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Mr. Francis' speech before the
Farm Credit group on August 26, 1966

National Financial Trends and Agriculture
Review of the money situation - As it exists today -

How we got here - Where it may go from here - The
impact on Agriculture.

In context of basic law of supply and demand.
How we arrived.

Government’s concern with optimum utilization

of resources.

Plant - Labor.
A necessary influence to long-run stability.

Accepted doctrine among economic thinkers
The doctrine in action - from 196^.
Public programs

The tax cut - a series over the period
The Vietnam war

The resulting fiscal pressure.
The high employment budget.
Reinforcement by monetary policy
Normal counteraction absent

- 2 -

Rates of growth of money November te

Ma rgfr

6 from June to June

Supply fell in July and August to date.

The Fiscal-Monetary Mix -

Dual expansionary forces

The build-up to excessive demand.
Over-taxation of our ability to produce.

Plant capacity - 93% (over optimum level)
Labor capacity - (4 million vs. 4 million plus)
Prices Wholesale - steady ’58 - 64

Starting rise from mid-1964 (64 to 65 at 2%)

Rises have accelerated (so far ’66 about 4%)
Industrial component since last year 3% 1965 year 1. 49j0

Cost of Living ’58 to 64 - 1. 2% annual rate.

Past year at 3%

Since Jan. *66-3 1/2%.

Money market reactions - supply and demand.

demand for credit.

- 3 -

Business to meet demand

Business - for expansion

Past 12 months - 18%
Jan. to July 22%
May to July - 32% annual rate.

The resulting tightness in money markets.
Despite record growth of money supply.

Demand forces rates upward.
What do we do ?
State of economic intoxication may lead to

National economic frustration.
Everybody has it so good.

Close our eyes to threatening clouds of

We seem unwilling to take chances with

our present comfort to do what’s needed

to assure long-run well-being.

- 4 -

How it can be solved - with a lag
Fiscal adjustment
Reduce spending
Increase taxes - while holding spending.

Restore the Fiscal-Monetary Mix.

Can monetary policy do the trick?
Perhaps - if - - but

If - economic forces only concern

But - social and political issues involved.
Restrictive monetary - expansive Fiscal

Non-selective in impact.
Somebody gets hurt - housing.
Social to political issues.

Then comes talk of legal control - And

the great debate goes on.
Prices continue to move - They don’t

roll back.

Inflation continues to take its toll.

- 5 -

The solution -

Restoration of Fiscal-Monetary Mix.

Agriculture Production assets quadrupled since 1940
A great influx of capital

Less than 50 to almost 200.
Concern about future
I don’t share it.

The long-run outlook

Additional capital need
Individual reinvestment

Family cooperation


Cost of loan funds will vary
Supplies will be adequate
Credit supplements by equities.