Full text of Minutes and Recommendations of the Federal Advisory Council : Meeting documents, September 16-17, 1945, Box 3, Volume 1941-1945

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MINUTES OF MEETINGS
of the
FEDERAL ADVISORY COUNCIL
September 16-17, 1945
November 18-19, 1945
and of the
MONTHLY MEETING
of the
EXECUTIVE COMMITTEE
October 3, 1945

M IN U T E S O F M E E T IN G

OF TH E

F E D E R A L A D V IS O R Y

C O U N C IL

September 16, 1945
The third statutory meeting of the Federal Advisory Council for 1945 was convened
in Room 937 of the Mayflower Hotel, Washington, D. C., on Sunday, September 16,
1945, at 2:00 P. M., the President, Mr. Brown, in the chair.
Present:
Mr. Charles E. Spencer, Jr.
District No. 1
Mr. John C. Traphagen
District No. 2
Mr. William Fulton Kurtz
District No. 3
Mr. John H. McCoy
District No. 4
Mr. Robert V. Fleming
District No. 5
Mr. Keehn W. Berry
District No. 6
Mr. Edward E. Brown
District No. 7
Mr. Ralph C. Gifford
District No. 8
Mr. Julian B. Baird
District No. 9
Mr. A. E. Bradshaw
District No. 10
Mr. Ed H. Winton
District No. 11
Mr. George M. Wallace
District No. 12
Mr. Walter Lichtenstein
Secretary
Mr. Herbert V. Prochnow
Acting Secretary
The printed minutes of the meetings of the Federal Advisory Council of February
18-19, 1945, and May 13-14, 1945, and of the monthly meeting of the Executive Com­
mittee of June 13, 1945, copies of which had been previously sent to the members of the
Council, were approved.
The President of the Council stated that the Secretary of the Council had been asked
by the United States Government to go to Europe, and, therefore, was applying for a
leave of absence from his duties as Secretary of the Council. It was unanimously voted
to grant the Secretary an indefinite leave of absence in order, temporarily, to enter the
service of the United States Government. It was unanimously voted to elect Mr. Herbert
V. Prochnow, Assistant Vice President of The First National Bank of Chicago, as Acting
Secretary, during the absence of Mr. Lichtenstein, with all the powers of the Secretary
of the Council.
In discussing the Full Employment Act of 1945 (S. 380), the members of the Council
expressed sympathy with the general objectives of the bill but believed it would be
unwise for the government to prophesy about the future of business and to be compelled
to guarantee full employment.
There was considerable discussion regarding the proposed rates on loans to be
extended by the Export-Import Bank.
On the question of the disposal of surplus goods, the Council felt it was not in a
position to express an opinion because it did not have adequate facts.
In considering Regulation W the Council, with a minority of one, concluded that
Regulation W should not be accepted as a permanent part of our economy and that it
should be gradually relaxed and finally abolished on each type of goods as the goods
come into adequate supply in the markets.




1

The Council decided to ask the Board for its opinion regarding present margin
requirements.
All members of the Council were in favor of taking the steps necessary to elim inate
the special Treasury licensing of banks.
The meeting adjourned at 5:20 P. M.




H E R B E R T V. P R O C H N O W ,

Acting Secretary.

2

M IN U T E S

OF

M E E T IN G

OF TH E

FED ERAL

A D V IS O R Y

C O U N C IL

September 17, 1945
At 10:15 A. M ., the Federal Advisory Council met in the Board Room of the Federal
Reserve Building, Washington, D. C., the President, Mr. Brown, in the chair.
Present: Mr. Edward E. Brown, President; Mr. Charles E. Spencer, Jr., Vice Presi­
dent; Messrs. John C. Traphagen, William Fulton Kurtz, John H. McCoy, Keehn W.
Berry, Ralph C. Gifford, Julian B. Baird, A. E. Bradshaw, George M. Wallace, Walter
Lichtenstein, Secretary, and Herbert V. Prochnow, Acting Secretary.
Absent: Mr. Robert V. Fleming
Mr. Ed H. Winton
Mr. Brown summarized briefly each of the subjects which had been discussed by
the Council on the preceding day. There was agreement with his summary.
The meeting adjourned at 10:25 A. M.
HERBERT V. PROCHNOW,
Acting Secretary.




3

M IN U T E S O F JO IN T C O N F E R E N C E O F T H E F E D E R A L A D V IS O R Y C O U N C IL
AND

TH E

BOARD

OF GOVERNORS OF TH E

FED ER A L

R E SER V E

SY ST E M

September 17, 1945
At 10:45 A. M., a joint conference of the Federal Advisory Council and the Board
of Governors of the Federal Reserve System was held in the Board Room of the Federal
Reserve Building, Washington, D. C.
Present: Members of the Board of Governors of the Federal Reserve System :
Chairman Marriner S. Eccles; Vice Chairman Ronald Ransom; Governors M . S.
Szymczak, John K. McKee, Ernest G. Draper and R. M. Evans; also Messrs. Elliott
Thurston, Assistant to the Chairman; Chester Morrill, Special Adviser to the Board of
Governors; Bray Hammond, Assistant Secretary of the Board of Governors; J. J.
Connell, General Assistant, Office of the Secretary; Walter W yatt, General Counsel;
George B. Vest, General Attorney; Woodlief Thomas, Director, Division of Research and
Statistics; Leo H. Paulger, Director, Division of Examinations; Edward L. Smead, Director,
Division of Bank Operations; Carl E. Parry, Director, Division of Security Loans; Bonnar
Brown, Assistant Director, Division of Security Loans; Robert F. Leonard, Director, D ivi­
sion of Personnel Administration, and Liston P. Bethea, Director, Division of Adminis­
trative Services.
Present: Members of the Federal Advisory Council:
Mr. Edward E. Brown, President; Mr. Charles E. Spencer, Jr., Vice President;
Messrs. John C. Traphagen, William Fulton Kurtz, John H. M cCoy, Robert V. Fleming,
Keehn W. Berry, Ralph C. Gifford, Julian B. Baird, A. E. Bradshaw, Ed H. Wrinton,
George M. Wallace, Walter Lichtenstein, Secretary, and Herbert V. Prochnow, Acting
Secretary.
A general discussion took place regarding the Full Employment Act of 1945 (S. 380).
In a discussion of the foreign credits to be extended by the Export-Import Bank,
the Council expressed the hope that the rates would not be fixed at so low a level that
they would prevent refunding and resale of the obligations and would freeze the assets
of the Export-Import Bank for too long a period. The Chairman of the Board of G ov­
ernors made a lengthy statement regarding loan negotiations with the British.
The question of surplus goods was only briefly discussed as the Council did not feel
it had adequate facts to express an informed opinion.
A lengthy discussion took place on Regulation W and the possibility of relaxing the
controls as soon as adequate supplies of goods come into the markets.
The Council asked whether the Board was considering any changes in margin
requirements and was informed that no changes were contemplated at present.
Both the Council and the Board were in accord regarding the desirability of elim­
inating the special Treasury licensing of banks. Mr. Fleming agreed to prepare a resolution
to be given to the Board of Governors requesting the elimination of this special licensing,
and the Board agreed to send the resolution to the proper government authorities.
The meeting adjourned at 1:20 P. M.
H E R B E R T V. P R O C H N O W ,
Acting Secretary.




4

NOTE*
T h is t r a n s c r ip t o f the A cting
S e c r e t a r y 1s n o t e s i s n o t to be r e g a r d e d
a s c o m p le te o r n e c e s s a r i l y e n t i r e l y
accurate.
T h e t r a n s c r i p t s h o u l d be co n­
s i d e r e d a s b e i n g s t r i c t l y f o r th e s o le
u s e o f t h e m em bers o f th e F e d e r a l A d v i s o r y
C o u n c il.
H.

V.

P.

A c t i n g S e c r e t a r y ’ s n o t e s on m e e t in g o f
t h e F e d e r a l A d v i s o r y C o u n c i l on S e p tem be r 1 6 ,
1 9 4 5 , a t 2 :0 0 P .
M ay flo w er H o t e l ,

M . , i n Room 9 3 7 o f The
W a s h i n g t o n , D, C .

A l l m em bers o f t h e F e d e r a l A d v i s o r y
C o u n c il w ere p r e s e n t .
Th e p r i n t e d m in u te s
C o u n c il o f F e b r u a r y 1 8 - 1 9 ,

o f t h e m e e t i n g s o f th e F e d e r a l A d v i s o r y

1945,

a n d May 13-14-, 1 9 4 5 ,

and o f the m on th ly

m e etin g o f t h e E x e c u t i v e C om m ittee o f J u n e 1 3 , 1 9 4 5 , c o p i e s o f w h i c h
had b e e n p r e v i o u s l y s e n t to th e m em bers o f th e C o u n c i l w e re a p p r o v e d .
The P r e s i d e n t
C o u n c il h a d b e e n
and,

therefo re,

Secretary o f

of

asked

th e C o u n c i l

by the U n it e d

was a p p l y i n g

the

stated that

the S e c re ta r y o f

the

S t a t e s G o ve rn m e nt to go to E u r o p e ,

fo r a leave

o f absence

from h i s

d u tie s

as

C o u n c il,

On m o t io n m ad e b y M r ,
was u n a n i m o u s l y v o t e d
le a v e o f a b s e n c e

in

to

F le m in g and

grant

order,

seconded by M r. K u r t z , i t

t h e S e c r e t a r y o f th e C o u n c i l a n

tem porarily,

to e n t e r th e

se rv ic e

in d efin ite

o f the U n it e d

States G o v e rn m e n t.
On m o t i o n m ade b y M r .
u n a n im o u s ly v o t e d

to

o f The F i r s t N a t i o n a l B a n k o f
o f M r. L i c h t e n s t e i n .
the p o w e rs o f

the

ch ecks on t h e

fun ds

o th e r b u s i n e s s

F l e m in g a n d

elect M r.
It

Herbert V .
C h ic a g o ,

as has

Kurtz,

i t was

as A c t in g Secretary d u r in g

the a b s e n c e

w as u n d e r sto o d t h a t b y t h is v o te h e was g iv e n a l l

Secretary o f
of

seconded by M r.

Prochnow , A s s is t a n t V ic e P r e s id e n t

the C o u n c il,

in c lu d in g

the r i g h t

t h e F e d e r a l A d v i s o r y C o u n c i l a n d to
been

custom ary fo r the

to d r a w

transact

Secretary o f the

su ch

C o u n c il

to

han d le.
FULL EMPLOYMENT A C T O F 194-5.
Kurtz

says

made by t h e P r e a i d e n t
fu tu re .
w it h

It

tends
show ed




very

dangerous

to h a v e a u t h o r i t a t i v e

and o th e r

is

o ffic ia ls

as

to a c c e n t u a t e

*ruch s t a t e m e n t s ,

and H o o v e r ,

it

( S . 380)

su ch

as

th e d a n g e r

d e p res sio n s

to b u s i n e s s
and

boom s.

t h o s e made a t v a r i o u s
of

such

statem ents*

statem ents

c o n d itio n s
P rev io u s

tim o s

in

the

e xp e r ie n c e s

by M e s s r s .

M ello n

-2-

Brcm n.
T h e q u e s t i o n seem s to him n o t a f a i r one to a s k o f the
C o u n cil,
O f c o u r s e , e v e ry o n e w a n t s ^ u l l em ploym ent, b u t to ask tho
G overn m ent to -guarantee f u l l employm ent i s a v e r y d i f f e r e n t m a t t e r ,
v’h a t i s n e e d e d i s t h a t e v e ry o n e s h o u ld have an o p p o r t u n it y to w o r k .
The s o - c a l l e d B i l l o f R i g h t s i n th e p rop osed law i s to be r e g a r d e d as
v e r v q u e stio n a b le .
F o re c a sts are im p o ss ib le .
The C o u n c il s h o u ld go
on r e c o r d t h a t i t i s i n f a v o r o f f u l l employment b u t t h a t i t does n o t b e l i e v e
t h a t t h e p r o v i s i o n s o f the b i l l can be c a r r i e d o u t .

o f p eop le

of

G iffo rd
on t h i s

c a l l s atte n tio n
w h o l e p r o b le m .

Kurtz
c a l l s a t t e n t i o n to t h e statem ent on p ages t?ro a n d th r e e
b i l l w h ic h h e r e g a r d s a s e x c e l l e n t and i f th e m atter sto p p e d t h e r e ,

th e

th e b i l l w o u l d be
Berry
w ith

e n tir e ly satisfacto ry.

b e lie v es

th e o b j e c t i v e s
B a ird

th e

b ill.

w h ic h

to the b e a r i n g o f the movement o f m asses

it

of

says

There

is

guarantee

jo b s.

but th a t i t

is

Bradshaw

McCoy
C lev elan d,

it

i n agreem en t

sho uld no t p ass a r e s o lu t io n
t h a t th e b i l l w i l l

d e ta ils.

end o rsin g

c r e a te m a c h in e r y by

to m ake f o r e c a s t s w h ic h w o u ld be v e r y d a n g e r o u s .

agrees
the

in

there

same a s

t h in k s

says

was

that i t i s

s h o u ld n o t go i n t o

to

sa y t h a t th e C o u n c il i s

in

sym pathy

o f t h e b i l l , b u t t h a t i t i s da n g ero u s to p r o p h e s y
b u s i n e s s , a n d G overnm ent s h o u l d no t b<* c o m p e lle d to

He
not

sh o uld s t a t e

but that i t

A l l we can do i s

w ith th e o b j e c t i v e s
about the fu tu re o f

present

the C o u n c il
g r e a t danger

w ill undertake
Bro^n.

th e C o u n c i l

th e b i l l ,

s h o u l d be an o p p o r t u n it y f o r

i t w o u l d be a m is t a k e to p a ss an y r e s o l u t i o n .

a d isc u ss io n

e v id e n t

e v e r y o n e to r o r k ,

g iv in g a guarantee.

a t th e F e d e r a l R e se rv e Bank a t

that the d ire c to rs

o f i t w ere o p p o se d to

th e

b ill.
W i n to n d o u b t s
Spencer.

F lan ders

b e lie v e s the C o u n c il
3 h o u ld m ake i t c l e a r
B a ird

t h e w isdo m o f
th in ks

th is b i l l .

th e p r e s e n t b i l l u n w o r k a b l e .

Spencer

sh o uld not pass any re so lu tio n but i f i t d i d , i t
t h a t i t r e g a r d s t h e w h o le scheme a s unv.'orkable,

n o in ts

o u t t h a t no m oney h a s b e en a p p r o p r i a t e d i n

the

b ill.

B ro m s a y s e x p e c t a t i o n s a r e b e i n g h e l d o u t n h i c h ca n n o t be
re a lized .




-3-

G i - 'f o r d
take

any

agrees

F allace

agrees

Traphagen
Berry
a re so lu tio n
express
of

the

to

bat

the

that

was

of

the

C H 5 D IT S

w ill

the

be

that

the

the

in

other

C o u n c il

sh o uld

not

m em bers.

the

other

m em bers.

h is

v ie w ,

the

C o u n cil

of

the

the

of

Governors

o p e ra tio n ,

and
in

E x p o r t- Im p o rt
to v a r i o u s

Board

the
a

end
out

the

European

that

he

C o u n c il

sho uld no t

verbally

the

v ie w s

pass

sh o uld
of

the m em bers

of

that

to

11

the
w h ic h

of

cred its

shattering
to

p re d ic t

the

C o u n cil

re a c tio n s

if

the

uture.

o f a n A d v i s o r y C o m m itt e e

cred it

b illio n

on f o r e i m

??oods p r o g r a m w i l l

Bank m ust f i l l

b e lie v es a

in

the

gap.

credits.

be i n
It

is

the

o n ly

w ith o u t C o n g r e s s io n a l a c t i o n .

7 5 0 m illio n
rate

av a ila b le

a s s u m i n g an

to

w h ic h

w ould le a d

is

later

im p ro v e m e n t i n

c r e d i t s were e x t e n d e d .

or has

done.

of

the

general p o lic y

the B r e t t o n

cred its,
the

be

H e rcculd f a v o r a l$> r a t e

co u n tries*
He

sho uld

the P r e s i d e n t

Presiden t
on i t s

extend

about

th is

F IN A N C E

is

Bank

b efo re

lo an s.
to

that

danger

E xp o rt- Im p o rt

Rank h a s

extended

states

IN T E R N A T IO N A L

p o sitio n

t j resale

a g r ; em ent

S ta te s undertook

a year

c o u n tries

has

o o in t

states

on L a t i n —A m e r i c a n
and

the

E xp o r t- Im o o rt

about

agency now

3anK

in

P resid en t

of

U n ite d
AND

B r o ’m
to a d v i s e

the

the

general

at

e sp ec ia lly

PO;~. :i u N

in g

rest

C o u n cil.

P resid en t

in

the

w ith

that

m em bers

F lem in g

It

w ith

agrees

stated

There

sh o u ld

*rit h

ac tio n .

the

the

rate

to r e f u n d ­
situ a tio n

T h e F x p o r t - Im p o r t

them u n d e r c o n s i d e r a t i o n

to H o l l a n d ,

Denm ark,

a n d t h e D u t c h E a s t I n d i e s a t a r a t e o f 3b% a n d w i t h t h ^ e e y e a r s to u s e th e
credit?.
T h e l o a n s ’ 'o u l d t h e n b e f u n d e d T?ith p a y m e n t s from t h e f i f t h to
t h e t w e n t i e t h y e a r , w i t h a n a v e r a g e m a t u r i t y o f t w e l v e an d a h a l f y e a r s .
T.a.yne T a y l o r s a i d t h e U n i t e d S t a t e s G o v e rn m e n t r a t e on i t s s e c u r i t i e s w as
around
a n d 1 % a d d i t i o n a l to c o v e r th e c o m m is s io n a n d r i s k w o u l d g i v e
a 3.,
rate.
The S t a t e D ep artm en t b e lie v e s a u n ifo rm p atte rn i s d e s ir a b le
f o r t h e s e l o a n s , a n d i n w o r k i n g o u t d i p l o m a t i c a r r a n g e m e n t s i t ~ro u l d u n ­
d o u b t e d l y l i k e t o u s e t h e s e c r e d i t s and -~ates f o r t r a d i n g p u r p o s e s .
A loan
'as m ade t o F r a n c e a t a 2—3 /8 % r a t e , b u t t h i s w as an e x c e p t i o n a l c a s e due
t o c e r t a i n l e n d - l e a s e a r r a n g e m e n t s w h ic h h a d n o t be en f u l f i l l e d b y u s .
The
S t a t e D e p a r t m e n t b e l i e v e s t h e r a t e s h o u l d n o t be o v e r 3% an d l o w e r , i f
o ssib le .
T h e r a t e f o r th e I n t e r n a t i o n a l Bank w o u l d be p o s s i b l y 1 1 h i r h ^ r
t h a n t h e 3% r a t e r^hich th e S t a t e , T r e a s u r y , and Commerce D e p a r t m e n t s ap ­
p arently fa v o r .
A r a t e o f 3% w o u l d r e d u c e th*= p o s s i b i l i t y o f p r i v a t e
sources t a k in g o v ^r an y o f these c r ed its l a t e r .




The

be a l l o c a t e d

-4-

F le m in g

feels

the lo a n s c o u l d be

tho r a t e

sold

s h o u l d be su ch

to p r i v a t e

sources,

means more g o v e r n m e n t i n t e r v e n t i o n
Traohagen.

If

have to be a t a l o w
Brorn
o f th e

a lo an

in

that u ltim a te ly

and

t h a t a lo w r a t e

the. c r e d i t

to B r i t a i n

structure.

goes t h r o u g h ,

it w ill

rate.

says

size B r it a in

th e E xp ort- Irap ort Bank c a n n o t make a l o a n
w ill

re q u ir e ,

a n d C o n f in e s s io n a l a c t i o n w i l l

be n e e d e d .
Berry
rate

suggests

s h o u ld be m ade

that

lo a n s w h ic h ar*3 e s s e n t i a l l y
low t h a t i t

is

clear

Broi-n

for

so t h a t t h e y

g ifts,

they are

th e r a t e s

a

satisfacto ry

later,

sh o uld

but

that

be made

on

so

g ifts.

does not b e lie v e

p o ss ib le e x c e p tio n
p u b l i c l y s o ld n o w .

ac tu al loan s
c a n be r e s o l d

any fo re ig n o b lig a t io n

w ith

the

o f o b l i g a t i o n s o f Cuba a n d C a n a d a c o u l d be
The B r it is h f e e l th ey canno t re p a y lo a n s

u n l e s s we e n c o u r a g e
to be f o r a p e r i o d

im p o rts,

so a n y l o a n made t o B r i t a i n

so l o n g a n d a t

a rate

so lo~

,r'o u l d h a v e

t h a t i t w o uld

be

essen tia lly a g i f t .
F le m in g .
to th e B r i t i s h ,

If

the U n it e d

then

Im p e r ia l P r e f e r e n c e

B ritain

and a b o lis h

t h a t we w o u l d r e c e i v e
lem s o f t h i s
grant i s

character

its

cartels

treatm ent

sh o u ld be

in

in

gr ant or a

sift

such m atters

as

rubber a n i t in

these m a tte rs.

d isc u ss ed w ith

the

A ll

P r itlsh

so

prob­
if

a

co n sid ere d .
K urtz.

In d ia

fa ir

S t a t e s m ak es a

sh o u ld r e c o n sid e r

!fny s h o u l d we h e l p

pay o ff

B ritain

g ift?

by g i v i n g

a gr.ant o r

B rita in *s

d e b t to

Such p roblem s

sh o uld

be

worked out f i r s t .
Berry

does no t

what t h e y w i l l
asK ing u s

for

do

’i t h

a loan

F lem in g

b e lie v e
th e ir

or

th in k s

the

does n o t w is h

by m a k in g l o a n s

l a t e r fro m

b e in g




to ld

exactly

b lo c k e d b a la n c e s

C o u n c i l *s comment?, s h o u l d
o p e ra tio n s

c o m n e te w h e r e p r i v a t e
Brown

fro zen

p r o b le m s l i k e

have

before

grant.

to the E xp o r t- Ir a p o r t B a n k * s
B a n * to

the B r i t i s h

at

refun ded

as

b a n k s raipht e x t e n d

as

and resold

p riv a te

lim ite d
that

credit.

t h e E x p o r t- Ira p o rt B a n k

s o lo w a r a t e
to

be

we do n o t w i s h

to

to p r e v e n t
banks.

b eco m e

these

lo an s

-5-

W i n t o n . I n t h e i n t e r e s t o f p e rm a n e n t p e a c e a n d o u r own
w e l f a r e we w i l l p r o b a b l y , a s t h e w o r l d 's s t r o n g e s t n a t i o n , h a v e
to make c o n t r i b u t i o n s to w o r l d s t a b i l i t y .
we shall fin d i t neces­
sary to t r a d e , b u t s h o u l d b e b ro a d m in d e d i n o u r a t t i t u d e .
F le m in g p o in t s o ut th at the a v e ra g e U n ited S t a t e s debt
r a t e i s 1 .9 6 / 6 w h ic h i n c l u d e s t h e b i l l s and short- term o b l i g a t i o n s .
Those who f a v o r a l o w r a t e f o r th e F xp o rt- Im p o rt Bank c r e d i t s a d d
11

for overhead

to th e 1 . 9 6 ^

a n d a r r i v e a t a "5% r a t e

f o r the

E x p o r t - Im p o r t B a n k .
H o w e v e r , i f you t a k e the l o n g e r term U n i t e d
S t a t e s o b l i g a t i o n s , t h e y w o u l d a v e r a g e h i g h e r th an 1 . 9 6 ^ , so 3%%
w o u ld be n e a r e r r i g h t f o r t h e E x p o r t- Im p o rt Bank r a t e .
Brown.
to r a i s e i t .
ag re e m en t on
o p in io n

to

It

is

much

e a s i e r to r e d u c e a r a t e l a t e r

T h e v a r i o u s m em bers o f th e C o u n c i l seem to b e
t h e s u b j e c t , a n d h e w i l l e x p r e s s the C o u n c i l 's

the

than
in

Board o f G o v e r n o r s .

SURPLUS G O O D S
F le m in g does n o t b e lie v e t h is i s
C o u n c i l may p r o p e r l y e x p r e s s i t s ju d g m e n t .
B ro w n
not w o rk in g w e l l .

agrees w ith

F le m in g ,

The p ro blem

in v o lv e s

but

a

s u b j e c t on w h ic h

s a y s the s i t u a t i o n

so many a g e n c i e s

of

th e

is

the

G o v e r n m e n t, a n d h a s so m an y c o m p l i c a t e d a s p e c t s o f ^ h i c h t h e
C o u n c i l i s n o t s u f f i c i e n t l y a d v i s e d t h a t i t c o u ld n o t g i v e an
in fo r m e d o p i n i o n .
F le m in g r a i s e s
B ig h t say

that

in

the

t h e q u e s t i o n o f w h e t h e r th e C o u n c i l

in terests

o f em ploym ent th e la w s h o u l d be

fo llo w ed;

o p in io n ,
o f w h ic h

Bro ^m
d o e s n o t b e l i e v e th e C o u n c i l sh o u ld e x p r e s s a n y
b e c a u s e t h e r e a r e so many m a t t e r s r e g a r d i n g th e p ro b le m
t h e C o u n c i l d o e s n o t h a v e s u f f i c i e n t '’a c t s i n h a n d .
T h is

v ie w w a s

concurred in

by a l l

th e members o f

the C o u n c i l .

REGULATION W
F le m in g

says

some gro u p s w o u ld

lik e

to c o n t i n u e

th is

R e g u l a t i o n i n o r d e r t o l e v e l o u t econom ic p e a k s and v a l l e y s .
The
Board can t i g h t e n o r l o o s e n th e c o n t r o l s b u t canno t a c t u a l l y term­
in a t e t h e R e g u l a t i o n .
B y l o o s e n i n g t h e c o n t r o l s i t can i n e f f e c t
reduce

the

power o f

the R e g u la t io n .

Brown
a g r e e s w i t h F le m in g t h a t some g ro u p s w o u l d l i k e to
u s e th e R e f l a t i o n to l e v e l o u t o u r econom ic p e a k s a n d v a l l e y s and
w ould l i k e

t o m ake i t




a p e r m a n e n t p a r t o f o u r econom y.

-6-

T r a p h a g e n s a y s h e d o e s n o t know w h e t h e r i t ca n be done
p r o p e r l y , b u t t h e r e i s s o m e t h in g to b e a a i d f o r p r e v e n t i n g m any
i n d i v i d u a l s fro m m o r t g a g in g t h e i r p u r c h a s in g p o w e r f o r a y e a r o r
more a h e a d b y i n s t a l l m e n t p u r c h a s e s , and t h i s i s a b ad f a c t o r i n
our econom y, a c c o u n t i n g i n p a r t f o r the g r e a t s w in g s in th e b u s i n e s s
cy cle.
K urtz
i s f e a r f u l o f the co n d itio n th a t w i l l
s e v e r a l t h o u s a n d b a n k s now go i n t o consum er c r e d i t w i t h

fo llo w
term s

if

g rad u ally b e in g l i b e r a l i s e d .
G iffo rd

th in k s

the m a tte r sh o uld n o t be b ro u g h t u p a t

present.
Brown

s a y s m any f i n a n c e

fo r R e g u la tio n W f o r

co m p a n ie s a n d r e t a i l

th e p r o t e c t i o n

it

affords

them .

stores

are

He w o u l d

l i k e to se e R e g u l a t i o n W a n d s i m i l a r c o n t r o l s e l i m i n a t e d , b u t
d o u b t s w h e t h e r t h i s i s t h e tim e t o s u g g e s t c o m p le t e e l i m i n a t i o n

of

R egu latio n W .
B a ird

th in k s

the p roblem

s h o u l d be b r o k e n down a n d c o n ­

s i d e r e d fro m t h e

sta n d o o in t o f d i f f e r e n t l in e s

that are fin a n c e d

in

The

a u t o m o b il e

th is m anner.

b u lk o f

fin a n c in g .

There

an d h o u s i n g

im p ro v em e n ts .

lib e ra lized ,

it

is

as

su p p lie s

ever,

In

sh o u ld

is

to

in

sm a ll am ount i n m o d e r n i z a t i o n

the m o d e rn iza tio n

fe atu re

c o u ld be

e m p lo y m e n t .

w o u ld fa v o r

the m arket o f

in

t h r e e o r f o u r m o n th s r e m o v in g

co n stitu te

each

a n d m any c o m m o d i t i e s ,

com m odity becom e a d e q u a t e .

one l i n e

on w h ic h

the

How­

co ntrols a t

be r e t a i n e d .

Traphagen
that le a d

If

f u r n i t u r e , w a sh in g m a c h in e s,

a u to m o b ile s

present

credit is

a c o m p a ra tiv e ly

w o uld h e lp

B row n
c o n t r o l s fro m

th is

w ould l i k e

regulatio n,

and

some w ay o f p r e v e n t i n g t h e

th in k s

a

control

excesses

su c h a s R e g u l a t i o n W

d e sira b le.
M cC o y

may l e n d

th e ir

does not lik e

B a ird
w ill

d isp o se

ca rs and

it

esse n tia l

is

th in k s

of a part

c h a se

oth^r
to

F le m in g
b a n k in g
a ty p e

fu n c tio n s
of

anyone

if

any re g u la tio n

o f th e ir

t h e b a n k s how

co m m o d itie s.

regulate

b ig

If

M cC o y a s k s

they

Traphagen*

sm all

the p e o p le
to p u r ­
cred ito rs,

He d oes n o t w i * h
a n d R e g u l a t i o n ll< i s

to se e e l i m i n a t e d .

t h e C o u n c i l w o u ld

1946.

severe

as w e l l .

fro m W a s h i n g t o n ,

w hether

R e g u l a t i o n IT on J a n u a r y 1 ,

to o

you r e g u l a t e

cred ito rs

d is a g r e e s w ith
regulated

is

s a v in g s or bond h o l d in g s

c o n t r o l w h ic h he w ould l i k e




te llin g

fu n d s.

favo r r e s c in d in g

all

- ' 7-

Fleminp; says we cannot make that decision until we
know what production is to be.
BroTvn

summarizes the general view of the Council as

follows:
"The Council, with a strong minority of one, believes
that Regulation W should not be accepted as a per­
manent part of our economy. As a substantial supply
of goods comes into the markets, Regulation W should
be relaxed.
It should be abolished on each type of
goods as it comes into adequate supply. The Regulation
should not be liberalized on automobiles now, but the
terms on housing improvements might advisedly be re­
laxed. The general principal should be to liberalize
the Regulation as rapidly as possible, until it is
abolizhed."
Fleming says i f you allow one type of control you
open the door to others.
M A R G IN

R E Q U IR E M E N T S
Brown

re q u ir em e n ts
The

co n d itio n s
to

c o m in g

in to

that

q u e stio n

that

funds

and he

s t a f f m ig h t no t

in
in

when

b e in g

too

m argin
strin g e n t.

the m argin

re q u irem e n ts

w ere

of

now

larg er

and

so l a r g e

a

the

as

M any

wonders w hether

w elco m e

'r h e t h e r p r e s e n t

re c o n sid e re d

p re v aile d

the m ark e ts

b e lie v e

stock m a r k e t ,
to

the

nov; b e

75% d o n o t n o w p r e v a i l .

raised
not

raises

sho uld

types

larger

goods
flow

the

3 o °.r d a n d

of

the m arg in

re d u c tio n

Hn does

supp ly.

volu m e w i l l

are

in to

m any

the

of its

re q u irem e n t

50%.

that,
w ith

w ith

Traphagen

says

a

boom ,

b u sin e ss

e v e r y Tom ,

D ick ,

Kurtz
at p re se n t

the

is

F le m in g
on t h i s

te le g r a m

the m a rg in s a re

the

situ a tio n

In

:’a v o r o f

m ig h t be

said

the

the

b e lie v es

the m a r k e t,

change a t

encouraged

why n o t a s k

reduced he

might beco m e d a n g e r o u s

a n d Harry getting i n t o

not

p u b lic

if

th is

tim e ,

as

to s p e c u l a t e .

B o a rd w h a t

it

has

In

m in d

su b je ct.
A t t h e r e q u e s t o f t h e C o u n c i l , the S e c r e t a r y r e a d
o f M arc h 1 3 r e l a t i n g to m a r g in r e q u i r e m e n t s .

th e

Brov/n
b e l i e v e s th e 75% r e q u ir e m e n t u n w i s e l y r e s t r i c t s
the fr e e d o m t h a t s h o u l d be a l l o w e d i n perfectly proper b u s i n e s s
tra n sa c tio n s.
I f t h e C o u n c i l offers no o b j e c t i o n , Bro^Ti w i l l
i n q u i r e from th e B o a r d w h a t i t h a s i n m ind on t h i s m a t t e r .



-8-

F ln to n
b e l i e v e s i t w o u ld be u n w is e to t a k e up
R e g u l a t i o n V a t t h i s t i m e , though th e m a j o r it y b e l i e v e s i t s h o u ld
be g r a d u a l l y r e l a x e d .
On th e m a t t e r o f m a rgin r e q u ir e m e n t s h e
doubts w h e t h e r t h e C o u n c i l can a f f o r d a t t h i s tim e to make a n y
s u g g e s t io n s on t h e s u b j e c t ,
BroT.ii
t h i n k s i t a d v i s a b l e to make th e st a te m e n t on
R e g u l a t i o n W a s o u t l i n e d b y h i m , a s th e q u e s t io n h a s a l r e a d y gone
to the B o a r d ,
I n c o n n e c t i o n w i t h m a r g in r e q u i r e m e n t s , h e b e l i e v e s
some g o v e rn m e n t g r o u p s w o u l d w elcom e a r e d u c t i o n i n th e r e q u i r e ­
m e nts,
T h e B o a r d m i g h t n o t w is h to ch ang e so soon a f t e r h a v i n g
j u s t p u t t h e i n c r e a s e d m a r g in i n t o e f f e c t , b u t t h e l o w e r i n g o f
the m a r g i n ^ o u l d m ake
rin to n

t h e m a rk e t l e s s

b e lie v es ,

c r e a s i n g nu m ber o f

strik e s,

to r e d u c e

th e m a r g i n s

th e y w e r e

before

th an i t

the

fre e d o m o f
says

w as w h e n

a sk in g

th e m e c h a n ic s b a c k to w h a t

too

s im p lify the
severe a

en te rp rise,

p o sitio n

so

the B o a rd i n a n aw kw ard
so o n, w ith

t h e m a rk e t h i g h e r

re q u ir e m e n ts w ere r a i s e d .

th in k s
the

the

sh o uld no t o n ly

th e 7 5 % m a rg in i s

i t m ig h t p l a c e

its

the

W in to n
of

the Board

b e lie v es

to r e v e r s e

r e c o m m e n d a tio n on
id e a

t h in k s ch an g in g

th in k s

but a ls o

Kurtz
situ a tio n

c o u n t r y e x p e r i e n c i n g an i n ­

t h e m a r g i n s w e r e r a i s e d w o u ld b e d e s i r a b l e .

Brow n
r e s t r i c t i o n on

th e

t h a t i t m ig h t g iv e t h e w ro n g im p r e s s i o n

re q u ir e d .

Traphagen

m e c h a n ic s ,

w it h

narrow ,

the C o u n c il

s h o u l d n o t m ake a d e f i n i t e

m a r g in r e q u i r e m e n t s ,

Board fo r

its

but fa v o r s

B r o w n 1s

vie w p o in t.

L IC E N S IN G O F BANK S
F le m in g
to be

cle a r e d up
B row n

s h o u ld

there

e lim in a te

says

is

some r e d ta p e t h a t w o u ld h a v e

these

lic e n se s.

t h e m a c h i n e r y i s p e r f e c t l y u s e l e s s now a n d

be e l i m i n a t e d .
A ll

m em b ers

steps n e c e s s a r y
Bro?m

says

to

is

to

to e x p r e s s

the

The m e etin g




o f th e C o u n c i l * e r e

e lim in a te

the

C o u n c il*s
ad jo u rn ed

in

fa v o r o f ta k in g

s p e c ia l lic e n s in g

of banks,

v i e w p o i n t to t h e B o a r d .
at

5s20 P .

M.

the
and

-9-

O n S e p tem b e r 1 7 , 1 9 4 5 , a t 1 0 s 1 5 A , M . ,
C o u n c i l m et i n t h e B o a rd Room o f the
Federal Reserve
A l l m em bers o f
cept M r.

B u ild in g .
the C o u n c il w ere

Robert V .

FULL EMPLOYMENT ACT O F 194-5
Brovm

stated

the m e e t in g w i t h

th e

present ex­

F le m in g a n d M r .

(B IL L 3 .

Fd H . W in t o n

380)

t h a t he w ould

su m m arize b r i e f l y

th e B o a r d o f G o v e r n o r s a t

1 0 :3 0

A.

before

M .,

each o f

the s u b j e c t s

w h ic h h a d b e e n d i s c u s s e d b y t h e C o u n c i l o n t h e

c e d in g d a y .

In

s a id a l l
of f u l l

co n n e c tio n w ith

t h e m em bers o f
e m p lo y m e n t ,

the C o u n c il b e l ie v e

and th e y rec o g n ize

the G o v e rn m e n t to i n t e r v e n e
levels.

However,

the C o u n c i l

if

th is

m atter is
prop erly .

m eant b y

mean t h a t e a c h w o r k e r
the

r e q u ir e l o n g

e n title d

to r e w r i t e

i t m ight h a v e .

The C o u n c il a lso

d ic tio n s ,

Brovm r e c a l l e d
It

usefu l or

co n stru ctiv e

rendering

an

o in io n

is

to

the

it

the

b ill

rou ld

The C o u n c il

is

not

su g g es tio n s

t h a t i t v'o u ld
States

for

Does

Even

in co rp o ra te any

b e lie v es

for

to d e f i n e ,

jo b ?

t e rm s i n

for

be

t o m ake p r e ­

t h e o r o p h e s y o f fir. H o o v e r r e g a r d i n g
the c o m e r ,

the

th is

id e a

e x t r e m e l y low

e m p lo y m e n t .

to a c e r t a i n

and M r. M e llo n *s

ju d g m e n t o f

p u rp o s e w ould be

on

to

and co m p lic a te d

to f u l l

o f the U n it e d

ju st around

on the d e p r e s s i o n .

the e s s e n t i a l

d iffic u lt

o f the

b ill

the P r e s i d e n t

p ro sperity b e in g

is

b y the C o u n c i l .

the

dangerous f o r
and

It

proper d e f i n i t i o n

c o n sid e ra tio n

in a p o s it i o n

in

pre­

Brow n

m ig h t be n e c e s s a r y

to o l a r g e

the r ig h t

is

it

em ploym ent f e l l

to d i s c u s s

e x a m p le , w h a t i s
problem o f

th e F u l l Em ploym ent A c t ,

the C o u n c il

comment

t h a t no

served by th is

body in

m easure.

IN T E R N A T IO N A L F IN A N C E
B~own.
aid in

the

The C o u n c il f e e l s

r e - a sta b lish m e n t

Iap o rt Bank

is

the

o n ly

that

the U n ite d

o f w ar- d am aged c o u n t r i e s .

a g e n c y now a v a i l a b l e

w it h o u t a d d i t i o n a l C o n g r e s s i o n a l a c t i o n .
year b e fo r e

th** I n t e r n a t i o n a l

can be e s t a b l i s h e d .
the C o u n c i l * s
and w o u ld

suggest

By e s t a b l i s h i n g
la te r w ith
co u n tries

on

that

rates

the r a t e s

such

rates

on a h ig h

a n y im p r o v e m e n t i n
o btain in g

the o b l i g a t i o n s

Bank u n d e r

Brown i n d i c a t e d

p o sitio n

the

lo an s,

and o b t a in

for

these

sound fo r e ig n

p riv a te




sources.

be a t

a

c o u n tries

E x p o r t - Im p o r t B a n k fro m
credits

to

sources.
to b e

a

program

present

3-1/ 2^

i t m ig h t

Export-

least

on f o r e i g n

c o n d itio n s

fro m p r i v a t e

fro zen and
through

l^vel,

sh o u ld

cred it

Bratton Woods

fix e d

e c o n o m ic

the

enable

w ill

b e on a t l e a s t

the

The

to e x t e n d

t h a t h e w ould a l s o

en o u g h

fun ds

*t
the

to b e

procedure w o u ld p r e v e n t
o uld

States

be
in

credits
basis.
p o ss ib le

the

re fin a n c e
T h is

b e co m in g
rin a n c e d

-10-

SURPLUS PR OPERTY
Brow n
p o i n t e d o u t t h a t t h e r e a r e c o n f l i c t i n g v ie w s o f
v a r io u s G o v e r n m e n t a g e n c i e s on t h i s m a t t e r , and t h a t the C o u n c il
i s n o t i n a p o s i t i o n to d e t e r m in e th e m e r i t s o f th e s e r e s p e c t i v e
vie w p o in ts.
The C o u n c i l a l s o do e s n o t know the f u l l d ip lo m t i c
background r e g a r d i n g t h i s p ro b lem .
C o n s e q u e n t l y , the C o u n c i l does
n o t b e l i e v e i t i s c o m p e t e n t to g iv e an in fo r m e d o p i n i o n on t h i s
su b je c t.
REGULATION W
Brovin
s t a t e d t h a t a l l members o f the C o u n c i l , e x c e p t
o n e , b e l i e v e i t i s n o t d e s i r a b l e to r e t a i n R e g u l a t i o n W a s a
p e rm an e n t p ? r t o f o u r G o v e rn m e n t m a c h i n e r y .
The R e g u l a t i o n sh o u ld
be r e l a x e d a s r a o i d l y a s g o o d s come i n t o the m arkets i n a d e q u a t e
su pp ly .
T h e terras on m o d e r n i z a t i o n l o a n s m ig h t w e l l be l i b e r a l i z e d .
The R e g u l a t i o n a s i t a p p l i e s to f u r n i t u r e a n d some o t h e r co m m odities
sh o u ld be r e l a x e d a s r a p i d l y a s t h e s e co m m o d itie s come i n t o th e
m arket i n s u f f i c i e n t q u a n t i t i e s .
On t h e o t h e r h a n d , t h e R e g u l a t i o n
as i t

a p p lie s

to a u t o m o b i l e s

sh o uld n o t be l i b e r a l i z e d

at present.

MARGIN R E Q U IR E M E N T S
Brow n
w h e th e r

it

is

said

that

co n sid e rin g

th e C o u n c i l w i l l

a n y ch a n g e s i n

i n q u i r e o f t h e B o ard

c o n n e c t io n w i t h m arg in

re q u ir em e n ts .
L IC E N S IN G

OF

BANKS

Brow n
B o ard t h e
b an ks a s

stated

d e sira b ility
it

is

of

that

th e C o u n c i l w o u ld s u g g e s t to

e lim in a tin g

th is




sp e c ia l l ic e n s in g o f

w h o lly un necessary.

The m e etin g a d jo u r n e d a t 1 0 :2 5

the

A.

M

-11-

0 n S e p t e m b e r 1 7 , 1 9 4 5 , a t 1 0 : 4 5 A . M . , th e
C o u n c i l h e l d a j o i n t m e e t in g w it h th e B o a r d
o f Governors

o f th e F e d e r a l R e s e r v e Sy stem

i n t h e B o ard Room o f
B u ild in g .

th e F e d e r a l R e s e r v e

A l l m em bers o f t h e C o u n c i l w e re p r e s e n t e x ­
c e p t M r . R o b e r t V . F le m in g who j o i n e d th e
m e etin g a t 1 1 :1 5 A . M.
The f o l l o w i n g members
o f th e Board o f G overnors were p r e s e n t :
C h a i r m a n E c c l e s j V i c e C h a irm an Ransom }
G o v e rn o rs Szy m czak, M cKee, D rap er and E va ns;
also ,

M essrs.

Thurston, M o rrill,

Hammond,

C o n n e l l , W y a t t , V e s t , T h o m a s, P a u l g e r ,
P a r r y , B r o w n , L e o n a r d and B e t h e a .
FULL EMPLOYMENT ACT O F 1 9 4 5
Brom .
the i d e a
f in d i t

A ll

of fu ll

to

m em bers o f

in te r v e n e

How ever,

are too v a g u e .
ment n e e d s

For

the

380)

the

if

C o u n c il are

at

accord w ith

to

e xtrem ely

th e b e g in n in g ; o f th e b i l l

t h e m e a n in g o f t h e r i g h t

and p o s s i b l y

em p loym ent.

in

t h a t th e G o v e rn m e n t m ig h t

em ploym ent f e l l

statem ents

exam p le,

cla rific atio n ,

o p p o r t u n it y f o r

S.

e m p lo y m e n t a n d r e a l i z e

necessary

low l e v e l s .

(B IL L

It

is

Sm e a d,

it

to em p lo y ­

sh o uld r e a d ,

im p o s s ib le

th e

to p r e d i c t

e c o n o m ic

peaks a n d v a l l e y s ,

and

t h e m e a s u r e m ig h t a r o u s e h o p e s w h ic h

not be f u l f i l l e d .

The

re q u irem e n t

d ic t th e

fu tu re

Hoovers

rem arks

is

Both

these

"R e c o v e r y

is

E.

D.

to

be u n ’ i s e

d e ta ile d

d isc u ss io n

fo r

E ccles.
stab ility

re w rite

the b i l l

in

so f a r

M onetary p o l i c i e s
compared w i t h

the

and

as

it

have

'i s c a l

f o r w eeks w it h
th e B o a rd t o

Board and

the C o u n c il

sh o uld a s s i s t
ca n b e d o n e

had l it t le

p o lic ies,

to

it

is

the

sta b ility

econom y u n l e s s we h a v e

fie ld

for

su ggests

the o b j e c t i v e

argum ent a s
it

in s t e a d o f

m ig h t b e
the

on G o v e rn m e n t

term ,

to

of fu ll

better
full

sp e n d in g

to

whether

w ill

be

n“nt im p le m e n t s

it.




to u s e

a tta in

He d o u b ts
only

a

e co n o m ic

sta b ility

full

e m p lo y m e n t.
but

the

there

term ,

e c o n o m ic
to

e c o n o m ic

T h e e m p h a s is
sta b ility

w ill pass,
the

extent

and
that

and

to b r i n g

any

Everyone
is

em p loym ent s h o u l d b e .

the b i l l

e ffe c tiv e

in terested
su ch

Board’ s th o u gh t,

e m p lo y m e n t ,

e m p lo y m e n t .

p loy m en t.

are

t h a t we w i l l have f a i l e d

what f u l l

Passes,

it

the p ro b le m .

t h ro u g h m o n e t a r y p o l i c i e s .

v ie w p o in t,

agrees w i t h

is

such as

go i n t o

in p r o v id in g

do w i t h

P a r tic u la rly h i s
to o u r

in

C o u n cil

the m easure.

Both

stab ility

The

and

began

and other groups

th e C o u n c il and

of

corner” ,

d e p r e s s io n w h ic h

co m m ittee s h a v e w r e s t l e d

I t w o u ld

in econ om ic

the

co uld

sh o uld p r e ­

Brown r e c a l l e d M r .

j u s t around the

statem ents had bad r e a c tio n s .

not in a p o s i t i o n
the C .

th e P r e s i d e n t

exce e d in g ly dangerous,

that

Mr. M e l l o n fs s t a t e m e n t r e g a r d i n g
1929.

that

a w id e
He

sta b ility ,

sh o u ld n o t
or

fu ll

even

if

be

em­
it

the G o v e m -

-12-

Szvmczak

agrees that the terms of the b i l l are not c le a r .

Ransom
s t a t e s t h a t w h i l e th e F e d e r a l G o vern m ent h a s
assumed r e s p o n s i b i l i t y p r e v i o u s l y f o r eraplo;yment, t h i s i s th e f i r s t
time t h a t the la w h a s s p e c i f i c a l l y s t a t e d t h a t th e G o ve rn m e nt i s
re sp o n sib le f o r
tra d itio n .

e m p lo y m e n t.

(E c c le s
McKee

T h is

a g r e e s w it h

is

a d i s t i n c t d e p a r t u r e from

t h is v ie w p o in t ).

a s k s w h e t h e r i n d i v i d u a l members o f t h e C o u n c i l

have h e a r d o f a n y e f f o r t s to p rom ote t h e b i l l
one a p p a r e n t l y h a d h e a r d o f such e f f o r t s .
E ccles
and b e l i e v e s t h a t
Brown
o p in io n

in

th e ir

areas.

No

d o u b ts w hether th e re i s any o r g a n iz e d p re ssu re
even la b o r i s no t s a t i s f i e d w ith the b i l l .
does n o t b e lie v e

la b o r or o th e r

Board w i s h e d to p u r s u e
exp ec t

in

groups.

there
He

is

any c r y s t a l l i z a t i o n

states

that u n leg s

of

th e

t h e m a t t e r f u r t h e r th e C o u n c i l w o u l d n o t

to do s o .

IN T ER N A T IO N A L F IN A N C E
Brown.
av a ilab le

The

E x p o r t - Im p o r t B a n k i s

for fo r e ig n

fin a n c in g , un less

th e o n l y a g e n c y no w

Congress ta k e s

further

a c tio n .
T h e B ank a n d t h e F u n d p r o v i d e d f o r u n d e r t h e B r e t t o n
roo ds p ro g r a m c a n t a k e n o p a r t i n f o r e i g n f i n a n c i n g f o r p r o b a b l y
a year.

T h e E x p o r t - Im p o r t B a n k h a s a v a i l a b l e

for fo r e ig n lo a n s .
ca n n o t g e t
sary.

th e

few e x c e p t i o n s ,

cred it needed,

No l o n g term c r e d i t s

w ar t o m

c o u n tr ies .

years g e t p u b l i c
ment i n

T ith

the

at

econom y o f

E xp o r t- Im p o rt B a n k on

so t h e Export- Iraport B a n k

the Banx m ay b e a b l e

reaso nable

each n a t io n .
such

to

The C o u n c i l u n d e r s t a n d s

fo re ig n

sell

these

th a t lo an s

o b lig a tio n s
in

3 or 3 - 1 / 2 $ .

that

three
(1 )

p rin c ip a l
A 3 - 1 /2 $
m ig h t

A

(2 )

feels

rate
is

take

p lace

p riv a te

A low r a t e
for

so o n b e




by the
too l o w ,

a few y e a r s .

to 1 3 y e a r s a n d r a t e s
the

rate

to

some o f

of

sh o uld n o t be be lo w

the s t r o n g e r

from p r i v a t e

to o lo w a n d no p u b l i c

p robably fo r y e a r s .

c o u n tr ies

sources l a t e r .
resale

co u ld

The C o u n c i l p r e ­

c r ed it whenever p o s s ib le .

t h a t w ould p re v e n t r e fu n d in g and r e s a l e

freeze

too

in

net

reasons:

fers

w ould

some im p r o v e ­

t h e p a t t e r n now b e i n g c o n ­

p e rm it f i n a n c i n g

3?> r a t e

a s s u m in g

the ra te s f i x e d

o b lig a tio n s are

o f 12

3 - 1 /2 $ f o r

is n ec es­

and B e lg iu m , m ig h t in a few
rates,
If

s id e r e d h a v e a v e r a g e m a t u r i t i e s
T he C o u n c i l

$ 1 ,7 5 0 ,0 0 0 ,0 0 0

ca n be o b t a i n e d p r i v a t e l y by t h e

Norw ay, H o lla n d ,

lo an s

about

th e w a r - d e v a s t a t e d r e g i o n s

the a s s e t s

o f t h e E x p o r t - Im p o r t B a n k

lo n g a p e r io d and
exhausted.

th e B a n k * 3 c r e d i t v o u l d

-13-

(3 )

The C o u n c i l

realizes

T h e I n t e r n a t i o n a l B ank f o r R e c o n s t r u c t io n an d D e v e l ­
opm ent w o u ld h a v e r a t e s h i g h e r th an the ExportIm p o rt Bank.
I n th e I n t e r n a t i o n a l Bank th e l o s s
w o u l d be sh a r e d by a l l c o u n t r i e s , b u t in th e Ex p o rtI m p o r t Bank th e l o s s w o u ld be t a k e n by the U n i t e d
S ta te s alo n e.
The C o u n c i l r e a l i z e s t h a t d i p l o m a t i c ­
a l l y t h e s e l o a n s may be u s e d to a c h i e v e c e r t a i n
o b j e c t i v e s a n d t h e r e may be t r a d i n g on terms a n d
rates.
(F l e m i n g j o i n e d the m e e tin g a t 1 1 : 1 5 A . M . )
the n eed fo r f in a n c ia l a ssistan ce

to f o r e i g n

c o u n t r i e s , b u t w a n t s a s much o f t h i s c r e d i t a s p o s s i b l e to be on
& b a s is t h a t w i l l l a t ^ r p e rm it r e fu n d in g and r e s a l e , and th at w i l l
not r e s u l t i n f r e e z i n g t h e E x p o r t- Im p o rt B a n k .
The r a t e s to L a t i n
A m erican n a t i o n s h a v e b e e n
M cK e e
i s s u r p r is e d th a t the C o u n cil co n fin ed i t s a tt e n ­
t o i n t e r e s t r a t e s a n d d i d n o t e m p h a size more th e terms

t io n o n l y

o f the c r e d i t .
Brov.n
u n d e r s t a n d s t h a t th e terras o f t h e s e f o r e i g n l o a n s
are e s s e n t i a l l y t h e same a n d t h a t t h e p r im a r y p o in t f o r c o n s i d e r a ­
t io n i s

the

in te r e s t
Berry.

rate.

The l o a n s

Szymczak.

a r e p r i m a r i l y on good f a i t h .

Denm ark a lr e a d y

has a

r a t e o f 3-1/2%,

One

o f t h e p r o b l e m s i s w h e t h e r t h e E xp o r t- Im p o rt Bank s h o u ld t a k e
over co m m itm en ts t h a t h a v e a l r e a d y b e e n m ade by o t h e r a g e n c i e s .
If

these

co m m itm en ts a r e

taken o v e r,

a r r a n g i n g a m ore o r l e s s
a t 2-3/8%,

b u t t h is was

lend- lease

arrangem ents.

u n ifo rm
a

sp e cia l

at a lo ss

p riv ate

cred it.

Form erly

o n ly to

governm ents,

n e ss c o n c e r n s w h ic h
Eccles

sell
says

a state w h ere i t has no t
■oat d i f f i c u l t f i n a n c i a l
in clin ed

to w a n t

to

get

is

th e p ro b le m o f

France r e c e iv e d

situ a tio n

a n d i s n o t to

credit

in v o lv in g p re v io u s

T h e E x p o r t - Im p o r t Bank i s n o t

p o se d to o p e r a t e

but

there

setup.

co m p e te ,

if

sup­

p o s s i b l e , vrith

t h e E x p o r t- Im p o r t Bank g ave l o a n s
no w i t may m ake l o a n s

to A m e r ic a n b u s i ­

abroad.
t h e w h ole q u e s t io n

o f fo re ig n

cred it is

in

b e e n f u l l y d e v e l o p e d and i s one o f o u r
p ro blem s.
?*ith t h e w a r o v e r , we a r e
back

to

s o u n d c r e d i t too

soon an d n o t

reco-rmize t h e g r e a t d i f f i c u l t i e s w i t h w h ic h th e w o r l d i s co n­
fro n ted.
E c c l e s t r a c e d the develo p m en t o f our war e x p en d itu re s
and t h e

c r ea tio n

persons
n a tio n s

f a i l e d t o r e a l i z e t h a t t h e r e w e re s i m i l a r p ro b le m s i n
over the w o r l d .
T h e p r o b l e m i s n o t so much a m a t te r o f

of

t h e G o v e rn m e n t d e b t ,

a n d s u g g e s t e d t h a t m any

c r e d i t a s i t i s a m a t t e r o f t h e s u p p l y and dem and o f g o o d s .
In
a s e n s e t h e r e i s n o s u c h t h i n g a s a g ood c r e d i t i n t h e w o r ld t o ­
day.

He

th in k s

all

n a tio n s ,

in c lu d in g

B rita in

a n d F r a n c e , made

bad m i s t a k e s a f t e r t h e l a s t w a r .
H o w e v e r , h e commended B r i t a i n
f o r w h a t sh e h a d d o n e i n makinf? i t p o s s i b l e f o r t h e U n i t e d S t a t e s



-u -

and R u s s i a to w i n th e w a r .
Many c o u n t r i e s , such as S w e d e n ,
P o r t u g a l , E g y p t , a n d I n d i a , came o u t o f the w a r e c o n o m ic a l l y
better o f f than th e y w ere b e fo r e .
We sh o u ld make a b a l a n c e s h e e t
o f th e n a t i o n s a n d u s e i t a s a b a c k g r o u n d i n c o n s i d e r i n g r e q u e s t s
by f o r e i g n n a t i o n s f o r c r e d i t .
B r i t a i n b e ga n t h e w a r w it h s e v e n ­
teen m i l l i o n t o n s o f s h i p p i n g an d t w e n t y b i l l i o n d o l l a r s o f
fo re ig n in v e s tm e n ts .
B e f o r e th e w a r , h e r im p orts w e r e p a i d as
fo llo w sj
55% b y e x p o r t s ; 2 3 % b y s e r v i c e s o t h e r t h a n s h i p p i n g ;
1 3 ^ bv s h i p p i n g ; a n d t h e b a l a n c e o u t o f f o r e i g n i n v e s t m e n t s .
Her
tw enty b i l l i o n d o l l a r s i n f o r e i g n in v e s t m e n t s a r e g o n e , a n d she
is abou t even w it h the board in t h is r e s p e c t .
Sh e i s a p p r o x i ­
m a te ly e v e n on h e r s h i p p i n g .
H e r e xp orts ere l e s s than 4 0 % o f
what sh e h a d b e f o r e t h e w a r .
B r i t a i n i s now i n b a d c o n d i t i o n
and i s w o r s e o f f t h a n D e n m a r k , f o r e x a m p l e , b e c a u s e B r i t a i n may
n o t be a b l e
fic a tio n

to e a t w i t h o u t h e l p .

in p u ttin g

o ff P o rtu g al,

B rita in

Egypt,

in d e b te d d u r in g

How ever,

on h e r f e e t

and In d ia

there

is

little

ju sti­

i n o r d e r to h e l p h e r p a y

to whom she becam e

su b stantially

t h e w a r l a r g e l y b e c a u s e o f th e p aym ent f o r g oods

and s e r v i c e s a t i n f l a t e d p r i c e s .
C a n a d a , on th e o t h e r h a n d , g ave
B rita in g i f t s .
T h e a m o u nt B r i t a i n ow es E g y p t , P o r t u g a l , A r g e n t i n a ,
and c e r t a i n
from u s ,
n a tio n s.
basis

in

loan

s h o u l d n o t be p a i d o f f

a d d itio n ,

T?hat we g i v e

of a

B r ita in

other n a tio n s

and,

have u s

g iv e

B r ita in w ill

p r o b a b l y h a v e to b e

b u t a c t u a l l y v /il l be a g r a n t .

to p a y u s ,

we

s h a l l n e e d an a d v e r s e

when a c t u a l l y we s h a l l p r o b a b l y h a v e
Fe may h a v e

a la rg e

we h a v e a d o m e s t i c
sh a ll be

c e rta in

fav o rable

ta k in g

some

two f a c t o r s

of

of

To th e e x t e n t
exp o rts as the

be

spent h e r e .
it
is

th e m a r k e t s

to c o n s id e r
(1 )

b alan ce

boo m .

f o r E m p ir e P r e f e r e n c e a s
e s t i n E m p ir e P r e f e r e n c e

In

on th e

order fo r

balan ce o f

trade

trade a t the
t h a t we t a k e

exports,

same tim e
i m p o r t s , we

d o l la r s r e c e iv e d by

There

is

some j u s t i f i c a t i o n

e n a b l e s B r i t a i n to l i v e .
Our in te r ­
s e l f i s h , a s i t i s m erely the hope o f
i n w h ic h

in

lo an s

e x c e p tio n a lly la rg e

to h a v e

fo re ig n n a t io n s w i l l

through

l o a n s to some o f t h e s e

B ritain

the B r i t i s h

sells.

There are

situ a tio n ;

Y/hat s t a n d a r d o f l i v i n g

w ill B rita in

t r y to p r o ­

vid e ?
(2 )
Eccles

is

How m uch w i l l

in tereste d

in

the C o n t i n e n t a n d i n
B row n
purposely

m a tte r o f r a t e s .
French

loan

in

He

Eccles.
The

^3 1 5 ,0 0 0 ,0 0 0

are r e a l l y

the C o u n c il

s p r e a d o f communism o v e r
in fla tio n a ry

is

in

trend.

su b stan tial agreem ent,

to the q u e s t io n n a r r o w ly ,

b e lie v es

i t w a s a m is t a k e

str e s sin g

to p u t

but

the

th e 2 - 3 / 8 ^

E x p o rt- Im p o rt B a n k ,
The

lo an

t h e o u tc o m e

tio n a l f a c t o r s .



p re v e n tin g the

itse lf

the

s p e n d on h e r army a n d n a v y ?

h o l d i n g dow n th e

says

co n fin e d

sh e

There

French

lo an does not e s t a b lis h

to Fran ce and the ^ 2 4 0 ,0 0 0 ,0 0 0
o f len d- lease
w ill

arrangem ents and

p r o b a b l y be a B r i t i s h

a pattern.

French
other

lend - lease

lo an
excep­
credit

-15-

for a b i l l i o n d o l la r s .
Th© 2 - 3 / 8 $ r a t e i s a le n d - l e a s e r a t e and
n o t an E x p o r t- Im p o rt B a n k r a t e .
E c c l e s b e l i e v e s the p o s s i b i l i t y
o f p r i v a t e f i n a n c i n g i s q u i t e re m o te .
The h i e h e r r a t e meanB
greater d i f f i c u l t y f o r the debtor in p a y in g .
C r e d i t i s a seco nd­
ary f a c t o r .
Brow n
s a y s New Y o rk b a n k e rs b e l i e v e s t r o n g e r c o u n t r ie s
l i k e D e n m a r k , H o l l a n d , a n d B e lg iu m m ig h t be a b l e to f i n a n c e p r i ­
v a t e l y i n tw o o r t h r e e y e a r s a t 3 - 1 / 2 $ ,
E c c le s b e l ie v e s the f i r s t ten y ears o f m a t u r it ie s ,
f i v e y e a r s , c o u l d be s o l d w it h a 3 $ r a t e .

avera g in g

m atu r itie s

Brown.
The ju d g m en t o f New Y o r k ba n k e rs i s
c o u ld be so ld a t 3 - 1 /2 $ .

that a l l

M cKee.
& e r h a p s we ca n a l l a g r e e t h a t the E x p o r t- Im p o rt
Bank o b l i g a t i o n s s h o u l d b e s e t u p to p r o v id e e v e n t u a l l y f o r a
r e s a l e a n d r e f u n d i n g so t h a t t h e r e i s a p u b l i c o u t l e t f o r t h e s e
se c u ritie s.
Eccles

does n o t b e l ie v e p riv a te

f i n a n c i n g ca n p o s ­

s i b l y be do n e a t p r e s e n t .
I f the situ a tio n ch an g e s, that is
a n o t h e r m a t t e r , b u t t h e G o v e rn m e n t sh o uld n o t e n c o u ra g e a n y t h i n g
but h ig h

grade p ap er fo r

sale

to

the p u b lic or b a n k s .

Brown.
T h e I n t e r n a t i o n a l Bank w o u ld p r o b a b l y s t a r t a t
3 $ p l u s a c o m m is s io n o f 1 $ , o r a t o t a l o f -4$.
T h i s r a t e m ig h t
t h e n im p r o v e ,
E ccles

stresses

that he b e lie v es

Kurtz.

Is

Eccles

does no t know ,

t h a t 3 $ i s a good

rate,
i t p o l i t i c a l l y p o ssib le

to make th e B r i t i s h

lo an ?

ant p u b lic
B rita in

p o litic a l

to p a y o f f

McKee
paper, but have
p lace

th e l o a n

Brown.
E x p o r t - Im p o r t B a n k




No one f a v o r s l e n d i n g

b e lie v es

suggests

the

that

3 - 1 /2 $ r a t e

rig h t

to r a i s e

the hands
The ra te

of

d e sira b le.

the

so t h a t

as lo n g as i t h e ld

to 3 - l / 2 $ ,
p u b lic

if

the

necessary,

to

th r o u g h r e s a l e .

s h o u l d be h i g h

to g e t o u t .

is

t h e r a t e m ig h t be f i x e d

Bank co uld ch arge 3$

the
in

co n sid e ra tio n s .

im p o r t ­

other c r e d it o r s .

Spencer

t h e E x p o r t - Im p o r t

b u t knows t h a t t h e r e a r e

enough to e n a b l e

the

-16-

SURPLUS GOODS
B r o w n . So many a g e n c i e s may h a v e an i n t e r e s t i n th e
d i s p o s a l o f t h e s e g o o d s a n d so m any d ip l o m a t ic problem s may be
i n v o l v e d t h a t t h e C o u n c i l d o e s n o t h av e a d e q u a t e f a c t s to e x p r e s s
an o p i n i o n .
T h e C o u n c i l b e l i e v e s th e p r e s e n t S u r p l u s P r o p e r t y
B o ard s h o u l d b e

r e p l a c e d b y an i n d i v i d u a l .

E ccles.
on t h i s m a t t e r .

M r . M cCa be h a d a s k e d the a d v i c e o f th e B o a rd

There

is

a feelin g

t h a t th e d i s p o s i t i o n

of

sur­

p l u s goods a n d t h e e x t e n s i o n o f f o r e i g n c r e d i t s sh o u ld be co n­
s i d e r e d a s on e p r o b l e m .
The d i s p o s i t i o n o f s u r p l u s goods may
r e a l l y m ean t h e
plus
v id e

e x ten sio n o f c r e d i t ,

s a l e s s h o u l d n o t make l o a n s .
f o r t h e s a l e o f such g o o d s .

and t h o s e

Loans

in

ch arge o f

sur­

s h o u ld be made to p r o ­

REGU LATIO N 7?
Brown.
T h e m em bers o f th e C o u n c i l , w i t h one e x c e p t i o n ,
b e l i e v e t h a t R e g u l a t i o n ^ w as i n t r o d u c e d a s a w a r m easure a n d
sh o u ld n o t be c o n s id e r e d a perm anent p art o f o ur n a t io n a l econ­
om y.
As g o o d s su ch a s f u r n i t u r e , w a s h i n g m a c h i n e s , and o t h e r
c o m m o d itie s come i n t o s u p p l y , t h e R e g u l a t i o n s h o u l d be r e l a x e d .
I t s h o u ld be r e t a i n e d a t p r e s e n t on a u t o m o b i l e s , b u t i t s h o u l d
be l i b e r a l i z e d on h o u s i n g m o d e r n i z a t i o n .
The term s on h o u s i n g
m o d e r n i z a t i o n w e r e c h a n g e d from 1 2 to 1 8 m onths i n Ju n e 1 9 4 5 *
F u r t h e r r e l a x a t i o n on m o d e r n i z a t i o n i s d e s i r a b l e .
R ansom .
T h e B o a r d h a s n e v e r c o n s i d e r e d th e q u e s t i o n
o f w h e t h e r R e g u l a t i o n W s h o u l d b e a p e rm an e n t p a r t o f our
econom y.
H i s p e r s o n a l o p i n i o n i s t h a t i t i s n o t a p e rm an e n t
p a rt o f our econom y.
I t t o o k f o u r y e a r s to b u i l d u p R e g u l a ­
t io n F , and i t s h o u ld be r e l a x e d as r a p i d l y as p o s s i b l e .
Too
many g r o u p s h a v e c o n s i d e r e d t h e R e g u l a t i o n a s a c o l l e c t i o n
agency.

Even tually

d e cid e w h eth er

th is

th e q u e s t i o n " d l l h a v e
type o f

se le ctiv e

to go to C o n g r e s s

credit

to

c o n t r o l s h o u ld

become a p e r m a n e n t p a r t o f o u r econom y.
Brown.
come i t
g iv e s

as

in

k ee p in g

to t h e i r o p e r a t io n s a n d f o r the h e l p

it

out newcom ers.

Ransom .

F o r the

T h o s e r e g i s t r a n t s who f a v o r the R e g u l a t i o n w e l ­

a p rotection

T h e w ro n g p e o p le l i k e

th e R e g u l a t i o n .

E c c l e s . E c c l e s e x p e c t s a l a r g e volum e o f i n s t a l l m e n t c r e d i t .
tim e b e i n g , p e o p l e h a v e m oney, b u t w hen we h ave a l o n g

s u p p ly o f

goods,

we may f i n d

a u t o m o b ile term s going: from 1 2

to

3 6 m onths.
A l a r g e e x p a n s i o n o f consum er c r e d i t to f i f t e e n o r
tw e n t y b i l l i o n d o l l a r s w o u l d be the b a s i s o f a r e a l econom ic
co llap se.




-17-

B row n*
A l l th e members o f the C o u n c i l , w it h one excep­
t i o n , do n o t f a v o r h a v i n g a n y r e g u l a t i o n such as R e g u l a t i o n W a
perm anent p a r t o f o u r econ om y.
R ansom
d o u b t s w h e t h e r one ty pe o f s e l e c t i v e c o n t r o l
would l e a d to t h e a d o p t i o n o f o t h e r s .
He b e l i e v e s t h a t th e
answ er to E c c l e s i s t h a t to make t h i s perm anent i s to a d o p t c l a s s
le g islatio n .
B a ird
p o i n t s o u t t h a t in h o u s i n g m o d e r n i z a t i o n , la b o r
i s a b ig f a c t o r a n d t h a t l i b e r a l i z a t i o n o f th e R e g u l a t i o n w o u ld
be h e l p f u l to l a b o r .
M o d e r n i z a t i o n f i g u r e s are n o t n e a r l y as
l a r g e a s a u t o m o b i l e f i n a n c i n g , and m o d e r n iz a t io n w o uld a l s o
h elp h o u s in g .
Ransom

w ould l i k e

to see the

fo llo w in g three

ste p s

adopted:
S t r e a m l i n i n g Pro gram f o r R e g u l a t i o n W
( I l l u s t r a t i v e and te n t a t iv e )
1st

Step -

(a)
(b )

G i v e u p home im provem ent c r e d i t s ; and
L e n g t h e n m a t u r i t y f o r "n o n p u r p o s e "
l o a n s from 1 2 m onths to 1 8 .

2nd Step (a )

D e lis t

so ft

h ard goods,
(b )

goo ds an d m in or ite m s o f
th u s r e d u c in g l i s t

of

a r t i c l e s to 12 - 15 m ajor d u r a b l e s ; and
G i v e u p c o n t r o l o f ch arg e a c c o u n t s as
su c h a n d s u b s t i t u t e c o n t r o l o f ch a rg e
s a l e s o f m a jo r d u r a b l e s r e t a i n e d on
short l i s t

3rd

Step (a )

G iv e up

(b )

and
S i m u l t a n e o u s l y r e l a x d o ^n p aym ent an d
m a t u r i t y r e q u ir e m e n t s f o r m a jo r d u r a b l e s

"n o n - p u r p o s e " l o a n s a l t o g e t h e r ;

re tain ed

is not fo r

In
the

a u t o m o b il e

or any

t h e e n d , a " n o n p u r p o s e " l o a n w o uld be a n y l o a n w h ic h
o u r p o s e o f f i n a n c i n g o r r e f i n a n c i n g th e p u r c h a s e o f an y
other a r t ic le

W allace
now.




on s h o r t l i s t .

t h i n k s we

on th e s h o r t l i s t

o f 12- 15 m a jo r d u r a b l e s *

s h o u l d r e l a x m o d e r n iz a t io n r e g u l a t i o n s

-18-

Rangom
b e l i e v e s i t d e s i r a b l e to r e l a x m o d e r n iz a t io n
r e q u ir e m e n t s a s s p e e d i l y a s p o s s i b l e , but sa y s some are a g a i n s t
i t now b e c a u s e i t c o n f l i c t s w i t h the p r i c e c o n t r o l o r 0 . P . A .
E c c l e s . 0 . P . A . b e lie v es
c o n t r o l i s i m p o s s i b l e i f th e v a r i o u s
h o u s i n g m a t e r i a l s , Mre r e l a x e d n o w .

be h e l p f u l

the ■'■hole q u e s t io n o f p r i c e
c o n t r o l s , such as th o s e on

W a l l a c e . R e l a x i n g o f c o n t r o l s on m o d e r n iz a t io n
in retarding in fla t io n .

sh o uld

E ccles.
C o n s i d e r i n g t h a t c e r t a i n c o n t r o l s on h o u s i n g
a r e b e i n g t a k e n o f f , h e s a y s t h e r e i s no n e e d f o r r a t a i n i n g
R e g u l a t i o n W c o n t r o l on m o d e r n i z a t i o n .
The o t h e r h o u s in g c o n t r o l s
s h o u l d p r o b a b l y n o t h a v e b e e n t a k e n o f f } th e r e s u l t w i l l be t h a t
a n y o n e can b u i l d a h o u s e a n y w h e r e an d b l a c k m a rk e ts i n m a t e r i a l s
may f l o u r i s h .
MARGIN R E Q U IR EM E N TS
Brown.
B o a rd h a s

50% b a s i s ,

The C o u n c il w ould l ik e

c o n sid ere d

e lim in a tin g

t h a t w e re i n t r o d u c e d
in

larg e r

su pp ly ,

in

p a r t i c u l a r l y the burden som e m e ch a n ic s
th e am e n d m e n ts.

and even i f

Many goods a r e a v a i l a b l e

E u r o p e ta k e s

t h e r e a r e some o f t h e more e x p e n s i v e
p r o b a b l y n o t go t o E u r o p e .
E ccles.

to a s k w h e th e r th e

t h e p o s s i b i l i t y o f g o in g b a c k to the fo r m e r

Do y o u t h i n k

some o f our g o o d s ,

co m m od ities w h ich w i l l

the i n f l a t i o n a r y danger is

over?

B r o w n . T h e p r o s p e c t o f a su dden s e r i o u s i n f l a t i o n i s
n o t a s g r e a t a t p r e s e n t , b u t t h e r e may be a g r a d u a l i n f l a t i o n a r y
t r e n d due in l a r g e p a r t to r i s i n g lab o r c o s t s .
The d a n g e r o f a
s e r i o u s u p w a r d m ovem ent o f th e
it was.

s t o c k m ark et i s n o t a s g r e a t as

E c c l e s . E v e n a 1 0 0 * m a r g in r e q u ir e m e n t w ould n o t s to p
In fla tio n .
F l o o r t r a d e r s w i t h a sm a ll volum e o f c r e d i t h a v e
g r e a t i n f l u e n c e on th e m a r k e t .
-H w as h o p e d to re a c h t h e s e
t r a d e r s w i t h t h e 15% r e s t r i c t i o n .
P e o p le n o t i n the m ark et ca n
go i n t o t h e m a r k e t on th e 15% b a B i s or buy f o r c a s h .
He b e l i e v e s
i t w o u ld be e n t i r e l y p re m a tu re to re d u c e th e m a r g in s o r r e l a x
th e r e s t r i c t i o n s .
M cK ee

s a y s a b a n k c o u l d make a sm a ll u n s e c u r e d p u r p o s e

lo a n to t a k e c a r e o f a b o r r o w e r who h a d a l r e a d y p le d g e d h i s
c o l l a t e r a l a n d t h e n w i s h e d to b o r r o w , f o r e x a m p l e , f o r t a x e s .
Draper.




A ny a c t i o n

on t h i s now w o u ld lo o k b a d .

Brown.
N e v e r t h e l e s s , the C o u n c il vro u ld l ik e to p o in t
o ut t h a t f o r e v e r y f l o o r t r a d e r th e R e g u la t io n r e s t r i c t s , many
o t h e r p e r s o n s a r e g r e a t l y in c o n v e n ie n c e d .
(S z y m c z a k l e f t
L IC E N S IN G

useless

th e m e etin g a t 1 : 1 0 ? . M .)

O F BANKS

Brown
now,

says

t h a t the s p e c i a l T reasury l i c e n s i n g i s

McKee
s u g g e s t s t h a t the C o u n c il m ight draw up a r e s o l u ­
t i o n on t h e s u b j e c t to g i v e to the B o a r d .
A H the members of the
B o ard se e m ed to b e i n a c c o r d w it h t h i s s u g g e s t io n .
Brorm
a s k s F le m in g to draw up a r e s o l u t io n to give to
the B o a r d s u g g e s t i n g t h a t th e re q u ir e m e n t fo r l i c e n s i n g by the
T r e a s u r y b e r e s c i n d e d b y th e p ro p e r a u t h o r i t i e s .
Flem ing i s to
g i v e t h e r e s o l u t i o n to th e Bo ard who w i l l send i t to the proper
a u th o ritie s fo r a c t io n .
rl9ia ing a g r e e s

through

on

to p r e p a r e th e r e s o l u t io n and follow

it.
The meeting adjourned at 1:20 P. M.




-20The Council reconvened in the Board Room
of the Federal Reserve Building at 2s 15 P.M.on September 17, 1945, to hear Mr. Woodlief
Thomas, Director, Division of Research and
Statistics of the Bo°.rd of Governors of the
Federal Reserve System.
All members of the Council ?/ere present
except Messrs. Kurtz and Gifford.
Thomas. The change from war to peace involves many
complex economic problems. These problems necessitate wise
handling if we are to assure fair treatment for as many people as
possible and avoid future economic difficulties of large pro­
portions. Millions of people are being released from war jobs
or military service. The future of these people is as uncertain
as that of the business concerns to pyhcm they will look for
employment. The output of civilian goods has been small relative
to demands and must be increased as rapidly as possible. Individuals
and businesses have large amounts of accumulated buying power in
the form of liquid assets; they have also reduced their debts and
the available credit is substantial. Foreign nations will
wish large amounts of American products, and many of these nations
have dollars or gold with which to finance their purchases.
Other n a tio n s
purpose
annual

w ith o u t

o f m a k in g
rate

of

to 4.5

p riv ate u s e

is

or

of

ap p roxim ately

p e n d itu r e s w i l l
perhaps

d o llars

purchases

&100

p ro b ab ly d e clin e

b illio n

by

expected

the
to

gold,

goods

w ill

in

b illio n ,
to

$60

d e sire
Federal

b illio n

sum m er o f 1 9 4 6 .

in crease

in

the

av a ilab le

a

fo r

the

From a n

Governm ent

ex­

by Decem ber an d

The o u t p u t

ne.nr f u t u r e

a n n u a l r a t e o f a b o u t <1*105 b i l l i o n t o $ 1 1 5 b i l l i o n
end o f t h e y e a r .
The g ro ss n a t io n a l p ro d u ct w i l l
an a n n u a l r a t e
end.
R eleases

loans

our m ark ets.

for

fro m

an

o r m ore

by

d e c lin e

fro m

the

o f ^ 2 0 0 b i l l i o n to a b o u t *$165 b i l l i o n b y t h e y e a r
fr o m w a r p r o d u c t i o n a n d t h e a r m e d f o r c e s w i l l m ake

larg e

su pp ly o f

lab o r.

So f a r ,

releases

in

in d u stry

have b e e n c l o s e to 3 m i l l i o n , b u t h a v e s l a c k e n e d to a b o u t 3 0 0 , 0 0 0
a week i n S e p t e m b e r .
R e l e a s e s from th e a rm e d forces w i l l p r o b a b l y
reach a p e a k o f o v e r a m i l l i o n a month by ^ a r l y 1 9 4 6 .
Many o f
these r e l e a s e d p e r s o n s h a v e b e e n a b s o r b e d o r w it h d r a w n fr o m t h e
la b o r m a r k e t .
U n em p lo y m en t i s n o t l a r g e y e t , p e r h a p s 2 m i l l i o n ,
and th o s e m a k i n g u n e m p lo y m e n t c o m p e n s a t io n c l a i m s nu m b ered a b o u t
1 m illio n a t th e end o f A u g u s t .
Unem ploym ent w i l l p r o b a b l y i n ­
crease w i t h t h e r e l e a s e o f m em bers o f th e arm ed s e r v i c e s .
t Is
p o s s ib le t h a t 7 o r 8 m i l l i o n w i l l be u n e m p lo y e d e a r l y in 1 9 4 6 ,
a n d ,i n a d d i t i o n , some 3 o r 4- m i l l i o n p e r s o n s w i l l h a v e w i t h d r a w n
from the l a b o r m a r k e t .
The nu m ber o f g a i n f u l l y e m p lo y e d , o t h e r
than in th e arm ed s e r v i c e s , may d e c r e a s e from 5 2 m i l l i o n to a b o u t
4 8 m i l l i o n a t t h e end o f 1 9 4 5 .
I n d i v i d u a l Incom es may d e c l i n e
from an a n n u a l r a t e o f a b o u t $ 1 6 0 b i l l i o n to a b o u t >135 b i l l i o n
by the end o f 1 9 4 5 .
P e r s o n a l t a x e s may d e c r e a s e from a r o u n d



-21-

$ 2 0 b i l l i o n a y e a r to a p p r o x i m a t e l y $ 1 5 b i l l i o n a t the e n d of
th is y e a r .
T h e incom e a v a i l a b l e f o r s p e n d in g and s a v in g s m ay ,
t h e r e f o r e , d e c l i n e from ^ 1 4 0 to $ 1 2 0 b i l l i o n .
I n d i v i d u a l s a v in g s
have be en a r o u n d S35-4-0 b i l l i o n a y e a r , b u t a r e e x p e c te d to
d e c l i n e to a b o u t $ 2 0 b i l l i o n a n n u a l r a t e , com pared v d t h a p r e ­
w ar a v e r a g e of & 1 0 b i l l i o n o r l e s s .
I n d i v i d u a l s have la r g e
a c c u m u la t io n s o f l i q u i d a s s e t s .
Personal h o ld in g s of cu rre n c y ,
d e p o s i t s , a n d G o ve rn m e nt s e c u r i t i e s h a v e i n c r e a s e d from $ 5 0 - 6 0
b i l l i o n p r e w a r to more t h a n $ 1 4 0 b i l l i o n n o w .
Th ere a r e i n ­
d ic a tio n s

t h a t a c c u m u l a t e d l i q u i d a s s e t s may n o t be f r e e l y

snent.

I n a s u r v e y c o v e r i n g a r a t h e r sm a ll a r e a , i t ^ a s fo u n d t h a t
tw o - th ird s o f t h e s a v i n g s a r e h e l d by p e o p l e who r e c e i v e l e n s
than S 6 , 0 0 0 a y e a r .
T h e s a v i n g s seem to be i n g r o u p s .
The b e t t e r
e d u c a t e d , o l d e r g ro u p s who h a v e some p l a n s f o r the f u t u r e seem to
h a v e done a b e t t e r jo b o f s a v i n g .
These p eop le g e n e r a lly say
th e y a r e n o t g o i n g to d ra w dow n t h e i r s a v i n g s f o r .au tom obiles
and o th e r a r t i c l e s , b u t w i l l u s e in s ta llm e n t c r e d i t .
T h e y m ay u s e
t h e i r a c c u m u l a t e d s a v i n g s f o r th e p u r c h a s e o f h o u s e s , fa r m s o r
other ty p e s

of

in v estm en t.

In

some c o m m u n it i e s , h o w e v e r ,

the

p attern does n o t run t h i s w a y .
I n g e n e r a l , t h e s a v in g s do n o t
s e e s to p r e s e n t a t h r e a t t o t h e p r i c e s o f co nsum er g o o d s , b u t t h e y m ig h t l e a d to
stocks.
B u sin esses

serious speculation
are

also

i n houses, farms and
a h i g h l y l i q u i d p o s i t i o n , the

in

l i q u i d a s s e t s o f t h i s gro u p h a v i n g i n c r e a s e d fro m a b o u t $ 2 0 - $ 2 5
b i l l i o n to o v e r $ 7 0 b i l l i o n .
(T r a p h a g e n l e f t a t 2 : 4 0 P . M . )
The
f u n d a m e n t a l d ile m m a o f t h i s p e r i o d i s one o f a l a r g e demand f o r
goods an d s e r v ic e s
a ltho u gh

at

th e

same t im e t h a t the

th e m an p o w er n e c e s s a r y

to

in c re a se

su pp ly is r e s t r i c t e d ,
output is

rap id ly

b e c o m in g a v a i l a b l e .
I t i s p o s s i b l e to h a v e a s e r i o u s i n f l a t i o n a r y
t h r e a t a t t h e same t im e we h a v e u n e m p lo y m e n t .
T h e r e a r e some
go o ds

in

short

s u p p l y w h ic h a r e

to w h ic h w o r k e r s
th e u n e m p lo y e d
the

have

a

is

to

the

go o d s

jo b s p ro d u c in g goods as

it

P.

necessary

in fla tio n

fo r urban
to

scarce.
b rin g

the

p ris es ,
taxes.

The

sh o u ld be to

sho uld




p ro fits

F o re ig n c r e d it s

g o o d s w h ere o u r

p o lic y

and

in

be.

There

t a x and th ere

ta x to h e l p

a l s o be

stim u late

co n su m er b u y i n g ,

The r e ­

sho uld o n ly be p e rm itte d w h ere

e x p en d itu re s w i l l

general

stocks.

s h o u l d be

su pp ly is

o n th e m a t t e r o f r e d u c i n g t a x e s ,

corporate

There

rises

more g o o d s *

some e x c e s s

norm al

We c o u l d
to farm s a n d

em ploym ent i s n o t d e s i r a b l e w h e r e

b id d in g fo r

careful

goods.

g o in g b a c k

e s t a t e an d

to

The r a p i d

s u p p l y a n d dem and f o r m any g o o d s a r e n o t
P ric e

forth

no t know w h at o u r

real

in c r e a s e

The

ce rta in

due t o v e t e r a n s

On

as p o s s ib le

su ch a s t h o s e r e l a t i n g to

sh o uld be

in

as l i t t l e

for

de m an d s

of

to h e l p

soon a s p o s s i b l e .

to a s c r a m b le

m a n a g e d to p r e v e n t

d u c tio n

add

in d u stries

e sse n tia l

re str ic tio n s,

in p ro p er a d ju s t m e n t .
they w i l l

to

is

B.

co ntro ls

are

is

It

le ad in g

se rio u s

m oval o f

p r o d u c e d i n lo w w a g e

reluctance.

s u b s t a n t i a l a c c u m u l a t e d b u y i n g p o " 'e r .

rem oval o f W .
h o u sin g ,
due

to

other h a n d ,

th e a l r e a d y

r e t u r n w ith

the l e s s

tra n sitio n

p ro fita b le

sp e cu latio n ,

as

enter­

in d iv id u a l

in co m e

from w a r to p e a c e

th e p r o d u c t i o n o f n e e d e d

reduce

sh o u ld be a r e ­

s h o u l d be a r e d u c t i o n

some r e d u c t i o n i n
the

short.

f o r we do

in

goods,
th e

d isc o u rag e

case o f

-22-

In v en to rie s.
The b u d g e t d e f i c i t d u r in g tho w ar h a s e x c e e d ed $ 5 0
b illio n a y ea r .
F o r th e l a s t h a l f o f 1 9 4 5 , i t w i l l be $ 2 2 b i l l i o n ,
w h ic h i s s t i l l c l o s e to th e w ar l e v e l .
F o r the f i r s t h a l f o f th e
c a l e n d a r y e a r o f 1 9 4 6 , t h e re may be ab o u t a S 1 0 b i l l i o n d e f i c i t ,
w h ic h m eans a t t h e r a t e o f S^20 b i l l i o n a n n u a l l y , a l l o w i n g f o r a
m o d e rate t a x r e d u c t i o n .
I n th e l a s t h a l f o f 194-6, the d e f i c i t
may o n l y be $ 3 b i l l i o n .
The T r e a s u r y co uld draw on i t s l a r g e
w o r k in g b a l a n c e to c o v e r a p a r t o f th e d e f i c i t t h i s y e a r and
nearly a l l o f i t in 1 9 4 6 .
The w o r k in g b a l a n c e o f the T r e a s u r y
was a b o u t $ 2 4 b i l l i o n i n J u n e a n d i s now ab o u t $ 1 5 b i l l i o n .
In
peace tim e , i t h a s r a r e l y exceeded 1 b i l l i o n d o l l a r s .
How ever,
i t w as a n t i c i p a t e d t h e r e m ig h t be l a r g e r e d e m p t io n s o f demand and
m a t u r in g o b l i g a t i o n s .
I f t h e r e a r e l® rg e r e d e m p t io n s and paym ents
f o r u n e m p lo y m e n t , t h e T r e a s u r y may h a v e to g e t & 8 to $ 1 0 b i l l i o n
a n n u a l l y from t h e b a n k s w h ic h r o u l d compare w it h th e war-time r a t e
o f ^ 2 5 b i l l i o n a y e a r from th e b a n k s .
T h i s w o u ld mean an i n c r e a s e
in bank d e p o s i t s .
I f there are la r g e redem ptio ns, there i s a
q u e s t i o n o f how t h e m oney w i l l be u s e d .
I f the m oney i s n o t
s p e n t , t h e r e c o u l d b e u n e m p lo y m e n t; i f the money i c s p e n t , t h e r e
w o u ld be i n c r e a s e d p r o d u c t i o n ; b u t i f i t i s
t h e r e m ig h t be i n f l a t i o n and s p e c u l a t i o n .

s p e n t too r a p i d l y ,

Brov.Ti
b e l i e v e s t h a t much c u r r e n c y i s i n the h a n d s o f
workmen who h a v e n o t i n th e p a s t o r d i n a r i l y u s e d b a n k s .
Thom as.
th e ir

In

our s u r v e y s ,

th e p e o p l e w o u ld n o t i n d i c a t e

currency h o ld in g s .
B a ird .

a c a m p a ig n u r g i n g
up t h ^ i r

B a ird b e lie v es
them to h o l d

bonds,

so t h e y h av e b u i l t

currency h o ld in g s .
Thom as.

bon ds a n d

sa v in g s
B row n

Our
before

there

How c a n w a g e s

are

s u r v e y sh o w ed many p e o p l e w o u ld u s e

jo b s

is

the r e s is t a n c e

shorter hours w ith o u t
Thom as.

o r how ca n

th e

same w ag e s

bn p a i d f o r

s a v i n g s an d the r e a l p r e s s u r e o f

y e t b e en f e l t

$25

much e f f e c t

in

b y them .

He d o e s n o t b e l i e v e

k e e p in g p e o p l e

out o f w ork.

The a v e r a g e u n e m p l o y m e n t c o m p e n s a t io n i s n e a r e r * 1 5 . 0 0 .
York,

it

is

In

d e c lin in g .

r a is in g p ric es?

P eo p le have

have

ta k in g low er p ay

t h e w o rk e rs a r e

u n e m p lo y m e n t h a s n o t
a w e ek w i l l

to

s e r io u s and w id e s p r e a d .

m an y j o b s w h ic h

be r a i s e d ,

th e ir

th e y w ould us e t h e i r c u r r e n c y .

a s k s w hether

a n d m ore d i s a g r e e a b l e
C h ic a g o

t h r i f t y p e o p l e who h a v e bo n ds f e a r

th e ir

I n New

around # 1 8 .
Brown.

W h en some u n s k i l l e d h o t e l w o r k e r s fo u n d t h e y

w o u ld o n l y g e t ^ 8 . 0 0 un em p lo y m e n t c o m p e n sa tio n i n s t e a d o f $ 2 5
th e u n e m p lo y m e n t p r o b l e m i n a p a r t i c u l a r h o t e l s i t u a t i o n w as
solv ed.

The m e e t in g ad jo u rn ed


at 3*20 P .

M