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June 23, 19U5

Attached is the text of a letter from Chairman
Ecoles of the Board of Governors of the Federal Reserve
System to Senator Robert F. Wagner, Chairman of the Senate
Committee on Banking and Currency, concerning the Full Employment Bill, S. 380# For release in morning newspapers
of Monday, June 25, 19U5.

June 16, 1945•

The Honorable Robert F. Wagner,
Chairman, Banking and Currency Committed,
United States Senate,
Washington 25, D. C,
Dear Senator Wagner:
This is in reply to your letter of March 3 addressed to various
Government agencies and others, requesting preliminary comments relative
to S. 380 now pending before your Committee. The Board of Governors has
given consideration to this measure and it has been under study by our research staff for some time,
I understand that various changes have been made or are to be
made in the text of the bill. Accordingly, at this stage and for the purpose of this reply, I am undertaking to make only some general comments
without discussing the bill in detail or presenting a formal opinion of
the Board covering a measure of such far-reachirg magnitude and implications.
If this bill or some similar one is enacted, Congress for the
first time will have recognized by a formal declaration that the Federal
Government has a large measure of responsibility for maintaining a satisfactory level of business activity and employment and that there should be
some broad guide and objective formally stated by the Congress to govern
governmental acts and policies affecting the Nation1s economic life. While
this would; of itself, mark a new departure, it would merely be a recognition of the facts (1) that the Congress has step by step authorized the
assumption by the Government of numerous responsibilities affecting industry,
commerce, agriculture and labor; (2) that the way in which these responsibilities are discharged, the manner in which they are financed, and the
timing and direction of various Government expenditures directly affect
economic activity and stability; and (3) that, therefore, Government acts
and policies need to be coordinated and harmonized so that their influence
upon the economy may help to sustain a i stabilize it at a high and expandrd
ing level of prosperity.
An over-all guide or mandate by the Congress is desirable. It
was my view, when the Banking Act of 1935 was pending in Congress, that the
Federal Reserve Act should contain some guide, or mandate, stating the objective towards which monetary and credit policy should be directed. As the

The Honorable Robert F. Wagner


June 16, 1945

Banking Act of 1935 passed the House of .Representatives, it contained a
mandate for the Federal Reserve Board to use its powers to promote conditions
conducive to business stability and to counteract unstabilizing fluctuations
in the general level of production, trade, prices, and employment so far as
may be possible within the scope of monetary action and credit administration.
Although this explicit mandate was omitted from the bill in the
Senate, the Reserve System has needed to h$ve in mind an objective such as
this section sought to state textualiy, and it has continued to b$ guided
by such an objective in formulating and executing policy.
Regardless of whether there is a formal statement of an objective in the law, acts and policies of Government in general should be directed towards the goal of economic stability and progress. Otherwise,
confusion and cross-purposes would result from uncoordinated action and
policy undertaken by a host of different Federal agencies according to
differing concepts or interests. Nèvertheless, foratói declaration by the
Congress of a broad objective of ptìlicy would-make for better coordination
and would help to develop the basic criteria by which to judge whether given
acts and policies should or should not be pursued*
As you are well aware, the drafting of appropriate language in
which to state the broad objective or declaration of policy presents difficulties;. The Board of Governors froin time to time has given consideration
to this matter in connection with bills introduced in Congress that proposed
to direct monetary authorities to make their objective the achievement and
maintenance of a. specified domestic price level. In a public statement on
July 30> .1937f commenting on such proposals, the Board said:
"The,Board assumes that, while price stabilization is stated
as the objective of such proposals, the authors regard "stability
of prices merely as a means toward a more important end, namely,
the lessening of booms and depressions and the increase: in'the
national output ana weix-oeing, in the belief that through the
maintenance of a stable price level the broader objective will be
"The Board 4s in /full agreement with the ultimate objective
of the. proposals ,tp promote economic stability, which means the
maintenance of 4s fuli émpiòyment óf labor and of the productive
capacity of the count jy' as,can tè : continuously sustained*"
The statement said in conclusion:

To sum up, the Board believes that economic stability rather
than price stability should be the: general objective of public
policy. It is convinced that this objective cannot be achieved by
monetary policy alone, but that the goal should be sought through

The Honorable Robert F. Wagner


June 16, 1945

"coordination of monetary and other major policies of the Government which influence business activity, including particularly
policies with respect to taxation, expenditures, lending, foreign
trade, agriculture and labor.

It should be the declared objective of the Government of
the United States to maintain economic stability, and it should
be the recognized duty of the Board of Governors of the Federal
Reserve System to usé all its powers to contribute to a concerted
effort by all agencies of the Government toward the attainment of
this objective."
In the draft of S, 330 enclosed with your letter, the objective is
stated in terms of "continuing fùll employment". While this reflects a universal aspiration, it does not express'with sufficient exactness what I believe the proponents of the bill have in mind. There might be continuing
full employment in a primitive economy with a very low standard of living.
That, manifestly, is not what is intended.
It would be equally incompatible with the bill's declared objective of "continuing full employment" to construe that phrase to mean that
there should be "more jobs seeking men than there are men seeking jobs",
as full employment has been defined, for instance, in some quarters in
England. We have more jobs seeking men than men seeking jobs under wartime
conditions, but the labor force is greatly expanded by many who in peacetime should be in school, or retired, or who would be occupied in the
household, and maximum levels of employment and production are attained, at
the cost of heavy budgetary deficits. To curb the vast inflationary pressures generated by such wartime conditions, a degree of regimentation and
control of the economy is necessary that would hardly be' tolerated by the
public in peacetime and, in any case, would be inconsistent with a democratic, free enterprise system. The inevitable result of forcing a peacetime economy to the levels of employment and production attained under the
pressures of wartime would be uncontrollable inflation and subsequent economic collapse* In other words, full employment in this sense could not
be long sustained.
The question, therefore, which I should like to raise in this
letter is whether the over-all objective for Government policy should be
stated in terms of "full employment" or "continuing full employment", or
whether in re-drafting the bill, its proponents would wish to consider restating the objective in terms of maintaining economic stability at as
high a level of employment and production as can be continuously sustained.
What is sought, it seems to me, is a general declaration that
Government action and policy should be directed towards the goal of stabilized economic progress, with the greatest possible encouragement to
individual initiative and private enterprise and with the fullest sustainable employment of labor. The Government, therefore, should be concerned
primarily with such measures and policies as would create a climate

The Honorable Robert F. Wagner

June 16, 1945


favorable to private enterprise and private employment, and would prevent
the irreparable losses resulting from deflation or inflation. T&e continued regimentation of the economy that is necessary to prevent inflation
in wartime would be intolerable afte? peace has been restored and convert
sion to peacetime production has been completed,
I am in accord with suggestions already made to the authors of
the bill for considering what may be done to stabilize such important sectors of the economy as, for examplet the building and construction industry.
And I agree with other comments you have received which point out that it
would be preferable to place more emphasis upon the interrelationships of
all sectors of the economy and on the responsibility of all groups to help
in working out desirable long-range and counter-cyclical programs in various
fields, and to place less emphasis upon.the Federal Governments residual
responsibility to intervene with large expenditures as offsets for deflationary conditions. In other words» the emphasis would be more on stability,
rather than on what can be done when instability has been permitted to develop.
Other questions are raised by those parts of 'the bill dealing with
procedure for formulating and presenting programs to the Congress. I shall
not, however, attempt in this letter to discuss these provisions, on which
you have already had suggestions tvom many in the executive as well as in
the legislative branch of the Government,
In what I have said, I have had in mind the four questions in
your letter without undertaking to answer them categorically. With regard
to the question as to. what, assumptions, if any, have been made by the Federal Reserve with regard to the postwar level of the gross national product,
the national income and, employment, I perhaps should add that the Board of
Governors- has made no. formal, official assumptions or forecasts, since there
are many possible patterns that may develop, depending upon many unpredictable
factors, including the military situation, governmental policies, and programs
and decisions of businesses and individuals in a situation-for which there
is no precedent. The Board, however, necessarily considers from time to
time various possibilities of future developments, which are worked out in
more or less detail and presented to the Board by its research staff,
Finally, I wish to express appreciation of this opportunity to
make preliminary comments and to add that I hope the Board may be given an
opportunity to present testimony at such time as the bill may be taken up in
hearings before the Committee.

Sinesrely yours,
(Signed) M. S. Eccles
M. Sf- Eccles,