* STATEMENT OF DR. BENJAMIN H. BECKHART, SCHOOL OF BUSINESS, COLUMBIA UNIVERSITY, NEW YORK CITY

Mr. PARSONS. Dr. Beckhart, will you state your name, address, educational training, and whom you represent?

Dr. BECKHART. My name is Benjamin Haggott Beckhart, and my address is Columbia University, New York City. My educational background is as follows: I have an A. B. degree from Princeton University, 1919; an M. A. degree from Columbia University in 1920; and a Ph. D. from the same institution in 1924. I have also studied at the University of Vienna.

Mr. PARSONS. If you desire, you may be seated, Dr. Beckhart, or if you prefer to stand, you may do so.

Dr. BECKHART. Thank you, Mr. Chairman. From 1920 to 1921 I was instructor in economics and social institutions at Princeton University, and since 1921 I have been on the faculty of Columbia University. For a period of nine years, from 1927 to 1936, I was educational supervisor of New York Chapter, American Institute of Banking, which offers night courses in banking, economics, and affiliated subjects, to about 2,500 bank employees. There were some 80 members on the faculty.

I have also been responsible for various publications. In 1924, I published a study entitled "The Discount Policy of the Federal Reserve System." In 1929, I was coeditor and coauthor of a volume entitled "Foreign Banking Systems." In 1932-33, I was editor and coauthor of a series of four volumes on the "New York Money Market." In 1924-25, I was engaged in a rather comprehensive survey of the American banking system, under the direction of my late colleague, H. Parker Willis, of Columbia University; and in 1931 I was also associated with him in a study of the Federal Reserve System, which was being conducted under the direction of the Senate Committee on Banking and Currency. This study provided the research basis for the Banking Act of 1933.

Mr. ANDRESEN. Have you been on any committee that has been associated with forming the monetary policies of the present administration?

Dr. BECKHART. No, sir; with the exception of the work in 1931 for the Senate Committee on Banking and Currency, in connection with the studies being made at that time of Federal Reserve System, and which afforded the bankground for the Banking Act of 1933. That particular measure was sponsored by Senator Glass, rather than by the administration itself. I have had no connection with nor any responsibility for the formulation of the monetary policies of the present administration.

Mr. ANDRESEN. Your associates consider you a monetary expert? Dr. BECKHART. Well, I have been interested in the field of economics, money, banking, and finance for some 18 years. In 1927 I

* As Dr. Benjamin H. Beckhart, under the permission to revise his remarks has written and inserted many statements that were not made in response to questions by members of the committee, it has been arranged to indicate the inserted statement by placing an asterisk at the margin and set off the insertions between quotation marks.

substituted for Prof. E. W. Kemmerer in his graduate and undergraduate courses at Princeton University, when he was in South America in connection with the currency and banking reform of one of the South American countries.

Mr. WHITE. Professor Kemmerer also reformed the currency of China, did he not?

Dr. BECKHART. If my recollection is correct, he was chairman of a committee of experts, who were invited to China by the Chinese Government to render a report to the Chinese Government on currency. Whether that report eventuated in legislation in China, I could not say.

Mr. WHITE. You, then, were a substitute for Professor Kemmerer, who is one of the greatest monetary experts that we have in this country.

Dr. BECKHART. Yes; I endeavored to carry on his courses in his absence.

Mr. WHITE. That is your estimate of Professor Kemmerer, is it not? Dr. BECKHART. Yes, sir; that is correct, sir.

Mr. WHITE. And you rate yourself as a monetary expert, do you not, Dr. Beckhart?

Dr. BECKHART. Well, as I indicated before, I have been interested in the field for 18 years, and I have had the privilege of studying under Professor Kemmerer, and I have also had the privilege of studying under the late Prof. H. Parker Willis, of Columbia University, and I have also studied under Professor Mises, at the University of Vienna.

Mr. SHEPPARD. You at this time are on the faculty of Columbia University, are you not, Doctor?

Dr. BECKHART. Yes, sir; I am.

Mr. SHEPPARD. And you are here at the behest of the university? Dr. BECKHART. No, sir; I am not. As I say in the opening paragraph of my prepared statement, I do not represent the university, nor do I represent any of my colleagues on the faculty of the Columbia University. The reason I have inserted that particular paragraph in my statement is that there was nothing more disturbing to the members of the faculty at Columbia University in years 1933 to 1935 than to have the opinions of certain of our colleagues, who were then very prominent in administration circles, ascribed to the rest of us at Columbia. So, I do not want to have my opinions ascribed to any of my colleagues on the faculty of Columbia University. I do not represent Columbia University nor my colleagues at Columbia.

Mr. ANDRESEN. Do you represent the views of the 56 monetary experts who have been communicating with this committee on this subject?

Dr. BECKHART. Only in the sense that we all agreed in endorsing the two statements: The one relative to the rights and powers of the President to devalue the dollar further, and the one relative to the stabilization fund. In this particular instance, these 56 economists did come to an agreement. In other respects I do not represent the views of the other 55 economists, nor do I attempt to speak for them.

Mr. WHITE. The Economists' National Committee on Monetary Policy sent out a letter which was released on December 22, addressed to the President. Your name appears among the 68 which appear on the letterhead.

Dr. BECKHART. What was the purport of the letter?

Mr. WHITE. Well, it is a committee of 68 members of the Economists' National Committee on Monetary Policy, and in that letter they registered their disapproval of the President's policy, and the Silver Purchase Act of 1934, favoring its repeal, and your name appears attached to that.

Dr. BECKHART. I do not remember whether my name appears on it or not. Nevertheless I am in sympathy with the statement as

made.

Mr. WHITE. Are you one of this committee of 68 members whose names appear on this letter?

Dr. BECKHART. I cannot remember now whether I signed the petition, but I do want to say for the purposes of the record that I am wholeheartedly in favor of the repeal of the Silver Purchase Act of 1934 and of the Thomas inflationary amendments of 1933.

Mr. WHITE. You will develop that, in your statement, will you, Professor?

Dr. BECKHART. Yes, sir; I will cover that in the course of my remarks.

Mr. EBERHARTER. It is your purpose to give the committee the benefit of your information and your expert knowledge just with reference to the particular bill before us, or with reference to the entire monetary policy of the administration?

Dr. BECKHART. I shall be very happy to do whatever suits the pleasure of the committee, either the one or the other. In my statement I have covered a somewhat broader field than the immediate problems before the committee, because it seems to me those problems must be envisaged as part of the larger problem.

Mr. WHITE. Will you go into the stability of international exchange and its operation?

Dr. BECKHART. Yes, sir; I shall be very happy to do so if it be the wish of the committee.

Mr. EBERHARTER. As I understand it there is another committee of the House which is studying this problem also, and I would be very careful not to intrude upon their work which has been assigned to them by the Speaker of the House, insofar as the general monetary policy of the country is concerned.

Mr. LUCE. What committee is that, Mr. Eberharter?

Mr. EBERHARTER. Is not the Committee on Banking and Currency handling that?

Mr. LUCE. I am the cord that ties these two committees together, and I will see and hear everything that gets before the committee. Mr. WHITE. I would like to inquire of the gentleman if he thinks this committee is subordinate to the Committee on Banking and Currency?

Mr. EBERHARTER. I certainly would not want to express any opinion as to whether or not the membership of the Committee on Banking and Currency is of better quality than the membership of this committee, or as to whether the membership of this com

mittee is of better quality than the membership of the Committee on Banking and Currency, and I had no intention of doing that. However, I think it is proper to follow the procedure of having each committee consider the matters which have been referred to them only, and, of course, the matters which are before this committee are the items mentioned in this particular bill. My personal opinion is that I do not think ought to go beyond the matters which are relevant to this particular bill.

Mr. PARSONS. Well, the Chair will state that in the discussion of our monetary policy, naturally international trade, the settlement of international balances, and, to some extent the matters that are all clearly related to banking and currency naturally will be discussed. As our time is very precious this morning and we have another witness to be heard, I think we ought to proceed. Dr. Beckhart, will you proceed, sir?

Dr. BECKHART. To avoid any misunderstanding may I state, at the outset, that the views I am about to express and the recommendations I am about to make are those of an individual American citizen. I do not represent, as I have said before, Columbia University, nor my colleagues on the faculty of the university. I am here entirely in an individual capacity and hope that my individual views may prove of some assistance in the very important question that you are considering.

In many respects the monetary, credit, and financial situation in this country is far from satisfactory. The Federal debt is large and is increasing rapidly. It is being financed at rates of interest that are abnormally low and that do not reflect the true situation relative to the volume of savings. When rates of interest rise, as in my opinion they inevitably must, not only will be Federal Government be forced to refund old and to float new obligations at much higher rates of interest, but the market value of bonds floated at the lower rates and other capital assets will decline.

Mr. PARSONS. Just in that connection why do you think the interest rates must inevitably rise?

Dr. BECKHART. In my opinion, Mr. Chairman, existing money market rates of interest do not represent a situation resulting from a matching of genuine savings with the demand for long-term funds. Genuine savings in the form of deposits on the books of mutual savings banks, in the form of savings deposits on the books of commercial banks, in the form of life insurance company premium reserves, and in other miscellaneous forms have not increased rapidly enough to match the demand of the United States Government and other borrowers for long-term funds. In the recent Annual Report of the Federal Reserve Bank of New York-December 31, 1938, pp. 11-14), it is pointed out that the growth in the deposits of mutual savings banks has been at a much slower rate than in the 1920's. In fact, the rate of growth, the report indicates, "has been less than interest accumulations on deposits previously held." The report then goes on to state that although recent annual increases in life insurance company reserves have been as large as they were 10 years ago, the percentage rate of interest has been somewhat smaller.

If to the volume of savings funds placed voluntarily with these institutions we add those accumulated in consequence of the social insurance laws and those placed directly in Government obligations by individuals, we would still have a shortage of savings funds relative to governmental and other needs for long-term funds.

To

This deficiency in savings funds has meant that Government obligations have been lodged with the commercial banking system. indicate the sequence of developments in this process: Gold purchases and to a less important extent silver purchases have given rise to the huge excess reserves of banks, members of the Federal Reserve System. The existence of these reserves have induced banks to expand their earning assets. As one bank competes with another to do so, interest rates decline. The decline in interest rates makes commercial banks all the more eager to expand their earning assets in order to cover their operating costs, which decline rather slowly. Commercial banks add to their portfolio of Government obligations, short- or long-term, depending upon the policy of the bank. As obligations are purchased, deposit credits are created. The sequence is from the purchase of the bonds to the creation of deposit credits (or fiat credit) and not, as in the case of mutual savings banks, from the receipt of savings funds (savings deposits) to the purchase of the obligations. The one involves a creation of credit, the other involves a transfer of purchasing power.

This means that the increase in the deposit liabilities of commercial banks, paralleling the purchase of Government obligations, has taken the form mainly of demand deposits. Time deposits have reflected no proportionate increase. That such is the case is brought out in the following table (Federal Reserve Bulletin, March 1939, pp. 200-201):

* "Likewise in the war period governmental deficits were financed largely by an increase in bank credit rather than from genuine savings. Deplorable as was the increase in fiat credit at that time, I believe that the actual technique followed then was sounder than the technique followed since 1933 in the financing of the deficit. In the war period every effort was made to distribute the Liberty bonds widely among our citizens. In order to purchase these they were encouraged to borrow from their banks. This was the basis for the creation of fiat credit. The "borrow and buy" policy was overdone and it would have been far better to have financed the war out of savings. Even so, the methods and technique followed were superior to those followed at the present time. In the war period, commercial banks loaned upon the bonds. Borrowers were under