View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

For release at 11 A.M.
Central Standard Time
Wednesday, October 2, 1957

Remarks by
Wm, McC. Martin, Jr.
Chairman, Board of Governors of the Federal Reserve System

at the 38th Annual Meeting of the
Texas Mid-Continent Oil and Gas Association
October 2, 1957

The amazing thing about the power that Texans exert in
business affairs is that it seems to continue beyond the grave.
I have in mind particularly, at the moment, the swift and
sweeping success of a multi-million dollar business in headgear, fire¬
arms, and assorted Americana inspired only a few years ago by Davy
Crockett, more than a century after he perished in defense of the Alamo,
The Davy Crockett industry, if I may call it that, was tre¬
mendously active while it lasted. In its heyday, it served as a
testimonial not only to the memory of a dead hero but also to the
business enterprise of living and alert Americans, and I want to make
only a couple of observations about it now.
First, it flourished when -- and because - - i t captured the
public's fancy and provided the public with something people were willing
and able to buy at the price for which it was offered.

No special

assistance from the Government, or the Federal Reserve, entered into
its success.
Second, it faded away when -- and because - - i t could no longer
hold the public's favor in our free markets, and the public preferred to
use its money for other things. Neither the Government nor the Federal
Reserve caused its fall, and neither could have stayed it.
The trouble with referring to the past is that someone always
reminds you that things, of course, are different now,

Just a few days ago, in Washington, a gentleman whom I did not


2 -

recognize, but who seemed to know me, came up to me at a gathering
and grabbed my hand. He said, "I want to shake hands with you, Mr,
Martin. I approve of the policies of the Federal Reserve System. I
think they are fine, although a year ago I thought they were just

I want to shake hands with you. "
Well, I was pleased.

I thought that here was a sinner who had

been converted, and I stopped and shook hands.
from him after that.

But I couldn't get away

He kept pulling my elbow, so I stepped aside with

him for a minute, and he said, "Have you seen what happened to the
stock market today? "l
I said, "fYes, it went down a little bit. "r
"Well," he said, "I just want to tell you that you have been
right so far, but if you don't ease money pretty quickly it will be too
late and we'll all be in the soup, "
i didn't make any comment,

I just quietly faded away.

Please do not think I am asking you to feel sorry for me. If
liberty is free choice, I have been enjoying quite a bit of it lately.
Recently I had a letter itiviting me to speak to another group, and the
writer said they would like me to speak about 20 minutes, and that I
could choose my own subject - - but they would like it to be either infla¬
tion or deflation.
It would be nice to be able to choose conditions, as well as
topics, according to the heart's desire.


3 -

It has, for instance, been suggested a number of times that, if
only the Federal Reserve's monetary policy were changed, we could have
more new homes, more rapid construction of vitally needed schools,
hospitals, and other community facilities, more new automobiles, and
more new highways to relieve the traffic jams we have already.
Well, it would certainly be a fine world indeed if, by merely
opening wider the spigot of credit, the Federal Reserve could increase
the flow of goods and services sufficiently to meet all human wants at
any time. If the Federal Reserve possessed such magic, I assure you it
would use it. But, of course, there is no such magic, and all of us will
be better off if we do not act as if there were.
Last week I attended some meetings in Washington which brought
to our country the responsible financial officials of most of the governments
of the world, and from start to finish there was a remarkable general
agreement that the main economic problem we have had to deal with in
recent years has been the tendency for inflationary pressures to develop
and expand.
Over most of the world today, it was widely agreed, the economic
situation is characterized generally on the one hand by great prosperity,
great activity, and great vitality, and on the other by persistent in¬
flationary pressures.
There are some who say that these two aspects of the current scene
are not only related to each other but are indissolubly linked


blessings of vital and active economic progress cannot be enjoyed without

- 4-

incurring in some degree the ravages of inflation; that a progressive
erosion of the value of our savings is a necessary price, and a not un¬
reasonable one, that must be paid for economic progress.
I wish to enter a firm dissent.

I do not believe that either the

jobs or the internal growth and development purchased by inflation
afford a firm basis for either sustained employment or development. I
refuse to adopt what I consider the defeatist position that inflation is the
alternative to unemployment, or to take refuge in what I consider to be
the cynical rationalization that the pursuit of sound fiscal and monetary
policies is impossible in a democracy.
There are some people who point out that there are many novel
features in today's generalized inflationary pressures.

Most of the world

is now experiencing pressures that stem from unduly heavy defense ex¬
penditures, from growth in population, from demands for higher wages,
from widespread resort to so-called escalator clauses in collective
bargaining contracts, and from the prevalence in modern times of costplus contracts which act to accelerate operations of the inflationary spiral.
It is true that many of these forces complicate our problem today,
but that fact merely states the dimensions of the problem.

It in no way

diminishes the duty of those having responsibility to the public to devise
and apply financial policies adequate to provide for sustainable expansion
and growth and improved standards of living without inflation,

It is fundamental that growth must be financed out of saving. It

- 5 is fundamental in times like these that those responsible for governmental
fiscal policies see to it that public finance does not dissipate the savings
of the community, but rather contributes to them and fosters their con¬
tinued growth. It is equally basic that those of us who are responsible for
the formulation and execution of monetary policies see to it that created
money does not substitute for savings in such a way as to contribute to an
erosion of the purchasing power of the people.
That is my credo, and I put it to officials of other countries at
the gathering I mentioned as earnestly as I put it to you tonight.
There were, of course, people from the smaller or less developed
countries who intimated that in a big country like the United States we
couldn't possibly know what their problems were; that we couldn't possibly
have a very worrisome problem of inflation,

and that we couldn't really

worry, very seriously, about the depreciation of the dollar.
I want, again in all earnestness, to point out that this is not so.
We have had inflation in this country in the last couple of years, and
inflation has gotten somewhat ahead of us - - as witness the rise that has
occurred in the cost of living in every one of the last 12 months.
Inflation is a cancer that strikes the poor and the rich. It is a
process which, once it gets under way, is very difficult to handle because
it feeds on itself as it pursues its corrosive course.
A dozen years ago, as World War II moved to its end, there was
general worry and fear about deflation, general apprehension that when




millions of men took off their uniforms there would be unemployment on a
huge scale, and on all sides, because private business would be unequal
to the task of providing the jobs they would need.
That fear of the future was in part rooted in the past, in the
memory that, from the time of the great depression on, we had had
persistent difficulty and insufficient success in overcoming mass un¬
employment and the hardships it, like inflation itself, inflicts on
That fear, though it proved groundless, was enough to bring
about the Employment Act of 1946, pledging the Federal Government to
do its utmost to keep employment, production, and purchasing power at
consistently high levels.
I want to make it very clear that I subscribe to all the objectives
of the Employment Act. Surely all Americans must do that.


political parties joined in adopting the Act, and it is hard to imagine any
one who questions its goals, for they are as sound as virtue


However, the problem today is not the goals of the Act, but how to
attain and maintain them.
Over the years since 1946, with the technological development
we have had, the growth in population, the increase in activity, and the
aspiration of our people to better their standard of living, our problem
has not been one of creating jobs. It has been the problem of restraining
inflation - - o f stabilizing the cost of living and of seeing to it that the
stability of existing jobs, and the development of new job opportunities,

- 7 -

is not undermined by excesses that inevitably force their own corrections.
This country has not escaped excesses in its business affairs.
In a single year, we have lost more than ten billion dollars of gross
national product in an increase in prices, without any additional goods
and services being supplied to the people in exchange.

Most thinking

people recognize developments like that create problems, for the future
as well as the present.
The difficulties we in the Federal Reserve confront have not
been lightened by charges that we seek a recession, or that we are try¬
ing to stifle growth, or that we are endeavoring to punish people for
their misdeeds - - o r perhaps all of these things put together, and more
Nothing could be further from the truth. I have said it before,
and I repeat it now: I don't want any recession. I don't want any decline
in business.

But, at the same time, I say also that, unless the world

changes, when imprudence and improvidence occur - - and they have been
instanced already - - there will be some adjustments and some losses
in consequence, in the way burns will be suffered by a child who puts
his hand into a fire.

These consequences don't come about because

some one "wants" them. They happen because no human agency is
able to avert them after the initial mistakes have been made.
Our economy is a loss as well as a profit economy, as I suspect
was discovered by those who were the last to stock up on Davy Crockett
items. I think we have to face up to that fact, and to reject the illusion

- 8that monetary or fiscal policy can be so ordered or so calculated or so
planned that improvidence and imprudence can be eliminated, and a
painless prosperity be achieved in perpetuity.
If we permit the very sound concept of full employment to be
perverted into a justification for continuous and persistent inflation,
then it seems to me that we will be embarking on a course that will
defeat the very goals we seek,that will in truth retard our progress
and our development
I don't think that is necessary,

I think that with a little

judicious common sense we can handle these prcblems. I think practical'
ly everyone recognizes today that inflation is a problem, although there
are differences over what to do about it - - and in some quarters a notion
that the solution is to print still more money as a means of reducing
interest rates.

Well, I do not hold with that notion. I do not think it

qualifies as common sense.
It may be that the American people can be so beguiled, but I
for one do not believe it. I believe that people throughout the land are
tired of having the cost of living go up and the purchasing power of
their money go down, I believe that they are increasingly agreed that
high employment can, and must, be accompanied by price stability;
that they are increasingly aware that inflation can undermine their
security as effectively as prolonged unemployment.

- 9 -

The sensible and sound way to check inflation, and thus to
reduce interest rates, is to borrow less and save more -- not print
money and seek to substitute debt for income. If we follow the
latter course, further eroding our currency and undermining our
economic security, we will find at the end of the road not what we
have, in my judgment, the power to achieve - - a higher standard of
living -- but a lower standard of living and a good deal of misery and
suffering that could have been averted with a little prudence and
common sense in the conduct of our financial affairs.