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Mr. WOODHOUSE. Yes, sir.

Senator BARKLEY. This is a provision with reference to registration of stock, of securities, here in Washington with the Federal Trade Commission.

Mr. WOODHOUSE. Yes, sir.

Senator BARKLEY. By the issuing company.

Mr. WOODHOUSE. Yes, sir.

Senator BARKLEY. And the theory upon which this exemption is made is that as a matter of policy and comity among nations we should not require registration with the Commission of securities of a foreign government.

Mr. WOODHOUSE. I believe under the Constitution you cannot do that, cannot apply the principle of registration to foreign nations. The Constitution only gives Congress authority to regulate foreign commerce and the value of foreign coin. There is no other provision authorizing Congress to deal with foreign nations. But I do believe you can get some results by making any fiscal agent do that.

Senator MCADOO. Your point is that a fiscal agent of a foreign government should be required to give similar information with respect to issues of foreign governments or political subdivisions of foreign governments? That is, the information which under this bill is required in the case of domestic corporations.

Mr. WOODHOUSE. Yes, sir. And, furthermore, that they should report their assets and liabilities periodically, as is required of the national banks of the United States.

Senator COUZENS. May I also point out that the National City Co. investigation disclosed that if those people were excluded they would be wholly unaffected so far as the country is now loaded up with many millions of dollars of South American issues. Something would have to be put in to cover that situation or it would be useless. Mr. WOODHOUSE. Yes, sir.

Senator BARKLEY. Then the simplest way to accomplish it would be to strike out the exemption.

Senator MCADOO. I think that language ought to go out.

Senator BARKLEY. I am not sure but what it ought to go out. But I do not see any use in leaving that language in there.

The CHAIRMAN. Turning to page 6, line 19, the provision is:

Provided, That, when such statement relates to securities issued by a foreign government or political subdivision thereof, it shall be signed by the person or persons, or, if a corporation, association, or other entity, by the principal executive officer

And so forth.

Now, that all refers to reports by agents of foreign governments, doesn't it?

Mr. WOODHOUSE. Yes; except that a private bank might claim an exemption as fiscal agent of a foreign government. Then it does not become a firm issuing securities, but becomes a fiscal agent.

Senator MCADOO. That would be covered under the general phraseology of the bill. The fiscal agent would be included in this undoubtedly.

The CHAIRMAN. It would seem so.

Senator MCADOO. That is already covered in the bill, I think. Mr. WOODHOUSE. Another suggestion as to how the bill might be strengthened is, by providing that all dealers in foreign securities.

in the United States, and all American firms conducting a foreign business in the United States or dealing in other securities, must make reports periodically, as required of national and Federal reserve banks.

Now, that is of the utmost importance in figuring out, for instance, how the United States Government can borrow this year 10 billion dollars, or from 10 to 13 billion dollars, including short-term financing. How is the Government to do that? Where is it to get the money?

There are 45 billion dollars of deposits in 20,000 banks, belonging to 30,000,000 depositors. In addition, there are probably 5 to 10 billion dollars in private banks as to which the Treasury Department, the Comptroller of the Currency, and the States have never been able to get any reports or any information. This bill affords the opportunity to try to bring that information within the knowledge of the Government, so that in offering securities, in the financing necessary this year, it will be possible to estimate the funds available in this country for the purpose.

And, Mr. Chairman and gentlemen of the committee, may I add that that may make a difference of 300 million dollars in the matter of interest this year and each year hereafter. I received a letter from the Treasury Department about a month ago stating that the interest in the budget for 1934 is 725 million dollars, on the debt. That means that the people of the United States are paying 725 million dollars interest on the debt.

Now, if this year 10 billion dollars of financing has to be done direct, meaning long-term securities and 3 billion dollars referred to as short-term notes, it means that every 1 percent you save in the matter of interest will amount to 100 to 130 million dollars saved to the people of the United States.

Therefore it will be of great value to obtain the reports from all the banks. We have not been able in 20 years of effort to obtain that data. Scientific economists have been trying for 20 years to get the actual total volume of funds available in the United States.

The Treasury Department, as I will show you from a letter I have here, have not been able to get it. So, if we can get it through this measure we will have for the first time a scientific basis for figuring: First. The credit of the United States; and secondly the funds available to the United States. Thirdly; taxation on a scientific basis.

As the situation is now there is a discrepancy of something like 300 billion dollars a year between certain reports regarding national income and certain other reports regarding national income. Senator GORE. How much?

Mr. WOODHOUSE. Something like 300 billion dollars.
Senator WAGNER. A year?

Mr. WOODHOUSE. Yes, sir.

Senator MCADOO. Do you mean millions or billions?

Mr. WOODHOUSE. I mean billions. And if you will give me the opportunity I will tell you how that huge discrepancy between the reported national income and the actual national income comes about. Senator MCADOO. Go ahead. We would like to hear it.

Mr. WOODHOUSE. The only figures the United States Treasury gives you today as to national income are as follows:

First. The taxable income of 509,000 business establishments for 1929. As to these, if you take the Treasury reports giving the aggregate of the income-tax reports of those corporations, you find in the Treasury's report for 1929, two figures. One is 160 billion dollars for 509,000 corporations, and the other is 220 billion dollars. There is a discrepancy of 60 billion dollars.

When I discovered that discrepancy I went to the Treasury Department. I asked: What do you mean by this? Do you mean that it is 160 billion dollars, or do you mean it is 220 billion dollars?

They said: We believe the gross income for 1929 for the 509,000 corporations out of 2 million business establishments, is 220 billion dollars. I said: As an economist I must know exactly, because this matter of 60 billion dollars for 1 year makes a great difference in figuring out averages.

To make a long story short they tabulated it all over again, and the total was found to be 160,000,000,000.

Now, then, having 160 billion dollars for one fourth of the business establishments of the United States, I asked them the gross income of the people of the United States. Well, they said, we have no such thing. I have been asking for it once a year for 20 years. Each time the Treasury answered: "The Federal Government makes no estimates of national income.”

I will read to you from a letter dated July 20, 1932, addressed to Henry Woodhouse, 280 Madison Avenue, New York City, signed by Assistant Secretary of the Treasury S. Lowman, for the Secretary of the Treasury, and answering my letter of July 20, 1932, in which he states:

The Federal Government makes no estimate of national income. Several private agencies, however, do compile such figures. For your use there is enclosed a photostatic copy of estimates issued by the National Industrial Conference Board for the years 1929 and 1930. I do not know of estimates of any later date.

The photostat shows statistics based on the old theory of national income. The National Industrial Conference Board has been issuing these reports based upon Professor King's theory that the value of products at their source represents national income. That is the only interpretation one can put to it. The figures given are lower for the whole nation than the income of only 3 percent of the population of the United States. They are dangerously misleading. They have led to the mistaken notion that the Federal Budget represents 10 percent of the gross income of the United States, whereas the Budget is only less than 1 percent. It should be made clear that it is not the national income, but only the value of products at their source. Senator GORE. The value of products where?

Mr. WOODHOUSE. At their source.

Senator GORE. All right.

Mr. WOODHOUSE. Of course that is not the money we spend or receive. However, as a publisher I have had occasion to ask scientists to write articles on national income, and they used that theory. I asked one of them: Won't you kindly tell me what the 120 million people of the United States receive each year in the way of income, not what the value of the products at their source are?

Scientists and economists were unable to find out the national income. They confined themselves to the theoretical estimates which give less than one tenth of the national income.

I asked the same question of the Treasury Department again and again. This year the answer that I received was as follows: That the national income

Senator MCADOO. Are you reading from this letter now?

Mr. WOODHOUSE. No. The national income as far as the Treasury Department could go, was represented by the income tax returns of 4,044,327 taxpayers and one fourth of the business establishments of the United States.

Of those taxpayers, representing about 3 percent of the total population, only a certain percentage had taxable income. Therefore, the Treasury had never been able to get even the estimate of the gross income of 3 percent of the population of the United States.

That brought us down to the fact that we could not get on the twentieth year of a study more than 3 percent of the income of the United States, and we could get only 25 percent

Senator MCADOO (interposing). You mean get the income of 3 percent of the population of the United States?

Mr. WOODHOUSE. Yes, that is it.

Senator BARKLEY. Do they represent more than 3 percent of the income earners?

Mr. WOODHOUSE. Well, we will see whether they did. Let us take 1929 as the figures, being the year in which we have all the figures. I believe the committee knows that the Senate Resolution 220 required the Secretary of Commerce to produce the estimates of the national income for 1930 and 1931, and the Secretary of the Treasury asked until December 15, 1933, to make such a report. Therefore, we are not supposed to know the national income until December 15, 1933. We have to make a budget, however, and we have to spend money and borrow money before that. Hence I take the opportunity of giving you the figures derived from a study.

The

I asked how many of the 123 million people had an income. answer was: We do not know. The next question was: How many of the 48 million people who are gainfully employed have an income? The answer was: We do not know.

The next question was: Do we know the gross income of the 4 million who have made income tax returns? And the answer was: No. It never has been tabulated.

And then I asked how do we figure out our gross income? They said: It has not been tabulated. We have never had money enough in the Treasury Department to make a tabulation of 4 million returns. And I happen to have the letters on the subject stating that startling fact to me, and explaining how the Treasury Department figured it out, but it is rather lengthy. I also have a report on the damage caused by the dissemination of wrong figures about national income.

Senator MCADOO. Will you put them in the record?

Mr. WOODHOUSE. I shall be very glad to.

(The matter referred to is as follows:)

Inability to obtain such correct data will defeat the purpose of the act in the worse way possible as it will leave unchecked the export of American capital to foreign countries while restricting investment of American capital in American industries.

Between the two evils, the exportation of the capital to foreign countries after selling securities to the American public, is the worse, since it takes the funds out of the United States.

The American investor who buys American securities and loses has the consolation that his money is contributing in some way to the welfare of the United States through the purchasing power of those who got his money. But he has

no such consolation if his money was sent to foreign countries.

At this point, Mr. Chairman, I hope that the Federal Securities Act will prevent the continuation of the circulation of fraudulent statistics regarding the percentage of the national income derived from foreign countries, from exports.

One of the most depressing and destructing factors, which have kept the United States from recovering and reestablishing prosperity has been that the United States have been flooded with untrue and fraudulent statistics in which it was claimed that 10 percent of the national income of the United States was derived from exports to foreign countries.

As a matter of fact the gross income from exports to foreign countries never was as much as one percent of the gross income of even that small part of the population of the United States that makes income-tax returns.

For instance, the income-tax returns of only 4,044,000 out of the 123,000,000 inhabitants of the United States, and only 509,000 out of about 2,000,000 business establishments of the United States, had in 1929 a gross income of about $600,000,000,000.

Against that we find that the gross exports for the banner year of 1929, including the exports to the Philippines, Hawaii, and the other United States Territories, and the exports of raw products to American factories abroad, and the purchases of Americans abroad amounted to only $5,241,000,000 for all.

That was less than 1 percent of the gross income of the 3 percent of the population and 25 percent of the business establishments that made income-tax reports. It is, therefore, a misleading untruth to state that the national income has been derived from exports in the amount of up to 10 percent. It never was and is not likely to be.

Such mistatements have been designed to make the American public feel that it must invest in foreign securities as a means of getting 10 percent of the national income of the United States.

They have done more damage than that. They have induced the United States to wait to do something definite for the restoration of prosperity until something could be done to restore the 10 percent mythical purchases of foreign countries. A million burglars let loose upon the Nation could not have done as much damage as those misrepresentations did.

Senator BYRNES. May I ask, though, admitting the inability of the Treasury to secure figures as to the gross or the net income, exactly what relevancy has it to this bill, which has for its purpose supervision of traffic in investment securities in interstate commerce?

Mr. WOODHOUSE. It has this relation: That it affords the opportunity for the first time to obtain from that unknown quantity called the private banker the figures each year as to the private banker's operations, the private banker's assets, the private banker's liabilities, and by getting those figures you have valuable information for your purpose which is to protect the investors.

You will find that the private bankers include J. P. Morgan and Kuhn-Loeb, and others, may have assets amounting to over 5 billion dollars. Then, of course, you will find there is much more to be learned in connection with financing of various kinds.

The CHAIRMAN. Isn't that far afield from the purpose of the hearing on this bill?

Mr. WOODHOUSE. It is up to the chairman to decide that.

Senator BYRNES. Mr. Chairman, of course we have quite a difficult task here. If the witness would explain his views as to the bill. first it would be more helpful to us.

Mr. WOODHOUSE. Very well.

Senator STEIWER. I understand the witness is offering these observations as argument on behalf of the bill.

Mr. WOODHOUSE. On behalf of the bill.

Senator GORE. Do you have it written out there, sir?

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