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Z-74-5 ADDRESS BEFORE THE NATIONAL RETAIL CREDIT ASSOCIATION AT NEW ORLEANS, LOUISIANA WEDNESDAY, JUNE 17, 1942 m RONALD RANSOM VICE CHAIRMAN OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM For release i n afternoon newspapers of Wednesday, June 17, 1942. Z-745 REGULATION W — ITS ADMINISTRATION I t was a pleasure t o accept y o u r i n v i t a t i o n t o appear on t h i s program, because y o u r o f f i c i a l s assured us who represent t h e Federal Reserve System a t y o u r convention t h a t we would have t h e b e n e f i t of a gene r a l d i s c u s s i o n ' o f t h e problems of r e g u l a t i n g consumer c r e d i t . The views of those s u b j e c t t o governmental r e g u l a t i o n s are i n v a l u a b l e t o administ r a t o r s . We welcome t h e o p p o r t u n i t y t o e x p l a i n t h e p o l i c i e s u n d e r l y i n g t h e Board's r e g u l a t i o n s and t h e o b j e c t i v e s we seek t o achieve. Regulat o r y a c t i o n can best be developed through c o n s u l t a t i o n w i t h those' whose a f f a i r s are subject t o r e g u l a t i o n . They should have every o p p o r t u n i t y t o present t h e i r views based on t h e i r p r a c t i c a l knowledge and experience i n t h e d a i l y r o u t i n e o f business. Meeting w i t h you a f f o r d s an o p p o r t u n i t y t o express t o your members t h e Board's a p p r e c i a t i o n of t h e cooperation extendfed by t h e o f f i c i a l s and members o f y o u r A s s o c i a t i o n . Your o f f i c i a l s have always responded w i l l i n g l y t o our requests f o r conferences and discussiorys. They have been most h e l p f u l . As a member o f a Board of s i x , I can speak f o r t h e Board only i n connection w i t h m a t t e r s on which t h e Board has acted and p u b l i c l y announced i t s p o l i c y . Otherwise what I have t o say i s n e c e s s a r i l y an expression of my i n d i v i d u a l p o i n t o f v i e w . Regulation W should be viewed i n proper p e r s p e c t i v e . Accordingl y , some r e f e r e n c e t o i t s background i s necessary. Beyond e v e r y t h i n g else, a l l o f us have one o b j e c t i v e t h a t takes precedence over a l l o t h e r s : t h e defeat o f Germany and her treacherous a l l y Japan and her contemptible Fasc i s t a l l i e s i n I t a l y . The Axis powers have conspired t o destroy a l l of those freedoms on which democracy r e s t s . We are u n i t e d as never before t o defend our n a t i o n regardless o f c o s t . This was i n e v i t a b l e from t h e moment t h e Nazi scheme of t h i n g s came i n t o b e i n g . These lawless and r u t h l e s s enemies o f freedom, i n t h e i r l u s t f o r w o r l d domination, recognized t h a t t h e i r conception of government and ours could n o t b o t h e x i s t i n a w o r l d made small by t h e e l i m i n a t i o n o f d i s t a n c e and t i m e . F o r t u n a t e l y f o r c i v i l i z a t i o n , our President foresaw t h e course o f events, and understood t h e meani n g o f t h i s w o r l d r e v o l u t i o n , which has imposed upon our country unprecedented burdens and r e s p o n s i b i l i t i e s . That we w i l l w i n , t h e r e i s no longer t h e s l i g h t e s t doubt. Our primary o b l i g a t i o n , o f course, i s t o supply t h e man power, t h e m u n i t i o n s , planes, t a n k s , s h i p s , and other war m a t e r i a l s , which some-* where on t h e globe w i l l mean the f i n a l d e s t r u c t i o n of the tyranny we oppose. We f u l l y r e a l i z e now t h a t t h i s i s a t o t a l war, demanding an a l l - o u t e f f o r t , i n which c i v i l i a n s as w e l l as t h e armed f o r c e s are a c t i v e p a r t i c i pants. I t i s n o t merely a mechanized war—a war of m a t e r i a l p r o d u c t i o n . I t i s as w e l l a war on t h e p s y c h o l o g i c a l p l a n e , i n which propaganda i s p i t t e d against morale. I t i s a l s o a war on t h e economic f r o n t . -2- Z-745 Nasi propagandists have p r e d i c t e d c o n f i d e n t l y t h a t we could not achieve t h e war p r o d u c t i o n goals set by t h e P r e s i d e n t . But they have added, i n c o n s i s t e n t l y , t h a t i f we d i d i t would be a t the cost of ruinous i n f l a t i o n a r y developments on t h e economic f r o n t . American i n dustry and l a b o r have already g i v e n t h e l i e t o t h e f i r s t prophecy. It i s up t o a l l of us t o prove them e q u a l l y f a l s e prophets i n measuring t h e a b i l i t y o f t h e American people t o r i s e t o t h e needs of the hour i n p r o t e c t i n g and s t a b i l i z i n g t h e economy. Our people have shown, by innumerable evidences and t e s t s of p u b l i c o p i n i o n , t h a t they are w i l l i n g and eager t o s u b j e c t themselves t o t a x a t i o n , r a t i o n i n g , p r i c e c o n t r o l s and other r e s t r a i n t s , and regul a t i o n s e s s e n t i a l t o safeguarding t h e economic f r o n t . They have asked only t h a t t h e demands made upon them be a p p l i e d e q u a l l y and f a i r l y , w i t h out f a v o r i t i s m . They have responded l o y a l l y t o p a t r i d f t i c appeals t o forego unnecessary spending and t o i n v e s t as much as p o s s i b l e of t h e i r c u r r e n t incomes i n war savings bonds. Appeals t o t h e i r p a t r i o t i s m have s u f f i c e d t o evoke a l o y a l r e sponse even when t h e reasons f o r t h e demands made upon them have not been widely understood. The close i n t e r r e l a t i o n s h i p of the v a r i o u s p a r t s of t h e P r e s i d e n t ' s seven-point program t o curb t h e upward s p i r a l i n g of the c o s t o f l i v i n g i s apparent t o economists, r e g a r d l e s s of t h e i r i n d i v i d u a l conceptions of t h e program most a p p r o p r i a t e a t t h i s moment. How genera l l y t h e r e l a t i o n s h i p s are comprehended i s another m a t t e r . Not many people f u l l y r e a l i z e t h a t i n v e s t i n g i n war savings bonds, or f o r e g o i n g unnecessary b x y i n g , o r paying d e b t s , or r e f r a i n i n g from borrowing t o be used i n b v y i n g c i v i l i a n goods, are a l l ways of h e l p i n g t o s t a b i l i z e t h e econony and curb t h e upward s p i r a l o f l i v i n g c o s t s . We need t o make these seemingly complex matters much c l e a r e r ; f o r t h e wider t h e understanding o f them, t h e more c e r t a i n we w i l l be of such overwhelming, wholehearted p u b l i c response t h a t t h e r e w i l l be no more doubt of success on the home f r o n t than on t h e b a t t l e f r o n t . There i s no o t h e r j u s t i f i c a t i o n f o r ny t a k i n g your time today t o o u t l i n e , as b r i e f l y and simply as I can, t h e r e l a t i o n s h i p of consumer c r e d i t r e g u l a t i o n t o t h e o t h e r , more important p a r t s of the o v e r - a l l p r o gram. Regulation o f i n s t a l m e n t and c i v i l i a n consumer c r e d i t g e n e r a l l y i s a t best a supplement t o t h e l a r g e r , more important means of economic management. By i t s e l f i t would be meaningless. Without i t o t h e r more basic measures, such as t a x a t i o n , might be l e s s e f f e c t i v e i n drawing o f f s u r plus spending power f r o m t h e market. P u b l i c acceptance of consumer c r e d i t r e g u l a t i o n has been i n keepi n g w i t h o t h e r evidences of general readiness—indeed, eagerness—to subm i t t o r e s t r a i n t and r e g u l a t i o n as a w a r - t i m e n e c e s s i t y . This i s t r u e n o t w i t h s t a n d i n g t h e f a c t t h a t t h i s type o f r e g u l a t i o n i s d i r e c t , r a t h e r -3- Z-745 than i n d i r e c t , seemingly an encroachment i n a f i e l d h i t h e r t o uninvaded by Government r e g u l a t i o n , We have sought t o be p e r f e c t l y candid about i t . We recognize i t f r a n k l y f o r what i t i s — a type o f r e g u l a t i o n and p o l i c i n g of business and personal a f f a i r s t h a t we Americans d i s l i k e i n s t i n c t i v e l y and want as l i t t l e o f as p o s s i b l e . Yet t h e p u b l i c genera l l y appears t o have r e a l i z e d t h e need f o r i t as an e s s e n t i a l p a r t of t h e Government's program t o p r o t e c t t h e people from an upward s p i r a l i n t h e cost of l i v i n g . We have repeatedly s t a t e d t h a t t h i s emergency measure was not t o be used as an excuse f o r i n s t i t u t i n g reforms of business p r a c t i c e s o r e r a d i c a t i n g abuses such as may e x i s t i n t h e consumer c r e d i t f i e l d . Our job was t o reduce spending power by r e g u l a t i n g t h i s c r e d i t , • The a d m i n i s t r a t i o n of t h e Regulation i s d i f f i c u l t and a t times i s n o t a pleasant j o b . We have t r i e d t o a d m i n i s t e r i t w i t h as l i t t l e disturbance and meddling i n the a f f a i r s of those concerned as was poss i b l e , We propose t o continue i n t h a t s p i r i t . As I have i n d i c a t e d , Regulation W i s a supplementary, r a t h e r t h a n a primary weapon of c o n t r o l . P r i o r i t i e s and a l l o c a t i o n s come ahead of i t i n importance i n r e l a t i o n t o t h e durable goods problem. T a x a t i o n , p r i c e f i x i n g , and r a t i o n i n g are s t i l l more important c o n t r o l s d i r e c t e d toward t h e r e s t r a i n t of a *rise in t h e cost of l i v i n g . Investment i n war bonds should c o n t r i b u t e more i n d o l l a r volume than Regulation W t o b u i l d i n g a backlog of consumer i n v e s t i n g power i n t h e post-war w o r l d , w h i l e a c t i n g a t t h e same time as a powe r f u l a n t i - i n f l a t i o n a r y c o n t r o l . Nevertheless t h e n e c e s s i t y f o r an a l l out e f f o r t t o achieve s t a b i l i t y r e q u i r e s r e s t r a i n t s on consumer c r e d i t a t a time l i k e t h e present when n a t i o n a l income lias already r i s e n t o an a l l - t i m e h i g h and i s s t i l l i n c r e a s i n g w h i l e t h e volume of consumer goods i s s t e a d i l y d e c l i n i n g . R e g u l a t i o n W i s no panacea, b u t i t can and i t has put a damper on c r e d i t d o l l a r s which are j u s t as much a f a c t o r i n b i d d i n g up p r i c e s as are cash d o l l a r s . I t i s as a r e s t r a i n i n g i n f l u e n c e , not as a c u r e - a l l , t h a t we have sought t o apply and adapt i t t o the changi n g c o n d i t i o n s of a war economy. The President s a i d i n J u l y 1933* " I have no f a i t h i n 1 c u r e - a l l s 1 but I b e l i e v e t h a t we can g r e a t l y i n f l u e n c e economic f o r c e s . I have no sympathy w i t h t h a p r o f e s s i o n a l economists who i n s i s t t h a t t h i n g s must run t h e i r course and t h a t human agencies can have no i n f l u e n c e on economic i l l s , " The need f o r Regulation W became apparent l a s t summer when demand f o r c e r t a i n types of consumer durable goods began t o outrun t h e supp l y . These were goods, t h e p r o d u c t i o n of which r e q u i r e d s u b s t a n t i a l amounts o f m a t e r i a l s , s k i l l s , and equipment needed f o r the war e f f o r t . An increase i n t h e volume of consumer c r e d i t a t such a t i m e would have merely added t o t h e i n c r e a s i n g superabundance of spending power. This i n t u r n would have a c c e l e r a t e d t h e b i d d i n g up of p r i c e s of consumer goods, thus i n c r e a s i n g t h e cost of l i v i n g , A r i s e i n these p r i c e s would have -4- Z-745 been accompanied by an increase i n a l l costs o f defense and our subsequent war e f f o r t . These c o n s i d e r a t i o n s r e s u l t e d i n an Executive Order signed by t h e President on August 9 o f l a s t y e a r , d e s i g n a t i n g t h e Board o f Governors o f t h e Federal Reserve System as t h e agency t h r o u g h which consumer c r e d i t was t o be r e g u l a t e d . As a p a r t of Government, t h e System has primary r e s p o n s i b i l i t y f o r t h e d e t e r m i n a t i o n and a d m i n i s t r a t i o n of c r e d i t p o l i c i e s . There was an a d d i t i o n a l reason f o r s e l e c t i n g t h e Fede r a l Reserve Sjystem t o r e g u l a t e t h i s t y p e o f c r e d i t * As c o n s t i t u t e d , i t i s headed by a Board o f Governors r e s i d e n t i n Washington, i n contact w i t h Congress and a l l t h e a d m i n i s t r a t i v e agencies o f Government. Through t h e t w e l v e Federal Reserve Banks and t h e i r t w e n t y - f o u r branches, which c o n s t i t u t e t h e System i n t h e f i e l d , i t has a d e c e n t r a l i z e d o r g a n i z a t i o n extending throughout t h e c o u n t r y . Thus n a t i o n a l p o l i c i e s can be d e v e l oped a t t h e seat o f Government, w h i l e a d m i n i s t r a t i o n can be e f f e c t e d i n t h e f i e l d , i n c l o s e contact w i t h those who are subject t o the R e g u l a t i o n . The System has broad s t a t u t o r y powers t o r e g u l a t e t h e volume of bank c r e d i t , p r i m a r i l y through i n f l u e n c i n g t h e volume of member bank reserves. I t has a u t h o r i t y t o r e g u l a t e margin requirements of banks and brokers i n connection w i t h loans t o purchase o r c a r r y l i s t e d s e c u r i t i e s . I n more than a q u a r t e r of a century o f experience and research, t h e System has gained a wide knowledge of c r e d i t problems. I t was f e l t t h a t t h i s knowledge would prove h e l p f u l i n a i d i n g t h e Government i n i t s r e g u l a t i o n of c r e d i t i n a f i e l d not h e r e t o f o r e r e g u l a t e d . I n i t s s t u d i e s i n t h e f i e l d of c r e d i t c o n t r o l t h e Board o f Governors had f o r some time been g i v i n g s p e c i f i c a t t e n t i o n t o t h e e f f e c t on t h e n a t i o n a l economy of t h e expansion and c o n t r a c t i o n o f consumer d e b t . Various o t h e r groups and i n d i v i d u a l s had done v a l u a b l e research work f o r years i n t h i s f i e l d . Immediately f o l l o w i n g t h e issuance of t h e Executive Order we had t o f o r m u l a t e a R e g u l a t i o n t o implement i t . We wanted t o check t h e s t u d i e s t h a t had been made on t h i s subject a g a i n s t t h e p r a c t i c a l exper i e n c e of t h e t r a d e s t h a t would be i n v o l v e d . For t h i s purpose we had conferences i n Washington t h a t developed u s e f u l i n f o r m a t i o n i n formul a t i n g Regulation W, We r e a l i z e d t h a t by t h i s method we c o u l d i n f o r m those extending consumer c r e d i t as t o t h e n a t i o n a l p o l i c y back of t h e R e g u l a t i o n , I n order t o acquaint users of consumer c r e d i t w i t h t h e terms of t h e proposed R e g u l a t i o n , i t was released i n d r a f t form t o the press b e f o r e i t s e f f e c t i v e d a t e , August 21, 1941* and i t s proposals were widely p u b l i c i z e d . This i n t u r n gave us t h e b e n e f i t o f t h e views of many users o f t h i s type o f c r e d i t . I n a d d i t i o n , a c o n s u l t a t i v e committee, c o n s i s t i n g of t h e Secretary o f the Treasury, t h e then Federal Loan Admini s t r a t o r (now t h e Secretary of Commerce), and t h e A d m i n i s t r a t o r of t h e O f f i c e of P r i c e A d m i n i s t r a t i o n , a f f o r d e d f u r t h e r v a l u a b l e counsel and guidance c o n t i n u o u s l y . We have a l s o had t h e h e l p o f o f f i c i a l s of t h e -5- Z-745 Federal Reserve Banks and are c o n s t a n t l y a d v i s i n g w i t h t h e s t a f f of these Banks. I n d i s c h a r g i n g i t s r e s p o n s i b i l i t i e s , t h e e n t i r e Board decides a l l important questions o f p o l i c y , but one o f t h e members of t h e Board, and sometimes t?/o members, a c t under t h e s u p e r v i s i o n of t h e Board i n t h e a c t u a l c u r r e n t a d m i n i s t r a t i o n o f Regulation W. I n p e r f o r m i n g t h i s t a s k , these members o f the Board are a s s i s t e d by t h e Board's s t a f f , i n c l u d i n g i n p a r t i c u l a r t h e D i v i s i o n of S e c u r i t y Loans which i s represented, here today by t h e Chief of t h e D i v i s i o n , t h e D i v i s i o n of Research and S t a t i s t i c s , and Counsel's O f f i c e . I n many r e s p e c t s , however, t h e most important p a r t of the dayt o - d a y a d m i n i s t r a t i o n o f Regulation W i s performed, under t h e supervision o f t h e Board, by t h e t w e l v e Federal Reserve Banks and £ h e i r t w e n t y - f o u r branches. I t i s w i t h t h e advice of the Reserve Banks t h a t t h e Board makes i t s d e c i s i o n s , i t i s through t h e Reserve Banks t h a t Regulation W and i t s amendments are d i s t r i b u t e d t o t h e vendors and lenders who are s u b j e c t t o i t . , and i t i s t h e Reserve Banks t h a t c a r r y t h e p r i n c i p a l l o a d of educating t h e i r s e v e r a l communities t o the meaning o f t h e R e g u l a t i o n , conduct r e g i s t r a t i o n s , answer a l l s o r t s o f q u e s t i o n s , and have immediate charge of enforcement. Probably a l l o f you have had experience i n d e a l i n g w i t h a Federal Reserve Bank o r branch w i t h respect t o Regulation W, and we f e e l sure t h a t i t i s t o your l i k i n g as w e l l as t o ours t h a t you can take y o u r problems t o them, r a t h e r than t o Washington. Since t h e Regulation was promulgated we have had innumerable t r a d e conferences. We have t r i e d a t a l l times t o keep i n touch w i t h t h e problems o f those who extend and those who use consumer c r e d i t . The f i e l d of coverage of t h e Regulation i s comprehensive, and, as I have s t a t e d , those s u b j e c t t o i t represent b o t h l e n d e r s and vendors. W i t h i n these two groups are t r a d e s and i n d u s t r i e s t h a t have l i t t l e i n common, except t h a t they extend c r e d i t i n one form o r another. The o b l i g a t i o n r e s t s on us t o t i y t o keep t h e scales i n a t l e a s t r e l a t i v e balance between a l l of these v a r i o u s groups, as f a r as p o s s i b l e t o avoid c o n f e r r i n g a competit i v e advantage on any p a r t i c u l a r group. We r e a l i z e d from the beginning t h a t t h e Regulation would have t o be amended from t i m e t o t i m e , not only t o c o r r e c t e r r o r s , but t o meet changing c o n d i t i o n s . Regulating a new f i e l d o f c r e d i t i s n e c e s s a r i l y experimental. I t r e q u i r e s f l e x i b i l i t y and a w i l l i n g n e s s t o make changes where i n d i c a t e d i n t h e l i g h t of experience. The major o b j e c t i v e of t h e R e g u l a t i o n as issued l a s t August was t h e dampening o f demand f o r airbomobiles, washing machines, and o t h e r durable goods, t h e p r o d u c t i o n of which had been or was about t o be c u r t a i l e d i n order t o release m a t e r i a l s , l a b o r , and p l a n t c a p a c i t y r e q u i r e d t o increase p r o d u c t i o n f o r t h e war e f f o r t . The l i s t of consumer goods -6- Z-745 i n t h e o r i g i n a l Regulation r e f l e c t e d t h i s f i r s t o b j e c t i v e o f p o l i c y . Nevertheless t h e f a c t t h a t r e s t r i c t i o n of consumer c r e d i t of a l l kinds d u r i n g t h e war emergency would a s s i s t i n checking t h e r i s i n g cost of l i v i n g and t h e o r d e r l y t r a n s i t i o n from t h e war t o t h e post-war periods was not overlooked. At t h a t t i m e , however, i t d i d n o t seem necessary t o apply t h e Regulation e i t h e r t o charge accounts or t o s i n g l e payment l o a n s . The Board p r e f e r r e d t o apply g r a d u a l l y t h e r e s t r a i n t s of t h e R e g u l a t i o n , g i v i n g wherever p o s s i b l e s u f f i c i e n t t i m e t o t h e t r a d e s i n v o l v e d t o a d j u s t t h e i r normal operations t o t h e terms of t h e R e g u l a t i o n . This p o l i c y i s r e f l e c t e d i n t h e down payments and m a t u r i t i e s e s t a b l i s h e d by t h e o r i g i n a l R e g u l a t i o n . The terms of t h e Executive Order e s t a b l i s h a broad and comprehensive p a t t e r n , which has p e r m i t t e d and w i l l continue t o p e r m i t t h e Board t o a d m i n i s t e r t h e Regulation i n t h e l i g h t o f changing economic cond i t i o n s . I t has been t h e c o n s i s t e n t p o l i c y of t h e Board t o t i g h t e n t h e terms and widen t h e area o f coverage as c o n d i t i o n s r e q u i r e d , b u t , of course, .this i s a two-way s t r e e t ; when c o n d i t i o n s j u s t i f y , terms can be r e l a x e d as w e l l as t i g h t e n e d . By t h e t i m e v\re had t o consider t h e f o u t h amendment of t h e R e g u l a t i o n , which became e f f e c t i v e on May 6 , 1942, and r e s u l t e d i n a comp l e t e r e v i s i o n of t h e R e g u l a t i o n , c o n d i t i o n s had s u b s t a n t i a l l y changed. We had passed beyond t h e defense p e r i o d and were i n t h e war o f f e n s i v e l y . The durable goods problem was n o t what i t had been. P l a n t s manufacturi n g these goods were converted o r i n process of b e i n g converted i n t o p l a n t s producing war goods. The t o t a l of consumer c r e d i t had already shrunk and was o b v i o u s l y g o i n g t o decrease f u r t h e r as time went on, because o f t h e disappearance of automobiles and other durables f r o m c i v i l i a n markets. I n t h e i n t e r i m , however, t h e cost of l i v i n g was r i s i n g . As the President has said,, no s i n g l e step i s adequate by i t s e l f t o prevent such a r i s e . A comprehensive program i s e s s e n t i a l . I n h i s message t o .Congress on A p r i l 27, t h e P r e s i d e n t c l e a r l y s t a t e d t h e p o i n t s which taken t o g e t h e r he r e f e r r e d t o as "our present n a t i o n a l economic p o l i c y . " F i r s t on t h e l i s t i s t a x a t i o n — t h e most important o f a l l t h e steps t h a t can be t a k e n . Then come p r i c e - f i x i n g , s t a b i l i z a t i o n o f remuneration r e ceived by i n d i v i d u a l s f o r t h e i r work, and s t a b i l i z a t i o n of the p r i c e s received f o r a g r i c u l t u r a l p r o d u c t i o n . The purchase of war bonds and t h e r a t i o n i n g o f e s s e n t i a l commodities come n e x t . Last on t h e l i s t i s t h e c a u t i o n t h a t we must discourage c r e d i t and i n s t a l m e n t b u y i n g , and encourage the paying o f f o f d e b t . The President emphasized t h a t those who pay o f f debt w i l l be g r a t e f u l t h a t they have done so when t h i s war i s over. This i s a form of insurance against post-war depression. A d o l l a r paid i n t a x e s , a d o l l a r i n v e s t e d i n war bonds, a d o l l a r spent i n t h e payment of personal debt i s a d o l l a r w i s e l y used a t t h i s t i m e . -7- Z-745 I n May of t h i s y e a r i t was apparent t h a t i n t h e year 1942 a f t e r t h e payment of taxes and t h e purchase a t reasonable p r i c e s of a l l t h e consumer goods a v a i l a b l e and t h e payment of f i x e d and m a t u r i n g p e r sonal o b l i g a t i o n s , t h e r e would be l e f t i n t h i s country an amount of spendable d o l l a r s hard t o c a l c u l a t e w i t h accuracy b u t apparently i n excess of t e n b i l l i o n d o l l a r s and p o s s i b l y as h i g h as twenty b i l l i o n d o l l a r s . T h i s i s t h e s o - c a l l e d " i n f l a t i o n a r y gap". This means t h e amount o f spendable income t h a t should be absorbed i n some way o t h e r than i n t h e b i d d i n g up o f p r i c e s of consumer goods i f t h e cost of l i v i n g i s t o be s t a b i l i z e d and i s not t o reach such h i g h l e v e l s as t o be d i s r u p t i v e of a sound econoiqy and an i n t e l l i g e n t l y managed war e f f o r t . Regulation W had t o be amended t o play i t s p a r t i n t h e P r e s i d e n t s seven-point program. I t was necessary t o consider what an amendment could accomplish as p a r t of t h i s program. I t was? apparent t h a t consumer debt was d e c l i n i n g . The f i g u r e s g e n e r a l l y c i t e d are those of t h e Department o f Commerce. The t o t a l consumer debt estimated by the Department as of December 31, 1941 was $9,550,000,000. As of t h e l a s t o f A p r i l of t h i s y e a r t h e t o t a l was roughly estimated t o be about e i g h t b i l l i o n d o l l a r s . The t r e n d was s t i l l downward, but i t was evident t h a t t h e t r e n d could and should be a c c e l e r a t e d . Making allowance f o r what seemed t o be t h e probable d e c l i n e i n t h e t o t a l of consumer debt over t h e next t w e l v e months, t h a t i s from A p r i l 30, 1942, we took as an o b j e c t i v e t h e i m p o s i t i o n of such r e s t r a i n t as would be l i i c e l y t o produce a t o t a l d e c l i n e i n t h i s type o f debt by A p r i l 30, 1943* of approximately f o u r b i l l i o n d o l l a r s . I n o t h e r words, we hoped t h e amendment as r e v i s e d would assure c u t t i n g down t h e t o t a l o f t h i s debt by about one h a l f by t h e end of next A p r i l , To reach t h i s o b j e c t i v e i t was necessary t o consider evexy f i e l d of consumer c r e d i t as a p o s s i b l e f i e l d of r e g u l a t i o n — l e n d e r and vendor a l i k e — a n d t o impose r e s t r a i n t s wherever i t seemed p r a c t i c a b l e t o do so. A c c o r d i n g l y , t h e Regulation was r e v i s e d t o i n c l u d e r e s t r a i n t s on charge account c r e d i t and s i n g l e payment l o a n s , b o t h of which had been d e l i b e r a t e l y o m i t t e d from t h e o r i g i n a l Regulation. I t a l s o necess i t a t e d l i s t i n g many a d d i t i o n a l consumer durable and semi-durable goods n o t p r e v i o u s l y covered and i n c r e a s i n g down payments and s h o r t e n i n g maturities. I n my o p i n i o n , t h e Regulation as r e v i s e d i n Ivlajr e s t a b l i s h e s t h e p a t t e r n o f t h e Regulation f o r t h e f u t u r e . F u r t h e r s u b s t a n t i a l amendments xvould not seem t o be i n d i c a t e d , unless t h e r e should be a sharp change i n t h e economic o u t l o o k . Just what can t h e vendor, t h e lender and the consumer do? First of a l l , everyone should be f a m i l i a r w i t h and should obey t h e laws and r e g u l a t i o n s made by Government. I f you do n o t know what these laws and r e g u l a t i o n s a r e , f i n d o u t ; ask t h e Federal Reserve Bank or branch i n -8- Z-745 your c i t y o r d i s t r i c t . They are g l a d t o answer q u e s t i o n s . There are a few general g u i d i n g p r i n c i p l e s t h a t , i f f o l l o w e d i n t h i s d i f f i c u l t per i o d , w i l l l a r g e l y c o n t r i b u t e t o t h e success of t h e Government's p r o gram. I f you are a vendor, h o l d y o u r i n v e n t o r i e s t o reasonable levels; replace only where r e q u i r e d t o meet t h e necessary b u y i n g o f y o u r customers. F a i r d i s t r i b u t i o n of i n v e n t o r i e s between vendors i s e s s e n t i a l . Do n o t s t i m u l a t e sales t h a t r e s u l t i n c r e d i t . Do n o t o f f e r c r e d i t as an inducement t o t h e customer t o buy o r t o add t o your s t o r e ' s income through c a r r y i n g charges. Put emphasis on cash s a l e s . Beware of add-ons. C o l l e c t your r e c e i v a b l e s p r o m p t l y . Cooperate Vvith Government and your customers i n g e t t i n g y o u r customers out o f debt and keeping them out of debt. See t h a t y o u r r e c e i v a b l e s d e c l i n e . The post-war w o r l d w i l l a f f o r d p l e n t y of o p p o r t u n i t i e s f o r t h e p r o m o t i o n a l e f f o r t s o f a d v e r t i s i n g men, s a l e s men, and c r e d i t men. . I f you are a l e n d e r , do not urge people t o borrow; s t i m u l a t e t h e repayment of e x i s t i n g personal d e b t . See t h a t your p o l i c i e s do not encourage a s h i f t of consumer debt from vendor t o l e n d e r . Uuide your customers 1 t h i n k i n g and be sure t h a t an a p p l i c a t i o n f o r c r e d i t of a nonp r o d u c t i v e n a t u r e represents a t r u e n e c e s s i t y . There w i l l be such cases, because t h e i n c r e a s i n g n a t i o n a l income i s not e q u i t a b l y d i s t r i b u t e d . There w i l l be borrowers who must l o o k t o c r e d i t t o meet those i n d i v i d u a l and f a m i l y s i t u a t i o n s t h a t , under e x i s t i n g economic c o n d i t i o n s , s t i l l j u s t i f y a p p l i c a t i o n s f o r l o a n s . S c r u t i n i z e them w i t h c a r e , but do not f o r g e t t h a t i n our econoiqy t h e l e g a l and r e p u t a b l e lender of small amounts has served a u s e f u l s o c i a l purpose. Do not encourage add-ons unless they are necessaiy. Watch t h e t o t a l o f y o u r r e c e i v a b l e s . They should steadi l y d e c l i n e d u r i n g the emergency. I f they do n o t , you are probably n o t responding t o t h e needs o f t h i s p e r i o d . I f you are a customer, do not buy a n y t h i n g unless you need i t . Do w i t h o u t i f you can. Do not hoard. Do not t h i n k i t smart t o " b e a t " the laws and t h e r e g u l a t i o n s . V i o l a t i n g the unpopular p r o h i b i t i o n laws was an u n f o r t u n a t e t r a i n i n g f o r t h e p e r i o d through which we are passing. This i s a d i f f i c u l t and serious s i t u a t i o n . Government does n o t want t o r e g u l a t e any f u r t h e r than i s a b s o l u t e l y necessary. Every time you cut a corner on e x i s t i n g laws and r e g u l a t i o n s d i r e c t e d towards p r e v e n t i n g chaos and d i s a s t e r on the economic l e v e l of our war e f f o r t , you i n v i t e s t r i c t e r and broader laws ana r e g u l a t i o n s , more d i f f i c u l t t o a d m i n i s t e r and, i n many ways, more expensive t o your Government, which i n t h e end i s more expensive t o you. Pay your t a x e s , i f thoy can be made s t i f f enough now, we can avoid t r o u b l e and have a sounder economy i n t h e post-war w o r l d . I n v e s t i n war bonds t o t h e maximum you can. You not only w i l l have t h e best investment i n t h e w o r l d , you w i l l not only be c o n t r i b u t i n g t o your Government's e f f o r t t o s t a b i l i s e t h e cost of l i v i n g , w i l l n o t / Z-745 only know t h a t y o u r d o l l a r s are going i n t o the e f f o r t t o preserve y o u r country and d e f e a t i t s enemies, b u t w i l l have a backlog t h a t you w i l l c e r t a i n l y need when t h i s war ends. Pay your personal d e b t . I n c u r no debt t h a t you can a v o i d . To what extent each i n d i v i d u a l can pay t a x e s , i n v e s t i n war bonds and pay up h i s personal indebtedness i s an i n d i v i d u a l problem. I t i s i m p e r a t i v e t h a t a l l should know t h e need f o r i n d i v i d u a l r e s t r a i n t and i n d i v i d u a l cooperation a t t h i s t i m e , because the w e l f a r e of each i n d i v i d u a l i s a t s t a k e , because a l l a l i k e are i n v o l v e d i n t h i s f a n t a s t i c a l l y menacing war. Vendor, l e n d e r , and consumer should a l l remember t h a t t h i s i s , thank God, a f r e e country and t h a t y o u r Government i s but t h e means through which your a f f a i r s are d i r e c t e d . I t has an o b l i g a t i o n t o make sense. I f you d o n ' t t h i n k i t i s making sense, say s o , , b u t say i t cons t r u c t i v e l y and s p e c i f i c a l l y . Do not assume t h a t any x>£ us i n Government t h i n k we know a l l t h e r i g h t ansners or assume t h a t we do n o t want t h e ideas o f our f e l l o w c i t i z e n s . Washington today i s a busy p l a c e . It i s n o t a madhouse. There i s i n e v i t a b l e confusion when a g r e a t , peacel o v i n g democracy marshals i t s v a s t powers t o crush those who would enslave a l l f r e e peoples. Mistakes w i l l be made. Decisions w i l l be reversed, but t h e main o b j e c t i v e w i l l never change, and i t w i l l be reached—not t o o l a t e . I t w i l l be reached t h e sooner i f Government has t h e cooperat i o n of a l l o f u s — i f i t has c l e a r - € y e d c r i t i c i s m , d i r e c t e d toward achievi n g t h e g o a l of t o t a l v i c t o r y and the maintenance t h e r e a f t e r o f a w o r l d i n which each man and every n a t i o n w i l l have a f a i r chance, i n which a standard of l i v i n g can be e s t a b l i s h e d t h a t w i l l j u s t i f y t h e term " c i v i l i z e d " . Our r e s p o n s i b i l i t i e s i n t h e post-war w o r l d w i l l be as great as they are i n t h e war p e r i o d . Our energies and our best thought can then be d i r e c t e d t o c o n s t r u c t i v e i n s t e a d o f d e s t r u c t i v e a c t i o n . I n t h e p r o c ess of d i s c h a r g i n g our r e s p o n s i b i l i t i e s , we w i l l be b u i l d i n g i n every sense a r e a l l y g r e a t country f o r o u r s e l v e s , a country i n which our every e f f o r t w i l l be d i r e c t e d toward p r e s e r v i n g our freedoms, our democratic system of government, and a standard of l i v i n g , t h e p o s s i b i l i t y f o r which we are beginning t o see as p r o d u c t i o n and n a t i o n a l income go up, as t h e war e f f o r t r e a l l y gets i n t o i t s s t r i d e . We are l e a r n i n g much i n t h i s i n s p i r i n g a l l - o u t n a t i o n a l e f f o r t . L e t f s n o t f o r g e t what we have learned when we come t o t h e s u c c e s s f u l end of t h i s g r i m e r a . I t w i l l be w e l l a t t h a t time t o r e c a l l t h e e v i l consequences t h a t f o l l o w e d when we walked out on t h e o b l i g a t i o n s t h a t r e s t e d on our country a t t h e end o f t h e f i r s t World War. B i t t e r experience has shown us t h a t we cannot preserve a healthy economy i n our om country i f t h e r e s t of t h e w o r l d i s allowed t o go t o r u i n . There can be but one safe course t o pursue—take n o t h i n g f o r g r a n t e d . That a technique i s o l d does not prove i t s worth—we must n o t be a f r a i d of t h e new, because i t -10- Z-745 i s new, but n e i t h e r must we accept i t merely because i t i s ne?/. The post-war w o r l d w i l l demand open minds and o b j e c t i v e t h i n k i n g . Willingness t o experiment w i l l be e s s e n t i a l . We w i l l have hard problems t o s e t t l e . We must s e t t l e them i n t e l l i g e n t l y i n order t o preserve t h e freedoms f o r which we now f i g h t and the democratic system o f government; f o r freedom and democracy a r e a p a r t of t h e very a i r we breathe and America's g r e a t e s t c o n t r i b u t i o n t o human w e l f a r e .
@FedFRASER