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(Read by Mr. Martin before joint meeting of FRB of Kansas City and
its Denver branch in Denver, Colorado, July 18, 1959. )
July 17, 1959
Herewith suggested statement lor the Chairman:

The strength that our economy has shown this year attests once more
the power of accomplishment of the enormous energy, application and
resourcefulness of the American people.

The economic state of the

nation at mid-year 1959 was indicated in two official reports that have
come out only this week, showing that both industrial production and
the number of Americans holding jobs were at the highest levels in our

To those of us in the Federal Reserve System, which is

dedicated to fostering monetary and credit conditions that will help
bring about high levels of business and employment, maintain the
stability of the currency, and promote sustainable growth in the
economy, these developments have been heartening.
There are naturally other matters that are a cause for concern - - asi
for example the industrial dispute that presently has idled our steel
plants and workers --• but then there are always matters of concern,
or so it seems to all who are concerned with the economy's recurrent

The greatest economic problem we face is to prevent

another boom and crash sequence such as has brought severe hardship
in the past, and could destroy us in the future. It is a continuing! rather
than a momentary, problem.

Meeting it requires eternal vigilance

- 2 rather than a single stroke.

That is the heart of the difficulty.

must never be lulled into relaxing.


We can never let down our guard.

Over approximately the last century the American economy has
experienced some 25 full turns of the business cycle, an average of
approximately one complete rise-and-fall each four years.

Most have

been short and comparatively moderate, as in the postwar period thus

Others have been long and extremely severe,

the late 1920's and the great crash of the 1930's.

like the boom of
Experience suggests

strongly that the way to escape an economic hangover is to avoid the
economic spree that goes before it.

The 1930's especially gave us a

lesson about the difficulty of curing a collapse that we might better and
more easily have prevented.

The difficulty, however, is not with

knowing what to do but with doing it.

The tendency is to relax at the

wrong time, to let our guard down just when we should be most on the

It is a very human tendency, but it is a dangerous one as well.

The American people have always had what it takes, and they still have
what it takes to achieve our long-range economic goal of producing not
mere subsistence, but a higher and higher standard of living for the
community as a whole.

The question remains, however, whether we

are to make steady progress toward that goal, and avoid setbacks along
the way. Steady progress requires that besides the will to do at all
times we must show the will not to overdo at any time.
The job of the Federal Reserve System can perhaps be described, in
very simple terms, as one of reinforcing the will not to overdo. In the
effort to do that job, the System has had to go against the prevailing




currents - - t o lean against the winds of both inflation and deflation to
help keep us from being blown off our course.
Experience has demonstrated that combating inflation is never as
popular as combating deflation, but is is fully as necessary.


inflation has always been the forerunner of deflation, as our history
has repeatedly shown, and the excess of inflation has bred the excess
of deflation.
Combating these economic extremes requires universal moderation and

The Federal Reserve's authority to deal with excesses

in the field of money and credit enables it to help moderate swings in
the economic cycle, but it cannot do the whole job.

It can and will

reinforce the will not to overdo. It cannot provide a substitute for that will.
I do not believe the American people want another boom and bust cycle.
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.
The effective way to check inflation is to keep our progress orderly
and our currency sound.

The realistic way to reduce interest rates

is to borrow less and save more -- not print money and seek to sub¬
stitute debt for income.

If we follow the latter course, further

eroding our money's value and undermining our economic security,

- 4 -

we will not attain what we have the power to achieve - - a higher
standard of living • - but a lower standard of living and widespread misery and suffering.

To avert that, a little prudence

and common sense in the conduct of our financial affairs is
required. The requirement is one we can surely fulfill.

Thurston - Molony