Full text of Marriner S. Eccles Papers : Memorandum to Mr. Eccles, Box 46, Folder 18, Item 5

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BOARD DF GDVERNDRS
OF THE

FEDERAL RESERVE SYSTEM

Office Correspondence
Tn Mr. Eccles

p a te November 23,194s,
Subject:

Mr. Carpenter

Attached is a copy of the letter, and the accompanying
memorandum regarding a capital goods committee, -which Chairman
McCabe received from Mr. Burgess and to which reference was made
at the meeting of the Board this morning.

Attachment




V. Randolph Burgess
55 Wall Street
New York 15, N. Y.

November 19,

Dear Tom:
In accordance with your suggestion I am enclosing
herewith a draft of the idea we discussed at lunch.
This is £, little rough, but has been cleared with
Bob Fleming and Dave Williams, and I have discussed it with
Ned Brown. There hasnft been time to get the reaction of all
the others, but I think the memorandum fairly represents the
idea we had in mind. I am sending it to you at once at Wed
Brown's suggestion, because we know your problem.
With best regards,
Sincerely yours,
(Signed)

Honorable Thomas B. McCabe
Chairman, Board of Governors
of the Federal Reserve SSystem
Washington, D. C.




Randy

November 19, 1948.
Present Causes of Inflation in
Expenditures for Durable Goods

Whereas the increase in bank loans and investments, and in bank
deposits appears now to be checked, this is not true of expenditures for
durable goods, which show continued expansion.

These are financed largely

through the capital markets, through life insurance companies, or through
business savings.
The figures are shown in the attached table and chart, which
indicate that expenditures for new durable goods in 1948 are likely to
total about -i>57 billion. This is more then twice as large as in the late
!

20 f s, and shows an increase of §8 billion over 194-7.
It is in this area that the active factors in the recent infla-

tion are to be found, rather than in bank credit, which is the short term
operating fund necessary for current operations when the volume of the
country's business is so large.
With some increase in armament expenditures likely to occur, the
greatest danger of inflation lies in this area of durable goods. It is
these huge expenditures which tend to run beyond our supply of labor and
materials, and far beyond the amount of the nation's savings and lead to
sales of securities to the Federal Reserve Banks. Expenditures of this
sort have a doubly inflationary effect, because to a considerable extent
production in this field involves the payment of wages and the purchase of
materials, which creates purchasing power, but does not create the things
that individuals may buy with the money.
A large part of these expenditures is good and necessary for the
long tern progress of the country. We need no re houses, ..•lore utility




2
capacity, more hospitals, new productive machinejy, and new locomotives.
The problem is one of timing, lie huve been trying to do too much too
fast, and that has been largely responsible for rising prices.
If the present hesitation in business proves temporary, and the
inflationary trend is resumed, we ought to turn our attention to these
expenditures on durable goods as the active cause of inflation.

It is

there that something should be done to spread operations over a longer
period and so reduce the inflationary pressure.
If the same critical examination and campaign of public education were undertaken in this field as the bankers have voluntarily undertaken in the field of bank credit, the inflationary forces could be
dampened down.

The problem is, therefore, to find methods of giving

leadership and responsibility in this field comparable to what has been
done in bank credit.
Expenditures for durable goods covsr a vide range, from business
plantand equipment, through railroad equipment, housing, automobiles, and
public spending by the Federal government and by states and municipalities,
To deal with such a diverse group of institutions and people calls for
respected leadership.
It is suggested that a capital goods committee be appointed by
the President, consisting of such government officials as the Secretary of
the Treasury, the Chairman of the Federal Reserve Board, the Secretary of
Commerce, the Chairman of the S. E. C , and the Chairman ox the National
Resources Board; and consisting also of public representatives, such as a
banker, an insurance president, an industrialist, an agriculturalist, and
a labor leader.



-3It is suggested that this committee be asked to examine the
country's plans and program of expenditures for durable goods, and
recommendations to the government, to business, and the general public
as to what types of durable goods expenditures might wisely be postponed
in order to avoid congestion of plants and markets, and practicable
methods of achieving this goal.

The recommendations of such a committee

would carry great weight with insurance companies, business concerns,
and the Federal and state governments.
This proposal would have the advantage of focusing public attention on the place where the inflationary danger is greatest.

c



'•

.

Expenditures for Durable Goods
Billions of Dollars
25

25

20

20

15

15

•

10

10

1920



1625

1930

"

1935

1940

1945

1950

Expenditures for New Durable Goocjg
Billions of Dollars
Producers _mmmm Consumers
Plant &
Durable
Institutional Total
Equipment Housing Gooda Total
(Private)
Private

Total Grand
Public Total

1919

7.1

1.8

5.5

7.3

.2

14.5

.9

15.5

1920
1921
1922
1923
1924

8.3
5.2
5.8
7.9
7.7

1.7
2.0
3.4
4.4
4.8

6.4
5.1
5.7
7.3
7.2

8.2
7.1
9.1
11.7
11.9

.2

.3
.4
.4
.5

16.7
12.6
15.3
20.0
20.0

1.2
1.5
1.7
1.6
1.9

17.S
U.I
16.9
21.6
21.9

1925
1926
1927
1928
1929

8.2
9.1
8.8
8.8
10.1

5.1
4.8
4.6
4.4
3.2

7.8
8.5
8,1
8.6
9.2

12.9
13.4
12.7
16.9
12.4

,6
.7
.7
.7
.6

21.7
23.2
22.2
22.5
23.1

2.1
2.1
2.4
2.5
2.4

2325,
24.
24.9
25.5

193C
1931
1932
1933
1934

8.3
5.1
2.8
2.4
3.4

1.8
1.4

7.0
5.3
3.3
3.4
4.4

8.9
6.7
3.9
3.8
4,8

.5
.4
.2
.1
.1

17.7
12.2
6.9
6.3
8.3

2.8
2.6
1.8
1.3
2.0

20.4
14.8
8.7
7.6
10.4

1935
1936
1937
1938
1939

4.3
5.8
7.6
5.4
6.0

.8

5.8
6,4

6.4
8.4
9.5
7.4
8.6

.1
.2
.2
.2
.2

10.8
U.4
17.2
13.1
14.8

1.8

1.4
1.7
1.6
2.2

5.5
7.1

3.3
2.8
'3.4
3.4

12.6
17,7
20.0
16.4
18.3

1940
1941
1942
1943
1944

7.4
9.4
7.0
5.3
6.4

2.5
2.9
1.4
.8
.6

7.4
9.1
6,3
6.6
6.2

9.9
12.0
7.7
7.3
6.8

.2
.2
.1
.1

17.5
21,6
14.8
12.6
13.2

3.6
6.7
13.8
9.2
3.6

21.1
28.3
28.6
21.8
16.8

1945
1946
1947
1948

8.0
14.0
19.1
22.0

.8
3.4
5.5
7.4

7.7
16.2
21.0
23.0

8.5
19.6
26,5
30.4

.1
.4
.5
.8

16.6
34.0
46.0
53.1

3.1
2.2
3.1
4.2

19.7
36.2
49.1
57.3

.5
.4

7.7

Sources: 1919 - 1938 Federal Reserve Bulletin, Sept. 1939, "Estimated Expenditures for New Durable Goods 1919-1938", George Terborgh.
1939 - 1945 Federal Reserve Bulletin, Sept. 1946, "Estimated Durable
Goods Expenditures, 1939-45", Doris P. Warner and Albert
R. Koch.
1946 - 1948 - Confidential Federal Reserve Report, October 6, 1948,
"Estimated Durable Gooda Expenditures 1946-48", Albert R.
Koch.

v~



November 12, 1948