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B O A R D

O F

G O V E R N O R S

FEDERAL RESERVE SYSTEM

Office Correspondence
To

Governor Eccles

Frain

Date

February 9} 1951.

Subject:

Mr# Thurston

On page 3 of John Clarke attached statement before the Joint Committee on the Economic Report, he makes
i t appear that you are just a quantity-of-money theorist*
Having made that assertion he points out that i n the third
quarter of last year we had the ^most rapid price advance
when there was almost no change i n the volume of money" •
He then points out that the price advance slowed down subsequently when there was a very rapid increase i n bank loans
and volume of money outstanding* He then quotes our 1939
statement denying that prices can be controlled by changes
in the volume and cost of money•
I think the key to his thinking is on page 8:
"We should do with respect to credit what we are doing with
respect to other sectors of the economy, and that i s to apply
direct control of the volume of credit• « He adds that i f
w can control prices of k million business institutions and
e
f i x the wages of 60 million workers i t should be easy to deal
with the banks*
Finally, he makes the prediction that with the
shortages of goods, houses, etc*, there w i l l be such a
plethora of funds "that i t w i l l be absolutely impossible
through any rational open market operations to prevent
interest rates from going down*"

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