as self-sustaining.

Secretary MILLS. Not quite that; no.

Senator WAGNER. Then if I am mistaken I should like to be corrected.

Secretary MILLS. For capital expenditures for construction, reconstruction, or improvements.

Senator WAGNER. Yes; for construction, reconstruction, or improve

ments.

Secretary MILLS. If they have adequate security and if in the view of the committee there is sufficient earning capacity to guarantee the payment of the interest and the repayment of principal, they have to pay back the money to the Reconstruction Finance Corporation within a period now provided for the bill, which is five years.

Senator COUZENS. What would happen if one of these private companies borrowed money and could not pay it back at that time because they did not get in a position where they were earning money. What would be the position of the Reconstruction Finance Corporation at that time?

Secretary MILLS. Then they would be out of luck. I assume that we or they would not proceed unless reasonably sure that the improvement could be self-supporting from the start, and that as soon as conditions improved, and I think even the worst pessimist will have to admit they will improve in five years, they will be in a position to float their own securities and discharge their obligation to the Government. That is the theory.

Senator COUZENS. The Secretary has some optimism which some of us do not share.

Secretary MILLS. You think it is going to be five years?

Senator COUZENS. Not exactly, but it is going to be nearly five years. Not only that but these corporations to which money will be advanced have to carry this loan from now until the period of recovery and then have got to make sufficient money to repay the Government.

Secretary MILLS. Oh, no. They would have to show us they were ready to earn. I am talking about a loan that they will pay interest on next year and begin to amortize next year.

Senator COUZENS. Out of earnings?

Secretary MILLS. Yes.

Senator COUZENS. That is where your optimism exceeds mine. Secretary MILLS. I do not see how you continue to look as cheerful as you do and face five years of additional depression.

Senator GORE. Would there be any danger of this happening, that where the Government made any of these loans to private industry, or for construction, reconstruction, or improvements, that it might obtain better terms from the Government than a competing concern would obtain from some kind of institution, subjecting it to unfair competition?

Secretary MILLS. That is so if you presume that there would be discrimination shown by the Reconstruction Finance Corporation. But if the Reconstruction Finance Corporation treated everybody fairly that would not arise.

Senator GORE. I would not assume that in the first instance. But I know in the matter of indulgence in obtaining Government loans they are rarely ever paid.

Senator GLASS. What would be the difference in principle of abolishing all of the banks of the country and let a central bank such as that do all of the banking business?

Secretary MILLS. This is not a strictly banking business. That is what we would ordinarily consider a long-term loan for capital purposes. This is not for ordinary current needs.

Senator GLASs. We have set up more different banking institutions than I ever conceived there could be set up, with the result that the ordinary bank has had its business almost completely undermined, and that accounts for so many failures and largely so, I think. Secretary MILLS. Well, I do not know what institutions you are referring to that have been set up.

Senator GLASS. We have been spending 15 years in Congress devising instrumentalities inviting people to go into debt, and the average politician gets on the stump and boasts about the total amounts, hundreds of millions of dollars, that the farmers owe to the farm land bank system.

Senator GORE. And generally the invited party accepts p. d. q. to get further into debt.

Senator COUZENS. Why help the railroads for the purpose of paying not only interest on their first mortgage bonds, but junior bonds, and paying their taxes and labor bills and operating expenses and yet have such reticence toward helping municipalities in the same difficulty, and even greater difficulties than the railroads.

Secretary MILLS. Well, of course the real answer was that you are dealing with a comparatively few railroads. That you are not helping them out because they are railroads, but because their securities are held by the great trustee institutions of the country. That was the real purpose of including the railroads in the original Reconstruction Finance bill. It was not solicitude for the railroads, but for banks, and insurance companies and savings banks and trustee accounts, because it was shown that there were seven or eight billions of dollars of railroad bonds in these trustee institutions. That was the purpose of helping them meet their maturities.

Senator COUZENS. No one denies that. I made a speech on the floor of the Senate on the lending of money to the railroads for that very purpose. But they were lending the taxpayers' credits for that purpose, and just why the reticence to help the municipalities, whose securities are also in the hands of insurance companies and savings banks?

Why not maintain their credit? Why not help them refinance themselves? Why not take their securities? Why not take their pledges the same as the pledges of the railroads?

Secretary MILLS. I can give you one perfectly good answer: If we are going to undertake to underwrite every municipality in the United States we will "bust" the Federal Government. We are

not strong enough to do that.

Senator GLASS. We are busted now, aren't we?

Secretary MILLS. Not after you did what you did day before yesterday.

Senator WAGNER. You are making that possible so far as private industry is concerned. That is the very recommendation you make. Secretary MILLS. Only with self-sustaining projects.