particular point until, by trial and error and experience, and the shaping of events in the rest of the world, it could be determined what the equilibrium rate might be.

Mr. FIESINGER. You say that the central banks have got sufficient gold; that there is not a demand for credit. You do not agree, Professor, with Mr. Winston Churchill when he said that our yardstick had gotten out of shape?

Dr. SPRAGUE. No. I very seldom agree with Winston Churchill, I may say.

Mr. DIES. Mr. Fiesinger, may I ask you a question? It is a little out of the line of the examination, but it is a very vital question. I understand that a bill will be submitted to the Banking and Currency Committee involving the question of revaluation or devaluation of the dollar. At the last session of Congress, on March 20, I introduced a bill, which was referred to this committee, to revalue the dollar. I took it up with the Speaker, and upon looking into the unbroken precedents we found that this committee had always exercised exclusive jurisdiction over that question, as well as the silver question. Now, what I want to know is, Under and by what authority-if you or any other member of this committee knows-is the Banking and Currency Committee to be permitted to deprive this committee of its long-honored tradition of exclusive jurisdiction over this subject, and whether or not this committee is going to be disposed to permit that to be done without some protestation?

The CHAIRMAN. May the Chairman interrupt to say that it has come to his mind this morning that it might be well for us to discuss this matter of our jurisdiction in executive session immediately after the witness has completed his testimony; and if the gentlemen of the committee will be good enough to just wait a moment or two, think we can go into that thoroughly and decide what procedure we should follow.

You may continue, Mr. Feisinger.

Mr. FIESINGER. I think that is all.

Mr. WHITE. Mr. Chairman, I would like to ask the Doctor on what assumption he bases his statement that there is no active demand for credit at this time.

Dr. SPRAGUE. I think there is no active demand for loans that will pass the most rigid of banking tests, because of uncertainties about the future, where it is desirable and profitable to expand. Then I believe that there are a large number of other instances of a possible demand where the obstacles are twofold. One is that a great many concerns that were formerly pretty good borrowers are now not so good. The banks are looking or have been looking for a very high degree of liquidity, a greater degree of liquidity than was consistent with the existing situation and a greater degree of liquidity than has characterized their operations in the past.

Then there are particular areas where the number of bank failures has been so considerable that it has deprived a good many concerns of banking facilities as liberal as those which they enjoyed in the past. But these are banking questions and not monetary questions. For example, if you take the excess reserves of the member banks at the present time, they are very large-seven or eight hundred millions of dollars. It is not because of an inability of the banks to

extend more credit, but it is an inability of particular banks to extend more credit. But if these excess reserves were much greater than they are, there is no reason to suppose that the excess reserves would become lodged with the banks that are not now able to lend more, but rather with the banks that already have excess reserves and, for one reason or another, do not extend the additional loans that they might make.

I believe that the insurance system ought to lead to a loosening up of bank credit, and I was strongly in favor of trying to get the system going by at least as early as the 1st of October, to remove that impediment to more liberal lending on the part of the banks. Our bank examiners have been exceedingly restrictive. They have reached the state of mind where they are very fearful that after they have examined a bank, it shall be discovered that the bank has some frozen assets that they did not note and there have been bank examiners from different agencies more or less competing with each other in discovering slow and doubtful assets. So that you have had a situation in the country in which banks were peculiarly unwilling to grant loans with a customary degree of freedom.

Mr. WHITE. Doctor, the trend of prices is a controlling factor in the matter of banks making loans, is it not?

Dr. SPRAGUE. It is one of the factors, but not the only one. But if that were the case, there should be much greater freedom in making loans than before, because a great many prices have risen from the extreme lows.

Mr. WHITE. I would like to ask the doctor with reference to securing a uniform money system throughout the nations of the world, something comparable to the agreement of the Latin Union: Do you think it is desirable that we should standardize our unit of primary money as to fineness and value throughout the world?

Dr. SPRAGUE. I should think that that was a development that might very reasonably come as an improvement of world monetary arrangements. But I think it must come after the more difficult problem of determination of the appropriate rates for the relative values of different currencies. That is the most difficult problem from an international point of view, and I confess that I do not believe that it is possible at the present moment to determine the appropriate values for the currencies of different countries. I believe that it is desirable to go through a period of trial and error in which various countries, avoiding extreme and positive monetary measures, shall afford sufficient time to let the various currencies reach something approaching an equilibrium one with the other.

Mr. WHITE. The idea of stabilizing the currencies of the world with one value for gold and silver, you do not think is desirable?

Dr. SPRAGUE. I do not think it is feasible at the present moment to sit around a table and to try to decide whether, measured in the dollar, the pound shall have a value of five dollars or six and the French franc a value 6 cents or 7, 5 or 4, and the Argentine peso a value of 40 or 30 cents, or whatever it may be. That does not seem to me to be possible until we have gone sufficiently far in world trade recovery to be able to picture the future a little more clearly than we now can.

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Mr. WHITE. The disparity between the moneys of the different nations as related to the value of gold and silver is one of the difficulties in carrying on international business?

Dr. SPRAGUE. Undoubtedly.

Mr. WALDRON. Doctor, is it not true that the greatest difficulty with which we have to contend at the present time to provide premanent employment is to provide capital for the industries of the country, for the business interests of the country? Is not that the great drawback at the present time?

Dr. SPRAGUE. To provide capital and to get a situation in which the industries will want capital.

Mr. WALDRON. As you have stated here, the appropriations that we have been making for relief, in connection with public works and in other channels of that kind, are expended after a limited time, and then the people are out of work again; consequently we were not getting anywhere that way?

Dr. SPRAGUE. That is what I fear.

Mr. WALDRON. What we have got to do is to get something in the shape of permanent improvement of business, permanent employment. Dr. SPRAGUE. Right.

Mr. WALDRON. Something that will start our business interests. going where they were going before this panic a few years ago. Otherwise we will just continue to remain in this uncertain state, is

not that so?

Dr. SPRAGUE. That is what I fear.

Mr. WALDRON. That has been my position right along, that unless there is capital provided, and it appears to me it must be provided by the Ntaional Government, business will not be improved permanently. It seems to me that our great drawback in the greatest manufacturing district of the country, in the Northeast, around Philadelphia, is the fact that business interests are unable to get the capital necessary for them to start their plants, and to bring back people in employment.

Dr. SPRAGUE. I quite agree with that, if you are prepared to add one more provision, and that is that those who furnish the goods that are purchased with this additional capital participate in the financing. Let us take, for example, such a case as the railways. If there were to be a very considerable Government expenditure or assistance for the purpose of rehabilitating and improving the equipment of the railways, those who will benefit as vendors of the equipment should, somehow or other, participate in financing the same. I think one will get a sounder basis of finance by that method than if the Government does the entire financing. But that is merely what seems to me a detail, though a very important and practical one.

Mr. WALDRON. Doctor, there are any number of instances of sizeable manufacturing plants that are idle today for want of working capital. They have no mortgages against their property, but they cannot get the necessary credit from their banks with which to start those plants going. That is the great difficulty as I see it, particularly in the large industrial centers, such as Philadelphia.

Mr. MURDOCK. May I ask the gentleman, even if capital were available, with prices as they are today, would they want any loans? Is not that the problem? In other words, it is not a lack of credit

but, because of commodity prices, they do not want any credit, and until we bring those prices up they will not ask for credit.

Mr. WALDRON. That is not the case from my knowledge of the situation. We have any number of business houses who are in need. of working capital and who claim that they can use money to advantage. Some of them are quite sizeable concerns and have not anything against their real estate. Everything is clear, but they cannot get the money that they need with which to start going.

Mr. McGUGIN. They claim they need it and they could use it and make a profit, but they cannot convince the bankers, and the National Banking Department, that they can make a profit, is not that the case?

Mr. WALDRON. I really could not say that.

The CHAIRMAN. Gentlemen, may I suggest we have only 10 minutes remaining and three other members of the committee may want to ask questions. May I ask that you reserve this intracommittee debate for some other time? I would appreciate it.

Mr. WALDRON. That is all, Mr. Chairman. I just wanted to bring out that one point.

Mr. MURDOCK. Doctor, it is not feasible at this time to get away from a metallic base entirely for our money, is it?

Dr. SPRAGUE. No. I think a metallic base on the whole exerts a desirable restraining influence at times. It would have been far better for this country if our metallic base had been very much less. in 1928 and the years before than in fact it was. We were not com

pelled to exert a restraining influence on credit or on the whole economic situation that was getting in bad shape. We were not compelled to do so because the Federal Reserve had a reserve of 70 percent. If its reserve had been 50 percent or under in 1928, we should have had that very much needed restraining action. We did not take it for that reason and for the further reason that prices were not going up rapidly.

I doubt whether you would ever get the desired action under a managed currency because of that feeling, that you do not want to hurt business, that obtained in 1298, and which prevented taking restraining action.

By and large it seems to me that we need a situation in which no very considerable departures from equilibrium can take place without some restraining influence being exerted.

Now, a metallic base is not enough, because sometimes it is too big and sometimes it is too little. You need some management. But on the whole, I am inclined to think, human nature being as it is, that it is a desirable safeguard.

Mr. MURDOCK. Doctor, the addition of silver to our gold base would have a steadying influence on prices at all times and it would thereby preclude such a disparity as exists now and has existed for the last 2 or 3 years, is not that so?

Dr. SPRAGUE. If you look over the period from 1920 to 1929, I am not inclined to agree with that, for the reason that I believe that it would have meant somewhat larger reserves in the Reserve Bank of New York and the Bank of France and in one or two other countries, and no appreciably larger amount in those countries that at that time were

finding it difficult to maintain their gold base and were resorting to all sorts of devices, including excessive borrowing, in order to do so. In other words, I do not believe that any monetary system, pure and simple, yields stability unless you have foresight and restraint in the disposition made of credit resources, intelligence and foresight in the investment of capital at long term, and a readiness to make adjustments in the industries and in the relative prices of different products, and so on.

The monetary factor is only one of very many factors in the situation.

Mr. CARPENTER. Do you not think it would simplify the process a good deal, Doctor, if we turned our thoughts more to a national system than if we try to reconcile our differences with foreign countries; if we cut loose from those countries and just try to adjust ourselves within ourselves?

Dr. SPRAGUE. I wonder whether you can. After all, we do have foreign trade, and the value of our currency is in a very large degree measured by its value relative to other currencies. You will recall that when the gold-buying policy was started and there were no purchases except of domestic gold, it had no appreciable effect, so far as one could discover, at any point whatever. It was when we began to buy foreign gold that it began to be regarded as a somewhat potent influence and affected foreign exchange rates, and that affected at least in part the price of certain important exports. The only way in which you can influence the situation internally is by monetary action that will affect the demand for credit and currency within the country; and in our modern organization of industry the only way, as I see it, in which purely monetary action can exert an influence on prices, is through the effect that your monetary action has upon the demand for credit and currency.

It is along that line that I find myself constantly at odds with people like Professor Fisher and Dr. Warren. They do not seem to me to carry through the process of price change. They start and largely end with money proper, apparently supposing that changes in money more or less automatically affect the operations of banking, not merely the supply of credit, but its demand.

Now, I hold very definitely that monetary changes only have a direct effect upon prices in those occasional periods when there is an active demand for credit and currency running in excess of the supply of credit and currency possible under any given monetary arrangement. When your supply is far and away in excess of that demand for credit and currency, I fail to see how you can expect any immediate response by a monetary change which merely increases that potential supply.

Mr. CARPENTER. How much of a debt do you think this country could put upon itself and be able to pay under the present line of expenditures, and maintain the so-called public credit, national credit?

Dr. SPRAGUE. How far could it increase its debt?

Mr. CARPENTER. Yes.

Dr. SPRAGUE. Is that the question?

Mr. CARPENTER. Yes.