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Statement for the Press
For release in morning newspapers
of Monday, August 25, I9J4I

Statement of Chairman Eccles
on instalment credit regulation.

August 23, 19I4.I

It is important that the public know why they are asked to accept and to cooperate in making effective the President's Executive Order
calling for regulation of instalment credit.

Employment and national in-

come are rapidly rising to new high levels primarily because of the huge
defense expenditures.

This means that by and large people have more money

to spend than ever before.

This is happening at a time when more and more

of our industrial plant must be used to produce defense materials.

To the

extent that plants can be expanded, or can work longer hours, or that shortages of strategic materials or of skilled help, can be overcome, we can
produce both for defense and for civilian consumption.

And the aim of all

policy should be to increase production to the fullest possible extent.
But we know that there are acute shortages of certain metals and other
strategic materials.

We know that beyond a point our plants cannot turn out

more and more goods for the public and at the same time produce more and
more for defense.

The imperative demands of defense must have the right of

way over civilian needs.
If there are no restraints upon the public's spending of increasing
income for articles that cannot be produced in sufficient quantity to meet
the increasing demand, the inevitable result is that the prices of these
articles will be rapidly bid up.

The consequence is what is commonly termed

Inflation is as destructive as deflation.

the adjustments of our economic machine.
small means.

It shatters all of

It hits hardest of all those of

It would not only vastly increase the costs of defense, but

it would imperil our entire economy and make increasingly difficult the adjustments of the post-war period.

- 2 The Government is striving in various ways to combat inflation»
Taxation is a means not only of helping to pay for defense but of drawing
off buying power that would otherwise inundate our markets.

Similarly, the

Treasury has appealed to the public to invest in savings bonds and stamps,
and in tax anticipation notes, to aid in meeting the costs of defense and to
divert money from the marketplace until such time as we can turn again to
peace time production»
These broad measures have to be backed up by others.

Thus, in the

case of acute shortages, the Government has had to fix prices, to invoke
rationing and priorities.

Beyond all this, however, it is evident that if w e ,

in effect, draw off buying power with one hand and extend credit with the
other, w e have accomplished nothing in reducing the aggregate demand in the

If you pay $50


taxes and invest $50 i* savings bonds, and then

turn around and borrow $100 to spend, you have not curtailed your purchases
by a penny.
Accordingly, it is of primary importance that restraints be placed
upon the v\rholesale extension of credit, including instalment buying.


volume of instalment credit has been expanding very rapidly, as it always
does in times of rising national income.

Yet when incomes are at high

levels, that is the time when people should reduce their debts or get out of

Our people cannot spend their increased incomes and go into debt for

more and more things today without precipitating a price inflation that would
recoil ruinously upon all of us.

Instead of an ever-expanding volume of con-

sumer credit, we need to bring about a substantial reduction in the total

- 3 outstanding.

Civilian demand for goods must be adjusted as closely as

possible to supplies available for consumption.
credit is a necessary measure to this end.

Regulation of instalment

By deferring civilian demand at

this time we can help avoid inflation, we can aid in defense, and we can
store up a backlog of buying power that will help offset a post-defense slump.
The impression held by some that regulation of instalment buying
tends to restrict production or to curtail the business of dealers in
merchandise is based on misunderstanding.

It is because of defense needs,

not because of regulation of instalment credit, that civilian supply is reduced in various lines, such as automobiles.

The purpose of instalment

credit regulation is to help dampen demand for goods the civilian supply of
which has already been reduced and must be further reduced because of defense

In a word, the purpose is to dampen demand, not to diminish pro-


If production could keep pace with both civilian and defense de-

mands, we would have no price inflation troubles.

We would need none of the

measures of control and regulation which are being invoked with the objective of protecting the public.
The regulation issued by the Board of Governors of the Federal Reserve System covers a list of consumers' durable goods.

Demand for these

goods tends to cause inflationary price rises as well as to absorb materials
increasingly needed for defense.

The regulation prescribes instalment terms

that are by no means stringent or onerous.

It does not prohibit buying on

instalments, whether it be automobiles or ice boxes.

It is a supplemental

instrument to be used in conjunction with the broader, more basic fiscal and




other governmental powers in combating price inflation.

It is not being

used as an instrument of reform or alteration of the fundamentals of our
economic system.

In effect, it recognizes what in many lines are standard

The intent is not to disrupt but to protect the economy.
The public should be fully aware, however, that the regulation is

subject to change from time to time as experience with its administration
develops, and as economic conditions require a further dampening of buying
power in order to safeguard the interests of consumers and the public