cent.

The bondholders who would not agree to this conversion were forced do so. nterest on mortgages and interest on all private debts, all fixed charges and ts were reduced by 221⁄2 percent. Exceptions were permitted only where the der could show in court that he would be seriously injured by the reduction in erest. This lowering of interest and rent enabled wage earners to accept luction in income. It also brought substantial relief to farmers. This reduction of interest, wages, and other costs, is what Dr. Copeland calls imprehensive and limted deflation. Because it was supported by the high price gold and an expansion of credit, he calls it "constructive deflation"-conructive as opposed to the competitive scramble for liquidity which charactered deflation in the United States. There was no deflation of credit in stralia.

They have an arbitration court in Australia whose duty it is to regulate ages, working conditions and the hours of labor. The court had many years fore adopted the principle of adjusting wages to the cost of living. By the end * 1930, there had been a 10 percent reduction in wage rates on this account. The court then had an extensive hearing on the question of the basic rate. uld industry afford to pay the old level of wages, and would reduction of ages assist in promoting recovery? After a lengthy hearing, the court deided that a further reduction in wages, as part of a general deflation, and an xpansion of credit, would be constructive measures. It cut the basic wage by 0 percent. This applied all around to industries whether they could afford to ay higher rates or not. Further reductions in the cost of living brought the vage rates by the end of 1932 down 25 to 30 percent below the 1928 level. Other costs were reduced according to plan.

The Commonwealth Bank, which is the Central Bank of Austral'a, is owned y the government. It is managed by directors who are so independent of political influence that they at one time shut down on advances to the Government. Not until the economy plan was put in effect would the Central Bank agree to make further advances.

With the economy plan working, the bank extended a credit of 30 million pounds in the form of 3-months treasury notes, bearing 21⁄2 percent interest. This was a deliberate creation of central bank credit put in motion when the recovery plan was bringing steady improvement. This plan was put into operation in August 1931.

"In a little more than 12 months", said Dr. Copeland, our stock-exchange values had recovered, our interest rates had failed, our new 4-percent bonds were at par, and we had increased the volume of our exports. We were then also able to increase imports without causing disturbance to our balance of payments. Bank deposits expanded and so did bank credits. Both now stand higher than they did in 1928. We had no acute deflation of credit in Australia and no banking crisis.

"Under the recovery measures, we were able to enlarge our expenditure on public works, and private investments began slowly to gather strength. We were doing all these things in a world that was still deflating, and we could not expect to get complete recovery. The measure of recovery we achieved did, however, fully justify the steps we took.

"Many of thse steps were contrary to the traditional methods or handling a crisis, and some of them were unorthodox. As a whole, they gave a nice balance between deflation and inflation. They all aimed at restoring the margin of profit on the farm and avoiding a disastrous and unnecessary fall in the price level.

"Australia did not undertake any control of production or fixation of prices on agricultural products. We have given industry a background in which it could function by itself, that background being a decent price level, opportunity to meet costs, and an expansion of credit to meet all ordinary requirements. "We have been singularly free of strikes since 1929. We did have a comprehensive reduction in wage rates because the arbitration court had such high authority that the people accepted its decision. Reductions were applied to the just and to the unjust alike.

"We did not have to reduce hours of work. Hours were slightly increased rather than reduced. The hours of labor are 44 hours a week and sometimes 48. "We have nothing in the constitution which prevented our doing these things.

"Unemployment reached its peak by the middle of 1931. We had almost complete financial chaos beginning in April of that year, until we got the bene

fits from the increased price of gold and put our recovery plan into operation Our unemployment is now only two thirds of what it was in the worst phase the depression.

"While we were doing these things, we were fighting against the continue deflation in the international world. We were trying to lift ourselves out the mess, but the world was dragging us down all the time.

66

'Eighty million pounds of treasury notes were issued bearing interest 22 percent. Their circulation was limited to the banking system. It had very useful effect in bringing a reduction in the rate of interest; while w were doing this, we had a rise in the bond market.

"The disparity between agricultural and industrial prices was enormou We have not removed it completely, but we are on the way. We cut costs i industry. We put up the price of gold, and that put agricultural prices up. Th more you study this particular plan the more it fits in."

Dr. Copland was asked whether it is essential to have a central bank t carry out the Australian plan of recovery. He replied that it is.

Only in answer to a direct request for suggestions did the Australian econ mist offer any comment bearing immediately on our problems in the Unite States.

"I think ", Dr. Copland said, "that you ought to go on with the price of gol until you find the price that is going to give you the relief you need.

"And you ought to go on with the public-works expenditures, and with Gov ernment financing of mortgages; and if you have to issue Government bills (we would call them interest-bearing Treasury notes), "do so, and don't worr about it. You are doing that now.

"I would put the soft pedal on costs in industry. I would not use N.R.A to raise costs. I think it is a handicap if it is putting up costs too high.

Knowing the fallacies that you can get into, my instinct is agains the A.A.A."

A questioner reminded Dr. Copland of our constitutional limitation in abro gating contracts.

66

The way out of the difficulty" said he, "is for you to have a higher pric for gold than we needed. You keep on with faith in your internal policy, and you will help the world out, and yourself at the same time."

This was the message, spoken to the breakfast group in Washington tha I am privileged to pass on to you from Dr. Douglas Copland, of Australia. In looking at the experiences of the other side of the world, we have no been gazing into a crystal ball of economic theory. Rather have we been per mitted to look into a mirror of accomplished facts, and thereby to measur the possibilities of our own recovery. For we are following the same policy of currency depreciating which means cutting the gold content of the dollar or raising the price of gold.

Douglas Copland's service to world recovery was recognized by a call t Cambridge University last October and November for one of the most covete of economic honors the Alfred Marshal memorial lectureship. In eight dis courses he told the story of "Australia in the World Crisis." It will soon be available to American readers in book form, and under that title. (Publishe by The Macmillan Co., New York.)

While reading the advance proofs, I found myself inhaling deep breaths e delight. No economic theory in a book by an economist! And in place of th depression charts we have seen for 4 years, with all the lines points to the southeast corner, there are the smiling charts of Australian recovery, with the corners of their mouths pointed upward!

So to Dr. Douglas Copland as he sails home tonight from New York, w present America's thanks. Bon voyage! Auf Wiedersehen!

> ESTABLISH THE FEDERAL MONETARY AUTHORITY

MONDAY, FEBRUARY 26, 1934

HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE OF THE COMMITTEE ON

BANKING AND CURRENCY,
Washington, D.C.

The committee met at 10:30 a.m., Mr. T. Alan Goldsborough residing.

Mr. GOLDSBOROUGH. The committee will come to order. The witess this morning is Mr. Gow. Will you please come forward, Mr. Gow, and give your full name and your connection to the reporter?

STATEMENT OF PAUL A. GOW, MINING ENGINEER, BUTTE, MONT., PRESIDENT OF THE NORTH BUTTE MINING CO.

Mr. GOLDSBOROUGH. I presume, Mr. Gow, the part of the measure. you desire to address yourself to is the silver end of it, is it? Mr. Gow. Principally; yes.

Mr. GOLDSBOROUGH. Won't you just proceed in your own way, and when you get through we may want to ask you some questions.

Mr. Gow. I am not an economist, I am a mining engineer, and have been in the mining business for 27 years. I am not appearing before you with any set speech, but just to give you my views for what they are worth, concerning the metal mining situation, particularly with reference to the proposed silver amendment to House Bill 7157, which I believe is known as the Goldsborough bill.

Mr. SCRUGHAM. May I interrupt you. Mr. Gow is regarded as one of the foremost mining economists of the country. He has made a very modest statement of his qualification, but I think his subsequent statement will bear out the reason for his being an authority on the subject.

Mr. Gow. I will say, gentlemen, I have been known for many years as a Republican, but I have many beliefs that do not fit with the Republican doctrine. I don't think I can be charged with being partisan, for I don't think I ever voted the straight party ticket in my life.

I am really sympathetic with what you are trying to do down here and what I am most interested in is seeing a prosperous America, not only a return of prosperous conditions, but to see they are maintained after we do secure a return of prosperity.

We all know what has happened over the past 100 years or so, and if that can be cured by legislative enactment and a new policy, of course we are all strongly for it.

I have followed the ideas of Mr. Goldsborough and have talked to people in the Middle West and the Far West concerning them and I assure you they are all sympathetic.

There is much about it, perhaps, that we do not fully understand and in the opinion we have concerning it, we are right in some re spects and perhaps wrong in some respects.

But to get to the silver situation, silver, of course, used to be monetary metal. When this Government was established and ou monetary system set up in 1789 by Alexander Hamilton, we estab lished a bi-metallic base for our money. That continued until 187 or 1873, I have forgotten which year, when silver was demonetized There are far more people in the world today that use silver a the basis for money than those who use gold, and I, for one, believ that the quantity of metallic money in the world is entirely inade quate as a basis for world money, or even as a basis for our domesti

money.

We have considered silver and gold as precious metals, and as matter of fact, silver has a far greater utility value than gold. Gold is our least useful metal, as far as it is physically concerned. It ha only one real use, and that is in the dental profession, filling teeth We use it for ornamental purposes, for jewelry and other ornamenta tion, but aside from that, it has very little value.

It has been prized for thousands of years and considered a mone tary metal, and probably always will be. Whether that is a fallacy or not, is immaterial, but silver is a far more useful metal, and used to a greater extent than gold.

When silver was demonetized and became a commodity, there wer vast quantities of silver held for monetary purposes that wer dumped on the market, with the result that the price of silver de clined far below its actual parity with gold, and far below the right ful level to which it belonged, in the level to which it shrank after i was demonetized in the United States.

The debasing of the metal in Europe and the dumping of silver by India, when India was put on the gold standard, of course mor completely demoralized the thing. The natural ratio is about 144 ounces of silver to 1 ounce of gold, and the price, of course, has been entirely out of line between silver and gold.

If silver were selling at its natural parity with gold, of 16 to 1 which is a little above its natural parity, it would command a price of $1.29 per ounce.

Mr. GOLDSBOROUGH. You say its natural parity, and you have als said that a great many more people use silver than gold as money If its natural parity is what you say, and if it is being used by more people as money than is gold, why is it worth about 40 cents now! Mr. Gow. It is 46 to 47 cents now.

Mr. GOLDSBOROUGH. And it has been lower than that?
Mr. Gow. It has been down to around 24 cents.

Mr. GOLDSBOROUGH. Your statements require an explanation to b reconciled, and there may be a perfectly good explanation of what you say.

Mr. Gow. For the very reason that silver is merely a commodity and it was dumped on the market. I will illustrate it this way. all of the nations of the world today were to demonetize gold and

ld were no longer a basis of money, and were we to consider it rely as a commodity, its utility value so far as demand for utility rposes are concerned, would be so small that the price of gold I uld say would go to below $5 an ounce, in its purchasing power a commodity.

Mr. GOLDSBOROUGH. I have no doubt of that, but you have said, as matter of fact that silver was used as basic money by more people Lan gold.

Mr. Gow. It is. It is used by all of the South American countries, nd largely in the Orient, and even with India on the gold standard, e common people of India hoard silver, and there is a vast quantity f silver held in India.

But those are all debtor nations, they must settle their trade balnces in gold, and silver being a commodity, then the silver market is n terms of gold.

Gold has a controlled market, because the nations of the world tand ready to take all surplus gold at a certain price, and all sur›luses are absorbed. When a miner in this country produces his gold, he takes it to the mint and he is given a check for it.

Mr. GOLDSBOROUGH. You speak of natural parity. I am sympahetic with your case, but I do not want you to use an argument that will hurt your case. There is no reason, if people do not want to do it, to use silver as a basic metal any more than any other metal; so, so far as natural parity is concerned, there is no such thing, is there?

Mr. Gow. Yes; the natural parity is the potential productive capacity, or the natural productive capacity as compared with gold. Going back about 1400 years, there have been about 141⁄2 ounces of silver produced as against an ounce of gold.

Mr. GOLDSBOROUGH. If that is your definition of parity, it is all right, but it does not seem to me to be a definition, because there might be a perfectly worthless product produced at a rate of 14 times the amount of gold production, and still it would have no value. So I don't think natural parity helps you any.

Mr. Gow. But silver has a greater utility value than gold.

Mr. GOLDSBOROUGH. If that is so, why isn't it worth more than it is or has been for years?

Mr. Gow. Because the greater banking nations of the world have not accepted the surplus, and there have been large monetary surpluses dumped on the market at any price it would bring. I believe that is the very reason why London took India off of silver.

Mr. GOLDSBOROUGH. If you will make an economic argument in favor of silver it will help your case, but if you make an argument which is inevitably based on the desire of those who own silver to get more for it, it will do you harm, and that is the argument you are making up to this time.

Mr. Gow. No; I am going to get to that in a moment, but I first want to put the picture before you.

It is generally felt and believed over the country that the remonetization of silver means merely a subsidy of the mining industry, particularly silver mining. As a matter of fact, we haven't a silver mine in this country or in any other country practically at all. Silver is a by-product.