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To have advocated heavy government expenditures in a

period of depression and to advocate debt retirement now is no
evidence of inconsistency; on the contrary, both attitudes are
part and parcel of the same principle of compensatory action,"
writes Marriner S. Eccles, Chairman of the Board of Governors of
the Federal Reserve System, in an article to be published in the
April issue of Fortune in which he discusses how the present recovery movement may be kept from turning into a runaway boom»
"For my own part, I date the beginning of my economic
education to the realization that the economics of the system
as a whole differ profoundly from the economics of the individual
concern; that what is economically wise behavior on the part of a
single individual may on occasion be suicidal if engaged in by all
individuals collectively; that the income of the nation is but the
counterpart of the expenditures of the nation. If we all restrict
our expenditures, this means restricting our incomes, which in turn
is followed by a further restriction in expenditures, and so on.
"The problem of preventing booms and depressions, therefore, is the problem of insuring a flow of public and private disbursements just sufficient to call forth the optimum flow of goods
and services. An excessive volume of expenditures fsisglts in widespread overtime work, inefficiency, and rapid "price advances—an




"unstable and undesirable condition inevitably followed by reaction.
An inadequate flow, on the other hand, results in the nonutilization
of our human and physical resources and hence a lowered standard of
Chairman Eccles believes, therefore, that public agencies
should adopt a policy of compensatory action. But he emphatically
does not believe that this policy can be effective if it works only
along a single line of attack» For this reason he presents the problem in terms of monetary policy, fiscal policy (government spending),
foreign funds, labor and prices. He expects that closer monetary
control will soon be possible, but warns against putting too much
trust in it. Referring to recent reductions in excess reserves, he
writes, "It is expected that the remaining half billion dollars of
excess reserves will be absorbed in other ways in the course of the
year. Normally banks have a negligible amount of excess reserves.
When we return to this normal situation of no excess reserves credit
control measures will be felt more quickly and are likely to be more
"This single instrument, however, has its limitations. Although upper and lower limits to business activity and price movements may be set by effective monetary control, the distance between
these limits appears to be wide enough to permit fluctuations of
considerable magnitude. I am afraid that such fluctuations would




keep us far from our goal of stable prosperity and feel, therefore, that monetary control must be supplemented by other types
of action."
Fiscal policy in the future can show the compensatory
principle in a clear light. On this line of approach to boom
control the Chairman writes, "There is good reason to believe that
a policy of debt retirement acts as a salutary restraint, whereas
a series of deficits after a recovery movement has acquired momentum
on its own account unquestionably serves to aggravate and intensify
the movement.
"A final reason for rapid reduction in the government
debt in prosperous times is to make conditions more favorable for
its increase in bad times. On fiscal grounds it is desirable that the
federal debt be reduced to as low a point as possible so that there
will be no hesitation in increasing it when the need arises. As the
upward movement continues, therefore, provision should be made for a
rapid rate of retirement of the public debt."
Foreign investments here are a potential danger to us, it
is pointed out, because they would be turned into cash in case of
war abroad, with the result that there might be pressure to involve
us. This problem the Government is now engaged in studying.

Over labor and prices, public agencies have less control.




Discussing labor, the Chairman writes, "From the point of view of
an orderly upward movement and a sustained period of prosperity,
it is important that the share of the national income going to labor
should not be diminished. But the consequences of any further and substantial shortening of hours should be carefully weighed. In the past the
shortening of excessively long hours actually had the effect of increasing output per worker because of the lessening of fatigue. It is obvious,
however, that a point must be reached when any further shortening of the
time worked cannot be counterbalanced by increased output due to less
fatigue. This point probably varies in different industries, and there
are still fields in which the hours appear to be excessively long. By
and large, however, the present work week throughout large sectors of
industry can probably not be shortened without entailing a decrease
in output per worker."
Regarding prices, Chairman Eccles frankly confesses that

the chief responsibility for avoiding excessive price advances rests

on industry itself." But he points out that, "in the case of individual
runaway price situations in important fields, something of a direct
nature might possibly be done in connection with anti-trust legislation
and tariff policy."
In conclusion, he points the importance to stable prosperity
of a continuous flow of investment funds. The volume of such funds may
be somewhat checked by taxation, but what is left should have a proper
outlet. "The monetary authorities can help," he says, "by maintaining

relatively low interest rates. It will be borne in mind that I
am here discussing a long-range problem. The general interest-rate
structure might possibly experience some rise in the next few years.
Over the longer terra, however, I should be very surprised if interest
rates attain the levels prevailing throughout the late twenties; and
if they do I should be fearful of our ability to secure enough investment at such levels to maintain full employment."