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Release on Delivery 'Approximately 4:00 p.m. EST, Friday, December 13, 1957.) INFLATION, GROWTH, AND TRUSTEE DECISIONS (Summary of Remarks of C. Canby Balderston, Vice Chairman, Board of Governors of the Federal Reserve System, before the New England Trust Conference, Boston, Mass., on December 13, 1957») In the 1930's, savings were in excess in this country. p0 ^ring U Refugee gold was to escape the threat of Hitler's persecution and of the war that was build- P on the horizon. instructively. But our nation had forgotten for the moment how to use savings Those were the. days when the supposed maturity of the economy was of pur intellectual coin, and when entrepreneurs lacked the initiative and the dri ng to expand plant and otherwise to venture„ Compare the complete about-face in the present desire for savings here a v. , abroad. 1 Population growth is now 1.8 per cent a year as compared with less than cent in the 1930»s. Then, too, technical advance has been accelerating. It has increased to *Wesome proportions man's ability to destroy himself, but it also has enhanced his * biX ity to achieve a satisfactory material existence. The rapidity of change has obsolescence a pervasive phenomenon and the price—the welcome price—of technic *l advance. The basic question that has been facing cur nation is how to provide for °ntinuing and healthy .growth without-inflation. Obviously, the expansion of credit currency should be adequate to sustain economic growth. hat It is equally obvious excessive and unsound credit expansion can thwart progress„ It is my conviction that the two objectives of monetary and fiscal policy- c °nomic growth and monetary stability—are inseparably linked. In the long run they 5t and the fall together. To me, the orderly, sustainable growth'of our economy, and Provision of the savings necessary to it, are most unlikely unless the purchasing power of the dollar is kept stable. Rising prices, in general, lead to less care in the allocation of capital and other resources. To achieve these dual objectives of growth and stability, the nation needs to maintain a proper balance. At a particular moment it may have too little plant to consumer demand, or conversely may have excess capacity that depresses prices and business. i The swings are accentuated by imprudent decisions. A management that ex pands merely to keep up with the competitive Joneses, without careful market analysis, L ° r provision of the necessary financing, is a contributor to unbalancing credit demand. S is ° to a company that uses up its normal working capital, whether to pay dividends or build up inventories or to postpone going to the capital markets, and then finds its elf without funds to pay taxes. If consumption is to expand, there must first exist the requisite producfacilities. This involves saving, which diverts resources from consumption, aer i the economy is operating at full capacity, neither investment nor consumption Can Cr be expanded further simply by inflating the flow of money with additional bank edit. es Unless capacity and productivity are increased, additional credit will only ult i n the bidding up of prices. It is not the task, nor is it within the power, of the Federal Reserve to 3u Pply new savings for investment in housing or in business plant and equipment, or the financing of the construction, of schools and roads. Savings for these purposes come chiefly out of current income that is not spent for consumption, because 0l % through such savings are physical resources of men and materials released for Vestment. How do growth and stability influence the role of the trust officer? I *3sUme that, fundamentally, his role is to make the best choice among a mixture of Ce rtainties and uncertainties. tas But the uncertainties have increased. The trustee's k is difficult enough in a world of reasonable stability; in a world of instability, the uncertainties are compounded and so are the difficulties of trusteeship. ea tin However mestly he seeks a wise course of action, his long-run success will hinge in part the ability of the world's economies to achieve growth, and to achieve it without Nation.
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