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332
R-132
301,lW OF GUVEhNOhS
oF nm
December 14} D37.
;~tkched
is [. cop;y of tho n.dd;ress du1i vurod by
Chrirm:~n Ecc1e~3
for..; the 1mnuc.l iVlo::Jting of th8 _,u::e:ric<n Fc:T!J Burer>.u .t"oderDtiun
Tu,_;sdDy foren'.>on, Decenber 14, 1837.
~tt
be-
Chiccgu,
333
Z-62
AN ADDR.t<.:SS
BEFOHE THE
ANNUAL MEETING
OF THE
JuviERICAN FARM BUREAU FEDER1-1.TION
AT CHICAGO
DBCEMBEH 14, 1937,
BY
MARIUNER S. ECCLES,
CHl>.lRlV1r,N OF THE BOARD OF GOVEi1.J.'\JORS
OF THE
FEDERAL RESEhVE SYSTEM
It is particularly gratifying to me to have this opportunity today
to speak before the American Farm Bureau Federation.
Your leaders and
members, to a much greater extent than some of the other organized groups
in this country, are approaching fundamental economic problems from a
broad public-interest stanapoint.
I feel, therefore, that I can discuss
here some of the problems as I see them at this time, knowing that you
are interested, as we who are charged with certain monetary responsibilities must be, in finding wherever possible the solutions which will be of
the greatest benefit to the nation as a wholo.
I do not need to tell you that your da.ily life and prosperity are
dependent on developments in industry and trade, and that the proper
functioning of the monets.ry mechanit3ID is of great concern to you.
Ac-
cordingly, you will understand why I wish to confine my remarks largely
to an intef'pretation of the present situation in the industrial and monetary field, rD.ther than to attempt to ciiscuss the agriculturnl problem
which you know so much better than I do.
on that subject.
I would r.sther listen to you
334
-2Juring the past three yesrc l have lived continuou;c:ly ,.Jith the
problem of hovv to
<:~chieve
and ,i:aintain
ful~
&nd continuous employment
of th:; country 1 s hrnno.n and material resources.
I have been chiefly
concerned ·:dth the contribution thA Federal Government in general and
~~es-arve
the Feder::,l
the problem.
i>S
System in particular could rnai{e to the solution of
time has pacsed, I have become increasingly impres:3ed
'Nith the danger to our common goDl
of uifferent economic groups.
of stability
re~mlting
from conflicting policies
Before v;e can achieve
la.rger measure
D.
will have to find some ·.wy of ensuring th&t the policies
He
of private business a:ncl orgnnizc::.tionsJ whether of farmers, of labor, or
of business men,
ar'~
not in conflict with our common obj ectivcs.
From 1934 up to tho bst qm-trte:r of 1906, we hud an orciorly recovory
movement.
The ste::.c.iy eXp<msion in conswner incom,..:s ::md buying power, in
con:.>ld>Jrr.;blo part cttritu.t::;blc:: to r1hat tho Govcrn1ncmt spent in
what it collGcted, 1od to
Lc
~>tsnly
growth in production.
Industrial Production liiOV..;d gn:.chl<JlJ.y upwc:;rJ from 86 in
to 110 in Octob0r 1 1836, ''lhi1G the lndux
the 3[;.m0 period.
Jwl:::s~:
chc.ngod, so thct th.::
lc commodity
e:r~pa.nsion
~)f
price~:;
remc,irwd
:,Cis th<:,t they
Th,:; ::Jrd:::rly chu·o.ctcr cJf
st·.:::~dy
pr~;gr;.;ss
heed
b-i&l
1J8cemb.~l·,
tm-
C•.IH: 1JJlt
tlv:~
uf
[,0
money r._;ce:i vcd by our
C•.Ju~:ci
purchase.
r<:c_,v,;ry .Jl<>V..;munt, 1mdc.:r which such
Ill< cL.o, UJ1c:i::r:re;n t :. dn stic ch:,.ng'-' in tlw finc1l
qu&rtor of 1936, [;nd in tho ;;ix lll<Jnth3 f;,llYi!ing Octc;be:r cf lest
1934,
in tho m.tionr. l inCtl!Jt3 from 1834 tG 1956
p~ople,
incrJC.S(; in the
Thcl Index of
prnctic~.l1y
In:)rt.;;
f.il1
of
F&yrolls roso 3\) p.:::rccnt in
of somo .,;,14 billic;n rc:pros._nt'-'d nut merel;y·
but
execs~~
yc~::r
335
Z-62
- 3 -
pricos.
the~
beg~:1.n
to rise rapidly.
It was in this six months' period that
groundi<Ork of the present recession was laid.
Among the factors contributing to the upsurge in costs, prices
and jn'Jentory buying; were the bonus payments coming un top of already
heavy Government expenditures and giving a sharp additional impetus to
cons-wner buying.
The organizing campaign of labor, together with the
drive for higher wages and shorter hours, added to expectations of
higher prices.
The rearmament program in various countries contributed
to the general inflationary sentiment.
J, sellers 1 market developed and
vvid<;sproad acivantage was taken of it to increase prices.
Various import-
cmt soctors of industry which had not added to their productive capacity
in the preceding years found themselves unable to promise quick delivery,
leading to still further piling up of orders and higher prices.
The
prict::s of various internationally-controlled raw materials skyrocketod,
whih; bond pricos Jeclin·Jd.
The longer this condition
p1·ict.:s advcmcod, the
ThE.~rcfore,
lll<:JTG
p~rsisted
sever-s the inovit;:,ble reaction was bound to be.
before tho rnovem:mt a.cquired further momentum, the President,
un April 2, issued a we_:cning str.ternent.
B:::wrd
<)f
and thu further vm.ge costs and
The previous
~·nnouncement
by the
Gwvernors of rai.:::ed reserve requir.:;ments for member banks, which
I sh[1ll discuss in more det:.:;.il later, tooci.ed to dirainish the feu.r vr expectation of credit inflation.
ti.:mcTy SGntiment.
In
~my
cc.se, n dt1mper -..vc.s put on infla-
Prices tornpCJrtJ.rily leveled (lUt.
lnduGtrial production,
336
- 4 tho"L:gh .i.nterrupted here 1.md there by strikes, was broe.dly nwintained.
Bnt it was maintained on the basis largely of fonrard. orders e.nd part
of the output Nas piling up in the form of inventories rather than mov-·
ing forward. to consumers.
The bccklog of orders which hnd
in anticipation of price
the summer.
adv~:.nces
~:.ccumuJ.ated jn
the winter Dnd spd.ng
kept business going until WI.Olll along in
Balance sheots of indust,ri:ll corporations and mercantile
este:1blishmcnts reveal
th~tt
in the l.:ttter pert of this suiiUiler
vre:co in excess of whc:t thuy wert:
her-.-; declining.
.1~-.st
inventoric~s
ycr,r whilG Lt the same t.imo
s~1ls:3
If SG.les to consumers had cont:inuc.od to increase, inYen--
tories could h::..vo been rapidly
~:bsorbc:d.
As fr. . r
.'lS c~:m
be judged from
available figures, hov1ever, consumer buying did not increas3 af'tor lr, st
spring.
Thi) incomt.l of consu;ners .ctppnron tly CGBsed to
c.nd the volume of th0ir purchoscs
likcwit~e
oxp~md
after llllty
fr.ilod to increrLse.
An important factor in the arrested growth of buying by consumers
was the failure of buildin£ activity to expand.
There was every reM:on
to expect residentiel tuilding of substantial proportions this year.
The
national incowe was running con;.:;idera·clly above 1936, rents were riei.n§;,
and the accu..rrmlated housing shortage was growing more acute.
As has fre-
quently been pointed out, we should be building an average of some 800,000
housing units a year for five years to make up f'or the shortages, to offset demolition and to provide for the normal growth in the numb(:}!' of families.
Yet, instead of incre:asing, residential buildjng c:.ctually turned dovm
in May, and it is doubtful
wheth~r
the nwnber o:I.' units built this year
Z-6(~
337
-5will much uxcc,ed
~80,000,
thcJ
numb~r
construct.cd in 1936.
Tho cnly ox-
plt.nc;ti:'n th[tt cr:.n be ..;fferou tj cccount fvr this disappointing shuwing
is tho slwrp c.dve.nce in c mstruction costs lc..st spring whilu rents did
n·)t c::dv·:.ncc; r,;s r::pidly, s.) tklt it becwnc; loss prufi t:<ble to build.
C.mpled ·,ri th th8So dovol0pments, th.;;re
expenditures •:md ::.n in ere:.: ;::;e of tcx
security o..ccount.
WLJ
collections~
~;_
docrecs0 in G0vornment
p0.rticul.srly on social
In the first eleven months of this year, the exeess
of cash expenaitures by the Feder:Jl. Government over cash receipts declined by three billion dollr;.rs &s com pored \'lith the ss.me period last
year.
Owing to the f0ilure of consumer incomes and buying to increase,
industry found that as form:.. rd orders wero filleet there were not enough
new orders coming along to keep up the volur,1e of production end thus of
employm•. mt.
The %.rious factors which l have •:mumEorated were chiefly responsible,
in my judgment, for bringing <:.bout the current Jecline of business.
Other
fc.ctors may h&vc be·:m contributory :in some def;rec, but upon ce.r':Jful anDlysis they eppe.:,r to be entirely insufficient to r_ccount for the recussion.
The more I hc.ve: considered other explnm:tions, the more I hc.ve been
the conclusion that the C'JSt un:i pric.; c:.dw.nccs of
were the principal cr.us.:;s
~;£
resp:.:msiblJ f:lr the prc:scnt
Re::;crv~J SysL~.u
to
Hint . ;r :,.nd spring
tlw subsequent downturn.
r:c~ccssion.
incc,ming gold by th0 Trcv.sury
the Fodorol
.lc:~st
lc~d
~-lld
They think thcct sterilizE,tion of
th'-' ':cticms of thu Boc:rd of Governors of
in incret:.sing th:.;
r\~sorvt:
requiroments of' Htumb0r
338
Z-6(2
- 6 -
bauks caused a reversal oi' tJ:1e upward movement.
Upon careful searching
of the re...:ord, I cannot find convincing evidence to support this analysis.
At the time these actions were taken member banks had a volume of
reserves that could have become the basis of an inflationary expansion
of creJit which under the law it was the duty of the Fedr:.Jral· Hescrve
authorities to prevent.
At the tL'lle final action on reserves was taken
th8 aggrcgata of bank deposits and of currency in circulation w&s larger
tha..'1 it had been in 1929.
vvould by now have been
If no action had been token, excess reserves
ab~ut
$5 billion, sufficient to support
'.ill
enor-
rr.:>us <mu. inflationary increase in deposits.
Even after the excess reserves were reduced, member banks still hE_J
enough left to meet all current demands for credit, and money r1,.tes rem&ined at exceptionally low levals.
did not
11
In effect, the actions of the Board
put on the brakes", us :;;orne critics have said, but merely took
up a la:cge
pa~·t
of the slack so thn.t the Reserve System
position it was intended to occupy in which,
aS
W1:!.S
placed in tho
v1as statod at the time,
it would be able to use the trt1ditiorw.l and flexible instrwnents of openmarket ::.nd rate policy either in the direction of further monetary eaae or
in the opposite direction as changing conditions and the public
might require.
As a matter of fact,
l~st
int;;.~rtlst
spring tho Board eased conditions
through open-market opc:r<Jtions and again this fell, in cooperation with the
Treasury, furthe:r stops wer0
of gold
~.nd
tr.k~n
in the s2me direction lly dosterilizr::tion
by subsequent upen-mcrket operations.
Similarly tho R\;sarvc
System put into offcct last .August the lowest di::>count rates in thG histGry
of the System.
Z-62
339
- 7 If the rcctiuns t<:J;..en lc:.ct ·.:intsr h[,c'J. ' psych:1lugic::·.l 0ffect in rcstrr:ining the
infl~ctiurw.ry
dtJV'_;l:::Jpments which Jere clecrly 1mdcr
HI~Y
nt
the time, th·:m these tcctLns werv definitely in the public interest.
If
this be so then r;iy .mly regret :i.s n:)t tlwt tho e,cti ..;ns ·.mro t::ken, but
th:.:t thoy ·aero n:)t tc.ken eurlier.
Anuther cxplc.rwtion )f ths reccssi.m thc-.t has
bc~·m
it rrimcrily to tho undistributed pr•Jfits c.nd CLpit:.:l
l;ffcctively t.; dc;str:)y tht..:m.
L
I ·,;..;uld bo the l1.. st
s ,v-:.uld ,11.ske th:.:;IJ1 l:I.)rc equi tc bJ.c:
~Ji thJut
-~nd
impr(:V(.) th0
tc~
r:.dvr.. ncud
g~.ins
~tSCrJ.bos
tuces.
Thoro
crJntcn<i thr,t these
·vn~V.:ing
·Jf thP ;ll(;;chrnisrn
vremrturely r.b:.:.nd.ming the principles uf th<;;sc tc.xes.
It sh·Juld be rGc;-.:lloci th1:t the undistributed ,)r.:;fits Lx JGS d.csJ.gJ.1ed
tJ Crol'J<JCt t..'Vils
~~ppee.rin;_;
rt";cent yec:rs, such
bracket inc,_.mos
LS
in tho cconumy uf the t'ikntius, u; well
S
in m.;re
the 1:.V:)id<J1Cc: of indiviciut:l surt::xes in the upp(.)r--
th~mgh
n:m-distributLm A' prufits, the inoquditiGs in the
kxutLm of incJrpJrrctod :::..nd uninc-:.-rp,Jrutod
curpurL.te eurnings v1hich
111~
businc;;s~s,
tho piling up Jf
ke fu:r furtht.:::r co:.Jbinatiuns c.nd. ccnsulid.c-,_ti ms
bvJstod security prices thr;._·ugh b0ing .i:)o.rwd t':J the cc.ll nnney
that c §;GnJrc.l liquid[.ti::n ··f d;;;bts in thu
idl,; rcs:.:rvc f1.mds c·mld woll int:;:;nsify
r
e:c~:n.1uy
w u grc::ducl
dofl~·.ticmcr;y
1.1~.rket
<:<nd
~.ccur.mlr.tLm
_.f
f.)rces c.t this tL:1c, ·ah<.:Jra.s
340
Z-62
- 8 -
if thG tDx 1:ero so modified as to GXempt ecrnings VIhich wera
usc~d
for
ccpi tc.l c.ccount, the.; effect v:ould be to incre.c:.se the uso of funds c.nd hence
business ctctivity.
It would be well to consider how this tnx cu1 be Hlc·de
to function more equitably, pc.rticulcrly ·.,ith respect to sm&ll businoss.
It vmuld, h:)i"JeVer, be sh:)rtsightud to be
st~;wpcdcd
into hr,sty [cb::md:.Jm:!unt
uf a. tb.X principle v;hich is fundcmente.lly s0unci c.nd equitcblc.
Likevdse, v;hilo I r.gree thrct the
-,,e
sh~1uld
reJ;IOli,b-.:r
progr~ssi vc
th~~t
c;~.pitc~l
g[ ins
t~.x
this tc-.x is designed simply to
should be improv,Jd,
Iit<.;ko
effoctivo tho
tc..x:;.ti-:m of inCJ!ilG in c ccord~nc'-:l -,;i th ebili ty to pc.y--<::: c·-Yllrse
•..m ·v,;hich I think tho 1-Uneric,.::.n
pc~0plo
[;_re ::l·Jund.ly d.oto1·mined.
There; is little
convincing reason why the reclized incumc fr.Jm '-' ri:.>e in pr..;porty vc.luos;
including s pocult: ti ve profits, sh:Juld be dealt iii th iil'Jre leniently thrn
the rer,lizcd inc;-.;ne, for instc.ncc, frm:l
p~Jrscmc..l
o:.. rningc.
Thore is little
in the llistory ·:;,f socurity pricos to indic.s.tr::l thrt thay hLve f.luctuc.t,)d moru
1-.:idc:ly when this t[:;.X wu:; higher thDn v1hen it
VIeS
lJvmr.
hr s gune up ana dvvm whon the cr. pi t<.cl g<dns to.x v7rcs
The stuck m:o;rket
1~1uch
sut::::..1l-.;r :::.nd le:;as
rostrictivu, ::.s in 19:;.9, Dnd when thG ccpitf.,1 g!_:ins tLx w:.:-s 1auch lc.rgcr cs
in 1956-37.
~'io
sh,Juld r,lsc; rclilGElber thc.t buth the undistributod
pr~)fits
tn.x and th,) C'l.pi tc.: 1 gc:. ins tcx ware in force in 1956, -i;_rhen industrial plant
o.nd vquipm.:.:nt expandi turos end. g<:inorL-1 inv8st:.n:mt
l'iC.TG
quitv ns rcpid cs could re:;sonLb1y hc.v.; bt.;e:::n <.::Xp'-'cted.
oxp[;Tiding : : t e rcto
And during thu first
nine ;,1onths :.:,f this J-'0(,r tha volu:i18 :.f industrir.l p.J.[tnt <.-nd equiprn.:mt l:Xpdnditw·os was iar·inteined E:t r.: 1ovel c·.lJprJximEting thc.t 'Jf the pre-CieprossLm
ym.r :•f
19~8.
Th0 rocessLm, thoref::.;rJ, ccm10t lugicc:..1ly be r.scribod tu tho
curt&ilment ·.Jf e:xpondi ture::> bt,;c;,uso ·jf this t:x.
341
- 9 The br·.sic cruses of the present siturction
~'.re
not to be found either
t~.:.x,
in tha c..;.pitr::tl gc:ins tt::x, the undistributed profits
policy, but,
r~s
or in monet.!:cry
1 hr<ve indic.s.ted, in the rr:pjd price u.nd cost
~_,dvi
nces of
last winter ::.nd r.pr1ng.
The experience of thin past yer.r illustrc:tes
ag:.dn the limitations of
monet~... ry
<nd fiscc.l policy.
Fisc•;.l policy, in
pa.rticular, cu.nr..ot be quickly o.dJ•J.sted to sudden changes in business
ncti vi ty bec;,use such policy depends largely upon prior
legisl~:. ti ve
t:n·-
r..ctments.
,\hen tho disruptive price f£:ctors becune intensified lr st spring
~end
propos<.;.ls were u.dvc.cnced in some qucrters to corroct the situation through
monetcry action to tighten J;lOne;r n.tes, 1 iouuod c. public sto.tem-;mt for
the purpose of refuting the notion thr..t monet&ry [cCtion should be invoked
to correct such conditions.
1 pointed to the ft..ct thc:..t the price rises
were the result prii11Lrily o.f non-monetory fc.ctors including foreign :·rm::cment dt)J:lc.nds, strik..-,s end r,l•)nopolistic pr:-;.ctices by
C·~rtcin
industry and org;:.nized hbor .:.nd th£.t those
hLd led in turn to
speculative security
price
~cd.w~nces.
c~nd
f~;.ctors
coJiwmdity buying which served to
group2 b:.1th in
c.ccelen·t~.>
th:.;
I suggested :; t the time the.t other mec.ns than a rostricti ve
money policy must bu used undor such cvnd.itiuns to
cont~~ul
umvu.rrWJ.tod price
<.·.dVF;nces 'Vhich result in ['_ ris8 in the cost of .living for r.;. racj ,::;ri ty :;f the
peuple without ::1 comE;..msurr.tc incro:::se in thuir incoiae:.
It is, of course, i.)I'Sior t·:> rciso problems then it is to solve th\JilJ.
When we revimv· tho 0vents lotcding up to tho current rec0ssi.m, it b8CCl!1:.;s
~.pp.:J.rent
th<.tt v. b::. s:Lc difficulty in nchiev:ing full '.md c::.ntinuous uti1i::.<.·-
tion of vur huL£ . n &nd
mediate priw·to
n~"t,urLl r0s~)U1'CC!S
int~1rosts
;mJ. tho
tributud t•:; tht; upsurge in c..;sts.
t:ccting .::litho~~
lies in the c._.nflict butvi'0t.m 11.1-
~;en":nl
~~nd
w(.;lfc,ru.
Th::J3e gr_-;ups th:_ . t c·.Jn-
}lricos lrst vif:int;):c (nd spring \·iuro rnt
in the public int;;r.:-st -Jr in tbeir
0\ffi
ul tiwc,t<~ inter0st.
342
.Z62
-· 10-
We must recoesnize the fact that cumpetition has declined and monopoly elements have increE.! sed uver l::o,r[ e :.:;;.;cturs of our E.conomy.
ample, it could only h&.ve been the atsGnc.:·:::
tuilding costs
spring.
t~)
o.~
c~)mpr::ti tion
For ex-
that permitted
soar on the low voL1me u:f.' building ttat took place last
It is only the abr;ence uf cumpeti tion that can expLl.in the main-
te11ance of fixed prices and wage rates when the v0lumo o£' activity decliues
sharply.
The gradual increase in the non-competitive
elem~mts
in our econ-
orny, so strikingly illustratt:d in the developments of the past year, rahes
some l:ighly important questions;
How are V'e to .';.chieve and maintain full employment if private grou.ps
and organizations raise prices and costs whenever incrcaf.cd demand appears,
although there is still an abundanc.:' of idle E.nd wmsod man power, plant
facilities and raw materials':
Duas this aecessitate steady increase::; in con-
surner buying: power through deficit spending:·
course'?
economy·;
How lung can we pursue such a
h.re we to u.ttempt to r0i.urr1 to a truly competitive laissez faire
If not, are the c...l ternati vcs facini' organ:i.za tions 0f capital and
lah)r either self'-grJvornm.::nt in tb"' public intc,rest or incrm:..sed regulation
in the public intt:rr:st ~
I earnestly hope they v:ill choo:co the former al t<:.rna t.i ve.
So far as
a return to laissez .faire. is coDcerned, I du,lLt that this is po:.::sitlc.
development of the indu.strial
has br:..ruf_ht into being VcTi :m:~
labor.
pr,jce~;s
~·orms
The
itself has created larger units c.nd
of organizution uf both capi tc.J. and
Rather than attE.m,tJt t•J r8vcrt tc. ec...rlier forms of organizaticn,
it sGems to mo th&t our be::t hope lies in
tion for capital :lnd l'lbor vthich will
bo::~t
developi~lf.
that form of organiza-
fLlrther tho pt.lhlic interfJst.
Thought must also be given to the best !orm of
o~ganiz&tion
that
~ill
in-
sure an adcy_uate ropresents.tLm 'Jf the public intt::rust involved i:1 price,
and production
Digitized forwage
FRASER
policies.
343
Z--6:2
- 11-
The ultimate self-interest both of capital and of labor is identical
with the public interest.
strat~gic
I am hopeful that individu&l business men in
positions, and the various local, trade and national a::;socirJ-
tions of business men, will act upon a recognition of the fact that their
long-run interests are bound up vdth the largest possible volume of production at the lowest possible prices.
For their own ultimate benefit,
as well a.s in the interests of a stablo economy with a steadily
risin~s
sta:..1dar·d of living, they must resist the temptation to secure largar r..:;turns through tho adoption of policies that restrict output.
Likcnvisu, I am hopeful thbt lu.bor poli(!y will increasingly take into
account tho fact that after a certain point the gains of labor are ctependent upon incroased productivity.
Acivances in wo.ges which are in excGss
of increasing productivity 1md result in increused prices reL..ct <:).guinst
labor itself, c_s v:oll us &gEd.!'lSt the commrmity :;.t large.
If they result
in [;_dvancing prieos, thay unccurCJ.ge speculu.tive inventory buying, or shut
off demand, or both, as we have recently seen.
If they reduce profits
below a point that encourages new investment, they lead to decreased
plant, equipment and other capital expenditures.
Similarly, general short-
aning of hours not offset by increases in L:fficiency is bound to rosult
in a lower standard of living f'or workers generally.
Accordingly, it is
to the interest of lu.bor leaderst,lp to take into consideration thd effect
of its policies on the g0ncral price level, on the standard of livint?;,
and on progress toward
bS
ful;_ and as continuous c;mploymont as possible: of
tho hum2n and maturii:il productive ro::;ourcas of tho n&tion.
We ar,3
prone~
to t£<kt. for grunted a steadily risini; st&ntlard of liv-
ing vvi thout inquiring too closely into th..:; basi.'> f-:)r this b8lbf.
f
ctually
344
- 12 thGre is only one way jn v;hich the general standard of living can rise
and that is by an increase in the pro<.iuction and eonsumption of real goods
<tnd services per head of the population.
This stubborn fact, though in-
controvertible, is too often ignored or forgotten.
~·Je
are inclined to
think too much in terms of money incomes and not enough in terms of what
the incomc::s will buy.
In the final analysis, the national income is measured ~ the total
output• of goods.
If there is lcss to divide, all groupfJ of the popula-
tion, including capital, .Labor, and agriculture, will suffer; The national
standard of living will decline.
I have sought to state in tho broadest and most fundamental terms
what I believ-e to be some of the major economic problems raised by our
rec0nt zxpcrience.
These long-range, fundamental problems cannot be solved
overnight or without hard and realistic thinking.
eventually, however, if'
WG
They muJt be solved
uro going to be able to rec.lize our enormous
prJductive potentialities and maintain full and efficient
all our resources.
We
ar~
emplo~nent
of
("Jnly doomed to disappointment if we place all
our faith in monetary mcmctg;;ment .:>r fiscal policie·s and ignore the problems r!:.ised by the decline in competition b.nd the growth of restrictive
policbs.
Tho pr:_)blems tu which I refer are not all new and they c.re not
exclusively the problems of any political group.
They are the basic
problems which must be successfully met if we are to preserve our capitalistic system, and they will confront whatever group may have the responsibility for government.
Although I have been thinking mainly of the basic problems raised by
the current recession, much of what I have been saying is applicable to
Z-&2
345
- 15 the
ii;u.1edi~.te
covery.
problem of stopp:L"'lg the contr[·ction end resu;aing the re-
Two of the
of' the recession v.:cre excessive in-
princip~.l c~uses
ventory e;.ccumulutions l..nd the ft.ilure of building construction, rrilroad
increc.~se
<md utility expenditures to
sufficiently to offset the decline
in the Goverru.1ent 1 s contribution to cm.t.:lunity buying power.
Consid.er:·i.ble
progress has bean j,lc.de since SepteLlber in rectifYing the inventory situv.tion.
Production
declined ;.mch uort:l r<..pidly
dem~nd
If consumer
i~la.Y
hf.'~s
soon begin to
m~y
c::.n be sustr:dned, we
incre.~.se.
Loc.~·.l,
th~:.n
conSUl•lption.
be hopeful that prouuction
stt::te Wld Federel provision for the
unemployed afford a support to consur.1er buying power thE:t
w~~s
l6.cking prior
to 1955.
At the sc..me tii!lc, it is highly desiro.blo f,:>r business .nen, both in
their mm v.nd in the public interest, to review cc:refully their presunt
und prospecti V•:) inventory,
pl.~.nt ~.nd
tniL,1,mt of expcndituret; for these
that J;tt.ny
line~
equipjl.;;.nt rvquirements.
purpose;.:~
Furthur cur.:..
[;,t the prvs,.1nt t:ilrre will ;noun
::Jf business will bo physicr-.lly unt.ble to moet tho orders
thr.:t will como to th-JJ.:i when thw rwcover.r J;lOVGJ>lt.mt is r>3SU:.l0d.
In ordGr to
cxpc.nd thci:r p:roducti vu f':.. cili tiv::; t:; r.let:t th..:: du:;.r..nd, thoy Nill find thensolves bidd.ing r'g.:... inst uc..ch othe-r :::t .:>d.vDncing prices.
In :::ddition to
need o.n i1apotus
i.iGt~sures
th~ t
to susk.in buyjng p-:;wor end pruductivn, we
will bring r-.:bout
['tll
r..ctuu.l incroEse.
1aust look pri;ac:.rily tr:: thu builuing industr,.
in the past its r.bility tu :.Dvo
rel.:. tion uf
c~:.:sts
to rent.:; is
tiun nuw pending, tho
favorc,bl~
sc;::le.
Fcdcr~:l
;:~gu.inst
f'r:.vvr&bl~
For this, we
Building hns d011'.mst:-::. t:.:u
c. genor[..l dJwmvc.rd tr<:Jnd if the
fur c·:.mstruction.
In lugislr.-
G·.:;verni'ihJUt pr·..)pos0s to bring ab,)ut l:tore
torus f•:Jr fin:c11cing h ..msing bvth on r,
sm[~11
It has, CLlJng <)thor things, t!:kon stops t:;
c.lld Jn r. lc..rg;;;
pl~.ce
the ::;,pp.;rtunity
Z-6~~
346
- 14 f::>r ccquiring
E•
p\l·..~ple
new home within the re:.ch vf
who c::.:n r.fford unly o
f'vvr hundred dullcrs 'd,·Jv.n p.: . y;aant.
f _,r this '.:-.pp.)rtuni ty t:) b.; fully avt.ilud :.;f,. hr,;yrcvvr, build-
:Jrd~r
In
ing c:)sts sh.l'uld bo
lY~er(!d
t:; r.r..;und
~ithor
11-.b·:..•r :>rgt.nizt.tic·ns cun.."lectud
ing industry
r~duc;.:;
ccn t:)
Lv-~;cr
ct~n
·)~m ~~d
::v:rvc thdr
th~
lo;;v.::Jls :;f 1956.
Business Lnd
dir0ctly :;r indircctly with th.:.; buildthe public
intoro::~t
unit costs ':.nd in thi& ;:r.y incr.:.;r.sc th::;ir
b.,: d.Jing v.hnt they
t
ggrogr: t~; ret:.urns.
h~·using
fint..ncing C·.)sts' c.nd th:J u1CChnnism pr•Jp•:;sod in tho ponding
bill, f;)r large sc:·.le hcusing productivn will
Lvwar roc.l
est~~te
tt:.xt:ls ..:n ne·,.:
constructi•..~n
~-ls=.>
c.s <J"oll c,s l:.:wer h.nd vrlucs
would likewise g1·ently c:.id the h(;U:Jing progrt.m.
pc.rts ·Jf the building field, c:>sts bevc
c;;ntributc; to this end.
:...lre~.dy
In the lil')ro
comp;~titlve
decJ,ined substr;ntic.lly.
Fundt:.mento.l solution vf the r.:-.ilrc.ad probloJJ is bound up ,·;ith increr.,::.;ing traffic, .-;ith c·::msolid::lti:>ns r:nd clit1inr: tion of duplicr•ting
fo.cili tioo .s.nci ·,·Ii th
deere~. D~d
.c-:>sts.
I trust th.:..t the
imp~>rt~nce
ing r.:;vlval in this conn(:jcti•'Jn vdll n·.:-·t be Lst sight of.
·.Jf
t•
build-
t questic.n \'<hether
r.:.ny steps to holp tho .rr..ilro:: ds thn t ··Ii.:uld h<.:Vc th.::: cl.ff•.;ct •.;,f incro:..: sing
c:.~sts
bulldi.'lg
rr.: ilr :.;&ds
•)J'
:.n:·
ruducin~
A' the
g~n;;,rr- 1
f':.. rlil inc::·.Jii.;: ·;,uuld ixl in th•; ro:o.l
intur1.~st
public.
Br ;.adly spc:.:.king, 1 f(;lcl th<.t the r-Jsu.nptL>n vf E.r. vrdcrly
pends upon the
~,ajustmont d:..;~m·,;c.r·d
:..:.nd ;/:...ge rr-.tus
~;hich
cht.sing
iilB.Y
b-.:
p·~~vor,
t.·~\.)
<::nd .:·.n
')f
th·.;s~::
~aju.st;Jont
r~C->Vi3l'Y
de-
mun :.LJ::>listic ::,r c:cntr-.)lled pricus
still ro.:u: in t j::. higi1 in
r...;l~. ti:m
t·; c-:msuucr pur-
up.:;rrds ::>!' such p:riCI.!S tnd wLgc r;: t.(J:J as
ls.; in relc.tLn tJ t.I;D c >St vf
m•;;>nt, .t;.griculturo, busineSS
A· the
:-.:.n~l !,[cb. >r
li~ting.
Th·.:l p.)licics
-~,f
G... vorn-
to b-.; SUCCi:lSSf'ul fuUSt bo dir>3ct ..;d
347
Z-6~
- 15 toward tho abj ecti ve of rosturing tnd J!l.r.intcining r. bott0r bc:l•·:nccd
thB.t will m2-ke f,jr c.
gre~~ter
~JC;.Jnomy
productbn end distribution of rc<_._l wm.1.lth.
In c:)nclusion, let me sny thr.tt in
LlY
·)pinion the extent of the premc.l~.dju:.:>tmonts
sent recessi:m will depend upon ho•ii rapidly the more seri..:>us
I
between prices r..nd buying p0wer nrc currectcd o.nd incronsed m.;.t,iom:.l inC·Jlne
is created. by the ::cctivity ;Jf privc.;tc business.
An c.d.::qu~te tredtlont ')f
your p&rticule.r problem of agriculturc.l income must be u major part A'
successful progrr·.m of recovery.
t~lX~~tbn
~J.
I feel thnt the G·Jvernment in its policy :Jf
end spending must c•. d[~pt itself b
chmlgus in the nr..tional incoJJo
crcE.ted by priv.:,tE:J enterprise .;,;nd., fim,lly, I f0d
th;~t
the
monctr~ry
authcr-
iti0s should exert their cff..;rts t:) keep tho t;vc;,.ilc.bili ty, supply rend cost of
m:.mey r.;.t such
C•.Jffit;.)
[~
level :,s t,, encJurt:.ge continuous expsnsi•)n :)f the ree.l in-
of tha mttion in gvods und s..;rvicos [.nd t:J prevent
~jr
moderate : n ex-
pension of r.l•JnE.Jk.ry inc:,mo in excess A' the ncti·. m's l->r;)ductive c1..pc.city.
I
[..Ill
full
c:mfidcnt thct ;nonctr..ry e;uth:Jritics r:rc
she;r~
prept~rcd
tv c:.mtribut..: their
tv th,J end thc:.,.t tho m tiun' s oc:.>n Jr.liC ho.::.lth mr.y be rcgr:ined [·.nd
pros:::rvod.
@FedFRASER