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BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM

For release upon delivery

May 8, 19U&

STATEMENT OF MA RHINE R S. ECCLES, CHAIRMAN OF THE BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM, BEFORE THE BANKING AND CURRENCY COMMITTEE OF THE
SENATE, MAY 8, 191*6, ON EXTENSION OF THE EUERGENCY PRICE CONTROL ACT OF 19U2.

The country is approaching the crucial stages in the war on infla*
tion» It is futile to talk about winning if price controls are abandoned or
hopelessly crippled now. At best, however, they are a last line of defense»
Without reinforcements they cannot, alone, succeed. At best they can do no
more than block off inflationary forces until the armies of production are
fully mobilized and in action» Production ~ at the highest possible sustain^
able levels —• will decide whether we win or lose this struggle» If we lose,
no one can tell what may happen. Plans for economic stability, for peace and
progress at home or abroad would become blueprints of a lost cause»
Today the armies of production in many fields have quit. Others
threaten to quit. The danger is real and time is running out. We have already
lost too much time because of paralysis of vital industry -- coal, steel,
lumber, automobiles, among others» In this critical period, violent strife
between labor and management that prostrates k*sy industries or our transportation and communication systems threatens the public safety. No group, no
leaders, ever have the right to inflict such injury upon the general public.
Dictators assume such a right. It has no place in a democracy.
Necessary as I believe it is to extend the Price Control Act unhampered and with adequate financial support, the public should not be misled
into thinking that this is enough to hold the line. Neither this nor other
devices for dealing with inflationary effects can succeed unless we reach full
production without further delay. There is no other way to win this battle
against inflationary forces» Failure to produce is the chief source of the
danger.
If our enormous money supply, actual and potential, could be rapidly
reduced so as to be in reasonable balance with goods and services, damage to
the country resulting from strikes and shutdowns would be less. Some progress
has been made in reducing the money supply by using Treasury balances to pay
off public debt held largely by the banks
and that is all to the good»
Balancing the budget and having the largest possible surplus with which to reduce public debt will be necessary. But this is inevitably a slow process»




Likewise, the idea advanced in some financial circles that increased
interest rates would be an effective remedy reflects, in my opinion, a failure
to evaluate correctly both the causes of and the appropriate weapons against
the unprecedented inflationary pressures today. Higher interest rates would
make for serious complications in the Government bond market and would greatly
increase the cost of carrying the public debt* No reduction in buying power
and no increase in production would result — and these are the basic causes
of the problem.
The solution depends upon how quickly we deal with what is over**
whelmingly the chief cause — production., because we cannot deal quickly
enough with the excessive money supply. We could have done better in dealing
with it if we had not prematurely reduced taxes and repealed the excess profits
tax. We should not reduce taxes further while the danger exists.
It should be borne in mind that necessary as it is to hold the line
by price control legislation, s.uch controls are greatly weakened unless
reinforced by allocations of scarce materials and rationing. Having discarded
these reinforcements, the strain on price ceilings is intensified and the way
made easier for black markets and the resultant breakdown of enforcement.
We must, if this nation is to be saved from an inflationary spiral
that can. only end in deflationary collapse, hold on to the controls that are
left; we should, by all means, stop further growth of the money supply and,
if possible, reduce it, but above all the answer to the problem is more work and
more production. If democracy is to survive we must be willing to face the
fact that minority pressure groups, whether of labor or capital, have no right
to act. in flagr&mt disregard of the public interest. The. people of the country
look-to their government to protect them from such abuses of freedom by finding
effective means for continuing production and.employment while controversies
between labor and management are being settled.