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(December 3> 19^4-1 • ET) ADVISORY CONFERENCE ON RESEARCH IN FINANCE (72 members) -- an advisory group of the NATIONAL BUREAU OF ECONOMIC RESEARCH Topic — Monetary and Credit Problems During the Emergency 1. Magnitudes of defense; 60 billions was talked; 150 billions now supposed to be estimate; estimates are purely speculative; time and events will set the totals; whether we fight Japan, etc. We know present magnitudes, however; we are now spending at the rate of l-l/2 billions a month for defense; the budget calls for 30 billions for defense for fiscal year 19^4 3* which would be at the rate of 2-l/2 billions a month; we know that national income is running at the rate now of 95 billions a year; this is already 25 billions above 1939 averages; itfs an all time high — and still rising. 2. Inflationary implications are obvious; more controls, more taxes are neces sary; money supply is about double what it was in the last war when prices were higher; but no real checks exist today on continued growth; the banks have been absorbing the equivalent of new issues offered; that is one reason why registered issues should be put out for non-bank investors. 3« Governments today fix interest rates, admittedly or not; "finance11 and central banks no longer dominate rates, as in last war; question is whether government fixed rates will sustain private credit structure without con tinued expansion of loans and investments; bankers missed boat in 1935 ia refusing to give Federal Reserve adequate powers; they continue to want to have cake and eat it, too; if adequate powers had existed, rates probably would not have been permitted to go to point where banks had to offset by continual expansion. Probably too late now, as pattern of rates is emerging, with excess reserves left uncontrolled. J4.. Question is degree of inflation ahead; already 10 per cent rise in cost of living compared with pre-war; further rise inevitable, but runaway can be controlled. 5* Important as these matters are, they are familiar and they are subordinate to main objective of maximum production in the shortest possible time; w© must not let concern over inflationary possibilities obscure this, or so direct mi?’time anti-inflation action as to disrupt public morale and above all set back production; governments usually do too little too late and are so inclined because housewife who has money taken out of her hands through taxes or enforced savings, etc., blames the government, whereas if it is taken out in higher prices she blames the tradesman. Labor problems are most difficult ones both from standpoint of checking inflation and getting maxi mum production. 6. Beyond all the domestic economic problems we must think of the kind of world that is going to emerge from this conflict; what role this country is to play in the peace that is made and the economic settlements essential to preserve peace; the clock canft be turned back to old ways; maximum pro duction must remain the goal and in peace it can be turned to constructive instead of destructive uses. That is the only basis on which democracy and capitalism can be vindicated both for this country and to help the rest of the world back to economic order and lasting peace#
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