Mr. CLINCH. Let me repeat to you what would actually happen. In my opinion if we should devalue the dollar the pound would go down too? Mr. SHEPPARD. That is right. Mr. CLINCH. When the gold content is reduced, we must remember that the world in the common sense point of view is so situated today that if you put back to work in this country 10 million people you would produce more goods than we would have purchasing power for in the United States, and that just happens to be the way the world is situated. Mr. SHEPPARD. Is that not automatically a relationship that enters definitely into your trade system? Mr. CLINCH. That, and surplus of production in the world is what constitutes world trade. Mr. SHEPPARD. That is right. Mr. CLINCH. Therefore I would say that an honest devaluation should be accomplished by an expansion of credit and we have already in the amendment to the Federal Reserve Act, section 14, the right to establish foreign branches and to discount foreign bills. Mr. SMITH. You have made some statements in regard to the commodity index, the index of commodity prices after devaluation. Would you state again what that was? Mr. CLINCH. The gold prices had been written up arbitrarily 69.3 percent, and for the year 1937 the increase in the index of 109 sensitive commodities according to the Bureau of Labor's reports, had risen 71 percent. Mr. SMITH. That is as of what date? Mr. CLINCH. That is taking April and March, 1933, and the tail end of 1932, just prior to the devaluation. I have the figures there that I can show you, if you desire to see them. Mr. SMITH. You say the commodity index of prices rose how much? Mr. CLINCH. 71 percent. Mr. SMITH. How much? Mr. CLINCH. On 109 commodities the index rose 71 percent, but on 784 wholesale commodities it rose 43 percent. Your national income rose about 72 to 73 percent, and your index on industrial production rose 82 percent. Mr. SMITH. The wholesale commodity index taken from the Bureau of Labor Statistics stood in March 1933, at 60.2 for all commodities, and in January 1934, at the time of devaluation it stood at 72.2, a gain of 12 percent in 10 months before devaluation. Mr. CLINCH. Just let me get my figures, if you will. You are referring now to the 784 commodities; is that right? Mr. SMITH. Yes; that is right. Mr. CLINCH. Well, the average price, according to the figures here for 1932, was 64.8 percent. In March 1933, which I remember very well, the price was 60 percent. Now, you use 1926 as representing 100 percent? Mr. SMITH. That is right. Mr. CLINCH. The average for 1936 was 80.8, and the average for 1937 was 86.3, and the high in 1937 was 88 in April. I will have to look back to just where these figures are. Mr. ANDRESEN. Are these your personal compilations? Mr. CLINCH. They were issued every week by the departments and by the Federal Reserve banks. I can give them to you exactly here. Here is a quick summary of the situation, and, incidentally, I would like to bring up another point. Here is a list I have from the United States Bureau of Labor Statistics, and it is on the 784 commodities. Here is your average for the year. In 1929 the average for the year was 95.3. In 1932 the average for the year was 64.8; in 1933 the average for the year was 65.9. The average for the year 1934 was 74.9. In 1935 the average for the year was 80. In 1936 it was 80.8, and in 1937 the average was 86.3. The average for last year, that is, for 1938, was 78.5, and the last figures I have show 76.8. Mr. LUCE. In order that we may understand Mr. Smith's questions, may I get your opinion as to the bearing of these figures in the table with reference to any other factors? Mr. CLINCH. Yes, sir. Mr. LUCE. Do you hold that prices are a complete explanation of any of them? Mr. CLINCH. Prices are a very, very important factor. Probably all domestic prices are controlled by world prices. Mr. LUCE. We have never known in any previous depressions where, as my reading goes, any attempt was made to explain the rise and fall of prices by the sole item of currency. Mr. CLINCH. You may remember that the General Motors Corporation, in conjunction with Cornell University, is now using a new index on 40 basic commodities, and that index shows that in Sweden, Holland, Great Britain, Canada, and the United States the increase in percent on those commodities was about the same as the increase in percent in the price of gold in those countries. Mr. LUCE. You are not making it clear as to whether it is your contention that prices are wholly determined by the volume of currency. Mr. CLINCH. Apparently at this time they are. I would say that if the gold price were raised tomorrow we would have a gradual rise in prices all over the world. Mr. LUCE. You do not subscribe, then, to the idea of the quantative theory of money? Mr. CLINCH. No, sir; not in a check-using country. If you issued $3,000,000,000 of Thomas greenbacks, which were authorized under the law of 1862, if you issued those dollars to redeem Government bonds, and the proceeds can be only used for the extinguishing of outstanding Government debt, of course your $3,000,000,000 eventually winds up in increased bank deposits. Mr. LUCE. But you are harking back to a different proposition. What I want to find out is whether you attach any weight at all to the psychology of the people? Mr. CLINCH. I do not believe in the theory of increased circulation of money in any country that uses checks. Mr. LUCE. Then you admit that we might take into account the psychology of a people in the fluctuations of business. Mr. CLINCH. I think that if they lose confidence in the currency here that there may be a flight of currency into goods. For instance,. you may be interested to know that if you take this bill, this silver certificate, it has stated on it, "This certificate is legal tender for all debts, public and private." You will find, however, that the world gold value of that certificate is 21 cents, and yet it is 17 percent of our total currency. Mr. LUCE. Do you or do you not admit that my own reactions in the course of the last five years have affected my own expenditures rather than anything that has to do with money? Mr. CLINCH. We have been through a period of great uncertainty where all of the established and so-called conservative means and all laws recognized before the war have failed to function, and people have thought conservatively and in their decisions have come out wrong. Mr. LUCE. While I am addressing you, and Mr. Smith will pardon me for a moment, I gathered from the testimony of the Secretary of the Treasury that we are engaged in what we might call a poker game. Mr. CLINCH. Right; and the British have quite a lot of blue chips, and that is just it, they can raise the ante any time they get ready. Mr. LUCE. And I gathered that he holds it eminently desirable to continue his power because we can thereby continue to meet the play in England or anywhere in the world. Mr. CLINCH. Quite right. Mr. LUCE. That being so, is it your opinion that we should keep in this game? Mr. CLINCH. Yes; it certainly is. Mr. LUCE. If that is the case and we finally drop the game down. to where the stakes become zero▬▬ Mr. CLINCH (interposing). No. Mr. LUCE. He says to us if France devalues we should meet them in that devaluation. Mr. CLINCH. Yes; certainly. Mr. LUCE. Then where are we going to stop? Mr. CLINCH. I do not think it makes any difference where we stop, if we keep this one objective in mind, and that is the reason why I do not think it makes any difference if we have a 40-cent dollar, a 35-cent dollar, if we have enough dollars and enough turn-over to increase the velocity of business or national income, or whatever you want to call it, or in the earnings of the country from any source, so that out of that it can stand the necessary tax and pay the cost of government. That is what the British found out. We had an illustration of how it worked the other way. I was born up in Canada. During the Civil War, my father, who was a Canadian, and his associates bought United States Government 6-percent bonds, which were secured by the customs of the port of New York, which were issued after Jeb Stuart rode around McClellan at Richmond. They bought those bonds for $340 in gold. Here was a farmer out in the Middle West, and this farmer was raising so much wheat on his farm. He had a $5,000 mortgage on his farm in greenback paper dollars, during the Civil War. When Congress, in 1875 authorized the resumption of gold payments on January 1, 1879, that farmer woke up to the fact that he had the equivalent of a $15,000 mortgage on his farm, and he had to raise practically three times as much wheat on his farm to receive the same income he had during the Civil War, and he had to raise three times as much wheat in order to pay off that mortgage. You see, we went through deflation, foreclosures, closing of banks, trade losses, strikes, and all of these things, until by 1890 we had liquidated the cost of the war. It was about 3 years later that the cyanide process for increasing the recovery of gold was discovered, and at about the same time they brought in the gold fields of South Africa and the Klondike, which greatly increased the world gold stock, and for some reason we had very good times in this country from 1895 to 1912. Prosperity coincided with the increase of this gold stock. Mr. LUCE. I want to know why, if France devalues their currency 20 percent tomorrow we ought to devalue ours 20 percent? Mr. CLINCH. Say, for instance, we are selling an automobile-— Mr. LUCE (interposing). I appreciate that part of the question, but I am going away beyond that. Mr. CLINCH. You mean why should we do so? Mr. LUCE. I want to find the justification for our continuing in the competitive race for low purchasing power. Now, you have gotten down from 40 to 30, and next you will get down from 30 to 20, and next year maybe from 20 down to 10, and next year from 10 down to zero, assuming we do continue to go down every time, meeting foreign countries when they drop. Mr. CLINCH. We will take an alternative Mr. LUCE. I want to know why we should continue in our competitive race for lower purchasing power. Mr. CLINCH. Say, for instance, the Fiat car is being exported for $800, and it is, say, the equivalent of the Ford car, selling at $800, and say, just for simple figuring the French cut the price of their currency 50 percent, they could sell that car for $400 in gold. Mr. LUCE. You are making very clear how it happens, and I think I understand how it happens. Mr. CLINCH. Yes, sir. Mr. LUCE. I do not think I need any more light on that. I am getting at the policy of our trying to match every other country in the world in its gradual depreciation of its purchasing power of its standard. Mr. CLINCH. I think the answer is this, and I think it will be very seriously brought to our attention in the next year or so. I am interested in national affairs, as a citizen, and I think one issue in 1940 is going to be the monetary issue. We might just as well get ready for it. If it is monetary issue, what do we want to do about it, and what do we intend to do? Are we going to default on the United States Government debt, and if we do, what is it going to do to our banks and to our insurance companies. We have 15,550 banks in this country with a total paid-in capital structure of about $8,000,000.000, and they have $17,000,000,000 of Government bonds in their portfolios. Mr. LUCE. But I want to know why we should continue to reduce that standard? Mr. CLINCH. Because, as you reduce the value of your gold content in your dollar, for some reason or other, you raise your production, and you raise your price, so that your income available to pay interest on that debt finally meets the point where you are solvent. Mr. LUCE. Then you think we ought to stay in the game? Mr. CLINCH. Certainly, and if we do not, I can tell you pretty quickly what will happen. Say you are the director of a hospital fund or a bank, or something here, and you have $1,000,000 in Government bonds. Say the Government says, "We are sorry, gentlemen, but we have to default," and you go into a reorganization committee. Your bonds may be up as collateral at a bank, and you have a moratorium, and your whole structure is undermined. Mr. WHITE. Would you explain that that was because of a falling off of Government income in taxes? Mr. CLINCH. Right; steadily getting to a limit where they can't sell their bonds. After a while they come back to you and say to your reorganization committee, "Instead of giving you $1,000,000 worth of bonds we will give you $590,000 worth of bonds." You are sitting there on the hospital board, and you have $1,000,000 worth of Government bonds, and you are getting $45,000 a year from them. Then you go through this reorganization situation and you come out with $590,000 worth of bonds, and if they are still paying 42 percent your income is cut to $26,500. It is very much better for me to say, "Gentlemen, my grandfather," or "my father made this contract with you. We cannot pay you in 100-cent dollars, but we will continue that contract and pay you in 59-cent dollars, and pay you 42 percent on a $100 par value." Mr. LUCE. But we receive very grave complaints from educational and other social agencies that their reserves are being diminished steadily by the present monetary policy of the Government. I cannot believe that it is wise to cut down the buying power of our currency and the income of a university in order to pay any attention to what Italy is doing or what Russia is doing. Mr. CLINCH. Or what the British are doing. Mr. LUCE. Yes; or what the British are doing. I want to get out of it. Mr. CLINCH. You cannot get out of it. Mr. LUCE. Then we are going to smash. Mr. ANDRESEN. The greatest increase in commodity price values that we have had to date in this country since 1933 came between March 4, 1933, and sometime in July; is that not correct? For instance, wheat went from 44 cents a bushel up to $1.28 a bushel. Mr. CLINCH. Yes; but there was a very big political factor there that entered into it. Mr. ANDRESEN. But that was before devaluation took place, was it not? Mr. CLINCH. Our summary on 109 commodities shows in 1932 the average was 35, and in 1933, 56, and in 1934 the average was 68. Mr. ANDRESEN. Let me point out to you, in connection with your averages, that the prices did not hold, the prices slumped. Mr. CLINCH. Yes; that was after the N. R. A. formation. Mr. ANDRESEN. But before the N. R. A. formation. I am speaking of between March 4, 1933, and July 1993, the period when we had |