Senator CoSTIGAN. Naturally, I am interpreting the law according to its terms and assuming that a public official will enforce the provisions of the statute.

Mr. BUSBY. I just want to know how definitely that was written into the act, or whether what you are saying is surmise?

Senator CoSTIGAN. It seems to me perfectly clear.

Mr. LUCE. Mr. Chairman, if I may continue my inquiry. Suppose the State of Illinois sends in a communication to the effect that it has spent $30,000,000. How far is the administrator going to be allowed or expected to question the good faith of that State?

Senator CoSTIGAN. He is given authority to employ such assistance as he requires to carry on the administration under the act. Presumably through his experts he can determine the good faith of the representations of the State of Illinois.

Mr. LUCE. Is it an altogether admirable thing to put into the law a system of administration that requires the Federal Government to question the good faith of any governor of any State in the country?

Senator COSTIGAN. Congressman Luce, I think it is entirely appropriate when we are spending public funds, as we are doing under various grants in aid acts, to require such supervision from Washington as will guard the expenditures authorized by the Congress.

Mr. LUCE. You might very well apply that, of course, to any minor official, any $2,000 official. I am asking whether you are going to question the integrity and good faith of the Governor of the State of Illinois who communicates a statement to the administrator?

Senator CoSTIGAN. It does not seem to me that the inquiry addressed to me is really pertinent to the problem.

Mr. LUCE. There is the sum of $350,000 involved here.

Senator CoSTIGAN. When I check upon your statement through an auditor, I do not regard myself as questioning your integrity. I am pursuing proper accounting methods.

Mr. LUCE. Surely; I do not question the right to verify the totals of any printed statement through the activities of an auditor or a bookkeeper, or anybody else. I am trying to find out whether you are going into Illinois to learn whether it is clean or whether it is rotten.

Senator COSTIGAN. Doubtless, the administrator, if efficient, will make suitable inquiries to determine whether the funds said to have been expended from public sources have been expended. At least, that would be my assumption. That would be my course if I were a public official.

Mr. LUCE. I do not mean to say anything derogatory to the State of Illinois. I just happened to mention that State because the name came into my mind. But if you are going to investigate the honesty, the integrity, the judgment, of every county, municipality, or village in this country, you are going to have some job. It strikes me you either must accept the word of the governor, or else you must go the whole distance and examine every spending agency in the State. We have, I am frank to say, in my own State, certain cities that we do not think are prudently and economically managed. We think there are certain expenditures of public funds that are unwise. How far do you expect your Federal administrator to make inquiry into the wisdom, good judgment, and good faith of one of my Massachusetts cities?

Senator COSTIGAN. With the knowledge that the relief needs in America are overwhelming, I should assume that every justifiable presumption would be indulged in favor of the good faith of the officials. Certainly, where they certify to facts in regard to such expenditures.

Mr. LUCE. If that be so, what is the use of providing $350,000 for administration?

Senator CoSTIGAN. There still remains the responsibility for guarding against false statements. In other words, this act, in my judgment, is elastic enough to permit prompt action by an able Federal administrator for the relief of human needs without endangering a gross waste of the public funds.

Mr. LUCE. How far the use of $350,000 for this purpose may or may not be a gross waste, is a matter of judgment; but let me ask you another question. It has come to be understood and recognized by Members through many years of experience that it is not wise for a legislative committee to make appropriations. Therefore, we have an iron-clad rule in the House that they shall not be made in that way. Here is a method of evading that rule. You give your Reconstruction Finance Corporation authority to take $500,000,000 which ultimately must be paid by taxation, and spend it without any inquiry into it being made by the Committee on Appropriations. Do you think thus evading the rule of the House is a prudent thing?

Senator COSTIGAN. May I ask, Congressman Luce, wherein this bill departs from the precedents of other Federal grants in aid, such as our statute which provides for the expenditure of very large amounts on road building in the States, in conjunction with the States?

Mr. LUCE. I have the impression that that all had to go through the Committee on Appropriations after action by the House.

Senator CoSTIGAN. As I understand it, the money is distributed subject to supervision by representatives of the Federal Government here, after the committee and Congress finishes its work. There always is, of course, as there would be in this instance, reserve power in the Congress, if there is an abuse of his powers by the Federal administrator, to revoke his authority and to repeal the act.

Mr. LUCE. I do not think you catch my point, sir. We have found by long experience in the Nation and in the States, that it is wise to have two studies of every expenditure of public funds; one by a legislative committee and the other by an appropriating committee. Here is a proposal indirectly to spend $500,000,000 without any consideration by the appropriating committee as to its relation to other expenditures, its conformity with the Budget program, with the general set-up of the Government. Now, $500,000,000 is no small sum. Why should it be taken out from under the protection, the safety, that is given by our system of thus protecting the expenditure of public money?

Senator CoSTIGAN. The answer in part-it may not satisfy youwould appear to be that our Budget Director has evidently passed favorably on this sort of an appropriation; also, that the need for relief of human suffering has reached the proportions of a catastrophe The amount, if anything, is small rather than large, and it is utterly impossible, I think, in advance, as all those who have investigated the

situation are aware, to forecast the precise amounts which from time to time will need to be applied to meet the necessities of the situation. Mr. LUCE. Possibly I did not bring out clearly the objections which I made yesterday and which I repeat today. Inasmuch as this is an appropriation in effect, an expenditure of public funds, the introduction of the Reconstruction Finance Corporation into the matter is wholly unjustified. The Reconstruction Finance Corporation was conceived, and has been administered so far, as a lending agency. Now it is proposed to convert it into a giving agency with no authority, no powers over the expenditure of the money, with no responsibility for investigating the respective needs, with no duties whatever, but wholly as a subterfuge to evade the orderly processes of appropriations. What good is to be accomplished by doing this thing indirectly instead of looking things in the face and recognizing that it is a gift out of the Public Treasury? What benefit is to be gained by having it go to the Reconstruction Finance Corporation?

Senator COSTIGAN. May I briefly rest upon the answers which were given yesterday by Senator Wagner? If you desire me to expand my reply, I shall do so.

Mr. LUCE. No; I want to find out if you are of the same belief that subterfuges of this sort are admirable.

Senator CoSTIGAN. It is our judgment, if I may say so and I think Senator Wagner so indicated-that Congress has been indulging in a subterfuge for the last year. A year ago or more we voted the sum of $300,000,000 to be loaned to the States through the Reconstruction Finance Corporation, with a proviso that those loans should be subsequently paid in the form of deductions from the road-building funds. The statute which was then enacted was put in that form so as to enable many States in the Union which have constitutional prohibitions against borrowing for human relief, to secure Federal funds to assist them in dealing with this tragic problem. That was distinctly a subterfuge and it was recognized at the time and has been recognized ever since that those loans were in effect direct grants in aid. Under this bill almost identical relief is termed a grant in aid.

Mr. LUCE. But you still do not furnish any reason why the Reconstruction Finance Corporation should have any part in it.

Senator COSTIGAN. Apparently there are three ways in which the Federal funds for this purpose might be raised-through direct appropriations chargeable against the budgetary expenditures of the Government, through bonds sold on the public market, or through the use of the debentures of the Reconstruction Finance Corporation. The two latter methods relieve, as we believe they should relieve, the Budget from the immediate burden of these expenditures; and this method was adopted as equivalent to the method of issuing and selling bonds.

Mr. LUCE. Because it conceals the actual transaction?

Senator CoSTIGAN. In my judgment, there is no concealment whatever. It seems to me that the legislation is not only open but better understood in every part of the United States than any similar legislation involving the expenditure of a substantial amount of Federal funds.

Mr. LUCE. But your reason is that it shall not show up as a national expenditure.

Senator CoSTIGAN. I should not so state it, Congressman. There is considerable confusion over the items which should be included in the Budget. It is regrettable, in my judgment, that we have not more clearly developed publicly the propriety of lifting certain items, such as those involved in bond issues for public works, out of the Budget.

The public may be confused, but students of finance are not confused over the possibility of dealing with budget balancing of a government in a different way from that in which an individual deals with his income and his expenses.

Mr. LUCE. One final question, Senator, returning to one that I propounded heretofore. Do your think it advisable that legislative committees shall make appropriations?

Senator CoSTIGAN. May I ask you to expand the question? Do you mean as distinguished from Congress?

Mr. LUCE. From an appropriating committee. We have been fighting here through many years to establish the principle that the Appropriations Committee shall hold the purse strings. Here is a proposal that a legislative committee shall share with the appropriating committee in spending the public money. It was once supposed to be, a dozen years ago, one of the great triumphs of the Budget bill that we abolished all appropriating by legislative com

mittees.

Senator CoSTIGAN. Perhaps I am confused at the instant by the form of the inquiries, but I see no fundamental difference between expenditures of this sort, where fully considered by the Congress, and those of a governmental bureau or independent establishment such as the Federal Trade Commission which is authorized, let us say, to expend during the next fiscal year approximately $1,000,000 on various investigations, in the employment of its help.

Mr. LUCE. That is all.

Mr. BUSBY. Senator, you speak of three ways in which it is possible to raise the funds for the purpose proposed in the bill. The particular manner provided for in the bill is under the third way mentioned by you, or debentures of the R.F.C. What length of time would those debentures be outstanding and what rate of interest would they bear?

Senator CoSTIGAN. It is my understanding that those matters are left to the discretion of the Reconstruction Finance Corporation and in practice, as suggested yesterday by one member of this committee, the Treasury has been advancing the funds, when required by the Reconstruction Finance Corporation.

Mr. BUSBY. If this bill provided for the direct appropriation mentioned in your first proposition, $500,000,000 as required under this bill, it would practically wipe out all of the savings that have been brought about by cutting off thousands of governmental activities and incidentally governmental employees who have been added to the bread lines in many instances, and by cutting out the hundreds of thousands of soldiers who have disabilities, which is admitted by the Veterans' Administration; in other words, all that has been saved by depriving these classes would be wiped out if we should make this a direct appropriation. And that is one of the reasons why you want to avoid doing that and want to pass it over on to a future date; is not that correct?

Senator COSTIGAN. General relief would be substituted for special relief and special salaries; and there would undoubtedly be, if this amount were treated as a direct charge on the Treasury, a substantial reduction in Treasury savings heretofore made.

Mr. BUSBY. If it were a direct charge on the Treasury, the difference to the people or the taxpayers would be this, that there would not be appended an interest charge to run over a period of years which they would have to meet in addition to the direct appropriation. In other words, the burden would be much lighter if it were made a direct charge on the Treasury than it would be by selling bankers or investors Government debentures or first mortgages on the future earnings of the people and the properties of the people in order to raise this fund in the way that you propose.

Senator CoSTIGAN. If the appropriations desired were immediately available in the Treasury of the United States without any blow to the credit of the Government, I personally should see no objection to direct appropriations for that purpose. Undoubtedly what you say is true as to the future charge in the way of interest.

Mr. BUSBY. Senator, do you regard the Government as having a limit beyond which it could not proceed with these debenture and bonding operations in which it pledges the people to pay so much in the future?

Senator CoSTIGAN. There is, unquestionably, a limit, or a strain which can be endured by Federal credit; perhaps also by the people of this country as taxpayers.

Mr. BUSBY. Yes. I note in the report of the Comptroller of the Currency that all banks, in their capital stock and surplus and properties properly belonging to the banks, have only $8,092,000,000, and yet those same banks own outright between twelve and thirteen billions of Government securities which are practically the only stable securities to be had at the present time. It is my understanding that the banks and they are the purchasers of these bonds and that is the reason I refer to them-as a matter of policy in dealing with this kind of a financial item, pass it over to some agency that merely takes the interest, leaving the people first to furnish the credit to the banks in order to buy these bonds and then subsequently the people furnish the taxes to the Government to pay the bonds and the interest. What I am trying to arrive at is the welfare of the people in connection with this financial operation. Do you believe that this proceeding will be one which will increase the buying power of the people in any sort of a permanent kind of a way?

Senator COSTIGAN. It will, of course, operate to increase the buying power of those who are aided; but it is not proposed fundamentally as a means for restoring consuming power. It is favored by the Senate and by its authors because it is designed to relieve the consequences of an economic disaster which, in our opinion, are as grave as those of the recent earthquake in California.

Mr. BUSBY. I thoroughly appreciate that, but this bill reminds me more of an effort to establish soup lines and bread lines than it does to establish any sort of a financial procedure which would be worth while to the country, except, as I say, giving them a most unattrac tive sort of a dole or hand-out.

Another question: Do you have any information as to the number of people that would have to be accommodated under this bill?