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FOR RELEASE ON DELIVERY: Approximately 1;00 p.m., EDT, on Thursday, May 18, 1961. THE T R A D I T I O N TO ADAPT By Karl R, Bopp President, Federal Reserve Bank of Philadelphia Bankers Luncheon Sponsored by the Federal Reserve Banks of New York and Philadelphia 58th ANNUAL CONVENTION OF THE NEW JERSEY BANKERS ASSOCIATION 12*45 p.m.» Thursday, May 18, 1961 Wedgwood Room, Haddon Hall, Atlantic City, New Jersey THE T R A D I T I O N T 0__ A D A P T By Karl R. Bopp At our luncheon a year ago, President Hayes said* "Monetary policy can never be reduced to a static, inflexible set of rules in a dynamic market economy." Mr. Hayes spoke from experience. I doubt, however, that even he anticipated how dramatically the adage would be demonstrated again. In the year that has intervened, our dynamic market economy has given birth to new and unusual problems. These problems, in turn, have called for a reappraisal of the techniques of monetary policy. A year ago we were at a new peak in economic activity; a year ago we could take some pleasure in observing that the danger of inflation had abated; a year ago we needed only to theorize on the possible impact of interest rate differentials in the world on our balance of payments and our gold supply. A year ago, when this group was convening, many were unaware of the challenges that lay immediately ahead. Looking back, we can see now that the central bank and its policies have been taxed to the utmost. We have tried to protect our balance of payments while stimulating economic growth without inflation. in the past year — The conjuncture of several events streams that have been flowing for some time — has tested our ability to adapt our traditional ways of doing things to meet the new problems of the day. I think we have made headway, but many problems remain; the task is, as always, unfinished. I should like first to discuss with you some of the domestic economic events that led up to the complexities of last year. As you may recall, great expectations were held for economic advance when the recession of 1957-1958 proved -2- to be so short. record. The recession lasted only nine months — among the shortest on In the latter part of 1958» it seemed like only a 50-yard dash to the soaring Sixties. From mid-1958 to mid-1959, there was a general upswing in all categories of buying. Gross national product rose almost one-eighth, from an annual rate of $4-35 billion to $488 billion. Toward the end of the period, however, the rapid expansion was stimulated by an inventory build-up in anticipation of the steel strike that came in the summer. During the steel strike in the latter part of 1959» we experienced a small decrease in over-all economic activity. desired and inventories were run down. Producers could not buy all they Government spending also decreased somewhat and there was weakness in consumer demand for durables. settled and we moved into I960. believed. Then the steel strike was The year was ripe for expansion, so everyone Long-term forecasters had been painting the 1960's as a new golden age; short-term forecasters saw a sharp recovery from reductions brought about by the steel strike. The timetable seemed assured when in the first months of i960 the economy moved ahead vigorously. But the advance, it was soon apparent, was traceable mainly to replenishing inventories after the strike. Observers began to realize early in the year that the inventory build-up could not continue indefinitely. It was hoped that something else would take its place as the year went on, but nothing else did take its place. to drift. In the next few months the spark flickered and the economy began After mid-year, there was an actual downturn in gross national product. This and many other indicators confirmed that we were going through our fourth postwar recession. We felt that monetary policy could best contribute to recovery by making reserves readily available in an effort to stimulate an expanding flow of funds into investment outlets. Indeed monetary policy was shifted from restraint to ease early -3in i960 while total output was still expanding but when it appeared that our economy was beginning to drift and that the inflationary danger had abated. The weakening of credit demands associated with the business decline and the Federal Reserve policy of monetary ease resulted in a substantial decline in short-term rates of interest. Meanwhile, the economies of most other industrial countries continued to expand. I hope, incidentally, that these diverse developments here and abroad will finally dispose of that once popular raythi "If the United States economy sneezes, the European economy will catch pneumonia*" In general, other countries followed monetary policies appropriate to their domestic economies. They tightened credit which in the face of vigorous demand for credit led to higher interest rates. The combination of rising short rates abroad and declining short rates here produced a widening spread. increasing volume. problem. Short-term funds flowed from this country to Europe in The continued outflow of gold served to focus attention on this It thus became clear that the monetary policies appropriate for the domestic economy were having undesirable effects on our international position. Our problem became one of devising means to deal constructively with both domestic and inter national developments. We started from several basic assumptions. The first was that unemployment of men, plant, and equipment is wasteful and undesirable. Affluent society or not, there is no question that in the world struggle in which we are involved we should be using our productive resources to the fullest extent possible. Our second assumption was that a free flow of trade is desirable; that the larger the flow, the better off we all will be in the long run. As Chairman Martin said recently at Boca Raton: "The international flow of goods and services and capital is a twoway street and the traffic is mutually advantageous to all participants. It will benefit us as well as the rest of the world to expand the flow. . . The more we trade, the more we prosper. The less we trade, the less we have." We wanted, then, to contribute to domestic recovery and at the same time to -4strengthen our international position. The first called for greater ease in capital markets| the second would not permit greater ease in money markets. The System has often taken the position that its policy is to lean against the wind. In i960 the wind was blowing in different directions at the same time. The resolution of this dilemma was contained in an announcement by the Manager of the Open Market Account on February 20, 1961. The announcement read: "The System Open Market Account is purchasing in the open market U. S. Government notes and bonds of varying maturities, some of which will exceed 5 years. •'Price quotations and offerings are being requested of all primary dealers in U. S. Government securities. Determination as to which offerings to purchase is being governed by the prices that appear most advantageous, i.e., the lowest prices. Net amounts of all transactions for System account will be shown as usual in the condition statements issued every Thursday. "During recent years transactions for the System Account, except in correction of disorderly markets, have been made in short-term U. S. Government securities. Authority for transactions in securities of longer maturity has been granted by the Open Market Committee of the Federal Reserve System in the light of conditions that have developed in the domestic economy and in the U. S. balance of payments with other countries." The purpose, as I have indicated, was to make reserves available to promote domestic recovery without depressing short-term rates which would aggravate our balance of payments difficulties. The action was in the tradition of the Federal Reserve System which is to adapt its policies and techniques to current developments. The change in technique most emphatically does not mean that the System is once again going to peg prices and maintain an inflexible pattern of yields. We have had sufficient experience with pegs to know that they aggravate rather than mitigate the swings in the business cycle. We know also that a booming economy, with seemingly insatiable demands for credit, will force interest rates up. We observe this not only in our own history but also and particularly during the past few years in other industrially developed countries, notably Western Germany. -5We also know from experience that attempts to keep rates from rising during a boom by creating sufficient reserves to keep them down will result in uncontrolled inflation with all its injustices and hazards. What, then, has been accomplished in the past year? Evidence is multiplying that we have passed the low point of this recession and that our basic balance of payments position has been improved. I would not by any means argue that the Federal Reserve System has single-handedly achieved these results. know what would have happened had policy been different. We, of course, will never But I do think our policies have been instrumental in ameliorating problems and that they have been strategically correct• It would be a tragic error, however, to assume that our domestic and international economic problems are now solved or that monetary policy alone can ever solve them. Although the economy seems poised for recovery, we still have about 5i million people unemployed and a good deal of excess capacity in our industry. Although our balance of trade is exceptionally strong at the moment, with exports up and imports down, a significant part of the improvement seems to have been cyclical in character, a result of the boom abroad and recession here. The remedies we seek for our excess unemployment and our balance of payments deficit should be consistent with the kind of world we and our friends and allies have been trying to create ever since the end of the war. We want a world with a maximum degree of freedom for international trade and international investment. Once again quoting Chairman Martini "One of the worst things that could happen to compound our balance of payments difficulties would be to adopt a restrictive trade and in vestment policy. It would wipe out the hard-won gains of years of effort to promote freer international exchange." A fre e flow of international trade has many beenfits. We all know of the powerful intact foreign competition has had in inducing our domestic automobile -6raanufacturers to produce the kinds of products consumers evidently desire. Their response demonstrates what our ingenuity can achieve when "the chips are down." Furthermore, there is an old cliche in the lexicon of American politics: tariff is the mother of trusts." "The I think our recent experience has shown that foreign competition is both a healthy stimulant to American business and a powerful silent partner of the Anti-Trust Division of our Department of Justice. Presumed remedies, advocated by some, could be dangerous. including higher tariffs, quotas, and exchange controls — Direct controls all designed to promote American exports and discourage American imports — would move us away from free, multilateral trade and the increased welfare associated with large volumes of trade. And, of course, our trading partners could retaliate. Since we now have a large export surplus, we have more to lose than to gain in such a contest. We know that changes in comparative advantages between nations can cause unfortunate dislocations and personal hardships. We should certainly find remedies to ameliorate the economic hardships of these dislocations. principle seek a remedy in artificially restricted trade. But we should not in This will not solve our unemployment problem or improve our balance of payments position. On the whole range of problems that I have been discussing, I can do no better than reiterate the hope expressed recently by A1 Hayes: ... "I hope that no conservative will be so unbending as to deny the need for a constructive approach toward the full use of our resources both at home and in the world at large j and I hope that no liberal will be so rigid as to deny the vital importance of conducting our affairs in a way that assures firm confidence in the dollar. If we can adopt such a constructive approach, I am sure we can avoid panicky or unwise actions — and we shall be able to look back at the international problems of these days as providing a useful discipline for the shaping of sound and im aginative programs." Permit me now to broaden my remarks somewhat. I have said that the course of events over the past year has caused some significant changes in Federal Reserve -7actions. It is ray opinion that rigidities in policies and practices throughout our American enterprise system are luxuries that we cannot afford in our dynamic economy. Perhaps the most serious troubles that face us do not arise out of the Soviet menace, thB gold outflow, or excessive unemployment. Rather our most serious problems may result from rigidities which have formed in our free enterprise system. The world is changing fast. When we do not adjust to change we are left behind or act as a drag on the course of events. unions -— including price and wage policies — changing world society in which we live. Policies of industry and labor may have to adapt themselves to the Tax and spend policies of governmental units also can become too unbending. Many policies and practices in use today grew out of responses to the problems of yesterday. Meanwhile, the problems, though they may not all be solved, have changed in form and character. All segments of our society must examine them selves to see that they have truly adapted to the world as it exists in 1961. Let me summarize now some of the points I have been trying to make. System has been faced with unusual problems in this past year. with flexibility toward ameliorating these problems. success. But problems yet remain. System's power to solve alone. The System has moved We have had, we believe, some And the problems that remain are not within the If we have learned anything in the past ten years, it has been that monetary policy is not a panacea. decisions elsewhere in the economy — private individuals and groups. The It cannot substitute for intelligent intelligent decisions by Government and by Monetary policy is, however, an important complement to intelligent decisions made elsewhere in the economy. It can reinforce and magnify them and speed up the attainment of our goals. I raised a point at the beginning of this talk which I wish to bring up in closing. I said that the past year has tested our ability — the ability of the -8- Federal Reserve System — to adapt its traditional ways of doing things to meet the new problems of the day* The System is an organization with traditions that extend deep into our past and, indeed, deep into the past of the Western World, Some critics have complained that these traditions have controlled our outlook and our policies beyond the period of their relevance and usefulness. The record in meeting the new complexities of this year does not support that argument. Heraclitus meant when he said over 2,000 years agoi into the same river twice." "It is never possible to step The world is always changing and to meet these changes effectively we have to adapt ourselves* we must play "heads-up ball." We, too, know what # In the words of a more recent commentator, We hope that this, too, has been one of our traditions. # # # # THE TRADITION TO ADAPT* by Karl R. At the luncheon a year ago, President Alfred Hayes said: “ Monetary policy can never be re duced to a static, inflexible set of rules in a dynamic market economy.” Mr. Hayes spoke from experience. I doubt, however, that even he anticipated how dramatically his words would be borne out again. In the year that has intervened, our dynamic market economy has given birth to new and unusual problems. These problems, in turn, have called for a reappraisal of the techniques of monetary policy. A year ago we were at a new peak in eco nomic activity; a year ago we could take some pleasure in observing that the danger of in flation had abated; a year ago we needed only to theorize on the possible impact that interest rate differentials among the countries of the world might have on our balance of payments and our gold supply. A year ago, when this group was convening, no one could have fore seen what challenges lay immediately ahead. Looking back, we can see now that the central bank and its policies have been taxed to the utmost. We have tried to protect our balance of payments while stimulating economic growth without inflation. The conjuncture of several Bopp complexities of the past year. As you may recall, great expectations were held for economic ad vance when the recession of 1957-1958 proved to be so short. The recession lasted only nine months— among the shortest recessions on rec ord. From mid-1958 to mid-1959, there was a general upswing in all categories of buying. Gross national product rose almost one-eighth, from an annual rate of $435 billion to $488 bil lion. Toward the end of the period, however, the rapid expansion was stimulated by an in ventory build-up in anticipation of the steel strike that came in the summer. During the steel strike in the latter part of 1959, we experienced a small decrease in over all economic activity. Producers could not buv all they desired and inventories were run down. Government spending also decreased somewhat and there was weakness in consumer demand for durables. Then the steel strike was settled and we moved into 1960. The year was ripe for expan sion, so everyone believed. Long-term fore casters had been painting the 1960’s as a new golden age; short-term forecasters saw a sharp recovery from reductions brought about by the steel strike. headway, but many problems remain; the task The timetable seemed assured when in the first months of 1960 the economy moved ahead vigor ously. The vigor came mainly from the private sector of the economy— consumers and business is, as always, unfinished. men, appropriately enough; the Federal Govern The economy in the past year ment was curtailing its spending during the upturn; it was in process of shifting from a huge deficit, induced by the recession of 1957-1958, events in the past year tested our ability to adapt our traditional ways of doing things to meet the new problems of the day. I think we have made I should like first to discuss with you some of the domestic economic events that led up to the * A talk given at the 58th Annual Convention, New Jersey Bankers A ssociation, A tla ntic City, M a y 18, 1941. to a moderate surplus. But the advance, it soon became apparent, was founded primarily on business spending to 3 business review replenish inventories after the strike. Observers country to Europe in increasing volume. The began to realize early in the year that the inven continued outflow of gold served to focus atten tory build-up could not continue indefinitely. It tion on this problem. It thus became clear that was hoped that something else would take its place as the year went on, but nothing else did mestic economy were having undesirable effects the monetary policies appropriate for the do take its place. In the next few months the spark on our international position. Our problem be flickered and the economy began to drift. After came one of devising means to deal construc midyear, there was an actual downturn in gross tively with both national product. This and many other indi cators confirmed that we were going through our developments. We started from several basic assumptions. fourth postwar recession. The first was that unemployment of men, plant, The dilemma of monetary policy Affluent society or not, there is no question that We felt that monetary policy could best con in the world Struggle in which we are involved and equipment domestic and is wasteful and international undesirable. tribute to recovery by making reserves readily we should be using our productive resources to available in an effort to stimulate an expanding the fullest extent possible. Our second assum p flow of funds into investment outlets. Indeed, tion was that a free flow of trade is desirable; monetary policy was shifted from restraint to that the larger the flow, the better off we all will ease early in 1960 while total output was still be in the long run. expanding, but while it also appeared that our We wanted, then, to contribute to domestic economy was beginning to drift and that the in recovery and at the same time to strengthen our flationary danger had abated. The weakening of international position. The first called for greater credit demands associated with the business de ease in capital m arkets; the second could not cline and the Federal Reserve policy of monetary permit greater ease in money markets. The ease resulted in a substantial decline in short System has often taken the position that its term rates of interest. policy is to lean against the wind. In 1960, the Meanwhile, the economies of most other in dustrial countries continued to expand. I hope, incidentally, that these diverse wind was blowing in different directions at the same time. developments here and abroad will finally dispose of that once- Change in open market techniques popular myth: “ If the United States’ economy The resolution of this dilemma was contained sneezes, the European economy will catch pneu in an announcement by the M anager of the m onia.” Open Market Account on February 20, 1961. In general, other countries followed m onetary policies appropriate to their domestic The announcement read: economies. They tightened credit which in the The System Open Market Account is pur face of vigorous demand for credit led to higher chasing in the open market U. S. Govern interest rates. ment notes and bonds of varying m aturities, The combination of rising short rates abroad some of which will exceed five years. and declining short rates here produced a widen Price quotations and offerings are being ing spread. Short-term funds flowed from this requested of all prim ary dealers in U. S. 4 business review Government securities. Determination as to which offerings to purchase is being gov erned by the prices that appear most ad vantageous, i.e., the lowest price. Net Will these new techniques ultimately prove successful? The truth is that no one can be sure. amounts of all transactions for System ac count will be shown as usual in the condi tion statements issued every Thursday. Experience has little to tell us. But of this we can be certain: our evaluation will depend to a considerable extent on how much we expect. In During recent years transactions for the fairness, our expectations should be tempered by the circumstances under which these new techniques were instituted. System Account, except in correction of dis orderly markets, have been made in short term U. S. Government securities. Authority for transactions in securities of longer ma turity has been granted by the Open Market uncontrolled inflation with all its injustices and hazards. oped in the domestic economy and in the One important circumstance was a general at titude that greeted the new methods. In many minds, the departure from “ bills only” has un derstandably taken on the mantle of an experi ment. An experiment it certainly is; there is no denying the relevance of this word. It is an U. S. balance of payments with other coun tries. The purpose, as I have indicated, was to make new method in the hope that it will have a de sired effect. reserves available to promote domestic recovery I should like to point out, however, that in without depressing short-term rates which would this sense every action in life is an experiment. In banking, installment and term loans were re Committee of the Federal Reserve System in the light of conditions that have devel aggravate our balance-of-payments difficulties. The action was in the tradition of the Federal experiment in the sense that we are trying out a The change in technique most emphatically cently, and perhaps still are, experiments. The entire Federal Reserve System was, at one time, an experiment. The term “ experiment,” unfortunately, has does not mean that the System is once again some additional meaning. In the social sphere, going to peg prices and maintain an inflexible though not in the physical, the very word is pattern of yields. We have had sufficient experi somewhat suspect. We speak of social or eco ence with pegs to know that they aggravate nomic experimentation as tinkering with useful rather than m itigate the swings in the business cycle. We know also that a booming economy, with seemingly insatiable demands for credit, and still serviceable traditions. We think of that classic failure in American legislation— “ the noble experiment.” Webster defines experiment will force interest rates up. We observe this not only in our own history but also, and particularly as a “ trial made to confirm . . . something doubt Reserve System which is to adapt its policies and techniques to current developments. during the past few years, in other industrially ful.” We sometimes tend to think of an experi ment as something which, if not proved im developed countries, notably Western Germany. We know from experience that attempts to keep mediately successful, will quickly be abandoned — and something in which the experimenters rates from rising' during a boom by creating sufficient reserves to keep them down result in may not have much faith. Thoughts of this nature make success more 5 business review difficult. If people believe that the new techniques of this recession, and that economic activity is will soon be abandoned, their commercial trans actions in credit markets will tend to undermine headed up. L ast month’s rise in industrial pro Federal Reserve efforts. same time, long-term interest rates have not Let me emphasize, then, that there were good duction was particularly encouraging. At the changed much from the levels in the latter part and sufficient reasons leading to the adoption of of February. Corporations and municipalities the new techniques. We were not merely “ tinker seem to be taking advantage of the current rates ing” ; we were trying to meet a new and demand and meeting with success. The flow of funds into ing problem. The new techniques were thor capital m arkets has accelerated. Moreover, banks oughly discussed and evaluated. I firmly believe have also contributed substantially to the general they represent a hopeful approach. Let me say expansion of credit. that we have consistently pursued these policies since the announcement on February 20. I might add that, as in the case of the installment Meanwhile the bill rate has been fluctuating around 2 ^ to 2 ^ per cent; and the spread between short-term rates here and short-term and term loans, and the Federal Reserve System rates in leading European countries has n ar itself, some experiments become traditions. rowed considerably over the past year. In recent There was still another adverse circumstance months, the net purchase of foreign short-term surrounding the adoption of the new methods. obligations has declined; and there have been About the sam e time as the announcement in late other indications as well that the speculative out February, there began to appear some signs that flow of funds has subsided. Our gold losses de the recession was reaching bottom. Since then, clined considerably in February; since then we signs of recovery have multiplied. Given such have actually gained gold. conditions, people began to expect higher in terest rates and to act accordingly. Swim ming against a tidal wave of adverse These developments, I believe, are significant. They represent substantial improvement. I would not by any means argue that the Federal expectations— based either on the belief that the Reserve economy is headed upward or that the System them about. But I do think that our policies have will soon abandon its efforts— is extremely diffi been instrumental in am eliorating the problem s cult. The difficulties should not be forgotten and that they have been strategically correct. when we ju d ge current open m arket practices. What, then, has been accom plished? It is very The challenges ahead System has singlehandedly brought difficult to appraise the impact of our policies. It would be a tragic error, however, to assum e There are m any powerful forces at work and we that our domestic and international economic can’t easily isolate the results of System efforts; problems are now solved or that monetary policy we never will know what might have happened alone can ever solve them. Although the economy had we pursued other policies; in addition, as seems poised for recovery, we still have about yet we do not have sufficient perspective to make 5 million people unemployed and a good deal of the best possible judgm ents— it is still early. excess capacity in our industry. Although our I should like, however, to cite some facts. It balance o f trade is exceptionally strong at the would appear that we have passed the low point moment, with exports up and im ports down, a 6 business review significant part of the improvement seems to have been cyclical in character, a result of the boom abroad and recession here. Presumed remedies, advocated by some, could be dangerous. Direct controls including higher tariffs, quotas, and exchange controls— all de We should be forewarned that gimmicks de signed to promote American exports and dis courage imports— would move us away from signed to avoid the imperatives of international relations could set forces in motion that would weaken our present position. For example, the free, multilateral trade and the increased welfare associated with large volumes of trade. And, of mere suspicion that we might raise the price of gold from $35 an ounce— in other words, de value our currency— would in all likelihood lead course, our trading partners could retaliate. Be cause we now have a large export surplus, we to a wave of speculative activity and a rapid flight of funds. We know that changes in comparative ad vantages between nations can cause unfortunate The remedies we seek for our excess unem dislocations and personal hardships. We should certainly find remedies to ameliorate the eco nomic hardships of these dislocations. But we should not in principle seek a remedy in arti ployment and our balance-of-payments deficit should be consistent with the kind of world we and our friends and allies have been trying to create ever since the end of the war. We want a world with a maximum degree of freedom for international trade and international investment. Quoting Chairman M artin: One of the worst things that could happen to compound our balance of payments diffi have more to lose than to gain in such a contest. ficially restricted trade. This will not solve our unemployment problem, nor, for that matter, improve our balance-of-payments position. Domestically, as well as internationally, we must eschew rigidities. We shall find our hap pier solutions, I think, in retraining our work culties would be to adopt a restrictive trade and investment policy. It would wipe out the hard-won gains of years of effort to pro force to meet the demands for labor that are currently being made and, generally, in im mote freer international exchange. A free flow of international trade has many It is my opinion that rigidities in policies and practices throughout our American enterprise benefits. We all know of the powerful impact foreign competition has had in inducing our system are luxuries that we cannot afford in our dynamic economy. They represent, perhaps, the most serious difficulties we face. In some re spects they underlie the gold outflow, excessive domestic automobile m anufacturers to produce the kinds of products consumers evidently de proving the mobility of both labor and capital. sire. Their response demonstrates what our in unemployment and even the seriousness of the genuity can achieve when “ the chips are down.” Soviet menace. Furthermore, there is a cliché in the lexicon of American politics: “ The tariff is the mother of The world is changing fast. When we do not adjust to change, we are left behind or act as a drag on the course of events. Policies of in dustry and labor unions— including price and trusts.” I think our recent experience has shown that foreign competition is both a healthy stim ulant to American business and a powerful silent wage policies— may have to be adapted to the partner of the Anti-Trust Division of our De changing world society in which we live. T ax partment of Justice. and expenditure policies of governmental units business review also can become too unbending. Many policies and practices in use today grew them and speed the attainment of our goals. out of responses to the problems of yesterday. which I wish to bring up in closing. I said that Meanwhile, the problems, though they may not the past year has tested our ability— the ability of the Federal Reserve System— to adapt its tra all be solved, have changed in form and char I raised a point at the beginning of this talk acter. All segments of our society should ex ditional ways of doing things to meet the new amine themselves to see that they have truly problems of the day. The System is an organiza adapted to the world as it exists in 1961. tion with traditions that extend deep into our past and, indeed, deep into the past of the Conclusions Western World. Some critics have complained Let me summarize now some of the points I that these traditions have controlled our outlook have been trying to make. The System has been and our policies beyond the period of their rele faced with unusual problems in the past year. vance and usefulness. At the other end of the The System has moved with flexibility toward pole, some have complained that we have adapted too easily to the irrational pressures of am eliorating these problems. We have had, we And the problems that remain are not within the day. The record in meeting the new com plexities of this year does not support either of the System ’s power to solve alone. If we have those arguments. believe, some success. But problems still remain. learned anything in the past ten years it is that The fundamental fact that historians and biol monetary policy is not a panacea. It cannot ogists alike have pointed out is that all institu substitute for intelligent decisions elsewhere in tions and all species must adapt if they are to the economy— intelligent decisions by Govern make a contribution— indeed, if they are to su r ment and by private individuals and groups. vive. Adapt, yes, but in accordance with our M onetary policy is, however, an important com convictions. We must, in other words, play plement to intelligent decisions made elsewhere heads-up ball. We hope that this, too, is one of in the economy. It can reinforce and m agnify our traditions. 8
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