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• 1 N.-_. a~~ .,__,_ .s..r~- ;((!,,~ 1 p.m: (E.D • .S.T.), Friday; May 24 , 1946 . REMARKS OF ALLAN .SPR0UL, PRESIDENT , FEDERAL RESERVE BANK OF NE;T,r.r YORK, AT THE 1946 CONVENTION CALIFORNIA BAHKERS ASSOSIATION MAY 24, 1946 HOTEL DEL CORONAI.O , SAN IJIE CO , CAI,IFOHNIA . LIBRARY JUN 1 0 194ff r I appreciate this opportunity to speak at your first postwar convention. It b rin gs me almo s t full circle to the place vvhere I had my initial contact with ba_nking from the inside - and I wasn' t very far inside, That was back in 1920 when I was empl oyed as a bank a griculturi s t })y the First National Banks of El Mo nte and Puente . I didn I t last very long there; the citrus and walnut growers , and the dairymen of that rich section knew more about their business than I did , even th ough the idea was and still i s a good one . The banks lasted a little longer, but eventually became branche s of the Bank of 1'mer5_ca , a. not unusual thing . I am sorry the Bank of America is not here today, inasmuch a.s that would seem to make me a former employee, once or twice removed. I went on to the Federal Reserve Bank of San Brancisco in time to see something of the financial aftermath of World War I , when our new and relatively untried central banking system grappled with the destructive forces of a postwar inflati on and deflati on . The medicine fina1ly used was bitter and the results drastic . But the patient survi. ved and grew r obust . Ther e is doub t , however, whether our economy would again s ubmit t o such treatment, even if it were deemed desirable and even /if there . were the confi dence in monetary measures which then existed. Severe deflation in th e United ·state s, with all that it might mean in t e r ms of declining.. prices , curtailed producti on and widespread unemployment is not a part of the arsenal of d emocracy at this particular moment in world af.fairs. And y et, with all of the experi ence we have gained in the past twenty- five years , vre 8ire not absolutely sure how much we can sugar- coat the pill , This is th e problem which I wi sh mainJ.y to dis cuss . It was sa.i d in j est, but not with out meaning at t he beginning of World War II that , _in vrar , the role of fimmce is to get out of the way of p roduction . Certainly, after fi ghting men r!ith fightin g hearts, production was the key to victory in the war which~ended last year . No country permitted its finances to interfere with its war ef fort . If the mistakenly labeled sinews of war could no t J be raise d by taxes , they could be borrowe d from t he public, and if they coul~ not be borrowe~ fr om the public , th ey could be bor rowed fr om the banks . And if they could not be borrowe d fr om t he banks, they ccm1d be borrowed from the central bank, or the printing presses could be starte d. V!fe did all of these things except the last and worst, and there are somE; who claim we did a little of that. It does make a great deal of diffe r ence, howeve r, how you do it , both dur ing the wa r and wi th r espect to the kind of monetary headache you will have when the war is ove r . The p r imary r ecourse should be t o incre'ased taxation, and this should only be lim:L ted by i;,he :i:.-equireme;1ts of keeping the e conomy going full blast on the producti on front . The next line of de fense, or attack, is borrowing fr om othe rs than banks s o as t o avoic an undue expansion of credit, and so as to channel increased incom8s into Government s e rvice r ather than leaving them fre e to unde rmine the di ke s of price control and wage contr ol , and rationing. On the ' whole / I https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis .,,.. .. 2 I think we did a good job; far from perfect but based on past performance better than we might have expected. Beginning with January 1941, shortly after the start of the defense program, the Federal Government spent $378 billion. Of this amount $150 billion, or 40 per cent, was raised through taxes, most of which carried no future call on the Government for reimbursement . Another $134 billion, or 35 per cent, was raised by borrowing from others than banks . Of the remainder, $72 billion, or 19 per cent, came from the commercial banks and $22 billion, or 6 per cent, from the Federal Reserve Banks , the latter purchases being necessary to enable the commercial banks to play the role they did without heavy borrowing from the Reserve Banks . It was this latter borrowing by the Treasury from the banks, plus the loans made by banks to purchase or carry Government securities , which resulted in or was a r eflecti on of the great increase in hank d.eposi ts and currency held by the public during the war. Here is a figure between $75 and i~lOO billion of readily available purchasing power . Arid behind that is an approximately equal increase in the amount of Government ' securities -held by individuals and busine sses, which may readily be converted into money. This is a financial legacy of the war, in addition to the greatly increased public debt. It has been the financial legacy of war in every country. It shows itself as an enormous increase in the money supply in relati on to the goods and services available for consu.~ption . That might become the meat on which lnflation would feed. We must see that this does not happen here. Our situation is not de sperate, as it is in some of the countries of eastern Europe and in Asia, nor is it so difficult as in the former occupied countries of western Europe and in the countri es of some of our allies. All of these , as well as the neutral countries, experienced a . tremendous irtcrease in the public debt of the national government and i n the amount of currency in circulation and the amount of bank deposits. War, as it is now fought, spare s neither bellige rent nor neutral economies . Some of them, such as France , Belgium, and the Netherlands in thew.est, and most of eastern European countries where currency chaos was greatest, have had t o take drastic steps to reduce the money supply in an attempt t o head off inflation . In general, these measures have provided f or the withdrawal of practically all outstanding currency, the limited issue of new currency, and the freezing of a large part of the bank deposits existing immediately prior to the promulgati on of the currency decrees . In most cases these monetary reform laws have contributed t o economic and .financial reconstruction in that they have sterilized a large part of the huge liquid funds accumulated during the war peri od . Inflationary price movements, to the ext ent that they were being fed by the spending of those funds, were held in check and black markets curtailed . Nevertheless, the ineffectiveness of such decrees in two countries - Hungary and Greece - and the reappearance recently of currency disturbances in some of the other countries, serves to remind us of the fact that comple t e monetary r ehabi:)J.tati on cannot be attained without the improvement of basi c supply- demand conditions, and the adoption of fiscal and economic (as well as monetary) policies which strengthen public confidence in a nati on's credit and its currency. Fortunately we are not faced with the need of such drastic measure s as have been taken in some other count ries, nor can we admit that the solution is so simple as some of these measures might imply, necessary as they may have been in the circumstances in which they were taken. The existence of a large supply of money in r elation t o the supply of goods and se rvices is not, of itself, inflation even though it may give you the feeling of wandering through a powder magazine, striking matches to l ight the way. As stated again in the annual report of the https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 Federal Re serve Bank of New York? just recently published, historically, drastic inflation has usually been as so ciated ~vi t h budgetary deficits and with deficits !Ln a country ' s international balance , leading t o currency depreciation . Ii th t he se , and l ar gel y as a consequence of t hem, has gone a distrust of t he currency resulting in capital fli ght and a panicky desire to run away from money into commodities, ]'.'eal estate , . and equity secur:i.ties . These conditions are not present in this country . The Federal deficit is rapi dly dim:i.nishing and there is a highly favorable prospect of our having receipts in ex cess of expenili ture s in the fiscal year be ginning Jul y 1 next . Internationally, there is no pressure on our balance of payments and no anxiety about the external stability of the dollar - quite the reverse . There is, therefore , no fundamental distrust of our currency such as characterized th e great inflati ons after the last war, and the inflati ons which have followed in t he wake of the r e cent war . Nevertheless, this does not mean t hat we can afford to i gnore the monetary aspects of our problem, a s it seemed we mi ght be doing until r e cently. Offici al and some unofficial r epo·r ts on r e conversion have emphasized the need of increased producti on, and t he maintenance of price controls until such increased production is achieved, almost to t he exclusi on of other factors in the fi ght against inflation, includinr; a pr ope r order ing of our monetary affairs , Fundamentally, of course , in a situation J.i. ke t he pre sent, the antidote t o inflation is a large and balanced output with ri sing productivity per wor ker. To this objective Governmental and business and lab or polici es must be mainly directed , and upon our success in ,achieving it will l ar gel y depend whet her we shall lay t he foundations in 1946 for a period of orderly pr osperity or have an i nflati onar y outburst t erminating in depre s sion . A se cond fundameht al is the avoi dance of a wage - pr i ce spiral such as we had after the l ast war . This time, the dr opping of wage controls aft er V-J Day, and the early sanction given to wage increases which woul d not require pri ce increases developed qui ckly i nt o a pr etty general demand f or higher wage r at es . This soon forc ed r ecognition that there would have t o be some accompanying rise of prices . The problem i s how to stabilize t his r elation , because it must be stabilized if we are to avoid a fitful period. of illus ory prosperity followed by collapse . The modified wage policy announced by the Pre sident last February recognized the need for r e-imposition of some wage -rate control and e stablished a procedure for wage- pr ice adjustments whi ch may achieve a more stp.ble relati on, though the major and disastrous strikes 1Nhi ch have since been in progress have clouded the pr ospect of suc cess of t he new· policy. Similarly with price controls . Drawing again on the r e cent annual report of t he Federal Reserve Bank of New Yor k, extensi on of t he Price C:ontrol Act s eems an indispensabl e condition of a succes sful anti-inflationary policy, but the control must be flexible and should be based on recogniti on of the fact t hat pri ce changes in a period when we are trying to work back to fr ee markets , have an indi spensa1,le role t o play in bringing out a balanced output and directing and controll ing demand . At the risk of introdu cing occupational bias, I must now emphasize that a third fundamental in the present fight against inflation is the existence of a r edundant money supply. Increased. pr odu ,tion will take care of t he si de of the equation represent ed by goods and services , but t her e is also a demand side r epresented by purchasing power in the hands of t he publtc and the demonstrated public desi r e f or goods and servi ces . It must not be for g0tten that increased product.ion will generate increased incomes , which will curr ently provide the means of purchasing t he things pr oduced . If t his newly created income has to compete with an already large supply of liqui d funds, such a s we have built up duri ne- -t:J,9 w::,~ , we https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis \ '. 4 mi ght have inflation no matter what our produ ction r ecords mc1y be . What we must do in the existing circumstances is (l) pte;ent a further increase in the money supply, and r educe it as opportunity offers; (2) keep oresent pubUc holdings of liquid resour ces , in s o far as possible , in their least volati le f orm - Government securitie s ; and (3) facilitate a transfer of some Government securities from the banks to nonbank i nvest ors, whi ch will mean t r ansforming bank deposits into holdings of Government securities. This sounds simple and lo gical , hut it is not so easy as it sounds, and demanding courage of th ose wh o serve you in seeking a solution is less helpful t han constructive suggestions as to just what should be done , and when , and how. The fir st and most imDortant step, in the pr esent circumstances , i s already being taken - that is, putting our national budget in order . According t o the r evised budget estimates released by President Truman in April, the Treasury deficit for the fiscal year 1945-46 will be $21. 7 billion, irhich i s -~,6 . 9 billion l ower than the January budget estimate . And since the A.ctual deficit t o the end of March was ~17.3 billion, the anticipated deficiency for the last three months of the fiscal year was only ~4. 4 billion . _ It may, in f act , be even less . The smaller estimated deficit r eflects a substantial in crease in estimated recei pts and a de cline in estimated expenditure s , some of v\hich , however , have only been delayed , not eliminated . I t seems rea s onable to hope and expe ct that this reduction in the fiscal year' s deficit, plus the excess of receipts over expendi t ures , which we a ctuall y experi enced in the first quarter of 1946, are portents cf thin,s to come - that our Federal budget may be i n cash balance this calendar year and in full financial balance during the comi ng f is cal year . 'rhat will mean , of course, keeping up taxes , in the aggregate, and will depend upon the maintenance of a high level of income . The first we can well stand, if the alternative is feeding the fires of inflation ; and the second we can most c~rtainly a chieve if labor troubles do not rob us .of the fruits of our ability t o manage and use our r esources . Wi th the disappear ance of Federal deficits the principal cause of increases in the money supply during r e cent year s will have been r emoved . With a reappearance of Federal surpluses some r edu ction in the money supply will take place , if bank- hel 1 debt is r epaid . Assuredl y we are ent ering a phase in which budget surpluses are e conomically desir able and so cially defensibl e . In a situation in which our re sources of men and materials can be used to the utmo st in meeting domesti c and foreign demands for our goods and services , and in the face of a r edundant money supply, some r es traint on purchasing power is necessary· if t he warttme savings of the public ar e not to be wholly fritt er ed a my in ri sing prices . . v,re can provide a measure of r estr:;i_int through budget surpluses . And we can have budget surpluses if work stoppages do not dry up the sources of our national income , if t axes are kept r elatively high, and if non- essenti al and less essential Government expendi ture s are r educed or postponed . Debt management policy can also be helpful and is presently being hel pf ul. As you know, the Treasur y is usihg some of the funds which it obtained in the Victory Loan Drive last De cember , and which increased its balances far in exces s of current needs , to reduce t he amount of t he outstanding debt . This is realJ.y a conver sion operation in which t he horse co:nes after the cart . 'For various r easons t here was a very large sale of long-term restricted bonds in the Victor y Loan, and it is the proceeds of these sales which are now, in effect , being used t o pay off short-term securities held largely by the banks , ihcluding the Federal Reserve Banks . The r esult is that sone war loan deposits , which would have be come private deposits if spent , and thus increased the money supply in the hands of the public, are being eliminated . https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 Another constructive aspect of debt management policy is the continued sale of savings bonds to the public, bearing rates which exceed those available in the market . So lon g as incomes remaj_n hi gh and goods continue in short supply, there is every reason for dampening consumer demand by encoura gj. n g substantial savings out of current income and the retention of previously accumulated savings . Not only is the continued coopera tion of employers and of the banks desirable in promoting this program; a stepped- up campaign on the part of the Treasury, which I understand will soon be launched, is a necessity . There will also arise , eventually, the question of the kind of securities to be issued in r efunding mat uring obligat ions in or de r to absorb the supolies of investable funds accumulatin g (and not needed elsewhere) in the hands of insurance companies, savings banks, and other institutional and individual investors . When the present program of repaying debt out of accumulated balances is completed, this problem will have to be me t. And now I have driven myself into a corner where I must say somet hing about restraint on further credit expansion whi ch is the area in which I have some direct responsibility and, therefore, the area. where it is most difficult t o make public pron ouncements. Duri n g the war the credit policy of the Federal Reserve System had twc main objectives : (1) provtding banks with sufficient reserves to enable them t o act as residual buyers of C'10Yermnent securities; and (2) maintaining stability or a "pattern of rates 11 in the Government security market . The fact that this two- sided policy lar gely or wholly deprived the Federal Reserve System of the initiative wi~h respect t o the supply of credit was a cceptable as a corollary of war financing needs . It is not acceptable under peacetime conditions , particularly when inflati onary pressures are as strong as they are t oday . Our problem is to deci de what is the place of quant itative credit control in the fight against inflation and how it is t o be reasserted to the extent that it has a role to play. (I am purposely ex.eluding fr om the discussion qualitative or sele ctive credit controls such as control of margin requirements for purchasing and carrying listed securities, and control of consumer c:r:edit.) As matters now stand, control is largely in the market and particularly in the hands o.f the commercial banks . Even though we v1.rish to prevent a further i n crease in the money supply, or even to bring about some contraction, you need only offer Government securities for sale to obtain more Federal Reserve credit . That has become an undesirable or, I mi ght say , an intolerable situation . I do not think we can expect or permi t some fourteen thousand individual commercial banks to establish national credit policy for us in this critical reconversion period . We already have a redundant money supply, and a tendency toward declining interest rates which such a supply en genders . Maintenance of a 11 patt-ern of rates", because it dj_minishes the risks and i n creases the profits which come wi th holding long-term securities, accentuates this t endency , This combinati on, plus a favorable business outlook, has often in the pq.st been a highly inflationary force , pushing up prices in all markets for both securities and commodities . I should like to think that voluntary acti on by the banks would meet the situation, but I am afraid that is a reed we cannot lean up on t oo heavily . The forces of competition, and in some cases of · greed , and the difficu..l ty of separating productj_ ve transacti ons from speculative excesses will be too 1ikely to bring addi tional credit into use if it is r e adily available . In these circumstances it seems to me clear, if we are to discharge our responsibiJ.ity .for promoting economic 9tability, and for supporting the measures taken by other agencies to curh inflationary tendencies, w.e must combat a further decline in interest rates and must curb further credit expansion. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 6 We have taken some steps in that direction. A return flow of currency , and an , increase in our gold stock, amounting to nearly ~l billion in the firs t four months of the year, which might otherw:l. se have further ea sed the credit situation, was offset by a r educti on in the Go~ernment se curity holdings of the Federal Reserve Banks . We have t aken i n the welcome mat, in the form of a preferential dis count rate on advance s collateraled by Gover nment securi ties matudng within one yea r, which encouraged yo u t o use Federal Reserve credit during the war finan cing period. But the door is still open, We ha.ve yet to determine if and how ·we can close it without bringing undue pressure on the Government security market. I do not think any of you would advocate a r eally t ough monet ary policy that is, resort t o a d r astic i ncr ease in money rates and a drastic decrease in the money supply, as an anti-inflati on weapon . 'fhe consequen ces would be more severe t han we ~hould want or i ntend . I think many of you would agree that a ge nerally hi gher level of interest r ate s on United Sta.tes securities, t han is now being paid _ by the Gove rnment, would not be desirable , having :i.n mind the size of the publi c , deb t and the annual cost of its service, although you would undoubtedly add t hat if the cho:i. ce is between s ome increase in the co s t of servicing the debt and the infinit ely greater costs of inflati on , you would choose the former . It is within this area that we must devise a policy, using our present powe rs t o free ourselves from the strait jacket of the 11 pattern of rates 11 , and the loss of credit control which it involves, or el s e we might have t o seek nevi and , perhap s, novel powers to attain the same ob j e ctive . Wi th 1Nisc1.om and r estraint on the part of commercial bankers, we ,may be able to p r e serve the present general level- of interest r ate s, without endan ge ring the whole anti-inflation pro gram by an uncontrolled expansion of credi t. If that is t oo much to ask or expe ct, howeve r, those whose duty it is to a dminister credit policy in the interest of economic stability cannot shirk th(-:1 ir responsibilities . · I should now like t o make brief mention of a matter which seems to me to be o·f the first import ance in our international economi c r el a t ions , and indeed in our international politi cal relations as well. I r e.fe r to the Anglo- American financial and trade agreements ,, which wer e recommended by r epr e senta ti ve :3 of our Government and the Government of the United Kin gdom last De cembe r. Those agreements were pr omptly approve d by the British P:::.rliamont , though not wi thout some mis givings, and have been dra gging t heir we a.ry W8.Y throu gh, the Congress of the United States . I need not review for you , in a ny det ail , the t erms of t ho se agr eements . They are conmton knowledge . In essen ce we wouJ.d grant a line of credit totaling ~~3, 7 50 million to the Briti sh , plus ~~6 50 million t o cover the final settlement of l end-l e ase and other claims arising dire ctly out of t he war , against which the British coul d draw at any time bet ween the e.f'.fecti ve date of the agreement a nd December 31, 1951. _The combined credits of ' $4.4 billion require n0 payment of principal or inte r est during this period.' Beginning Decemoer 31 , 1951, t hey are t o be r epaid in equa_l annual instalments ove r a period of fifty y ears , the payments t o include an i nte r e st charge of 2% on the outstandi ng principal amount in any given y ea r. If the United Kingdom det e rmine s' that its pr e sent and prospective posi ti on with respect t o its internati onal bal ance of payments, and the level of its gold and for eign exchange r eserves make i t ne cessary, ar1:d is support ed by . a certifi cati on of the Internati onal Monetary Fund a.s t o its balance of payments posi ti on , the interest payment in ~ny year may be waived , The se might be considered gene r ous t erms , :Lf past sacrifice s in a common cause are t o be forgo tten , i f the future strength and stability of the British Cormnonwealth of Nations means nothing to us , and if this were an ordinary loan transacti on. The fact i s , it seems t o 11e , that we have a vi tal interest in the https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • .• • 7 rehabilitation of the British economy which transcends the financial aspects of the tr ans ;:i_ di on, and that · ther e are ~e rt,ain collateral provisions of the a greement vrhich make this no ordinar y loan . In r eturn for our financi al - help , the United Kingdom ha s comrni tted it self t o a system of free exchange on current account· and has j oined with us in "Proposals for Consideration by an Internati onal Conference on Trade and Employmant, 11 which point the way toward a revival of international trade on a :mul tilateral basis . ,Jus t 11.rhat does that mean to us? It meci,ns a reversal of the tendency which flourished in the ye ars b etween t he wars , particularJy during the depression years , and which J.ed country after cc,untry to adopt measures which interfered with the free flow of internati onal trade . Exchange controls, import quotas, multi ple currency rates designed to promote exports and to restri ct impo rts , bilateral arrangements which had as their chief purpose cha nneli ng trade bet wee n the countries party to the arrangement, and empire preferences, were among the restrictive and frequent ] y discriminatory measures adopted . All tended t o limit the foreign t rade of the United States, which is heavily dependent upon multi.lateral trade - that is , tra de which requires many- sided transacti ons for its fina l adjustment . Much of our export trade in past ye ars wa s with countries fr om which we did not import an equivalent amount of goods and services . Much of our import trade was with countries which di d not buy an equivalent amount of goods and s ervices from us • . These restrictions on internat ional trade we r e i nte nsified during the war , not only by the physical dive rsi on of pr oduction a nd shipping t o war p urposes , but also by the financial ne ce,ssiti e s of war-distorted trade . Great Dri tain, for examnle , was f orce d to adopt severe restrictive measures . In or de r to obtai n essential materials of war s he had to resort to stri ct limitati ons on imp ort s , stimulati on of uneconomi c h ome production , lar gE. scal e liquidation of h e r foreign investments, and such d evice s as the 11 d ol 1ar pooln . Unde r the pool arrangement, countri e s in the s o- called ste r ling are c', turned into tne common pool (against payment in blocked sterling) th e dollars whi ch they receive d for good s and services sold t o the Unite d State s . They l e ft it to Gr eat Britai n t o decide what amounts of dollars would be allotted t o them, t o pay for a minimum volume of essential imports , and what amounts Y~e r e t o be us ed by Gr e at Bri tai.n in defraying s ome of the costs of war against the common ene1:iy . To untangl e even a part of t his net wo rk of r e straints on the fre e flow of trade, it i s essential that Great Britain , one of the great trading nations of the world , be aided ba ck t oward some t hing l ike he r free trade polici cis of fo rme r y ear s , She cannot begi n t o reve rs e the tr,md 'wi thout our hel p . Her war- born, debts to other countries are · vastly in ex ce ss of he r immediate means of paying them . ~lany of he r for eign investments', whi ch f or rie rly we r e a source of ove rseas income , have be e n sol d . He r industri e s have t o be r e cc-nve r ted from their wartime u se s , and her manpowe r r e distributed in a p eacet -i.me patte rn of employment . Huch energy, in the se immediate postwar year s , will have to be devo-ted to r e constructi on or -re pair of war-t orn ar eas • . In th ose. circumstan ce s, continuance of s e ve re · restricti ons on he r forei gn t rade woul d be ine scapabl e . With financial aid from us and others - Canada ha s alr eady a gre ed t o extend a credit t o Gre at Britai n which i s proporti onat ely much larger than the Un:Lted States credit - the s e r estrictions and r e str aints can ,be s omewhat r elaxed. It is cl early in our int er e st, it seems t o me , that there be ' the widest de gr ee of fre edom in wor l d trade , so t hat mul tilate ral exchanges of goods and s e rvices may take place i.,vi th a minimum of restricti on and restraint, and wi th a minimum https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • of discrimination as between nations . That8 is the kind' of trade to which our economy is supposed to be geared , and that is the kin d of trade which permits the mo st efficient and effective use of the world I s resources of men and materials. Without our financial help in this period of transition from war to peace, Great Britain could not j oin us in this world enterprise, With our financial help, generously given, she will be able to do so. It will not be an easy undertaking. There are those in Great Britain, competent to assess her position, who believe t hat this is an attempt to set back the clock; to restore a kind of trading world to whi ch the British international position is no longer adapted. Certainly it vdll become less and less possibl$ if the United · States is prey to periods of severe inflation and de flation, or if we are unable to find a balanced international position. In t he years between the wars we were intermittent ·and somewhat capricious lenders abroad, and we found no good answer to our tendency to be a creditor on both current and capital account, at one and the same time. We have commonly thought in terms of fo stering exports and repelling imports . To reverse that pr ocess is not simple. There are difficult adjustments to be made here as well as in Great Britain , if this proposed world of multilateral trade is to be ~ore than an economist's blueprint . To try .to attain it, however, is to make a contribution to world -peace which we cannot afford t o forego. The time s are too uncertain, the .portents too oppressive. World peace is the goal and the only international goal which has any relevance ·in this new ato:m:i.c age. If attainment of the g~al requires, ql'.llong other things, that a strong, economically healthy Britain press forward at our side, and I think it does, then the risks which may attach themselves to these agreements are small ri sks to take. But even if the se broader considerations be ignored or minimized, I still fail to see how a Congress which adopted the l r etton Woods plans by substantial majorities, could fail to approve the Anglo-.American Agreements. Without our financial aid to Britain her participation in the International Monetary Fund becomes either impossible, ·or a sham and a pretense; and without partici pation in the International Monetary Fund, she would not be eligible to participate in the World Bank . These things should have been clear when the 3 retton Woods program was adopted, and they should be clearer now. It seems to me to be a sort of political anarchy in the field of international economic relations, to j oin in setting up international institutions ofhigh purpose and fair promise , and then to help make it impossibl e for them to work . I fee1. this the more keenly, because of another and even more ominous shadow which hangs over everything we do and everything we say in these revolutionary times . In a world which is groping toward some means of international control of atomic energy, time is short. Fumbling delay and diplomatic maneuver are as obsolete as man himself is said to be. Yet the international scene is becoming painfully reminiscent of the specta cle which followed the last war, pitiful as that performance now appears . It is as if old actors were spouting old lines on a stage which is about to be blown i~to eternity. That might be all right if your taste runs ' to the gruesome, but unfortunately we, the audience, will also be blown to bits in the process. The complacent may comfort themselves by reflecting that man has survived the invention of a whole series of death-dealing weapons . But the atomic bomb is no blunderbuss replacing the bow and arrow - it is a revolutionary development . Unless we prevent wars there will be no ultimate prote ction against its destructive use . And unless we, and other countries , r evoluti onize our dealing vd th j_nternational affairs, we are not going to prevent wars. It would be a tragedy - indeed, the final tragedy - if the hope and promise which )-ies in the constructive exploitation of atomic energy were l ost in senseless battle . In the words of Emerson, the~e are time s 11 when the energies of all rnen are sear-ched by fear and by hope." It will be a ·5ood time to have lived if our hopes confound our fears . https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis
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