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FRIDAY , F E B R U A R Y 7, 1958



The subcommittee met at2:35 p.m .,pursuantto call,in room 301,
Senate Office Building,J. Allen Frear,Jr., chairman of the subcom
mittee, presiding.

Present:SenatorsFrear,Robertson,Douglas,and Proxmire.
Also present: Senator Neuberger.

Senator FREAR. The Subcommittee on the Federal Reserve will
come to order.

As youknow, this meeting is called foradviceon the reappoint
ment by the President of Mr. AbbotLow Mills,Jr.,to be a member

of the Board of Governors of the Federal Reserve System for aterm
of 14years from February 1,1958.

We will insert Mr. Mills'biographical sketch in the record atthis

(The biographicalsketchofMr. Mills follows:)

Born : Portland,Oreg.,September 26,1898.
Father : Abbot Low Mills. Mr. A. L. Mills,Sr.,was for many years president
of the First National Bank of Portland, and prominently identified with Ore

gon's civic and commercial life.
Mother : Evelyn Scott Lewis.

Married : Katherine Ainsworth,August 4,1924.
Children : Katherine Mills, Abbot L. Mills, Sarah Mills Harball, John Ains
worth Mills.

Education : Grammar
ool, Por nd, Oreg.; Middlesex School, Concord,
Mass.;Harvard University,bachelor of arts degree,class of 1921.
Military service : Commissioned second lieutenant, Infantry, United States

Army, September 18, 1918. Attached to SATO Unit, Georgia School of Tech
nology. Honorably discharged December 1918.
Business connections : Entered employ of the First National Bank of Port

land, October 1, 1920, as messenger . Served successively as assistant cashier

and vice president to December 31, 1932, except for the year 1923,or there
abouts, during which served with the affiliated Pacific Coast Joint Stock Land
B an k as assistant secretary .

Employed by the United States National Bank of Portland, Oreg., January 1,
1933, to February 1952, serving as assistant vice president, vice president, and
first vice president. Also served as director of the United States National Bank

ofPortland and ofthe United States National Corp.
Present outside activities: Director, National Committee on Boys and Girls
Club Work , Inc.

Member, committee to visit the department of economics,Harvard University.
Overseer, Whitman College.

Previous public service: Served two mayors of the city of Portland on com
mittees having to do with municipal finance.

Member,Governor's Committee on Small Business.
President,Portland 4- H Club Advisory Council.


Director,Oregon Tuberculosis & Health Association.
President and member of board of trustees of Reed College.
Member of Multnomah County Selective Service Board No. 5.
Member of merit system council,Oregon State Welfare Commission.

Member,board of hospital trustees,Good Samaritan Hospital.
Fiscal assistant in the office of the Secretary of the Treasury (1942).
President and treasurer,Harvard Club of Oregon.

Vice President,Harvard Alumni Association (1952–53).
Trustee,Portland Art Association.
Trustee,Multnomah Amateur Athletic Club.

President, treasurer, and director, Portland-Multnomah County Community

Director,Portland-Multnomah County,American Red Cross.
Director, Portland Chamber of Commerce.
Director and treasurer,the Visiting Nurse Association.

Director and treasurer,Portland Open Air Sanitarium .
Society memberships : American Academy of Political Science, American
Economic Association,American Finance Association.
Took office as a member of the Board of Governors of the Federal Reserve
System on February 18,1952.
Member,Advisory Board on Economic Growth and Stability.

Senator FREAR. Mr. Mills,we are very happy to have you again
before this subcommittee.

Mr. MiLLs. Thank you,sir.

Senator FREAR.We also noticethat we have present inthe room
the Chairman of the Board of Governors of the Federal Reserve

System ,Mr. Martin.
W e are veryhappy tohaveyouhere,sir.
Mr. MARTIN. Thank you,sir..

Senator FREAR. We would like you to proceed in your own way,
Mr. Mills,on behalfof yourself,asto the reasons why you think you
should be reappointed,with any supplementing statement thatthe
Chairman ofthe Board mightwishtomake.

Mr. Mills. Senator,if I may,the approach possibly would be to
give the committee a very briefsketch of my business life.
I am an Oregonian bybirth andhave, except for rather brief
absences,lived my entirelife in the Stateof Oregon, Senator Neu
berger'sState and my State, until I had the honor to be nominated
and was appointed amember ofthe Federal Reserve Board in Febru

ary 1952 to complete the term of Mr. Marriner S. Eccles. I have now

served the remaining 6 years of thatterm.
Prior to service on the Federal Reserve Board my entire business
life for 30 or 31 years was in commercial banking. It was an experi

ence and a period of life of which Iam proud,as I have always con
sidered banking a field of trust and a means of rendering a species

If you,as was true in my case,had had a longcommercial banking
experience,and were deeply interested in the principles and respon
sibilities of banking, you can readily imaginemy pleasure at the
opportunity of exchanging a private for a public lifein the field of
banking by membership on the Federal Reserve Board.
The experience has been a very rewarding one and one that has
broadened my outlook on and understanding of both private and
public banking. And, I am sure,has addedto my capacity and I




hope my competency to render public service in an effective way to
the Government.

Senator FREAR. Thank you.
Mr. Martin ?


Mr. Martin. Mr. Chairman, I hope you do notthink I am in
truding inbeing here,but I wanted to come up and tell you that I
have served with Governor Mills now for over 6 years andI have not

the slightesthesitation inrecommending him as aconstructive, com

petent,and conscientious member of the Board of Governors, who
calls his shots as he sees them . I am glad to say he does not always
agree with me . That isthe way itshould be. And I have not had
the slightest hesitation in hoping that you will see fit to reconfirm
him to this position.

Senator ROBERTSON. Has he beensatisfactory to you?
Mr. MARTIN. His services have been completely satisfactory to

Senator ROBERTSON.And the reappointment issatisfactoryto you?

Mr. MARTIN . Completely.

Senator ROBERTSON. Doesheworkin harmony withtheother mem
bers of the Board ?

Mr. Martin. He works in harmony with the other members ofthe
Board. We have had differencesfrom time totime,all of us, but

none of them of a nature that would cause us to be disharmonious.
Senator ROBERTSON. Do you find that he is industrious?
Mr. MARTIN. He is industrious,competent,and constructive.
Senator FREAR. Thank you very much,Mr. Martin.
Senator Robertson ?

Senator ROBERTSON. I have no furtherquestions. I am satisfied. I

have been watchinghim work. He has been doing a pretty good job.
Senator FREAR.That is an excellent recommendation.
Senator Proxmire ?

Senator PROXMIRE. I have heard some excellent comments on your
character, your fine reputation, and experience. I am deeply im
pressed,Governor Mills.

Mr. Mills. Thank you.

Senator PROXMIRE. If thecommiteee will indulge me,I would like
to ask some questionsabout the policies that you and the Federal
Reserve Board have followed.

Mr. MILLS. Certainly.

Senator PROXMIRE. I will be very quick and very brief.
I am deeply concerned about our monetary policy. I would like
toaskyou if you feelthat a monetary policy,thatis,adjustinginterest
rates,isa very effectiveway,a moderatelyeffectiveway,or an ineffec
tive way of restraining inflation or adjusting price increases.

Mr. Mills.Senator, I believe that monetary credit policy is an
effective way of helping to restrain inflation but must beusedin con



junction with other public and private policies to bear the full fruit
thatisintended of it.

Senator PROXMIRE. Inyour knowledgeof economichistory,doyou
know of any time when ithas been clearly effective in limiting price

Let me put it this way,because I recognize thatthis issomething
thatis fairly new and that we have not had andother countries have
not had a policy of attempting to restrain prices by interest-rate

I am wonderingif you know of any era in which we have had a

coincidence of raisinginterest rates which have restrained and re
tarded price increases.

Mr. Mills. Senator,you put thequestion in the light of history

and it isdifficult to answer in line with history of,say,25 to 30 years
ago. In the extremely active period of the 1920's the most advan

tageous use ofmonetary policyin the United States was really only

Thatbeingthe case,thereisdoubtinmy mindthatmonetarypolicy

in the 1920'sand its effects would stand as a criterion for theuse and

the resultsof monetarypolicy as ithasbeen conducted since 1951.
Senator PROXMIRE. All right. Fine. Let us take the period since


It is my understanding that between 1951 and 1956,by and large,
interest rates increased somewhatand it isalso my understanding that

during this periodprices increasedalso. Infact,I have seen a state
ment recently in the New York Times— and this was not attributed
to the New York Times itself,but was contributed by a responsible
writer writing in the New York Times— that thiswas themost rapid

peacetime inflation that we have experienced.
Do you feel there were so many other factors that were at work
pushing prices up that although monetary policy was a restraining
factor itcould notovercome these other forces?

Mr.MILLS. Monetarypolicy,Senator
Senator PROXMIRE. Let me correct my position and say I recognize
ofcourse that we were not atpeace in 1951 or 1952. Let me begin in

1953 through 1955,when we did have rising interest rates and rising
Mr. Mills.Monetary policy in the period 1955 to the fall of1957
was conducted in waysthat sought to restrain the expansion of bank

credit andthetributaries ofbank credit,bycontrollingtheentire flow
of expenditures so as to prevent the impact of expenditures from
pressing upward on the price structure and causing prices to rise.
SenatorPROXMIRE. I am told— ifI may interruptat that point— for
example, between 1955 and 1956, and I think those were the years,

we had a rising interest rate,and the most likely way in which this
could be to restrain inflation would be to act to inhibitbusinesses from

borrowing money and expanding. During this period we had a per
fectlyenormous increaseinbusinessborrowing,whichSecretaryofthe
Treasury Humphrey has testified and agreedwas principally respon
sible for inflation that was going on during this period. Is that

correct ?
Mr. MILLS. Yes,itis,Senator.



The economichistory and thecounsel thatwe getfrom theFederal

Reserve Board's economists tell usthat the problemthatmonetary

policy undertook to cope with had its roots going back to the era of
World War II and then on intothe period of theKoreanexperience.

And duringboth ofthoseperiods, asyouwillremember,thefirstand
foremost public responsibility ofthecountry, was to win the battles
thatwewerecompelledtofight. Indoingso itwas,ofcourse,necessary
the United States.

At the same time that these borrowings were undertaken to finance

the material and the means with whichto engage in combat, it was
equally necessary to restrict through priceand wage regulations and

controls access to the goods that in peacetime our people ordinarily
would wishtoenjoy.

The effectwasthat with employment and incomes running at very

highlevels, and the opportunitiesfor spending limited,the American

people very patriotically and very properlyinvested their surplus
income inUnited StatesGovernment securities.

The result was that when the wars ended and the controls were

lifted,thepeoplewho had previously acquiredUnited StatesGovern
ment securities

SenatorPROXMIRE.What periodisthisnow ?

Mr. Mills. That would be true of both periods,Senator, as you

Senator PROXMIRE. 1946 and 1953.

Mr. Mills.Yes; 1946and 1953. And throughthe intervening
period allof thosesecurities were in,say,your hands and my hands

and available to be immediately converted back into cash with which
toacquirethethingsthatwe had beenpreviouslydeprivedof.

The resultwas thatas all of theseliquid assetsbecame cash available

expanded toproduce a sufficient volume of goods to meet the demand
that was asserted for them

Senator PROXMIRE. Let me ask you : Do you discriminate between

the degree of control in the Second World War and the degree of
controlsof theKorean war !
Mr. Mills. I would not fundamentally.
Senator PROXMIRE. Were the controls of the Korean war far more
limited and far lessstringent?
Mr. Mills. That istrue.

As the period between 1946 and 1950 when the Korean episode

startedwasnotlongenoughtoallowanincreaseinthesupply ofgoods

sufficienttomeet ademand thatwas fedfrom theconversion of liquid
assets, the tremendous flow of expenditures that resulted asserted

Senator PROXMIRE.This analysis would indicate that weshould
have accountable forthe price increase a heavy consumer demand
rather than a heavy demand on the part of business for plant con

struction,which was,accordingto the Secretary oftheTreasury,the
principal force in our inflation in 1955 and 1957,am I right?
Mr.Mills. Iwould agree with Secretary Humphrey regarding the
inflationary influence of thedemand forplantexpansion. As econo
mists analyzed the situation,the excess liquidity that was converted



intoerpendituresand createdademand foraverywiderangeofgoods
and servicesTerm Daturally encouraged our industrialiststo expand
iberi testnent plant,so that they could turn out the additional
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in interest rates since 1953 or 1954 has cost the American taxpayer
$ 142 billion becaused of increased servicing costs of the national
debt .

Mr. Mills. Senator,Icannot give you

Senator PROXMIRE. I do not expect a precise answer,of course.
mean,isitroughly in thisgeneral area ?


Mr. Mills. There isno question butthatthe risingcostofcarrying

the Federal debt has laid an additional burden on the American

taxpayer. But, in a sense,it can be regarded as a price that the
American taxpayerhasshouldered as an alternative tobeing afflicted
with the ravages of inflation and a constantly rising levelof prices
and a depreciatingvalueofthedollar.

Senator ProxMIRE. Allright. Fine. Do youfeelthatfiscalpolicy,

that is,increasing taxesand decreasingspending,islikelytobequite
a bit more effective than monetary policyfor restraininginflation,or
Mr. Mills.They are inmy judgmentquite different,buttheanswer
is that when hearings such asthisare being conducted, the question
ing and the discussion very largely turnson the expression “Fiscal


between fiscal policy, meaning taxation and debt management, as
directedby the Treasury,and monetary and credit policy as followed
by the Federal Reserve System .

The two different types of policiesmust be conducted in a manner
that makes them companionsin serving the public interest.
Senator PROXMIRE.Of course, we have not been doing that, have
we,for various reasons?

Let me ask:Do you feel that the Rural Electrification Administra
tion is entitled to pay a 2 -percent interest rate underall the present
circumstances,ordo you feel that all agencies ofthis kind should be
requiredto pay the going interest rate that the Treasury has to pay?
Mr. MILLS. Senator, that

Senator PROXMIRE. Do you feel that is outside your field?
Mr. Mills. No. But it is a subject that I would notbe competent

to passjudgmenton for the reason thatI regarditasa decisionwhich
has to be reached withintheHalls of Congress in decidinga balance
between what mightbe decided to be social necessities and what,on
the contrary,might be regarded as financial proprieties.
Senator PROXMIRE.I haveonemorequestionand thatisthatIhave
received letters from country bank people,that is,banksinverysmall
towns in Wisconsin, who have pleadedthat I ask about the policy of
the Federal Reserve Board with regard to reserve requirements for

country banks. Their feeling is thatthepresent requirementsare too
high,in view of the needs ofthe small businessesand small towns and
in view of the needs of farmers.

I have wondered if you had any viewson this or any notion as to
whether there is any prospect as to reducing requirements?
Senator Frear. May Iintercede on thisquestion!

I certainly hope that Mr. Mills can answer the question,but Ido

think that the witness should reservetheright in any answer hemight

make, topreclude discussionswhich might tend tohave economic
reverberationsin thestockmarket and otherplaces.

Mr. Mills.Thank you,Senator.



I willtry toanswer the question by indicating that changes made
from timeto timein the required portion of abank'sdeposits that
must be set asidein a cashreserve, achieve theidentical purposes
that are accomplished when the Federal Reserve System operates in
theopenmarketand suppliesor withdraws reservesinthatmanner.
Inother words,thereis a choiceof means for supplying or with

drawingreserves. As faras individual banksareconcerned,thereis

little difference whether those reserves reachthem inone way or the
other,except thatwhere reserves aresuppliedthrough the open mar
ketthey do not touchthe positions of individual banks immediately
and heavily,but percolate and penetrate through the bankingsystem
in amore deliberatemanner.

Senator PROXMIRE. Do I understand youcorrectly, then,that you
indicate that itmight disruptthe whole equilibrium betweencountry
banks and the larger banks ifyou too sharply and drastically reduce

the reserverequirementsbelowwhatthey arenow?Do you feelthere
isan equilibriumestablished now thatifyou cut them itwouldbe up
setting and the best thing to do wouldbe to attempt to adjust all
reserve requirements in Washington ? Is that a fair interpretation or
not ?

Mr. MILLS. That is an awfully difficult question to answer con

Senator PROXMIRE.I am askingthis asalayman. I havehadsome
banking experience,but itwas a long timeago and itwasquite lim

ited. I am sure,precisely, however,thatIhave been informed by
people inWisconsinthatit issomething like6 percent forcountry
banks. Is this about right? They would like to see this reduced to
a lesser amount.

Mr. Mills.It is5percent on their time deposits and 14 percenton
their demand deposits.
Senator PROXMIRE. Five percent is the figure; yes.
Mr. Mills. As we would look at it, and SenatorDouglas as an

economist, Ibelieve, would view it, thatwhat the Federal Reserve
System hasdone inthe last several months is to broaden the credit

basethroughsupplyingadditional reservestothecommercialbanking

system on which they could expand the total of their loans and

The system's fundamental responsibility is to wield its influence

inwhatever ways will always assure an appropriate creditbase and a
supply of credit available to the bankingsystem for the uses of the
general public.
As a personal opinion,the statistical picture that I draw is that

thereisat the present time a credit baseadequate to permit the com
mercialbankingsystem to expand and increase its loans and invest
ments; leeway,thatisto say,to move in that direction.
Senator PROXMIRE. Thank you very much. I do appreciate once
again yourverycompetenttestimony.
Mr. MILLS. Thankyou,sir.

Senator FREAR. I want to say to the Senator from Wisconsin that

PROXMIRE. I think the Chairman .
Senator FREAR. Senator Douglas?



Senator Douglas. I would like to yield to my colleague,Senator
Neuberger, who comes from Mr. Mills' State,and I would like to
allow Senator Neuberger toproceed.
Senator FREAR. Yes.

Does the Senator from Oregon wish to sitthere or move to a more

advantageous location?

Senator NEUBERGER. This isquite allright,Mr. Chairman.
Senator FREAR. As you know, Mr. Mills, Senator Neubergeris not
a member of the subcommittee,but the courtesy of questioning is
always extended to Membersof the Senate when requested. A re

questwas made by Senator Neuberger and as chairman of the sub
committee Iwasveryhappyto complywithit.

We are very glad tohave SenatorNeuberger here and hope that

the questionsand answers will supply us with the information we


Mr. Mills. Senator,I regard itasacourtesy and acompliment that

Senator Neuberger wouldattend a hearing for a fellowOregonian.
Senator DOUGLAS. There is one remark Iwant to make. We both

must feelathome in the deluge of rain which we are now havinghere
in Washington.

Senator NEUBERGER. Senator Douglas enjoyed the rain in Oregon
when hewas teachingat ReedCollege,where Mr. Mills was once pres
ident and member of the board of trustees.
Mr. MILLS. Yes,sir.

Senator NEUBERGER.I thank the chairman for the courtesy of per
mitting me to attendthishearing.
I assure you I will be very brief, because Senator Proxmire asked

very capably a few of thequestions inwhich I was interested.
Iwant tomake clear that my specific interestin this matter,and
the fewquestions I want to ask donotapply at allto Governor Mills'
personalqualifications. Governor Mills isan esteemed citizen of my
home cityof Portland,Oreg. He isa man of integrity,honesty,with
a very fine personal reputation. I want the record to make that very

Mr. Mills. Thank you,sir.

Senator NEUBERGER. Iwould also liketo put intherecord,ifI may,
a telegram that I addressed to Governor Mills last night asking his
views on certain matters pertaining to credit and anti-inflationary

trends,and the replywhich he sentto me over his own signature on
February 7.

If the chairman and members of the committee have no objection,
I would like to askthatthese be included in thehearing record. I will

not impose on the time of the committee to read them at this time.
Senator FREAR. Without objection,they will be admitted as part of
the record.

(The information referred tofollows:)
WASHINGTON,D. C.,February 6,1958.

Board of Governors,Federal Reserve System ,
Washington, D.O .:

Have been asked my views,as Senator from Oregon,on your reappointment to

Board of Federal Reserve System , which is now before Committeeon Banking
and Currency. Before making any comment, would appreciate knowing your
personal views concerning effects and desirability of recent use by Federal Re
serve of high interest and rediscount rate and reserve requirements.



As a person familiar with economy of Oregon, you will know effects which
these devices, intended as anti-inflationary,have had in restricting housing

construction and thus in violently contracting markets and employment of

Oregon'sbasic lumber industry. Other consequences have included drastic in

creases in financing costs for essential public construction such as new schools,
hospitals, and public works, as well as in the annual burden of Federal, State,
and local debt service.

Would appreciate receiving as soon as possibleyour comments on recent expe
rience as guide to future Federal fiscal policy, in view of importance of your

position not only on Federal Reserve Board butalsoon Advisory Board on Eco
nomicGrowth andStabilityofPresident'sCouncilofEconomic Advisers.

United States Senator .


Washington, February 7, 1958.
United States Senate, Washington, D. C.

DEAR SENATOR NEUBERGER : This will acknowledge your telegram of February
6 requesting my personal views concerning the monetary and credit policies of
the Federal Reserve System . It is the constant aim of the System to follow
policies which, within their field of influence,will make the greatest contribution
possible to national economic stability and growth.
The System's policies are formulated against its reading of the prevailing
economic climate, which during 1955, 1956, and the greater part of 1957 was one

of unusual economic activity that,in the judgment of the System's policymakers,
threatened the economy with possible damage from inflation. As you will recall,
the problem of inflation was the subject last summer of an exhaustive congres
sional inquiry. Inasmuch as the use of credit adds to the flow of total expendi
tures which,when on a rapidly rising trend, assert an upward and inflationary
pressure on prices, it was therefore incumbent on the Federal Reserve System
to use its influence to moderate the expansion of credit on a national scale. It
should also be said that in carrying out its policies,the System is keenly aware
of the essential need of adequate sources of credit to a growing economy,and its
policies have always been directed to the end of providing a credit base in keep
ing with that objective.

As you know ,the total of bank credit continued to grow during 1957,but at a
less rapid rate than in 1955 and 1956. However, as during the greater part of
1957 an unusually heavy demand developed and converged on all types of credit,
itfollowed that the pressure of that demand against the available supply of credit
was reflected in its sharply higher cost, namely,a rise in interest rates. On the
side of the supply of credit, its distribution, of course, rests with the various
agencies by wh om it is held and who allocate it in accordance with their best

judgments and policies. In that process of distribution at a time of an unusually
high demand, it was quite natural that lenders experienced some difficulty in
expeditiously meeting all of the demands for credit that were pressed upon them .
In that latter connection, your telegram refers to the situation of the Oregon

lumber industry, particularly as it is affected by conditions in the field of resi
dential and commercial construction. From my observation and analysis, the

funds on which the construction industry draws for its financing come very
largely from savings and not from commercial bank -created credit. As you
know , savings and loan associations, insurance companies, and mutual savings
banks are the principal purveyors of real-estate-mortgage credit and rely for
their loanable funds on the supply of savings which comes into their hands for
investment. The year 1957 was noteworthy for a heavy demand for the use of
savings funds with which not only to finance construction but also the expansion

and modernization ofthe Nation's manufacturing plant. In the light of the com
peting demands for the use of savings, real-estate-mortgage funds were not as

freely available in 1957 as in earlier years due to their application to the
financing of the Nation's plant-investment needs and to such other economically

desirable public projects as schools, highways, sewage disposal systems, and

Available statistics indicate that thedemand for savings with which to finance
plant expansion has passed its peak,and in the processsavings funds are now
becoming more readily available for real-estate-mortgage lending and for financ



ing public programs. There are some indications that the volume of residential
construction has stabilized and housing starts give some promise of rising. I
should mention that the automatic shifting that occurs in the use of credit made

available both through savings and from commercial banks is in line with the
operation of a dynamic and flexible economy and in accordance with the spirit
of our American free-enterprise system.

In relating the Federal Reserve System's position to the processes of credit
adjustments, you will recall that in its reading of the economic climate the con
clusion was reached last fall that restraint over the expansion of bank credit
could be moderated . Accordingly, the System acted progressively to broaden
the base for the expansion of bank credit and in addition, the discount rate at

Federal Reserve banks was reduced from 312 percent to234 percent. Partially
in response to the Federal Reserve System's policy,and partially in response to
a subsiding demand for credit that has released funds for renewed uses, interest
rates have fallen sharply and credit, in my opinion, has become readily available
to all qualified claimants for its use. In that connection, the interest rate at

States and local authorities can borrow in the market has fallen sub

stantially, thereby decreasing the financing cost of the vitally important projects
that are financed from bond issues. At the same time, the number of such worthy
projects to be financed has continued to increase and their financial needs are
being cared for.

I hope that I have been able to portray to your satisfaction recent credit

In summary, I would like to repeat that it is the Federal Reserve System's
constant objective to exert its efforts to see that credit shall always be available
in quantities adequate to meet the Nation's needs,and in those ways that are most
conducive to economic stability and growth .

I am sorry that I have not been able to reach you prsonally at your office but
hope that I may have betterluck atsome early date.

(Signed ) A. L. MILLS,Jr.

SenatorNEUBERGER. I thankthechairman very much .
There are 2 or 3 questions I would like to askGovernor Mills.
Senator FREAR. Ido not know the contents of these documents that

have been inserted in the record,but I assume there is nothing in the
telegramsthatwould violatethesecrecyorprerogativesoftheFederal
Reserve System .

Mr.Mills. No,indeed,sir.
SenatorFREAR. Iassumed that would bethecase.
Senator NEUBERGER. I thank the chairman and thank the Governor.

The reason I imposed on the time of the chairman and the subcom
mittee and Governor Mills to come here today is this:The State of
Oregon is stricken today by some of the most alarming economic con
ditionsany Statehasfelt sincethedepression.

Today we have the highest unemployment rate in the Nation in

Oregon,second in the Nation is Montana, third is the State of Wash
ington. All threeoftheseare PacificNorthwest States.
Senator FREAR. Delaware also has considerable unemployment.

Senator PROXMIRE. Iwish to say that Wisconsin is competing.
Senator NEUBERGER.We only wish to state, despitethe problems

that the chairman and the Senator from Wisconsin have in their

States,which are very real problems,as they are in Senator Douglas'
State, thatour employment rate was down more than itwas inthe
States of these Senators, drastic though itmay be in the State of the

The unemployment rate,Senator Frear,in the State of Oregon,ac
cording to thelatest announcements by the Labor Department, is

12.8 percent, which is approximately what it was during the great




The concept is very wide in the State where you and I have our
bomnes that credit policies of the Federal Reserve Board are in sub
stantial measureresponsibleforthis.
I want to read justonesentence from an editorialin theOregonian
of November 16,the leading paper in that State,which highly com

mended your original appointment to the Federal Reserve Board,
The wood jroducts industry of the Northwest is a prime exampleof an in

dustry depressed by a building slowdown caused by highinterest and diminished

A short time later,on January 5,in thecity of Salem,a prominent
fellow banker of yours from Portland delivered a speech and I want
to read the two sentences in the Salem Statesman ofJanuary 8,1958,
which described that speech :
Slowdown in bome construction in the United States caused mainly by tight

money was blamed yesterday for bringing on Oregon's slump. F. M.Phillips,
vice president and investment directorofthe First NationalBank of Portland,
Juke to members of the Salem Kiwanis (lub in Salem, Oreg., today and to

Irrow . The rest ofthe speech was inthat rein.

You, Governor Mills, are a member of the Advisory Board of the

Federal Reserve Board on Economie Growth and Stability in which
capacity I believe you advised the President's Council ofEconomic
Advisers,is that correct?

Mr. Mills. It iscorrect to this extent,Senator,that the Advisory

Board on Economic Growth and Stability is composed of repre

tentatives of the different bureaus and departments of the Govern
ment who consult with the Council of Economic Advisers who draw

on their pool of experience in their particular fieldsof responsibility
to reach in turn their own conclusions on the economic picture.

Senator NEUBERGER.But you are a member of that Advisory

Board ?

Mr. Mills. That iscorrect,sir.

Senator NEUBERGER.Governor Mills,in your opinion do you think
that the credit policies followed in thelast 5 yearshavecontributed
to the economic growth and stability of the Pacific Northwest?

Mr. Mills. Senator,if we would feelfreeto divorceourselvesfrom
sectionalism and look at all areas of the United States and then re

yard the Federal Reserve System monetary and credit policy as ap
plying to the overall situation inmy judgment, the Pacific coast has

benefitedin thattheSystem'spolicieshavebeen conduciveto ageneral
atmosphere of economic stability and have exerted a restraint over

inflationary influences that could have been inimical to the best

interestsofthe peopleatlarge,ifleft unattended.
Senator NEUBERGER. Do you think there has been economic sta

bilityand growth in ourState in the past5years?
Mr. Mills. No,sir. I surely join with you that the Pacific North

west States Oregon,Washington, and Idaho— States that are pe
culiarly influenced by conditions in the lumber industry, have not
enjoyed the same fruits of prosperity that have been true of other

Senator NEUBERGER. As a member of the Federal Reserve Board

from the Western States,are you concerned and alarmed about that?



Mr. Mills. Senator,I am distressed that there has been one section

of theUnited States,and asectionthatisparticularlydear tom e , that
has notenjoyed thefullest measureof prosperity. But as shown by
economic history, the fortunes of differentsectors and areas of eco
nomic activity ina country as large as the United States ebband flow
over a periodof time. At one time a sector of activity will advance
inprosperitybeyond someothersectorandviceversa.
Looked a inthatway IhaveeveryconfidencethatthePacific North
west will indue courseenjoy thelevelofprosperity to which we would

wish itto aspire and feelthat some encouragement in that direction
can betakenatthepresenttime.


thatnow that theverystrongdemand forcredit with which tofinance

theexpansionofplantcapacity inthecountryhassubsided,theeffect

of that conditionis thatcredit factors have been released which can

now find employment in other areas of economic activity. There is
now some slight indication that unused credit factors are engaging
themselves more actively in the field ofconstruction than was true of

some months ago.Also there are multiplying indications that funds
for mortgage lending—and mortgage lending lives at the heart of
residentialconstruction— are notonlybecoming more available,butat
alowercostthanwas trueonlyashorttimeago.

Senator NEUBERGER. Ihave oneortwo more brief questions.
Youused the phrase,Governor Mills,"in due course"you believed
theregionwecomefromwouldshareinthisgeneralprosperity. When
you used the phrase "indue course,” justwhat doyou meanby that?
Mr. Mills.Senator, throughoutthe whole mechanism of economic
activities thereoccurs a constantshifting of economic forces from
employment and assertion in one field of activity to reinforce activity

ort of a shifting process that has
in some other area. This is the s

come tobe called arollingreadjustment,and whichoccurred between
1955and 1956– SenatorDouglasissmiling:
Senator Douglas. That isa very historicphrase,"rollingreadjust
ment.” But I am glad you applied itto 1955 and 1956 and not1953
and 1954.

Mr. Mills. Senator,we will all remember that in 1955 the credit

forces and theeconomic forces of the Nation focused very importantly

on a growth of consumer credit and in avery rapid expansion of con
sumer purchases of automobiles and other durable goods. It might

be said that,asthepeakofactivitieswas passed inthatfield,thecredit
resources and othereconomic factors thathad been engagedwerefreed

and became employed in 1956 and on through 1957 inthe financing of
this veryremarkableexpansion of our national manufacturing capac
ity that has been alluded to and which has given us a more modern,

efficient,and complete national plant than everbefore known.
Thus you see thatwhere the resources that have been engaged in
some particular activities are no longer needed,they are freed to find
employment inother areas. You and I certainly hope that their new
employment willbereflectedin improvement in our PacificNorthwest
lumbering industry.
SenatorNEUBERGER. W e certainlydo.

Ihavejustoneotherquestion,Mr.Chairman,and I willnotimpose
on theChairany further.



You have indicated that you were aware,as I am,of what has
happened in the Northwest, of the truly alarming unemployment
ofthe 4 States of the Columbia Basin.

For example,I learned recently from the Bell System that in our

State in the first 7 or 8 months of 1957 Oregon had the greatest

drop in what isknown asmain net demand fornew telephone service
of any of the 48 States.

Otherindicatorsareequally alarming.
This is my question, Governor Mills: In your capacity as a
member of the Federal Reserve Board, the only memberof the
Federal Reserve Board from the Western States, from the Pacific

Northwest States,which have been so stricken economicallyin recent

years,doyou regard yourself as havingany specialresponsibility for
trying to bring about fiscal or economic or monetary policieswhich
will mitigate or alleviate this distress in the Northwest, or do you
regard yourself as just one more member of the Federal Reserve

Board without reference to the region from which you come!
Mr. Mills. Senator, as I read the duties imposed on a member of
theFederalReserve Board by statute, they must be performed and
fulfilled without fear or favor or favoritism to any particular geo
graphic area orto any particular sector ofthe economic activity no
matter how sentimentally dear or close itmight be to you.
Senator NEUBERGER. But there is somereference in the statute, is
there not, to the fact that there has to be some geographic distri

bution among the members? I am not quite clear. Is there not
something there !

Mr. Mills. You arequiteright,sir.

No Federal Reserve district, and there are 12 Federal Reserve dis

tricts, can be represented by more than 1 member on the Board.

“Represented” is a poor word. It is not representation because it
is anational responsibility. But it was the spirit andphilosophy of
the drafters of the Federal Reserve Act that it would be wise in a

country so farflung as the United States to draw on the experience

and the type ofbusiness or other backgrounds that would give a

general nationwide sense.

Senator NEUBERGER. I thank the chairman of this subcommittee

so much for his kindness. I am very grateful to the chairman for

permitting me to question,although I am not a member of the com
mittee orthe subcommittee.

And I want to thank Governor Mills for his patience and kind

ness in replyingtomy questions.

Mr. Mills. It has been a pleasure,sir.

Senator FREAR. We thank Senator Neuberger for coming and ask
ing some enlightening questions, and I can say that the unemploy
ment situation in Oregon sounds asignal of distress to all of us.
Senator NEUBERGER. Ithank the chairman very much.

Senator FREAR. Senator Douglas!

Senator Douglas. Mr. Mills, we have had the pleasure from time
to time of having the Chairman of the Board, Mr. Martin, here be
fore us. However, we are only able to meet with the other indi
vidual members of the Federal Reserve Board every 14 years because

you have a 14-year term of office and that is how often you come

before us for confirmation. Like the 17-year locust, so to speak,



which goes underground and comes out at the end of 17 years,you
have a14-yearcycle.

You will excuse me,therefore,if I ask somequestions not directed
to you personally, because I have only the highest opinion ofyou,
but at some of the problems which you face as a member of the
Bo ar d .

Mr. Mills. Indeed.

Senator Douglas.From the early summer of 1956 until, let say,
November or December of 1957, the Boardquite honestly followed
the policy oftrying to check inflation by raisingthe rediscount rate
and notpurchasingbondsonthe openmarket and not increasing the

lending capacities ofthe banks. During thistime you were success

fulin holdingdown the volume of loans which the bank had made,
and there hasbeen a slight increase,perhaps1 or 2 percent,of total
volume of short-term loans and demand deposits.

During thistime, physical production increased and the physical

volume of servicesincreasedby approximately 6 percent.

You would expect,in accordance withtheoriginal quantity theory
of money,that prices would fall by 6 or 7 percent. Instead, prices
rose by 6 or 7percent.
So in the midst of your efforts to restrain inflation wehad a very

real inflation. Did you have a feeling of frustration while this was
Mr. MILLS. Yes,Senator. That word expresses it very well.

You referred tothe different times Chairman Martinhas appeared

before various committees of the Congress;and as we,hiscolleagues
view it,he has forcefully and unequivocally explained at all times

the problemsof monetary policy and the perplexities with which it
isfaced,and thedifficultiesofseekingtheutopia ofgeneral prosperity

without inflation.

Senator DOUGLAS.Here you had inflation despite a rather strict
control over the amount of credit at the same time. You also had an

advance in productivity which should have caused prices to fall by
6 or7 percent,but instead prices roseby 6 or7 percent. Do you have
anyexplanation asto whythisparadox occurred?
Mr. Mills. Partial explanations, Senator,one very important one

beingthatalthoughtheobjectivesoftheFederal Reserve policywere
effective in slowing down the growth in the money supply,the turn
over,or the velocityof the use of that supplytoa veryreal degree
negatedsome part oftheeffectivenessofthe policy.
Senator DOUGLAS. That is true.

Did itoccurtoyou thatthehigh-interest-ratepolicy actually might
havecausedan increase inthe velocity?
Mr. Mills. I cannot honestly saythat it occurred to me,but now
as you posethequestion,an off-the-cuff answer would be that I would

believethat higherinterestrateswould have some influenceon veloc

Senator Douglas.In otherwords,business presumably borrowson
a short-timebasis primarily for thefinancingof theprocesses of dis
tribution. If the cost of that borowing increases they will want to

turn over their inventories more rapidly to diminish the cost,will
they not?



So,while policiescausing high interestrates may restrain the total
volumeofborrowings,theymay also increase the rapidity with which
the bank deposits thus createdare turned over. Is thatnottrue?
Mr. MILLS. That is correct.

Senator DOUGLAS.So in barring the frontdoor toinflation by poli
cies which increase interest rates you admitted inflation through the
back door.

Let me hasten tosay that I do not regard the Federal Reserve Board

as thevillians some of my colleagues do inthis matter. I also want
to credit you with the best intentions. This is a field in which our
knowledge is incomplete.

But isitnottrue,really,thatwhileyourhigh-interestrate policies
helddown thetotal volume of credit,they also stimulated thevelocity

of the turnover of credit and this has led to creation of the inflation

you weretryingto stop?
Mr. MILLS. Senator,would you add that a furtherpropelling factor
to that situation was the factthat during this period of enormously

high economic activity American concerns tended to increase the

volume oftheirbusiness and,in doingso,their balance sheetliquidity
contracted in that their free cash and the securities that were con
verted into cash were then invested in added inventories and added

investments in accounts receivable ? The net effect in leaving busi
ness with smaller holdings of cash was to put it under compulsion

to obtain the most efficient results from the use of that cashby its
more rapid turnoverand,by thesame token,to turn over their inven
tories and their receivables as fast as it was possible.
Senator Douglas. That isquitepossible. Itisa complicated thing,
but it isquite possible. There is another question that I would like
to ask.

We are now in abusiness downturn and Iam glad to see you apply
the phraseology, " A rolling readjustment," to describe the 1955-56
period and not to describewhat ishappening now- even though that
was the term which Mr. George Humphrey applied to the 1953–54

recession. Do you think that the monetarypolicywhich you largely
directover theFederalReservebankscanbeveryeffectivein arresting

a downturn in business ?

Is itas effective,for instance,in offsetting a recession or depression
as you believed itwould be in checking inflation on the upswing!

Mr. Mills. Senator, I am afraid the answer to that question will
havetowait upon ourpresentexperience that—
Senator DOUGLAS. But look,we are shooting the rapids now. We
cannot wait until after this is over. We have to make a decision now .

There are some sayingto Congress,"Don't doanything,don't change

tax rates,don't change expenditures, don't alter fiscalpolicy. The
FederalReserve willcarryus through. Justlet Pennsylvania Avenue
handle this thing."

And you say:“Wait until itisallover. Wait until the patientdies
or recovers and I will tell you whether the prescription works."

Mr. Mills. Senator,there might be justan elementofinstitutional
modesty in that statement because we in the Federal Reserve do con

stantly believe that monetary policy can be a contributing factor to



Senator Douglas.Do you think it is a very adequate factor in a
downturn ?
Mr. Mills. I cannot answer at this time because what it relates

to is expenditure, and total expenditures arevery vastly influenced
by the amount ofcredit that isinuse. The Federal Reserve System
as made available a credit basethat,as it is employed most advan
tageously,could have a stimulating economic benefit.

Senator DOUGLAS. You are a practicingbanker,and I am sure you
have been a student of banking, too. You undoubtedly have gone
over thehistoryofthe1929depression;haveyounot?
Mr. Mills. I livedthroughit,sir.

Senator Douglas. Yes.You know what was happening in 1930,

1931,and 1932. The bankshad great lending ability. Their reserves
in relationship to their deposits were high. There were large idle

reserves,asI recall. There wasno effective restriction up on the lend
The New York Federal Reserve Bank followed the open -market

policy underBenjamin Strong withthe advice ofIrvingFisher,buy
ing governments and creating reserves which the banking system
could,inturn,multiply fivefold orsixfold.
Yet the lending did not hold up. Investments did not hold up.
Interest rates were lowered, and still investments did not occur
enough to help,because while the capacity was there,business did
not want to borrow and banks were afraid tolend.

So themere ability to lend does not necessarily create a loan.
Have thoughts such as those crossed your mind as you have gone
into the handsome offices that you have down on the Avenue each

morning, reading the doleful news of the day in the Wall Street
Journal !

Mr. Mills.Well,sir,indeedthey have,butthe problem that you
have turned to,as I would see it, ispublic attitudes and public psy

chology. As long as thereis a spirit ofconfidence and a reasonable
willingness for venture-taking,you will find that confidence and that

venturesomeness reflected in a demand for credit and from that de

mand a useofcreditthat iseconomicallyhelpful.
Senator DOUGLAS. Is it not true that the volume of the idle bank

reserves has been increasing, on the whole, week by week inside the
Federal Reserve System ?
Mr. MILLs. That iscorrect,sir.

Senator DOUGLAS. Does not that indicate that the demand for

credit does not keep pace with the lending power of the banks! The
demand forcredit,in fact,has fallen off!
Mr. MILLS. Senator, we have found that there is a lag between the

time that reserves become available to the banking system and the
time atwhich theyeffecttheir—
Senator Douglas. How long do you intend to wait to see whether
this is just a normal lag orto what degree it is a disease of the
Mr. Mills. Sir, I am afraid that I have misled you. I mean the
day that reservesbecome available to the System isnot the day that
they are employed creditwise by the commercial banks into whose
hands they come.
SenatorDOUGLAS. I understood you.



Mr. Mills.That isthedelayinglag.
Senator Douglas. Iunderstoodyou.
On theupswingthisistrue,theincreasedlendingcapacity ofbanks
is very quickly translated into additional loans. It happens very
quickly. You know that. Is that not true onthe upswing? When
there are borrowers around,the banks do not like to have these idle
reserves on their hands. They like to multiply them and get some

Mr. Mills. Indeed itis. But tobank lendingcapacity mightbe

added theirinvestment capacity. As thedemandforcommercial, in

dustrial,and agricultural loans, as they are termed,has fallen offand

reserves have become more available,there is a very definite trend
forbankstoemploy thosereservesininvestments.
Senator Douglas. Are yousaying that the investments in capital

goods havebeen increasing in these lastfew months;more money being
put intoplantand equipmentthanbefore?
Mr. Mills. No ;thathas fallen off.
Senator DOUGLAS. Yes;exactly.

Mr. Mills. But,you wouldbe pleased to analyze the statistics
overthelast severalmonths to find that the commercial banking sys
tem has increased its investments in State and local securities; where

as Senator Proxmire mentioned sometime ago there was some con
cernthat our publicneeds in areas of hospitals,schools,highways,
could not be satisfied as expeditiously as desirable, the commercial

banks with resources released fromother uses are filingthat gap by

investmentsin Stateand localsecurities.

SenatorDouglas.This isa longstory and I donot want to go into
greatdetail. Tothedegreethatlocalbond issueshaveto be approved
by municipal and county referendum,I notice a tendency forvarious
referendums for increased bond capacityto bedefeated by thevoters
in those districts, on the ground that they did not want a higher

bonded indebtedness to be an ultimateobligation against their pocket
As to State loans, I do not know. They are not subject to
theoriginal restrictionsasarethelocalities.


But this is a very important general issue and each person tends
to pick his own idea as to what is the most important factor to take
into account.

The advocates ofmonetary controls,and I tend to be one myself,
often do not sufficiently realize the importance of fiscal policy, par
ticularly during a downswing. I refer not merely to increased ex

penditures, butto tax cuts as well. Sometimes the authorities on
monetary matters adopt a very pontificial attitude and lay down the

law to legislators as to what they should or should not doin the field
of taxation.

By the way,did your Board take any attitude on the tax bill of


Mr. Mills.Senator,I do not recall. We might have. Chairman

Martin would k n o w

Senator Douglas. You were new . That is one less subject of

I believe it is to be announced next Tuesday that unemployment

has reached 4.2 or 4.3 million. In addition, the involuntarily un
employed should be the equivalentof another 1 million or 1.2 million,



which wouldgetthecombinedpercentageofunemploymentup around
-7.5 percentofthe total labor force. Would you think thatthis situa
tion calls for a reversal of our current fiscal policies and that some
added stimulation from the fiscal side is called for,or do you think
that booms in the stock market

Senator FREAR. I should like to caution the witness on answers

which might affectthestockmarket.
Mr. Mills. Senator,I am not going totryto attempt to answer the

question, but I make the same reservation that was quoted before.

Senator DOUGLAS. I know how intimately connected these matters

are with stock speculation. While we are on thatsubject,Mr. Chair
man ,I think probably we ought to have Mr. Martinup here on this

I was inEngland whenan investigation was held into an alleged

leak from theBank of England. I read the testimony each day

with care as it appeared in the London Times and in the London
financial papers. I was not satisfied with the ultimate decision made
by the board of three that whitewashed the Bank of England, be
cause of the open statements there that the Chancellor of the Ex
chequer had told a number of persons about the increase in the bank
rates. After some of these persons found out about the increasein
the bank rate,it was prettyapparent that in some cases,the clerks
and interests closely affiliated with them went into the stock market

and soldgovernments as if fromthe top of their heads,but actually

on theevidence oftheincreaseinthebank rate.
The Chancellor of the Exchequer has been exonerated by the
courts. But it brought to my mind the dangers that are inherent
in this situation.

The chairman cautioned us very properly about not pushing the
witness to make an answer thatwould affect the marketfor govern
ment bonds. I am gladthe chairman did and I do not wishto push

the witness in that direction.

I wonder,Mr. Mills,and I will talk over your shoulder also to the
Chairman of the Board, how careful have you beenregarding your

decision(a) on the open marketing purchases and (b)on the redis

count rate,so that others do not know about it!

Mr. Mills. Senator,to answer the first question, the open-market
policies are formulated and actions are taken by the Open Market

Committee which is composed of the 7 members of theFederal Re

serve Board and 5 Federal Reserve bank presidents. Soyou might

say that there isno outside interest represented in those discussions,
and the proceedings and committee decisions are safeguarded from
leaks as far as we believe itis humanlypossible to do so.

The Federal Reserve banks are the initiators, by and large, of
changes inthe discountrate.
Senator DOUGLAS. You have had an effect on what the banks do.
Mr. Mills. That is correct.

Senator DOUGLAS. You give directions to thebanks,do you not,on
the rediscount rate ?

Mr. Mills. According to historic practice and by statutory direc
tion,the discount rates are fixed by the Federal Reserve banks subject
toreview and determination by theFederal Reserve Board .

SenatorDouglas. Decentralized.



Mr. MILLS. Yes,indeed.
Senator Douglas. Itisdecentralizedand astothequestion of redis
count rates you have nothing to do with it as a central body.

Mr. MILLS.The Federal Reserve Board hasthe responsibility of
reviewing and determining those rates. In otherwords,if the cir
cumstances were feltto be exigent,the Federal Reserve Board has
theauthority to negate a decision of the Federal Reserve banks.
Senator Douglas. You have the power of veto and the power of

initiation,do you not!

Mr. Mills.There isanimpliedpower ofinitiation,which asfar as

I know hasneverbeen used.

Senator DOUGLAS.How broadlyisthis knowledgeof a veto exercise
by you,or action initiated ordirected byyou,known? How broadly
isthisknown? To what degree can you keep thismore or lesswithin
thefamily,and whatsecurity system doyou have? Iam notimplying
for a minute that you have not. What security do you have that

requiresthatyour ownpeopleobserve strict punctiliointhematter?
Mr.Mills.Senator,Iwould sayfromexperiencethatwecandepend
on the characterof the individuals,who have access to that informa
tion and formulatethosepolicies,toobservesecrecyqualifiedby what

everminorfrailtiesofhuman naturemightconceivablyinadvertently
produce aleak. But thehistoryofthe Board'soperationsin discount

andopen-marketmattershasbeenremarkably freeofany embarrass

ments ofthatsort.

Senator DOUGLAS. And thatistrue of savings. You arenow speak

ing of rediscount rates,as well the open-market operations?
Mr. MILLS. Yes.

Senator Douglas.You read the testimony in the Bank of England

case,didyou not?

Mr. Mills . Yes .

SenatorDouglas.Diditsomewhatalarm you?

Mr. MILLs.Itopened my eyes, Senator,to the greater freedom

of discussion thatiscustomaryin English financial circles and as be

tween their Exchequer and the Bankof England ascompared toour

own experience.

Senator DOUGLAS.Of course, in England, the Chancellor of the
Exchequeris the ultimate power over the Bank of England and can
directthe Bank of England to his policy. As a matter of fact,it
startedwhen Mr. Thornycroft,theChancellorofthe Exchequer,made
thedecisions,and told the Bank of England tocarry them intoeffect;
isthat not true ?

Mr. Mills. Itismy understandingthat when the Bank ofEngland
was nationalized some years ago,such authority was vested in the

Senator Douglas. I want the record to show this questioningof

mine does not indicate theslightestsuspicionon my part ofthein
tegrity of the present members of the Federal Reserve Board or the
officials of the Federal Reserve Board. I want to say that. But
my eyes were opened to the dangers involved in thetestimony.
Off the record.

Senator DOUGLAS. I again want to assure you that there is nothing

inthebackpartofmy mindwhichcarrieswithitanysuspicion.



Mr. Mills. Yes,sir.

SenatorDouglas.But eternalvigilanceisthepriceofvirtue.
Mr. Mills. Indeed.

SenatorDouglas. Ihavenofurtherquestions.
SenatorFREAR. Thankyou.

Senator PROXMIRE. Could I ask a question which occurred to me

when Senator Douglas wastalking?

SenatorFREAR. The SenatorfromWisconsinmayinquire.

SenatorPROXMIRE. Itseemstome thattheremightbe adangerthat

risinginterest ratescould feed inflationbecause of the psychological
impact involved. In other words,the people expectinterest rates to
goincreasingly higher and then therewould be atendency to expand
ratesmightdo preciselythe opposite. As interest rates begin to fall

they might postpone theirborrowings until they go lower.

From yourstudy and experiencedo you thinkthere might be this


Mr. MILLS. Senator,we believe that there have been actual indica

tions inboth directions,but never to theextent that therehave been

any serious aggravation of either the desire to borrow or the wish to


SenatorPROXMIRE. You recognizethattendency?
Mr.MILLS. Yes,sir.

SenatorPROXMIRE. Itisanotherlimitingfactoronmonetarypolicy?
Mr. MILLS. Iwould believesopersonally,yes.
Senator PROXMIRE. That is all I have. I thank the chairman.
Senator FREAR. You arewelcome.

Mr.Mills,thankyouverymuch. We enjoyedyourparticipationin
this. I hated tocall you down on arainyday. At leastitistypical
Washington weather. We are very happy that theChairman of the

Boardaccompaniedyou hereandwearegladtoseehimandhavehis


There may be a time in the future when we will ask the Chairman
to come down and visit us again and keep us informed of the policies

oftheFederalReserveBoard. Butinthemeantimewe areveryhappy
thatyou wereheretoday,Mr.Chairman,andyourstaffaswell. Thank
you forappearing

Mr. Mills. Thank you,sir,and thank you foryour consideration,

and thetimeyou allowedme,Senator.
Senator FREAR. The subcommittee will go into executive session.

(Whereupon,at3:55 p.m.the public hearing was concluded and