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T H E R.C. SLAUGHTER. PRESIDENT C i t i z e n O n a l B a n k ^ R P L U j y p 00,000.°-° CAPITAL A H . F. P R I E S T , VICE - PRESI O ENT W . H. L A N E . V I C E - P R E S I D E N T & CASHIER W . B . E A R LY. VICE-PRESIDENT O R A N G E , Y A . December 2 , 194-7 M r , M a r r i n e r S. Eccles Chairman, Board o f Governors Federal Reserve System Washington, D.C. Dear Mr. Ecclest I have read w i t h considerable care and i n t e r e s t your testimony given b e f o r e t h e members o f t h e Senate Committee on t h e Economic f t e p o r t . I t h i n k t h e business people o f the country are becoming q u i t e exercised over t h e proposals f o r t h e c u r t a i l m e n t o f c r e d i t . As you w e l l know, most businesses are geared t o r e c e i v i n g bank c r e d i t a t i n t e r v a l s . I have t a l k e d w i t h s e v e r a l o f t h e most successful and prominent business people i n t h i s s e c t i o n since r e c e i v i n g your statement, and t o a man they are v e r y much concerned about t h e f a c t t h a t t h e Federal Reserve Board has thought o f doing anything as d r a s t i c as what i s contained i n your statement; t h a t i s , i n c r e a s i n g t h e reserve on demand deposits by 25% and t h e reserve on t i m e deposits by 10%, the e f f e c t o f which w i l l be t o prevent p r a c t i c a l l y all, o f t h e lending power o f t h e banks from f u n c t i o n i n g . I t would seem t h a t the Board seeks t o convert t h e commercial banks i n t o d e p o s i t o r i e s ; and what e f f e c t i t would have on t h e business i n t e r e s t s o f t h e country i s o f course p r o b l e m a t i c a l , as nobody knows how f a r - r e a c h i n g the e f f e c t may b e . Most business men choose, as between i n f l a t i o n , and d e f l a t i o n , t h e former i n which t o do business. When t h e business w o r l d wakes up t o what i s r e a l l y proposed and t h e extent o f i t , t h e r e w i l l n a t u r a l l y be a tremendous r e v o l t against i t , and whether a few people d e s i r e t o take t h e step which i s o b v i o u s l y so unpopular w i t h t h e rank and f i l e o f business people i n t h e c o u n t i y who pay t h e taxes t o support t h e Government i s q u e s t i o n able. " When a boulder s t a r t s down t h e mountain-side, you c a n ' t stop i t u n t i l i t reaches t h e bottom; and i t i s much t h e same way w i t h d e f l a t i o n . When you once s t a r t i t you c a n ' t stop i t u n t i l i t scrapes t h e bottom. Another angle t o t h i s s i t u a t i o n i s t h a t t h e bankers, who have u s u a l l y been t h e goat i n f i n a n c i a l depressions, are not going t o take t h i s s i t t i n g down, f h e y are not going t o have t h e buck passed t o them as having caused a d e f l a t i o n , when as a matter o f f a c t i t w i l l be caused by other factors. Orange, V i r g i n i a December 2, 1947 Mr* M a r r i n e r S . E c c l e s - #2 I n t h e l a t e 2 0 s , i n t h e Hoover A d m i n i s t r a t i o n , Congress passed t h e Smoot-Jlawley T a r i f f A c t , w h i c h had t h e e f f e c t o f b u i l d i n g a t a r i f f w a l l around t h e c o u n t r y and f o r e i g n c o u n t r i e s were unable t o s e l l t h e i r goods h e r e due t o i t . They r e t a l i a t e d b y r e f u s i n g t o buy f r o m u s . As you w e l l know, t h e e f f e c t o f t h i s was t o p r a c t i c a l l y k i l l our e x p o r t t r a d e , and f r o m t h e passage o f t h a t a c t d e f l a t i o n s t a r t e d i n and i t was n o t stopped u n t i l t h e Second w o r l d War g o t under way. l o u w i l l r e c a l l t h a t i n t h e p a n i c o f t h e e a r l y 3 0 s , t h e banks were l a r g e l y blamed f o r t h e d e p r e s s i o n , and by t h e people who had r e a l l y caused i t t h r o u g h t h e enactment o f u n f o r t u n a t e l e g i s l a t i o n . She p o l i t i c i a n s t o o k t h e View t h a t t h e y c o u l d n o t accept r e s p o n s i b i l i t y f o r what t h e y had done, t h a t t h e bankers were n o t i n a p o s i t i o n t o defend t h e m s e l v e s , and b y v i c i o u s propaganda t h e y passed out t o t h e c o u n t r y t h a t poor b a n k i n g was t h e cause o f it. I p r e d i c t t h a t t h e bankers t h i s t i m e w i l l n o t t a k e i t l y i n g down and are i n a b e t t e r p o s i t i o n t o defend themselves t h a n t h e y were t h e n , and b y newspaper, magazine, r a d i o and o t h e r methods t h e y w i l l seek t o p l a c e t h e blame j u s t where i t l i e s , w i t h the p o l i t i c i a n s . With, much r e s p e c t , I am Very t r u l y yours, EGSskhp December 1 2 , 1947• M r . R. C. S l a u g h t e r , P r e s i d e n t , The C i t i z e n s N a t i o n a l Bank, Orange, V i r g i n i a • Dear M r . ^ l a u g h t e r : Because o f t h e n e c e s s i t y f o r almost d a i l y appearances a t v a r i o u s - JCoftgraasional hueacings y J r e g r e t , t h a t I have not been a b l e t o acknowledge more p r o m p t l y t h e r e c e i p t o f y o u r l e t t e r o f December 2 , 1947* c o n t a i n i n g your v e r y i n t e r e s t i n g commentary upon t h e r e s e r v e p r o p o s a l i n v o l v e d i n my t e s t i m o n y b e f o r e t h e members o f t h Senate Committee on t h e .Economic ^ e p o r t . The p r o b l e m o f course h$s many s i d e s and, speaking as an experienced b a n k e r , I r e c o g n i z e t h e n a t u r a l r e a c t i o n o f bankers t o any ad-" d i t i o n a l r e s t r a i n t s upon t h e i r freedom o f a c t i o n . However, my correspondence and c o n v e r s a t i o n s w i t h many o f them have made i t c l e a r t o me t h a t t h e y do n o t a l l t h i n k a l i k e on t h i s q u e s t i o n and s i n c e , i n a n o t h e r appearance b e f o r e t h e J o i n t Committee on t h e Economic Report on Wednesday, December 10, 1947* 1 had o c - , c a s i o n t o d i s c u s s i n more d e t a i l t h e arguments t h a t have been p r e s e n t e d , I am e n c l o s i n g a copy. I n t h i s c o n n e c t i o n I s h o u l d l i k e t o c a l l your a t t e n t i o n p a r t i c u l a r l y t o t h e f a c t p o i n t e d out on page 2 o f t h i s e n c l o s u r e t h a t t h e f e d e r a l a d v i s o r y C o u n c i l j o i n e d m t h t h e P r e s i d e n t s o f t h e F e d e r a l Reserve Banks and t h e Board i n December 1940 i n s u b m i t t i n g a much more r e s t r i c t i v e r e serve p r o p o s a l t h a n t h e one now under c o n s i d e r a t i o n . May I say t h a t I am g l a d t o l e a r n t h a t you as w e l l as many o t h e r bankers are t a k i n g t h e occasion t o study t h i s problem. I f e e l t h a t t h i s i s an e x c e e d i n g l y encouraging development no m a t t e r what t h e outcome o f t h e p a r t i c u l a r p r o p o s a l may be. Very s i n c e r e l y y o u r s , M. S. E c c l e s , Chairman. Enclosure ET:am
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