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A Condensed Version of The People's Pottage by Garet Garrett. The complete book is available for download at: http://www.mises.org/books/pottage

Condensed by

Dr. Jimmy T. (Gunny) LaBaume

The Revolution Was

The Revolution Was. 1938.

Introduction

There are some who still believe they are holding the fort against a revolution but they are wrong because the revolution is over.

There were some who tried to make sense of the New Deal from the view of all that was implicit about America. They charged it with “contradiction, fallacy, economic ignorance, and general incompetence to govern.” These were outwitted the worst because, in the first place, it was never intended to make sense. And second, it did not begin from anything implicit about America.

It originated from a revolutionary base designed in Europe. And, from the revolutionary view, it made perfectly good sense. Furthermore, revolution has a crucial time (during the actual seizure of power). There are certain steps that have to be taken and in the right sequence. This revolution did not make one mistake.

The New Deal passed this crisis then went on from one problem to another (according to revolutionary technique) to keep people excited (but divided) about one thing at a time while the primary end (power) was being pursued and constantly held in view.

In a revolution, mistakes and failures are not repealed. Instead, they are compounded by longer laws, more decrees and regulations and further extensions of administration.

Every measure the New Deal passed had one result—an increase in executive power.

All the while people were deluded into believing they were talking about the same things because they were using the same words. In reality, those same words represented “opposite and violently hostile ideas. This was the American people's first experience with dialectic according to Marx and Lenin.”

For example: To the New Deal the words, “ the American system of free private enterprise” stood for a province to be conquered. But, to the businessman, those words stood for a world that is in danger and may have to be defended.

You do not defend a world that is already lost. This world was surrendered peacefully and without a struggle as ultimate power passed from the hands of private enterprise to government. No people could have ever been so unconscious of an ongoing revolution. Why should anyone be afraid of government? Revolution (meaning the overthrow of government by force) could not happen here. We had passed a law against it.

Modern revolution is no longer vulgar and barbaric. The ancient demagogic art has advanced into a “science of political dynamics.” The bespectacled scientific revolutionary coldly and impartially considers force as something that may or may not be needed. In fact, he considers it better if it is not. To use it when it is not necessary is wasteful because destruction is not the intention. The more you destroy the less there is to conquer and the one and only end is always the transfer of power.

Americans had access to this revolutionary doctrine in well written books they ought to have read—but what dreary stuff! However, to the revolutionary this same stuff was exciting reading that provided knowledge and gave him a sense of power.

A society founded on material success and individualism would naturally underestimate the intellectual content of the thesis and the quality of the revolutionary mind that was evolving in a disaffected and envious academic world. The revolutionary mind was clothed in academic dignity and, being of superior intelligence, it became fashionable to entertain it.

The scientific revolution involves opportunity. The revolutionary is, first and foremost, an opportunist. Nearly always it is how the few basic ingredients of opportunity are mixed that is important. The one indispensable ingredient is economic distress. If there is enough economic distress, the other ingredients take care of themselves.

For the New Deal, the Great Depression was made to order. And there was a revolutionary elite waiting to take advantage of it. This elite was not identifiable as a party but it belonged, was respectable, and knew the American scene. It was “a prepared revolutionary intelligence in spectacles.” They did not have a plan in the beginning but they had a catchphrase that united them all: "Capitalism is finished." Furthermore, the single idea which could resolve all their differences was the idea of a power transfer by what Aristotle called a revolution within the state and under its existing laws. (Nock terms this a coup d'etat .)

Then, from the view of scientific revolution, the problems were set down in the following sequence:

  • First— to capture the seat of government.
  • Second— to seize economic power.
  • Third— to mobilize the forces of hatred by propaganda.
  • Fourth— to reconcile and attach to the revolution two indispensable classes—the industrial wage earner and the farmer (whose economic interest are usually considered to be antagonistic)
  • Fifth— decide whether to liquidate or shackle business
  • Sixth— to “domesticate individuality” by any means that would make the individual more dependent upon government.
  • Seventh— systematically reduce of all forms of rival authority.
  • Eighth— to sustain popular faith in an unlimited public debt for the revolution must be able to borrow and spend
  • Ninth— to make the government the greatest capitalist and enterpriser so ultimate power would pass from private enterprise to the state.

Each of these have two sides. One represented the revolutionary intention. The other represented “Recovery.” Nearly everything the New Deal did was in the name of Recovery.

There was a choice in each case. But, in every case, the choice could not fail to: (a) ramify the authority and power of the executive to rule by decree; (b) strengthen its hold upon the economy; (c) extend power over the individual; (d) degrade the parliamentary principle; (e) impair independent, Constitutional judicial power; (f) weaken all other powers of private enterprise, private finance, and state and local government; (g) exalt the leader principle.

Every choice the New Deal made was true to totalitarian government although it was never called by that name.

The details of how the New Deal was implemented and worked is the subject matter of the remainder of this book.

Each of the aforementioned nine steps will be individually sumarized in the next nine parts of "The Essence of Liberty" series.

Problem One: To Capture The Seat Of Government

By 1932 political discontent was already running high so it was important that the people not be alarmed. So, force was not an option. The only option was the ballot.

However, the general revolutionary intent—to bring about revolution in the state within the law—was concealed from the people. The people did not get what they thought they were voting for. They voted for less government, not more; for an end to deficit spending, not a dramatic increase; and for sound money, but not as the New Deal defined it later.

The first three planks of the Democratic Party platform specified these three issues in language that could not possibly be misunderstood and Roosevelt supported that platform in no uncertain terms throughout the campaign.

Very few who voted in 1932 could have possibly imagined the extent of government growth that would occur by the middle of the next year. Even fewer would have ever thought that, if such a thing did happen, it would turn out to be permanent.

Few that voted for an end to deficit spending and a balanced budget would believe their ears when they heard the President's second budget message to Congress.

Almost no one who voted for sound, gold standard money could have believed that less than a year later they would hear the President say "We are thus continuing to move toward a managed currency."

“And so the first problem was solved. The seat of government was captured by ballot, according to law.”

Problem Two: To Seize Economic Power

The New Deal knew that, in a highly evolved money economy, the key to economic power was control of money, banking, and credit. With perfect timing, it captured the seat of government in the midst of a banking crisis.

The people were in a mood to accept any sort of pain-reliever. They didn't care about the balance of power between the executive and the legislature. They just wanted something done. They were in the perfect emotional state for revolution and Roosevelt took advantage of it.

The people understood the word “emergency” to mean what the dictionaries said and to refer only to the temporary panic and banking crises. But, it meant something entirely different to the President. A year later, Roosevelt wrote: “…the full meaning of …emergency related to far more than banks; it covered the whole economic and …social structure of the country.” So, what the New Deal really intended to do (within the Constitution if possible) was control the "whole economic and therefore the whole social structure of the country."

Roosevelt's first step was to issue an executive order that suspended all banking activities throughout the country and forbid any dealing in foreign exchange or any transfer of credit to any place abroad.

The second step was an (after the fact) act of Congress saying that it approved the executive order and thereby made it “legal.” Furthermore, this was the act that gave the President the authority to order the people to surrender their gold. (It should be noted that Congress did not write any of these acts. They were sent down from the White House to be passed. This marked the first use of Congress as a “rubber stamp.”)

The third step was a Presidential decree ordering everyone to hand their gold over to the government and accept paper money in exchange. The paper was still gold standard money but there was a small problem. Not a single word was said about a devaluation of the dollar or repudiating the gold standard. In the meantime the Treasury, knowing full well that it was going to devalue the dollar and repudiate the gold redemption clause in its bonds, issued and sold bonds engraved with the promise to pay "in United States gold coin of the present standard of value."

The fourth step was the so-called Inflation Amendment which opened the coffers of the Federal Reserve Bank to the President. It authorized 3 billion dollars of fiat money (Treasury Notes) to be issued by the President, at his discretion, and thereby gave him the discretionary power to devalue the dollar by one-half.

In the fifth step, Congress repudiated the gold redemption clause in all government obligations. The resolution declared government obligations to be payable in any kind of money the government might see fit to use.

The sixth step was a banking act that gave the government the power to arbitrarily cut the commercial banks off from credit with the Federal Reserve Bank.

The seventh step was to create monetary chaos. To explain how that was accomplished takes some effort.

The dollar did not immediately fall when it was cut loose from gold. So, the government began to club it down with gold. Each morning the Treasury announced the price the government would pay for gold in paper dollars. (Incidentally, nobody ever knew how they determined the value.)

A solvent government paying a fictitious price for gold to debase its own paper currency on purpose makes no sense as a monetary policy. But, from a revolutionary stand point, it does. How?

Except for day to day loans, it brought private borrowing and lending to a stand still. No one was willing to lend money for an extended period of time without a way of at least guessing what a dollar would be worth when it was paid back. Why would the New Deal want to do that?

Because it had a train of Federal lending agencies ready to take the place of the private ones. (The Reconstruction Finance Corporation was the locomotive that pulled it.) Wall Street, banks and private lenders of capital were demonized by propaganda for their unwillingness to lend. Thus, government became the provider of credit and capital for all purposes and private debt was converted into public debt.

Government lending had no constraint and nothing to loose—even if the money was never repaid. So, it loaned money on terms with which no private lender could compete. The absence of private lending, in turn, allowed the propaganda machine to claim that the New Deal haters were trying to create a credit famine.

What was the source of this money? Some of it was imaginary—created by inflation. Mostly it belonged to the taxpayer. But some of it, as we shall see, was going to be confiscated.

The eighth step was the confiscation. Only a year earlier, people had exchanged their gold for what they thought were gold backed dollars while being led to believe that it was only for the duration of the emergency. Surprise, surprise! On January 30, 1934 Congress passed a law giving the Federal government absolute title to all that gold. Already having physical possession, it was simple to confiscate it.

The ninth and last step was dollar devaluation. The day after the act of confiscation was passed, the President fixed the value of the dollar at 59% of its former gold content. The 41% difference was government profit. It took the form of a free fund (called a stabilization fund) with which the President could do almost anything he wanted. Ultimately, he used it to take the control of the foreign exchange market out of the hands of international finance.

And amazingly, the Supreme Court ruled that none of this was unconstitutional or illegal.

Thus, problem number two was solved.

Problem Three: To Mobilize By Propaganda The Forces Of Hatred.

The primary objective of the propagandist is to focus hatred upon one object and to make all other objects seem like attributes of that one. Otherwise “the force to be mobilized will dissipate itself in many directions.”

Propaganda is "the manipulation of symbols to control controversial attitudes." And, the purpose of revolutionary propaganda "is to arouse hostile attitudes toward …the established order."

But, in some cases, it is possible that people are so attached to the symbols of the established order that attacking them directly would not get the reaction desired. In such a case the propagandist's must be subtle. Rather than directly attacking the symbols, he might undermine and erode them by using other symbols and/or slogans.

This may sound complex but it is really quite simple. For example, the Constitution is enshrined in the American conscience. Therefore, coming out and directly saying, "Down with the Constitution!" would surely defeat the propagandist purpose. But he can be more subtle by asking, "Who's Constitution?" What Roosevelt did was associate the Constitution with "horse-and-buggy days."

The New Deal's hostility toward capitalism was fundamental for two reasons. First, its philosophy was irreconcilable with capitalism. Second, private capitalism, by its very nature, limits government.

Never-the-less the true symbols of capitalism were deeply imbedded in the American tradition. Therefore, the attack had to come from a flank.

In his first inaugural address Roosevelt said “… restoration lies in the extent to which we apply social values more noble than mere monetary profit" and that approach never changed. The single enemy that could be blamed for all human distress was capitalism, of which the Wall Street banker was the most familiar and the least attractive symbol.

Therefore, capitalism was obliquely symbolized by the money-changer scourged out of the temple. Capitalism was the one enemy that was entirely to blame. However, it was never attacked directly or even named. Instead, it was the “ old order” that became the symbol of human distress and the president told the people, "We cannot go back to the old order."

The true symbols in which people believed were not touched. Instead, the technique was to raise counter symbols against. For example: the symbol of those who would put property rights above human rights was raised against the inviolability of private property. The counter symbol of security was raised against individualism and self-reliance, and so forth.

There were two techniques to create hatred of the profit motive. One was to claim that social values were nobler than monetary profit. The second was to speak only of “great” profits as if there was no such thing as “little” profits or “little” losses. People are envious of large profits which make them very easy to exploit.

Large profit was made into a symbol of social injury. Furthermore, the myth was spread that large profit had long been so regarded and penalized by the government. But this was a false symbol for three reasons: 1) There is no measure of large profit; 2) There are many kinds of large profits and to say that they are "…at the expense of neighbors" is either nonsense or propaganda; and 3) the history is wrong. The fact is that when the government imposed a graduated income tax years earlier, the idea was not that large profits were to be penalized. The idea was to impose taxes according to the ability to pay.

Thus, the New Deal provided the American people's first experience with organized government propaganda designed "to arouse hostile attitudes toward the symbols and practices of the established order."

It was successful in solving problem three.

Problem Four: To Reconcile And Attach To The Revolution The Two Great Classes Whose Adherence Is Indispensable, Namely, The Industrial Wage Earner And The Farmer, Called In Europe Workers And Peasants.

The dilemma for the revolutionary is that the economic interests of the two are antagonistic. If you raise agricultural prices, the wage earner pays more for food. If you raise wages, the farmer pays more for what he buys. The revolutionary must somehow reconcile the two. (Editor's Note: This dilemma does not exist in a free market. The two are actually complementary. Each provides the other with their respective products.)

The American farmer was an individualist and politically aggressive as well. His complaint was that his share of the national income had shrunk due to the world-wide depression in agriculture, the low level of farm prices, and industrial prices that had resulted from tariff protection of industry against world competition.

The trouble for the New Deal was that, if it gave the farmer a large share but left the wage earner's share unchanged, it would lose the support of labor. The solution was farmer subsidies in the form of cash payments out of the public treasury and access to public credit at very low interest rates. In exchange, the farmer agreed to limit his production. The penalty for non- compliance was having the largess from the treasury cut off. These subsidies meant more income for less work and thus were irresistible.

If the New Deal did this for the farmer, it had to do the same or more for labor. But, applying price support subsidies would have served to raise the cost of everything the farmer had to buy. So instead, what the New Deal did for organized labor was to give it an advantage in bargaining with the employer. These labor laws did three things: 1) They delivered a legal monopoly of the labor supply to organized labor; 2) they made unionism compulsory and 3) they allowed unions to practice “intimidation, coercion, and violence with complete immunity.” With these means, organized labor could increase its share of the national income enough to match or exceed the farmer's new advantage. And it proceeded to do exactly that.

At the same time an indirect subsidy was provided to organized labor through Federal expenditures for work relief. The effect was to keep workers out of the labor market where their competition for jobs would have broken the wage structure. In this way, the union monopoly was protected.

Both the farm and the labor subsidies came out of the United States Treasury and the money borrowed was an addition to the public debt. Therefore, one could not say this was a perfect or permanent solution. However, from the point of view of the revolutionary, more important ends were gained. First, it made the Federal government divider of the national income. Second, it made both the farmer and the union worker dependent. Neither would free thereafter.

Problem Five: What To Do With Business—Whether To Liquidate Or Shackle It

Roosevelt's Director of the Budget wrote in the draft of a report that “the government had really no thought of going into competition with private enterprise.” When reviewing the draft, the President lingered over this paragraph and said: "I'm not so sure we ought to say that…(because) Who knows that we shall not want to take over all business?"

This indicates that, at that time, Roosevelt had some doubt about how he was going to "handle" business. The government had already formed several corporations with extremely vague and broad powers as described in their charters. They were similar to private corporations except that their officers all worked for the government and the stock was all owned by the government. The amount of capital stock was small but, under the charters, could be easily expanded to any level. It was never explained what these corporations were for.

In a free economic system, business is autonomous and usually hostile to government power. For that reason, the revolutionary must do something with it. As indicated above, the New Deal may have seriously considered liquidating business. We don't know. We do know that it decided on an alternative—to shackle it.

Only a short time later Roosevelt said to Congress: "In the hands of a people's government this (public) power is wholesome and proper. But in the hands of political puppets, of an economic autocracy, such power would provide shackles for the liberties of the people."

He had (maybe unconsciously) made “a complete statement of his revolutionary intent. It is not a question of law. It is a question of power….Instead of limiting by law the power of what (the New Deal) call(ed) economic autocracy, the government itself …seized the power.”

Problem Six: The Domestication Of The Individual.

The “domestication” of the individual was not a specific problem. Instead, it was the principle upon which the solution to every other problem was based. There was some alternative solution to every problem. But, the course of action decided upon was always the one that would increase the individual's dependence on the Federal government.

Implicit in American thought was the idea that when people support the government they control the government. But, when the government supports the people it will control them. The question was what could be done with a people like that? The only answer was propaganda.

Individualism was attacked by the propaganda machine in three ways: 1) The word “individualism” was always described with the uncouth adjective “rugged” and was made out to be the symbol of hateful human qualities such as greed, selfishness, and disregard for the sufferings of others; 2) It was suggested that the individual had become helpless and could not cope with the current circumstances; and 3) Security was held out to be the great new symbol to replace all the old symbols of individualism.

The New Deal created a plethora of new agencies every one of which was designed to make people dependent. Agencies with that objective in mind were created for the farmer, the landless, union labor, those who sell their labor whether organized or not, the unemployed, the general welfare and to create indirect employment, home owners, bank depositors, investors, the deep rural population, wage and salary earners. No individual life escaped the New Deal's effort to make it dependent.

And this is how paternal government created the American Welfare State.

Problem Seven: To Reduce All Rival Forms Of Authority.

The principal forms of rival authority during this period were Congress, the Supreme Court, the Sovereign States and local Self-Government.

Congress had the power to make law.

The Supreme Court's function was allegedly to interpret the laws when there arose a question about whether or not they were contrary to the supreme law of the land (the Constitution). And only the people could change the constitution.

The President's only job was to execute the laws.

Finally every state had sovereign rights which no state had been willing to surrender to the Federal government.

But all of that was in the beginning.

Roosevelt called a special session to launch the New Deal. For the first time Congress embraced what Garrett called the “leadership principle.” It did not write the New Deal laws. It only received them from the White House and went through the motions of passing them.

Congress surrendered its only absolute power to the President in that special session—the power to control the public purse. From that moment forward, the President (and the agencies he and his predecessors created) have made more law than the Congress. This is referred to as “administrative law” because each new agency has received the authority to issue rules and regulations that have the force of law.

Ever since then, Congress has pursued the power and prestige it surrendered. But the minute it started the pursuit, all the New Deal's propaganda power was turned against it. In every struggle that followed it was skillfully maneuvered into the position of appearing to stand against the people for the wrong reason—if nothing but the pretense of principle. This attack upon Congress was designed to erode the idea of parliamentary government and thereby circumvent the rights of the people.

Roosevelt suffered his first serious defeat during the struggle over the New Deal's attempt to pack the Supreme Court. Congress did not dare pass his court-packing law. However, only two years later, vacancies on the court created by death and retirement allowed him to fill it with New-Deal minded men and thereby capture judicial power.

The sovereign power of states was reduced in four ways:

1) Federal features were imposed on the social security systems of the states and the administration of old-age pensions and unemployment insurance was made a Federal function;

2) Large grants in aid were made available to the states on the condition that they (the states) conform to Federal policies. The state governments were under popular pressure to accept these monies because they looked like something for nothing. So, the states found them very difficult to refuse;

3) The implementation of federal works projects and regional authorities like the Tennessee Valley Authority which demonstrated trivial respect for property rights within the states;

4) The interpretation of the interstate commerce clause was extremely expanded. For example: When the New Deal undertook to regulate labor conditions, it did not pass a law that specified a minimum national wage or maximum number of hours considered to be a day's work. It simply could not do that without tearing up the Constitution. Instead, it passed a law that said only goods that were produced under conditions that conformed to Federal law would be permitted to move in interstate commerce. And it naturally followed that the New Deal courts would stretch the definition of interstate commerce to the extreme.

Evidence of the long term success of the New Deal's reduction of local self-government abounds around us even to this day. There is hardly a problem presented to local officials nowadays which is not directly or indirectly involved with or subject to federal regulation. About all the locals get to decide is where everybody gets to park. Today, under even the smallest of crises, it takes a photo finish to determine which arrives first—a cloud of locusts or a horde of Federal agents.

Problem Eight: To Sustain Popular Faith In A Spiral Increase Of The Public Debt.

The government needed to be able to borrow and spend or else the revolution would be bankrupt. Naturally, it would have been unable to borrow if people who had savings to lend did not have confidence in the public's credit. And this is why the New Deal sold government bonds under the false promise to pay in gold dollars.

For a while, the New Deal kept saying it was going to balance the budget. But this line (aka crock) began to push the limits of credulity when, at the beginning of the second year, the President blandly postponed a balanced budget for two more years.

The second line involved double bookkeeping—two budgets. One was for “ordinary” expenditures. It was balanced. The other involved “extraordinary” expenditures (for recovery) and it was promised to be balanced after recovery had been achieved.

The third line was the “investment state.” This was assertion that government was not only investing its borrowed funds in material things that could be seen everywhere, it also was investing in the health and welfare of the whole people. How could there be any better investment than that?

The fourth line was the doctrine of perpetual unlimited public debt. That is portraying the “national debt” as something we owed only to ourselves. This is an economic fallacy but that is irrelevant. From the view of scientific revolution it was (and still is) perfectly sound. A perpetual and unlimited debt means a progressive redistribution of wealth. Inflation is the most valuable weapon of the revolutionary.

Problem Nine: To Make Government The Great Capitalist And Enterpriser.

Capital formation involves saving something that might have otherwise been consumed. An individual puts a ten dollar bill in the bank and hundreds do likewise thus making a pool of savings. Then thousands of these smaller pools feed larger pools until billions have been saved. This “lake” represents the credit reservoir from which anybody with adequate security can borrow.

This reserve of private capital frustrates a government that is hostile to capitalism and free private enterprise. That is because, as long as the people control their own capital, the government's power of enterprise is limited either by the lack of capital or through competition from private enterprise.

So, government will want to get rid of the lake but not destroy it completely. Instead, it will want to divert the water from the people's lake to one that government controls. When the people's lake dries up, the power of enterprise will have passed to government.

Under the New Deal, government's power of capital formation became greater than that of all American private finance put together. It accomplished this: 1) by taxing payrolls under social security and taking the money to Washington instead of letting the people save it for themselves; 2) by taxing profits and capital gains; 3) by setting up its own financial agencies; 4) through its power to command the country's private bank resources through regulation; and 5) by acquiring absolute ownership of all the gold.

While this power of capital formation was passing to the New Deal government, two ideas were being implanted in the imagination of the people by the propagandists. The first was the idea that we were facing a static, steady state, economy. Naturally, the effect of this was to discourage the spirit of private enterprise. The other idea was that, since the people were saving too much and not making use of their capital, the government had to borrow and spend for them.

Conclusion

And this is how the revolution took place. A government that had been supported (and controlled) by the people became one that supported (and controlled) the people. Most of this revolution is irreversible simply because habits of dependence are much easier to form than to break.

It is true that people have an absolute right to any form of government they choose. However, the primary objection to the New Deal is moral and not political or economic.

Scientific revolution does not distinguish between legal and illegal means. There was a legal and honest way to bring about a revolution, abolish the Constitution and write a new one. However, its words meant no more to the New Deal than did the oath they took to support it.

In other words, Roosevelt's New Deal was an illegal, immoral usurpation of the Constitution. (Editor's Note: That usurpation was not the first. The precedent was set seventy years earlier by Abraham Lincoln. The New Deal simply erased any remnant that might have remained.)

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Copyright ©2004, FlyoverPress.com

Jimmy T. LaBaume, PhD, ChFC is a full professor teaching economics and statistics in the School of Agricultural and Natural Resource Sciences, Sul Ross State University, Alpine, TX. He does not speak for Sul Ross State University. Sul Ross State University does not think for him.

Dr. LaBaume has lived in Mexico and spent extended periods of time in South and Central America as a researcher, consultant and educator.

“Gunny” LaBaume is a decorated veteran of the Vietnam War and Desert Storm. His Marine Corps career spanned some 35 years intermittently from 1962 until 1997 when he refused to re-enlist with less than 2 years to go to a good retirement. In his own words, he “simply got tired of being guilty of treason.”

He is also currently the publisher and managing editor of FlyoverPress.com, a daily e-source of news not seen or heard anywhere on the mainstream media. He can be reached at jlabaume@sulross.edu.

Permission is granted to forward as you wish, circulate among individuals or groups, post on all Internet sites and publish in the print media as long as the article is published in full, including the author's name and contact information and the URL www.flyoverpress.com.

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