View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

BOARD OP

GOVERNORS

OF THE FEDERAL

Date

To
from

RESERVE 8TSTEM

TA

____________

Mr* Young
Mr* Koch

MESSAGE:
This i s a copy o f a d r a f t o f a
p o s s i b l e press r e l e a s e f o r Gov­
ernor E c c l e s ’ speech F r i d a y in
'V. "
. "/-v ^ n
>•*rr\ 4-w- rs
-i-i tt « a

Message delivered by
F .R
. 468

R e v . 1/47


Draft of Press Release for Chicago Bp— ch

On* Bust face today's world and Its future vlth hop* but
without too ouch expectation. Events have sored very rapidly these
past few years. Three years ago, with our sole control of the atomic
r
bomb, ve seriEM have enforced a peace settlement In Russia with little
risk of ear.

Since then Suss la and her satellites have gained enorv ft* / a a v -J

mously In economic and monetary strength.
The Comunlst blits In South Korea has mads all of us reshape
our thinking as to the kind of a world ws are likely to live In during
the next decade.

Fears and uncertainty of var h n In the back of many of

our minds prior to June 2 %

The events of that day and succeeding days

have brought them/preclpltouslyf to the foreground.

Mor will the end of

the war In Korea mean the end of our present emergency.

It has just

begun and map- means the hel*4r| up and maintenance of a garrison state
for many years to come.
Two main problems face us In this emergency.
rearm and rearm to the teeth.

First, we must

Secondly, ve must organise an economic

mobilisation program at home to stop Inflation and at the sans tine keep
our economy running as efficiently as possible.
As for the reamanent progran, Russian aggression can be
stopped if/,their bluff le eaULed and they -ase convince^that the United
States will no longer permit further tyranny and conquest.

This means

(l) that ws must utilise all of our resources and labor as effectively
as possible; (2) that ws must devote as much of our national product to




-

<c

”

/
defense expenditures as we can afford;and

O
(3) that ve mast !ftsk< the m z i i u a

JieXp fron as many’.friendly nations [&£ poss lblellgr^at least keep them

^

neutral]

Of equal importance to a rearmament program le an economic
program designed to assure financial stability at horns. Two principal
programs have been advanced in recent months to stop the Inflation.
The first involves a comprehensive harness of direct controls including
price and vage fixing and rationing of goods. The second is what I
have previously called a set of functional rather than direct controls
Involving principally fiscal and monetary measures designed to reduce the
volume of purchasing power available in the hands of individuals and
businesses.
But there are no tvo ways of controlling inflation. Inflation
stems from an excess of purchasing power over the available frolume of
goods and services. Such an excess can only be eliminated by fiscal and
monetary measures. Direct controls like mfcge and price fixing and
rationing are not methods of stopping Inflation at all. They deal vith
symptoms rather than disease lteelf. They merely divert soas of the
evil effects of Inflation underground and postpone the rest.
The cornerstone of a set of functional controls ami eeenomlc
stab11teatism yfogum must be fiscal measures including principally
higher taxes but also lower nonmilitary spending and a proper debt
management policy, k prolonged period of partial mobilisation like the
JL

one we fact# must be financed on a pay-as-you-go basis. This Involves




- 3 -

As
maximal efficiency in the spending of every tax dollar and «f maximum
volume of tax receipts ao that the Federal budget can be at least
balanced and preferably overbalanced.
An adequate tax prograa oust be combined vlth a restrictive
monetary and credit program If a functional economic stabilisation pro­
gram Is to work In stopping Inflation. People must not be allowed to
/ALu^'
bolster, through additional borrowing, and spendable Income that have
been reduced by higher taxes.
Basically, monetary and credit controls are needed to stop
the growth of private bank credit.
basis.

This cannot be done on a voluntary

Federal authorities must have the power to curb credit Inflation.

This can be done In a number of vsye but every effective procedure most
be utilised to decrease the volume of reserves available for use by
ZLty
commercial banks to back additional deposits which are^principal element/
In the money supply.
A program of fiscal and credit measuree Is an absolute essen­
tial for an effective economic stabilisation program In the current
situation.

It must be accompanied, however, by a limited number of

selective direct controls such as those ef certain scarce materials and
facilities and a vigorous program to Induce people to save.

A large

volums of new savings by Individuals and businesses Is required to
finance the larger plant, equlpmsnt and housing needs of a growing
economy.
If a broad and strong functional economic control program
Is not adopted promptly and pvt Into effect vigorouslyM the Inflationary




-

k

-

spiral Is bound to continue or a pervasive netvork of direct controls
and restrictions vlll be opposed without question. I Ither development
would be calamitous•
Inflation Injures most those least able to bare- Injury.
strikes at the(fremocratlcjcors oflcapitalism.
and moving force of our economic system.

It

It destroys the strength

It must be stepped. Direct:

controls vould not only seriously Impair the functioning of our economic
system but vould also lead to the weakening and eventual destruction
of the very aspects of our vay of life that ve are seeking to preserve
In our defense agslnst Russian Communism.