In other words, I wouldn't make possible the currency circulat medium of two different values in the market, because I thin] would lead to confusion and I think it is unnecessary.

Furthermore, there is a very limited power in this bill to con the depression of the currency arising from such a situation.

Mr. CROSS. Couldn't it be reached, for instance, in the case of bonds that are to be transferred into pounds, by a discount tax something where so much will be taken off?

Mr. BENKERT. I don't believe I would attempt to inquire into multitudinous transactions of all kinds that take place between citizens of one country and another in the attempt to ascertain j what kind of dollars should be converted into gold and what ki should not. The kind of organization required to control all that I should think would be stupendous, and with the absence that provision none of those questions would ever arise, becau here we are not concerned with the fixed content of the dollar, we a concerned primarily with its purchasing power. If it happens to forced temporarily to a discount or to a premium in the world markets as a result of these three types of operations, it corrects self. In addition, it materially reduces the expenses of operatio and is fundamental and more sound.

Now, there is a provision in there I believe about exporting go for pounds, isn't there?

Mr. GOLDSBOROUGH. Yes.

Mr. BENKERT. Where is that provision?

Mr. SCRUGHAM. That is page 2, section 2, lines 19 and 20; is the what you are referring to?

Mr. BENKERT. Yes; that is what I have in mind. I believe if the entire sentence, starting with the words " The circulating currency and going down to and including the words, " and for no other use were eliminated, it would be best.

Mr. SCRUGHAM. That is including line 14 to line 20?

Mr. BENKERT. Yes; from line 14 to line 20, inclusive. I would no suggest any such regulation at all. I don't think it is necessary because we have got absolute control right in there.

Mr. SCRUGHAM. In other words, it creates two kinds of dollars? Mr. BENKERT. That is absolutely correct. If there is a dislocation of relative prices for currencies it will correct itself in the market just the same as if somebody forces any particular commodity, or any particular stock on a recognized commodity or stock exchange, abov its normal value, or below, it will in short order correct itself.

Mr. SCRUGHAM. That is a very interesting point you have brought up, and a very important one.

Mr. BENKERT. I think it is fundamental.

Mr. WOLCOTT. The Federal Reserve at the present time, as I understand it, have authority to use its discretion in stabilization of the price level by open-market operations and control of rediscount rates.

It has been discussed by Mr. Goldsborough, I think, in years back, and there has been a great deal of discussion at this time as to whether that authority should not be made mandatory on the board. The reason I bring up this question is because I wonder if the whole purpose of this act could be embodied in an amendment to the Federal Reserve Act, making it mandatory upon the Federal Reserve Board to use that authority.

I would like you to comment, if you will, upon the difference between that and the bill as we have it here, if you are acquainted with it, because undoubtedly the question will arise sooner or later.

Mr. BENKERT. As I see it, there is practically no difference between this bill so far as determining the discount rate is concerned and as far as open-market operations are concerned.

Mr. WOLCOTT. If I might interrupt, this bill allows the Monetary Authority to do that, but it goes further, and what I wanted to bring out is the difference, or the addition rather to the power in the Monetary Authority there would be vested in the Federal Reserve Board if it was made mandatory.

Mr. BENKERT. I think I see your view. As I see it, this bill has two fundamental objectives. One is to maintain the price level through operations of the Monetary Authority as far as they can do it. Secondly, it writes into the law a great fundamental principle in that it places monetary control in an arm of the Government, as far as possible removed from political and private interests.

For instance, it sets up the definite objective of stability of purchasing power of money and it practically makes mandatory the doing of the things you refer to, in that they must maintain the objective.

I think, right there, that one of the fundamental causes for removing members of this Authority from office should be, among a number of others, the failure to do the job. If they fail to give us stability, I think they should be boosted out by those who put them in, that is, Congress or the President should boost them out.

Congress, as I see it, is under the obligation to coin money and regulate the value thereof. As I see it, Congress has never carried out this obligation in the entire years it has been in existence, in regulating the value of money. It has failed miserably in carrying out the constitutional mandate of regulating the value of money, and starting with this bill, they will do it for the first time in our history. Now, under this act, it seems to me they would have to operate in the discount market, they would have to borrow in the the ket, and use these other control levers to the maximum degree to attain the objective set forth in the bill. If all of these levers fail, or if prior to their usage they were convinced that what was really happening was a great change in the purchasing power of gold, gold becoming either higher or cheaper, then they would operate by using the lever of the price of gold.

open mar

Mr. WOLCOTT. That authority is now vested in the Federal Reserve Board, but it is not mandatory.

Mr. BENKERT. There was no operation, in my opinion, that the Federal Reserve Board could have possibly carried out to arrest the depression, because the real cause was the world change in the pur chasing power of gold, and they had no control over that, they could do nothing about it.

Mr. WOLCOTT. Then, in order that there may be no conflict between the activity of this Authority and the Federal Reserve Board, do you suggest that provision of the Federal Reserve Act be repealed with respect to their discretion in the open-market operations and control of the rediscount rate?

Mr. BENKERT. Yes; I think that power should be given to the Authority that is made responsible for attaining these objectives.

If we, around the table, are clothed with the obligation, we n also be clothed with the powers, and one of the powers to attain t objective is the operation in the open market, because it determi the volume of credit and the relationship between the volume of c rency and the metallic base.

In other words, the more currency that is issued against a gi amount of gold, the less the ratio of the gold to the amount of o standing currency becomes.

Mr. CROSS. Do you think there is any real necessity for a reden tion metal if you could get your price levels stable and functioning a scientific basis-why have redemption?

Mr. BENKERT. I don't think there is. I think the primary use a metal such as gold in the monetary system, having in mind the e tom of centuries, is its great convenience in the settlement of int national balances, and for the maintenance of reasonable stability the currencies between the countries, and for a limitation on t expansion of credit and currency.

Aside from those two functions, it really does not perform a function. Of course those two fundamentals are the importa functions.

Mr. CROSS. The sociology of the country, and of Congress, too, so wedded to a metal base that you could not have that bill passe unless you had it in the bill.

Mr. BENKERT. I think it should be in.

Now, there is one phase of this bill I think has to be given ver serious consideration, and that is this Price Index Commission.

Mr. GOLDSBOROUGH. In that connection, don't you think the Pric Index Commission should simply be a fact-finding commission, an have no function whatever aside from that except to make recom mendations to Congress?

Mr. BENKERT. Pure and simple. I think the basis upon whic they find their facts must be pretty clearly outlined. At the presen time the price index of the Labor Bureau is based upon the nationa census, and as I understand it, the weighting is not changed over period of 10 years unless there has been a definite census meanwhil upon which they can predicate a change in the weighting.

Mr. CROSS. You mean by that, the value of commodities?

Mr. BENKERT. Yes. There are 784 commodities in the Labo Bureau's price index, and the 784 add up to 100 percent. Each on has a certain percentage, depending upon its relative importance in the life of the country.

Now, if I can determine the relative importance of those, I car by arithmetic fix a price line. But if it is clearly set out, as is contemplated here, which is sound, that it is to be based upon the methods in which they are now operating, that it must be predicated upon the census figures, and must be purely fact-finding, then almost any citizen of the United States is a statistician and can corroborate their figures, and there would not be any juggling, and it must be absolutely sound.

As a matter of practice, once this Authority is established they will probably find that they will predicate their operations, so far as concerns the restoring of the price level, fundamentally on certain basic commodities which have a world price, and which are therefore sensitive to changes in the price of gold.

In other words, we have found that the metals, copper, lead, zinc, silver, tin, and so on, and the grain, wheat, oats, corn, and so on, and the raw materials out of which clothing is made, silk, cotton, wool, and hemp, that those particular commodities have a world market, and that they exchange for a certain number of francs, shillings, marks, lira, yen, or dollars; and the amount they exchange for each one of those depends on the value of those currencies to which they are sent. That is why, with the rise in the price of gold, cotton advanced.

Up until about a month ago the price of cotton, roughly, was 11 cents, with cotton selling at $55 a bale of 500 pounds.

Mr. CROSS. I just sold 200 bales the other day for $11.80.

Mr. BENKERT. I have just stated the price approximately. Gold is priced at $35 an ounce, or in other words, an ounce and a half of gold today is $52.50, and in other words, a bale of cotton is selling in the open market for, roughly, enough money in anybody's currency for a bale of cotton to bring an ounce and a half of gold.

It is most interesting to note that a year ago cotton was selling at practically 6 cents a pound, or, roughly, $30 a bale; at that time the price of gold was $20.67 an ounce, and an ounce and a half of gold equaled practically $30, so that a bale of cotton was exchanged in the world market, roughly, for enough to get an ounce and a half of gold. It is selling today at the same relative price, that is, the cotton is selling at $55 a bale instead of $30, so that the gyrations in the market for cotton have followed almost day to day the gyrations in the purchasing power of gold.

It has kept up with the purchasing power of gold and that is what has increased prosperity in the South in the last few months. Mr. CROSS. And wheat is the same way?

Mr. BENKERT. There is this difference as to wheat. There is the tariff upon wheat, and we have a definite market, and are not exporting wheat. If there is any export market for a world commodity, the price can be moved to almost any price you want by repricing the gold, and, practically speaking, you could almost have cotton selling tomorrow for a million dollars a pound, if you raised the price of gold, but it would not cost the Frenchman or the Englishman a cent more. The Frenchman pays practically no more for cotton today than he did a year ago, and the gold price of cotton has advanced less than a cent a pound, so that the Federal authority recognizing that, and recognizing also that what really happens in any price adjustment, they are all predicated in the last analysis upon the price level in the currency of the country.

Mr. CROSS. That did not hold in 1920 as to cotton, because in the spring it sold for 42 cents a pound, and in the fall it sold for 7 cents. Mr. BENKERT. The supply and demand for cotton had quite an effect.

Mr. CROSS. Of course there is the crop that had a lot to do with it, because there was an enormous crop.

Mr. BENKERT. Cotton is now selling for $55 a bale, but by repricing gold it could be selling today for 4 cents a pound. but it happens that the gold price in the market has not declined, but has advanced a little, and as to wheat, the turn-over price is the difference between the gold price and the tariff.

There are many commodities selling for materially less in gold tha they were a year ago, and that has always been true, because the price of the commodity is dependent on the supply and demand for that commodity as related to the supply and demand for gold, and there are four elements in the price, and not two.

Mr. WOLCOTT. Under the same theory a commodity entirely con sumed in the United States, for instance, sugar made from sugar beets, having in mind that we consume about 5 million tons of sugar and only produce about 22 million, that possibly would be an example of a commodity that did not rise in terms of gold.

Mr. BENKERT. Yes; it would rise because you see the price of sugar is a world market price and our price in this country will always be the world market price plus a tariff, plus the cost of ship

ment.

Mr. WOLCOTT. My point is, why haven't such commodities risen along with the deflation of gold?

Mr. BENKERT. They have. The raw Cuban sugar is selling around 134 cents, against 7% of a cent.

Mr. WOLCOTT. I had in mind beet sugar, but of course that gets into a different element of thought, in the differential between the price to the producer and the price to the consumer, and that has to do with the raw material.

Mr. BENKERT. I think we had a lesson on the price of raw mate rials at the end of the war. Price levels were pretty well balanced when the war began and the increase in the demand for all raw materials, and certain types of manufactured goods, and the decreased demand for gold due to the fact these nations were effectively out of the gold market, resulted in the immediate rise in price of volatile items of raw material, and they were followed by a rise in manufactured goods, and then later began to realize that the dollar would not buy what it had bought, so we had a voluntary and involuntary adjustment of wages, and we finally had them all merged in the price levels of raw material, manufactured goods, and the labor, in the new price levels. Those price levels were largely maintained through the twenties, and also the increased demand for gold did not make itself felt until the middle twenties and the late twenties.

But what we seek is that the general price level for manufactured goods and for services gradually gets into balance with the price level of raw materials. It cannot get into balance immediately. because there are all sorts of contracts outstanding under which deliveries are made, but over a period of 6, 8, or 10 years it adjusts itself.

Mr. GOLDSBOROUGH. What you mean is, this deflation, using the illustration you used a few minutes ago, would mean if you raise the price to a million dollars a pound on cotton, it would drift from the basic commodities into the wholesale prices and retail prices, and finally the cotton producer woud have no advantage over anybod else?

Mr. BENKERT. He would have no advantage at all, that is right. Mr. WOLCOTT. I am particularly ignorant of cotton manipulations, and will you give me those figures again, the price of cotton before deflation and the price at the present time?

Mr. BENKERT. I said cotton was selling around 6 cents a pound.