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R-441
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
STATEMENT FOR THE PRESS

FOR RELEASE IN MORNING NEWSPAPERS
OF MONDAY, APRIL 10, 1939.




April 8, 1939.

Statement of the Board of Governors of
the Federal Reserve System transmitted
to the Chairmen of the Committees on
Banking and Currency of the Senate and
House, recommending Congressional study
of monetary measures and objectives.

R-441
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
April 8, 1939.
STATEMENT ON MONETARY MEASURES AND OBJECTIVES
During this session of Congress, aa during other recent
sessions, the Board of Governors has been asked by Committees of
the Senate and House to report on a large number of bills dealing
with proposals for overcoming the countiy's economic difficulties
by monetary action.
Among the proposals that are currently before Congress,
many are based on. the belief that our difficulty is in the lack
of an adequate supply and control of money. Some would remedy
this situation by the issuance of currency, either directly by
the Treasury or through the Federal Reserve banks, some would
retire Government bonds by issuing paper money and thus not only
increase the supply of currency but also reduce or retire altogether the interest-bearing public debt. Others believe that the
remedy lies in monetization of silver at a high price, and the
issuance of silver certificates to add to the supply of money.
Still others believe that what is needed is a stimulus to the
use of money through some system of stamp scrip that would result
in a penalty on money that is not promptly spent. Another group
of measures aims to correct conditions by changing the ownership
and management of the Federal Reserve System and by requiring 100
per cent reserves against demand deposits. Another proposed remedy
would establish a new system of banks to supply intermediate and
long-time capital, particularly to small business•



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Still others think that the monetary system now in existence should be corrected by the elimination of silver purchases,
by the establishment of a fixed price for gold and by the reintroduction of gold coins into circulation. They contend that the
elimination of currency uncertainties would restore confidence and
result in economic revival.

There are some who believe that the

flow of capital into enterprise is retarded by what they consider
as an artificially low level of money -rates and others who argue
that the Government absorbs too large a part of the country's savings through the sale of its own securities.
These opinions and proposals cover a wide range, and seek
legislative action on matters of vital importance to the welfare
of the nation.
The Board at different times in response to Committee requests has stated its position on individual proposals. While it
has expressed disagreement with some of the measures which in its
judgment would not accomplish the purposes for which they are intended, it recognizes the importance of making every effort to
achieve the underlying objective, which, oroadly speaking, is the
fullest practicable utilization of the country's human and material
resources.

It has bten the Board's view that since the money sup-

ply, however measured, is larger now than at any previous time, the
difficulty must lie not in the scarcity but in the inadequate use
of the existing supply. The Board would v/elcome a reexamination




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R-441

of its own conclusions and a study of the factors that obstruct
the flow of money through the channels of investment, production,
and distribution.
In earlier statements the Board has pointed out that there
are many phases of economic life that are not susceptible of control through monetary means alonej it has taken the position that
stability in production and employment is a mote satisfactory objective of public policy than price stability alone, and that concerted action by many agencies within and outside the Government,
which have an influence on economic activity, is essential for the
achievement of recovery and an adequate national income.
Notwithstanding the inherent limitations upon the influence
of monetaiy and credit action on economic conditions, the Board is
convinced of the importance of such action at certain times, and
feels strongly the necessity of having the mechanism of monetary
and banking control and supervision at all times in condition to
function effectively in the public interest. In its Annual Report
for 1958 the Board pointed out that our present system of regulation and supervision over money and banking, notwithstanding many
improvements made in recent years, is still defective in many respects. The 15,000 banks that exist today are subject to conflicting
and overlapping laws and jurisdictions, which result in discriminations against certain groups of banks and in a confusion of duties
and responsibilities among different Federal and State authorities.




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R-441

Federal supervision of banking itself is distributed among several
governmental agencies without clear delimitation of tho respective
powers and responsibilities of these agencies.
On the more strictly monetary side the powers over the
supply of currency and bank reserves are divided between the United
States Treasury and the Federal Reserve System. While it appears
to have been the intent of Congress that the Federal Reserve System
have responsibility for regulating the supply and cost of money,
including currency and bank deposits, the powers over this supply
possessed by the Treasury now outweigh those of the System.
In brief, the effectiveness of our banking and monetary
mechanism is weakened by the fact that there is no clear division
of responsibility, no definite determination of authority over
money and credit within the Federal Government itself, and that
there is conflict of jurisdiction and supervision over the banks
through which, in the existing system, monetary and credit powers
must operate.
In view of these circumstances, the Board urges that Congress through appropriate committees or a joint committee take
steps to determine the objectives by which monetary and banking
authorities shall be guided, the validity of different plans and
views on monetary and credit matters proposed or held by agencies
within or outside the Government, including the Board's own positions, and the character of governmental machinery that would be




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best calculated to carry out the purposes of Congress in this important field. Such a broad approach would enable Congress to
consider all the proposals in relation to each other, and to other
important problems of our economic system. Piecemeal consideration of various proposals is a slow, cumbersome, and unsatisfactory
process.
Recognition by Congress of the limits within which monetary and credit action can be effective and determination of the
mechanism and policies that would contribute most to its effectiveness will clear the way for consideration of broader aspects of a
constructive program for further economic recovery and stability.