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The present policies of the Open Market Committee are highly inflationary because they add to the already excessive money supply. For the past ten
months inflationary pressures have been mounting due to this policy.
The expenditures of the Federal Government have not added to the
inflationary pressures during the past year, but on the contrary have been
anti-inflationary. That is because it has collected more in taxes than it
has expended by approximately one billion dollars. Therefore, the defense
expenditures of the Government up to the present time have not been responsible
for the inflationary developments.
It is largely the growth of bank credit which has enabled the businesses and individuals to get funds which have brought about the present inflationary situation. This is evidenced by nearly 20 per cent growth in bank loans
from May 31* 1950, to the end of the year. In this same period demand deposits
and currency increased to approximately

million dollars, or S per cent.

This growth in the money supply/primarily due to the Federal Reserve's purchases
of government securities in its support of the cheap money policy of the
If we are to have a sound economic policy it must rest upon a restrictive monetary policy which will prevent the public from adding to the inflationary pressures through the use of bank credit and a fiscal policy which will
prevent inflationary pressures from Government deficit spending. So long as
the Federal Reserve stands ready to buy government securities in unlimited
amounts in accordance with the cheap money policy of the Treasury, all efforts
to control inflation must be doomed to failure.


Our future security demands a major defense preparedness program
to develop as rapidly as possible. This program is sure to greatly increase
inflationary pressures, which can only be held in check by collecting in taxes
what the Government spends and stopping the growth of bank credit by adopting
restrictive monetary and credit policies.
;he Federal Reserve
-shallfefcdbo"prevent, so far as it can within the scope
of its monetary and credit authority, further growth in the supply of money
and credit

long as the inflationary pressures continue even though one of

the incidental effects of the policy will be io^increase the interest rate on
government securities.