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The chairmen of the Federal Reserve Banks, as a group and indi­
vidually, have repeatedly shown their interest in the research work of the
System and their desire to enlarge its scope and to strengthen the personnel
assigned to it. The Chaim e n ’s Conference in a statement adopted on January
26, 19^2,•after emphasizing the importance of firmly establishing the Re­
serve Banks "as centers of information, enlightenment and leadership",
pointed out that "they must be able to submit comprehensive information,
wisely interpreted, on economic problems and regional trends. They must
be able to act as contars for interpretation in their districts of national
policy and methods in the fiscal and monetary area. They must be able to
assume leadership in times of emergency and to exert proper influence on
national policy, especially from the point of view of regional consider­
The Reserve Board, as you will recall, initiated and was di­
rectly responsible for the development of the research work at the Banks.
While this function was transferred for administrative reasons from the
office of the Chairman and Agont to that of the President, after the Bank­
ing Act of 1935» this did not mean that the Board here, or the chairmen as
representativos of this Board, were to relinquish either their interest in
or their share of responsibility for this function of the System. The
chairmen must necessarily continue to encourage this work at their re­
spectivo Banks and to help in coordinating tfiat work as it relates to the
development of System policy. Let me say at once that this, of course,
does not mean regimentation of thought or dictation, but merely that some
direction must be given to the work if it is to be useful and effective,
in enabling the System to operate as a System and to have a proper inr
fluence upon public policy.
As I have sought to emphasize before, the System is in a unique
position to provide leadership and educational work principally in the
monetary and fis c a l field.- The System’ s standing in the country and its
removal from po litics give i t an opportunity which is enjoyed by no other
governmental organisation to speak as a disinterested, non-partisan
authority. W have practically a free hand to obtain the ablest available
economic as w ell as administrative service. And, manifestly, i f the System
is to speak with authority, its work must be of a quality that w ill com and
universal respect. It must also be so organized as to present a united
nationwide front on national issues. I f we are to be leaders of opinion,
we cannot speak as a babel of discordant voices.
In his general report to the Board of Governors, copies of which
you have all seen, Dr» Schultz referred to an impression that appears to
exist in some of the research departments of the Bunks, "that the Board of
Governors wants all research activity to be planned, projected and ad-

- 2 -

ministered from Washington". And while he mentioned that such a b e lie f ia
a distorted view, possibly indicative of "growing pains'* within the System,
i t is important to c la rify this matter once and fo r a l l .
I f this is a n ettle, we had better grasp i t firmly right now* f o r
you gentlemen, as chairmen of the Banks, can do m
uch to straighten out mis'understanding. I t would be both ridiculous and tragic i f the opportunity
fo r constructive leadership in fis c a l and monetary a ffa ir s , inhich are the
speoial province of this System, were lo st beoause, on the one hand, this
Board attempted to set i t s e lf up as a kind of osar over the economic,
thoughts and opinions developed in the fie ld or, on the other hand, i f , as
would be equally inconceivable to me, the twelve Banks should attempt to go
in twelve different directions. Between these extremes*, there is a reason­
able reconciliation, which does not mean sacrifice of individual in itia tiv e
or loss of freedom of thought, but does give the System the benefit of the
best thought and judgment available anywhere in the System. I f the System
aspires to leadership of public opinion on questions of f is c a l, monetary,
and banking p o licie s, i t must devise a mechanism through which its voice
may be heard throughout the land.
Such a mechanism is not hard to construct and with goodwill and
mutual respect i t should not be hard to operate. Far from wanting to dis­
courage in itia tiv e and enterprise at the Reserve Banks — we want to have
the System as a whole get the benefit of such in itia tiv e and enterprise.
We want to have a group of the ablest economists in the System meet f r e ­
quently with our own research s t a ff, and we want this group to serve as a
clearing house and a steeping committee fo r that part of the System’ s re­
search work which deals with national problems*
I think i t w i ll be clear to the chairaen that there must be some
coordinating group, some plaoe where oompetent authority is lodged, to give
direction and purpose to research from a national standpoint, leaving to
the individual Banks the special responsibility fo r development of the work
that relates to their d istric ts. Cultivation of your own gardens, so to
speak — the study and analysis of the special conditions and problems of
the different and diverse districts is of the greatest importance. None
of us can fu lly understand the economy as a whole without intimate knowledge
of its different parts.
Ihe research f ie ld is so vast, however, that we could very easily
be lo st in i t unless there is — not dictation »•* but a sense of direction.
The System could not ju stify •the very large and increasing expenditures fo r
this work i f i t is to be so diffused and disorganized as to lead nowhere in
particular. Public understanding is , as you a l l know, essential i f
practical and constructive monetary and fis c a l policies are to prevail. The
System would add only to confusion, certainly i t w i ll not add to public
understanding, i f i t is incapable of coming to conclusions after thorough
research and deliberation in regard to national problems and policies.


3 -

I t seems to m that a join t committee, representing the Board’ s
economic division and the research departments of the Banks, is a logical
mochanisra fo r giving guidance, direction and stimulation to the task
helping to determine what work is worthwhile, or what is not worthwhile,
and being in a position to make recommendations to the Board here or to
the boards of the Banks* The members of this committee should, I think,
be chosen by the heads of the research departments of the Banks and the
head of the Board’ s research s t a ff, and provision should be made fo r
rotation of serviee so that a l l of the banks would be assured of repre­
sentation from time to time* As an aid to this committee, i t would be
w e ll, I believe, to create also a purely advisory group or committee of
three, consisting of one chairman selected by the chairmen, one president
selected by the presidents, and one Board member selected by the Board,
presumably the one whose assignments include research work and publications.
Such an advisory group could be consulted on policy questions or on other
matters as to which the oommittee of economists might wish to have an in­
formal or advisory opinion. I t would serve as a useful link between the
committee of economists, the chairmen, the presidents and the Board, who
comprise the policy-making o ffic ia ls of the 3ystem and «ho, in the fin a l
analysis, must take ultimate responsibility fo r a l l its ac tiv ities, in­
cluding research.
I do not think i t is either feasible or desirable to expect
members of this Board or the directors of the Banks to assume direct or
immediate responsibility fo r research. They must ultimately decide upon
policy matters, but the research i t s e lf needs to bo judged and guided by
economists* They should also^ in m opinion, determine which material
merits publication and what is equally important — which does not merit
publication. I fe e l that our own Federal Reserve Bulletin should have
the f i r s t c a ll, rather than outside publications, upon.such material and
that i t should be made clear in the Bulletin that when articles and studies
are published, they are the product of the s t a ff, either here or at the
Banksn or jo in tly, and are not to be taken as o ffic ia l expressions of the
Board or of the Banks or the System unless ex p licitly so designated* In
this way, i t seems to me, economic work and in itia tiv e w ill be encouraged
and stimulated*
W a l l recognize, of course, that as a public institution, the
Reserve System is not free to use its prestige and position to launch attacks upon government, upon labor, agriculture, business, or other groups.
Private groups and publications have that p riv ilege, but our task is to
advise, to the best of our a b ilit y , in the foraulation of public policy,
not to try to bludgeon into line those who m not agree with us, fo r
whatever reason. Much of the strength of the System, I think, lie s in
its freedom from politics* W must jealously guard that position.
But because we are not free to f ir e l6^inoh guns at those who
may disagree with us, that does not mean that we have to avoid control

- b


versial subjects. I fe e l very strongly that i t is essential not to avoid
them. I t is primarily a matter of approach —* we can and, I believe, we
should discuss public problems in published material in an objective,
factual manner that w i ll tend to add to public understanding and to stimu­
late discussion. This must be done without partisanship or bias. I t calls
fo r a balanced, impersonal and detached viewpoint and presentation, fo r
the exercise of very able e d ito rial judgment and discretion. A jo in t com*
mittee such as I have mentioned can best, I think, exercise this discretion.
I am sure that no one who fu lly understands this approach can
f a i l to agree with its purpose or recognize its importance. A democracy
is only as strong as the public’s understanding of the issues tiiat i t
faces. We have an opportunity of contributing greatly to this understand­
ing by the use of our talent, our regional and national organizations, and
our nationwide intimate contacts with a l l layers of society. I fe e l deeply,
as I am sure you do, the challenge of this great opportunity fo r public
I t seems to m i t is of the very essence of research, debate and
discussion that m of differin g interests and opinions can fin a lly come
out on com on ground. That, in fa c t, is the very essence of democracy,
Mr. Hoffman’ s Committee fo r Economic Development is composed of a good many
individualists of differin g experience and doubtless differin g convictions
about many public questions, but they have been eminently successful in
uniting in the preparation of handbooks and reports, ably and effectively
presented to the general public^ and they have not bogged down in mere empty
generalities. Nor have they meroly busied themselves in p ilin g up a mountain
of undigested and unrelated sta tistic s. As¿Dr, Schultz so w ell phrased i t ,
notiiing useful is to be gained merely by amassing "a colossal inventory” or
"a kind of Sears, Roebuck catalog without deciding who would use the catalog.”
In a word, i t is neoessary to cane to conclusions as Mr* Hoffman’ s
committee has succeeded in doing and as we as a System must do i f a l l the
time, money and e ffo rt we propose to expend in research and educational
work is to have any value in the formulation of public opinion and public
policy. We are not a university, but a public institution with great re­
sponsibilities* I t may be a ll right fo r a presidential candidate to make
friends without influencing people, as was said of one favorite son in a
recent magazine a rtic le . But this System as a public institution, in m
judgment, w i ll not succeed or, indeed, survive i f i t attempts to make
friends by having no opinions or i f i t fears to make enemies because i t
dares to have opinions. The quality and the competence of its views w ill
depend in the fin a l analysis upon the vision, imagination and a b ility of its
research work and upon the courage and leadership displayed by the directors
and officers of the Banks as w ell as by/members of this Board.

-5 The more I think of the System’ s opportunity in this f ie ld , the
more challenging and inspiring it'becomes* Unless we are capable of coming
to conclusions and having opinions fo r tifie d by fact and reason, we deserve
to and I venture to say we w ill be replaced by m or by a System that is
able to assume leadership. And leadership necessarily means having
oompetent opinions* No large group of m can reach conclusions without
some differences in emphasis or often without outright disagreement*
Democratic processes, as you a l l know, represent the composition of d iffe r ­
ing viewpoints*
And when we com to think of i t , the area of agreement on basio
issues is very great among us* W a ll stand, I am sure, on com on ground;
fo r example, in wishing to preserve democratic institutions and a capital­
is tic economy in which the profit-motive is the basic incentive. We are
a l l opposed to overcentralination of power or, on the other hand, to such
decentralization as to render the word "Federal" meaningless and to make
the national government inoapable of functioning. Somewhere between these
two extremes there is a workable and reasonable com on ground. L ittle m
and demagogues, of course, see only the extremes. They have neither the
w ill nor intelligence to find the practicable middle ground.
More directly in the fie ld of our responsibilities we a l l , I am
sure, want to preserve private banking enterprise in this country. But
her© again the extremes between purely selfish interests on the one hand
and having government take over the banking system on the other hand, re­
quire reconciliation which reasonable m do not find too d iffic u lt . W
would a l l agree today, I think, that the powers with which the Reserve Sys­
tem is armed under the law are not sufficient to achieve economic Stability*
And yet, these powers unwisely exercised could do m
uch to cause in stab ility .
I am sure we are none of us blind to the fact that today fis c a l
policy greatly overshadows monetary polioy as an instrument of public
policy* I would be very m
uoh surprised i f any of us, in the ligh t of war
finance i f not in the ligh t of what went before, s t i l l thinks of taxation
merely as a means of raising revenue. W a l l realise today, surely, that
taxation is of crucial importance in its effects upon sta b ility , upon the
distribution of income, upon the balance between savings and investment.
The matter was w ell stated in the pamphlet, America and the
Future, containing two articles by the editors of th& magazines,' time,
t lf e and Fortune. Aftor stressing the importance of creating a climate
that is favorable so fa r as possible to private enterprise and in itia tiv e ,
tii« a rtic le on the domestic economy said*

-6 " I f the conditions of freedom and expansion are maintained,
so that the country’ s productive machinery is in good working
order, then the Government can employ a s t i l l more powerful
weapon against unemployment. This is its fis c a l policy, which
means the relationship between what the Government borrows, what
i t collects in taxes (and from whom), and what and where i t
spends. Some combinations of these factors have the effect of
reducing or raising consumption} others of reducing or raising
savings and investments; and theise are a l l faotors in the
equation of which production — * i . e . , employment •**- is the X
we wish to oontrol* There is a .right fis c a l policy fo r every
phase of the business cycle, I f the Government, with the help
of economic science, finds and supplies the right policy, we can
maintain a high and f a ir ly steady level of employment at a l l
I have sent copies of these articles to a l l of the chairmen as
w ell as to the presidents because I think this discussion is w ell worth
oareful reading. It is the sort of stimulating, informative discussion
that is objective, without partisanship or prejudice.
The more we learn, the more facts we have, the more lik ely we
are to find a com on body of opinion and to come to definite and practical
conclusions* Because such powers as the System has must be exercised in
coordination with other governmental powers, i t is essential that we
understand other governmental powers, espocially in the entire fis o a l
fie ld , and we must understand •what effects the exercise of these powers
has on the economy i f we are to use our own special powers in telligen tly .
The more I contemplate the future of the System, the more I am forced to
the conclusion that its monetary powers and their exercise w ill continue
to be overshadowed and dominated by the fis c a l requirements of the govern­
ment, and the moro I am forced to conclude that the System's influence
w ill depend primarily upon its a b ility to give good advice supported by
convincing evidence on a wide range of fis c a l and monetary problems,
national and international*
I could not more strongly emphasise the importance of research
work than in making such an observation, fo r our a b ility to give good ad­
vice necessarily rests on the facts we are able to assemble and the
interpretation we place upon those facts. We are not, as I have said, a
university, nor are we a debating
society, but we are concerned with
practical measures bearing upon current government operations both now
and in the future. W are concerned with re a lity , not theory. I t is up
to us to know the facts about employment, about consumer buying power,
about the relationship of production to consumption, about savings, about
the opportunities fo r investment, about labor problems, about foreign
trade, capital movements, exchange rates and the balance of payments; in

fact, about numerous cold, hard matters that are bound up as practical
questions in our striving towards the goal of full and sustained production
and employment*. The abler our research work and analysis, the more time
and thought the chairmen, the other directors, the officers and the staffs
of the Banks, their branches, and the Board give to such problems, the
greater will be the publio service rendered by this System,