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SUMMARY OF REMARKS by William McChesney Martin, Jr. Chairman, Board of Governors of the Federal Reserve System, before 40th Annual Meeting of the National Association of Mutual Savings Banks Shoreham Hotel, Washington, D. C. May 10,1960. When your representatives visited the Board of Governors this past February as part of your Second Annual Washington Conference, the statement was made that 'The mutual savings banking industry believes that the major domestic challenge of the nation is the achievement of sustained economic growth with relative price stability I am in complete accord with that statement. In fact, with your permission, I should like to adopt it as the theme for these brief and informal remarks on the occasion of your 40th Annual Meeting Economic growth can come only from savings. Over the years we have been most fortunate in the United States that early in our existence as a nation several types of financial institutions were established i s mobilize individual savings. Mutual savings banks, organized in 1816, were the first of these thrift institutions. Your efforts to promote savings and to invest these funds in homes, industrial expansion, State and municipal improvements, and Federal Government expenditures have been of material assistance in financing the expanding economy of this country. Unprecedented growth problems face us in the decade ahead. The experts tell us that the population of this country will expand by more than 30,000,000 persons in the next 10 years. It will take over 13, 000,000 new jobs to provide livelihood for this burgeoning population. Hundreds upon hundreds of new factories, stores, and office buildings will be required. Our steadily expanding social needs for schools, hospitals, homes, and highways must be satisfied. At the same time we aspire to provide higher standards of living for more and more people. To accomplish all of this will require vast sums of money. Basic to the whole process of encouraging savings on the part of individuals is the maintenance of confidence in the value of the dollar. Unless the saver can be assured that his funds will retain their value until he is ready to use them for his own purpose he has little or no incentive to save. Money must be more than a standard of value -- it must also be a storehouse of value. When currency depreciates savings is discouraged. As much as any other industry in America, mutual savings banks should be - - and I'm glad tosay,are— vitally concerned with achieving a sound dollar, so as to encourage a steady flow of savings for profitable investment. We must each do our part to insure sound growth and development. In this task the role of the Federal Reserve is clear cut -- it must encourage savings and must minimize the substitution of bank credit for savings . ~3~ This means that adequate attention must be given to the role of interest rates in oureconomy— a role that is greatly mis- understood by many citizens. We must bear in mind that interest is a wage to the saver as well as a cost to the borrower and that people should not be asked to save without getting adequate remuneration for their money. Too many people believe that Congress --or the Federal Reserve System, or the Treasury -- can turn a faucet, pull a lever, or say a magic word and increase the money stream without upsetting the fundamental relationships of savings and investment processes They think it is possible to hold interest rates at predetermined levels without depreciating our currency. Changes in interest rates constitute important, delicate, and subtle instruments through which the credit mechanism in our economy operates. Further, our economy is not isolated but is strongly influenced by the economies of other nations. These other nations also have strong demands for capital. For example, it is said that the Continent of Africa alone needs 6 billion dollars for capital development in the course of the nextfewyears.Demands for savings of this magnitude will certainly have an effect on us. In a world which jet aircraft is steadily forcing closer together, it is no more possible to be economic isolationists in the area of interest rates than in any other field. World-wide markets must be competitive if they are to be maintained. We are not seeking or -4promoting higher interest rates but we are seeking and promoting an increase in savings in relation to spending so as to properly tune our economic growth to a sustainable pitch. We must free ourselves of the mistaken notion thai it it possible to set an arbitrary ceiling on interest rates. The evidence it crystal clear that artificial ceilings do not work. Further, we must free ourselves of the notion that it is possible in our world today to depend for any substantial length of time on selective controls. They are innocuous sounding, but could eventually encompass broad segments of our economy, including both wages and prices—and thus severely undermine the basic free enterprise character of our economy. Today you and I are concerned with encouraging a maximum sustainable rate of growth for economy. Growth means jobs. Since growth is dependent on savings and savings in turn rest on the foundation of a dependable dollar, then it should be clear to all that a dependable job and a dependable dollar go hand in hand. I am confident that if we can achieve widespread public understanding of these basic principles, the capacity, the energy, and the initiative of the American people give us the potential for the brightest economic future this nation has ever anticipated.
@FedFRASER