The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Release on Delivery approximately 6:15 p.m. CST, Saturday, May U, 1957.) SYMBOLS (Remarks of C. Canby Balderston, Vice Chairman, Board of Governors of the Federal Reserve System, at the Federal Reserve Bank of Minneapolis Open House and Conference, on Saturday, May k, 1957.) The new building of the Minneapolis Federal Reserve Bank is a symbol of the decentralized strength of the Federal Reserve System and of its links ^th this and other great communities. It is a structure of which you may be ind Proud, but before commenting upon its significance, I must speak of two ividuals. One of them is the new President of this Bank, Fred Deming, who is highly regarded in the System for his financial knowledge, his research ^ e s s , and his administrative talent. The System has learned that he ^ars v/ell, a truth that will become more and more apparent to you here in the Ninth District. The other individual is, of course, Oliver Powell. His thirty- Seve n years of service to the Fed were marked by the energetic and intellieffort that has been characteristic of all of his public service. 1/het her as officer and President of this Bank or as a member of the Board f ° P e r n o r s , ho made his contribution so effectively that it will be rememlong. In Washington he was at the birth of the now famous accord between the C ' Treasury and the Fed which ended the pegging of Government bonds, a pro- Ss tloj that former Chairman Eccles so aptly described as "an engine of infla- V ' More widely known, however, is the work that Oliver Powell headed ^ e on the Board of Governors: the Voluntary Credit Restraint Program. - 2 T hat novel and difficult assignment called for exceptional talent, industry powers of persuasion0 to The success of the program depended upon an appeal Place national interest above all other considerations at a time when the PUblic was not in a mood to accept restraints. Yet Oliver Powell's leadership ^ Repercussions this patriotictoundertaking made it effective to a degree that was reflected it. One of the many other accomplishments for which he will be rememi s the new building whose opening we are celebrating-, My initial observation was that this building is a symbol; so, in trut h , is the Federal Reserve System as a whole. The nature of that symbolism be understood best if we examine the structure of the System itself. In its wisdom, the Congress created a System which would include in its name the "Federal," This word reflects a balancing of centralization and of de- moralization as well as the use of checks and balances similar to those of U3? ° Federal Government0 decision: tl>a In creating the design, the Congress faced a funda- whether to have a central bank with branches, or a decen- Hzed institution. It chose the latter in order that the varying problems conditions of the country as a whole might be reflected in the decisions tha t determine the supply, availability and cost of credit. By creating 12 Reserve Districts, each with its own Bank and appropriate branches, ^ Congress avoided the danger of excessive concentration of money power i n the financial capital of the country, New York, or in the political Ca Pital of the country, Washington. This building stands as a lasting symbol f ° the role that this District is expected to play in the making of national ^tem policy, and the service that the Federal Reserve is expected to render •l ° the agriculture, banking, commerce and industry of this great area. - 3 Congress not only evolved a basic structure suited to our American ne eds but division of control that is unique among the central banks of the w °rld. The Federal Reserve is partly private and partly governmental. Of the directors of this Bank, three may be said to represent lenders of money credit; three to represent borrowers; and three to represent the public at large. Of these nine individuals, six are chosen by the member banks of the 0f district and three are named by the Federal Reserve Board. In the case the branch bank at Helena, three are named by the directors of this Federal ^serve Bank, and the other two by the Board of Governors in Washington. The fact that the majority of the directors of each Federal Reserve Bank are Cll °sen by the member banks must not lead you to assume, as is sometimes done, they approach their duties and responsibilities from any narrow point of Viev/ . It has been my observation that the representatives of the banks and l o w e r s who are selected by the member banks seek to serve their district their country with the same objectivity as the three who are named by the Board of Governors in Washington to represent the public at large. In the to board of a Federal Reserve Bank, all these nine men have the obligation discover what is best for the economy at a given time and then to act ac- • An example of the leadership and courage of the directors in this Dist *lct occurred only last year. By April it was evident to the directors ^le Minneapolis and San Francisco Banks that the loan demand and the A l i e n e e then evident made a change in the discount rate timely in these tVo districts. Accordingly, the two Banks voted to increase the discount from 2-1/2 per cent to 3 per cent which the Board of Governors approved - 4 once 6 Four months later the other ten districts, vdth the approval of the B °ard of Governors, moved their rates up to the same level. Thus, over the na U o n , strengthening inflationary pressures were met by strengthened measures gainst them. Still another contribution of the directors of a Federal Reserve Ban k to the policy formation of the System is to make available to the Board Governors and the Open Market Committee up-to-date information as to the Coci Plexion of business-® 0f Economic intelligence is as important to the making sound monetary decisions as is military intelligence to the making of mili- tar y decisions. Consequently, the "straws in the wind" that the directors from their own observations and contacts are a valuable supplement to figures because they anticipate them. Since the middle of 1955, prices have been rising under the pressure f ° ^mand. During that time, wholesale prices have risen about 6 per cent and b u r n e r prices about k per cent. Roughly about one half of last year's gain ^ the gross national product is to be attributed to price increases. It is fter ° * assumed that many citizens, especially those that are in debt, are Ple *sed by inflation and displeased by policies that lead to sound money. c ourse even debtors discover in time that any apparent gains arising from ^ immediate increase in money income are only illusory. not Furthermore, it is true that we can have just a little inflation and be sure of controlling Once the community accepts the prospect of continued inflation and ^ n s to make its business decisions in the light of that prospect, the m ceases to creep. It learns to walk, run, and finally gallop even though - 5the gallop may carry it over the brink of the precipice that everyone agrees ^st be avoided. An inconvenient but inescapable fact of modern economic life is that phenomenon commonly referred to as the "wage-price spiral." This Urates to reinforce pressures on prices caused by increased demand from ari y cause, including that part of the economy in which wage rates are set by f i n i n g between strong unions and strong corporations. When demand is at * high level, it is relatively easy to pass along to the general public, in the form of higher prices, cost increases like those arising from wage advances tn excess of increases in productivity. The resulting gain in profits is then an occasion for further wage demands, followed by still another price rise. It is sometimes asserted that inflation is inevitable and that a^ Slov 'ly rising price level is to be expected. It is my own belief, however, that it is possible to have orderly economic growth without inflation pro- ^ general monetary controls are effective, fiscal policies are sound, business decisions are prudent. That conclusion is grounded in the bethat increases in capacity tend to curb price increases and that as Cap *city catches up with demand, prices recede. It is also my belief that ^ general acceptance of the theory that inflation is inevitable is both '^-defeating and dangerous. It is self-defeating because it leads to atN t a by individuals and special groups to protect themselves by such den c e s as escalator clauses that tie wage rates to the cost of living and 0r * * the basis for a wage-price spiral. It leads some company executives t0 b C * U d more plant capacity than they need in order to anticipate higher ns ° truction costs. Not only does this psychology have an adverse affect Up0n the quality of decision making on the part of those who think that their ^stakes on the side of over-building will be validated by inflation, but it is also dangerous in that it tends to bring to pass the inflation that is beaded. Just as this Bank and the Helena Branch are symbols of the Federal Reserve System in this District, so has the System itself come to be a natio nal symbol that the ups and downs of a free enterprise economy can be ^imized and the purchasing power of the dollar preserved. For monetary P°licy has two objectives, both of tremendous social importance: (1) To foster orderly economic growth and sustain employment at C n ° sistently high levels; (2) To maintain the financial equilibrium of the economy, both V e r n a l , by protecting the purchasing power of the monetary unit, and Vernal, by keeping international payments in balance. These objectives may be expressed in another way: to keep the running at high speed and still maintain the stability of the dolThe former is needed to provide jobs for those who are now wage e ^ e r s end still more jobs for the large additions to the labor force in the 1960s. The second is needed to protect savers and those dependent upon Savii igs % This group now includes not only the proverbial widows, but those have retired and the msny millions more who are accumulating pension The entire Federal Reserve System and each of its Banks are S e a t e d to the well-being of all citizens. Consequently, the seal used th °^ghout the System features the American eagle that represents our nation a Whole. If one were designing a plaque for a building such as the new Minneapolis structure, he should not feature the dollar that is associated in th si e public mind with the operations of the System, He should devise an in- 8ne that features the men and women who are the beneficiaries of its work it is done well, or who suffer if its decisions are faulty. To portray the real meaning of this System in this nation of mass prosperity and mass Sa virigSj the building's plaque should feature human welfare and social values. ^ these can be attained in their highest form only through an economy whose ^ i u m of exchange is kept sound. The satisfaction of the needs of the people as a whole requires that the buying poiver of the dollar be protected. And so, sound money and healthy economic growth represent for the P ^eral Reserve the symbol by which it must be known. It is as important for the ^ Fed to keep itself unsullied as for Cyrano de Bergerac to be able to say presence of Roxanne and his two friends: "One thing without stain, ^Potted from the world, in spite of doom mine own! My white plume. .
@FedFRASER