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EXECUTIVE OFFICE OF THE PRESIDENT COUNCIL OF ECONOMIC ADVISERS WASHINGTON 25, D.C. EDWIN G. NOURSE, CHAIRMAN LEON H. KEYSERLING, VICE CHAIRMAN JOHN D. CLARK April 7. 1947 Tiie Honorable Marriner S. Eccles, Chairman, Board of Governors of the Federal Reserve System, Washington, D. G. Dear Mr. Eccles: It is the desire of the Council of Economic Advisers to keep its summaries and appraisals in intellectual step with the work of other agencies of the Government. To this end, I am sending you herewith a confidential advance copy of the memorandum which we have prepared for the President as the second quarter of 1947 opens. A copy is also being sent to Dr. Woodlief Thomas. If, on examining this statement, you have any comments or suggestions as to change in emphasis or evaluation, we should be glad to hear from you. We expect to present this document to the President and discuss it with him tomorrow morning. Sincerely Chairman. 7, &% 41 Ian Sproul, President, Federal £e««rr« Bask of Maw "fork, i$«f York 7# »«* York. D*ar Allans In *oe©r4«mcs» with the €halrma v s request, I *a you an «te«rpt froa a confidential itdvano* oopj of a :>re pared b^ th« Council of Eso&oelo &drla«r« for th« together with a draft aJT *«ggft»t#6 rwwwrdin^ «f two «f Thl» a»s«>raa^xm» 1 tai&*r$t&3&» ««i« for t3w pvarpQ&G of by th» Couaoil with tk« Pre*id«nt« X do not know that i t w i l l mr*r b* publi*h«« # and for t h i s reason i t afemtld he e&tirtly eeatfidantial. In «^ K»&v«rsaiiian with th@ t^r#« i^j^ira of tii« Council X »xplain»d that ih« atR£«na«iit oa or«dit control, as th«^ had word«d i t , aight hatf« b©«a Interpreted as a eoamitsABt which would pr«v«Bt t&e ^yst«is fr®aa aakis^ aa^ ohaoge* in Th« d&aag* in the r«f«r«no© to oomwMir credit vat f©r tlKi of iadioatiag that tho jutaautir* Ord«r n«ed«d to i># r«3oind«d in th* ab««ae« of Council »9%b0rs expr«a««d williagnas* to aooapt tha oh»r^«fi, and i t 1» s^r «ad«r*taadi«g that thay would lB*«rt l a th«ir m«^raiid«Mi tH« *tta«hed substitute. Dirisioa of £«*earoh and Wltpb k related policy which is I&pert&st at this time beaauee ©f i t s anti-inflationfe^ effect is the f\irther r e t i r e ment of that part of the debt vhieh Is held by the eosesi&raiaX banks. Shit pro@©@s reverses the Inflationary prom*** whioh takes ?lae# when the CKnrerfineiit sells bonds to the banks, a&d new deposits are thereby created* By payin& off bonds held by the banks, the Governaeaat bring* about a reduotlext in deposits, whiea is anti*inflationary, t&ader present eo&ditloms i t should be tone to the fullest possible degree, a&d present tax rates shcrold be s»intaia»d for that Of similar import i s the policy of eredit oontrol. For the proteetlon of t&e Tr«esxtry in the matter of the rate of interest &n the Federal debt* i t has beea seeessar^ to suspend the traditional fwnotioa of the central bankiag system to influp enee ©oonomie eomditloas by usiztg i t s pover to ohaage interest r a t e s . There is s t i l l l«ft th« ptmer to limit th« growth of installment credit whioh# even under the present restraints, has been expa&diBg at a disturbing rate* If the eurbs on the extension of iastallmeiat eredit nev beiaf exercised under Regulation • were to be rastoved a t this tine, or the power to limit suoh ored.lt were to expire os Jime 30, khQrm would be a tendeaey of producers and distributors to try to sustain the absorptive power of the market by excepting Uwer doira-payasnts &ari«5 a logger tl$m period rather thaa adjusting prioes to the purchasing pmnr of ourr«»t inoo»es« this would postpozte r*1£kGr than promote i^e kind of stable atf justiaent that oisr eoenoop requires• I t la in line with the philosophy of the Ei&ploysent Aot -tfltat ther® should be ao®» effeotiv© mmmia of o^po-siag umiis© oredit expansion in boomfciiaosand of mutixkg eredit as a reeorery measure, Hene# we woxild reeouanisiid that the President lend his support to legislation designed to include the r e f l a t i o n of installment eredit among the psraanent powers of the Federal Reserre System* April 9, Dear Dr. Hourse: This is to thank you for your letter of April 7 enclosing a confidential advance copy of the memorandum union you prepared for the President reviewing the first quarter of 1 I read it immediately and then got in touch with Woodlief Thomas in order to suggest some modifications of the paragraphs relating to interest rates and instalment credit. I understand that these changes were agreeable to the Council, and I wanted to take this occasion not only to commend the Council's statement, but to express again appreoiation of the fine cooperation which you and your associates have continued to extend to us. Sincerely yours, U S. Eccles, Chairman. Dr. Edwin G. Nourse, Chairman, Council of Economic Advisers, Executive Office of the President, Washington 25, D. C.
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