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January 6, 1955
(Review, refreshing memories of new Directors.)
The Federal Reserve System - of which Federal Reserve Bank of Philadelphia
is a part - is a unique institution
E.g. 1. Interested in low unit costs - efficiency - controlling
enthusiastic staff to produce not merely happy - but happy in doing a good job
Not in earnings or profits - which, however, we have
- well, in abundance
2. We operzte in the public interest
are not a part of Government
Our unique characteristics have been developed out of experience
We live in a money and credit economy
purchases are votes on how we use our resources
allocation of our resources
A profit/loss economy
There are times when we want
only we haven't enough total resources to have both
e.g. Korea
There are other times when we want
e.g. the depression
P , Bap.^
Money will not manage itself
Free markets can allocate real resources efficiently
only if the money market is managed.
The Government is an interested parly - largest borrower
and is not a good manager
Congress has created the Federal Reserve System to regulate the
supply of money and the terms under which it may be
enlarged or reduced.

- 2 -


General - Martin Detroit speech
The purpose of the Federal Reserve System "is to see that, so
far as its policies are a controlling factor, the supply of
money is neither so large as to induce destructive inflationary
forces nor so smaHas to stifle our great and growing economy."
Stable price level
Maximum sustainable employment

Are they compatible always?
- if not, which should have priórity?
(a) At what wage rate?


Time lags

In securing information
E.g. Dept, of Commarce Census estimates of
employment and unemployment relate to week
including 8th of month - come out on 20th of
next month - 6-10 weeks late!


Between an act and its effect

Guides to action
Rely on latest information - past
forecasting the future
as to what is happening to P. and E.
UltiHate decision is that the tone of the money market is
(a) about correct
(b) too easy
(c) too tight

Measures of Results



the amount of funds
Reserves of member banks
Excess reserves
Free reserves
the rates of interest

Instruments of Policy

Reserve Requirements
The Discount Rate
Open Market operations
Margin Requirements

The Structure of the System
Not a neat, logical structure - but it makes sense, if
we keep a few principles in mind.

Our traditional abhorrence for concentration of power


Ad hoc changes to meet particular problems - patch-work


National policy determined ty a group, a majority
of whose members live at the center ¿nd a
minority at the periphery looking to the center


Wide variety of experience and interest

The Federal Reserve Banks

The directors
Class A bankers - lenders
B nonbankers - borrowers
G public
Qumip« - again to prevent concentration of power


President and 1st Vice President
Appointed b y directors
but subject to approval of Federal Reserve Board

The Board of Governors

Presidential appointment
Senatorial advice and consent

7 members - 14 year terms
The Federal Open Market Committee

The Federal Advisory Council