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September 16, 1943«

Honorable James F. Etyrnes,
Office of War Mobilization,
East Wing of the White House,
Washington, D. C.
Dear Mr. Byrnes:
You will recall that some two weeks ago I discussed
briefly with you some aspects of the reconversion problem.
We have been giving continuing thought to this mat­
ter here at the Federal Reserve. As a result of recent dis­
cussions, there has been prepared try a committee representing
the Board of Governors and the Conference of Reserve Bank
Presidents, a memorandum which contains a brief statement of
the problem as viewed by the Federal Reserve System. I am
transmitting a copy of the memorandum herewith.
Because of its broad responsibilities in the bank­
ing and credit field, the Federal Reserve System is particu­
larly concerned with the financial problems impending during
the reconversion period. Moreover, through the System's ex­
perience in administering industrial loans under Section 13b
and war production loans under Regulation V, the System is
in a position to assist in working out the financial part of
a coordinated program suggested in the memorandum. I should
be glad to discuss this matter further with you if you should
so desire.
Yours very truly,
(Signed) M. S. Eccles
M. S. Eccles,

Need for a Coordinated Governmental Program Relating to the
Reconversion of Industry

As the war progresses, there is a growing demand for the devel­
opment of plans which will facilitate the reconversion of industry to
civilian production. Business organizations and local authorities are
showing a growing concern over a variety of problems with which they will
be faced immediately when contracts are terminated. They realize that
prompt solutions will be necessary if reconversion is to proceed with a
minimum of delay and in an orderly manner. It is believed that full pro­
duction for war would be greatly facilitated from now on if assurance
were given that the Government is working out a comprehensive and coordi­
nated program relating to reconversion of industry. This memorandum
suggests such a program; it is not concerned with the many other postwar
Some of the more important reconversion questions are;
Will provision be made promptly to clear privatelyowned plants of Government-owned inventories and equipment
after termination of contracts? What plans are there for the
disposition of surplus inventories held ty the Government and
by industry? In what cases may it be desirable temporarily
to continue production on Government contracts?
What disposition will be made of Government-owned
plants and machinery? Which plants will be operated, sold,
or closed?
What additional measures may be needed for the pro­
tection of subcontractors?
Will there be adequate provision to take care of
financial problems? How promptly will payment be made on
terminated contracts? Are existing facilities adequate to
provide prompt credit for the release of working capital
pending such payment? Are special provisions needed for cap­
ital and credit requirements, both for reconversion of war
industries and for réadaptation of civilian lines of activity,
such as service industries, to peacetime conditions?
How will problems which arise out of demobilization
from military service and the discharge of workers from the
war industries be handled? Drastic population shifts will
create serious problems for local business, real estate owners,
and local Governments.
As things are now, each war producer finds that his situation
depehds on the solution of not one but several of these questions. He

-2finds that Government agencies are individually working on specific re­
conversion problems. The procurement authorities are now giving active
consideration to the many problems relating to contract termination, but,
in general, these responsibilities cease when settlement of contracts is
completed. A related question is the disposition of Government-owned
plants and machinery, which represent about one-fifth of total manufac­
turing capacity. Agencies concerned with such matters are: the Army,
the Navy, the Maritime Commission, the War Production Board, and the De­
fense Plant Corporation.
A variety of agencies is concerned with the impending problems
of unemployment and reemployment. Such problems will be of tremendous
magnitude compared with those following the last war. The aggregate num­
ber of people who will be seeking reemployment during the course of the
reconversion period may approach 20 millions. The situation will be
especially acute in some sections of the country where war-built plants
have created excess industrial capacity. A number of Government agencies
are now working on programs to spread out the demobilization process over
a period of time, to assist persons in finding new employment in private
industry, and to consider other ways of meeting many local problems.
Among the agencies particularly concerned with these questions are: The
Department of Labor, the War Manpower Commission, and the Federal Secu­
rity Agency.
Financing of business during the reconversion period is an es­
sential part of any coordinated program. Adequate funds should be as­
sured to deserving companies which cannot secure them through regular
banking connections on the usual basis. Because of its broad responsi­
bilities in the banking and credit field, the Federal Reserve System is
particularly concerned with the financial problems. It has had valuable
experience with the guarantee of loans made by private financial institu­
tions and will continue to be engaged in the administration of Regulation
V loans during the reconversion period.
Each Government agency attempting to study its own special ques­
tions relating to reconversion finds itself handicapped by having limited
knowledge of or authority regarding other phases of the problem. No one
agency has responsibility or authority to deal with the full range of
these problems. Much more could be accomplished during the war on the
over-all problem— with no disruption of the war effort— if the studies and
planning of the various agencies were coordinated.
To accomplish this, it is suggested that an official be appointed
with responsibility for developing a program. This official should have
authority to coordinate work in the various Government agencies on recon­
version problems. He should have an advisory committee on which agencies
with particular responsibilities in the field would be represented,