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HiuC/JU 1-CH A' i.cu-i-i
bofore to
A f r i c a n Retail I s deration
vTaohiagtcn, B. C«P Harch 235 1249
Kr. Key, President Jonas* ladles end gentlonsn. I ccn-t ssy that
I t Is a "distinct pleasure1* at this rroremt to bo tors, although I have cnjoyod nysjir very much the past three-euartars or an hour, otfcvsr* I
f o o l that I oa aaoEg friendly people and that you t r i l l o varied: any lack
of preparation on
part, I vrill endeavor to say a few things that nay
ke cf sera intersst to you*
First of
I srdght b'Jgin by giving you a few definitions of
t:rr,3 that you scitotii as run into in the cconcrrlc and gcvarrxsental world.
Most of theco categories that I shall vanticn ore f o r from reej that i s , I
do not clain to bo "any ore of the hind of people that I on going to describe. But these BT& typo a that you night run into at any tira in
Washington, E. C.
A wcoordinatorw i s a nan -who brings organised chaos out cf r e g i ^ntsd confusion.
A "conference" i s a group of rcen who individually can do nothing
but as a group can cast and decide that nothing can bo donee
A "statistician" i s a jo an, who draws a mathematically prscira l i r a
fron an unwarranted assumption to a foregone conclusion.
A "professor" i s a aiaa wliose £ob i t in to t e l l students how to
colra the problera of l i f e , which he hinsolf has tried to avoid by b,scorning
a professor.
An " e f f i c i e n c y enrert" i s a nan who knews less about your business
than you do and gate paid rare f o r t o l l i n g yen how to run i t iV.n ycu could
possibly m.a-23 out of i t evsn i f you ran i t r i g h t instead of the ray to told
you t o .
A ^consultant" i s an ordinary ran who i s a lor.g way from here
An "a canonist" i s a financier without any jsoroy, who has a Phi
Ceta Kappa hey 01: one and c f his watch chain and no watch on the other.
Hot having prenarod anything in particular today, I wen't resort
to s t a t i s t i c s . In f a c t , I have no great predilection for s t a t i s t i c s as
did to youn,^ Harvard graduate who was sent up into a lusher carp — wo111
cay in northern Idchigan, hr. robber — and having be cone addicted to the
use of s t a t i s t i c s and having been placed in charge of this Iu-±er canp3
made a very unusual report after the f i r s t ncnth of operation.
I should say by way of preface that this was an unusual cacrp, and
that i t had SO rren loggers and two wonan cooks.
FOR
A, 1. oaxawsT
.
at the end cf the f i r s t month, his report t o tho personnel
v
^-vision recitod, a f t e r ba had learned only a few days bofors that ore of
to l o b a r s had married one of the cooksx
"Two per cent of the con havs Harrisd 50 per cent of the vro?:on.n
1 think I sight use about f i r a of r.y ?xlnutss, end there iron51 bo
*ary snany aftor that, to t a i l you a l i t t l e b i t about tbs general no tuna of
intorests of the Inderal Eosarva heard, I an afraid too r.'.ny of the
peoples i a
i t e r a t i o n nay f e c i that the ifosarva Board ovists solely to
lifG
fctorablo for tha Federation end f o r i t s individual B&ctars^ end
quito sure that tho stockbrokers — oxeept this isorain^ v;hen fchev f o o l
kindly toward us — have boon fooling f o r sorzt tirr>e past that Y.Y> o x i s t s o l e l y
l i f o aiserabXe for the stock ez&haiigos and tho brokers,
DUT, those two functions (regulation of inobalxant crodit and stock
^a-.'gins) aro tho least important, although thsy aro important, of tha respons i b i l i t i e s of tha Federal Eaearva Board and tho Sygfcsnu As you a l l know* I
saraj our predoMinentt function,! are in tho banking f i e l d / he do r e a l l y
regulate, in lar.ro extent, the banking system of tha country, not ths invsctr:ant banking nyaton but tha co.aun3ro.iai banking eyeten, bscauao tha Tnsnber banks
hf
^©deral F-eserve System, vddlo only about half cf tha t o t a l number of
in tho country/ do include tho banks 'which
about 65 nar cant of
t b 3 deposits of the banking sysUua.
^
£0 that predominantly the banks of the' country era p o w a m of tha
- f d e r o l Keceryo S ^ t o a . i)nd by exsreising a certain decree of control noon
lendir.j ;.etivi>i;/O of the convovcial banks of the country, tro can* in a
frsasnro, sfxoct ths espanaion or contraction of general business..
Over tha pant several years 7.0 have endeavored to restrain tho too
V j P j d expansion c f bank c r e d i t - and i f vre should now be enteric: ; a p e r i o d c f
R e f l a t i o n that i r i g o conr-iderably r?.o.r£» than i t hoe any o v i denca o f /rcir.g
incront, v:o would o:q;aet to reverse those policies and to encourage
father than discourage the expansion of bank credit and borrc-do ~ on the part
bualnosceo end individuals lor various types of spending.
X say
bo cav.ee certainly up to this saossnt, ivhile no have had
p e a r l y sore than a ;:eaeonal ad^uetont downward, there in no j u s t i f i a b l e
-atpli.cation is: the figures that
are headed f o r a severe depression.
h >y said 1 mir^ht coamsnt b r i e f l y on the business s i t u a t i o n as
~
I t . As 1 any, tore i s an ad^e.etont on at the present time• The
-aet that the I!oserves Board has been t i l l i n g , alter quite a long period of
^ i l l l i n g n n o s , to reduce tlie 2;srgins 'on trading on bh3 stoci: sxehae^eo and
a^eo
r aat
&ora
^ato
-within the l a s t noath has relaxed to so~o extent the terms
credit i s certsinly ovicence that there has been a change,
tiicn seaouual^ in the current, l e v e l of business and in tJia
of buoimcs. Jlnd while i t may r e l l be tlxat vre may sse f o r
on Install—
a real change,
nros^ectivo" s
a nc-nth or
Kore, sad perhaps severa' 1 nontbs, a declir-Sr in business, not in the absolute
f-ris-e but as g a i n s t tha ysar prccadinrj, isonth by riont-h, I don't think then*
is any roar.cn to f o o l that 1249 i s going to have any or the srn:i9.rks of 1GS3
0 7 3-240,
I think i t w i l l bo -robby closa to 1947.
That, of courts i s pyra "ipsessrssnt" as they scroti! es cay, but I
1 believe. in view of the other iivoorUnt factors in the situation, what
a r c in f o r a substantial decline such as would turn a l l your black figures
auto rod figures,
- do
v;-3. are do f i n i t e l y in a triors* competitive nitration, %'hero
s o l i n g has r$t to bo the v;atc;~.ord instead of justprocuring, nnd uHre
f e l j e crgiu'si^auion w i l l have. to be kayecl up to to highest state of afflcieney
1 1 the errsaisaticn in quo s tier. 1 s to succeed.
There.are other factors that- T wish to allude t o ;
of a l l ,
-oa vioT^mrent's f i s c a l situation, uhils oor.-s of you may not take nucb stock
the e f f e c t v.:cr. the buairass world of tl<e GomrrrrjrV s budget, re at the
^oard think i t hits a vsxy profound, e f f e c t , V/o don11 coo any c-v-vn^a at a l l
*ha.t tha Cowrr/ant'a f i s c a l policy ttI?.! ba deflationary in" this /--oar of
•pO, X vrould. say tba ends favor the budget being inflationary* v'-/hat is to
the Governrorit r i l l pay out to th?. :Vrsr.tcan public r-.oir than i t takes
back fros them, Co ubat there should bo most l i k e l y an ixiflationary e f f e c t
tho spending habits o f tho A f r i c a n people through the .operation of the
^ovornpjnt's .fiscal policy in tho year 1940,
I don1t
bobs rdsurderstood. X am not saying that tho Government has any .intent:* on of adding to th? inflationary forces, but the Covernrant, you rnv'srs .and, i s not vast thoftdndrdstrati en. Tha Govorrr.ant i n CLUCKS Congress, And i t DOCKS vary l i k e l y to ice that C o n g e s ir5.ll at leant
EQUAL, i i not exceed, the budget estimates prepared by tho Bur a a* J of the
and '-..bat i t t d l l not, or the other hard, provide- any additional taxes,
chancas are that tba budget virill at worst be balanced, and at best,
the standpoint of retail trade, nay to.11 result in sc-so*considerable
^ficit,
That Tjould almost cortainly bo true i f Congress shcul d not/ d~cide,
a corollary of tho Atlantic Pact, to authorise a b i l l i o n or a b i l l i o n and
^ half, cr tv/o biJ.lion, or nhacevar tho firnire nay tura out to b?>, for t1:e
of t1 a cou'r^rio^ nbs have joined -dio Atlantic Pact, Certainly i f
^pat happens, therCi v i l l ba an iax;odiate stiniilus to a l l kinds o.f business in
--is country, but particularly, of course, heavier industry,
5hit tho additicnel pa;/nolls and purchasing pct,ar ciaatod
Vould certainly i*ailoct tbenselves in thy r e t a i l trade.
?raby
i thin!: 1 have talked long enough to give you ^ast r; funeral indicator, of what I see in the picture, I hope you vesit f e e l , tnc."
Vra I;oard
XEBO
'COPY j
kas tahen nor.? ncdest action vrith reference t o these selective controls,
that V9 d i f f e r fun&^-ontally Tdth the position of tin Council of Sconcrdc
Mvisarc, f a r instance, or Fnycr.e else in o f f i c i a l Gorern:x.nt position,
reference to the p o t e n t i a l i t i e s in the situation in 19=19.
I t i c s t i l l e n t i r e l y possible that S3 aighfe get such cm upturn
in the l a t t e r 'part of tha year, particularly i f Congress should enbark on
a- d e f i c i t financing progran, rbich would tarn the spiral s;:ain upward. That
i s 3 t i l l p o s s i b l e h e Clinic the odds have been shifting in the other d i r e c tion, and' whereas CO or SO da73 ago i t looked l i t e a toss-up, in betting •
Icaiguagaj the edds hare besa moving in the other direction.
But the p o t e n t i a l i t i e s are a t i l l there. VTe are s t i l l at a very,
very high arise structure c o l o r e d to the past, and a very, v e i y high l e v e l
of t o t a l a c t i v i t y in tide country, in f a c t , there i s road reason to assuca,
on sober r e i l s c t i c n , that we could not very r a i l hope to freeze the i n ordinately high l e v e l of spending which was r e f l e c t e d in the f i n a l figures
for 194a,
Vo a l l know that we have been through a very inflationary period,
End vra have arrived at a very high price 0tincture, and with a groat deal
of unbalance in the situation. And wa probably would not bo nearly as '.veil
o f f i f "vi3 should endeavor to nche perosnont the l e v e l of the cacne^ywa had
1943 as against going through some healthy readjustment to bring back a
buyor^s navhe't and a c o j e e U t i v s situation with respect to production and
selling,
.T-e unbalances result c h i e f l y , of course., froa the f a c t t: at r e bad
accumulated such enorr.orn cpending pernor during wartine that w i t h r e l e a s e o f
e l l controls in the nostwar period, ao could net leap the ecenory, ca i t s
way up froze. reconversion, from j e t t i n g into an unbalanced situation. By and
l?*rge3 you have the f « m ccranmity o f the country getting from £03 to 250
pep cant 7.-,ore in total ir.cor.3 then before the war. Ion have business in
ths aa^recate enjoying oojanrrjore near 500 per cent greater p r o f i t s a f t e r
taxDs^than before the war• Ton have organised labor keeping up with the
procession end, in core cases, even moving a l i t t l e ahead oi i t with r e f e r once t o the cost of
living.
But, anart from those s c l e n t s of the occncsy, there are a - h o l e
l o t of ether aer ran to of the economy that have ne t topfc pace with the general
rise. And the faoole represented in these groups are the ones who ere being
Priced out o f the nsrhet. And that, I ' think, explains raore than^snythins
oles the slunp that has boon experienced by the coshers of t h i s i 3-oration
throughout the country — a slunp which has gene beyond the usual seasonal
dc-uTiturn.
I think i t i s the unbalrnco rare then anything clss end net the
General l e v a ! of purchasing power that i s responsible f o r the slcra'oisi
that nearly every* c o g e n t of business i s experiencing at this tine.
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!5|p?
I
T
As T said e a r l i e r , 1 don't sysolf hava sny fears c f any severe
depression, and X think -what va are going through I s Ha a ! thy and that thai®
ara forco 8 -which w i l l kosp i t f r c a soinj vary f a r *
I think that i a a l l I have to say at t h i s Una, oxcapt I am vary
Prasad t o bo here., sad I hops f o r tha pleasure at sains otnar tirs•
Thank you ®
I S . J^JTj Governor Clayton has said he vould ba glad to snsv^r
N a t i o n s , hut lo r/sats to l i c i t i t to «ust a few -jdnutos - f i v e rrinutas cr r><
Ana thora cay questions?
fj,
07
PBSSSr Governor, you said " i f "
axe entering a
n.ationary pa ricd» ' t o l l , isa<t the facrt that the rcargin x o q e i m a n t o hava
lovroracl as anti-dsflationary move?
QOVSivtOa CLATTCtl:
h'ay I hava the question again?
r-;^
CF TIE P'F&SS: Ton aaid " i f " vo ars entering a d e f l a tionary ported^ ?/hich you say you don't forssss — a rscsseion or a seyare
^ c a r r i o n . Ian* t tha nove to Icr.ar margin re quirerants an antii-oailaaonary
rnovs?
QOT^VMOh
Tee indaad. TIo adnit that i t i s not vary
% c r t a n t . In cthsr vrords, a great deal or tbs s t e p - that r;a hava had in
retail s ^ o s md in installment credit urould havo happened any;;ay. evsn i f
hadn't ha* tho regulation or i f T,o had l e f t to r e l a t i o n u m a c r a w d .
But to the extant i t ' d o s s hava any e f f e c t to restrain cn ths v\valzx cn the d«m t i d e ,
wanted that s f f s c t to take place aid fccpa that i t
*<111 have COBS stabilising e f f e c t ,
T e - n ' t r?mt to bo misunderstood tors ©sain. T.o didn't hopo cither
ia ths stcrt- - s r ^ t f i e l d or in the iiitftollseat credit f i e l d to pat a stop
at that particular l a v a l to tho decline that rras going cn, but ratner to
c^shion i\vs> €Zt»at and the severity cf the fisclira.
TFS
& TIE ?E£SS:
Ivi, 131:
Than!-: you, s i r .
Xr. Ivatslor?
TTT^TT^j
Governor, there i s ens interesting thing you stated,
sad I have n o t i c e T i t i n so r a a y s t a t i s t s f r o * T f & e t o s t c n .
t o kncv? the reason f o r i t because i t d o e s n ' T SOQII t o ma v e r y
i would l i h e
l a other ^ords, -hon talking ^ c u t the increaE'S of business ecffairsj
ltrB
divorced irca anything o:ccopt it* dollar. But to ^
ahouu
tha
in
i t ' s always tiad to the cost ox l i v i n g i^ids.-:. - o taay
eery buair-ens Earnings hav» cor.o up 100 par cant or 150 per cant and waSeo as
Measured by tha cost of l i v i n g inds^ hare sens up l i r a par csr.t,
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mfiU
I don*1 knew why Washington doeo that.
but i t doesn't Just coon to bo f a i r .
There must be a reason,
COl^HTJOR CIviTfa': tfell, I don't balieTe I can ansv?er f o r what
Washington" coys* I den71 b e l i e s vra subscribe to the vis^r that every
increase that 3c??.'or c^ts i s j u s t i f i e d and ovary increase in p r o f i t s that
bnsir.G33 rots ia not j u s t i f i e d . I think they a l l have the sane j u s t i f i a b l e
asbition of trying to inproue their situation, and I know there are nenjr
<Hfferont theories about"business earnings, 5er.:e that think that high
earnings — not. Irish earnings per so but that tho withheld earnings of
"business hava a profound, e f f e c t on circulation of roney end t o t a l sending
posar of the conruwsr group in tho country. Tliat, of course, i s not quits
the quo s fcicn 700. acteed« I t as-ens to saa you asbsd a que a tic n directed to
tho s t a t i s t i c a l ronorts end tho interpretation of these s t a t i s t i c s put cut
b y'Venhiuf.tcn.
Veil,
I Trcn't quarreler! th you or. that. I think tho re i s
a l o t of interpretation that I cculda1 t agree with.
But I don't know that tho Board has my particular thesis — 1
cortainly haven't beard i t myself — that business p r o f i t s are too high,
although there have been sera people in Ccvemnent in hi^h positions iiho
heTs ascribed to that situation the d i f f i c u l t i e s uo are in today. Sut the
£oard hasn't said ro.
A
/.^R OF 7H5 EStSRSTICNs Governor Clayton, since ttarch 7th end
tho ralease of the 21 months., i s i t too scon yet to t o l l cr have you any
Expression gatharad from your experience of the l a s t throe Tjeeks in word
tl^jR the f i e l d so to whether that has caused another pti-rulus to business?
OOtTKKOR CIATPO'Ji I don't think i t could f a i r l y be said that -so
cm darivs anythir;: fron. the figures in the past several *,oebs. .'a L!r.
Jobber pointed out"during the linclieen, i t i s hard to t o l l hev: such cf the
Peasant doTT.tum resulted f r e e the imposition of Herniation V: last f a l l ,
baoausa you were a;uroaching the clan? period of the year anyaay. I or can
you n.av that tho upturn in re t o i l trade which preeOr.ebly i s taking place
no-* fmd cortainlr should tales place during the next couth i s duo to the
relaxation of He '-ulation >r. X think that i s a Tory, Tory jsiuor factor.
•Out I think i t i s also a l i t t l e too early yet to t e l l either through spotfcaeeking or frcr.\ stable t i e s getherad by tho Ho servo Eanlcs -..hat the of f e e t
of the relaxation, i f any, has boon.
hSYs
John Bylar?
K l , Br,-!!; Mr. Clayton, in the ' 20' 3, at the end of the f i r s t
Ty.orld T/ar, when p r i c e s started down, there was a good deal of i n f l a t i o n i n
C t e o d i t y ' speculation and credit i n f l a t i o n involving carrying
.entorios.
Would you ccaront on the extent to which this credit inflation no-7 edicts
In carrying i n v e n t o r ? 0 a e n d cc.0r.1sdities? In other w o r d s , I s i-hsro rash
credit in Supporting our present inventory picture? I haven't expressed
i t very r o l l .
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G0V5KNQ3 CIAYK&s I thlnh I got yeur point. Tho adjuatinant
in 1020, up w f c i l
was v&ry rapid end w r y ©avers. There in no
doubt in our tallies but that the banking situation In 3.9-20 was very, -very
i ^ l u e n t i a l in bringing aeout a rapid decline in prices through curtailing
th& oxedit that waa supporting in^sntories. But thin fciaa -ne 'haven11 had
®ny Opportunity to bring about any such so adjustment.
I can say cmite frcnLly that rro would have irelcoaed sn opportunity
1947 of exsreiping such restraint that tho price inflation ~e experienced
^ 184V and 1SM3 cc.dd have bsan largely p r i n t e d , because that, of coursa,
supported by a great end rapid increase in the volure cf bank credit,
I c a l t ret into a l l the ratifications of this because i t involves
Government support program, but r.n didn11 have on opportunity, as long
os tre supported the Govemraent bonds, cf putting trie bsifes of the country"
As lorrj as the banks
} in ^ch a position that they bad to root rain credit.
'••^o between 30 aori 65 billion dollars of Government securities in their
Portfolios, they dcns t at any tire have to go to the Federal lb serve Bank
a 3 y, "liay VJO rediscount so;ne oarer in order to keen credit
They
just call up a broker and cay, "Sell a ciillion dollars of our Govern~3at
ccnds.,{ They go ahead an they wish, end the ben king system as a Tshofc can
expand that several tiires over because of our fractional reserves system,
Co, coding basic to your cuestionP the adjustment in I9>t8~49 in
^sventorios end prices has been such sic.ro gradual, must less sev:re, and
likely r i l l continue to be f a r less severe than i t tras in 1920 when the
c ^ d i t si teat ion h.:d such a profound e f f e c t on i t ,
VA* IS Is The Governor says that ia a l l , end m don't Yvenfc to
Press him. xhenke very -much Governor. We hope- you rrill bo 7.1th us again
soon.
T,
'KR. HST«
luncheon session stands adjourned*
3 da rati on w i l l nleare certain f o r a short closed session.
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COPY 1
re cf the
@FedFRASER