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r\
fTiO
K Y COXFIDEim
for
n i !
REGULAR MEETING
of
ACCOUNT MANAGERS
(Held on Monday Afternoon,
APR § iq\j
)
C O N F I D E N T I A L
IMPORTANT NOTICE
The following minutes of our regular Monday Account
Managers' Meeting are compiled primarily for office
records and for the private use of our staff.
The comments, extempore, are recorded by a stenotypist and are consequently in an informal, conversa
tional vein. Specialists are usually limited to four
minutes and in order to facilitate prompt distribution
the records are not corrected for errors or style of
delivery.
Despite their shortcomings, they are released to you
because they do afford a rough and general up-to-date
survey of some aspects of the economic situation.
Please treat these minutes in the strictest confidence.
C. WILLARD YOUNG.
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5 -
MR. INGALLS: When Mr. Helmer asked me on Wednesday or Thursday to speak on the
subject of 'Money and Credit and Governmental Financing and its bearing on the adV a n ce or
^ t.ha Standard nf Living w|fth a»Phre<yast £QE„La54. 13&>T apa~
1956i1 t wan. m «av L M laSSt. aaL!U?flte<rX6 have the opportunity to do so, out as
Gladstone once said, I shall have to apologize for making a rather long talk be
cause I have not had time to prepare a short one.
To put your mind at rest, I think the conclusions that I shall be reaching in
here are very largely parallel to those which Mr. Helmer has presented. This
problem of the advance or decline in the standard of living involves, to ny mind,
a most interesting atudv of a very vital problem of humanities. Because it is so
human a matter, in attempting to assay the subject from the standpoint of the
bearing of money and credit and governmental financing I shall try to speak only
in homely terms rather than boring you with the complex and not to say often dry
arithmetic of the subject.
You will recognize as I proceed that I have drawn very heavily on Mr. Young's
work and studies in arranging and rounding out the thoughts which I present to
you. I think you will agree that this is fortunate in view of the breadth of the
studies that he has made and his broad and vexy deep interest in the humanities
of the whole problem, including •feat of investing.
In order that we may more clearly follow the discussion together and arrive to
gether at a mutually better understanding and more concise conclusion, a few
definitions at the start seem almost indispensable. If I appear to be dwelling
on very elementary economics, I offer my apoligies in advance because I, myself,
can only see the simple things.
First, an improvement in the standard of living to all of u« moans enjoyment of
the use O f more and ctot»» goods and
. I think you will' agree
■cnat iheenjoyment of using goocls anS coiiiSB'iSIfig ¿¿irvTceS^is much enhanced when we
have ihe assurance and feeling of security of being permitted to continue to enjoy
the goods and services throughout our lifetime without impairment by the govern
ment. I think also that the enjoynent is further enhanced when we have the assur
ance of being able to look forward to passing on at least a reasonable part of
our goods to those who are now dependent on us, bar the next generation.
In further defining the standard of living, no explanation of the service element
appears necessary but let us keep constantly in mind that physical goods are
always products of nature, either natural resources or things grown by nature,
plus human sweat or, to be a little more polite^ I might say human fatigue, plus a
varying but ever-expanding percentage of mechanical fatigue.
Not only must we keep this concept of goods constantly in mind but we must also
avoid the error, which is a common, serious error, of thinking of money as goods.
It can never be more than the symbol of wealth or the measure of wealth and the
measure of value of goods.
To emphasize this point with a rather homely example,-I should say that if you or
I were naked in the wilderness with a satchel full of one thousand $1000 bills,
our standard of living would be zero except for the doubtful utilitarian or
nutritive value of the satchel or paper,-which leads me to attempt to define spe
cifically the subject in hand, namely, money, and Its bearing on the standard of
living.
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I think it will be generally conceded that we have in this country all of the
widely diversified natural resources and all of the willingness to sweat and all
of the mechanical means necessary to obtain a .much higher standard of living than
we now have.
I refer for a moment to a study by the National Bureau of Economic Research which
indicates that the total number of persons who could have been fully employed
in 1952 was 44,500,000 out of our total population of 120,000,000, indicating that
about two others were dependent upon each person that could boemployed. This
study further indicates that of this number,(44,500,000),
8,600,000 were out
of employment. That would mean that three times this or 25,800,000 people, in
cluding the dependents, were, to say the least, suffering a reduction in their
standard of living. Furthermore, the study estimated that of the 25,400,000
people «ho were employed earning salaries and wages, the average annual income of
those 25,400,000 was $1,250. X submit to you that such an income for three persons,
or an average of $416 per capita, does not provide a standard of living that any
of us would feel right in calling adequate.
Furthermore, X feel safe in assuming that at least one-half and probably twothirds of the 25,400,000 earning the $1,250 per year had justification in believing
themselves and their dependents, totaling 35,800,000, to be living at definitely
sub-standard levels. We have, thus, a total of close to 60.000.000. or ona-half
of our prtpnifl-hifm- eager for and the vocal element of that portion actively de
manding an Increase in the standard of living. That means an increase in the
volume or goods and the number of services Which they can command.
Why, then, do we suffer as we have suffered in recent years in the midst of this
plenty aforementioned? Mr. Young has ably covered this question from many angles
in his various studies.
my further remarks are merely going to be couched in terms of the monetary system
and will probably not present many new ideas but X think they are valuable enough
to restate in terms of the monetary problem.
Now - more elementary economics. Two people can probably readily exchange their
mutual goods and service to advantage on the basis of direct bar&eiv. One hundred
people would find it very difficult to do so. I think we are safe in saying that
120,000,000 people cannot physically do so. Hence we come to the necessity of
recognizing money or the medium of exchange as the indispensable and probably most
vital part of our whole economy, its function being to facilitate a wider and
wider distribution of more and more things and more and more services amongst the
people using the money.
Any commodity would serve as money for a medium of exchange and many have been
used in the ages past. We, at the present time, use some metallic coin, a rela
tively small amount of fancy engraved paper, and a relatively large volume of paper
bearing our own names, that is, checks against our bank deposits. We also use
open credits like charge accounts at the stores and open lines of credit with the
bankers of a proraise to put additional deposits to our use when, as, and if we need
them, provided we can convince the bankers we are able to repay.
The sum total of these things and nothing else and no one single item in ny defi
nition constitute our’
Moneo?" and whan I refer to money hereafter I shall be covering
all of these items.
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5 -
We deal in this money in units called dollars and these units are generally ac
cepted within our borders in the process of exchanging goods and services and
improving our standards coramensurately. While these instruments are acceptable
to most of us in the United States, long precedent and usage have established
gold as the one commodity acceptable as a sfedium of exchange among other peoples
throughout the world. Because this is so and because it has become so, it is easy
to see wiy nations desire to see their own medium of exchange related in some way
to the international money for the sake of preserving some stability in trade
relations in order to permit trade to be carried on.
So much, then, for definitions. But before leaving them, let me again u rge that
we clearly avoid the idea of money as wealth and think about it only as a medium
of exchange or a measure of wealth. As Sir George Paish very ably said in a
recent meeting of the Academy of Political Science:
"Gold internationally (I might add, money within our own borders)
is the servant of trade. If you trade carefully, gold (and money)
will take care of itself but if you do not trade. your money will
become idle and vour sta n d a rd o f l i v i n g - w i l l be d e s tr o y e d and"
if it is copt.lm iftd ton lo n g , the
destroyed."
Coming back once again to economics and the question of trading and barter. Inas
much as not over, I shall say, 56/l00ths of one per cent of our present trade
is conducted on the barter basis, leaving"99-44/lOOths*1purely based on medium
of exchange, is it not apparent that the paramount factor of importance is to
have always a supply of money adequate to carry &■ volume of trade commensurate
with the standard of living and the degree of sub-division of labor whicn we aesire
or demand? When I say "we1’demand, I am thinking of that 50 per cent of our pop
ulation that is sub-standard and which, to the greatest degree, is the political
force at the moment.
Furthermore, if the function of money is to facilitate the wider and
d is
tribution of more aii^ more gootkj and s e r v ic e ^ . is it not equally important to have
adequate supply so distributed and so circulating at all times or at any time
in such manner that the big demand for goods and services can be turned into an
effective demand and therefore result in desired exchanges being consummated?
I believe that any student of logic would agree to these two corollary proposi
tions. I believe that this simple logic is not only the backbone of the present
administration1s program not only ihr Recovery but for Reform but also that it
should be the constant guide to all thinking and to all attempts to direct and
improve the standard of living of the people.
Likewise, from the pages of logic, if we admit that it is impossible for any large
number of people to maintain the standard of living by barter, do we not also have
to admit that the same people as a mass of individuals would be incapable of
managing the medium of exchange in their own best interests? Yet the importance
of the medium of exchange is so great that if it is not controlled, it is likely
to be the Frankenstein and turn against us, as it did after 1929. Here again I
believe that this is the second great conviction of the administration and one
that has some justification in facts and figures and logic. In other words, if
the Administration believes that. It is
nf tlm
laissez faire economy tora&ch we have been accustomed under previous administration
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from time to time.
I speak with emphasis and feeling, born of a conviction which may perhaps be
biased because of my constant studies of monetary matters, but others will have to
correct ny own judgment and correct the logic for any bias that may be inherent
in it.
If I, therefore, have leave to proceed under the premise that
of
adequate supply and, w h o l ^ m « distribution of money are the dominant factors of
importance to us all. I shall be pleased to submit ny Ideas to your criticism.
As I go on, I shall try and make clear, first, how, by failing to control these
two factors and manage this monetary problem we (1) arrived at the boom times
in 1929 and (2) found ourselves in the lamentable conditions culminating in March
of 1933. Then I should like to tie the subject in with the explanation of how
the a d m in is tr a tio n la t r y in g to correct, t.ha
far seizing the control
of these two f a c t o r « . An attempt will be made further to classify the Government
agencies and their functions in carrying out the various parts of the readjustment
program. Further, an effort will be made to submit an appraisal of the adminis
tration* s success to date and their probable success in the near future,, partic
ularly within the period ending in 1936 which we have under surveillance at the
moment, in conclusion, I hope to present an estimate of the time factor and the
cost factor involved in carrying lie readjustments through to a necessary con
clusion.
In order to clarify the subject of m a ld is t r ib u t io n . I turn to a familiar chart,
reproduced herewith, which you will recognize as a section of the C. W. Young & Co.
Weather Map, which you have often seen and heard explained by Mr. Young, as rep
resentative of typical movements of all business cycles. I have merely added dates
and made slight modifications to illustrate the period under review.
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7 -
The top line, as áiorai, represents production and the bottom line consumption. Con
verting those into monetary terms, I should say that the sum of the two lines rep
resents the total volume of money in use adjusted for velocity of turnover, while
the bottom line represents the money flowing into
n f nnnsnrnnt.lon. as
M r. Young has it, and the top lino represents money flowing into
nf p ro -,
ductiojk We are trying to Show that because of the fact that so much business is
dono on the basis of a medium of exchange that the Government may have some
justification in trying to manage, and control the medium of exchange and its dis
tribution so as to avoid these swings in the future.
In the first place, recovering from the depression ending in 1920, we went along
at a pretty even keel on recovery. I have not tried to put in the details of the
movements. Let us assume that a reasonable balance of funds was flowing into
consumption and into production. Beginning in 1924, however, the supply of money
began to go up at a nore rapid ratej production started to go up faster than con
sumption. I have maintained that that movement was duo to the fact that the money
supply was being increased largely by the supply of foreign loans created in this
market and that the foreigners receiving the money re-entered our market as buyers
of capital goods and that the consumers in this country had no share in the bene
fits of that increased money supply because while the trend was kept up and stimu
lated by loans,the proportionate amount going into domestic consumption fell off.
When foreign loans were stopped in 1928, it would have been reasonable to expect a
contraction in the whole supply of money. However, the speculative boom that had
been generated by this activity in the heavy goods industries up to 1928 carried on
so that the money supply was further and further increased by the pyramiding of
capital assets back into banks and the expansion of bonk loans and deposits, which,
as pointed out, is the most important element of our econony.
You will all recall the phenomenon of 1929 when people were putting cash into the
market rather than going out and spending it for automobiles or houses which they
might havo been fully justified in buyingj in other words, they were not consuming
and the proportionate amount going into consumption fell off very drastically, more
drastically after ■fee crash than before, but indices show that as early as August
or September, 1929, the consumption trend turned down.
If tho amount of money in the hands of the people willing to spend it is less than
the value of goods the producers are anxious to sell, either the prices of those
goods will be lowered in order to move the goods at sacrifice sale prices or tho
volume of production will be curtailed, which would, in turn, accelerate the rate
of decline in the spendable money in the hands of the wage earners. Usually both
things happen when such overproduction has taken place. That is exactly what hap
pened at this phase (1930-1952¿.
Likewise, in respect to capital goods as well also as real properties such as
homes and fixed assets which we use in our standard of living, when the supply of
money in the hands of people willing to invest it ceases to increase - I do not
say falls off but ceases to increase - the value of capital goods, homes, etc.,
also ceases to increase. If, at the same time, the supply of capital goods keeps
on increasing, it must be priced lower than immediately theretofore and sell at
lower levels, thus reducing the market value of comparatfle capital goods already in
existence.
You recall that that took place. There was an attempt to stimulate
production but no }?old attempt to level off the supply of money at the time of
the Hoover 'tooon"in 1950.
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Therefore, when you get a disproportionate amount, as in this phase (1928-1929).
of the total increase of money going into capital goods to the detriment of consumer
activity and trade, you ■will get a leveling off of the standard of living, which is
had enough in itself. But when you have suffered such a situation to he created ty
failure to control a more balanced distribution of the increasing volume of money
and then permit. a sudden sharp contraction to occur in the absoluta_auiaJg or
volume of money, the result to be expected can bp nothing but the chaos which we
have been through in 1929 to 1933, which, incidentally, as Mr. Young pointed out,
leaves a level of debt behind it something like that shown by the.dotted line.
So much for the review of the maldistribution of money.
On the question of the qpntraotion of supply. I speak advisedly having in mind the
definition proposed for "Money”itself. This contraction was measured ty the extreme
drop in bank deposits which was caused ty a
which, in turn, was
accentuated no less than three times ty very sharp and sudden arid voluminous withrdrawals of short term halnrmfts far foreigners. A third factor of the subject, which
is a sub-factor of volume of money or supply, is the matter of the decline in
velocity or the decline in the effective amount of money in use. This decline in the
volume of effective money largely is due, sociologically speaking, to the fact that
people do persist in thinking of money as the actual wealth rather than as the
symbol of it; that is., »hen fears a rise , paonl« hoard the physical money rather.
than 'faying to convert it into goods. This naturally restricts the outstanding suppxy of effective money. This was first evident in the lower turnover of bank de
posits immediately following the collapse in 1929. People, beginning then and r.ox'e
particularly after the crash of the Bank of the United States in 1930, were nore
careful about spending their deposits} they were trying then to conserve their
surpluses; later it took the form of actual hoarding of currency and in the last
stages the demand arose for metallic gold for hoarding purposes. When you try to
hoard metallic gold, naturally it forces the rate of decline to become steeper
because of the fact that gold is the base of tho pyramid of our credit structure
as we know it .
It is unnecessary, for the purpose of this discussion, to review the activities of
previous administrations which caused the above mentioned forces to operate in the
direction indicated nor is it feasible to review the futile attempts of the Hoover
Administration to counteract their action. Looking, however, at the Roosevelt pro
gram from the standpoint of the money and credit problem, he appears to be attempting
correction of the above conditions along these lines:
First, redistribution of -the money so that the flow will be more into the consumer's
pocksetbook and less into the investment ch&nn&LS.
You may quarrel with this inas
much as, at the present moment, according to Itr. Young's diagram, the rate of pro
duction has fallen materially below the rate of consumption.
I might go back here to point out that, in ny opinion, some, time in.. 1932 or at
least ty March of 1933,
as the standard of living dropped so low, people at
that time started to spend their savings in order to maintain their decent standard
of living (at a very low level). This again is the redistribution and the correction
of the maldistribution which I am pointing out.
The methods of effecting the redistribution include primarily the measures of
and direct employment and loans to industries, not because
the Government has any love for the industries but in order that the industries may
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9 -
be kept alive to maintain employment and hence maintain consumption. Many other
measures fall in this category of attack, including the whole NRA program, the
W agner labor bills, which may be ill conceived, and various other drastic measures
which cannot have full approval or approbation.
So directing the flow of funds to wage earners, small home owners, is, in my opinion,
doing a very constructive and necessary thing particularly in view of the political
pressure for ¡x start towards the reflation or expansion of the supply of money rep
resented by that 50 per cent of our population mentioned before.
In lo o k in g for sources of funds to be redistributed, the major source and fountainhead naturally and logically would be the wealthy or reptile tdio Arffiim.ilAt.ed capital
in this era on down th e scale and have more money lv in g idle thanthey need at the
g£gggjjt. This is done by increasing the rates of income tax. I might say nere
that it offers at this time a very valid explanation of why the sales tax has been
disallowed as a matter of federal policy because the sales tax applies to all people.,
that is, the wage earners and you and me and everybody else, and would effect no
redistribution, which is what appears. necessary if they are to. follow the direct
track of attack at all.
The second source of funds is taxing the next generation:i.e. borrowtog now, taking
the inactive money out of the hands of people who have nothing to do with it by
forcing them to buy Government bonds, taking the unemployed money out of the bnnks
by forcing the banks to buy Government bonds.
The facts and figures tend to substantiate these general statements which I nakc.
In appraising the results to date as to the correction of this maldistribution, I
think we can concede that a study of the bonking and monetary figures shows that mal
distribution has been, to a very, very large degree, corrected.
First, total bank customers1 loans, the individual’
s loans, are down a terrific
amount. Not only in- the absolute volume but in ratio or relationship to the total
individual customer’
s deposits. The individual custoraerhap a mich_graater ^ftendablo
balance now than at ag3Ljy^_gjnee_19£9^.
Second, the creation of new productive capacity practically ceased at the end of
the Hoover drive in 19S0 and in the interval the flow of money into productive
Third, a more realistic attitude towards tariffs and rejuvenation of foreign trade
is apparent with the creation of the import-export banks and the attempts of the
President to get into his own hands the deal-making power to rejuvenate such trade.
In the matter of enlargement of the supply of money and the methods to control such
supply, wo should include the well known attempts to get bank credit to expand.
Under this heading we have the whole series of moves creating very cheap money
through the medium of expanding excess reserves by the Federal Reserve open market
operations, revaluation of monetary gold stocks, that is, giving, oar. baseoa ouch
larger value; but more directly, however, the efforts to increase the supply include
payments to depositors of closed banks, threats of direct payments to war veterans,
purchases of silver, gold and other commodities. Provisions aimed at controlling
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10
-
the supply of money in the future include the various gold embargoes, anti-hoarding
As far as success in enlarging the supply of money is concerned, I cannot be so
enthusiastic. l$r preliminary studies based on adding up the total coin and currency
bank deposits and weighting the bank deposits for the factor of increased or dim
inished turnover appear to indicate that there has been little or no absolute in
crease in the amount of effective money in use.
The fact that the Government debt has increased by some $10,000,000,000 since the
end of 1931 has to be explained. The explanation, I think, is relatively simple.
In the last analysis, the increase in debt has merely served to assist individuals
in reducing their own indebtedness to banks, to mortgagees, and other creditors,
and has permitted the banks to decrease their indebtedness to other banks, including
the Federal Reserve, and more recently to permit the banks and other corporations
to reduce their indebtedness to the Reconstruction Finance Corporation, the Govern
ment* s own agency. You will recall that the early operations of the RFC were largo.i;
to prevent old loans from being closed down and fording corporations into receivnrship.
The actual decline in volume of deposits very closely approaches, if it does not
exceed, the $10,(XX),000,000 increase in the Government debt. The decline in de
posits started, as you recall, in November of 1950 but did not become critical until
June of 1931. The Government debt started its increase at the end of 1931.
The actual money in hand-to-hand circulation does continue somewhat above the low
levol of 1930 and much above the level which we consider reasonable for the present
state of trade. I am talking about actual coin and bills rather than checks. A lar{
part of this increase, which is not over three-quarters of a billion dollars, may
be explained ty the fact that such circulation is necessary in communities where
baiicing facilities have been destroyed.
I feel here that I shall have to insert something which I do not have in ny notes
and that is to just re-emphasize the fact that Mr. Helmer has brought out, that the
power to expand ., the excess reserves on which this monetary supply will be built
are present and present to a degree which, if restraint is not exercised, once the
movements gets under way, will shoot so far beyond the 1926 and 1929 levels that I
should hate to be here. That is, there are grounds for being very much concerned
about inflation or reflation getting out of hand in its early stages to such a degree
that control later might be difficult.
Efforts to increase the velocity of money have been moderately successful as evi
denced by the fact that hoarding tendencies have been largely dissipated. A more
general feeling of confidence and courage has accompanied the Administration’
s ac
tivities. I shall have to further qualify that later but I think it was certainly
admitted to be the case soon after the banks began to reopen in the spring of 1933.
Of greatest importance in this connection is, of course, the higher turnover brought
about by direct Government spending, particularly in respect to the aongffjLJ2£M-£2£—
_
11 -
direct relief and employment, The rate of turnover of bank deposits, even including
Government bank deposits, however, does remain substantially below the 1926 level
by about 20 per cent on an index basis and only about 30 per cent over the low levels
of March, 1955.
There is much room for improvement and it is to be hoped that confidence will be
further restored in order to accelerate the turnover of money in trade uses and hence
to hasten the expansion of trade and improvement in the standard of living. Efforts
to further increase the velocity of turnover will doubtless be pursued by reopening
more banks and liberalizing the Security Act to permit more active refunding of
capital issues as well as to stimulate new capital enterprises. Increases in wage
payments cannot help but tend to accelerate the turnover of deposits and currency.
This is important, I think. The Administration always has the recourse to stimulate
inflation psychology which operates very forcibly and rapidly to increase the rate
of turnover. The means by which the Treasury can exercise this threat are four:
First, spending part of the gold profit by issuing gold certificates to the Federal
Reserve Banks. (As Mr. Helmer pointed out, that has been done to the extent of
about $150,000,000 since February 1st. It is too early for me to conclude that the
immediate day-ty-day or week-'by-week trend will continue in that direction. But for
vteb purpose did they revalue gold? If they do not spend the money in some fora or
other it will not do the Government any good to keep it idle in the vaults under
ground.)
The second means of exercising this threat of inflation is, as Mr. Helmer pointed
out, ty calling in Government bond issues and stating that the Government will pay
therefor in cash. This would be another disguised operation similar to the issuing
of irredeemable gold certificates.
Third, a further upward revaluation of gold or threat of upward revaluation.
Fourth, promising to do something for silver.
In so far as any one of those threats would tend to force you or me or this firm or
anybody else to expatriate capital, it would operate to contract the supply of money
which we are so anxious to expand. However, the type of funds which respond to that
threat are, ty and large, the inactive hoards or idle capital which the Government
recognizes have no particular active value in stimulating consumption and if it
left the country, I doubt if we should be rnch worse off than we are now. I think
there is -a flaw in ny economics there but I shall have to reason it out a little
further later.
The Administration’
s efforts to relieve the sources of economic pressure due to
this decline in velocity of turnover take in the guarantee of bank deposits, the
threats of inflation, forced lowering of interest rates on savings deposits and on
highest grade bonds, offering of anti-hoarding baty bonds, "Buy Now" campaigns,
NRA campaigns, and so on. All of the above, however, have followed a series of
legislation, particularly the Glass-Steagall Act, which provided that an unlimited
supply of currency could be handed out to people if they wanted to persist in tlie
hoarding tendency or if the hoarding tendency should ever recur. That factor of
elasticity has been greatly expanded. So far very little use has had to be made of
it since February and March of 1933> and Federal Reserve Bank Notes are being retired
I have a word to say on the unfavorable aspects.
It may be generally conceded
-
12
-
« m t many of the efforts to effect
of our economic
structure h a ™
™
ffiffi ™5T«i>
mt.ion or monav anci
of expansion in the ahsoluta-aincaint of money. Threats to the profit system have
certainly deterred business men from expanding their activities and in other ways
have prevented the expansion of the supply of money. Likewise, too rapid rises in
prices have from time to time restricted the tendency of money to turn over in larger
volume, making it necessary for the Government to rely more and more on itself to
effect the redistribution of money rather than letting business in its normal course
of expansion provide the stimulus for increased consumption.
On the matter of forecast, it appears likely to me that the Administration will
continue on its course of attempting to relieve these two or three major monetary
causes of economic pressure along the lines of the foregoing. It is to be hoped and
appears to be a reasonable expectancy that more emphasis will be put on the recovery
phases and less on the depressing reform phases over the very near future.
Direct stimulus of consumption doubtless will be continued, aided primarily ty in
creasing public works activity, payments to depositors of closed banks, increased
payments to government employes, veterans, etc.
It would further seem logical to expect that the Government will concentrate its
efforts to bring about an increase in the supply of money by organizing the "capital
banks for industry" and getting them to function in the hope that such credit cUJL
put industry in a sound commercial position so that the commercial banks vdll ttxeo
expand loans greatly and very much more greatly. It would appear unlikely that
further steps will be taken to revalue gold upwards inasmuch as the Administrati.n
has not yet spent any substantial part of the profit arising from the first revalua
tion. There again I go back to ny remarks of two weeks ago and Ur. Ross's remarks
for some time that the balance of payments continues in our favor and, generally
speaking, gold should flow here as long as the internal purchasing power of the
dollar remains above its external value.
In estimating the cost of this whole program, I have broken the period down into
the balance of this fiscal year, which ends this June, an estimate for the fiscal
year ending a year fro m June, and a dim and distant forecast in 1956.
To accomplish the purposes as outlined and continue along with the methods as out
lined, it is this Department's estimate that the Government will require not over
$1,800,000,000 over the next three months, or an average rate of $600,000,000 per
month for emergency expenditures over and above the ordinary budget. I have pur
posely made this estimate very liberal - $600,000,000 per month is greater than the
rate of emergency expenditures of any month so far. I can hardly say it will be
necessary to spend at that rate but it is ny guess that it will be the Government1s
will and intention t.o increase the supply of money and turnover ty that amount if it
is possible. I base this estimate: on totals of the various spending agencies of
the Government as follows
I should estimate for the RPC (this is all over the next three months) $850,000,000}
P1A, $500,000,000} CWA (second series authorization), $500,000,000} Conservation
Corps, $100,000,000} AAA, $40,000,000} all other agencies, $10,000,000} with a total
of §1,800,000,000.
The above mentioned estimate for the balance of the 1954 fiscal year brings the
total substantially $2,100,000,000 below the total emergency expenditures estimated
- IS -
by the President in his budget message for the year ended this June. Inasmuch as
the expenditures under the recovery program should be well tinder way ty the end of
June, 1934, it seems probable that the Administration Tfidll not see fit to start
tapering off at least until the spring of 1935. In estimating total expenditures
for the fiscal year 1935, it therefore seems reasonable to assume that the funds not
spent according to the 1934 program should be carried forward and lumped with the
original estimate for the 1955 fiscal year. If this is done and if we also add the
$2,000,000,000 extra allowance which the President said he would request of Congress,
we arrive at a total expenditure for 1935 of $4,865,000,000, or slightly in excess
of the total emergency expenditures estimated ty this Department for the whole
fiscal year 1954, which, incidentally, was $4,700,000,000.
The 1955 estimate is broken down as follows: RFC, $1,295,000,000; FRA., $1,925,000,00
CWA, $1,000,000,000 (which is 25 per cent over the total allowance for this year);
Conservation Corps, $565,000,000; AAA, $5,000,000; all other agencies, $75,000,000;
making a total of $4,865,000,000 above mentioned. *
of ,1955.. If this actually happens, it seems reasonable to
continued Government stimulation would be passing and that
creasing very rapidly. Under this outlook, the Department
ating that in 1955 expenditures will be spread out so that
called for during the first half and $1,800,000,000 during
June 50, 1955.
expect that trie need for"
tax revenues would be in
feels justlfijd in erstLu$5,000,000,00»;! woul.l t.
the second haii enai-ig,
In respect to 1956, attempts to forecast involve too many unknowns to produce any
reasonable result. However, projecting the trend of events that is forecast for
1955, it would indicate that the Government's emergency operations might be negligibl
by the spring of 1956 with a balanced budget in prospect at that time, compared with
the President's statement that the full fiscal year 1956 would show a balanced budget
The estimated requirements for new money to finance recovery will, of course, put a
strain on the government credit, but
its nresent ca^bjp o s i t i ^ i t g control^cigQai-thfl
ho^afiEE§flgBg^n£^aBbut' ine Government's ability tohana^Tnef!^tatiCTiQrwSRW!H!SSs
¿siimaies proKirel,-t!o"B^'Torrect^-'^SQ'agai^lsayl
i'eei theynaveDeeiTiTBeral rather than niggardly - the Government debt at the end
of the 1955 fiscal year should approximate $52,800,000,000, loss the amount now in
the general fund balance which now stands at $4,800,000,000, indicating a net debt
of not over $28,000,000,000.
@FedFRASER