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324 A meeting of the Board of Governors of the Federal Reserve Sys-. tern Office h the Presidents of the Federal Reserve Banks was held in the s of the Board of Governors on Tuesday, March 2, 1943, at 12:00 1100n PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Evans Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Dreibelbis, General Attorney Mr. Wyatt, General Counsel Mr. Thomas, Assistant Director of the Division of Research and Statistics Mr. Berntson, Clerk in the Office of the Sec— retary Messrs. Paddock, Sproul, Williams, Fleming, Leach, McLarin, Young, Davis, Peyton, Leedy, and Gilbert, Presidents of the Federal Re— serve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City and Dallas, respectively Messrs. Bryan and Clerk, First Vice Presidents of the Federal Reserve Banks of Atlanta and San Francisco, respectively Messrs. John H. Williams and Rouse, Vice Presi— dents of the Federal Reserve Bank of New York, and Messrs. Sienkiewicz and MacKenzie, Vice Presidents of the Federal Reserve Banks of Philadelphia and Cleveland, respectively Mr. Edmiston, Assistant Vice President of the Federal Reserve Bank of St. Louis 325 3/2/43 -2Mr. Rice, Manager of the Research and Statistical Department of the Federal Reserve Bank of Dallas Chairman Eccles, after reviewing the circumstances under which the Bo ard in 1936 transferred from the Agents' departments to the ope t.t „ °' mPartments of the Federal Reserve Banks the research and sta%tic al a ctivities of the Banks, made substantially the following statezaert. of For a considerable period the Board has been desirous don lling the Federal Reserve Banks that have not already ' iqj so build up strong research and statistics divisions. tim" the problems confronting the System at the present ti e it is more important than ever before that such acile°1Q be taken by the Federal Reserve Banks. The Federal (11Z17c Banks, through their research departments, have a dea function to perform, first, in advising the Presi*le 8 and boards of directors as such and the Presidents theY are members of the Federal Open Market Uommittee, Boarsecend, in developing information for the use of the terfinciv,and the System as a whole in connection with the deBoal ti0n of System policies. It is the feeling of the that in order to obtain the best results from the rethec`reh activities of the System it will be necessary for Bil ! ,41?ard to select an outstanding man, who will be in the 14.8 Division of Research and Statistics, to direct the C00 ; eerv-anation of the work of the Board and the Federal Revit,e Banks in the field of research. The System has a interest in monetary and fiscal policies and in the 4e1.:8 which lead to inflationary developments, and in NI ; - that at least the leaders of public thought are inthe ' e 4 as to the dangers of inflation and its effects on tiation s economy. 1S matter has been t& brought very forcibly to my attentio4 -Y. 1133T experience as a member of the Economic Stabilizaliq bB(trds and it has occurred to me that the System might ' 1111 we g all that it should in this field. The successqc°rk that the System has done on consumer credit is an at44°n of what the System, with its regional organiza13t!caPable of doing in comparison with a new organiza"dt might be created to handle such a task. 326 312/43 -3- I recently received from the Office of War Information a confidential report which deals with the problem of T4.4.ati01 and which indicates that the American people, while the°gnizing e that prices have increased, have no knowledge of p..e °aUses of inflation or a realization of the present damof inflation or what it would mean to the living stand°f our people and the economic life of the country. It cessary, therefore, that someone undertake an educati,„ -7, a, -!,4d-1- campaign in this field for the purpose of acquainting uaLiy.east the leaders of public thought with the present sit„x.Yn concerning the possibilities of inflation so that they support and cooperate with the Government inflationary program. Co of. it .1 feel that the System has a duty and obligation to make whi sl influence felt in a very direct way in this situation. sho t has no authority outside of the credit field, it be recognized that if inflation should occur the pubwould place the blame largely at the door of the banking ct Syst "e''arY system of the country, and for that reason the be era should not place itself in the position where it could it ed" 41 ged with not realizing the dangers of inflation or, if the ; 14-u recognize the dangers, of not saying anything about zat, I recently gave Mr. Byrnes, Director of Economic StabilitheIZI, a brief report of the accomplishments of the System in torld of consumer credit. He was very much impressed, and (leveld haim. that the System was very much concerned with the that. ?Pmen t of inflationary pressures in the present situation, aect -If it could be helpful in meeting the problem it would be do so, and that it was believed the System could do 80111 ah(f".„T-Ing in the way of pointing out the dangers of inflation cle'ne necessity for counteracting them. Although the System wolti. have some responsibility in this field, I felt that it el.ar be desirable to have a letter from Mr. Byrnes which would teonliY the position of the Board in relation to the Office of that : 3114c Stabilization and I so stated to him. Asa result of 141der8uggesti0n, I received the following letter from Mr. Byrnes date of February 27, 1943: echic nyou are aware, I know, of the tremendous need for public i,T1 on the whole stabilization program. The reports of the oli t411.14-4-ce of War Information on public opinion disclose proof thearld widespread misunderstanding or lack of understanding ark ' ,'o for taxation, buying bonds, curtailing credit, eehel4er important steps of the program. Manifestly, without eepter;-'• Public understanding it is impossible to hope for ace of necessary measures and without acceptance, this 327 3/2/43 1ce cannot hope to succeed in its program for economic , ,8 1bilization. As I need not remind you, this undertaking is 4. to the welfare of the country, both in winning the war the peace that is to follow. We need a united front to . tle,"-Leve success on the domestic front as much as we need it on 42 1 e fighting front. Politics and partisanship have no part in 4-6 w hatsoever. . wfhe Federal Reserve System, as a public institution, is 8Zularly well adapted by reason of its regional organization its interests, to help in the vastfreedom from special or partisan educational task that needs to be done. Through your fatil e .;8 and branches and under the direction of your Board, I that much could be accomplished in helping to bring about trer understanding on the part of the public, especially ienl‘c)riugh enlisting the aid of bankers and business men who are to-rrs in their respective communities, and are, in turn, able preriP in informing and guiding the general public in cornthe reasons for measures that are in their own and the ending c2untry's best interest. seor "1 am, therefore, writing to request that the Federal Reea4 e System lend whatever assistance it can in this important el cational work to bring about a wider public knowledge of the 4':k. ?nts of economics which underlie the measures that are c-laY necessary for the country's welfare." believe that this is the most important job that the the „_ "as to do at the present time and that, for that reason, omt .goard should obtain the services of an additional econterlst ;to work with a small committee of three or four research pro "Lrom the Eederal Reserve Banks to develop an outline of a team which can be carried out by the System, with the derum,s to be filled in by each Federal Reserve Bank in such a er as it deems best in the light of the situation in its et, The outline would not make specific recommendations 1111t tarZr --d set forth the causes of inflation and in general the necessity of finding effective measures to prevent th e;,r developing. was .,I made an extemporaneous statement at the meeting which ' ttended by representatives of some of the Federal Reserve tarlk the 8 ln Washington on February 2 and 3, 1943, with respect to ! r ePonsibilities of the System in the field of research, 4lehj' the time I said I would prepare a summary of the statesion and the views which I expressed in a subsequent discusthe meeting and send them to the Reserve Bank repketit-;:atives who were present at that meeting. Such a statehaS been prepared as an expression of my oval views and 328 3/2/43 —5— °°Pies will be made available to you. The Board would appreciate knowing whether the Presi7"1.e of the Federal Reserve Banks would be in agreement with d. Program, along the lines that I have indicated. Ur. Sproul stated that the dual pos#ion of the Federal Reserve end the Presidents, to which Chairman Eccles had referred at the beg --g of his statement, did not in any way reduce the need for hav- trig P e;,4 ---i-k-tents of the Federal Reserve Banks who were men of competence .1 41c1 go °d =J udgment, capable of leadership in their respective districts backwa the formulation of national policies, and that it would be a I'd step if the dual nature of the Federal Reserve Banks should be vgeted to mean that the Presidents were only branch managers who wast1717 out policies determined for them by the Board of Governors ngt°n. Similarly, he said, the economists at the Federal ReShould be men of independent judgment who were competent to IVOtit With the director to be selected by the Board on an equal basis 1.4111(3t as subordinates who would be given a program that they would be e LP,e eted to carry out. He felt that the System would promptly lose the tkiri etit Position that it now occupied if the research departments of the 4cierial Reserve Banks were placed in the position of taking orders 4°14 a national director. He added that he wanted to make his position " c'r the reason that the impression had been obtained from the eltk 141%*4t made by Chairman Eccles at the meeting on February 2 and 31 3, that he might have something in mind in the direction of sub°1'cit4tic)n of the research departments at the Reserve Banks. 329 3/2/43 -6Mr. Sproul went on to say that the Presidents' Conference had aPPe'inteoi - a Committee on Research and Statistics for the purpose in part ()tting problems such as that referred to by Chairman Eccles, that tileecftaittee could be brought together quickly for consultation with 13 the ", and that it would be available to work with the Board in 4117/4g out the highly important program referred to by Chairman Eccles. er Chairman Eccles made it clear that neither he nor the Board had thoUght °II other. of carrying on the research work of the Federal Reserve Banks than a basis of mutual cooperation, and that to try to do it ql the bas iS t4re.. of dictation from Washington would utterly fail to obtain 111-ts that were essential if the efforts of the System were to klec 81.111- He said he was not unmindful, however, that there was : picte that th for leadership on the part of the Federal Reserve Banks and be ere was likewise an area in which the Board should provide 14.eedershi 1 °11 a national scale, but that this should not be an occasion for cent! in the exil let if the Federal Reserve Banks and the Board were frank l'esaion of their views and realized that on matters of national 11°11e/ the Federal Reserve Banks could not operate as separate institutl4348 a" that the Board had a resoonsibility to take the leadership in N ?re -14 with questions of national policy. 4,44 7ents 4•Port He recognized fully. that and the research men at the Federal Reserve Banks must indePendent judgment and capable of leadership in order to win to be el °r the national and local policies and programs that would have rried out in their respective districts. 330 3/2/43 —7— Messrs. Szymczak and McKee supplemented Chailman Eccles' state- et with the comment that the System was interested in the effective c°°rclination of its research activities and that it was important that the aanks cooperate with the Board of Governors and the Board with the tanks. Speaking as Chairman of the Presidents' Conference Committee 04 Re eearch and Statistics and as one who had 25 years' experience in Work, Mr. Alfred H. V:illiams said that he felt the Presidents " Subscribe vigorously and unanimously to Chairman Eccles' proposal, kid that, darlers While there was great need for an educational campaign on the of inflation which should be approached by the Board of Governors ' 4 1'1 the wa8 Federal Reserve Banks in the spirit of complete cooperation, it necessary that care be exercised to avoid a situation in which the 151m would be determined in Washington and handed to the men in the fteld to be carried out without any independent thought on their own P4rt, such situation could be avoided, he said, not by debate but kILY 107 a sympathetic approach and understanding on the part of everyone erned and collaboration in the conception of the program, having in ‘114 that the Federal Reserve Banks had responsibility for winning supP°t't the various Federal Reserve districts for any program that might ' ' 4 4ertaken. Chairman Eccles referred to the suggestion made at the last to titer-vnce of Presidents that a member of the Board be associated with the pre 8idents Conference Committee on Research and Statistics, and he 331 3/2/43 — saldthat, if it were anticipated that the member of the Board in effect 1°11-1(113e a member of the committee, the Board would not favor such an 4111611geraent for reasons which he outlined, but that if it was expected that the a ssociation would be in a liaison capacity the Board would be ellid to d esignate Mr. Evans for that purpose. 141r. Sproul explained that the Presidents had adopted a policy of havin g only Presidents serve as members of Presidents' Conference ec4gittees and of associating others with the committees in a liaison e4Pacit and that that would be the situation in this case. Chairman Eccles then said that the development of inflationary was proceeding so rapidly that time was of the essence in that the Board might do, and that an agreement should be reached Promptly as Possible on the procedure to be followed. In resPonse to a suggestion by Mr. McKee that the Presidents be 4ked 1*(4 'their views, all of the Presidents indicated agreement with the e'4111stts made by Messrs. Sproul and Alfred H. Williams and stated that trithe light of these statements they were strongly in favor of 4 44rtaking to develop a program. Mr. Clerk said that the Federal Re— 411re13°1*8 should have some advice from the Board as to the extent to the, would be justified in incurring expense in expanding their avol : eh clePsrtments and that a procedure should be worked out that would 4144,(1141te ati0n of activity. the Mr. Leach pointed out that, because of °118 0n the research facilities of the Federal Reserve Banks and rtlaam to bi ' - 41wer shortage, there should be a determination of the projects ellrea Preference. 332 3/2/43 -9There was unanimous agreement that the program proposed by Chj ' 11 Eccles was of primary importance and should be placed at the tOn e the the list. i)uring the course of the discussion, there were distributed to b °seSidentoS copies of the summary of Chairman Eccles' extemporaneous cOate " 1 8 made at the meeting of representatives ofsome of the Federal /Isse, " le Banks on February 2 and 3, 1943. The meeting then recessed and reconvened at 4:00 p.m. with the sake attendance as at the close of the morning session except that 444. al Rice and Berntson were not present and*. Bethea, Assistant 'eta. Mr. Smead, Chief of the Division of Bank Operations, and Mr. teoria QY Director of the Division of Personnel Administration, were in atterwance. . 41". Sproul stated that the Presidents' Conference held a meet- last night and discussed the following topics on which action was tak *14 as i ndicated below: Changes in the Retirement System of the Federal Reserve ''rucs. There had not been sufficient time since the last meeting of the Presidents' Conference to prepare the Li1 cost estimates of the increased benefits proposed to I°e provided through the retirement system, to consider the report submitted by the Retirement Committee, or to ?tain figures as to the cost of providing the same beneVA's through an insurance company. It was decided, thereOre, to defer action on this matter, with the understandthat a meeting of the Presidents' Conference would be !,101 at an early date at which only that matter would be ulscussed. V z, Classification of Yederal Reserve Banks as essential war a.ge ncies. It was the consensus of the Presidents' Con— el'ence that this was, and would continue to be, an ursent matter so far as the Federal Reserve Banks were t. e°ncerned. The Presidents again urged that further acti lon be taken to secure the classification of the Federal aerslerve Banks as essential war industries and expressed ,teslre to be heard by the War Manpower Commission, 333 3/2/43 -10— through the medium of a committee of Presidents, if such a procedure were consistent with what had already been done in placing this matter before the Commission. 3. 4. Quotas for the April financing drive. The Conference discussed the report of the subcommittee of the Committee on Research and Statistics. While no one was satisfied with the quotas as suggested in the report, it was agreed that the report was about as good a job as could be done under the circumstances. it was suggested that the quotas be submitted by the subcommittee to the Treasury for its consideration in connection with the financing drive, with the understanding that it was possible that the Presidents' Conference would wish to suggest such refinements as might be worked out before the April drive began. It was the feeling of the Conference that quotas should be fixed for the April drive, and with that in mind it was decided to submit tile report of the subcommittee to the Treasury for the Purpose of providing a starting point for the determination of a possible basis upon which quotas would be determined. The Conference favored the adoption of over-all quotas which would include quotas for banks as well as others. Survey of the ownership of bank deposits. The Conference considered the report submitted by its subcommitee 0fl this subject and the need for additional information With respect to the ownership of bank deposits as well as Possible means by which the information might be developed, and the report was referred to the Committee °/1. Research and Statistics of the Presidents' Conference for recommendation. l'°41 said that the only matter that needed to be given consider144 at tez.ve tan hie time was the question of the classification of Federal Re: at 8 st Pf4,4 ices as essential industry. At the request of the Board, Mr. Leonard reviewed the circumleacliag up to the Board's wire of February 8, 1943, in which the ttsp ettv. Reserve Banks were requested to submit lists of positions in their e Banks which might be regarded as key positions and classified serrt'al He stated that replies had been received from nine of the 334 3/2/43 —11-- Banks and that when all of the replies were received it was his thought that they would be consolidated into one list and sent to the War Man— Power C ommission with a letter of transmittal which would restate the ivork being done by the Federal Reserve Banks which was regarded as essential to the war effort. 14r. Leonard went on to state that question had been raised Wheth. —1%$ if the Federal Reserve Banks were declared to be essential to the itar — J-°rt, that classification would require the employment of all new el4)13Yees to be handled through the United States Employment Service, lict that.. , 1 — ue had just been advised, upon inquiry on that point, that that virouici n(A be the case, that, while in certain critical areas certain " ° 11Pati0n5 were supposed to be handled through the Employment „ Qervice 'the Federal Reserve Banks would not be required to follow that Need 1.1.re2 and that they could obtain employees through the Service and alec) take - employees from other agencies which were not essential activ_ee 1-roni essential activities with a release by the employer. Mr. Ransom stated that it had been made clear by the represent— been dis— kleteci r the War Manpower eomission with whom the matter had gor , that Commercial banks were regrded as being in a different cat— , 1111°111 the Federal Reserve Banks. The representative of the War 1CAow pliobab7 C°1111ission stated at this conference that it was their view that 82 Per cent of work in this country could be performed by women 441 that it was important that as much wamanpower as possible be sub— the a or manpower to release the maximum amount of the latter for services. He also seemed to think that a classification of , qter 41 banks as Il an essential industry" was very unlikely but did 335 3/2/43 -12not express the same view about the Federal Reserve Banks, although mak- ing 40 commitment at the time of the conference. Mr. Szymczak raised the question as to what the next step would " Mr. Leonard suggested that it would be extremely helpful if, in cokie etl°n with the consolidation of the lists of key positions subktted u5r the Federal Reserve Banks, a small committee of operating ofNer from the Federal Reserve Banks could be appointed to assist in PreParirtg the master list. Mr. Sproul stated that the Presidents' Conference would be glad to '.410int such a committee. Mr. Alfred H. Williams raised the question as to the designation ()t the ede'''al Reserve Banks as such as essential industry, stating that the 48. lgnation of certain key positions would not relieve the Banks of Arseatir e being placed on their employees to get into essential war p0qti048. T his Point was discussed, and Chairman Eccles expressed the opinuhat z, krate a "would be a mistake to undertake to have the Federal Reserve toll 4., ke 8 such classified as essential and that the consolidated list of ostti °r1S to be submitted to the War Manpower Commission should be hi, a8 Possible so as to expedite its acceptance by the Commission. Thereupon the meeting adjourned. fAt 111m11;-R-e Secretary. Chairman.
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