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BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM

Statement for the Press
For immediate release

March 2U, 19UU

Statement of Marriner S. Eccles, Chairman of the
Board of Governors of the Federal Reserve System, before the
Banking and Currency Committee of the Senate, March 2U, 19kh,
on S. 176U, to amend the Emergency Price Control Act of 19U2.




Mr. Chester Bowles has made a most able and effective case for
extension of the life of the price control statutes, I assume that this
legislation will be continued, and I would like to emphasize the importance
of extending it without hampering amendments and for a sufficient time after
the war to allow industry to get back to producing a supply of goods to meet
the demand. Inflationary dangers can only be avoided if the powers of the
administrator are in no way weakened.
Inflationary pressures are still increasing, and will continue to
increase until conversion from wartime production to peacetime production has
been achieved and a balanced budget is in prospect. If the public is assured
that the Congress is determined to continue this legislation which has been
so effective, the great confidence which now exists in the purchasing power
of the dollar will be maintained.
It is the duty of all those charged with public responsibility for
holding the line against the pressures for higher prices and higher wages to
see to it that nothing is done to impair this public confidence in the future
buying power of the dollars invested in Government securities, life insurance or other forms of saving* If that high confidence were impaired,
there would be em increasing impulse to spend money instead of saving it.
That would seriously affect the Government credit and the financing of the
war. The stability of all credit, including Government credit, depends upon
maintaining faith in the purchasing power of the dollar* If the public is
assured by the extension of this legislation for a sufficient length of
time, without crippling amendments, that the line will be held against
inflationary forces, the problem of financing the war and refunding the
public debt will continue to be met successfully. If the public is led to
believe, however, that the price, wage and rationing controls are going t?
be weakened, or not continued as long as may be necessary, confidence cann#t
be maintained in the purchasing power of our money. Without that confidence,
not only would the successful prosecution of the war be jeopardized, but an
orderly transition to a peacetime basis would be out of the question.
Nearly all of our people have a direct interest and stake in what
the dollar will buy in the future. There are countless millions who have
invested in life insurance to be paid to them or their beneficiaries. There
are the countless millions who own nearly 30 billions of savings deposited in
the banks of the country. There are the countless millions who have invested
many billions of dollars in war savings bonds and other Government securities.
There are the countless millions who are depending upon future benefits from
social security, civil service retirement, and innumerable other pension
systems, public and private. There are the churches, educational institutions, hospitals, and numerous endowments and trust funds created for
public benefit. Last, but not least, there are the ten million men and
women in our armed services who, in addition to their investments in war
savings bonds, are buying the life insurance made available to them by the
Government. They cherish the hope that when this war is over, they can use
the money they have saved and whatever is provided for them in discharge
allowances to buy some of the material comforts of life




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that will be available when industry has had time to get back into peacetime production, If this hope should turn out to be only a mirage, those
who are responsible for failure to protect the home front will face a
dreadful retribution.
To extend this price control legislation merely for a year will
not adequately meet the situation. Uncertainty would continue to exist as
to what action may be taken when the year expires. There would be hesitancy
about making long-term plans or commitments. It would reinforce the faith
of everyone in the stability of the dollar if provision is made to extend
this legislation until two years after the war, unless Congress shall, by
joint resolution, discontinue it prior to that time. If it is not needed,
it will not be used. If it is on the statute books, it will give confidence
that inflation is not going to happen here, and such confidence cannot exist
without it. Price ceilings are effective only when demand exceeds supply
and the ceilings are necessary to prevent prices from rising, T V e supply
/hn
exceeds demand, prices are likely to fall below the ceilings. Rationing,
likewise, is used only when there is a short supply of essential goods.
Nothing has been rationed where rationing could be avoided, and surely
rationing will not be undertaken in the future unless it is necessary to
assure an equitable distribution of a short supply.
I have been most favorably impressed, as I am sure the members of
this Committee have been, by the testimony of Mr. Bowles. He and his
predecessors tackled one of the most complex and difficult tasks that men
ever faced. I am satisfied, as I think you must be, that there is no desire whatsoever to keep any of these price or rationing controls when they
are no longer essential to protect all of us against the dangers of inflationary pressures.
There has been a good deal of discussion about the need for
various amendments to this legislation. The record of achievement under
the existing legislation should be sufficient proof that we had better let
well enough alonet When you consider that the cost of living has gone up
only 26 per cent in the fifty-three months from August of 1939 to January
of this year, whereas, in the same period of the last war it went up 65 per
cent, and when you consider that war expenditures in this war so far are
some six times the rate of expenditure in the last war, and when you consider also that nearly half of our entire economy is devoted to war now,
whereas during the last war less than one-fourth of our economic effort was
devoted to war, the achievement has been phenomenal, beyond the hopes of the
most optimistic.
I repeat, we had better let well enough -alone. Doubtless the Act
is not perfect and it could be improved by some amendments. However, once
you open the door to meet the criticisms of one group, you cannot without
difficulty close it to other groups. To amend the Act in an attempt to
achieve equity in wartime would be to ignore the inevitable inequities which
war imposes, x Those of us on the home front cannot possibly make a fraction




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of the sacrifice required of those on the battle front.
These controls are a form of insurance against economic disaster.
No one can say with any certainty exactly what economic conditions will
confront us when the war ends or whether the predominant forces will be inflationary. We know, however, that the inflationary potential will be
enormous. We know that there will be a vast backlog of accumulated wants
and an unprecedented amount of purchasing power in the hands of the public,
which has resulted largely from our heavy reliance upon borrowing in the
financing of our war expenditures.
The inflationary potential which, it is estimated, will exist at
the end of this fiscal year, on June 30, 19UU* measured by demand deposits
and currency, savings deposits in the banks and Government securities held
by business concerns and individually, but excluding Government securities
held by life insurance companies and banks, will amount to 1 ¿ - billion
94
dollars; 113 billions held by individuals and 81 billions by business.
This compares with liquid holdings as of June 30, 19Ul, of J48 billions held
by individuals and 7j\ billions held by business, a total of 79 billions.
In other words, there will have been an increase in the threes-year period
of 115 billion dollars.
This tremendous volume of liquid holdings of individuals and business constitutes the inflationary potential, and this does not take account
of the billions of additional dollars that would be added if consumer credit
and other forms of credit, which have been largely liquidated during the war,
were to expand. Our people have shown, and justifiably so, great confidence
in the Government's credit by the way they have responded in investing in
Government securities» They must be given every assurance that the safeguards restraining the premature use of their liquid holdings will be maintained.
Inflations seldom get out of hand during wartime, but the danger
carries over after peace comes and a war-weary people, tired of wartime controls and restraints, are eager to throw them off. That is just the time
when it may be fatal to relax prematurely the controls #f war^engendered
inflationary forces. That is why it is so important to extend the life of
this legislation for a sufficient period after the war to enable the country
to convert its enormous productive capacity to turning out for peacetime consumption a supply of goods comparable to what it has shown itself capable of
turning out for war purposes.
This enormous store of funds which so far exceeds the supply of
goods available now, when nearly one-half of our production is going for war,
could result in a ruinous inflation if prematurely spent, but could be a
source of infinite benefit to the nation if held in restraint until such
time after the war as goods and services become available in sufficient
abundance to match the stored up buying power. Then it can be a tremendous
factor in helping to provide and sustain production and employment. The restraints in this legislation, if adequately extended without impairment,
afford the best assurance that this unprecedented and growing accumulation
of funds will be used for good instead of evil.



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In closing I would like to remind the Committee of the interest
that the Federal Reserve System has in this legislation. As members of this
Committee are aware, the Federal Reserve, through open market operations,
must stabilize the market for Government securities and provide the banks
with the reserves necessary to enable them to absorb that part of the debt
which is not financed by taxation or borrowing from the general public. The
less we raise in taxes and public borrowing, the more the banks have to be
relied upon to supply the funds to fight this war. And the more the banks
buy, the greater the pressure of dollars on the economy. We know that the
banks have bought many Government securities and that they will have to buy
more# We must make it possible for them to do so, for nothing must be permitted to clog the flow of money needed to finance the war. But as the tide
of money rises, it becomes increasingly important to maintain the restraints
that hold it in check.
If we fail to sustain public faith in the dollar, the liquidation
of securities which would result would inevitably force the Federal Reserve
System to absorb the bonds thus liquidated. This, in turn, would amount to
pumping that much more money into the economy, with increasingly perilous
results. This must not happen, but it could happen if we allowed the faith
of our people to be undermined by a failure to hold this line against inflati on»