Mr. SMITH. Has there been any value created; has there been any actual value created by reducing the gold content of the dollar? Mr. CLINCH. Yes, sir; a paper value. Mr. SMITH. A paper value? Mr. LINCH. Yes. Mr. SMITH. Not an intrinsic value? Mr. CLINCH. Everything is in paper now, I should say. Mr. SMITH. Let us keep right at that one particular point. If you reduce the content of the dollar from 25.8 fine to 15.521 and ninetenths fine, has there been any value created in that process? Mr. CLINCH. No; I would say not by that process, although a great many corporations are in much better shape today than they were in 1933. Mr. SMITH. Mr. Clinch, that is not the question. Mr. CLINCH. What do you mean by value? Mr. SMITH. I mean intrinsic value. We have 15.521 grains of gold. Is it smaller than 25.8 grains? Is the intrinsic value of that gold more or is it less? Mr. CLINCH. The value of the gold has gone up in paper dollars. Mr. SMITH. The value of the gold has gone up in paper currency? Mr. CLINCH. Yes, sir. Mr. SMITH. But what is the intrinsic value of that 15.521 and nine-tenths grains of gold in comparison with the intrinsic value of 25.8 grains of gold? Mr. CLINCH. But it is the question of the content in the dollar. Mr. SMITH. Now, is there any value to anything in the world except its intrinsic value? Mr. CLINCH. I just cannot answer that question. Mr. PARSONS. Mr. Smith, the intrinsic value of a thing depends upon conditions and the situations existing. If you are talking about the intrinsic value of gold upon the base of $20.67, that is one thing; and if that value is changed to $35, then that is the intrinsic value of that gold-$35. Mr. SMITH. In a grain of wheat there is a certain amount of intrinsic value. It has in it so much digestible protein, it has in it so much digestible starch, and so much digestible fats. To be sure if we cut that grain of wheat in half, its intrinsic value has been cut in half, has it not? Mr. CLINCH. Yes, sir. Mr. PARSONS. That is true as far as wheat is concerned. Mr. SMITH. You stated a moment ago that devaluation has only been tried out for 7 years. Mr. CLINCH. This was an emergency operation. Mr. SMITH. You looked at me and spoke about pneumonia, and asked what my occupation was. It just so happens that I am a physician. I have treated pneumonia with the older remedies and also with the newer remedies, but I have yet to experiment on my patients. I know you would not keep me as your physician if you knew I was experimenting on you when you had pneumonia. In such a case how long would you keep me as your physician? Mr. CLINCH. The answer to that, of course, is that the British and these other countries had already conducted the experiments in their clinics before we got to it. Mr. WHITE. I would like to observe for the witness and my colleague that there is no such thing as intrinsic value. All value is relative. Mr. CLINCH. That is right. Mr. PARSONS. Thank you, Mr. Clinch. Mr. CLINCH. Thank you, Mr. Chairman, and gentlemen of the committe. I appreciate the opportunity you have given me to appear today. (Thereupon, at 1:30 p. m., the committee adjourned until Friday, March 17, 1939, at 10:30 a. m.) EXTENSION OF STABILIZATION FUND AND POWERS, ETC. FRIDAY, MARCH 17, 1939 HOUSE OF REPRESENTATIVES, COMMITTEE ON COINAGE, WEIGHTS, AND MEASURES, Washington, D. C. The committee this day met at 10:30 a. m., Hon. Andrew L. Somers, chairman, presiding, for further consideration of H. R. 3325. STATEMENT OF BENJAMIN H. BECKHART-Continued The CHAIRMAN. The committee will please come to order. A quorum is present. Mr. Beckhart will resume his testimony. I believe he had completed his statement when he appeared here before. Mr. White has asked permission to ask certain questions of the doctor, and we will appreciate it if you, Dr. Beckhart, will permit Mr. White that privilege. Have you, Mr. White, any idea as to how long your questions will take? Mr. WHITE. You might set an hour for them. I think, though, that I can complete before that. I think this is a very important subject, and we have a witness here who represents the consensus of the economists of the great institutions of higher learning of the country, and influential people high in finance, he being one of the 68 economists who joined in signing a pronouncement on the Government's fiscal policy. I think he can give us information that will be of very great value to the members of the committee. We are dealing with an issue that has a world-embracing, I might say, scope something that has world-wide interest. I should like to ask you a few questions. Dr. BECKHART. I should be happy to answer them. Mr. WHITE. I have read your statement with great interest. I believe that at the time we adjourned the other day I was endeavoring to get you to explain the mechanics incident to the issuing of Federal Reserve notes. I believe that is very important. They constitute the bulk of our currency, I believe. Can you briefly give us the procedure in the issuing of Federal Reserve notes and the circulation of them; if so, that would be very interesting. I hope you will confine your answers to relevant and material points, and not go afield. Dr. BECKHART. I shall endeavor to do that. May I say at the outset that I do greatly appreciate the opportunity of coming here again and discussing these very important issues with members of this committee. If I talk too rapidly, I hope you will check me. I think I can better explain the issuance of Federal 1.eserve notes by making use of the blackboard in order to indicate the operations that take place. Mr. WHITE. I have other subjects that I should like to explore with you. Dr. BECKHART. And at the same time, Mr. Congressman, I should like to illustrate the manner of issuing silver certificates. But, first, let me describe the method of issuing Federal Reserve notes. We have here [indicating], let us assume, the combined financial statement of all Federal Reserve banks. It reads as follows: Statement of condition of the twelve Federal Reserve banks combined March 15, 1939 [in thousands of dollars] ASSETS Gold certificates on hand and due from U. S. Treasury. Other cash. Total reserves $12, 253, 762 9, 295 403, 401 12, 666, 158 or fully 1, 932 1, 525 3, 457 554 14, 059 911, 090 1, 145, 269 507, 656 2, 564, 015 2,582, 085 168 20, 825 718, 097 42, 732 46, 089 16, 076, 454 LIABILITIES Ratio of total reserves to deposit and Federal Reserve note liabilities combined --percent-Contingent liability on bills purchased for foreign correspondents_ Commitments to make industrial advances__ 15,732, 494 134, 956. 149, 152 27, 264 32, 588 16, 076, 454 84. 3. 12, 545 Dr. BECKHART. It will be noted that there are two important liabilities, namely, Federal Reserve notes and the members bank deposit liabilities. At the present time member bank deposit liabilities are far in excess of those required by law. Excess reserves come to about $3,400,000,000. If a member bank desires Federal Reserve notes by reason of an increase in the public demand for currency, arising, for example, from seasonal trade requirements or seasonal pay roll requirements, the member bank simply draws against its account. Member bank deposit liabilities fall and Federal Reserve note liabilities increase. It represents a decrease of one liability, the member bank deposit liability, and an increase in another liability, the Federal Reserve note liability. Inasmuch as excess reserves are large and well distributed among all member banks, no borrowing would be required. The member bank would simply draw against its excess reserve with the Reserve bank in order to obtain the volume of Federal Reserve notes required by the public. Mr. WHITE. Will you please repeat that last sentence? Dr. BECKHART. The member bank would simply draw against its deposit liability with the Federal Reserve bank to get Federal Re serve notes. Mr. WHITE. That is clear. That is the mechanics of issuing Federal Reserve notes. Dr. BECKHART. Would you like me to continue and to show how silver certificates are issued? Mr. WHITE. Yes. Dr. BECKHART. Regarding the issuing of silver certificates-I will erase this [indicating] and Mr. WHITE. No; make another chart on the other side. Leave that one on the board. Dr. BECKHART. The silver certificates issued by the Government are placed on deposit with the Reserve banks. Mr. WHITE. You are making a big jump to that point. You must have the silver, issue silver certificates and then do something with the silver certificates. Dr. BECKHART. Yes; the intermediate steps should have been brought out. The Government in the first place buys the silver and Mr. WHITE. And pays for it how? |