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11:00 a.m. C.S.T.
(12:00 Noon E.S.T.)


Remarks of

Philip E. Coldwell

Board of Governors
of the
Federal Reserve System

at the

Lamar University Bicentennial
Distinguished Lecture Series

Lamar University
Beaumont, Texas
December 2, 1975

The Struggle for Economic Stability
(A Bicentennial Opportunity)

In the two hundred years of our nation's existence, the
economic challenges facing this country have shifted as the nation
matured but the problems of stabilization? to a considerable degree,
retain a striking resemblance.

Though the challenges have inten­

sified, many of them are the same.

The stabilization problems seem

more complex and the chances of error substantially greater but our
knowledge and tools should have improved with the passage of time.
Certainly our objectives have stayed very much the same over the two

We continue to aim toward economic growth at a pace

sufficient to provide reasonably full utilization of our human and
material resources while promoting an increase in the standard of
living for all of our people.
In the early part: of our nation's history, the primary
economic challenge was one of expansion--expansion into the unknown
frontiers of the West, expansion of our industrial capacity and
expansion to develop an infra-structure of economic facilities which
could tie the nation together.

We need to remind ourselves that

the nation was only a collection of settlements along the eastern
coast when the Declaration of Independence was signed.

In sub­

sequent years the expansion westward brought more and more land under


thc flag of the United States.

As the nation expanded, and the

number of people increased, there was further growth in the in­
dustrial base while building highways, railroads, and communications

It was a continuous struggle because land acquisition

jumped ahead of the means to develop it.

In fact this development

was not really complete until this century.
We are commemorating the bicentennial of our nation next
year and I suspect that most of us have a certain reverence for our
forebears, the people who fought this dynamic land and conquered it
and along with it the floods and droughts, the tremendous
expanses of space with slow communications, slow transportation
and a localized credit market.

But these people we remember on this

two hundredth anniversary V7ere people recognized for their indepen­
dence of spirit, their fortitude, their self-reliance and their
strength of character and moral fiber.

Of course, there were

slippages and there were people who did not measure up to the high
ideal? of the Pilgrims, but as a whole they were a group with an
indomitable spirit of challenge and adventure, meeting the job of
creating and welding together a new nation, a nation eventually to
cover mile after mile of western frontier.

Through both conquest

and purchase, the nation's frontiers spread from the Atlantic to
the Pacific.


Early in the nation's history, it faced many of the same
problems as would recur in most of the next two hundred years— a
shortage of credit, over-spending by government and quite often an
imbalanced credit supply against the credit demands of the nation.
Time after time, with recurring wars, the expenditures of the
nation accelerated sharply and so did the price level.
sulting higher inflation rates

The re­

were dampened by the further expan­

sion of the nation and the corrective phases of the post-war periods.
It was a young and dynamic nation, attracting capital
from abroad.

One can scarcely develop the history of the United

States without recognizing the capital inflows from the Scottish
trusts into some of the western cattle areas and the British and
French endeavors which brought new capital into the expanding free

But the nation was a nation of thrifty pioneers in those

days, people with a challenge to meet, whether it be at home or on
the western frontier.

Through this time the nation struggled with

the challenge of a credit insufficiency, shortages and stringencies
which held up the expansion of the nation, which interrupted its
growth, and which slowed the expanding industrial frontier.


those early years the currency was the Continental and even today
the Continental is remembered primarily for its declining value in
the well known saying, "Not worth a Continental."

The nation also

used gold and silver and established a gold-backed currency, one


backed by gold output from its own mines, gold which stabilized the
value of the currency and which attracted new capital to this nation.
But despite this, the nation suffered a second major setback in the
greenbacks created during the Civil War, and even today our children
hear the historians say that greenbacks were a devalued currency.
Those in the South hear their grandparents say to save your Confed­
erate currency for !
the South will rise again.1
In the first one hundred and twenty years of the nation1s
existence it attempted two national banks to avoid the problems of
inadequate a^d inelastic currency supplies.“ ^ Even as late as 1907,
the United States experienced a major money panic when the currency
supply contracted as national bank notes were pulled back to their
original bank of issue and the nation’s credit supply was sharply

And it wasn't until after the 19th Century that this

nation converted its currency backing from silver and gold to one
of gold alone.

One remembers the great Bryan 'bross of gold" speech

and the debates over monetary equality between silver and gold.


the results of these pressures--inelasticity of the currency, in­
flexibility of its supply, and the poor placement of the credit
availability relative to the demand needs— brought the nation to the
creation of a new central bank.

Late in 1913 President Woodrow

Wilson signed the Federal Reserve Act, and in 1914 the twelve Federal

1/ Bank of the United States, established in 1791, expired 1811.
Second Bank of the United States, chartered in 1816, dissolved in

-5Reserve Banks opened their doors to begin to help monitor and control
the nation fs money supply and smoonli out the flow of credit.


Federal Reserve was to supply credit during periods of seasonal demand
and contract it in periods of seasonal slack.
But the mere existence of a central bank and the fact that
the nation's currency was largely converted over the next forty years
to Federal Reserve currency, did not solve the economic stabiliza­
tion problems of our nation.

Repetitive wars again sharply expanded

the nation's demand for credit, enlarging its deficits and boosting
its money supply with consequent increases in inflation.

And even the

existence of a central bank did not stop the nation from slipping in­
to a major depression, following the excesses of the late 1920's.
But slowly and gradually the nation enlarged its capability and efforts
toward economic stabilization, and slowly and surely it has brought
some elements of economic instability under better control.
At the same time, the nation faced new problems.
We came out of World War II with a highly developed industrial
base, one hardly touched by war, and one geared to shifting in­
to consumer products to supply the nations of the world and to
supply the people of the United States with their highest potential
standard of living.
credit system.

We also came out of the war with a well developed

There developed a single credit market.

No longer

could the West Coast have a severe liquidity crisis while the East


Coast basked in a plethora of credit availability.

Credit terms

became competitive across the nation and even into credit markets

But this very expansion, this very growth of credit avail­

ability and uniformity were to create still further problems as the
nation advanced toward its bicentennial.
Additional wars in Korea and Vietnam, took their toll
in further credit deficits by our Federal Government and a further
major expansion in money supply.

They also took their toll in

an erosion of the degree of control which our nation seemed willing
to tolerate to meet the challenges of tomorrow.

Meeting the

complexities of a modern national and international market place,
and the problems of a demanding economy

with a well-developed in­

dustrial capacity, but an eroding raw material base seemed almost
beyond our abilities.

Our people came to expect a major advance in

their standard of living each year, yet the base, for that expansion
seemed to be crumbling, and the erosion took place year after year
without sufficient recognition.
We based our growing nation upon a fundamental tenant of
freedom, freedom to invest, freedom to make a profit in a free
enterprise economy in a capitalistic system.

But we based this

nation upon a fundamental belief that most people are inherently
honest, that government can be trusted, and that the will of the
majority points the way to the most supportable, long-term course


Cor the nation to follow.


To many of us the free enterprise

capitalistic democracy is still the strength from which we should
pursue our economic future.

While further concentration of authority

has taken place in our central government for the past 50 years,
nevertheless, there is an inherent strength of individual decision
which, I believe, we as a nation must claim if we are to enlarge the
economic fruics for all of our people.

To some extent, the growth,

complexity, and inter-relationships of our nation of 50 states cried
for some centralized direction of the economy.

It is a tribute to

past generations that they developed a constitution which would handle
the crises of the past few years.

It is a tribute to the leaders

of the past 100 years that they have resisted the siren

song of

a central government, all powerful over the states, and resisted the
lure of a planned economy all powerful over the wishes of the
In the broad sweep of this 200 years, the problems of the
moment seem less significant.

Our forefathers fought to achieve

the western invasion with the same intensity that we now
seek to fight the problems of a modern industrial society.

And yet

our difficulties with economic problems are strikingly similar to

We still struggle to provide the capital for expansion,

the savings necessary to support that capital, and the finely honed
balance of a credit supply not excessive to legitimate demands of


the nation nor too stringent to force contraction.

In this period

of 200 years we have shifted from a currency with a hard metal
base to a currency backed by the debt of our central government.
We have shifted from a collection of small banks located in in­
dividual towns to large financial organizations with ties through­
out the nation and abroad.

We have shifted from a self-sufficiency

and independence of raw materials supply to a position in which
that independence is materially weakened, and where raw materials
are drawn increasingly from foreign sources.
In a way our nation is now much more dependent upon the
economic trends of the world than at any time except the first 50
years of its existence.

But I suspect that in the transition we

have lost a measure of the fine qualities of past generations.


have lost some independence of spirit, some willingness to struggle
for ourselves and to take care of our neighbor, and some element of

We seem to have lost some of the strength of

character and moral fiber which bound this nation together through
most of two centuries.

We still face the economic challenges, the

challenges which many of our fathers and grandfathers faced, but we
have made too little progress toward an ultimate solution of those

- 9-

So as we gather to celebrate our bicentennial to commemorate
the 200 years of our existence as a nation, let us view this as an
opportunity to rededicate ourselves

to a viable, strong, and in­

dependent economy; to an economic system where a person's work is
rewarded according to ability and productivity, to an economic system
where centralized government does not take away freedom of choice;
and to an economic and financial system that provides the credit
needed for expansion at a price within reach of most Americans.
This bicentennial is an opportunity to meet the challenges of to­
morrow, to provide more concrete solutions to our economic problems,
to reformulate the priorities of our nation and to assure through
both legislative and individual effort the completion of those
priorities within our free enterprise capitalistic democracy.


let us dedicate ourselves to the solution of these tasks, to achieve
fiscal responsibility, financial control, competitive free enter­
prise, corporate and individual financial statesmanship and moral
integrity, and a return to the dignity and recognition of a person's
Our first challenge— the fiscal responsibility of our nation,
state, city, corporate and individual endeavors— scarcely needs much
elaboration in today's environment.

"Pay as you go" is still a well

recommended and financially desirable approach to expenditures.


"Pay as you go" does not have to mean no debt or no mortgage of the


future, though it does mean a calculated and carefully controlled
debt with clear and understandable moral obligation to repay as
both debtors and creditors accept the responsibilities inherent in
purchases on future payment.

Let us return local problems to local

control, let us see that our cities and states handle the jobs of
welfare, city decay, mass transportation, and the other challenges
of our new society so that the people who benefit from a project
are those who pay for the project.

Let us insure that our cities

and states carefully monitor their ability to pay so that they are
not over-extended— so that we have no more New York situations,
either city or state--and so that our corporations too can live and
work in an environment which enables them to grow, but grow in a
prudent manner.

And let us also dedicate ourselves to handling

our individual financial responsibilities, foregoing those items
for which we cannot pay within a reasonable period of time, and
foregoing those speculative lures which come into the horizon in
this complex society, so that we can add our strength, in a
financially solvent sense and provide the savings necessary for
the future expansion of our economy.


Secondly, we need better financial control and stability.
We need to modernize our nation's central bank to meet its respon­
sibility for control over credit-creation in this nation to in­
sure that the supply of credit is equal to the legitimate demands,
but are not excessive to those demands.

Let us modernize and yet

put such limits on the central bank so that it too must be responsive
to the needs of the nation but not to the whims of the politician.
To me this means expanding the control of the central bank over the
broad range of financial institutions who today account for such a
large proportion of our credit transactions and yet whose activities
are out from under the control of the central bank.

To me this

means insuring that the central bank can provide the policy guidance
to the nation irrespective of the political whims of legislatures
and yet stay within the bounds of government so that it is responsive
to the over-all direction of economic stabilization toward which I
hope our nation will rededicate itself.
Thirdly, it means providing a more competitive environment
in our economic and financial endeavors, enlarging the ability of
firms to meet the needs of the customer and yet so limiting their
handling of the public's funds that they too are circumscribed in
the degree of freedom by which they can alter the financial control
of our nation.

It means providing more and better credit facilities

and services, and yet credit organizations and a financial structure
which will be easily controlled and monitored so that the irresponsible


manager who attempts to over-indulge either himself or a weak
customer can be pulled back into line before irreparable damage
is done.

It means maintaining for our nation today and tomorrow

a clear-cut signal of financial prudence to those that we place
in charge of the financial institutions of our nation.

It means

a high standard of financial honesty--honesty achieved by living
by arm1s-length

dealing wherever the people's money is involved

whether it be at the national, corporate, or local level.


solutions in the future need to also involve our corporate leader­
ship, expanding their financial statesmanship to maintain their eye
on the profit line but keeping a wary eye on the impact of their
actions on the nation as a whole.

It means insuring that corpora­

tions will hue to a line of financial prudence in their dealings
between each other and abroad.

And it means a redevelopment of

the moral integrity of our corporate leadership--leadership which
should abide by all the laws, which knows that the bribes and underthe-table financial dealings of the past were not in keeping with
the high principles of the American dream.
Finally, for you

and I, and for all the more than 200 million

Americans, it means a return to an old-fasioned work ethic with each
being paid according to ability and contribution, with each working
to the best of his endeavors, to the best of his ability to move
up the economic stream to improve himself but not at the expense of




It involves contributing to the national economic growth

and the welfare of our nation, providing some time toward public
service, forgetting personal goals for the moment but instead con­
tributing time and talents to the solution of public problems and
the betterment of mankind.
To me, the bicentennial means a truly great opportunity
to meet these challenges of yesterday, today, and tomorrow.


am convinced that with all of us pulling together and with wise
and prudent leadership, we can lay to rest some of the economic
problems which have plagued our nation over the past 200 years, and
that each succeeding birthday of Uncle Sam can bring us steadily
closer to fulfillment of our American dream of economic progress and