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Address of Wm. McC. Martin, J r . ,
Chairman, Board of Governors of the Federal Reserve System,

on the Occasion of the Opening of the New Building
of the Federal Reserve Bank of Boston,
Boston, Massachusetts,
Eight p . m . , May 6,


For release in morning newspapers,
Thursday, May 7, 1953.

It is most fortunate that the Secretary of the Treasury could be
here on this occasion. The magnitude of the public debt and its
importance in the economy today make more imperative than ever a
close working relationship between the Treasury and the Federal
Reserve System. We are allied in a common purpose to serve the
public interest. I am sure you all know that in performing our
respective tasks we work together as partners in a spirit of mutual
understanding and respect.
All who heard or read Secretary Humphrey's address at the
Associated Press meeting in New York will agree, however, that it
would have been far better had your program tonight scheduled him
for the address and me for the greetings.
I could perhaps have taken my cue from a late New Englander
who carried into the White House those sturdy virtues, including
frugality even in words, for which this part of the country deservedly
is noted. I am reliably informed that a group of Amherst men, attending a conference in Geneva, decided one evening, in a spirit of fiesta,
to form the Amherst Club of Geneva. It struck them as a good idea
to send a cable to President Coolidge informing him of this notable


achievement and suggesting that he, as a loyal alumnus, might wish
to send greetings. He did. They received in due course a one-word
message in reply. It said, "Greetings",
The responsibility for the assignments on the program is yours.
I shall not take advantage of it, however, to detain you with anything
so formidable as the word "address" suggests. I do want to touch on
a few matters of concern to the Federal Reserve System, particularly
the role of the individual Federal Reserve Bank today. This new
building which you have opened is a symbol, not simply of growth,
but more especially of the function and responsibility of the Federal
Reserve Banks in the nation and in the communities they serve


more accurately, reservebanking—


the United States has been adapted to the requirements of a free people
with a minimum of Government interference.
of the Federal ReserveAct—


The genius of the framers

I have emphasizedbefore—


in the

creation of regional banks, knit together by a national governing body
in Washington rather than in the establishment of a central institution
with authoritarian powers. Each Federal Reserve Bank and each
branch office is a regional and local institution as well as part of a
nation-wide system.

Through their boards of directors, the banks are


in a position to represent the views and interests of the particular
region to which they belong and, at the same time, they are the
administrators of nation-wide banking and credit policies.
Instead of functioning from the center outward, we function
through an interdependence of all our parts.

The vitality of the

Federal Reserve System is in its members.

The health of each

member affects the whole, and it is only through the work, and the
conviction, and the determination of the members that the whole has

Within the framework carefully outlined by law, the Federal

Reserve Board is charged with the responsibility for formulating
national credit policies and supervising their execution.

The Federal

Reserve System is not perfect,but it is unquestionably the main bulwark
of our private banking system. Without a strong and independent
reserve banking system, private banking must inevitably lose the
initiative it now possesses.
It is well always to bear in mind that the Federal Reserve
System is a service institution, and that the more than 250 directors
of the 12 banks and 24 branches, the 20, 000 officers and others who
work in them, as well as the Board and staff in Washington, are all
serving as trustees of the money of all of the people of this vast
country, not any one group, or faction, or section.


Although the Federal Reserve Banks sometimes are referred
to as bankers' banks, that describes only a part of their function.
The various services which the Federal Reserve Banks perform for
the banking community, such as supplying currency, transferring
funds, and collecting checks, are an essential element in keeping
the mechanics of modern commercial banking in step with the
financial needs of a growing and changing private enterprise economy.
But the overriding purpose of this Reserve System is to serve the
interests of the general public in business, industry, labor, agriculture, and all walks of life,
This institution is the fountainhead ofcredit—
bulk of our money supply.


the great

It is the medium for distributing the

pocket money in daily use, but that is of subordinate importance.
The ebb and flow of pocket money is determined by day-to-day needs
of the merchant, the shopper and all who use cash.

Of far greater

importance is the System's responsibility for creating or extinguishing credit.

Forcredit— bank credit —


the life blood of our economy.

The trusteeship to which I refer is carried out in the exercise
of the System's responsibility for influencing the volume, availability,
and cost of credit.

The purpose is to see that, so far as Federal

Reserve policies are a controlling factor, the supply and flow of
credit is neither so large as to induce destructive inflationary forces


nor so small as to stifle our great and growing economy. Now that is
a very great responsibility.

By its very nature it must be carried

out in the interests of all of the people. And if it is not so executed
then the country would demand and deserve a new and faithful
trusteeship over the creation and flow of credit.
Some critics have charged the System with failing one of its
fundamentalpurpose —


the value of thedol ar—


in the four decades since the System was founded, the value of the
dollar has been cut more than in half. The truth of the matter i s ,
of course, that in these years we have had two world wars.

We are

still in the cold war. The resultant economic upheavals could not
have been prevented by monetary policy alone. And this is not to
say that monetary policy has always been as timely or effective as
it might have been. The fact remains that without an appropriate and
effective monetary policy there is no adequate safeguard against the
distortions and distress that can be brought about either by much too
little or much too much money.

The ideal would be enough to meet

the growth needs of the economy, without either inflation or deflation.
For most of the postwar period, the aim of monetary policy
and action has been to prevent inflation.

The war ended with a money

supply which was so excessive in relation to the available supplies of
goods and services as to result in a strong upward pressure on prices,

-6and a rising cost of living. We had more than a taste of that when the
harness of price, wage and other controls, which temporarily held
back the war-created flood of money, was removed and the tide of
unchecked funds inundated the market places. Following Korea, there
was a sharp resurgence of these upward pressures.

These quite

recent experiences should have taught us, if the long history of
monetary excesses in other parts of the world did not, that there are
no sound substitutes for intelligent fiscal and monetary policies and
measures. And it illustrates once more than when an economy is
running at peak levels of production and employment, creating more
money will not create more things to buy. It can only bid up the
prices of available supplies.
Inflation is a sneak thief. It seems to be putting money into
our pockets when in fact it is robbing the saver, the pensioner, the
retired workman, theaged—


least able to defend themselves.

And when deflation sets in, businessman, banker, worker, suffer
alike, as most of us here know from the early thirties.
All of that is an old story, to most of us, yet there are voices
being heard even today that seem to say that just a little more inflation won't do anyharm—


that the price of even a few ounces of

prevention is too high. What we are seeking to prevent in the end, of
course, is deflation.

In these past two years we have had the almost


ideal economicsituation—


have had a remarkable degree of

economic stability at record levels of employment and production.
We have not had another round of inflation.
thing resembling a deflation.

We have not had any-

This desirable state of affairs cannot

be ascribed to monetary policy alone, of course.

But I do not

believe it would have been achieved without the monetary policy and
actions of the past two years. I do not think it would have been
possible had the Federal Reserve System let the creation of credit
go on unchecked in this period. The transition to free markets,
as I have called it, made possible the adjustment of the money
supply during this period in the orderly growth of the economy,
without further inflation or speculative excesses. And this has
been accomplished despite the diversion of economic resources to
the defense program.
All of us here tonight have been affected in one way or another
in this transition. Member banks have not had unrestrained access
to Federal Reserve credit by the sale of Government securities at
known prices. In many cases they have had to come to the Reserve
Bank discount windows to borrowres rves—


pay the cost of

the borrowing. The officers and directors of the Reserve Banks
have had to shoulder again the very important responsibility for


these discount operations.

The use of discount facilities has been

termed a privilege. It is one of the privileges of membership in
the Federal Reserve System. It is not an automatic privilege,
however. The Reserve Banks are authorized to extend credit to
each member bank with due regard for the claims and demands of
other member banks, the maintenance of sound credit conditions,
and the accommodation of commerce, industry, and agriculture.
When a member bank experiences unexpected drains on its
reserves, it may appropriately apply to a Reserve Bank for credit.
As it adjusts its operations to these new conditions, it is expected
that the member banks will promptly repay these temporary borrowings,
Member banks are expected to aniticpate[anticpate]normal seasonal requirements
and be in a position to meet them by adjustments in liquid assets with
a minimum reliance upon borrowing at the Federal



Reserve Banks, of course, stand ready to meet exceptional, or
extraordinary needs for funds by member banks. All of the Reserve
Banks are now authorized in a period of general stress to lend on any
acceptable paper, not merely on so-called eligible paper.
These, I think, are the appropriate uses of the discount

Clearly they do not contemplate misuse of that privilege

for the purpose of enlarging a bank's capital base, or earning a rate
differential, or facilitating speculation of any kind.


The initiative in the determination of discount rates is placed
by the Federal Reserve Act in the boards of directors of the respective


this is a very important responsibility even though

final determination of discount rates rests with the Federal Reserve
Board. Similarly, the responsibility for granting or withholding loans
to individual member banks is also vested in the directors and officers
of the Federal Reserve Banks. They must be the judges. They are
on the ground and are presumed to be familiar with local conditions,
as well as the state of the economy nationally.
The Reserve Act, as I have said before, is an ingenious blending of public and private participation in a public institution created by
the Congress to regulate the money supply. The ingenuity is exemplified, I think, in the composition of the boards of directors of the
Reserve Banks. They represent a broad cross-section of industrial,
business, banking, agricultural, and professional activities, both
large andsmal —


they in turn are called upon to act in the national

interest and not for the special advantage of any group or faction or
section of the country.
They have a duty, also, to foster a wider understanding of
the role that monetary policy shouldplay—
cannot accomplish.


it can and what it


The universal desire for orderly, steady economic progress,
and a constantly improving standard of living, certainly cannot be
achieved without flexibly administered monetary policy and action —

of liberal monetary ease when inflationary dangers no longer threaten
Criticism of Federal Reserve policy and performance has
mainly sprung from ascribing to monetary action an omnipotence
that does not and would notexist—


if there were men omniscient

enough to devise and execute monetary policy perfectly.
objecting tocrit cism—


I am not

should and I think we do sincerely welcome

critical appraisal of our performance.

But critical analysis and

comment that can be useful in guiding future action, though it cannot
rectify past mistakes, has to be well informed and understood.
The Federal Reserve Banks recognize, I know, the special
responsibility they bear in their respective areas for gathering
economic information and making it available.

They have a duty to

explain what they do, and why, in carrying out their part in the
trusteeship over credit.

The report on "Steps to Maintain Economic

Stability" which was issued by the Committee on Economic Stabilization
of the Board of Directors of this Bank is a commendable example of
informed discussion of economic affairs.

-11Your task is more than ever an exactingone— but it is an
inspiring one. The trusteeship which this System and its member
banks share is vital to the preservation of our system of private
The System, I am certain, has made a notable contribution
to the attainment of the sustained economic progress of the past two
years. It can, I am confident, continue to make an important contribution in the years ahead.
That confidence. I deeply feel,

I was asked the other day in

Detroit what would happen to us after a few years of a genuine peace —

give you the reply as I made it then:
"I can only give you my philosophy on this. To me
the most heinous statement that is made by some people
is that war leads to prosperity, or that war is prosperity,
I can't conceive of an economy based on war that can
ultimately be prosperous. We have to go through certain
readjustments to have an intelligent peacetime economy.
We've got to have our business based on initiative and
competence andsalesmanship—
raw materials and
products —
not on dependence upon spending for war
purposes. I believe that this country has the flexibility —
unravel this ball of twine that
we've wound up, and to do it in a way that will lead
us to a higher, a more expansive, and a better standard
of living for all of the people. I have that faith. "