we secure uniformity by having them all subject, in the last analysis, to the decisions of the Supreme Court. Mr. BULWINKLE. Mr. Chairman The CHAIRMAN. Mr. Bulwinkle. Mr. BULWINKLE. I was necessarily absent yesterday morning and did not hear your first statement; but do I understand you are in favor of a regulatory body or a supervisory one? Mr. DICKINSON. I am in favor of a regulatory body if the distinction that you have in mind is between a body with power and a body merely with recommendatory functions. I am certainly in favor of a body with power. The difference is entirely as to how the power should be exercised. I recur to the analogy that I drew a moment ago between a supreme court, which sits there with power to come in and bring about a uniform rule when that becomes necessary, as contrasted with having a single court which would undertake to decide all of the cases in the State, in order that you might get a uniform rule. I think that that analogy illustrates the point that I have in mind. Mr. MARLAND. Mr. Chairman The CHAIRMAN. Mr. Marland. Mr. MARLAND. I find the following paragraph in a letter of Secretary Roper, addressed to the President, transmitting the so-called "Roper Report", on the first page of the Secretary's letter, second paragraph, last sentence: Our committee will be glad to cooperate with Senator Fletcher in any way that he may think we can assist in constructing any bill or bills which he may wish to present to the Senate on stock-exchange regulations. I take it that the committee referred to is the committee of which you are chairman? Mr. DICKINSON. That is my understanding; yes, sir. Mr. MARLAND. Has your committee ever been called upon to prepare a bill to regulate stock exchanges? Mr. DICKINSON. No, sir. Mr. MARLAND. Do you believe that the bill before us, if passed, would have a bad effect on commerce, industry, finance, in the United States? Mr. DICKINSON. Well, as I said yesterday, Mr. Marland, I certainly think that it would have a decidedly deflationary effect in the immediate future. Mr. MARLAND. And nothing beside deflation? Mr. DICKINSON. Well, of course, I do not know exactly what you have in mind. Perhaps if you would ask me a more specific question. Mr. MARLAND. I am wondering if it just would not stop the wheels of commerce? Mr. DICKINSON. That, of course, is a very broad question and the wheels may be slowed down without being stopped altogether. Mr. MARLAND. You are not in favor of the passage of this bill as written? Mr. DICKINSON. No, sir. Mr. MARLAND. That is all. Mr. WOLVERTON. Mr. Chairman The CHAIRMAN. Mr. Wolverton. Mr. WOLVERTON. I have this in mind, and if I may express it in my own words, I do so to see if I have correctly understood your position. I understand that the fundamental principle that underlies your opinion, and the conclusions and recommendations of the so-called "Roper Report", or "Dickinson Report", is this-that exchanges should be permitted or required to regulate themselves; but there should be a Federal authority holding the power which in a previous administration would have been referred to as "a big stick. Mr. DICKINSON. Yes; that expresses it very succinctly, Mr. Wolverton. Mr. MAPES. Mr. Chairman The CHAIRMAN. Mr. Mapes. Mr. MAPES. I, too, did not have an opportunity to hear you yesterday. I just want to ask you one question. Have you read the recent book, I think it is called the Twentieth Century Fund report, on regulation of stock exchanges? Mr. DICKINSON. No, sir; I have not. The gentlemen who prepared that book promised to send me a copy, but they never did. A copy was brought to me by Mr. Cohen and Mr. Corcoran when they visited me night before last, but I have not read the book since that time. Mr. MAPES. You are not able to give any criticism of it? Mr. MAPES. A rather hasty reading of the report seemed to me to indicate that it was of the opinion that any worth while regulation of stock exchanges would probably do away with a good deal of the sale of stock that is now carried on for speculative purposes, and perhaps to the advantage of the general public. It shows how the very perfection of the machinery of stock exchanges, the use of the ticker service in reporting sales to all parts of the country the minute they take place on the exchange, and the disposition to put the rosiest aspect upon corporate reports and so on, encourage people to get into the stock market, and to speculate. What is your idea about that? Mr. DICKINSON. So far as concerns that broad question, sir, I think it is certainly true that the establishment of our great machinery, our great credit machinery that we have in this country for drawing all of the savings of the people into a system where they can be made available for the needs of industry, like any other high-power machine carries the possibility of great danger with it, just as the electric dynamo, or system of machines that we have in any great factory, with their wheels and cogs and knives, just as the automobiles on our roads, just as all of those things are fraught with potential dangers that never existed in the days of the water wheel and the horse-drawn vehicle. Now, the system for the gathering in and distribution of credit to the industry of the country, to my mind, is one of the factors which have made possible the great development and growth in the standard of living which has characterized the last century. That has come, in part through making possible the collecton of savings all over the country into larger and larger pools that are interrelated and making possible the distribution of these savings throughout the country where they are needed on a national scale. It also results in part from the element of liquidity that has been brought into the situation; but wherever you have a powerful machine of that kind, as I say, there are dangers there due to the very power of the machine. These dangers consist in the possibility of manipulation at the center and the question simply is whether we are going to guard the machine like our factory machinery, whether we are going to try to stop these abuses which exist and pervert the machine from time to time, or whether on the other hand we are going to adopt what seems to me to be a counsel of despair and say we have built something here that is too powerful for us, so we will just smash it and not use it. Mr. MAPES. Referring to the illustration which you gave of the pool operation some time ago, or earlier in the morning-do you think that a Government regulatory body could get in and act promptly enough to save the situation in an individual case like that? Mr. DICKINSON. I think that it could get in very much more promptly if it sat at the top with the power of supervision over the exchanges than if it was swamped by initial original jurisdiction to operate all over the field of the country at the same time. Mr. MAPES. Do you have any question about the exchanges complying with regulation relative to reports and so on, such as you read from your report if those provisions were expressly written into the law? Mr. DICKINSON. Mr. Mapes, I think that we always will have this situation to face, and there is no need to deceive ourselves with regard to it, that in a period when things are booming, in a period when the speculative desire and the speculative attitude is widespread throughout the country, that those who wish to pour cold water upon the heat and fever of that speculative mania, are frequently visited with public disapproval and that that public disapproval operates upon governmental officials no less than upon private business men and tends to deter them from perhaps putting the brakes on, and I think that it would operate as well if the Federal authority were given such direct and immediate original jurisdictional powers as it is given in this bill, as if it were given powers over the exchanges. I think in other words that if you had occasion to use Federal authority, that that Federal authority would be much more effective to act, and act directly, and as I said yesterday, come down like a ton of bricks on what was going wrong, if it were not overloaded with detailed functions, looking into every individual case. Mr. MAPES. I understand that. I guess I did not make myself clear. I have a theory that if we stated in the law what the reports and balance sheets of corporations should contain in order to be listed on the exchanges, that the great bulk of business men and members of the stock exchanges would comply with that law, and that the exchanges themselves could be trusted to see that the law was enforced. Mr. DICKINSON. Yes, sir; if I understand you, I think that I agree with that perfectly. Mr. MAPES. So that so far as possible, it would seem to be desirable to state in the law what should be done. Mr. DICKINSON. It would seem so to me. Mr. MAPES. We are confronted as a committee with this practical question: It seems to be conceded on all sides that some law ought to be passed regulating stock exchanges, and it also seems to be generally conceded that this bill before us has some provisions in it that ought not to be enacted into law. Now, we have got to figure out in a concrete way what should be. put into the law and what should not be. I wonder if this provision that authorizes the Commission to take away the license of the stock exchanges will mean very much. No commission, in my judgment, is going to say to the New York Stock Exchange, it cannot continue to do business. Mr. DICKINSON. For that reason, Mr. Mapes, in the second line of authority we suggested in our report that without going so far as to take away the license of the stock exchange, the Federal authority, if it felt that there was an evil situation which needed remedy and that it could not go so far as to take away the license, should be given the authority to step into the situation and put all of the members of that exchange under licenses and itself take over, for the time being, the disciplinary functions in connection with that particular exchange. Now, they could do that. Mr. MAPES. The Twentieth Century Fund book discussing margins advances the theory that the loan value of stock ought to be based upon the earnings of the stock rather than upon the price of it. It advanced the idea that that would have a tendency to make the public earning-minded instead of price-minded so far as stock is concerned. It seemed to me that that was a rather good theory. I don't know whether it would work out in practice or not. do you think about that? What Mr. DICKINSON. As a general proposition, I think that individual investor or member of the public is the wiser man who places his valuation on a property in accordance with its earning power; but when you have an entire people valuing a commodity on some other basis, it would be extremely difficult, I think to have a flat regulatory rule which requires that a different basis should be applied from that which was applied by the Nation as a whole. I think that it is unfortunate, perhaps, when the Nation as a whole gets into a psychological state of mind where they apply a different basis for determining value from that which, to my mind, seems to be the basis of the wise man. Mr. MAPES. You think the law could say that the amount loaned on any security should depend upon the earnings of that security over a period of 5 years for example? Mr. DICKINSON. I would hesitate to say that. Mr. MAPES. Rather than at the price of the security? Mr. DICKINSON. I would hesitate, sir, to say that I thought a regulatory provision of that kind would be sound unless I had sat down and attempted to frame the definite specific language in which such a provision could be expressed without possibly doing a great deal more harm than good and I have not made that attempt. I would regard it as a very difficult task. Mr. MAPES. Even though you have not read the book, perhaps you tell us about this Twentieth Century Fund. I am not familiar with it. Mr. DICKINSON. Well, the Twentieth Century Fund, sir, is one of these foundations to which contributions are made in an eleemosynary way for the purpose of conducting research. There are quite a number of them at present operating in the country. There is the Laura Spellman Rockefeller Foundation, which contributes funds for writing books to authors who are regarded as worthy and who have some project that meets with the approval of the directors of the fund, and there is the Commonwealth Fund, which represents a similar venture and which is largely maintained by Mr. Harkness, the great benefactor of the Yale University, and then there is this Twentieth Century Fund, which I believe is largely maintained by Mr. Filene, of Boston. I know about these funds, because I have something to do with some of them. These funds are usually administered by a group of disinterested trustees who employ a director of research and projects for investigation and are submitted to the director of research, who takes the projects up with the trustees of the fund and if they regard it as a worthy one they make a contribution for the conduct of the research. Mr. MAPES. Do you happen to know who some of the directors of the fund are? Mr. DICKINSON. I know some of them. I think that Mr. Baker, Mr. Newton D. Baker, is one of the trustees of this fund, and I think Mr. Filene himself is, and I think my friend, Col. John Fahey, who is now with the Home Loan Board, is one of the trustees of the fund. Of course, the character of the investigation, if I may say so, depends primarily not upon the trustees of the fund, but upon the director of research. That is to say, the man who actually supervises the work of research and prepares the report and that, in this case, I believe is Mr. Evans Clark. Mr. WOLVERTON. I would say, in answer to the question of Mr. Mapes, that I have a copy of the Twentieth Century Fund report and that gives a list of directors as Edward Filene, president; Newton D. Baker, Henry Dennison, John Fahey, James K. King, Roscoe Pound, Owen D. Young, and Evans Clark, director. Mr. DICKINSON. Yes, sir; but as I suggested to Mr. Mapes, that does not necessarily mean that all those have read the book. Mr. MAPES. Can you go a little further and tell us who Mr. Clark is? Mr. DICKINSON. I do not know Mr. Clark, personally. I knew of him 20 years ago when he was an instructor at Princeton University. He has been the director of this Foundation for quite a number of years. Mr. MALONEY, of Connecticut. Mr. Chairman The CHAIRMAN. Mr. Maloney. Mr. MALONEY of Connecticut. I want to ask a question Mr. Secretary but first I will make an observation if I may. Mr. Marland asked you if you thought this bill, as it is written, would stop the wheels of trade and commerce and you answered, in part, by saying that you thought that it might slow up the wheels of trade. Several witnesses, testifying as investment bankers from smaller cities, have made special reference to section 10, and the witness who just preceded you this morning, Mr. McKeon, suggested that the enactment of that section as it is might, or probably would, force the investment banks out of business, and would result in the establishment of small branches of large brokerage houses in these various cities. I agree with that testimony because I have a slight knowledge of the service rendered by these companies to municipalities, and to the people throughout the States, and I am wondering if you agree with me. |