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A fes notes concerning the address of Governor Marriasr
S« Eccles of the Board of Governors of the Federal Eeserve System at the meeting of the Robert morris Associates on October ?, 1385, at French Lick, Indiana,

The president of the Associate* in introducing Governor lecles stated
that by request of Governor Eccles no transcript was to be made of his remarks.
Governor Eccles spoke from the floor (not from the speakers platfoni) and talked
in a most inforaial manner, not even using notes*
returning to lashington.

le had been ii the west and ems

He left the convention with officers from the St. Louis

Reserve Bank, who drove with him to St. Louis that afternoon.
Governor Eccles began his remarks by stating that the cause of the presert
depression was due to the continued inflation of prices and finally reached its pe*&
In 1929, being followed by a period of deflation with the banks steadily calling
loans* wlta prices falling and unemployment increasing on every hand.

He brought

out, as sore or less the central theme of his address, the thought that at the
present time due to the past conditions which led up to the existing situation,
the fundamental principle which should be considered now in credit analyses was
that of the stability of the loan.

As the head of a system comprising 27 banks

he said he had had abundant opportunity to analyze credits.

He emphasised his""

belief that a perfectly sound credit extended during the period whan our national
income warn iO billion dollars a year, which it reached in 1929, became an unsound
credit whsa the national income dropped to SO billion dollars a year.

He believes

that saund credit depends more upon the stability of business than upon anything

le must, therefore, use our every means la order to build up our business

We should not

lose sight of the fact that the great deposit decrease

during the banking trouble was due primarily to the collection of loans.


productive capacity of the country was never greater than at the time of the

- £ uepreasion In 1952 end 13SJ.

The primary problem of the depression was not one

of production at all but of distribution and ths principal problem of distribution
is that of money and credit*
The present administration as well as the prior administration was faced
with a condition where law and order throughout the land were breaking down. The
home owner and the farmer were In dire distress*

The great agencies like the

Hational Credit Corporation followed by ths Reconstruction Finance Corporation* the
Bone Owners I*oan Corporation, and the Federal Farm Loan Association, followed by the
Farm Credit Administration wore all started in the previous administration prior to
19?£, and these various agencies and others substituted government bonds for the
credits of these agencies.

It was necessary for the Government to step in and

arrest the deflationary process which by 1952 had assumed such alarming proportions.
These various agencies stopped cradit deflation which was necessary before you could
have any credit expansion.

It is well to bear in a&nd that the R.F.C* has been In

the process of liquidation for over a year.

The extension of credit to the extent

of 6 or 7 billion dollars for these agencies stopped a process of destruction and
deflation that private bankers could not stop.

Governor Eccles spent considerable

time in defending the present adadniatration's policies of spending &nd &lso defended
it against the critics of the various agencies previously laentioned and also showed
that the Government's policies were not entirely

la spending but also composed in

part of lending, such as lending to banks both closed and open arid financing industry and faraters in various ways*

In speaking of the federal fintuices, Governor

Eceles mentioned that the national budget was not even in balance in 13?1 or I3c£,
prior to the present administration*
Governor Keeles says that if the capitalistic system is to be preserved
it mist be made profitable for sen to engage in business and in various industries!
otherwise capital will not be attracted to then.

He called attention to the fact

that even during the period of depression more than twice as much capital as in any
other period was invested in gold mining and in the brewing and distillery businesses
just because there existed in the* an opportunity for asking a profit.

The question

of confidence by business sea is an effect and not a cause of business conditions.
The profit possibility of business is the real cause to be farthered.
Goveraer Eecles called attention to the holdings of government bonds and
mentioned that 80 per cent of thea were purchased prior to the present adaltiistratlon.
Oar excess reserres are aade up practically of gold iaports amounting to over 2
billico dollars.

Be emphasised that the dollar is the strongest money in the world

Governor Eeclea said he had been much interested in aa extract on conditions prevailing a long tine ago in England compared to these which we have been
experiencing in this country, as given in volume 4 of McCauley** History of England,
where there appears & at&teasat with regard to the national debt and the difficulties
incident to Its regayment.

Governor Eecles stated that this reference to the con-

ditions which prevailed in England at that tise plves am confidence in oar national
debt which is increasing so rapidly.
The important thing to consider according to Governor Eecles is not so
such the question of the Federal debt as that of the national income.

le aast not

be content with conditions which allow our factories to remain idle and our country
to have large aoabera of unemployed men.

When this kind of a problem is too asueji

for private capital to solve, then the federal government oast step into the picture
and spend the necessary money to do it.
Governor Iccles said he was not especially alarmed by the present size
of the Governaent debt, nor would he be if it were increased to forty billions and
compared our debt to that of the other capitalistic nations - the largest of which
is Great Britain - and said that the aet government debt of the United States, after
the deduction of- Treasury balances, stabilization fond, and other assets, was about
£8 per cent of the national incos*©} whereas in the case of Great Britain, the debt
was 1S8 per cent of their national incase.

The debt of all public bodies - that is,

the net central debt plus debts of all other civil divisions - is 78 per cent of the
national income of the United States and 194 per cent In the case of Great Britain.
la round Bombers, the debt of all public bodies in tlils country is S7 billionsj if this

• 4 was as large, in relation to our national Income aa the British public debt is to
theirs. It would be 37 billions.
clusive of their war debt.

These figure* in regard to Great Britain are ex-

The national income of the Suited States, Governor Eccles

stated had recovered from its low of 40 billions ia 1352 to around 50 or 55 billions
in 1954.

Re spoke about an unbalanced budget, and emphasized that a budget could only

be balanced from the national income and that only thrjagh the increasing of the national
income and the increasing of tax receipts would the budget deficit be ellfcin&ted. He
said that the budget in his opinion would be balanced ia the near future.
Governor Eccles emphasised that credit men smst look at their job from the
standpoint of the economy as a whole.

The banks' mist be in a position to provide

types of credit that may be required in the communities where they are located. Banks
oust not dictate what the people must do.

Be suggested thut it would be aa interesting

thing for the banks to analyze the types of credit needed in the various com-^unities.
B« said that of the 10 billion* of savings and time deposits la this country,
3 billions were held by the commercial banks; end that the commercial batiks as holders
of these deposits would have to give serious consideration to the investment of a
considerable part of these funds in ssortgage or long term invest;3ents.

Ha said the

only other alternative was to continue to buy heavily of Government bonds aud let the
Government do the financing of mortgages or else see the large insurance companies
of the country coiae into the various eoauounities and take away the cream of the
Governor Eccles emphasized at length the relationship between the Treasury
and the federal reserve system with the deduction that the relet ions! 4p is very
close; it is bouod to be so always and this has been so in the case of the other great
central baaks la the countries where they are located.

He referred to a recent state-

ment of Viscount Snowden when he said that the Bank of England is subjected to the
will of the Treasury.

He believes that the will of the federal reserve system

always could be minimized or invalidated by the Treasury through the operations of
Its stabilization fund, plus the possible issue of 5 billions of currency or even
through a further devaluation of the dollar.

Governor Eccles spoke slowly and deliberately} clearly and forcefully!
and his iaforaality was lilted,
jority of those present.

H« appeared to impress favorably a large ma-

Froa inquiries the deduction sight be aad© that perhaps

his listeners were aot convinced entirely with his logic or conclusions but they
certainly were given saeh food for thought.

Probably m a y of the subjects to which

h© referred war® relatively ne» to many ia his audieaee, being Batters which to a
large extent had not come to their immediate attention.

Re presented the ease of

the present administration aad of the the board of governors of the syteat in a
strong way.