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The Papers of Eugene Meyer(mss52019)
121_11_001-

Subject File, Federal Reserve System, Board of Governors, 1940-51

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BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

tfti
All

WASHINGTON

1
OFFICE OF THE CHAIRMAN

*
.:1?-'04szan.

December 19, 1940.

Dear Mr. Meyer:
It was my misfortune not to have an
opportunity to lunch with you when you were here,
but I do not have to explain to you the diffi—
culties of getting detached from the machinery of
this office.
What I had in mind was that I had re—
marked yesterday that I hoped you would feel at
liberty to come over to luncheon whenever you
wished to do so. I gather from Elliott Thurston
that you took this as a gesture rather than a
definite invitation. Hence, I wanted to send you
this note to make it formal, factual and binding
that we would be happy to see you at luncheon when—
ever it suits your convenience.

Mr. Eugene Meyer, Publisher,
The Washington Post,
Washington, D. C.

December 21, 1940.

Honorable tiarriner S. Ylocles,
Board of Governors of the
Federal Reserve Systel,
Washington, D. C.
rly dear Yr. Booles:
Thank you for your letter of the nineteenth and your friendly invitatIon which, I undersend, permics me to beam, a signing, member of
your luneheon room.
appreciate this courtesy and I will not
fail to avail Ayself of tile invitation.
'frith best witalea to you and Hrs. Eccles
mad the family for a Merry C1rist...1E4z and a Happy
Net Tear* I remain
Sincerely yours,

DEC 14 1944

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON 25

OFFICE OF THE CHAIRMAN

December

13, 1944.

Dear Mr. Meyer:
The editorial in this morning's Post, entitled
"Not of this World", commenting on resolutions of the
National Association of Manufacturers is so excellent
that I could not refrain from sending you this note of
warm approval.
I was so disheartened by these resolutions that
I read several of them at a meeting of the Board with the
presidents of the Federal Reserve Banks to emphasize how
much educational work needs yet to be done to bring about
a better appreciation of present day realities. I wish I
had had your editorial at that meeting because the matter,
in my opinion, could not be better stated.
Sincerely yours,

Mr. Eugene Meyer,
Editor and Publisher,
The Washington Post,
Washington, D. C.

This document is protected by copyright and has been removed.

Author(s):
Article Title:

Not of this World

Journal Title:

Washington Post

Volume Number:
Date:
Page Numbers:

Issue Number:
December 13, 1944

Sentember 74, 1946

My dear Mr. Szymczak:
I just received your letter of the 18th.
looks as thou7h you

tivina, a very interestincr time

and I am uure it will bc,come more so as you s-et intn
the work.
I EIM

enclosinz clipping of an article written

by the Editor of the Waehington Post, Herbert Elliston,
who was abroad very recently with my son-in-law, Philin
L. Graham.

They had nn interesting visit with GenerPa

Cly and u-)ent some time in Frankfurt, Hamburg and other
Germ,'n areas, as well as Vienna and Trieste, and als0
vent considerable time with our -)eor)le in PRris.
With kind rerrards, I rem-ln,
Sincerely yours,

Eugene Meyer

Hon. M. S. Szymczak,
Chief, Trade and Commerce Branch,
Office of Military Government for Germany,
Economics Division,
Trade & Commerce Branch,
APO 742,
Postmaster, New York, N. Y.
En:cf7

•

SEP 24

OFFICE OF MILITARY GOV3RIT 71.7,NT FOR GERMANY (U.S.)
Economics Division
Trade & Commerce Branch
APO 742
RECO
18 September 1946

14% Eugene Meyer
c/o '2fashington Post
Washington, D. C.

Dear Ir. L-eyer:
I arrived here August 31st and have been busy since trying to get
oriented. Military Government procedure is something one has to learn
and follow. It is a bit-, difficult because of what appears to be unnecessary delay but I am applying myself to what is known as "operating
thru channels".
I have had one session with General Clay and have met many others
in 0:1GUS here in Berlin. I have just returned from a tour of the U.S.
Zone where I saw our Trade and Commerce people at Frankfurt, Wiesbaden,
Stuttgart and Munich. It happened that my stop over in Stuttgart coincided
with the day of Byrnes' speech, and it was interesting to hear him in
person.
I attended an excellent exhibition of export goods in Stuttgart and
Munich. The exhibitions are quite'inspiring, and now all we need are
imports of certain raw materials such as coal, steel, iron etc. in order
to export. There are other bottlenecks, of course, such as the Trading
with the Enemy Act, lack of exchange rate, etc. So far we, are exporting raw materials such as lumber and hops. What we should be doing is
conserving the raw materials for use in production.
I have just returned from a meeting with the Dutch at The Hague.
In spite of all the obstAeles the i b is interestincr and challenqinR.
I like it and will stay with it.
With kindest personal regards,

Sin erely,

•
Jivilian
Chief Trade an

o:amerce '3ranch

NOV 6

NECD

OFFICE OF MILITARY GOVERNMENT FOR GERMANY (U. S.)
Economics Division
APO 742
29 October 1946

Lear mr. ivieyer:
Thank you for your letter of 6eptember 24 and for the
interesting clipping you enclosed.
I am sure Lr. zlliston and your son-in-law had an
interesting and fruitful visit with General Clay when they were
in .c.urope. I can say only the best things about General Clay.
he is a wonderful man, an able and devoted public servant. Both
he and General Iraper, who is also one of the best, inspire me
with the work they do an the way in which they do it.
4is 1 wrote you earlier, I have been making trips to
other countries and am quite busy here on the Berlin "front"
as well.
Our organization is relatively small with only about
60 people in the Branch, but the amount of work to be done is
without limit, however, the devotion and sincerity of all the
Lilitary Government people here is truly a great inspiration!
If only our people at home knew they would be ever grateful.
Our appropriations are very small and they have been
regularly reduced by Congress. The appropriations are intended
to proviae merely the bare necessities for a minimum standard of
living to prevent disease and unrest. Therefore, additional funds
are required, aad these funds are obtained by such exports as are
possible from which we obtaili aollars to use either for further
imports of materials and supplies to produce gooas for further exports,
or to provide the bare necessities of life to prevent disease and
unrest. rke have now about 5=„. million dollars in the funds obtained
from exports and we have sold about .;4 million dollars worth of exports consisting mainly of lumber, potash, salt, hops, and goods
that were on the shelves at the time of the Gernan collapse, as well
as goods manufactured from stocks in existence at the time of the
German defeat. Now we must obtain other raw materials and supplies
for purposes of manufacture of further goods in order to increase
the exports from the Imerican hone. This is a problem!
In addition to the above, I hetve been busily engaged on
price control, rationing, and such interzonal trade as possible.
however, in interzonal trade and price control we merely decide on
policies, and the Germans through the 1,anderrat (the German Government) administer the policies. The other military Governments
co not pursue the same procedure. Our policy is to leave as much
as possible for the Germans to do in order that they may become
fully aware of their responsibilities as individuals and thus follow the democratic principles which we hope they will one day learn
to do.

Aeguiarly every Saturday morning General Clay has a staff
meeting attended by the heads of the divisions and heads of some of
the more important branches of the American Jkilitary Government. This
is usually the most important meeting of the week. Once every ten days
I attend a .guadripartite meeting of Trade and Commerce. This is attended by representatives of all four occupying forces in Trade and
Commerce. lach month the chairman rotates so that in four months
each of the four chiefs of Trade and Commerce has had a chance to
serve as chairman at the q,uadripartite meetings. I become chairman
in Lecember. General policies on Trade and Commerce (export-import,
price control, rationing, and interzonal trade) are discussed and
adopted, and referred to a higher level for further consideration and
action. .6very 1,ednesday morning at 8:30 a.m. we have a staff meeting
of the Lconomic Livision. General Lraper presides, and all of the
branch chiefs of the Livision attend.
I think 1 mentioned to you my trip to The hague. After
returning from that trip, I met with a jIkliSS trade delegation for
several days arranging a program of trade relations. This was a
very successful meeting. The 3wiss, as you know, have dollar exchange.
Following this, I left for i)Anden, Germany, which will be
the headquarters for the ,conomic
.
Livision of the British and American occupying forces in the bizonal arrangement. Spent one day in
conferences with the British and the German representatives. Soon
most of my export-import organization will have its quarters at
i..inden, and here in Berlin we shall have just a small policy group
in Trade and Commerce. iinaen is in the British Lane, but both American and British Zones will be considered one area of Germany. It
seems to me that soon the French will join this area and I hope that
eventually the Soviet will do the same. have been attending many
bizonal meetings in Berlin, making arrangements on details, etc.
Upon my return to Berlin from . Jinden, I was busy for five
or six days with the ashihgtou delegation, including Assistant
,Decretary of ;Lai-i Petersen, George Allen of AFC, DeVitt 3chieck of
U.6.C.C., regarding arrangements for financing necessary imports
e have finally arrived at a concluto produce goods for export.
sion which provides for advances for necessary imports of raw
materials and supplies required to produce goods for export. The
contract is now being signed.
The ashington delegation had scarcely left when General
H
Colonel
- ester of Food and Agriculture, and I left for
- raper,
L
There we had several days of meetings on
Czechoslovakia.
Prague,
trade and commerce with the Czechoslovakian delegation. Lists were exchanged, purchases of coal, Kaolin, clay, seed potatoes, etc., were
returned from
made and other arrangements were provided for.
Prague Sunday night, the 20th.
This is all somewhat wearing on the constitution so 1
few days off to rest ana to get caught up with my rea
taking
au
--which has been sadly neglected--as the doctor
reading
quired
ordered me home 6ednesday last week to bed.

I hope that all is going well with you at
the international
liank. I'm always glad to hear the news
from the States and hope you
get a chance to write now and then.
14.indest personal regards.
Cordially yours,

I. S.
Vzs
Chief, i de and
Commerce Branch.
mentioned above, we have much need for more personnel in
our
Branch to handle the work load. This is particularly true
of Exportimport Section where we need,badlyiexperienced foreign trade
men. I
have been assured by General Draper that we shall be able to
increase
tI: professional personnel in the .Lxport-Import
Section by 23, and I
wonder if you have any suggestions of experienced men in the
foreign
trade field. 'ilany of the people we have are wng to work but
have
had very little practical experience before arriving here. Bob
Trier,
my chief deputy, will be going to the states in iCovember to help
recruit foreign trade men, and if you in a position to put us in touch
with some good prospects with this experience it would be a great help
to us. 2erhaps you will let me hear fram you on this subject at an
early date.

kr. iLugene
International Bank for Aeconstruction
and Development,
Iroashington, L. C.

November q, 1946

My dear Mr. Szymczak:
Thank you for your interesting letter of October
29.

I note narticularly your reauest for recommendations

of foreign trade men.
I confess that, being in imashington for about the
last 30 yenTs, my contact with these men hns been cut off.
1 suggest that you might get in touch with either the Foreign
and Domestic Commerce Division of the Department of Commerce,
the U. S. Chamber of Commerce or the ForeiFn Trade Council
with resnect to the kind of )eDole you might be interested in
getting.

There used to be something called the American

Manufcturers Export Association but I do not know whether it
still exists or how good it is.
A man I happened to see last week, Robert Patchin
of W. R. Grace & Co., New York City, might be

ak.n whom you

would wish to consult about Ipeople or about advice to whom
to anDly to get oeoole.
cordif.731 regards and best wishes, I remain,

Sincerely yours,

Eugene Meyer

Honorable M. S. Szymczak,
Chief, Trade and Commerce Branch,
Economics Division,
Office of Military Government for Germnny,
APO 742, c/o Postmaster,
New York, N. Y.

OFFICE OF MILITARY GOVERNMENT FOR GERMANY (U. S.)
Economics Division
APO 742

20 November P46

VM, 2S REM)

Lear Lr. 1,,eyer:
Thank you for yuur letter of november 9.
I appreciate having the naue of Lr. liobert
Patchin of W.
Grace ac, Co., new York, as a person
with whom we might consult for suggestions in our recruiting program. I au asking ir. Trier to get in touch with
him when he is in New York interviewing foreign trade men.
I am also giving ib,r. Trier a letter of introduction to you
with the idea that you may have thought of others since
you wrote me.
ii.indest personal regards.
Cordially yours,

j(7
L. S. Sz•
Chief,
and
Commer
B anch

1.Igerie 1-eyer, .ereident,
International Dank for econstruction
aua 1,evelopment,
,.ashinEton 6, L. C.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

July 201 1048

Dear Mr. McCabe:
Many thanks for the photograph you
were good enough to send me.

From this I

see that your clothes fit you as well, I hope
and believe, as you may fit your job.
With kind regards, I remain,
Sincerely yours,

Eugene Meyer

Honorable Thomas B. McCabe, Chairman,
Federal Reserve System,
Federal Reserve Building,
Washington 25, D. C.

August 11, 1948

Dear Mr. Morrill:
Thank you for your letter of the
10th.

I have a copy of the Act of March 3,

1919 in my files.
Accept my thanks for your kindness
and help.
Sincerely yours,

Eugene Meyer

Mr. Chester Morrill,
Board of Governors,
Federal Reserve System,
Washington 25, D. C.

AUG

BOARD OF GOVERNORS
OF THE

,.4trstrrti}*
*4 CO GOV

4..tt,

FEDERAL RESERVE SYSTEM

14
:
*

WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

*
**
4tRiLWO$
att0411.**

August 10, 1948,

Mr. Eugene Meyer,
0/0 The Washington Post,
Washington, D. C.
Dear Mr. Meyer:
I am pleased to be able to answer the question which you
asked over the 'phone this afternoon. There was no amendment of the
portion of the law under which the Capital Issues Committee was
created.
The law creating this Committee was Title II of the Act of
April 5, 1918 which in Title I also created the War Finance Corporation. The Capital Issues Committee was authorized to investigate,
pass upon, and determine whether it was compatible with the national
interest that there should be sold or offered for sale or for subscription any issue or any part of any issue of securities issued by
any person, firm, corporation or association, the total or aggregate
par or face value of which issue and any other securities issued by
the same person, firm, corporation or association since the passage
of this Act was in excess of $100,000. There were certain limitations
in the law upon the extent of this authority. The Committee was composed of 7 members appointed by the President of the United States and
confirmed by the Senate, and it was required that at least three of the
members be members of the Federal Reserve Board. The President named
from the Federal Reserve Board Messrs Charles S. Hamlin, Mr. John Skelton
Williams and Mr. Frederick A. Delano and, in addition, Messrs. James B.
Brown of Louisville, Kentucky, John S. Drum of San Francisco, California,
Frederick H. Goff of Cleveland, Ohio, and Henry C. Flower of Kansas City,
Missouri. This Committee superseded a Capital Issues Committee which had
previously been established by the Federal Reserve Board. It continued
in existence until the end of 1918 when its work was voluntarily suspended
by the Committee. While the Committee was not actually dissolved at that
time and remained inactive, the President, by proclamation dated August
30, 1919, terminated the authority and later it was formally suspended by
Joint Resolution of Congress approved March 3, 1921.
The history of the Committee is contained in various pages of
the Federal Reserve Bulletin for 1918 and 1919.

BOARD

Mr. Eugene Meyer

GOVERNORS

OF THE FEDERAL RESERVE SYSTEM

-2-

Apropos of your comment upon the selective credit control
character of this law, it might be in order to mention that in the
announcement by the Committee of the suspension of its work, the
statement was made that in the opinion of the Committee the sale of
worthless and fraudulent securities should be restrained in times of
peace as well as in war, and the Committee strongly urged that Congress establish adequate machinery to put a stop to this traffic. At
the same time, Secretary Glass also issued a statement expressing
substantially the same opinion and recommendation.

Very truly yours,

tr,ea-ju rOwt;i2p
Chester Morrill,
Special Adviser.

BOARD OF GOVERNCIRS
OF THE

FEDERAL RESERVE SYSTEM
WASH INGTON 25, D. C.
ADORES'SOFFICIAL CORRESPONDENCE

TO THE BOARD

r•tio4,4.**

September 12, 1946

Yr. Floyd Harrison,
International Bank for Reconstruction,
Roaa 1023,
1818 H Street
Ylashington, D.C.
Dear Mr. Harrison:
In response to your request to 17r. Yorrill
I um sending you as a loan fram our Library the following
publications:
(1) Afreement reffardinc the distribution
of the Dawes annuities (Dawes 91an)
(2) American Bankers Association
The Young plan...with a comparson
with the Dawes plan.
I hope that these documents will answer your
question.
Very truly yours,

atcAt-uAlvern H. Sutherland
Librarian

ca(vA,A,JA (5w)ilLet

c,13"

October 21, 1047

Dear nr. Szymezak:
Thank you for sending r:Ae your :ipeech
on 'Our Current Inflation and Monetary Problems".
I shall read it with £reat pleasure.
It was a pleasure to hear you state
the problenL so clearly. The sane embattaosment arose, as you probably well know, after
the last war with oblications of the Treasury
Your oblicat!ons
in the discount market.
and involvenents w!th t;le Treasury ce much
greater and much more embarrass/tic now.
With kind records, I rennin,
,TInceroly yours,

ucLne :loyer

Mr. 1;1'. S. Szymczak,
Eoard of Governors,
Federal Reserve System,
Fer7e:al Reserve Bulldinc,
Washington, n. C.

OUR CURRENT INFLATION AND MONETARY PROBLP,M

M. S. SZYMCZAK

Member
Board of Governors of the Federal Reserve System
Washington, D. C.

Delivered before
Fall Meeting
District of Columbia Bankers Association
8:00 P. M. - October 20, 1947
Mayflower Hotel

FOR RELEASE AT TIME OF DELIVERY

OUR CURRENT INFLATION AND MONETARY PROBLE4

With little pause after fighting and winning the most costly war
in history, we are now facing a crucial battle against inflation. This
is not altogether surprising. It was necessary for us to create a huge
amount of money in order to finance the war and at the same time to restrict the availability of goods and services for which the public would
customarily use additional money. To complicate our domestic problem
there is the necessity of helping to restore the productive capacity of
countries whose populationsand resources have been ravished by war.
My remarks to you this evening are addressed primarily to the
domestic phases of our inflation problem. Some weeks ago, in a paper
that I shall be glad to make available to you, I reviewed the international phases of this problem with particular reference to Germany, a defeated
enemy country. Here it is sufficient to say that the present economic
difficulties of European democracy are inextricably entangled with our
own problem. It would be foolhardy to deny that aiding in their reconstruction will amplify our awn inflationary curve, but it would be equally foolhardy to assume that we can put our own house in order while large
areas of the world are in chaos.
Without our own volition, we have been catapulted into a position of world leadership, and in the interest of our own staoility and
welfare, we must assume the responsibilities of this leadership. The
greatest single antidote for inflation is increased production. Our own
productive capacity is already running at full speed and the largest immediate reservoir of unused productive resources is in Europe. The answer
to this part of our problem is clearcut. I know you will concur in my
belief that we are Qualified to take the measure of this problem and, in
cooperation with other nations, to find constructive ways of helping devastated European countries to help themselves.
This Ilydra-headed,problem of inflation cannot be mastered for
all time by any single device or any single approach. But with a proper
combination of effective policies we have reason to hope that we still
can establish a lasting prosperity at home and contribute to enduring
peace in the world.
We have been a little tardy in lining up our forces against inflation. Weary of the disciplines of war, we have been prone to rest on
our oars and drift with the current. Inequities have already been worked
on the recipients of fixed incomes by the arbitrary transfer of part of
their purchasing power to classes benefiting immediately from rising
prices. This process must be stopped if we are to avoid the cataclysmic
consequences of a run-a-way inflation.
Extent of price inflation
During wartime, price and other controls kept our own inflationary forces under check, if not under complete restraint. It was not until
after the lapse of these controls in the early summer of 1946 that inflation carried many commodity prices to new high levels. Essentially
temporary shortages in supply have contributed greRtly to successive spurts
in the prices of many goods. The rising cost of living has necessitated
widespread wage and salary adjustments that have raised production costs
and justified many price increases. In many instances, however, price ad-

vances have exceeded increased costs and have helped to gellertte record
profits.* The combination of these factors has entangled the econopy in
what appears to be an irresistible upward spiral of wages, costs, and
prices.
Let us compare some of our current prices with those prevailing
before the war. Corn before the war was selling at 45 cents per bushel,
now it is $2.45. Hog prices were $6.75 per hundredweight, now they are
$29.50. Cotton was 9 cents a pound and is now 32 cents. Lend prices were
5 cents a pound and now they are 15 cents. Southern pine lumber prices
were ;'?22 per thousand and now they are 180.
These are only examples of important primary commodities that
have risen from 200 to 400 per cent since prewar days. In general, advances in prices of primary commodities have been much greater since the
outbreak of war in 1939 than they were between 1914 and the peak of the
postwar inflationary period in 1920.
The average level of all wholesale prices, including primary
commodities as well as manufactured goods, is now 110 per cent above the
prewar level and the retail prices of many goods have risen by almost the
same proportion. Retail food prices have advanced by more than 100 per
cent and clothing and housefurnishinge are up 85 to 100 per cent. With
rents up only 10 per cent, the rise in cost of living shown by the consumers' price index is about 65 per cent.
Prices were already high during the war and th early postwar
period. When price controls were dropped last year, prices rose considerably further. Since June 1946 the average level of wholesale prices
has risen 40 per cant and the cost of living 22 per cent. This spring
prices showed signs of downward readjustment, but domestic and foreign
developments since that time have resulted in another sharp upswing.
Inflati,pn .pr9blems
Our sharply inflated price levels are unstable elements in the
nation's economic position and the higher prices rise, the more unstable
they become. This is because disparities among prices develop with inflation and become greeter and greater as inflation proceeds. Thus inflation begets inflation and in the process produces economic dislocations
an0 distortions that bear the seed of ultimate collapse and widespread
unemployment.
Let us consider some of the critical tensions that attend
current inflationary developments.
Prices are becoming more aeld more dependent on buyers' demands, which in turn are dependent on other inflated prices. Inequities
and discontent are multiplying. Consumption in some directions is being
curtailed because the rise in prices is great:r than the expansion in
incomes. Price increases are making the problem of financing foregn rid
and recovery particularly difficult. Foreign countries with limited dollar
resources are finding the loss of purchasing power of these dollars a
serious handicap.
While organized labor has been able to obtain wage increases
to cover a part of the increase in living costs, the majority of con*Cotton textile manufacturers, paper mill's, lumber producers, automobile
dealers and wheat farmers, to cite a few examples, are m!!:ing several
times
the profit returns of prewar years.

•

-3sumers have been in a less favorable position. Consumers with relatively
fixed incomes, especially those in the low income groups, are being forced
to curtail their eurchases of goods, to reduce current saving, and to
draw heavily on accumulated savings. In short, they are fighting a losing
battle against the cost of living.
It is important to recognize that the present upward price
spiral reflects in part essentially transitory developments. These include the persistence of wartime disruptions in production and trade,
deferred private demands for investment and consumption, a rapid expansion
in credit extended by private organizations to business and consumers, and
unusually large Government expenditures for military purposes and foreign
aid. Undoubtedly, too, the upward surge of prices is being pressed by
speculative forces, but the extent of this speculation will only become
evident after the cumulative force of these special transitory factors has
been spent.
The higher prices rise in an inflation, the. more widespread
and severe the subsequent readjustments are likely to be. Inevitable readjustments will affect not only prices, but production, incomes, and
employment as well. The uneven character of demand, together with the
special and in part temporary character of supply, has already brought
striking readjustments in price relationships.
The higher production costs generated by inflation are becoming imbedded in the price structure, This development foreshadows an
eventual price level substantially higher than that prevailing before the
war. Since inflations tend ultimately to end in collapse and deflation,
it is probable that the price level established when the liquidation of
inflation is complete will be sharply below peaks reached in the present
upwerd spiral of prices.
Breaking the inflation circle
Clearly, a primary factor in the postwar price inflation is
the increase of 160 billion dollars in money and other liquid assets
which occurred during the period of the war. This huge accumulation of
money and liquid assets was the direct result of Government borrowing to
finance war. It was essential to winning the war;
At the war's end these monetary assets represented an enormous
bacKlog of deferred demand for goods of all typos, but particularly durable
goods. As a consequence, demand at current prices was far in excess of
any supplies of goods that were available or could be quickly made available. The result, when wartime controls were removed, was a sharp rise in
prices and the spiral of inflation that is still going on. The sooner
this spiral is broken, the better off our people and our economy will be.
Also, the nearer at hand will be 'the goal of sustained high levels of
production and employment.
Today, the country's aggregate stock of money and other liquid
assets exceeds 225 billion dollars, an amount about equal to the total
national product. Prior to the war, aggregate liquid assets approximated
only 65 billion dollars, or nearly one-third less than total product.
Since redundancy of money and liquid assets is a primary factor in the
present inflationary spiral, attack on this strategic factor is an essential requirement for breaking the circle of rising prices. The difficulty confronting any such attack, however, is that the existing supply of
money and liquid assets is based on public debt issued to finance war.
We can only reduce the volume of Federal debt by having a
budget surplus. With a Government debt of 260 billion dollars, it is

- 4clear that a surplus in any one year will not greatly :'educe the total.
For the current fiscal year, the President has recently estimated that we
may have a budget surplus of 5 billion dollars that will be available for
debt retirement. With the further rise in national income that we have
been experiencing, the available surplus may exceed the President's estimate. But the new budget assumed no reduction in taxes. It also assumed
no increase in Government expenditures, such as may be necessary to fulfill the nation's international obligations under the proposed program for
European relief and recovery. Thus, the amount available for debt retirement this fiscal year may actually be less than currently seems possible.
Reduction in public debt through retirement from budget surpluses will be a slow precess at bast. Not every year will budget conditions be so favorable as this year. But it is urgent that we use debt
retirement whenever possible and that we continuo to do so while we are
confronted by acute inflationary dangers. In the present situation, this
means, of course, that moderation should be the rule to govern any immediate adjustments in our tax structure.
The problem of restraining further bank credit expansion
Six months ago it appeared that postwar expansion in the money
supply had been effectively brought under control and that our answer to
the inflation problem was to increase production to a level consistent
with the existing volume of money. Since business was already operating
near full capacity, however, expansion of output appeared to be e timeconsuming process. Some price rise, therefore, was a method of facilitating and shortening the adjustment period and could be viewed without
alarm.
We attained this leveling off in monetary expansion by using
large accumulated balances of the Treaeury combined with some surplus
from the Federal budget to retire Government securities. The retirement
program, as you know, was directed particularly at Government obligations
held by commercial banks and by the Federal Reserve Banks. Retirement of
obligations held by commercial banks reduced deposits directly, because
Treasury deposits were exchanged for maturing bank-hold Government securities. Retirement of obligations held by Reserve Banks reduced the volume
of both bank deposits and bank reserves. In this case, funds were shifted
from commercial banks to Federal Reserve Banks and the retirement of Government securities held by Reserve Henke cancelled a corresponding volume of
member bank reserve balances. It is true that commercial banks were still
free to restore reserve positions by selling other Government securities
in the open market at rates kept stable by Federal Reserve System policy,
and this the banks did in limited degree. But in general the pressure
exerted was enough to keep further bank credit and monetary expansion
under restraint.
Unfortunately, the control of postwar monetary expansion can
no longer be affirmed. The total money supply is currently increasing
at approximately 9 billion dollars a year. This increase in the money
supply is directly inflationary and is seriously accelerating the upward
spiral in prices.
The renewed expansion in the money supply is based in part on
increased holdings of gold, largely received by this country in payment
for exports needed by other nations. So far this year, the country's
gold stock has increased by 1.8 billion dollars and imports of gold are
still adding to this stock. This new gold has provided the banks with
the reserves necessary to support additional deposit expansion notwithstanding the fact that the Federal Reserve has brought some pressure on
reserves by selling some of its holdings of Government securities. Do-

•

-6-

-5 posit expansion has gone on because of heavy private demands for credit
from business, property owners, consumers, and State and local governments. During the first nine months of the year, bank loans increased
by almost 5 billion dollars, or by almost as much as they increased during
the whole of last year. The increase is still going on and, with the
momentum being gathered, credit expansion can continue without check for
some little time.
Therefore, our inflationary spiral problem is now not only e
matter of the wartime accumulation of money and other liquid assets, but
also a problem of renewed monetary expansion. Since we cannot rapidly
reduce the excessive money supply thnt'is based so largely on public
debt, the least we can do is to endeavor to restrain further monetary
expansion based on private debt creation.
There is unfortunately e fundamental change in the financial
situation which handicaps such restraint. This fundamental change is
the ability of the banking system to continue credit expansion that the
Federal Reserve System is not in a position to offset because of its responsibility for maintaining orderly and stable prices of Government
securities.
The Board of Governors hes given considerable thought and study
to the problem presented by this fundamental change in the banking
picture and has eugaested.severel methods by which the Government securities market might be protected and traditional credit controls reestablished, These methods, which arc discussed in the Board's Annual Reports
to Congress for 1945 and 1946, are to empower the Federal Reserve to increase member bank reserve requirements (with the exception of raising
reserve requirements from 20 to 26 percent for banks in central reserve
cities, the Board of Governors has already applied the present statutory
I- maximum reserve requirements to member banks), to introduce by statute a
secondary reserve requirement.against demand deposits, or, lastly, to
authorize the System to limit commercial bank holdings of long-term
Government securities. Chairman Eccles, in a. recent speech before the
National Association of Supervisors of State Banks, has underscored the
importance of our changed banking problem and the urgency of finding an
effective way of mooting it.
In the absence of authority to deal with the changed banking
situ-Um through one or more of these methods, there has recently been
some increese in short-term rates of Government securities. But the rise
in bill and certificate rtes has not as yet exerted an effective retarding influence on credit expansion. As you are aware, the sheer size of
the 260 billion dollar public debt, the problems of refinancing large
monthly maturities, and the role of interest cost in the Federal budget
are among the main reesons why short-term interest rates have not been
allowed to rise more sharply. Secretary of the Treasury Snyder will
announce soon action on the November let refunding.
The responsibility falling on the banks
Although the Federal Reserve System is handicapped by its
present responsibilities, on the one hand, and by the limited scope of
its authority in dealing with the present type of inflationary banking
situation, on the other hand, the System will do all it can, directly and
indirectly, to restrain further credit expansion. Nevertheless, a heavy
responsibility devolves upon individual banks to submit to self-restraint.
Under present conditions, banks are incurring large risks in private
credit expansion and they shoilld be constantly aware of these risks.
Banks that conserve their credit resources and stubbornly maintain a

to
high degree of liquidity will have less to regret and fewer losses
ry
inflationa
write off than institutions that ride the crest of the
tide. This is particularly true for banks specializing in real estate
and consumer credit, but it is also true for banks engaging in extensive
business and agricultural lending.
A greater alertness on the part of bankers regarding the
composite inflationary effects of their individual credit advances can
do much to restrain the rate of current bank credit and monetary expansion. It can also do much to reduce the undes5rable effects upon banks
be,
when inflation comes to an end and is followed, as it inevitably will
and
loans
make
by deflation. To be sure, the business of banks is to
e, and
investments which accommodate industry, commerce, and agricultur
instibanking
true
be
to
cease
they
activity
when they discontinue this
of
sphere
proper
their
themselves
deny
to
banks
urging
not
tutions. I am
common
a
recognize
activity. They can reasonably be asked, however, to
est to take
responsibility in times such as these and in their self-inter
respect
every
in
are
that
ts
investmen
and
double precautions to make loans
the
to
related
as
sound
but
cases,
individual
in
sound--not only sound
present inflationary economic picture.
Debt management policy
before
If the present spiral of rising prices is to be broken
financial
public
of
avenue
every
done,
serious damage to the economy is
meeting
policy must be examined for whatever contribution it can make to
Debt
avenues.
these
this key problem. Debt management policy is one of
antias
be
should
situation
retirement operations in the present
retirement
inflationary as possible. This means, of course, that any
focus on the
should
surplus
budget
current
the
by
possible
program made
banks and the
commercial
retirement of Government securities held by the
Federal Reserve Banks.
As I have said before, retirement of issues held by the Retionary
serve Banks is more restrictive and, therefore, more anti-infla
Reserve
Federal
(The
banks.
commercial
than retirement of issues held by
process
This
.)
securities
Government
of
dollars
now holds 22 billion
However,
necessitates the adjustment of reserve positions by many banks.
and in
helpful
is
banks
by
held
any retirement of Government securities
.
expansion
credit
further
the direction of restraining
Another important phase of debt management policy would be
use the proto increase the sale of long-term bonds to investors and to
and
banking
Important
banks.
by
held
debt
ceeds to retire part of the
Treasury
the
recently
and
program
a
such
urged
strongly
have
other groups
I refer,
has taken an important step to implement the suggested policy.
Further
bonds.
t
investmen
ble
of course, to the new Series A nonmarketa
desirable.
is
experience along these lines
as
Maintenance of as high a level of sales of savings bonds
debt
effective
an
of
aspect
possible will also need to be an essential
The vast majorprogram designed to help check the inflationary spiral.
is important,
saving
regular
that
believe
strongly
families
ity of American
importmore
even
is
saving
and more than half of all families think that
t findsignifican
the
of,
one
is
This
war.
ant now than it was during the
sublends
It
finances.
consumer
of
surveys
recent
ings of the Board's
available
be
will
stance to the belief that a continuing flow of funds
excess of redemptions,
to the Treasury from sales of savings bonds in
than in war years. The
volume
in
lower
even though personal savings are
but they will help
large,
be
not
probably
will
amounts in any one year
in accordance
to transfer securities from banks to nonbank investors
ion must be
considerat
Again,
with desirable debt management policy.

-7given to the use of these funds to retire bank-held obligations in the
way that will be most anti-inflationary.
It is clear that debt management policy can serve constructively to check the present price spiral by helping to restrict further
monetary expansion.
s clear too that the inflationary situation is
serious enough to waree.ee as uch use of such policy as is feasible. The
actual working out of policy appropriate to current conditions, is, of
course, a highly technical matter. The subject is under continuing study
by the Board, the System's Open-Market Committee, and the Treasury, and
the effective liaison that exists between the authorities assures that
every suggestion or alternative will receive careful study and consideration.
Conclusions on domestic inflation and monetary policies
Economic stability at high levels of employment and output is
seriously threatened by the current inflationary spiral. One of the mair
causes of this inflationary condition is the excessive money supply
created by war finance. Expansion in the.money supply under the pressure
of forces that are largely domestic, but to some extent international, in
origin is being resumed. Meanwhile, the demand for available supplies of
goods and services is driving prices higher. If the inflationary spiral
is to be broken, it is imperative that the world supply of goods and services be expanded as rapidly as possible. Today the greatest available
supply of unused resources is in Europe and it should be developed without delay.
Fiscal, debt management, and monetary policies must also be
eought to ear on the inflationary spiral.
At least, it is urgent to restrain further expansion in the
money supply. Maintenance of a large budgetary surplus is essential for
this purpose. This can be accomplished, however, only by holding taxes
up and governmental expenditures down so far as is possible under existing conditions.
Monetary policies should be directed to keeping in check further
bank credit and deposit expansion. Not much can be done through Federal
Reserve policies, however, in the existing situation. Therefore, individual banks have to assume a greater responsibility for credit expansion,
to recognize more fully the composite effects of their actions, and to
take account more directly of the abnormally high risks that are involved
in current credit extensions.
Public debt management policy should be as anti-inflationary as
circumstances permit. Emphasis on retirement of bank-held Government
securities is essential and every feasible measure for transferring Government securities out of the banks into the hands of nonbank investors should
be applied.
The task of breaking the present inflationary spiral through
fiscal, debt management, and monetary policies may not prove insupernble.
If successful, however, the attack will require the full cooperation with
Government of all banks, financial institutions, end businesses. .And if
it is not successful, owe private banking system may once more be the
scapegoat in the eyes of the public. First, it may be held responsible
for having caused inflation. And second, it may be accused of having
caused the collapse and deflation which, if history is any guide to future
events, will at some stage inevitably come unless prudent realistic measures are applied in all quarters without delay.

March 23, 1948

Dear Mr. 'nuns:
Just returned from a few weeks'
absence and / find the Chart that you were
good enough to prepare for me at my request
has not yet been acknowledged.
Please accet my thanks.
Sincerely yours,

Swine Nem,

Mr. Ralph A. Young,
Board of Governors of the
Federal Reserve System,
Mederal Reserve Building,
Washington, D. C.

May 24, 1948

Dear Elliott:
Thank you for your letter with
enclosures.

It is very helpful.

With best wishes, I remain,
Sincerely yours,

Eugene Meyer

id
Mr. Elliott Thurstan,
Board of Governors,
Federal Reserve System,
Washington 25, D. C.

JAN 4 194

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WAS

January

3, 19149.

Dear Yr. Meyer:
I appreciated very much the thoughtfulness of your note of December 24 in regard
to my father. He was nearing his 93rd birthday
and passed away peacefully in his sleep.
I should like to say that your staff
was very helpful to me in connection with the
reporting of his death.
Very sincerely yours,

reAtW., hOwiL,Cp

Chester Morrill.

Mr. Eugene Yeyer,
The "Washington Post,
I:rashington 14, D.
C.

I. B. A.

N. S. D. A.

B. A.

Life Insurance Association of America
F. R. B.
Comptroller of Currency
Treasury

S. E. C.

January 13, 1949
Bank Profits Corparad with

Mr. Riefler

Profits of Other Lines of Business

Miss Stockwell and r. Kolb

The attaohod table shows that since 1945 there has been a
significant shift in the rate of return earned by banks relative to that
earned by other lines of. business. In 1945 the rate of bank profits (that
is, the ratio of net profits after taxes to net worth) was much hiLher
than th4tt of non-finaneial corporations. Banks, however, have not shared
In the sharp inarease in profits which hc.s occurred size 19145 In the ease
of most noni.financial sroups. As a result the 1948 bask profit ratio me*
considerably below those of most other lines of business. This was true
both for all banks as compared with all non-finextoial colorations and
for large banks as compared with Larze cor2arations in other linos of
busills iss
The 1945-47 decline in bank profit ratios reflected large decroases in profits on securities sold. The 1947-43 decline refloated
prinarily large transfers from earnings to build up reserves for future
losses on loans. tathout such transfers the ratio probably would have
increased. However, the 1948 bank profit ratio would still have been
considerably smaller than the ratios shown in the table for most other
business groups.
The large transfers to valuation reserve accounts in 1943
resulted from a special ruling of the Bureau of Internal Revenue in
DeoeMber 1947, whereby banks are permitted to build up reserves for bad
debt losses on loans out of earnings. The net current earnings (current
earnings less current expenses) to net worth ratios, both before and after
income taxes, which take no account of security profits and losses,
recoveries and losses on loans, and transfers to valuation reserves, were
lower in 1947 than in 1946 (the peak year) but they are expected to increase
in 19148 to at least the 1946 levels. For all insured comaeroial banks the
net current earnings to net worth ratios were:
Before inoome taxes

1948 (est)
1947

19146
19145
191414
EJA4CKsfe
Attachment

12.0
11.5
11.9
11.3
11.1

After income tuxes

9.4
3.4
8.6
7.9
8.5

bant fro.titaCovarod "vita% Profits of tar Liao. of tusisois
(Parsontaca ratio of *MUM oat I:ratite to

Net

worth

---------Lino of ilualsoso

194 1 1:1Y.;

1940

1946

194

1948
i,stisated)
- ,

A. 4,11
Meg •• All isourad 05ne1. bs.
***witammilal oorps., total
Maamthsturtat
Trinity. at pub. 4th.
Aka,

4.11141014APO

6.0
6.1

6.7

1o.7

a.6

5.6

11.7

6.1
6.5

3.3 I4.3
4.8
2•2

9.7 •
9.1

3.1
r2•4

9.5
9.7
17.0
4.1
4.1
6.0 1 104

15.2
15.0
4.5
14.6

6.6
154
14.3
514

15.5

). litrza aolopallios
(*inking ea Lona lasyrod coon. bk* ly
tiouo.timaaeltil ottrpS•• total
714
alIMS.NCrturitic
9.8
Triad*
10.5
Imasp. ,V, pub. 'Ail•
4.1
(Aber
6.2

6.6

8.9

11.1

: 11.4
5.5
7.7
1

9.3

7.2

906

1214

9.1 i 11.6

16.0
17
5.4

6.5
14..5
18.14
17.7
6.4

14.3

le.9

1.7 i
7.6 i
10.4 I

20.1

5.0 1
9.0 i 13.0
I

I/ dot oorth is dettriod as das sus of 001110011 and preferred stook* oitsi amid r.,*rmed
Oarp1uo, oat surplus r•sorims6 *lea Is tilt, same, as total capital seoounts, the
tam ammay mod for bamaa.

rho deolisso ta beg* profits rattles tram 1947 to 1948 vas duo to the receut4
amftorisod dodesti AR* to build up rititerima Cr bad debt looms ouL looms (sew
sommipmming tett).

2,0 tut ayailabis•
$wims at tuft/
(d)

1940.47* Annual '10-74),ta attali iradoral reposit laimarano* corporatism
1914 estivatoo, :,trillti*n of Sank -Jparietioase Board of loTorair..

(b)

Nes.411aaaola1 ser.4trattma 1944 1944 asid 1945. atatiotiol of .Zrisaapp
1
Miaow4pSr1antj Aft. 1947 and 1948. oottaato7&& rolAod lAipartamatt
of Comoros sortoo.

(a) Large saa.tiaanaial alirparat$111MI
km York data‘•

sitiastod troll mtioto1 raty Nam* Ot

January x14
iir.rlotler
htr.

xttekh

bask profits rolative to profile
ft* ettadase iwearattaltuk
of othior blisimmese was prepared * 4110$ Steelman of mr Sootina sal
MN IMO ot th. Arislon of beak Operatimas in reeponisto to row reels"
request of Ar. Berbott art4 Ar• Tema.

Attachment

1944e

January 27, 1949

Dear Mr. Thurston:
As one of the public whose friendly public relations you are so expert at preserving, I suggest that
the Board of Governors of the Fe-leral Reserve System,
Washington 25, D, C., might give me a life subccr:Iption
to the Bulletin without meking me write letters about
it once in a while and signing documents as to the correctness of my address, which they can easily ascertain.
The postal zone is nine; that is correct.
I would like you to issue orders, in view of
my association with the System which may be a pleasant
or unpleasant recollection, dependiag on who does the
thinking in the Board, that all former "Governors of the
Federal Reserve Board (and I differentiate this from
the Board of Governors of the Federal Reserve System
because they are different, the Governorship having been
somewbg,t diluted a while back) be given a life subscription, and no questions asked.
The present people in power should pass a resolution on this point, if necessary, to back you up.
If there is any objection to this at all, let
me know and I will be glad to take it up with the full
Board at a meeting, all proceedings to be in public and
the press to be invited to the conference.
Sincerely yours,

EL4t;ene Meyer

Mr. Elliott Thurston,
Board of Governors of the
Federal Reserve System,
Washington 25, D. C.

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

29
1942

WASHINGTON

January 28, 1949.

Dear Constant Reader:
On behalf of the Editorial Committee of the Federal Reserve
Bulletin -- plus Chester Morrill who reads everything (thank goodness) -- plus "Governor" (sic) Evans, who is supposed to read
everything in his capacity as the Board member having the same approximate relationship to the Bulletin that you have to the Post,
I am happy to advise you that the wish expressed in your deft and
typical letter of January 27 has been granted, in full, and that
henceforth -- we trust for decades to come -- you will be relieved
of the heavy burden of affixing your justly celebrated and almost
legible signature to our polite, routine inquiries designed to
ascertain whether our readers still care and are still at large.
As a former Governor -- in its original, unsullied sense
you belong to a group almost as exclusive as Mr. H. Hoover's Union
of Ex-Presidents. Hence, in granting you this unique, special
favor, we are not obliged to demoralize our check-up system or
to violate any principle which we are prepared to die for or
rise above.
Let me add the hope that you will come, soon again, to
luncheon.

Elliott Thurston

Mr. Eugene Meyer,
The Washington Post,
Washington 4, D. C.

February 12, 1949

rear Mr. Szymczak:
As Mr. Meyer is in Key West and Is not expected to return to Washington until the latter part
of this month, I am acknowledging the book, "The Federal Reserve System--Its Purposes and Functions", which
you so kindly sent to him.
This will be brought to Mr. Meyer's attention
on his returr to the office.
Very truly your,

Charles F. Paradise
Secretary to Eugene Meyer

Honorable M. S. Szymczak,
EoPrd of Governors,
Federal Reserve System,
Washington 25, D. C.

February 23, 1949

My dear Mr. Szymczak:
It was very good of you to send
me a copy of

The Federal Reserve System--

Its Purposes and Functions", which I received
on my return from a vacation of three reeks
in Key West.
I am very happy to have this revised edition.
With all good wishes, I remain,
Sincerely yours,

Eugene Meyer

Honorable M. S. Szymczak,
Board of Governors,
Federal Reserve System,
Washington 25, D. C.

July 5, 1949

Dear Mr. Coleman:
At Mr. Meyer's requests I am sending you herewith 200 reprints of the editorial entitled "Spur to
Cenfidence", which appeared in The Washington Post on
July 1, 19491 and 200 Washington Post envelopes.
am sending 300 reprints to Mr. Thurston.
Sincerely yours,

Charles F. Paradise
Secretary to Eugene Meyer

Mr. Philip E. Coleman,
Federal Reserve System,
Federal Reserve Buildings
Washington, D. C.

Encl.

July 5, 1949

Dear Mr. Thurston:
At Mr. Meyer's request, I am sending you herewith 300 reprints of the editorial entitled "Spur to
Confidence", which appeared in The Washington Post on
July 1, 1949.
I am sending 200 reprints to Mr. Coleman.
Sincerely yours,

Charles F. Paradise
Secretary to Eugene Meyer

Mr. Elliott Thurston,
Federal Reserve System,
Federal Reserve Building,
Washington, D. C.

Encl.

14o
37m/41'6,

July 5, 1949
PERSONAL

Dear Elliott:
I thought you mif.:;ht be tnterested in the enclosed.

Please return al- yolzr convenience.
moday's article ln the Herald Tr-thune repeas

he ne_aunderstanding atout Eccles' attitude, concerning
which you stratfttened me out.

I think there ouE;ht to

be a vLatement from him on the sulject.
Sincerely yours,

Mr. Elliott Thurston,
Assistant to the Chairman,
Federal Reserve System.
Federal Reserve Building,
Washington, D. C.

Encl.

fLetter and snclosure from Mr. Cooper of TIME re
"Spur to Confidence]

1111 asiiingtott

Fest

WASHINGTON 4. D. C.

July 22, 1949
Dear Mr. McCabe:
I received your letter and the enclo ure. It
touches all the high spots of the subject, bu I have a
few opinions which I make free to express.
On page 2 you estimate new common s
as about 10% of new corporate security issues
seen a figure in Business Week or sos.
ilar
of less than 5%. I do not have the
As you mention, a sal
equity capital is that equity
large-income individuals out
them, after taxes and livi
Such is practically not th
issues pay a much higher Inc
to 2% good investments than do
stock investments for
believe that lower
more income as we

k issues
I have
blication
king this.

for the 1
of
ed to come
om
nings, leaving
apital to invest.
ye.
Tax exempt
twenty-year1-1/2%
dividend paying common
ome brackets. I firmly
rates would produce
tal.

On the ubject of mo
rapid depreciation of
plant and equips ts the probl
is difficult when approached
from a theoretica point of v
I have heard many godd
accountan
iscu
this sub
t and their opinions run
from e
of no
all in the present depreciation
original cost
depreciation on the basis of
what
e company
agement wants to make it. I think you
have o get away
the theoretical approach and try to
be p otical and c
romise onthe basis of something in
be e
the two ej emes. Generally, I am against camprom/
but the
sent replacement cost is so very much
higher
epreciation on the original cost of plants
that it stems- o me to justify a compromise.
There is no precedent for the present situation
in replacement cost of obsolescence. I believe that a
modification on this front would be helpful, particularly
to new business enterprise.
I do not agree with you on inviting fiduciary
institutions into the con stock ownership. It would be
limited in the beginning and, if it worked, the pressure

would be to raise the limit. Nothing could be worse than
to have a few life insurance presidents run the industry
of a country.
Risk enterprise does not fit in with trusteeship
responsibilities. A company awned by life insurance institutions, even with a 5% limit in any one company, if
availed of by a number of such companies, would be a business run for the widows and orphans. Widows and orphans
do not belong in risk enterprise.
I have heard that the Mutual Life I
of New York found itself with goods bought as
ment which became risk enterprises because the
defaulted. My understanding is that
e sold
the bottom, in the early part of the
The possibility of a c
control in life insurance compa
German banks used to be large
as well as finance it. The
public interest and worked

ranee Company
und investailroads
em out at

ation of I •. trial
real threa
The
erman industry,
eh was not in the

I once advised
of a Finance Committee
of Northwestern Univers
ad large investment funds,
to buy common stock
mmended that they only
budget as expendab
the sam
ncom
t they would have
been able to get
of first
ass b
s, say, 3-1/2% at
the time, and to
t the balan
into reserves to be used
if dividend inc
was reduced
I suggested that they work
it out for 5, 10, 5 and 20 ye s back, to see how it would
work. It was don
standing is that the plan
un
was ado
d spr
good many other institutions
of lea
ng.
You ment
the American Research & Development
Corp
tion of Boa n as a type. Of course, their operations
e interest
. Professor Doriot is an old and
very rd frie
mine not only from the war days but long
have extraordinary resources In their
vjt.
nla
Massachusetts Institute of Technology and
a strong Bo
among them Senator Flanders and Karl Compton
and others. Not many new business enterprise organizations
can possibly duplicate the technical research fasilities
and Professor Doriot.

I doubt therefore if the mention of this institution means much.

This is a hasty and not important contribution to

your confidential preliminary draft. I have shown it to
Miss Anna Youngman, our financial and economic editor.
She was formerly in the Research Division of the Federal
Reserve Board and is known to your people. Miss Youngman
agrees with my views on the points which I mention in this
letter.
With best wishes and high regard, I remain,
Sincerely yours,

Eugene

Honorable Thomas B. McCabe, Ch
Federal Reserve System
Washington 250 D. C

September 1, 1949

Gentlemen:
am interested in the suggestions that life insurance companies
be authorized to purchase preferred and common shares under ambtain
restrictions in States where it is not now permitted by law. Would
you let me bine a list of

th,. States where it is now so permitted?

I assume that in the other States it is not now permitted.
Have you any compilation of what restrictions are placed upon
such States which do permit it, either as to whether the total amount
of the life insurance funds of any company is limited or the amount
of funds authorized in relation to eitber the resources of the life

tmoommumiougamIes or the amount of witair to be invested In any

ame UAW or Shares in any one compile
Thallgtig you in advance, / remata
Very truly yours,

Ammo mayor

Life iassareass Asseetettiss Or Minidas,
3.65 Thrsaifter,
NOW York, 111. T.

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WAS

OFFICE OF THE CHAIRMAN

September 29, 1949.

Dear Gene:
I have been reading with great satisfaction the editorials in the Washington Post
on the Executive Salary Bill and particularly
the references to the Board of Governors. You
are a bulwark of strength on which the System
has leaned heavily ever since you were Governor.
I wish you would come over to see us
oftener as I always like to talk with you.
With warmest regards,
Sincerely,

mas B. McCabe.
Mr. Eugene Meyer,
The Washington Post,
Washington 4, D. C.

."`leirROPPIIPArriraMIPNI/W9'
"
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.
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117

November 9, 1949

Dear Tom:
The figures for the reprints of editorials during the First
Session of the 81st Congress are as follows:
Washington Post
New York fimes
Washington Star
N. Y. Herald Tribune
Washington News
Times-Herald

206
165
98
67
52
43

Sincerely yours,

Eugene Meyer

Honorable Thomas B. McCabe, Chairman,
Federal Reserve System,
Washington, D. C.

BO,,hD OF GOVEhNORS OF THE FEDEhAL RESEhVE SYSTEM

December 1, 1949.

Dear Senator Douglas:
In connection with my testimony presented on November "4.2 before
your Committee, I indicated that I hau not attempted to include in my
statement some important matters which may be helpful to the Committee.
You granted me the privilege of filing a supplementary statement should
that appear desirable.
In the course of my testimony you asked if it would serve a
as to the
useful purpose if Congress were to instruct the Treasury further
upon
dependent
are
they
there
t
managemen
policies to be followed in debt
that
stated
also
You
System.
the monetary policies of the Federal heserve
an
of
standards
suggested
you would appreciate it if you could get some
instruction that might be given to the Treasury by Congress with reference
to Treasury relations with the Federal heserve.
Since presenting my testimony I have given a great deal of
thought to this subject. In reading over the record of my remarks, it was
apparent to MB that I had not responded as fully as I could have to some
of your questions. Therefore, I should like to take advantage of the privilege of making a supplementary statement.
. ystem
A very fundamental dilemma confronts the Federal heserve )
The
Congress.
by
it
in tne discharge of the responsibilities placed on
ity,
availabil
System has by statute the task of influencing the supply,
and cost of money and credit. In peacetime, the objective is to do this
in such a way that monetary and credit policy will make the maximum possible contribution to sustained progress toward goals of high employment
and rising standards of living. Federal heserve bystem powers for carrying out this responsibility are at present basically adequate. but the
System has not, in fact, been free to use its powers under circumstances
when a restrictive monetary policy was highly essential in the public
interest. It has been precluded from doing so in the earlier postwar
period nSar because of the large volume of uovernment secures held
by banks, insurance companies and others who did not view them as permanent
investments. Reasons for supporting the market under these conditions I
have already p)jJresented before your Commdttee.
This policy of rigid support of Uovernment securities should not
be continued indefinitely. The circumstances that made it necessary 4re no
longer compellinE. but the Federal iLeserve would not be able to change
these policies as long as it felt bound to support debt-management decisions made by the Treasury, unless these were in conformity with the same
objectives that guide the Federal heserve. The Treasury, hol.ever, is not

-3 Treasury before decisions are reached. The System, however, has made
suggestions on its own initiative to the Treasury in connection with
each financing, but very often these have not been accepted. Decisions
are apparently made by the Treasury largely on the basis of its general
desire to get money as cheaply as possible.
In a war period or a depression, there is reason for financing
a deficit through commercial bank credit -- that is, by creating new money.
The Federal Reserve System has supported such financing at very low rates
by purchasing government securities in the market at such rates, thus pumping the needed reserves into the banking system. In the early postwar
period some support was desirable, especially for the 2-1/2 per cent longterm bonds, but it should not have been as inflexible as it was for shortterm rates.
The outlook at the present time is for an expanding economic activity with high employment. We also now anticipate a government cash deficit of over 6 billion dollars in the calendar year 1950. It would be inexcusable to finance this deficit at very low rates of interest by creating
new money should inflationary pressures resurge. But if the Treasury, under
these conditions, insists on continuation of the present very law rates, the
Federal Reserve will have to pump new money out into the economy even though
it may be in the interest of economic stability to take the opposite action.
In making a cheap money market for the Treasury, we cannot avoid making it
for everybody. All monetary and credit restrnints are gone under such conditions; the Federal Reserve becomes simply an engine of inflation.
With respect to the problem of haw future monetary and credit
policies are to be established, it seems to me Congress must choose from the
following three general alternatives if the present dilemma confronting the
Federal Reserve System is to be resolved:

(1) Congress can permit the present arrangemeat to continue.
The Treasury would control in effect the open market and other
credit policy as it does now by establishing such rates and terms
on its securities as it pleases, with the requirement that the
Federal Reserve support them. It should be recognized that under
this course, limitations over the volume of bank credit available
both to private and public borrowers, and accordingly limitation
over the total volume of money in the country, would be largely
given up. Such credit and monetary restraint as might be required
from time to time to promote economic stability would be entirely
dependent upon the willingness of the Treasury to finance at higher
interest rates, and in the past the Treasury has been resistant to
doing this. If this alternative is followed, which is the present
arrangement, Congress should recognize that the responsibilities
for monetary and credit policies are with the Treasury and not with
the Federal Reserve System and that the principal purpose of the

-5tion and for that purpose one of three alternative actions might be taken
by Congress:
(1) Recognize in the statute that responsibility for monetary and credit policy is with the Treasury and recognize the
Federal Reserve for what it is today -- an agent for advising
the Treasury and carrying out monetary and credit policy determined by the Treasury;
('4) Give the Federal Reserve bystem such additional authority over bank reserve requirements as would adequately serve as
a partial substitute for discount and open market powers;
(3) Give the System a mandate to determine monetary and
credit policies on the basis of guide posts stated in terms of
the language of the Full Employment Act of 1946, with the Treasury required to advise and consult with the Federal Reserve and
take into account the mandate of Congress in connection with its
debt-management decisions.
I recognize that monetary or credit policy by itself cannot assure
economic stability. It should be accompanied by a fiscal policy, as well
as a bank supervisory policy, in harmony with it.
I appreciate very much having the opportunity to express my views
on this matter.
Sincerely yours,
(Signed) M. S. Eccles
M. S. Eccles.

Honorable Paul H. Douglas,
United States Senate,
hashington, D. C.

JanuLry 10, 1950

My dear Tom:
Thank you for your invitation for
the evening of the 16th.
I shall be glad to be with you and to
meet your friends and associates. Probably,
there may be one or two of them whom I used
to know in the olden days.
With cordial regards, I remain,

Sincerely yours,

Honorable Thomas B. McCabe,
Board of Governors of the
Federal Reserve System,
Washington, D. C.

IV 1 0 1950

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WAS

OFFICE OF THE CHAIRMAN

January 10, 1950

Mr. Eugene Meyer
Chairman of the Board,
The Washington Post,
Washington, D. C.
Dear Gene:
On Monday and Tuesday, January 16 and 17, we are
having a Conference of the Chairmen of the twelve Federal
Reserve Banks and the Board of Governors with the Directors of
the Federal Reserve Banks of New York and Minneapolis and
their Buffalo and Helena branches.
On Monday evening, the sixteenth, the Board is
giving a dinner for the visitors and we want very much to
have you join us at dinner. We went to make it a very
special occasion in Federal Reserve history and we feel that you,
as a former Governor of the Board, would enjoy being there and
know that your being there would add greatly to the success of
the occasion.
The dinner is to be in the Carlton Room of the Carlton Hotel at 7:00 p.m. and dress will be black tie.
I hope most sincerely that you will let me know within
the next few days that you will be with us at that time.
With warmest regards,
Sincerely,

Airn
homas B. McCabe,
Chairman.

y-/-2

474

71-1/3

Fim 26 19st
BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WAS

OFFICE OF THE CHAIRMAN

May 25, 1950.

Dear Gene:
On May 31, at 11:00 a.m., the Board's economic
staff will review the current economic situation in the
United States for the Directors of the International
Bank. The staff presentation will involve a combination of visual and auditory media which I believe you
will find especially interesting. Furthermore, I know
the staff would be particul:rly appreciative of the
benefit of your reaction to what they have prepared.
We would like very much to have you present as our
special guest.
Following the presentation, the Board is entertaining the Directors of the International Bank at
luncheon, and we would, of course, hope that you could
also be present for that.
With warmest regards,
Sincerely,

omas B. McCabe.

ffc

Mr. Eugene Meyer,
The Washington Post,
Washington 4, D. C.

z2€

424
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.
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CONFIDENTIAL

May 27, 1950

ME MORA NDUM
I received an invitation from Mr. McCabe to see the
Board's economic staff review the current economic sit

tion in the

United States for the World Bank.
lam unable to go on the day on whi h this ta
I have to be in New York. But I made 'oold, to ask to
presented to those interested in these
Mr. McCabe readily agreed to en

with luncheon to foil

review

The V ashin
in tttis a

1 called ut, Mr. Riefler t
venient if we could have

place a*

OSt

estion.
m that it would be con-

k on ‘ednevelity, June 7,
lune will be at the Federal

fieserve Board.
ith the approval of Mr. Riefler,

flip I... Graham
erbert B. Iliston
has Anna Youngman
Alfred Friendly
Dr. & Mrs. Rennie
Joseph Livingston
V,ill you kindly set aside this time if you are interested and
advise me if you are able to come.

Eugene Meyer

June 1, 1950

MEMORANDUM

The group which is to be present at the economic staff
review on June 7 is to report at 12 o'clock noon at the office of Mr.
McCabe, Chairman of the Federal Reserve Board, Federal Reserve
Building.

E. M.

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WAS

OFFICE OF THE CHAIRMAN

August 4, 1950.

40G

Dear Gene:
A few days ago our staff was requested
to furnish the Joint Committee on the Economic
Report of Congress with some of its views on
fiscal, monetary, and credit problems, and since
you are so vitally interested in these subjects
I am enclosing a copy for your personal and confidential information. The Committee was in such
a hurry for our views that the report had to be
prepared quickly. Therefore, some of the subjects
are not covered as thoroughly as we would like.
Since we will be called upon from time
to time to amplify our views, I would appreciate
your reaction to the memorandum and any suggestions which you may have on any of these subjects.
With warmest regards,
Sincerely,

Thomas B. McCabe.

Mr. Eugene Meyer,
Washington Post,
Washington 4, D. C.
Enclosure

t'ugust 23, 1E,50
Dear Tom:
I have been cogitating on what I should say to you in connection with your letter of August 4 inviting the expression of my reaction to the memorandum you were good enough to send me.
I can agree with a great deal of the memorandum. There are
some parts of it which I would not consider myself by thorough knowledge
in a position to weigh and judge without taking your valuable time or that
of some of your assistants who are no doubt fully occupied otherwise.
I cannot say that I find myself opposed to many points of the memorandum;
only that I have no crystallized opinion on certain questions discussed.
Itere is one thing on which I do have an opinion; I am referring to your point (3) on page 2, "Curtail Overall Civilian Spending."
his is easily said but hard to accomplish. I am referting to the trend
to continuous increasing of wages--by which I mean the effective wage,
not the nominal wage.
I also refer to the coddling of farmers by exorbitant profits
in the cultivation of farm vote favored by uneconomic and unreasonable
price support for some of the agricultural interests. As long as politics
dominates this vast area of effective buying power of labor and farming,
I think many of the other steps suggested in the memorandum may be
impaired in their effecti,/eness.

Of course, it is very difficult for those in office to think
that anything could be worse for the country than their failure to get
reelected. I am not personal. I do not mean the President or either
political party--I am just talking about this increasing partiality to
large voting groups of economic and political importance who are in direct contact with Government through inflationary loan policies, price
fixing of their product, and other favoritism in the form of bonus or subsidy.
Inflation might be controlled. It will take great intelligence
and moral courage to stick to sound policies which would promote the
national interest on this front. I lack confidence that anyone will proclaim that we all have to suffer impaired purchasing power, but I am
pretty sure it cannot be done by smiting the few and pampering the many.

The civilian economy must save enough to support the
military economy. The people are not being educated to the fact that
armament is not a luxury but a necessity for survival as a free nation.

Cordially yours,

Eugene Meyer

Honorable Thomas BG McCabe, Chairman,
Board of Governors of the Feckral Reserve System,
Federal Reserve Building,
,,ashington, D. C.

lull
1111

ashittiott post

WASHINGTON 4. D. C.

P ugu a t

23, h50

Dear Torn:
I have been cogitating on what I should say to you in connection with your letter of August 4 inviting the expres

en of my re-

action to the memorandum you were good enough to sen
I can agree with a great deal of th

•

memora a m. There are

some parts of it which I would not consider myself by tho •
in a position to weigh and judge witho
of some of your assistants who a

ur valuable t

o doubt f

I cannot say that I find myself oppose

•

only that I have no cry

ferring to your point
his is e

e or that

occupied otherwise.

ny points of the memorandum;
tamn questions discussed.

thing on wh

There is

h knowledge

I do

an opinion; I am re-

rtail Overall Civilian Spending."

but

to cont, uous increas
i

mplish. I am referking to the trend
of wages—by which I mean the effective wage,

not th i ominal wage.
als•

er to the coddling of farmers by exorbitant profits

in the cultivation of farm vote favored by uneconomic and unreasonable
price support for some of the agricultural interests. As long as politics
dominates this vast area of effective buying power of labor and farming,
I think many of the other steps suggested in the memorandum may be
impaired in their effectheness,

military economy. '
armament

uxur

ill take grea

confid

claim that we all have to suffer impai

The civil'

form • bonus or subsidy.

cies wh

national interest on this front. I

pretty sure it cannot be

e by

e the
that anyone will pro-

rchasing power, but I am
w and pampering the many.

economy mu

save ecough to support the

people are n

being educated to the fact that

ssity for survival as a free nation.

Cordially yours,

rugene Meyer

Honorable Thomas B. McCabe, Chairman,
Board of Governors of the Federal Reserve System,
Federal Reserve Building,
ashington, D. C.

elligence

asiiingtott post
WASHINGTON 4. D. C.

tnugust 23,
Dear Tom:
I have been cogitating on what I should say to you in connection with your letter of August 4 inviting the expres

of my re-

action to the memorandum you were good enough to se
I can agree with a great deal of t
some parts of it which I would not conside
in a position to weigh and Judge with

There is ne thing on w
ferring to your point
'ibis is

)on page 2,

s id but

to con

uous inertias

not th

ominal wage.

h knowledge
e or that

occupied otherwise.

I cannot say that I find myself oppos
zed

yself by tho •
ur valuable t

of some of your assistants who

only that I have no cry

um. 'ter,
. are

Any points of the memorandum;
on

rtain questions discussed,

h I do have an opinion; I am reurtail Overall Civilian Spending."
mplish. I am referting to the trend

of wages—by which I mean the effective wage,

er to the coddling of farmers by exorbitant profits
In the cultivation of farm vote favored by uneconomic and unreasonable
price support for

sOITIP

of the agricultural interests. As long as politics

dominates this vast area of effective buying power of labor and farming,
I think many of the other steps suggested in the memorandum may be
impaired in their effectheness.

ho are in di-

rect contact with Government through inflationary kart p

cies, price

fixing of their product, and other favoritism I.

bonus or subsidy.

Inflation might be controlled.

orm

ill take grea

and moral courage to stick to sound

elligence

would prom te the

national interest on this front. I

that anyone will pro-

claim that we all have to suffer impairchasing power, but I am
pretty sure it cannot be1r1y
The civil

economy 111.115

military economy.
armament

the

ople are n
luxury

and pampering the many.

ave enough to support the
eing educated to the fact that

ssity for survival as a free nation.

Cordially yours,

Eugene Meyer

Honorable Thomas B. McCabe, Chairman,
Board of Governors of the Federal Reserve System,
Federal Reserve Building,
„ashington, D. C.

-,-----""""'"41,111111111111111111,

7- '24 r(Lai,
August 22, 1950

Dear Mr. Young:
I received your note and the book on my return from a
week-end in Mount Kisco. I have sent the book up to Mrs. Meyer
who is thc:re until we leave for Furope on the QUEEN MARY on
August 30.
I am sure she will be interested to read Mrs. Young as
apparently Mrs. Young was interested to read Mrs. Meyer.
ith greetings from hbuse to house, I remain,

Sincerely yours,

Eugene Meyer

Mr. Ralph A. Young,
Board of Governors of the
Federal Reserve System,
Federal Reserve Building,
Vrashington, D. C.

cc to EM

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WAS

OFFICE OF THE CHAIRMAN

September 15, 1950.

Dear Gene:
Due to my many absences from Washington during
the past few weeks, I have not had an opportunity until
today to acknowledge your letter of August 23 with the
very constructive comments on the statement which I sent
to you.
I read your letter with great interest because
I have a profound respect for your judgment. The support
and suggestions which I have received from good friends
like you are of inestimable value in my job, and I hope
you will continue to send me your suggestions.
With warmest regards,
Sincerely,

Thomas B. McCabe,
Mr. Eugene Meyer,
The Washington Post,
Washington, D. C.

November 6, 1950

My dear Mr. McCabe:
I have just talked to two people whom I regard as reliable representatives of their industries. One is an official of the
Reliable group, which has a very large volume here and in several
other cities of furniture, jewelry and clothing on the installment
plan. The other is in the construction industry.
Both of them feel the regulations on the credit side of
these activities are quite effective--perhaps very effective. In
reply to my questions, both felt the business was being overdone and
verging on the dangerous.
They expect their business to be hurt in the effect on
their volume and no doubt on their profits, but both felt (apart from
the need and the purpose of curtailing labor and material from
civilian to military purposes) it is in a sound direction. They think
their business will be on a sounder and more stable bash:. in the
long run.
I had my suspicions which are now confirmed by them that
they felt that business was being done on the installment front and on
the construction front loosely and dangerously. The construction man
said that land bought for $1,000 an acre was valued for loan purposes
at $2,000 to $3,000 and that the builders got not only all the money
they put into these projects but a profit besides.
I am sure you are getting similar reports from other sources.

Sincerely yours,

Eugene Meyer
Honorable Thomas B. McCabe, Chairman,
Board of Governors of Federal Reserve System,
Federal Reserve Building,
\A ashington 25, D. C.

BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM
:rsc'
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WAS H IN GTO N

OFFICE OF THE CHAIRMAN

4X610,,,1*
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November 10, 1950.

Dear Gene:
I am very appreciative of the comnents in your letter
of November 6 by the representative from the construction
industry and by your other friend who is apparently the head of
a chain of department stores. It is heartening to receive such
support, as we get far more criticism than we do commendation.
Most of the letters and favorable statements which we
receive are from consumers who support our program of selective
credit controls. Likewise, the comments which we receive from
financial men and businessmen are highly favorable. The great
mass of complaints come from automobile dealers primarily and
from certain segments of the retail trade.
I hope you will come over to see me soon as I always
enjoy talking to you about Federal Reserve policies, and I need
the benefit of your great wisdom and experience.
With warmest regards,
Sincerely,

omas B. McCabe.
Mr. Eugene Meyer,
The Nashington Post,
Washington, D. C.

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON

JUN 20 1951

Dear Mr. Meyer:
The book, "Beckoning Frontiers", which
I have been working on for the past year and a
half, has finally been published. It gives me
pleasure to present you with an autographed copy.
The book is rather long and I do not
expect you to read all of it, but I do believe
you may find parts of it interesting because of
your interest in and past connection with the
Federal Reserve System.
Cordially,

Hon. Eugene Meyer,
1624 Crescent Place, N. W.,
Washington, D. C.

June 22, 1951

Dear Mr. Eccles:
I arrived from California at midnight
last night and found on the table at my house the
book you were good enough to send me.
Of course, anything written by you,
with your long experience in public banking, will
be of interest not only because of my past connection with the Federal Reserve System but strictly
on its merits as a matter concerning an institution
which is one of our important pieces in the machinery of government and administration.
With kind regards, I remain,

Sincerely yours,

Eugene Meyer

Honorable Marriner S. Eccles,
Board of Governors of the
Federal Reserve System,
Federal Reserve Building,
Washington 25, D. C.

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WAS

December 28, 1951

DEC 29 REM)
Dear Mr. Meyer:
It was very thouLhtfal of you to
remember us this Christmas with a box of
Florida fruit.

The acid and vitamins

therein are just what I have needed to
finish up the Jkboard's answer to the Patman
Questionnaire.

Incidentally, I think you

will be pleased with the document that we
are submittine;.
With very best wishes for the New
Year,
Yours cordially,

Mr. Eugene Meyer,
The Washington Post,
1515
L - Street, N. W.,
Washington, D. C.

Full text of Eugene Meyer Papers : Federal Reserve System : Board of Governors, 1940-51, Subject File, Box 121, Folder 11

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