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Wednesday, March 19,1958
Reduced Prices to Increase Public Buying and Production Called Recovery Route

What is troubling our economynowis some after-effects of
It is highly regrettable that we should have been brought to
this pass, but it would be fruitless at this point to belabor the
subject of what we might have done in the past to better the present.
The important thing now is to deal sanely with today's
problems today-and to remember firmly that when the next
economic turn comes, as assuredly it will, the best way to fight
deflation is to fight the inflation that leads to it.
In coping with today's problems, it is essential that we
recognise that prosperity is not brought about merely by more and
more spending. Prosperity can come only from more efficient production and distribution of goods and services at prices that people
are able and willing to pay.
Vital as it is to achieve recovery, it is even more vital to
insure that it will be a recovery that lasts; a recovery that does
not merely provide jobs, but lasting jobs. Hence the task before us
is not that of finding artificial stimulants that will bring prosperity
for one day and a collapse the next, but a task of laying the basis for
a sound prosperity that will endure.
The Federal Reserve System is bending its efforts today to
fostering credit conditions that will contribute to recovery and the

maximum sustainable growth of our economy, as it was earlier
when it was endeavoring to combat the inflationary fountainhead
of today' s troubles.
In recent months, the Federal Reserve, using every one of
the powers it possesses--over discount rates, reserve requirements,
margin requirements and open market operations--has operated to
make credit more available and thus cheaper.
In the credit and capital markets. Federal Reserve actions
have contributed to a marked easing that is illustrated most
dramatically by the very sharp drop in market rates of interest-the sharpest drop for any comparable period of which I have knowledge.
This adjustment in credit and capital markets is helping to
facilitate and cushion other adjustments in the economy, as well
as to strengthen demands in important areas dependent on credit
financing. It is thus helping to set the stage for recovery in activity
and employment as soon as other developments contribute to revival.
Monetary policy by itself, however, cannot assure resumption
of high-level employment and sustainable economic growth, although
ready availability of credit at reasonable cost is an essential
ingredient for recovery. It is incumbent upon business enterprises,
financial institutions, and labor organisations, as well as Government
generally, to adjust policies and programs to foster recovery.
We have been concerned, for example, at the decline in output
and employment while prices generally have been maintained and some

~3prices even have risen further. Currently, it may be noted,
consumer prices reached a new high in January.
How soon recession is checked and recovery is resumed will
be influenced by the rapidity with which economic corrections and
adaptations are made in factors beyond the province of Federal
Reserve policy; that is to say, la business pricing policies;
selling practices, and productive efficiency; in wage bargaining;
in various financing arrangements; and in the incentives to consumers
to buy. In the past, price reductions during periods of contraction
served to stimulate Increased buying and output and thus to contribute
to general recovery and expansion. Undoubtedly, lower prices now
would prove to have expansive benefits for economic activity generally.
We all share the hope that recession will be moderate and short*
lived, but it is not possible to be completely certain about the future
course of economic activity. There is a range of views currently
held regarding the duration and extent of this recession, and of the
timing and vigor of the ensuing recovery. In my own view, the
underlying strengths of the economy are many. The inflationary trends
seem to have halted before creating maladjustments of such severity
as to lead to a protracted period of liquidation and structural realign¬
ment in the economy. If needed readjustments are promptly made,
the current recession may be moderate and short-lived, and healthy
revival should set in, progressing to new records of economic


performance and new high level* of national well being. But let us
not be misled into vain hope this will come about without effort on
the part of all of us, for much depends upon the speed with which
needed readjustments are made.

Wm. McC. Martin, Jr.
March 5, 1958.