from Vermont [Mr. FLANDERS] has been a uniform sacrifice of: inclination to the SENATE designated to read, Washington's Fare­ opinion of duty, and to a deference for well Address today. what appeared to be your ~esire. I con- · THURSDAY, FEBRUARY 22, 1951 Mr. McFARLAND. Mr. President, be­ stantly hoped that it would have been (Legislative day of Monday, January 29, fore the distinguished Senator from Ver­ much earlier in my power, consistently mont reads the Farewell Address I sug­ with motives which I was not at liberty 1951) gest the absence of a quorum. to disregard, to return to that retirement The Senate met at 12 o'clock meridian, The VICE PRESIDENT. The Secre­ from which I had been reluctantly on the expiration of the recess. tary will call tht roll. drawn. The strength of my inclination The Chief Clerk proceeded to call the to do this, previous to the last election, A MOMENT OF SILENT PRAYER FOR roll. had even led to the preparation of an WORLD PEACE Mr. McFJ'.RLAND. Mr. President, I address to declare it to you; but mature The VICE PRESIDENT. It has been ask unanimous consent that the order reflection on the then perplexed and suggested by a number of Sen&tors that for a quorum can be rescinded and that critical posture of our affairs with for­ before the Chaplain leads us in prayer further proceedings under the call be eign nations, and the unanimous advice we bow our heads in a moment of silent suspended. of persons entitled to my confidence, prayer in behalf of a just and honorable The VICE PRESIDENT. Without ob­ impelled me to abandon the idea. peace throughout the world. jection, it is so ordered. I rejoice that the state of your con­

our time in talking about such things as It is also being said that the Federal is painfully apparent in the i~ising cost controlling prices of 4,000,000 bu'siness insti­ Reserve System, on the other hand, is of living. To every school teacher, to tutions and fixing the wages of 60,000,000 trying to increase the interest rate. If every Government worker, to millions workers if the problems of controlling 14,000 banks, the institutions more subject to con­ that were the issue, there is no doubt as living on retirement funds and countless .trol than any others in our Nation, is too to where public Lympathy would lie, and millions more who are counting on their big a job for us to handle. That is a per­ probably justly lie. savings, to every individual who depends sonal view. The Council has not had occa­ No one desires a high-interest rate in for existence on a fixed income, it brings sion to pass upon it. and of itself. A high interest rate would up a nightmare of fear that the dwin­ I say "if it is necessary to act." Last increase the total volume of payments dling purchasing power of the dollar week, when the committee had an executive which the Government would have to will put them on a starvation level. To hearing, I stated my view that there is prob­ make on the outstanding public debt; a the churches, the universities, to the ably ~o great problem in this matter of bank credit, that the situation has already been low interest rate is not only favorable millions investing in insurance, it is a carried into a pattern which will not only so far as interest payments are con­ living threat to their security. And what stop the increase in bank credit but will cerned for the Federal Government, but about the pensions which Congress has soon create a plethora of funds seeking it encourages private borrowers to de­ voted for those of our Armed Forces, investment. mand large quantities of capital, and, who have been wounded on the fighting Two days after I made that forecast to hence, stimulates capital investment. fronts? What about payments of the you the president of a building and loan However I do not think this states ·pensions for which labor has fought so association, in an address at one of their accurately the real issue before us. The hard and the social-security payments? conventions, besought them not to estab­ real issue is inflation. The real issuc.:i i:; These pension payments are in terms of lish limits u~on deposits which they would accept. And the problem arose because the degree to which we will permit prices fixed money amounts ahd, if prices go those institutions already are finding it im­ to rise, and the degree to which the up and the value of the dollar goes down, possible to find outlets for .savings and for Federal Reserve System will hold or the security which it was intended they new investment funds. arrest this upward movement. Next to would give becomes a mirage. If you looked at the schedule that Don the questions of foreign policy and de­ Mr. KILGORE. Mr. President, will the Woodward gave you at your hearing the firs.t fense, the threat of inflation is perhaps Senator yield? of the week, you ~ay have noticed that he the most serious problem which we face. · -Mr. DOUGLAS. I yield. came to the conclusion that in 1951, with­ . Mr. O'MAHONEY. Mr. President, will Mr. KILGORE. Does not the Senator out any changes in prices, the inability of consumers to find goods to buy would mean the Senator yield? find that one of the most serious com­ that consumers' savings would be in excess Mr. DOUGLAS. I yield. plaints received is that having to do with of $25,000,000,000 this year. · What are they Mr. O'MAHONEY. When the Sena­ the constantly rising cost of foodstuffs? going to do with the money? H will not be tor said that there is no issue, per se, Mr. DOUGLAS. Yes. That is a very put into houses. That is a kind of a saving about the interest rate, I asked one of important element. or a method of saving. What are they going the pages to bring me a copy of this Mr. KILGORE. Could the Senator ex­ / to do with the funds? What will be done morning's Washington Post. In it I read piain to me how, if in any way; the with the funds of these corporations which are going to begin to establish ·reserves for tl)e following statement in the column c-urtailment of credit would affect the these higher taxes that the President has written by Marquis ·Childs: price of foodstuffs? I can understand proposed today, and which will not be pay­ If the inflationary drift is to be checked, that people going in debt to buy automo­ able until the b.eginning of next winter? certain steps must be taken just as quickly biles, refrigerators, and things of that They will not let those funds lie idle in as possible. Neither Congress nor the Tru­ kind are dependent on the ability of the the banks. I am sticking by my forecast, man administration can escape the respon­ banks to lend money. I was WQndering Mr. Chairman, that by the middle of the sibility. if the Senator could explain that fea­ year you are not only not going to have ture . any problem of expansion of bank credit but . With that statement I am in complete you are going to have such a drive upon the agreement. Steps should be taken to Mr. DOUGLAS. If the banks lend Government security markets by those seek­ control inflation, but the question is large quantities of money for wage pay­ ing the only outlet available for their funds whether I was correct in saying that ments, salary payments, and vaFious out-· that it will be absolutely impossible through c~rtain columnists and others have as­ lays of that kind, the result is. to give the any rational open-market operations to pre­ sumed that a change in the interest rate peo:r;>le more money with which to buy vent interest rates from going down. would have certain beneficial effects. food. So the increase in the g~neral Mr. DOUGLAS. Mr. President, may I Mr. Childs goes on to say: · supply of money spreads through the en­ ask whether the Senator from Wyoming No. 1 on fiscal policy, the administration tire economy. Increases in the prices of has concluded. his remarks on the ques­ must find some way to switch from the stub­ individual commodities may start with tion of bank credit and prices? born determination to keep interest rates specific causes, but they can be r.J.ade Mr. O'MAHONEY. Yes; I was making at the present low levels. possible only if there is a large volume of credit to float the increase. only a preliminary comment in order That stat~ment in itself, I think, is an to introduce the testimony of Dr. Clark, assumption. ·It may l:e said also that a recent Fed­ se that it would be available to anyone eral Reserve survey of bank loans shows Virtually all economists on the outside, in­ that three-fifths of the expansion of bus­ who wished to read it. cluding observers fro~ abroad who follow economic trends here, are agreed on the need iness loans went to commodity dealers Mr. DOUGLAS. Mr. President, in view and to processors, with loans to cotton of the fact that the Senator from Wy­ for a rise in the Government interest rate in order to check the flow of credit into the dealers predominating. So the specula­ oming has raised the issue, and .in view banks. tors and dealers have been furnished of the great importance of the subject, I with abundant supplies of credit, which, am constrained to do what perhaps I . I think that explains the reason why in turn, has permitted them to bid up should not do; namely, discuss the al­ I made the statement which I did-that prices in the face of a more or less con­ leged points of difference between the there is an assumption that a change in stant supply of these commodities. Federal Reserve Board, on the one hand, the interest rates will have some imme­ Mr. KILGORE. The Senator has no and the United States Treasury, upon ·the diate effect. doubt read, in the same column to which Mr. DOUGLAS. I think the Senator the Senator from Wyoming has re­ other. from Wyoming is correct, as he almost REAL ISSUE IS MONEY SUPPLY, NOT INTEREST ferred, of the housewife in Washington invariably is. There are some who be­ who strenuously objected because the RATF.s lieve that a change in the interest rate It is sometimes represented to the pub­ will have .these effects. But I think this price of eggs had increased 3 cents a dozen between the tiine she picked GP lic that this difference is only over in­ misstates the real issue, which is whether the eggs on the counter and the time terest rates. It is sometimes said that it we shall have any control over the total when she reached the checking counter is- the purpose of the Treasury to main­ volume of credit. The interest rate is to pay for them. tain the price of Government bonds merely a consequence of the relative ·Mr. DOUGLAS. Thank God,. we are above par and to keep the interest rate supply of credit in relation to demand. not in the condition which existed in low, in order to keep at a minimum the THE MEANING OF INFLATION Germany, when men would carry their debt charges upon the Government and , What do we mean by inflation? To pay to the store on bicycles, rather than also upon private borrowers. every housewife who goes to market it walk with it, because they knew that the 19-51 CONGRESSIONAL RECORD-SENATE 1471 money would be worth much less by the Mr. O'MAHONEY. Before I leave for have much effect upon the demand for time they got to the grocery store. That my committee meeting, let me say that loans. What I am going to advocate was hyper-inflation. it is my conviction that the records show and what I think . the Federal Reserve INFLATION DESTROYS DEMOCRACY that the policy which is advocated by Board should do is to restrict the supply Every historian knows that inflation the Federal Reserve Board does not have of credit at its source, and I hope to has been a great destroyer of the vast the effect of reducing prices in any ma­ demonstrate that this cannot be done middle classes and of governments. It terial degree. The facts, it seems to me, so long as the Reserve Board is compelled has paved the way for dictatorships and are these: Beginning with Korea prices by the Treasury to purchase every Gov­ overthrow of democratic institutions. immediately began to rise, and the in­ ernment bond or any Government secu­ By wiping out the middle classes and crease in the price of all commodities and rity that comes its way. That is the separating society into the two classes of of the cost of living was the result not real issue. the propertyless on the one hand and of any change in the money supply, but Mr. CASE. Mr. President, will the the rich speculators on the other, it a result of hoarding upon the one hand, Senator yield? paved the way for fascism and commu­ of profiteering, of attempts by purchas­ The PRESIDING OFFICER as is well known, the credit, bank deposits, the general price Mr. Keynes used to say-and the money legal reserves of -the member banks fall level, and so forth, seem more mystifying spent, they can inaugurate an almost in­ into three classes, depending upon the than they really are. definite spiral of inflation. Third, and city in which the bank is located: the MONEY SUPPLY AND PRODUCTION SHOULD what I shall emphasize particularly in central reserve cities, where the reserves BE BALANCED the present situation, new money cre­ must be 24 percent; the reserve cities, If one pictures a pair of scales on ated through bank-credit expansion. where the rate is 20 percent; and the which the amount of money available to When thf3se three additional sources of so-called country banks, "7here the re­ buy goods is placed on one side and is money demand run wild the stability of serve ratio is 14 percent. If we take all balanced against the amount of goods our whole society is endangered. All of of them together, the average is ap­ available for sale on the other side, it them interact on each other and all of proximately 16 percent; and I may say is possible to get a picture of what is them affect the functioning of our bank­ that the Federal Reserve System has meant when we talk about monetary ing system. now raised these requirements to their stability. This picture of what we mean BANKING SYSTEM THE PRINCIPAL SOURCE legal maximums· except for the central by inflation becomes more clear if we reserve cities whe.l'e the rate is 2 percent Basically, the source of our money imagine too much money demand on one below the ma~iinum - which the Federal side of the scales in relation to our ca­ supply is the banking system. Most of Reserve System could require. - In any pacity to produce goods available for sale us who have not had time to go into the event if a bank has a dollar in r·eserves, · on the other side. In that case· the value subject suppose that the banker later it then can lend roughly $6, and thus of the money goes down while the price lends to other people the money that we can create $6 of bank deposits. of the goods goes up. ':":'hat is inflation. deposit in his bank. This is true of so­ The more Government bonds the Fed­ Conversely, if the amount of money on called investment banking, but it is not eral Renerve buys, the greater will be one side of the scales is too small in rela­ true of commercial banking or the bank­ the legal reserves of the banks. The tion to our capacity to produce the goods ing system as a whole. The real fact, more reserves the banks have to their for sale on the other side, then the value which is so little understood even among credit, the more they can lend. Indeed, of the money goes up and the price of bankers, is that the banking system cre­ their lending capacity will increase by the goods goes down. That is what we ates money. It does not do it by having six times the rise in their reserves. The call deflation. printing presses in the windows of banks more money the banks lend, the high­ Let us use an arithmetical example to where we can see $1, $5, and $10 bills er-other things being equal-will be make this same point clear. If we have turned out by the bale, bu,t banks as a prices, for the ratio of money to goods group do it just as effectively by making will increase. $100 to off er for 100 units of goods, it their loans to borrowers, for when they follows that the average price of each make these loans they credit the bor­ STATISTICS OF INFLATION SINCE KOREA unit will be $1. Then, if we increase the rower with a deposit account against It is precisely this which has been quantity of money offered to $200, but happening since the start of the Korean the quantity of goods remains the same which the person or company which has bcrrowed can write checks. Indeed, war. Since June, wholesale prices have as before, the average price per unit will risen by about 17 percent and the cost of now rise to $2. This is inflation. If the nearly all the business of this Nation is carried on through bank checks, and the living by nearly 7 percent. During this supply of money is reduced to $50 but time, the Federal Reserve have pur­ the quantity of goods is not changed, deposits in our banks constitute the over­ whelming bulk of our money supply. chased about $3,500,000,000 of Govern­ then the average price falls to 50 cents. ment se~urities, and the reserves of the That is deflation. Still greater obscurity surrounds the member banks have risen by $3,000,000,- All this is simple enough. Obviously subject of bank reserves and the relation 000, or from nearly $16,000,000,000 to the purpose of Government should be to of reserves to the creation of deposit $19,000,000,000. About $2,000,000,000 of help promote· as large a supply of goods money. I shall not try to go here into this increase was needed to meet a rise as possible and to prevent an unbalance the full details of the bank reserves. It in reserve requirements by the Federal in money demand in ·either direction. is important, however, to know that the Reserve Board in .January, leaving just What we face today, however, is too main source of the banking system's abil- over $1;000,000,000 added to commercial 1951 CONGRESSIONAL RECORD-SENATE 1473 bank reserves to support a loan and de­ of basic materials, which have shown the -- ing loss to those who hold them. The posit expansion. Bank loans in this sharpest price increases, has been the second reason is the saving to the Gov­ period increased by $8,000,000,000, and most important f~ctor in the increase of ernment 'in its interest payments. The the total created demand deposits sub­ business loans. Bank loans to finance total interest bill of the Government is ject to check rose from $85,000,000,000 purchases of consumer durable goods now approximately $5,800,000,000 a year. to about $93,000,000,000. and houses have also increased consid­ A rise of one-half percent in the interest In this connection, I should like to erably since June. These loans have rate would, it is claimed, cost the Gov­ emphasize that thf: Federal Reserve been a factor not only in price 1ncreases ernment a billion and a quarter dollars a System has about reached the end of in these buying areas but also in the year more in interest charges. its rope under existing legislation, so prices of primary materials entering into Since the Secretary of the Treasury is far as bank reserves are concerned. It the final consumer product. responsible for the management of the cannot increase that ratio except in the Mr. President, the primary cause for public debt, it is but natural, if he takes ca"; of the central reserve cities, where the rise in prices since last June has a somewhat restricted view, that he will it could send up the rate by about an­ been this tremendous increase in loan want the Federal Reserve to do precisely other 2 percent. and checking accounts: These in­ what he has been urging-namely, to INCREASED MONEY TURN-OVER ADDS TO creased loans and checking accounts provide an unlimited market for the INFLATION have heen made possible by the increase purchase of Government securities, so Mr. President, the increase of 10 per­ in the reserves which the banks hold in that anyone who sells them is assured cent in the supply of deposit money­ the Reserve System; and these reserves of disposing them at a price above par, namety, from $85,000,000,000 to $93,000,- available for increasing loans and de­ and so that the interest rate is kept at 000,000-has been accompanied by an posits have been raised by more than a low rate. increase. in the speed with which the one billion by the Federal Reserve prac­ Mr. President, I .want to make it clear average dollar of cash and credit changes tice of buying all the Government securi­ that this attitude is not confined to the hands. The turn-over of demand de­ ties which have been presented to it, net present Secretary of the Treasury, Mr. posits has been more than 10-percent purchases of which have totaled over John Snyder. All of the recent Secre­ larger than a year ago. The combined $3,500,000,000 since June, with about taries of the Treasury, Mr. Morgenthau, effect of ~n increased supply of dollars $2,000,000,000 of that amount absorbed Judge Vinson, as well as Mr. Snyder, and an increased velocity of dollars has by the increase in the reserve ratio: The have adopted this same position. When­ permitteq prices to increase despite a difference between the $3,500,000,000 of ever the Federal Reserve or its Open significant increase in total production net purchases of Government securities Market Committee, which carries out since June. rs, . and the $1,000,000,000 increase in effec­ the purchases, has been reluctant to go Yve can make this point clearer by ref­ tive bank reserves is accounted for, as I along on this unlimited program of bond er ;nc,e to some other figures. The total have said, by Federal Reserve action in and security purchases, the Treasury has value of production of all goods and serv­ January, raising by this amount the re­ resorted to a strategy of mixed cajolery ices-the groGs national product-has quired reserves of member banks. and threats. The Open Market Com­ mittee consists of seven members of the increased by more than 10 percent since FEDERAL RESERVE BOND PURCHASES ~AIN CA USE last ,June. Only nalf of this increase, OF .INFLATION Federal Reserve Board ·and five presi­ or thereabouts, has reflected expanding It is this practice of unlimited bond dents of the Reserve banks, with the production. The other half has re­ purchase by the Federal Reserve System, Chairman of the Board of Governors as flected rising prices. Some elements of therefore, which is the prime cause of Chairman of the Committee and the production have increased more rapidly inflation. It is not that these purchases President of the New York Federal Re­ than other elements. The total of all of bonds would be wrong of themselves if serve Bank as Vice Chairman. The Re­ manufactures, for example, has in­ they could be divorced from the credit serve Board has been told that it should creased by 10 percent. of the country. But under present con­ cooperate, that it should stand by the Also, some prices have risen much ditions, they cannot be divorced from President and not rock the boat. It has the credit of the country, because the been told that if the price of Govern­ more sharply than other prices. Basic ment bonds falls or the interest rate raw materials have ri,Sen, for instance, Government bonds and securities bought by the Federal Reserve have raised the rises, the Reserve Board will be held by about 50 percent; butrthese rises have responsible. I thought I detected cer­ not yet been transmitted to all goods bank reserves. This enabled banks to increase loans, which in turn has in­ tain overtones of that position in the and services. However, they will be in remarks by the senior Senator from time, if the bank credit continues to ft.ow. creased prices. It has been the Federal Reserve System, therefore, which for 8 Wyoming, before he was compelled to If most of· the increase in bank loans leave the Chamber. had actually gone into expanding pro­ months has fed the fires of inflation. Now, We all have· good reason to believe It is intimated that if the Reserve ductive facilities, they would eventually Board is recalcitrant, the Reserve Sys·­ have helped restore the money-goods that while the Federal Reserve has done this guilty thing, it has done so protest­ tem will be nationalized, and all inde­ balance. However, apparently they have pendence will be taken away. At times, not been used thus, but have been used, ingly and unwillingly. It has wanted to lead a virtuous life. a head or two has rolled. Three years instead, to bid up the prices of existing ago, Mr. Eccles, the then Chairman of goods. As I pointed out in response to But over the shoulder of the Federal Reserve System has stood the Treasury, the Board, who had been protesting a query from the eminent Senator from against the expansion of credit policy [Mr. KILGORE] a recent making threatening passes and gestures and from time to time cracking its whip. which was helping to boost prices, was survey showed that three-fifths of the not reappointed as Chairman. expansion of business loans went to com­ And what have been the ·Treasury's Under this pressure the Federal Re­ modity rtealers and processors. Loans to demands? They have insisted that the serve System ·has gone along. The real cotton dealers predominated. These Reserve System hold its arms wide open responsibility has been that of the Treas­ dealers and processors used this addi­ and buy every Government security ury. The Treasury has pulled the tional money to bid for fixed amounts of which is offered. They have insisted, strings, and the Federal Reserve has agricultural goods, and the effects of this moreover, that these securities shall be danced to its music. In the words of can be readily seen in · an increase in purchased above par-except in the case the Book of Genesis, "The voice is Jacob's the wholesale prices of all farm products of some short-term issues-and shall be voice, but the hands are the hands of of 22 percent since June 1950. Textile at low rates of interest-the actual cou­ Esau." products were up 32 percent in the same Mr. President, this is not a case of evil period. pon rate being 2% percent on outstand­ ing long-term bonds. men, but of misguided men. Mr. Snyder INVENTORIES BUILT UP is an honorable man. So.were, and are, To point up my contention that bank' REASONS BEHIND TREASURY STAND Mr. Morgenthau and Judge Vinson. So credit expansion has fed rising prices, Now there are two assigned reasons are they all honorable men. But in re­ Federal Reserve figures show that the why the Treasury insists upon this policy. cent years, these gentlemen have been rise in bank loans to business since June The first is that they say the policy is misguided men. For under the guise of has paralleled fairly closely the rise in necessary to prevent bonds from falling keeping the interest rate down, they business inventories. Building up stocks appreciably below par and hence bring- have forced the Reserve to action which 1474 CONGRESSIONAL RECORD-SENATE FEBRUARY 22 has resulted in increased bank credits PROBABLE EFFECTS OF ENDING FEDERAL BOND money into higher-yielding investments and hence created infiation. PURCHASES that will give then a living wage. With The costs to the Government and to Let us now go into this matter a little somewhat higher yields, and a more the people have been far greater than more deeply, and let us ask ourselves stable level of prices, these investors the gains which we have made from a what would happen if the Federal Re­ would be buyers rather than sellers of lower interest rate. The increase in serve quit buying Government bonds. I Government bonds. prices since Korea are probably already should like to explain here that I am Government bonds are, for the ~ost adding to the Federal Government costs talking about the so-called marketable part owned outright. They are not at the approximate rate of six billion a bonds; that is, the kind of securities bought on credit, and a :fluctuating year. which are bought and sold in the open Government bond market is no more The cost of meeting the interest on the market. The E, F, and G savings, or likely to discourage investors than an public debt is now roughly $5,800,000,000. Defense bonds, are not sold in the open artificially pegged market. A fluctuating The entire budget submitted by the market. These can be cashed at values market, responsive to the laws of supply President for fiscal year 1952 is approx­ written ·into the contract at any time and demand, does not cause loss of con­ imately $71,600,000,000. This means one may wish, but, unless the owner fidAnce in State and municipal, or in that Government expenditures for pur­ keeps them until they are due and pay­ corporate securities which are not sup­ poses other than interest, that is for able, he will take less in interest than if ported. I am confident that a more services and materials, will be approxi­ he held them until maturity. realistic ·return on Government securi­ mately $66,000,000,000. It is a conserva­ The E bonds are the ones which are ties will enable them to stand on their tive estim.ate that there has been a gen­ held by the great bulk of small investors own feet. And a more realistic rate eral increase in prices of commodities throughout the land. They are very means one that is more nearly in accord and services of roughly 10 percent as a ditierent from the Liberty bonds of with the income needs of the large in­ result of the inflation; so that this in­ World War I, which· were bought and stitutional investors, such as life in­ flationary price increase, then is already sold in the open market. We should not surance companies and pension funds, costing the Government at least $6,000,- for get that fact. most of which are geared to an actuarial 000,000, and possibly more. That is in MINOR FLUCTUATIONS DO NOT DISTURB LARGER rate of 2% to 3 percent. These insti­ excess of the total amount which the INVESTORS tutional investors are the natural buyers Government now pays in interest. To return to my question, what would of the marketable Government securi· Even if interest rates were doubled, happen if the Federal Reserve were ties with which we are concerned in this which is at best a very remote possi­ to stop buying Government bonds? matter of supporting and pegging the bility, the added cost of meeting the in­ Frankly, I do not think very much would market. terest on the public debt would not equal happen in the Government-bond mar­ AWARENESS OF REALITIES WILL REVEAL the cost to the Government because of ket. The outstanding marketable bonds GOVERNME~T CREDIT IS STRONG the rise in prices that has already taken are held by the very large and, for the It is said th~t nobody knows at what place. most part, sophisticated investors. They levels Govermrle t bond prices will set­ Furthermore, our whole society has have invested for income and are- not tle if the Federal Reserve withdraws been greatly disturbed and convulsed concerned with temporary :fluctuations support from the market. Exaggerated by the increase in the cost of living in price. If they could not sell their prediCtions are sometimes made that it which has taken place; and no one narketable bonds at prices well above will be at some very low figure which knows what lies ahead. The responsi­ par, or at what bond brokers call a pre­ would cause serious financial troubles for bility for all this lies proximately and mium, they would be less inclined to sell ·present holders of outstanding securities. immediately with the Federal Reserve, them; and if they could sell them only That seems to me to be entirely un­ but ultimately and really with the at prices below the level at which they warranted lack of faith in the real values Treasury. were originally bought-that is, at a of Government bonds. I think that the I am not interested in putting anyone · penalty-they would still be less disposed Government bond market may well ad­ in the pillory and holding him up to to sell them, because it would show up -just at a level very little below its pres­ public scorn. I am not interested in on their books as a loss; and insurance ent level~ and 1that genuine investors castigating people or institutions for the companies and other institutional inves­ \YOUld be drawn.into the market :i.s eager fun of it. I am vitally concerned, how­ tors do not want to show losses on their buyers if the rettirns otiered were more ever, as to what will happen to this dealings. nearly in line with a realistic appraisal country if this policy is not changed. One thing is certain; the yields on of investor needs and prospects for CHANGE IN FEDERAL RESERVE PRACTICE PENDING other and riskier investments, which income. In recent days, the Federal Reserve these sophisticated investors have been I can see no sound reason for failure Board has shown signs of restiveness, selling Government bonds to purchase, to test out the true market by open­ signs of an awareness of sin, and of a would have less attractiveness than they market operations, and if that is done desire to turn over a new leaf. Judging have at present. I believe that sellers will soon be out­ from press reports, it has apparently in­ Ours is a high-saving economy. A numbered by willing buyers. · dicated a desire to change its policy. substantial volume of savings normally If ~he market does not stabilize Then the whole Board was called to the flows into fixed income securities when through normal supply and demand White House, and an appeal was appar­ confidence exists in those securities. It forces, if the investors' appraisal is, :·n ently made to them to support the is not normal or natural for the investor fact, at lower levels than I would expect, to seek risky investments. then it would still be the part of wisdom Treasury. There is some dispute as to to know it and to face the truth of the what the reply of the Board actually was. THREE PERCENT CONSIDERED FAIR RETURN matter. We would be concealing, in­ The President and the Secretary of the Now I happen to think that there are stead of dealing with, the cause of a dis­ Treasury apparently thought the Board innumerable investors, insurance com­ ease that needs to be treated boldly. had acquiesced. Most members of the panies, churches, universities, and other It seems to me that bold, not timid, Board thought this was not the case. institutions that would think that 3 grappling with this fundamental matter But I pass over this, for misunderstand­ percent or perhaps a little less was a of the true worth of the obligations of ing is not unusual in such conferences. fair return, a living wage which would this Government may well reveal that Then, according to the press, the Board enable them to carry on and pay their the credit of the United States i') far 9 days later addressed a letter to the way and keep on hiring their ministers ~tronger than the pessimists think-and, President. It is understood that no ac­ and their professors. But when the re­ mdeed, the best way to put pessimism tion has yet been taken on the policy turn on their money is a good deal less and lack of faith to rout is to strip all issues involved. when prices are rising, and the cost of camoufiage from the problem so that We are therefore at the very hour of their operation is increasing, it is natural we may deal with it in its true light, decision, and that is the only reason why for them to sell some of their Govern­ and adopt the fiscal, monetary, and I have risen to discuss the matter. ment securities in order to put their other measures that are reauired to con- 1951 CONGRESSIONAL RECORD-SENATE 1475 vince even the most skeptical that the If we can stabilize prices and remove daily and adding more and more dollars American dollar ·and American Govern­ this fear, or greatly reduce the fear, then to the money supply. Moreover, we are ment securities are intrinsically sound the temptation to sell Government bonds facing a defense period of indefinite and worthy of universal .confidence. will be diminished, and the need to main­ length. We are facing rapidly mounting Mr. President, I think that prophecies tain the bond market by an artificial peg­ defense expenditures. Unless further of any serious decline in Government ging on the part of the Federal Reserve taxes are enacted to cover these costs­ bond prices following withdrawal of System will be removed. and we have done well thus far-we may F.ederal Reserve support are hysterical Mr. President, let me again ask the be in for another period of deficit financ­ and wholly unrealistic. We have had question: What would happen if the ing before long; we will be faced again, as inflation-too much inflation-since the Federal Reserve System were to cease we were after Pearl Harbor, with the end of the war. But the credit of the buying Government bonds? One result problem of how to manage the deficits. United States is still the best on earth. would be that the continued flow of re­ We must be in a position to avoid the It is not so enfeebled as to require con­ serves into the hands of member banks financing mistakes of World War II, stant artificial stimulants. As a citizen, would stop, and the ability of the banks. which left us with a heritage of infla­ I find intolerable the idea that the bonds to make future loans to speculators and tionary fuel in the form of an excessive of my Government have to be artificially others would be diminished. The danger money supply. bolstered up. · of a further substantial increase in the No system of Government price con­ SEC ACT FORBIDS PRICE PEGGING IN STOCKS price level would be reduced. We would trols can permanently or greatly reduce The Securities and Exchange Commis­ dampen, if not perhaps completely check, the pressure toward high prices if there sion Act contained a proviso that no one the increase in prices which would other­ is an ever-increasing amount of bank wise sure ~ y result. credit in the hands of private banks should, by rigging the market, maintain Unless the Federal Reserve System ready to be siphoned out to business. the price of corporate bonds sold in the sharply curtails its rate of purchase, it Even before new Government deficits open market; that an investment house will be constantly pumping, pumping, develop, however, we shall continue tr. .. should not maintain prices artificially on pumping more - monetary purchasing face the potentially much greater threat the market in order to dispose of the power into the economic system and of inflation that .could result from pri­ securities · which it issues. There were sending prices up. If it curtails its pur­ too many instances of' that kind in the vate credit expansion based upon unre­ 1920's. I do not want to see my Govern­ chases, the rate of flow of new money strained purchases of Government se­ ment adopt a similar policy in the main­ purchasing power will be checked and curities by the Federal Reserve. tenance of prices of Federal securities. the rise in prices will be slowed down. REAL ISSUE IS SUPPLY OF "HIGH-POWERED" . · So, Mr. President, I would not say that RESERVE DOLLARS I dislike intensely the idea that the a complete cessation of purchasing by Mr. President, I want to restate briefly bonds of my Government are not intrin­ the Federal Reserve System would neces­ sically sound and dese-rving of the sup­ what I think is the real issue here. The sarily bring with it any catastrophe. real issue is the high and still rising cost port of real investors. J.. recoil from the Quite the contrary, it might be extremely notion that the central-bank must con­ of living. We have to meet this problem stantly administer artificial "respiration valuable. in various ways. Curbing the creation of 't_o the securities of the United States. MAINTENANCE OF ORDERLY BOND MARKET more credit dollars and particularly high The credit of the United States does not ESSENTIAL power Federal Reserve dollars is prob­ need a pulmotor. I believe our securities Confident as I am that the Govern­ ably the most important way of meeting are able to stand on their own feet. I ment bond market's natu:rnl level is by it. If we let the creation of these dollars think they merit the support and confi­ no means to be found at such low levels ·go on, there is no question what will dence of the public. I am not willing to as would bring financial embarrassment happen, no matter what else we may accept the defeatist conclusion that, as to present· holders, I am not advocating do, and all of the other sacrifices which ·a nation, we lack. the intelligence, the the complete abandonment of open­ we are asking of the American citizen­ will, and the courage to protect our dol­ market operations by the Federal Re­ in the form of heavy taxes, price and fars and our securities.: against progres­ serve. · I am proposing that the Federal wage controls, and consumer credit re­ sive debasement. We ~re: perhaps, slow Reserve continue its policy of maintain­ strictions-are likely to be of little avail. to act, late in doing what needs to be ing an orderly market. We will have more inflation and a higher done to protect the dollar. But I deny I am not advocating an abandonment and higher cost of living. that the battle is lost. It has. just begun. of all operations and the dumping of the STEADY PRICES MORE IMPORTANT THAN STEADY And once the fight is launched in earnest, open-market portfolio on a chaotic mar­ INTEREST RATE it will reinspire faith and confidence in ket. I suggest simply that the Federttl Mr. President, this country stands to the dollar and in the Government credit. Reserve, which has had many years of gain much more from steadiness in the it will not be.necessary to provide an un­ practical, day-to-day experience in its price level, even if it may mean a slightly real-an artificial-market, which in the open-market operations, permit the Gov­ higher rate of interest, than it does from end will deceive no one, least of all the ernment securities market to reflect the steadiness in the interest rate and a con­ experienced investors in the country. .. underlying factors of supply and de­ stantly increasing level of prices.· SALES OF SECURITIES RESULT FROM FEAR OF mand-that it permit the market to ad­ That is the issue, Mr. President. The INFLATION just, without disruption, and avoiding Federal Treasury is trying to peg tl').e in­ Mr. President, during recent weeks and sharp price fluctuations to a point at terest rate, and by so doing force the months there has been a considerable which the true investor will buy and Federal Reserve System to pump into sale of bonds, both governmental and hold Government securities. business billions upon billions of addi­ private. Why have these sales been con­ It is not possible to fool .the public long tional bank credit, the only sure result ducted? It has been largely because by artificiality. Confidence in the dollar of which would be to send up prices and people have been fearing inflation. They and in Government securities is founded possibly bring ruin upon both the Gov­ know that in the case of Government on public willingness to ·buy and hold ernment and the people. bonds they will get 100 cents on the dol­ such securities. It can only be under­ · Mr. President, one of the advantages lar, but they are afraid that those 100 mined by central bank financing that of our system of representative govern­ cents will in the future not buy very eats away the value of the dollar. ment is that in the legislative chambers much. They are not afraid of a depre­ I have heard it said that all of this is a humble representatiye of the P.eople ciation of their capital in money terms, old-world economics, and that, in time, can arise and state the issue, so that he but that their money itself will depre­ as there are fewer and fewer civilian who runs. may read, as those who will ciate. Hence they sell bonds, in order goods available, people will . not know read the CONGRESSIONAL RECORD tomor­ to purchase either stocks, which have what to do with their money, and will row morning will, I hope, understand residual claims upon earnings, farms, have to invest it ih Government securi­ what the conflict is about. other equities, or commodities. A large ties at present, or even lower levels. I hope very much that the Treasury part of the sales of Government bonds Mr. President, that is a weak reed to will not persist in the attitude which it has been because of the fear of inflation. lean upon wnen bank. credit is growing has taken ta date. I hope very much that 1476. CONGRESSIONAL RECORD-SENATE FEBRUARY 22 it will lessen its resistance to the Federal. Mr. DOUGLAS. It would depend on unlimited quantities of bank credit. If Reserve System's proposal to turn off the how much interest rates on marketable we stop it, probably the interest rate. spigot. I hope it will not insist that the r.:ecurities rose. If the genJral interest would rise. However, that would oe· .a Federal Reserve System be committed to rates should move upward moderately, lesser evil than a continued expansion an unlimited purchasing of Government. it would not be necessary to adjust the of credit and a rise in prices. . bonds from everyone who presents them. interest on savings bonds. The Govern­ Mr. MILLIKIN. That is the whole I may say that the volume of purchases ment might be compelled eventually to burden of the Senator's argument. _,: which the Federal Reserve System has lift the savings-bond rate to a higher Mr. DOUGLAS. Yes. had to make in the past 2 weeks, if I can figure, a figure high enough to lteep Mr. MILLIKIN. At this time I am judge from their reports issued to date, savings bonds co·mpetitive with o~her not taking any issue with his stand. is very high. forms of savings. Mr. DOUGLAS. It is always a pleas­ Mr. President, Rome is still burning. Mr. MILLIKIN. If the Government ure when a high-powered intellect agrees But there is time for the fire company to refunds savings bonds, it would have to with me. ' put out the fire. There is time to do so be done at a higher rate. ·Mr. MILLIKIN. I asked the ques­ if the Treasury will cease its obdurate Mr. DOUGLAS. Savings bonds run tions so that I could be accurately attitude and acquiesce to the Federal 10 or 12 years to maturity. They are informed. - Reserve System, which, in my judgment, redeemable only at a sacrifice of interest Mr. DOUGLAS. As accurately as I should return to the paths of virtue and return or on one type at a discount. It can inform the Senator. use its clear legal authority to slow ·.down would not be necessary to refund out­ Mr. MILLIKIN. Usually the Sen­ or stop the open-market purchase of se- standing savings bonds unless other ator's infirmities are not such as to pre­ curities. . forms of savings available to small savers clude him from giving an accurate· I know it is said that we must keep. became so attractive that they redeemed answer. down interest charges to the Govern­ their bonds to hold their savings in these Mr. DOUGLAS. I hope the Senator ment. But I should like to point out other forms. will carry over his tribute to me .when again that the Federal Government it­ Mr. MILLIKIN. I do not make any we come to a discussion of the protec­ self is losing far more from an increase argument as to that point. I mention tive tariff. in prices than it could possibly lose from it because earlier in the Senator's ad­ Mr. MILLIKIN. I wish to have the· an increase in interest rates. Therefore dress I understood that the interest RECORD show how these bonds are held, the Treasury has a very restricted point problem in connection with savings what their maturities are, and what the of view of the Government's interests bonds was not particularly covered. impact of a higher rate of interest might when it sees only interest charges. Mr. DOUGLAS. Not so much the in­ be, not only in its immediate relation­ Mr. MILLIKIN. Mr~ President, will terest problem as the problem of the ship to the problem of inflation but .also. the Senator yield? depreciation of the face value. Savings on the holders qt our so-called savi~gs Mr. DOUGLAS. Yes. bonds are different from the Liberty bonds. ~- 'ttJ·i Mr. MILLIKIN Has the distinguished bonds of the First World War, which I should like to_,,µiake one further sug­ Senator from Illinois put into the REC­ could be sold in the open market. Series gestion, if I may. When the economy ORD during the course of his address the E, F, and G bonds can only be redeemed; - is stinking with inflation, as it is at the number of bonds .held by institutions then cannot be sold, as the Senator pres~nt time, there are also some psy­ and those held by the public? knows. ~hological factors, which may not re­ Mr. DOUGLAS. I do not.know about Mr. MILLIKIN. I was merely making :flect completely the type of argument institutions, but I shall ask unanimous· an observation. There is no way of · which the Senator is making. '!'hey consent to include a number of docu­ stabilizing, except for a short term, any· sometimes lead to explosive inflation, ments in the RECORD, including a statis­ Government rate of interest. It flows regardless ·of the fundamental factors tical record of bond purchases, bank re­ over into all Government issues, and it which are oper.ating . one way or the serves, bank loans, and price increases, flows over into private finance. other; In othe:r words, the psychology in I shall try to classify the Government Mr. DOUGLAS. That is correct. the explosive inflation phase can over-- bonds according to their type and how Mr. MILLIKIN. The Senator from ride many sound'measures. . -. they are held. Illinois raised the question as to what Mr. DOUGL/,LS ~ That is true; but I Mr. MILLIKIN. Can the Senator tell' extent we should increase the interest think the psycll~logy become~ sounder us roughly how the bonds are divided as rate, with the incidental risks which he and sounder, tf' I may use that expres­ between institutions and the public? has mentioned~ If we withdrew support sion, as it is to a greater and greater Mr. DOUGLAS. I shall submit for the from the bonds-and I am listening with degree based upon awareness of the RECORD a table showing figures as to great interest, and do not argue the facts. point-there would at least be a tempo­ Mr. MILLIKIN. If the medicine is not how they are held. , rary increase in the interest rate. - administered too long after the patient Mr. MILLIKIN. Mr. President, will has become ill. the Senator yield further? Mr. DOUGLAS. I shouldlike to state . Mr. DOUGLAS. I yield. it this way: If the Federal Reserve Mr. DOUGLAS. I can think of notb- . Board does as the Senator from Illinois ing worse for the American psychology Mr. MILLIKIN. Can the ~enator give us an approximation ·out of his head? recommends, namely, greatly reduce its than to have a constantly mounting cost Mr. DOUGLAS. As the Senator from volume of purchases of Government of living and a constantly increasing Wyoming has stated, of a total of $257,-· securities, it is obvious that bank re­ scale of prices. That will lead to the sale serves would not increase by the degree of Government bonds . . It will lead to the 000,000,000 outstanding, approximately to which they otherwise would. Bank purchase of stocks and commodities, $58,000,000,000 are in series E and F loans, consequently, would not increase which will send prices still higher. It bond~. Forty-one billion dollars are to the extent they otherwise would. will lead to labor unrest and to strikes. held by public and quasi-public insti­ The supply of credit would largely be It will undermine confidence in govern­ tutions. About $152,000,000,000 of mar­ contracted below what it otherwise would ment. There is nothing economically ketable securities are in private· hands. be. If the supply of loans is reduced in worse than an appreciable increase in Mr. MILLIKIN. Mr. President, will relation to the dem6.nd, the inevitable the cost of living, Though I am not in the Senator yield further? - result will be an increase in the price favor of an increase as such in the in­ Mr. DOUGLAS. Yes. of credit. Since the price of loans is terest rate, I am ready to take it as a Mr. MILLIKIN. Does the Senator the rate of interest, a consequence of necessary evil as compared to the much have any table showing the maturities such a restrictive policy on credit would, greater evil of suffering a large price of the bonds in the hands of the- public? therefore, be a rise in the interest rate. increase. Mr. DOUGLAS. I shall include such I emphasize that this rise in the interest Mr. MILLIKIN. With much of what a table in the statistical material. - rate is, however, a consequence of an the Senator has said I would not dis­ Mr. MILLIKIN., The Senator is not attempt to stabilize prices of Govern­ agree. -I am merely making the point contending-, is he, that in the long run ment securities and the general price that perhaps we are oversimplifying the the savings-bonds would not reflect the limit. It is not the primary issue which remedies. Assuming that the Senator rate of interest payable on the other is at stake. The primary issue at stake is correct in every partiCular, there are bonds? is whether we should continue to issue a number of things which have led. to 1951 CONGRESSIONAL RECORD-· SENATE 1477 / the present state of inflation which , ·Mr: MILLIKIN. Under such circum­ If we take an average of the two, ·and might or might not ·be overcome by the stances the teacher always has a victory.·· perhaps of services, the average would be corrections which ,the Senator has men­ Mr. DOUGLAS. The Senator from between 10 and 12 percent. Apply that tioned. However, that is no reason for Colorado is quite able to answer back, as an average and it works out .from not administering a good remedy if one and he does so on many occasions with $6,000,000,000 to $7,000,000,000. Even if is available to us, if it does not, in turn, great skill. the interest rate on long-term securities stimulate other illnesses which would be . Mr. CASE. Mr. President, will the should rise from 2 % to 3 percent, and bad. · Senator yield? the rate on other Government securiti.es Mr. DOUGLAS. Dealing with the Mr. DOUGLAS. I yield. should go up correspondingly, that would question of complexity, let me point out Mr .. CASE. It has been my impres­ represent an increase in the total inter­ this fact: The increase in the total sup­ sion that the Government itself is the est bill of only $1,250,000,000. ply of bank credit has been about 10 per­ loser on the alternatives which the Sen­ Mr. CASE. I have seen the observa­ cent. The increase in the total quantity ator has suggested. That is, the Gov­ tion made that since the 2·7th of June . of physical production has been ap­ ernment today is a large procurer. It is we have lost 100 times more planes by parently about 10 percent. The increase buying many things. If it is a choice reason of the increased cost of planes in the velocity of circulation of money between having a higher price-- than we have lost in conflict. and credit has been about 10 percent. Mr. DOUGLAS. I would not like to Mr. DOUGLAS. That is quite possible. The increase in prices has been about 10 say that the Government ic a procurer, Mr. MILLIKIN. Mr. President, will percent, if we include wholesale and re­ but it procures large quantities of goods. the Senator yield? tail prices together. Mr. CASE. I will accept that modi­ Mr. DOUGLAS. I yield. It is interesting to note that if we fication or clarification. . Mr. MILLIKIN. I think it has been divide the relative increase in the total Mr. DOUGLP..S. Whatever may have said-I have not checked it-that we amount of money plus the increase in been the record of the Federal Gov­ have really lost the value of our recent · velocity of circulation by the increase in ernment from 1920 to 1933, it is certainly tax increases. the quantity of goods produced, we get an not true under the present administra­ Mr. DOUGLAS. We have lost very increase of about 10 percent in prices, tion. close to it. which is precisely what has occurred. Mr. MILLIKIN. If the Government Mr. MILLIKIN. May I ask one fur­ While these things are interrelated, is a procurer, it is under the present ther question? what I am trying to say is that probably administration. [Laugh ter.J Ml'. DOUGLAS. Certainly. the chief cause for the increase has been Mr. CASE. In any event, the Govern­ Mr. MILLIKIN. Has the Senator the increase in the quantity of credit ment is in the market today buying a made an estimate during the course of which has resulted ill an increased vast quantity of goods, military and his remarks as to what he would call the money supply. Once prices start going otherwise. I agree pretty largely with amount of legitimate bank credit which up, the velocity of circulation increases, the thesis of the Senator from Illinois should flow at the present time, in order because the people know that with every with respect to the probable cost of an to measure the amount of inflationary day their money is worth less, so they increase in the interest rate and the lack bfl,nk credit? ha~ten to spend it as quickly as possible. of desirability of such an increase per se. Mr. DOUGLAS. It is quite difficult to Therefore we have a cumulative force at But ·if it is a choice between paying a secure an accurate figure. work. An increase in money relative to higher price for what the Government Mr. MILLIKIN. Oh, yes. goods leads to an increase in the velocity has to buy and paying a higher interest Mr. DOUGLAS. But I should say that of circulation as well. rate at a lesser price, what is the picture at the very least we should not let the Mr. MILLIKIN. That has direct rela­ for us? total supply of bank credit increase. tion to my last suggestion, that if we do Mr. MILLIKIN. Let me put it an­ INFLATION OF PRICES COSTS GOVERNMENT MORE other way, please. Obviously, with an not use the remedies which are available THAN HIGHER INTEREST RATE to us, or if they should not work, there economy of the size of ours there must Mr. DOUGLAS. There can · be no be a legitimate base of bank credit. may come a time when. certain psycholo­ question·about that matter. The inter­ gies will have greater force than all the Mr. DOUGLAS. Yes. est payments of the Federal Government Mr. MILLIKIN. I am trying to figure academics of the situat· on. amount to five and eight-tenths billions, Mr. DOUGLAS. If the Senator from whether the Senator has measured what out of a total projected budget of $71,- that base should be to support legiti­ Colorado is implying that I am merely in­ 000,000,000, leaving $66,000,000,000 for fluenced by academics, let me say to him mately an economy of the present size goods and services. The Government of ours. that since I do not have the emoluments stands to lose much more from an in­ Mr. DOUGLAS. I should say that of academic life, I should not have the crease in prices than it does from an probably it would have been desirable opprobrium. [Laughter.] increase in interest rates. not to have increased the total amount Mr. MILLIK~. I imply nothing ad­ Mr. CASE. That is, the Government of demand deposits above $85 ,000,000,000 verse to the distinguished Senator. can buy money at a higher rate and still and to depend upon a philosophy of in­ Mr. DOUGLAS. I thought there was a have economy, as against paying higher crease in the velocity of circulation to \;ertain tone in the Senator's voice. prices for goods; match the increase in production. The Mr. MILLIKIN. That shows that the Mr. DOUGLAS. Provided it can keep increase from $85,000,000,000 to $93,000,- Senator has a bad ear for music. the price level down. Of course, if both 000,000 has been a misfortune. I would Mr. DOUGLAS. The sound of the interest rates and prices rise, it is caught not like to see an increase above $93,- Senator's voice is very sweet. both ways. But if we could shut off the 000,000,000. Mr. MILLIKIN. The Senator should supply of bank credit or greatly reduce Mr. MILLIKIN. Is it the Senator's get in tune with the music and it would the supply of bank credit and stabilize idea that in the main that increase is register more sensitively, I do not like prices, then we could take the slight in­ inflationary? to be judged on the tone of my voice, creas~ in the interest rate which would Mr. DOUGLAS. Yes. because the good reporter here is not be needed as a cheap price with which Mr. TAFT. Mr. President, will the writing music. He is writing symbols to purchase both fiscal and general social Senator yield? representing words. stability. Mr. DOUGLAS. Yes. Mr. DOUGLAS. If we may turn from Mr. CASE. Has the Senator made any Mr. TAFT. As I understand-and I music to harsh realities- computation of the additional cost to the agree with the Senator-the effect today Mr. MILLIKIN. Let us not be harsh. Government by reason of the increase in of the policy of the Federal Reserve Mr. DOUGLAS. Is the Senator saying prices since the 27th of June? Board in supporting the Government that the Federal Reserve System should Mr. DOUGLAS. I have made a rough market at par is practically to monetize continue buying Government bonds? computation that when the effects are the public debt at the request of any Mr. MILLIKIN. No. I am a humble fully evident, they will amount to at least bank that chooses to make the request. student; I am a sophomore, listening to $6,000,000,000 a year, and probably more, Mr. DOUGLAS. It makes it possible the Senator's academics. because the increase in wholesale prices for anyone who wants to present Gov­ Mr. DOUGLAS . . They ·are not· aca­ has been 17 percent; the increase in the ernment bonds to the bond market com­ demic issues at all.. ' cost of living has been about 7 percent. mittee of the Federal Re:::erve Bank to 1478 CONGRESSIONAL RECORD-SENATE FEBRUARY 22 have the bonds purchased. The effect their bonds. The basic difficulty lies in Mr. DOUGLAS. It is a great tribute will be to increase the bank reserves by the fact that the bonds are so liquid that to the power of truth in a democracy. that amount. ordinary methods of credit control are Mr. MILLIKIN. It is a great tribute Mr. TAFT. I agree with the general not going to be extremely. effective. I to the powers of the Senator from Ar- thesis of the Senator. I have one or am inclined to agree with the Senator . kansas and the Senator from Illinois, two questions. Does not the Senator from Illinois. I think the abandonment without undue disparag-ement so far as· think it is possible that the 2% percent of the policy will cause bonds to drop a the significance of the word "truth" is rate: which is the basic Government rate little, though not a great deal, below par, co11cerned. on long-term bonds, may be a sound rate, and that may discourage the banks from I should like to ask the Senator ·from so that if the Board stops buying bonds, cashing their bonds and increasing their Illinois a question. What was the call­ at least the bonds will not fall very far reserves and other loans. money rate when everything went to pot below par? Mr. DOUGLAS. The significance of in the late 1920's? Mr. DOUGLAS. That was my argu­ correct Federal Reserve action lies not Mr. DOUGLAS. I do not recall ex­ ment. in increasing the interest rate, but in actly; but, as I .remember, call money in Mr. TAFT. So under those circum­ reducing the amount of purchases, so New York was very high, say about 10 stances, does the Senator think the banks that the banks will not be able to get percent. That was a rate paid by stock would be very much discouraged from reserves by selling their bonds. That is market speculators on their loans. disposing of such bonds? Would there the essence.of it. Mr. MILLIKIN. Interest rates have not in effect, so to speak, be a general Mr. TAFT. That is true unless they profound significance with relation to, public market for the bonds even if the can sell their bonds to the general pub­ let us call it, inflation. Federal Reserve Board should stop buy- lic and later on say, "A 2%-pereent bond Mr. DOUOLAS. I have never main­ ing them? · or the short-term bon1 is pretty good, tained that high interest rates-and I · Mr. DOUGLAS. I regret that the dis­ even at nresent interest rates.'' think this· is the fourth time I am tinguished Senator from Ohio -was not Mr. DOUGLAS. Yes; but if bank loans making this statement today-I have on the :fioor when I made that point, do not increase the total amount of never maintained that high interest because I tried to develop it in some de­ money does not increase, and we do not rates greatly diminish the demand for tail. What the Senator from Ohio sug­ have infiation. loans. Economists have been· wrong gests is quite true. Insurance companies Mr. TAFT. I agree it will have less about that. Bank authorities have been and financial institutions will not want effect if the bonds are sold to the public wrong about it. The important point is to show losses on their books, and if and than to the Reserve banks. the question of supply. If the supply when the bonds fall below par, if they What does the Senator from Illinois is shut off, the money simply is not there sell them, that means that the institu­ propose that Congress do about it? to loan. I am sorry to see that the Sen­ tions will have to -admit that they have Mr. DOUGLAS. I do not know what ator from Wyoming [Mr; O'MAHONEYJ, taken losses, and they do not like to do th~ Congress can do about it, but I hope the Senator from Ohio [Mr. TAFT], and that. Secondly, as the price of bonds tt.. at the present · admonition from this the Senator from Colorado [Mr. MIL­ with fixed interest rates falls, of course side of the aisle to the Treasury may LIKIN] have all fallen into this fallacy. the yield rises proportionately, so 'that make the Treasury a iittle less hide..: Mr. MILLIKIN. The Senator from they become more and more attractive bound, and strengthen the will of the Colorado has not disclosed his position: and hence they will less and less be Federal Reserve Board to take the ac­ Mr. DOUGLAS. The Senator from sold. Therefore, I do not think we need tion which the law authorizes. I think Colorado always hides behind the fear that the bottom will fall out of the the Treasury and its advisers have been thicket and has a machine gun concealed bond market. engaged in a wrong policy for a con­ there which is _·eady for action. Mr. TAFT. I agree fully with the Sen­ siderable time. I should like to see them Mr. MILLIKIN. I have not as yet un­ ator from Illinois. I question whether yield their position. If they do not yield, masked the machine gun. · I am in proc­ the price is go in~ to fall at all, and I am ready to propose a resolution at an: · ess' of attending the Senator's seminar therefore whether the bond situation appropriate time, similar to that which and trying to learn something. Maybe will have much· effect on in:fiation. I our subcommittee proposed a year ago, some day I shall submit a paper for a agree with the Senator that we ought to providing that the control over the total master's degree, or' for one of the lesser abandon the present policy. I raised supply of credit b::! put into the hands degrees. · the question as to whether such aban­ of the Federal Reserve Board, and that Mr. DOUGLAS. As I said, since I do donment actually will have the effect of the issue of servicing the debt be. sub..: not have the emoluments of the teach­ preventing inflation, as the Senator de­ ordinate to that, rather tnan be made, ing professor; I ought not to be re­ sires. It may do so. I think it will not. as now, the primary consideration. proached with conducting a seminar. Mr. DOUGLAS. If I may say so, I Mr. TAFT. I agree with the Senator But I can learn from the Senator's legal think the Senator from Ohio is now fall­ from Illinois that the admonition from stance and I am anxious to do so. ing into the same fallacy the · Senator the other side of the aisle is going to Mr. MILLIKIN. I am not asserting from Wyoming [Mr. O'MAHONEY] fell be much more effective than a similar that the Senator is receiving any such into earlier in the day. The Senator admonition given from this side of the emoluments. I should like to receive from Ohio is assuming that those of us aisle. . some of the emoluments myself. I sug­ who want to check inflation hope to do Mr. DOUGLAS. I agree. gest that the Senator place in the RECORD, so by raising the interest rate. That is Mr TAFT. I am quite delighted to not that the Senator thinks it would not the point. .I certainly do not argue join with the Senator from Illinois in be of any significance, but someone else that a rise in the interest rate will ap- that admonition. I should be interested in considering the Senator's thesis . preciably reduce the amounts which to seJ the resolution which the Senator might think so, what the interest rate · borrowers will want to borrow from from Illinois may ultimately have to pro­ was on call money when the collapse banks. Interest payments are such a pose if the Treasury remains obdurate came in 1929. small fraction of the total cost of ·busi­ in spite of the admonition from the Mr. DOUGLAS. In October 1929. ness operations that a rise in the rate other side of the aisle. Mr. MILLIKIN. Yes. would not represent.much of an increase Mr. MILLIKIN. Mr. President, will Mr. DOUGLAS. Would the Senator in total cost. Therefore, I do not think the S.enator yield? like .some figures for December 1907? it would appreciably reduce the demands Mr. DOUGLAS. I yield. Mr. MILLIKIN." Yes. for loans. I think that economists and Mr. MILLIKIN. I think the distin­ Mr. DOUGLAS. . And for January bank authorities have in the past erred guished Senator from Illinois is working 1897? . in overstressing this point. in a very hopeful atmosphere. The Mr. MILLIKIN. It would not be a bad What I am saying is that we should Senator from Arkansas [Mr. FULBRIGHT] idea, if the Senator from Illinois re­ ' try to control credit not by raising the won one battle the other day. ' lated them in some kind of a pattern. price but by helping to shut off the Mr. DOUGLAS. May I say in all mod­ Mr. DOUGLAS. And the price of rub­ supply. esty that I helped him. ber in Brazil in 1907? Mr. TAFT. But my point is that the Mr. MILLIKIN. That victory will Mr. MILLIKIN. Before the Senator banks, after all, .will be able to cash help to feed the Senator's furnace. concludes putting in the RECORD his 1951 CONGRESSIONAL RECORD-SENATE 1479

charts and other material I expect to see supply ori four dates, from January 1949 to· Chinese interven ~ ion and declaration of a all those figures exposed, and I also ex­ January 1951. national emergency, buying and prices showed pect that .;he Senator from Illinois will Bank credit to these borrowers in the first a renewed upturn until the general freeze give some kind of a reason for exposing 6 weeks of 1951 reflects a continuation of was imposed on January 26. Since that time, strong inflationary pressures. Loans to busi­ average wholesale prices of farm products them. ness increased over this period by the largest However, let us confine ourselves to and foods, controlled only in part, have risen amount ever recorded in the entire 14-year further by 3Y2 percent. The general level 1929 or whenever it was when interest on h:story of the weekly commercial, industrial, of wholesale commodity prices is n )W 17 per­ call money and interest rates reached and agricultural loan series. Total loans in­ cent higher than last June and 20 percent their peak, just before the :flood came. creased by a smaller amount than business higher than a year ago, as shown in table 4. Mr. DOUGLAS. Earlier in the day the loans because of a decline in high year-end borrowing for purely financial purposes such Average prices of consumer goods and serv­ Senator asked for information as to who ices in mid-December were reported to be held various types of Government secu­ as security loans. The privately held money supply declined 5 percent higher than in June. It is likely rities, and in what quantities. For the in the first 6 weeks of 1951, as it ordinarily that the consumers' price index will show a sake of the RECORD, let me say that the does in this period, from purely seasonal further rise of 2 percent in February to a total volume of outstanding Government forces. Currency in the hands ·of the public level 9 percent higher than a year ago. As securities as of December was approxi­ was reduced as a result of the usual post­ shown in table 3, wholesale prices of a num­ mately $257,000,000,000; that $152,500,- holiday inflow of currency to the banks. ber of major materials have risen by 50 per­ 000,000 were marketable; that the Re­ Tax payments, as usual, had the effect of cent or r~ _ ore. Farm products are 28 percent serve banks held $19,000,000,000; com­ transferring deposits from individuals, part­ above a year ago after rising 5 percent in n«jlrships, and corporations to United States January. Wool prices rose 3{> p.ercent in Jan­ mercial banks, $62,000,000,0'lO; mutual Government accounts at commercial banks uary. Cotton prices are 50 percent above the savings banks, $11,000,000,000; insurance and the Federal Reserve banks. Other fac­ Federal support level. companies, $19,500,000,000; other corpo­ tors which account for the reduction in the TABLE 3.-Advances in prices of major com­ rations, just short of $20,000,000,000; p- ~ vately held money supply include an out­ modities State and local government " $8,100,000,- flow of gold . and some purchases of United 000. Individuals held savings bonds States Government's by nonbank investors from the banking system. Ordinarily, a re­ Percentage increase amounting to just under $EO,OOO,OOO,OOO; to Feb. 16, 1951, other securitie.'.>, $17 ,600,000,000; miscel­ duction in bank loans accounts, in part, for from- . the seasonal reduction of the money supply Commo

TABLE 5 B. Federal Reserve holdings in Government have not been necessary to evoke greater out­ A. Changes in member bank reserves, re­ securities put. Their principal effect has been to con­ serve bank credit and principal related [CloEe of business J'eb. 14, in millions of tribute to the chain of price increases which dollars] has been set in motion and which is proving items, selected dsits with The effscts of bank credit expansion in production was accompanied at first by an Federal Reserve present circumstances: It seems reasonable almost equivalent proportionate rise in prices, banks ______,_ +131 -307 +5 +318 Nonmember and other to believe that, even without any expansion but prices continued to rise, whereas produc­ of bank credit, the outbreak of hostilities in tion did not. The higher prices may be at­ countsFederal ______Reserve ac· -50 -114 +10 -36 Korea and subsequent developments would tributed in no small part to the tremendous Member bank reserves: TotaL ___ ·------_ +328 -4 +l,069 +1, 261 have created demands for goods and services increase in total bank loans, which were over which would have strained this country's 17 percent, or $8,000,000,000, greater at the Required reserves __ _ +235 +226 +399 1+1. 747 productive capacity and pressed hard against end of December than at the end of June. Excess Reserves (estimated) ______+93 -240 +670 -486 the prevailing price level. Most business This additional bank credit intensified the firms and consumers were in a position to competition for resources, for which demand 1 IncreMe entirely due to increase in reserve require­ increase their purchases of goods and serv­ at existing prices had already exceeded ments. ices without increasing their iny supply. Busi­ most exclusively for inventories and other nesses and individuals also hold large working capital. Inasmuch as the available TABLE 6 amounts of Government securities which supply of these agricultural commodities was A. Changes in Federal Reserve holdings of they can c.onvert into cash at wal. Thus, fixed, it may be concluded that bank loans to Government securities, selected periods the total volume of liquid ass ~ ts which can commodity dealers and processors of agricul­ be drawn upon at any time to finance pur­ tural commodities did not contribute to the [In millions of dollars] chases · f goods and services is very large, rise in industrial or agricultural production. not only absolutely but, even more im­ What they did do was to provide the funds 4 Aug. O~~· Nov. Jan. 3 portant, relative to the level of output. which led to increased bidding for a fixed Issue 16tt.o Nov. 22 to to Feb. The growth in the size of liquid asset hold­ supply of goods, and to encourage the accu­ 0 0 4 22 Jan. 3 14 ings (including Government securities as mulation of stocks in anticipation of rising ------1------.----- well as currency and deposits) has been ac­ prices. These actions were important con­ Bills ______-2, 915 -382 +mo +534 companied by an increase in their use. The tributing factors to the recent sharp advance Certificates and notes ___ +4. 822 -141 +728 +125 turn-over of demand deposits has become in commodity prices. Another notable find­ Bonds______-866 + 444 +335 +579 greater. Turn-over is still low as compared ing of the survey was that increases in loans TotaL ______+1, 041 -79 +1, 275 +1, 237 with some periods in the past, however, and for defense contracts and to durable goods Net purchases of mar­ could easily become the basis for a substan­ industries were negligible, notwithstanding ketable securities for tial further increase in spending without the importance of these industries in a de­ Treasury account es- timated) ______------· +125 additional deposit creation. fense economy. In these circumstances the additional de­ In short, there is very little evidence to mands for goods made possible by the ready support the view that the recent increases in LEGEND availability of bank credit have been super­ bank credit have been responsible or neces­ Aug. 16 to Oct. 4: Treasury refunding at lM percent for 13 months. imposed upon already great demands arising sary for the increase in industrial production Oct. 4 to Nov. 22: Rising short-term rates. out of large and growing incomes and previ­ that has occurred since June. What they Nov. 22 to Jan. 3: Treasury refunding at 1~ percent ously accumulated liquid asset holdings. have done is to facilitate inventory accumu­ . for 5 years. Jan. 3 to Feb. 14: Increase in reserve requirements. These ad

TABLE 7.-0wnersh~p of United States Government securities, direct and fully guaranteed LPar value in millions of dollars]

I Total Held by U.S. Gov- Held by the public gross ernmen t agencies and trust funds 1 debt (in· Individuals End of month eluding Insur- State Miscel- guaran· Federal Com- Mutual Oth er Total Reserve mercial savmgs ance corpora- and local laneous teed se- Special Puhlic com pa- govern- inves- banks banks 2 b anks tions Savings Other tors 3 curities) issues issues nies m en ts bonds securities ------1940-June .•••••••••••.••••• _••• ___ • _. 48, 4G6 4, 775 2,305 41, 416 2, 466 16, 100 3, 100 6, 500 2, 100 400 2,600 7,500 700 1942-June1941-June ______..•.•.•.• ------. ------55, 332 6, 120 2,375 46, S.17 2, 184 19, 700 3, 400 7, 100 2, 000 600 3,600 7,600 700 76, 991 7,885 2, 737 66, 369 2, 645 26, 000 3, 900 9, 200 4, 1100 900 9, 100 8, 700 l, 100 1943-June •.•• ___ ------.. __ 140, 796 10,

t Includes the Postal Savings System. 2 Includes holdings by banks in Territories and insular possessio~s, which amounted to $300,CJ90,000 on June 30, 1950. . . . a Includes savings and loan associations, dealers and brokers, foreign accounts, corporate pension funds, and nonprofit mst1tut1ons. •Revised. NoTE.-Holdings of Federal Reserve banks and U. S. Government agencies and trust funds are reported figures; holdings of other investor groups are estimated by the Treasury Department. Source: Federal Reserve Bulletin, January 1951.

· TABLE 8.-U. S. ·Government marketab{e pub-. Issue and coupon rate-Continued they get ready for military contracts, and Zic securities outstanding Dec. 31, 1950 Treasury bonds: Amount to speculative purchases by businessmen· [On basis of daily statements of U. S. June 15, 1959-62,3 214------5,"284 and consumers in anticipation of further Treasury. In mHlions. of dollars] · Dec. 15, 1959-62,3 2%.------3, 470 price rises. This explanation neglects the Dec. 15, 1960-65,2 2%------1, 485 critical role being played by a misconceived Issue and coupon rate: ri 3 monetary policy in permitting these arma­ 1 June 15, 1962-67, 2112------2, 118 .Treasury bills : Amount Dec. 15, 1963-68,a 2112------2, 831 ment and private efforts to produce a price Jan. 4, 1951 ------1,003 June 15, 1964-69,3 2112------3, 761 rise. As a result of the monetary failure, Jan. 11, 195L------l, 002 3 the Government is now committed to dras­ Jan. 18, 1951______1,000 Dec. 15, 1964-69, 2112------3, 838 Mar. 15, 1965-70,3 2112------5, 197 tic measures in its attempt to control prices Jan. 25, 1951------1,001 Mar. 15, 1966-71,3 2112------3, 481 and wages which do not striKe at the root Feb. 1, 1951------1,100 June 15, 1967-72,3 2112------7, 967 causes of inflation and which impair the Feb. 8, 1951------1,102 Sept. 15, 1967-72, 2112------2, 716 general efficiency of the economy and, also, Feb. 15, 1951------l -- 1, 101 Dec. 15, 1967-72,a 2112------11, 689 affect adversely the armament effort. Feb. 23, 1951------1, 105 Postal-savings t ands, 2112------109 Actually the production of armament is as Mar. 1, 1951------1, 102 Panama Canal loan, 3------50 yet a mere trickle. The recent price rises Mar. 8, 1951------l, 103 cannot, therefore, be attributed to expendi­ Mar. 15, 1951------l, 001 Total direct issues ______152, 450 tures on these. Neither can they be attrib­ Mar. 22, 1951------l, 001 uted to other expenditures by the Federal Mar. 29, 1951------·------l, 005 Guaranteed securities: Federal Government. During the second 6 months Certificate of indebtedness n:ran. 1, Housing Administration, vari- of 1950, the Federal Government took in sub­ 1951, 1 %------·;..______5, 373 stantially more than it paid out. The Fed­ Treasury notes: ous------~------21 e Restricted. eral budget was, therefore, if anything, a July 1, 1951-B, 1 %.------­ 2,741 deflationary rather than an inflationary July 1, 1951-C, 1 %.------­ 886 Source: Federal Reserve Bulletin, January force during this period. True, as arma­ July 1, 1951-D, 1 %.------­ 4,818 1951. ment expenditures rise, this situation will Aug. .I, '951, 1 %.------­ 5,351 change unless new taxes are levied to meet Oct. l, 1951, 1 %.------­ 1,918 APPENDIX IV the increased expenditures. Such additional Oct. 15, 1951, 1 %.------­ 5,9•\1 taxes should be levied. But the recent price Nov. 1, 1951, 1%.------5,253 STATEMENT OF MILTON FRIEDMAN, LLOYD. A. METZLER, FREDERICK H. HARBISON, LLOYD ·w. rises cannot be attributed to failure by Con­ , Mar. 15, 1954, 1%·------­ 4,675 gress to enact adequate taxes. On the con­ Mar. 15, 1955, 1112------­ 5,365 MINTS, D. GALE JOHNSON, THEODORE W. SCHULTZ, AND H. G. LEWIS, OF THE DEPART­ trary, the willingness of Congress to impose Dec. 15, 1955, 1%------2,309 MENT OF ECONOMICS, UNIVERSITY OF CHICAGO new taxes has been the brightest spot in our Treasury bonds: economic policy during the last 6 months. June 15, 1951-54,2 2%------­ 1,627 THE FAILURE OF THE PRESENT MONETARY ·The expectation has been that there would Sept. 15, 1951-53, 2------­ 7,986 POLICY 2 be. substantial armament expenditures in Sept. 15, 1951-55, 3------755 Our purpose in preparing this statement is the future, that a wide variety of goods - Dec. 15, 1951-53,2 2%.------l, 118 to show that the present monetary policy of Dec. 15, 1951-55, 2_:______would be unavailable, and that there would 510 the Federal Reserve is highly inflationary, occur future rises in prices. The expecta­ Mar. 15, 1952-54, 2112------­ 1,024 that the monetary actions of the Federal Re­ tion has given a strong incentive to busi­ June 15, 1952-54, 2------­ 5,825 serve since Korea have permitted the marked nesses and individuals to buy now. The re­ June 15, 1952-55, 2 %.------.. - 1,501 price rise which has already occurred, and peated threats by Government of wage and Dec. 15, 1952-54, 2------­ 8,662 that the Federal Reserve, presumably under 2 price ceilings have further promoted price June 15, 1953-55, 2------­ 725 the influence of the Treasury, is pursuing rises by serving notice on any groups that June 15, 1954-60,2 2%.------­ 681 an ill-conceived policy that will interfere 2 can exercise control over prices or wt>,ges to Mar. 15, 1955-60, 2%------­ 2, 611 with effective mobilization of our economic increase them before it is too late. But Mar. 15, 1956-58, 2112------­ 1,449 strength even though taxes are increased 2 neither force could have produced a price Sept. 15, 1956-59, 2%------­ 982 enough to keep the Federal budget in bal­ rise together with full employment and a Sept. 15, 1956-59, 214------­ 3,823 ance. 2 high level of output unless businesses and June 15, 1958-63, 2%------919 Prices are rising at an alarming rate. This individuals had been able to get funds with 1 Sold on discount basis. rise is widely attributed to the armament which to finance additional purchases. An­ 2 Partially tax exempt. effort. to the efforts of business firms as ticipations of future price rises could have 1482 CONGRESSIONAL RECORD-SENATE FEBRUARY 22 been prevented from producing a price rise !erred to hold this one price down even at bound to create inflationary pressure. We by a vigorous monetary policy designed to the cost of facilitating a rise in all other cannot afford to add to this inflationary make credit tight, to prevent an !ncrease in prices. It is long past time that this short­ pressure by an inflationary monetary policy. the quantity of money, or if necessary, to sighted policy was abandoned. The Federal Reserve System should at once decrease the quantity of money in order to These remarks are clearly of more than announce that it will conduct its operations offset~ rise -in the rate of use of money. . historical interest. The problems we have with an eye single to their effects on the Instead of following such a policy, our been facing during the last 6 months are supply of money and credit and on the level monetary authorities have done nearly the unfortunately likely to plague us for a long of prices. It should at once begin to sell reverse. They have provided additional time. A sound economic policy for this Government securities to whatever amount reserves to the banking system, thereby period should rest on two pillars: monetary is necessary to bring about a contraction in making it possible for banks to expand both policy and fiscal policy. It should use mone­ the currently swollen credit base. And it their loans and their deposits at an extraor­ tary policy to prevent the civilian sphere should persevere in this policy to the point dinary rapid rate. The loans have provided from adding fuel to inflation; it should use that the inflation is checked even though the financial means for speculative pur­ fiscal policies to offset the inflationary pres­ one of its incidental effects is a rise in the chases; the deposits have provided the cir­ sure of Government spending. The need for interest rate on Government securities. culating medium for the larger money vol­ fiscal policy, specifically, heavier taxation to Statistics and sources ume of transactions. match heavier expenditures, is fortunately The consequences are written clearly and by now widely recognized. The need for, 1. FEDERAL GOVERNMENT CASH BUDGET 1950, second hair: · - Billions OJ dollars dramatically in the statistical record since or even the possibility of, using monetary Cash receipts ______21. 9 Korea. From May 31 to the end of 1950, policy is hardly recognized at all. Nor can Cash payments ______19. !l5 bank loans rose by nearly $10,000,000,000 or we accept the dictum of the Council of Eco­ nearly 20 percent. Adjusted demand de­ nomic Advisers that "because of the needs Difference______L 95 posits, the most active component of the of debt management, general Source· ~ the annual ratr,s j:!iven in table 9, A nnnal money supply, rose by over $7,000,000,000, or credit policy cannot be expected to be a Economic Review by the Council of Economic Advisers in the Economic Report of the President Janullry over 8 percent . . Currency outside banks rose major anti-inflationary instrument during 1951, p. 160 (hereafter referred to as Annual Economic only slightly, by about $500,000,000, so that the coming period of inte:::isive mobilization." · R eview). the total circulating medium rose by 7 p~r­ The prices at which the citizens of this cent. This increase ·in the money supply country can buy goods and services are much 2. MONEY AND CREDIT DATA, BANKS OTHER THAN was made possible primarily by Federal Re­ more important than the price at which the FEDERAL RESERVE BANKS serve purchases of Government securities. Government can borrow money. [In billions of dollars] Federal Reserve holdings of Government se~ The so-called needs of debt management curities rose by also $3,500,000,000, or 20 per­ have been magnified out of all proportion to End of- cent. Almost half of this increase was off­ t:t:eir actual importance in economic policy. set by a gold outflow, but nearly two billion A determined policy to stop inflation will May December was added to member bank reserve balances have numerous consequences, one of the 1950 1950 by the security purchases and other Federal least important. of which would be a rise in Reserve operations. The resultant 12-per­ the interest rate on Government debt, a rise Demand deposits adjusted ______85. 0 92.1 cent increase in reserves was more than that would probably be moderate. But even Currency outside bar.iJr-s ______24. 7 25. 2 enough to support the 8-percent increase In from the narrow point of view of debt man­ demand deposits, so that excess reserves.were agement, the policy being followed by the Total circulatinifmedium_ 109. 7 117.3 actually more than twice as large at the end Treasury is, to say the least, short-sighted. Time deposits------~------59. 5 58. 9 of 1950 as they had been 7 months earlier. 'l'he nearly $35,000,000,000 of series E bonds Total privately held With a rise of over 8 percent in demand outstanding can be redeemed at the will of money supply ______169. 2 176. 2 deposits, it is little wonder that personal their holders. Further price rises that con­ Loans (all banks)------51. 2 60.8 income rose about 10 percent, wholesale tinue to reduce the real value of these bonds prices about 11 percent, cost of living by are almost certain to produce sooner or later Source: Apnual Economic Review, table A-28, p. 198, for all items except loans. May loam, Federal Reserve nearly 6 percent. It is no accident that a flood of redemptions of outstanding bonds, Bulletin, December 1950, p. 1641; December loans, in· these figures are so nearly of the same magni­ to say nothing about the effect of further crease to rov. 29, from Federal Reserve Bulletin1 Janu­ tude. This is about as clear a case of purely price rises on the willingness of the public ary 1951, p. 55; increase from Nov. 29 to Dec. 31 estimated monetary inflation as one can find. to purchase additional savings bonds. This. on basis of increase for commercial banks shown in These are admittedly highly technical outcome would raise far greater difficulties Annual Economic Re':'iew, p. 197. matters, which is one of the main reasons for debt management than a rise in interest 3. OPERATIONS OF FEDERAL RESERVE SYSTEM rates. why, as profes§ional economists, we feel it {In" m'illioos of dollars incumhent on us to call them to the atten­ Monetary measures to keep down the sup­ tion of the public. They clearly are tech­ ply of money have the great advantage that May 31, Dec. 31, nical matters of the gravest importance. they operate impersonally and gei erally, af­ 1950 1950 The price rise of the last 6 months could fecting all alike. They do not interfere with almost certainly have been largely or wholly the details of day-to-day operation, require U.S. Government securities ______17, 389 . 20, 778 avoided by effective monetary action. In­ no great administn.tive staff to enforce them, Total credit outstanding ____ ------17, 935 22, 216 deed, prices would probably today be little do not interfere with, but rather add to, the Gold stock __ ------­ 24, 231 22, 706 above their level in May if the Federal Re­ incentives to produce efficiently and economi­ Member bank reserve balances: .'.!otaL ______15, 814 17, 681 serve System had kept its holdings of Gov­ cally. By preventing an expansion of credit, J:!;xcess reserves ______ernment securities unchanged instead of they assure that credit obtaiI ed to finance 526 1, 174 adding to them by $3,500,000,000. armament production is at the expense of The Federal Reserve System has had ample credit for other purposes instead of in ad­ Source: Federal Reserve Bulletin, January Hl51, pp. legal power to prevent the recent inflation. dition to such credit. In this way, they 43-44. Its Board of Governors are an able and pub­ make the financial operations consistent with lic-spirited body of men. Their failure tQ the }lhysical operations. The physical re­ APPENDIX V stop the inflation can be charged neither to sources for armam~nt production must large. AN ECONOMIST'S STATEMENT ON ANTIINFLA­ impotence nor to ignorance nor to malice. ly be obtained by diversion from other uses; TIONARY MEASURES Why, then, have they failed to use the means they can more easily be so obtained if the The undersigned economists believe that at their disposal? financial resources are diverted as well. prevention of inflation in the situation cre­ The failure to tighten bank reserves since Monetary policy cannot serve two masters ated by the expanding defense program re­ Korea is a consistent part of the financial at once. It cannot at one and the same quires, as the principal line of defense, a · history of the last decade. One cost of ef­ time buttress a strong fiscal policy in pre­ substantial increase in taxation, reductions - fective use of monetary measures to stem venting inflation and be dominated by the in expenditures at all governmental levels infiation is a rise in the interest rate on the present misconceived cheap money policy wherever this can be done without impairing Government debt. The major weapon avail­ of the Treasury. The necessity of malting a national defense or other essential public able to the Federal Reserve Sys~em is control cl· an-cut choice between these two objec­ services, and a more restrictive credit policy. over its holdings of Government securities. tives has been o~scured by brave talk and The basic cause of inflation, ari excess of Sales of securities produce a flow of money rcar:-guard actions by the Federal Reserve­ money demand relative to available goods, into the Federal Reserve System and out of th~ raising of reserve requirements, moral must be attacked. Only adequate fiscal and cuuency in circulation and out of bank re­ suasion of the banking fraternity, selective monetary measures can remove this basic serves. This action reduces the availability controls on installments and stock market cause. of credit to the public. This weapon- has credit, and the like. These are all doomed With the economy already operating at very not been used effectively throughout the to failure so long as the Federal Reserve high levels, further increases in spending can­ last 10 years because the Treasury and the System stands ready to buy unlimited not fail to enhance inflationary pressures. Federal Reserve System between them have amounts of Government bonds at essentially Under the influence of the expected increase been unwilling to let one particular price, fixed prices. in defense spending following the Korean the interest yield on Government bonds, rise Our national security demands a major outbreak, business and consumer spending more than fractionally. They have pre- armament effort. This armament effort is has already risen markedly, and price ana 1951 CONGRESSIONAL RECORD-SENATE ·14g3 wage increases are augmenting business and substantially raise costs and private spend­ State Univernity; John A. Cochran, Univer­ consumer incomes. Yet most of the planned able incomes. For the. above reasons, vol­ sity of Illinois; Sanford Cohen, Ohio State rise of defense spending is still to come, untary restraints by business and labor are University; Joseph D. Conard, Swathmore and this further rise will generate additional an important ingredient of a successful anti­ College; Michael V. Condoide, Ohio State Uni­ increases in private money incomes. Large inflation-program, and if business and labor versity; Paul W. Cook, Northwestern Univer­ expenditures on military programs arid for­ cannot or will not exercise such restraint sity; Alvin E. Coons, Ohio State University; eign aid, wit h their inflationary impact, may some mandatory Government ceilings may be Arthur J. Coutu, University of Connecticut; be needed for a decade or more. Faced with necessary. James A. Cover_, Syracuse University; A. B. this long-run inflationary prospect, we rec­ In sum, fiscal and credit measures are the Cox, University of Texas; John M. Crawford, ommend that the increase in total spending only adequate primary defense against infla­ Carnegie Institute of Technology; Ira B. be continuously curbed in three principal tion, and can minimize the extent of direct Cross, University of California; James A. ways, and that these constitute the first line Government controls.over wages, prices, pro­ Crutchfield, University of Washington; of defense against inflation: duction, and distribution. If adequate fiscal Howard A. CUtler, University of Illinois; 1. Scrutinize carefully all Government ex­ and credit measures are not employed, the Stuart Daggett, University of California; C. penditures and postpone or eliminate those country will face the ominous choice be­ F. Daily, University of Oklahoma; Clarence that are not urgent and essential. Substan­ tween continuous inflation and a prolonged H. Danhof, Princeton 1Jniversity; Clyde E. tial reductions can be achieved only :f some application of widespread Government price Danli:.ert, Dartmouth College; Joseph S. Davis, programs are cut. · and wage controls. Stanford University; Robert T. Davis, Dart­ 2. Raise tax revenues even .faster than de­ NOVEMBER 30, 1950. mouth College; Malcolm M. Davisson, Uni­ fense spending grows so as to achieve and LIST OF SIGNERS versity of California; Melvin G. de Chazeau, maintain a cash surplus. Merely to balance Cornell University; Karl de Schweinitz, Jr., the budget is not enough. If the inflationary Gardner Ackley, University of Michigan; Northwestern University; Emile Despres, Wil­ pressure is to be removed, taxes must take George P. Adams, Jr., Cornell University; liams College; Arthur W. Dewey, University out of private money incomes not . only as Leonard W. Adams, Syracuse U-.iiversity; E. E. of Connecticut; Ralph L. Dewey, Ohio State much as Government spending contributes Agger, Rutgers University; H. K. Allen, Uni­ University; Robert L. Dickens, Duke Univer­ to them but also a part of the increase of versity of Illinois; Edward Ames, Amherst sity; Z. C. Dickinson, University of Michigan; pi"ivate incomes resulting from increased pri­ College; George R. Anderson, University of Arthur T. Dietz, Wesleyan University; James vate spending of idle balances and newly bor­ Michigan; Carl Arlt, Oberlin College; James C. Dolley, University of Texas; Duane Doo­ rowed money. Larger taxes must be paid by L. Athearn, Ohio &tate University; Leonard little, Syracuse University; Boris G .. Dressler, all of us. Reliance should be placed primar­ A. Axe, University of Kansas; G. L. Bach, City College of New York; John F. Due, Uni­ ily on increases of personal income taxes on Carnegie Institute of Technology; Robert E. versity of Illinois; Acheson J. Duncan, Johns all income in excess of present exemptions. Baldwin, Harvard University; Paul A. Hopkins University. Ban.n, Stanford University; Russell S. Higher corporate profits taxes, in one form or Delbert J. Duncan, University of California; another, are also imperative. In addition, Bauder, University of Missouri; William J. Henry L. Duncombe, Dartmouth College; loopholes in our tax laws should be closed. Baumol, Princeton University; Harry P. Bell, James S. Dusenberry, Harvard University; 3. Restrict the amount of credit available Dartmout11 College; James Washington Bell, J. S. Earley, University of Wisconsin; Robert to businesses and individuals for purposes Northwes~ern Unive.rsity; Philip W. Bell, S. Eckley, University · of Kansas; Melvin A. not essential to the defense program. An ex­ Princeton University; Merrill K. Bennett, Eggers, Syracuse University; Howard S. Ellis, panding supply of low-c©st credit which Stan f ~ rd University; Warren J. Bilkey, Uni­ University of California; P. T. Ellsworth, Uni­ versity of Connecticut; Robert L. Bishop, swells private spending cannot fail to stimu­ versity of Wisconsin; :Oonald English, Co~· nell late inflation when the supply of goods avail­ Massachusetts Institute of Technology; John University; Ralph C. Epstein, University-of able for private use will be difficult to expand D. Black, Harvard University; Perry Bliss; Buffr.lo; Merton W. Ertell, University of and may even decline. University of Buffalo; Francis J.\.i. Boddy; Buffalo; George Heberton Evans, Jr., Johns Selective controls over consumer credit, University of Minnesota; Harold Barger, Na­ Hopkins University; Solomon Fabricant, Na­ real-estate credit, and loans on securities are tional Bureau of Economic Research; George tional Bureau of Economic Research; E. D. useful for this purpose and should be em­ H. Barts, Brown University; Chelcie C. Bos­ Fagan, Stanford University; Paul F. Fagan, ployed. But we believe that general restric­ Iand, Brown University; K. E. Boulding, Uni­ University of Connecticut; Helen C. Farns­ tion of the total supply of credit is also nec­ versity of Michigan; Carol P. Brainerd, Uni­ worth, Stanford University; Martin T. Farris, essary. This can be accomplished only by versity of Pennsylvania; Elwood J. Braker, Ohio State University; Robert Ferber, Uni­ measures that will involve some rise of University of Pennsylvania; Elizabeth versity of Illinois; D. A. Fergusson, University interest rates. Brandeis, University of Wisconsin; Alma of Calfornia; Frank Whitson Fetter, North­ If general inflationary pressure is not re­ Bridgman, University of Wisconsin; George western University; Clyde Olin Fisher, Wes­ moved by fiscal and credit measures, we face K. Brinegar, University of Connecticut; Ayres leyan University; J. Anderson Fitzgerald, Uni­ Brinser, Harvard University; Alexander two alternatives: ( 1) con1finued price infla­ 0 versity of Texas; Dwight P. Flanders, Univer­ tion, ·or (2) a harness of dlrect controls over Brody, ·City College of New York; Martin sity of Illinois; Louis 0. Foster, Dartmouth the entire economy which, even if successful Bronfenbrenner, University of Wisconsin; College; Robert R. France, Princeton Univer­ in holding down prices and wages for a Robert R. R. Brooks, Williams College; Doug­ sity; Herbert Fraser, Swarthmore College; while, would build up a huge inflationary lass V. Brown, Massachusetts Institute of R. E. Freeman, Massachusetts Institute of potential in the form of idle cash balances, Technology; E. Cary Brown, Massachusetts Technology; Albert W. Frey; Dartmouth Col­ Government bonds, and other additions to Institute of Technology; Emily C. Brown, lege; J. Kenneth Galbraith, Harvard Univer­ liquidity. such accumulated savings would Vassar College; Harry G. Brown, University sity; John 0. Gailagher, Wesleyan University; undermine the effectiveness of direct con­ of Missouri; 0. H. Brownlee, University of David Gass, Williams College; Arthur D. trols and produce open inflation when the Minnesota; Yale Brazen, Northwestern Uni­ Gayer, Queens College; Alexander Gerschen­ direct controls are lifted. Everyone remem­ versity; Kenneth P. Brundage, University of kron, Harvard University; Roland Gibson, bers vividly the sharp inflation of 1946-48 C:mr... ecticut; D. H. Buchanan, University of University of Illinois; Max Gideonse, Rutgers when the wartime accumulation of liquid· North Carolina; Norman S. Buchanan, Uni­ University; Burton H. Gildersleeve, University assets went to work on prices after the re­ versity of California; Edward C. Budd, Uni­ of Oklahoma; J.B. Gillingham, University of moval of direct price and wage controls. versity of Illinois; Henry T. Buechel, Uni­ Washington; Morris D. Glickfeld, University Either of these alternatives is extremely versity of Washington; Robert L. Bunting, of Washington; Donald F. Gordon, University d angerous. A prolonged decline in the pur­ University of North Carolina. of Washington; Kermit Gordon, Williams chasing power of the dollar wo.uld undermine H. H. Burbank, Harvard University; Arthur College; R . A. Gordon, University of Cali­ the very foundations of our society, and an Butler, University of Buffalo; John Buttrick, fornia; Richard A. Graves, University of ever-i;preading system of direct controls Northwestern University; Carl ,R. Bye, Syra­ Minnesota; Horace M. Gray, University of could jeopardize our system of free enter­ cuse University; James D. Calder~ood , Ohio Illinois; Albert O. Greef; University of Con-. prise and free collective bargaining. For State University; Arnold P. Callery, Univer­ necticut; John A. Griswold, Dartmouth Col­ these reasons we urge that fiscal and credit sity of Buffalo; Claude A. Campbell, State lege; Morton C. Grossman, State College of policies constitute our primary defense College of Washington; Robert Campbell, Washington; Harold M. Groves, University of against inflation. University of Illinois; Arthur M. Cannon, Wisconsin; Edward D. Gruen, Dartmouth Col­ The best possible fiscal and credit policies, University of California; Helen G. Canoyer, lege; John G. Gurley, Princeton University; however, will not eliminate altogether the University of Minnesota; John P. Carter, Uni­ Joh.n A. Guthrie, State College of Washing• need for ot her types of restraints. The first versity of California; w. Harril?on Carter, Jr., ton; William Haber, University of Michigan; impacts of a defense program are felt espe­ University of Connecticut; William A. Carter, Gottfried Haberler, Harvard University; cially . in particular commo,dities. Effective Dartmouth College; P. W. Cartwright, Uni­ Everett E. Hagen, University of Illinois; versity of Washington; Lester V. Chandler, allocation programs and orders limiting the Harold G. Halcrow, University of Connecticut; 1 Princeton University; Frank C. Child, Wil­ consumption of short materia s to essential Earl C. Hald, University of · Washington; uses, anLi an expansion of supplies can help liams College; Jack Chernick, University of stabilization of prices and wages in such spe­ Kansas; Carl Christ, Johns Hopkins Univer­ Challis A. Hall, Yale University; Burton T. cific lines; but they cannot.. of themselves sity; A. Hamilton Chute, University of Texas; Hallowell, Wesleyan University; William insure price and wage stability. Moreover, it Jack Ciaccio, Northwestern University; Carl Hamovitch, University of Buffalo; Arnold C. is obvious that stability of the general level P. Ciosek, University of Connecticut; Frank Harberger, Johns Hopkins University. of prices in the economy would be imposs.ible L. Clark, University of Connecticut; Paul G. Seymour E. Harris, Harvard University; C. in the face of general wage increases that Clark, Williams College; G. H. Cochran, Ohio Lowell Harriss, Columbia University; Hudson 1484 CONGRESSIONAL RECORD-SENATE FEBRUARY 22 B. Hastings, Yale University; Everett D. Haw­ Nelson, State College of Washington; James Joseph Taffet, City College of New York; kins, Mount Holyoke College; Floyd B. Ha­ R. Nelson, ; Arthur E. Nils­ Philip Taft, Brown University; Lorie Tarshis, worth, Uni\!ersity of Illinois; H. Gordon son, Cornell University; R. M. Nolen, Univer­ Stanford University; Virginia Galbraith Hayes, Ohio State University; Milton S. sity of Illinois; D. C. North, University of Tauchar, Mount Holyoke College; George Heath, University of North Carolina; Clarence Washington; C. Reinold Noyes, Princeton, Rogers Taylor, Amherst College; Paul N. Tay­ Heer, University of North Carolina; Richard N. J.; G. W. Nutter, Yale University; lor, University of Connecticut; Ph111p . E. B. Hefiebower, Northwestern University; War­ Paul M. O'Leary, Cornell University; John T. Taylor, University of Connecticut; Howii.rd ren W. Heller, University of Minnesota; Wil­ O'Neil, University of North Carolina. M. Teaf, Jr., Haverford College; Richard B. liam Hellmut, Oberlin College; Orris C. Her­ Guy H. Orcutt, Harvard University; Rich­ Tennant, Yale University; Ralph I. Thayer, findahl, University of Illinois; Kenneth W. ard C. Osborn, University of Illinois; Donald State College of Washington; Vladimir P. Herrick, University of Connecticut; C. Addi­ W. Paden, University of Illinois; Andreas G. Timoshenko, Stanford University; R. D. son Hickm~n. University of Illinois; Forest Papandreou, Northwestern University; John Tousley, State College of Washington; Tru­ G. Hill, University of California; L. Gregory B. Parrish, University of Illinois; Carl E. man G. Tracy, University of Missouri; Don­ Hines, Dartmouth College; W. Z. Hirsch, Uni­ Parry, Ohio State University; James W. Part­ ald S. Tucker, Massachusetts Institute of versity of California; Paul W. Hirseman, Syra­ ner, Cornell University; Harold C. Passer, Technology; D. G. Tyndall, Carnegie Insti­ cuse University; Daniel M. Holland, National Princeton University; Ernest M. Patterson, tute of Technology; Arthur R. Upgren, Uni­ Bureau of Economic Research; William S. University of Pennsylvania; R. D. Patton, versity of Minnesota; Abbott Payson Usher, Hopkins, University of Washington; Schuyler Ohio State University; Edith T. Penrose, University of Wisconsin; Roland S. Vaile, Haslett, Cornell University; Stanley E. How­ Johns Hopkins University; Winton Pettibone, University of Minnesota; Jacob Viner, Prince­ ard, Princeton University; J. Richard Huber, University of Washington; Clarence Phil­ ton University; Charles E. Walker, Univer­ University of Washington; H. D. Hudson, Uni- . brook, University of North Carolina; Frank sity of Texas; Pinkney C. Walker, University versity of Illinois; Holland Hunter, Haverford C. Pierson, Swarthmore College; Ann E. Pike, of Missouri; Donald H. Wallace, Princeton College; John G. B. Hutchins, Cornell Uni­ Ohio State University; . Henry M. Platt, Dart­ University; Robert F. Wallace, State College versity; Walter Isard, Harvard University; mouth College; Kenyon E. Poole, Northwest­ of Washington; Leonard L. Watkins, Univer­ John Ise, University of Kansas; David A. Ivry, ern University; A. Neal Potter, State College sity of Michigan; E. T. Weiler, University of University of Connecticut; Clifford L. James, of Washington; Charles L. Prather, Univer­ Illinois; Paul F. Wendt, University of Gali­ Ohio State University; Ralph C. Jones, Yale lty of Texas; L. J. Pritchard, University of fornia; Lawrence L. Werboff, Northwestern University; William 0. Jones, Stanford Uni­ Kansas; Claude E. Puffer, University of Buf­ University; R. B. Westerfield, Yale Univer­ versity; Jules Joskow, City College of New falo; P. L. Putnam, University of Connecti­ sity; .William 0. Weyforth, Johns Hopkins York; Clarence R. Jung, Jr., Ohio State Uni­ cut; Albert J. Raebeck, Princeton University; University; Arthur M. Whiteh111, Jr., Univer­ versity; Alfred .E. Kahn, Cornell University; M. W. Reder, Stanford University; Harold L. sity of North Carolina; C.R. Whittlesey, Uni· Howard S ..Kaltenborn, :University of Cali­ Reed, Cornell University; Charles B. Reeder, versity of Pennsylvania; W. D. Wickizer, Stan­ fornia; Alice B. Kane, University of Connecti­ Ohio State University; M. G. Reid, University ford University; Clair Wilcox, Swarthmore cut; James R. Kay, University of Texas; Carl of Illinois; C. F. Remer, University of Michi­ College; Harold F. Williamson, Northwestern Kaysen, Harvard University; Peter M. Keir, gan; Robert A. Rennie, Johns Hopkins Uni­ University; Kossuth M. Williamson, Wesleyan Amherst College; Samuel C. Kelley, Jr., Ohio versity; Lloyd G. Reynolds, Yale University; University; E. E. Witte, University of Wiscon­ State University; Donald L. Kemmerer, Uni­ Lloyd P. Rice, Dartmouth College; Marshall sin; Elmer Wood, University of Missouri; R. versity of Illinois; Thomas L. Kibler, Ohio A. Robinson, Ohio State University; Earl G. Walter Wood~orth, Dartmouth College; St ate University; E. A. Kincaid, University Rolph, University of California; Kenneth D. A. Worcester,... Jr .. University of Washing­ of Virginia; William N. Kincaid, Jr., Wesleyan Roose, Oberlin College; Raymond A. Ross, .ton; Holbrook WNew Jersey; Harlow H. Curtice, execu­ never have been called, President Truman the Reserve deferred to the latter's conven­ presumed to lecture the Open Market C01.i;i.­ tive vice president, Corp.; ience and continued its easy-money policy Chester C. Davis, associate director, Ford mittee of the Federal Reserve System on Foundation; Dudley W. Figgis, chairman of at a cost in terms of price inflation during what its policies ought to be in the present the board, American Can Co.; Marion B. Fol­ and after the war which, whether necessary crisis. The next day the White House press som, treasurer, Eastman Kodak Co.; Clarence or not, was incalculable. secretary announced: "The Federal Reserve Francis, chairman of the board, General With the war and demobilization over, the Board has pledged its support to President Foods Corp.; Philip L. Graham, president Reserve has maintained that the time had Truman to maintain the stability of Govern­ and publisher, the Washington Post; John come for the Treasury to stand on its own ment securities as long as the emergency M. Hancock, partner, Lehman Bros.; George feet. It should, said the Board, sell securi­ lasts." Then Mr. Truman made public a L. Harrison, chairman of the board, New ties bearing interest rates tbat were related "Dear Tom" letter to Chairman McCabe of York Life Insurance Co.; Robert Heller, pres­ to market conditions, rather than be depend­ the Federal Reserve Board in which he ident, Robert Heller & Associates, Inc.; Jay ent upon the Reserve to step in and take the thanked him for "your assurance that the c. Hormel, chairman of the board, Geo. A. surplus off the market. There are two rea­ market on Government securities will be sta­ Hormel & Co.; Amory Houghton, chairman sons behind this position of the Reserve, bilized and maintained at present levels." of the board, Corning Glass Works; Eric reasons which are unassailable, in our opin­ Governor Eccles, of the Federal Reserve Johnston, Administrator, Economic Stabili­ ion, if the Reserve is to maintain its useful­ Board, was astonished by the President's ver­ zation Agency; Thomas Roy Jones, president, ness to the economy, a usefulness which was sion, denied flatly that the agency had given never more obvious. One is that, released Daystrom, Inc.; Ernest Kanzler, cha~man of any such pledge, and made public the Board's the board, Universal C. I. T. Credit Corp.; from its commitment to support the Govern­ own memorandum covering what took place. Fred Lazarus, Jr., president, Federated De­ ment market, regardless of whether interest The memorandum failed to support Mr. Tru­ partment Stores, Inc.; Roy E. Larsen, presi­ rates on Government securities are realistic man's version. dent, Time, Inc.; Fowler McCormick, chair­ or not, it can resume its original, and much We need not be diverted by any attempt more important, responsibility of combating man of the board, Interna~ional Harvester to appraise the comparative accuracy of these Co.; W. A. Patterson, president, United Air inflation (or deflation, as the case may be). conflicting versions. If we keep our eye on Lines; Philip D. Reed, chairman of the board, The other is that to support the Government the legal and economic issues involved, it ls General Electric Co.; Nelson Rockefeller; security market it must buy Government clear that Mr. Truman is wrorig on both. Harry Scherman, chairman of the board, bonds, and for every million dollars it buys The President has no more legal right to Book-of-the-Month Club, Inc.; S. Abbot it creates a million dollars of commercial tell the Federal R€serve Board what to decide Smith, president, Thomas Strahan Co.; H. bank reserves, and for every million of such than he has to tell the Supreme Court what Christian Sonne, president, Amsinck, Sonne reserves the commercial banks can expand to Elecide. To minimize P.residential influ­ & Co.; Wayne c. Taylor; J. Cameron Thom­ their credit by six mlllionf?. ence, Congress deliberately made the board son, president, Northwest Bancorporation; This is the central issue between the an independent body, .with 14-year terms for w. Walter Williams, president, Continental, Reserve and the Treasury-the issue of each of the seven members, overlapping so Inc.; Theodore O. Yntema, vice president, whether the convenience of the Treasury or that no President should have the appoint­ finance, Ford Motor Co.; J. D. Zellerbach, the general interest of the Nation ls to be ment of more than one member in any 2-year president, Crown Zellerbach Corp. paramount in determining money policy. period. The late Senator Glass long ago Closely tied to this issue is the question quoted President Wilson as saying: "The very whether policy in this respect is to be de­ moment that I should attempt to establish APPEN_DIX VIII termined by Presidential intervention, or close relations with the [Federal Reserve) EDITORIAL COMMENT whether it is to be determined by Congress, Board, that moment I would be accused of A. EDITORIAL FROM THE NEW YORK TIMES, which created the Federal Reserve System trying to bring political pressure to bear." FEBRUARY 7, 1951 and to which the System ls alone directly The pressure that Mr. Truman is now bring­ answerable. Reserve versus Treasury ing to bear on the Board is a clear usurpa­ B. EDITORIAL FROM THE ST. LOUIS POST• tion of power. The Federal Reserve System was conceived President Truman and Secretary Snyder 37 years ago in the administration of Wood­ DISPATCH, FEBRUARY 13, 1951 Stabilizing bank credit are patriotic and sincere. They simply do row Wilson as an American adaptation of not understand the economic consequences the traditional central bank. Above every­ While everybody is choosing up sides in of what they are proposing. They wish to thing else the idea of independence was the Treasury-Federal Reserve controversy force the Federal Reserve banks to keep buy. stressed by the framers of the Federal Re­ over credit policy, we hope the smoke of ing as many Government bonds as necessary serve Act. The System must be able to act battle does not obscure the need for curtail­ to hold them above par, and so keep down in the interest of economic stability, even ment of bank credit somehow. the long-term yield to the arbitrary maxi­ though its policies at any given time might Federal Reserve open-market operations in mum of 2¥2 percent. Now when the Re­ run counter to the prevailing interests of Government bonds are one way of controlling serve banks buy such Government bonds, the banking community or the stock market, bank credit, but not the only way. The they pay for them simply by creating de­ on the one side, or the Treasury, with its Treasury's policy of cheap money and a posit credits or printing money in exchange. natural easy money bias, as the country's No. pegged market in Gove_rnment bonds inter­ These in turn become the reserve bases for 1 borrower, on the other. feres with this method of credit control. member banks to create still more money As time went on, Congress acted to Instead of assuming that there will be no and bank deposits. This creation of more strengthen further the original protections control unless Treasury policy is changed, money and bank credit without more goods provided against the undue influence on Congress ought to be considering alternative is not merely the cause of inflation; it is Federal Reserve policy of such vested in­ methods. the inflation. Mr~ Truman and Secretary terests. During the thirties, Congress re­ Prices and wages are being stabilized as of Snyder might just as well tell the Federal vised the law in such a way as to shift the January 25. Why should not the Govern­ Reserve Board point blank: "We demand balance of power to the Board in Washing­ ment undertake to stabilize bank credit in more inflation." ton. But Congress showed that it was equally the same way?_ Why should not banks be None of the reasons tnat either Mr. Tru­ conscious of the danger that the Board might . required to put up special reserves for an: man or Mr.. Snyder gives for wanting Fed­ fall under the political domination of the loans granted beyond the level in force on eral bonds pegged at par or over will stand administration in power, as represented by a certain stabilization date? examination. Mr. Truman recalled before the Secretary of the Treasury. With (n1s in Bank credit is a major factor in the money the Open Market Committee "his wartime mind, it amended the law and eliminated supply, and it goes without saying that an experience when he bought Liberty bonds 1951 CONGRESSIONAL RECORD-SENATE 1487 out of his soldier's pay. When he returned higher interest. The cost of interest on the deposits, it is required by law to place about from France and had to sell his bonds to Nation's debt-now about $6,000,000,000- one-sixth of the amount of increase into a buy clo ·~ hes and other civilian things, he would be increased. So Snyder is dead set s"'....-tutory reserve on deposit with a Federal got only $80 or a little more for his hundred­ against any change in Reserve Board policy. Reserve bank. dollar bonds. • • • He did not want the Snyder can't see the woods for the trees. This means, for practical purposes, that people who hold our bonds now to have done Even a billion or so increase in the cost of whenever a bank wants to extend additional to them what was done to him." servicing the Nation's debt would be a drop credit-thus creating additional deposits­ Now, none of the Liberty bonds ever fell in the bucket compared to the cost to the it must scratch around for about one-sixth quite as low as 80. Some issues did fall with­ Nation as inflation sweeps in. The cost of the amount of the loan to deposit in its in a few points of that price, but only for armaments alone can go up several billion stat utory reserve. a few months in 1920. And the decline af­ because of the impending inflation that It obtaiils that money these days by selling fected only those people who were forced to might be prevented by a change in policy, a a security from its holdings. What it sells, sell in those months. The maximum loss change now blocked by Truman's Mr. Snyder. it turns out, is a Gover:nment obligation even of these people was only about 18 per­ E. ARTICLE IN THE WASHINGTON POST, FEBRUARY During the war, banks acquired some $ ~ 0,- cent. Today, on the other hand, mainly as 11, 1951 000,000,000 worth of Treasur; issues. This a result of the very bond-pegging and low­ means they have a vil ;;ually inexhaustible interest policies on which Mr. Truman has Top agencies split on credit control supply of bonds to turn into the statutory insisted, a Government bond bought in 1942 (By Alfred Friendly) reserves whenever they want to make new has a purchasing power in terms of con­ Last week's crop of news stories about the loana. Whenever a prospective loan appears sumer prices of only 70 percent of what it White House-Federal Reserve Board misun­ more desirable than holding onto a Govern­ had then. This is a real depreciation of 30 derstanding reflects o?il.ly one episode-a cur­ ment bond for its income, the bank can sell percent. Which policy-that of the First rent manifestation-of a deep, long-st!mding a bond to make the loan-six times as large or the Second World War-was worse for the -conflict. as the bond it sells. bondholders? It is a conflict between the FRB and the This process has been going on at a fren­ D. EDITORIAL JfROM CHICAGO DAILY SUN-TIMES, Treasury, centering on the ways and means zied rate. Since the Korean War begim, FEBRUARY 16, 1951 of Federal debt financing. It is importe.nt commercial banks have increased their loans outstanding by aboct $8,000,000,000. They Hole in the dike because it concerns a fundamental cause of inflation. It is complicated because the sub­ have reduced their holdings of Government President Truman has been busy plugging ject matter is among the blackest of the securities by about $5,500,000,000. The total up cracks in the Nation's wall against the black arts-Government finance, the opera­ money supply increased in 1950 by more than great tidal wave of inflation that is rolling tion of bank lending and the creation of $7,000,000,000. up. But he has been curiously blind to the ~M~ . More money produces higher prices. Or greatest hole of all-one that could bring the Would-be explanations in terms of rival a lower value of the dollar. Or inflation. whole structure tumbling down and wash out groups making a power grab, or of evil bank­ They all mean the s-.me thing. great portions of the value of savings, insur­ ers trying to fill their coffers, are simple­ This conclusion, which is fundamental to ance policies, and our paper money. and simply inaccurate. the FRB argument, is disputed fore and aft I;t this happens, there may be no limit to One approach to an understanding is to by the Treasury experts and many other the price of food and other items in the pose a question: How, in the present defense economists. They assert that the inflation household budget. The cost of rearming program, do you prevent the creation of since Korea has simply not been caused, in America would boom like an atom bomb more money in the economy than there are any fundamental way, by monetary factors. mushroom. In short, the Nation could face goods to buy? Or, if you prefer it this way: They argue that the expansion of the money the disastrous inflation that wrecked other How do you prevent monetary inflation? supply has been less, not more, than the nations after World War I when money was There is a three-fold answer: expansion in goods that were produced. measured by the wheel barrow load. First, you increase production as much as They assert that the skyroc~eting prices Mr. Truman understands that high prices possible, so there will be more goods to buy of imported raw ma·terials, plus intensified are the result of too much money in circu­ for both military and civilian use. buying by individuals and businesses who lation as compared with what's available to Second, you balance the budget through anticipated shortages and higher prices in spend it on. pay-as-you-go taxation, so that the Govern­ a war or semiwar situation, are far more. So he has been busy trying to mop up the ment does not have to create, through bor­ responsible for the inflation. extra money-or purchasing power-by high­ rowing, additional money to pay for the de­ When banks and other holders of Gov­ er taxes, stricter controls on housing, install­ fense program. ernment bonds sold them, all creating more ment credit, and wage and price controls. Third, you prevent the creation by private bank deposits, mere reserves and more loans, But through the hole that he is overlook­ hands of additional money in excess of the it was the FRB that bought them, because ing a torrent of "check-book money" is pour­ volume of available goods. it had to. Its holdings of Federal securities ing. It is coming from the Nation's banks, These are arguments on methods even for have increased by more than $3,000,000,000 which have more money to lend than tb.ey the first two goals. But those are as nothing since Korea. should have. It is coming faster than it is compared to the deep cleavage in basic think­ Why was it so easy for the holders of being mopped up. ing of economists and Government agencies Government bonds to dump them on the The Federal Reserve Board can stop the on the third point. It boils down to an argu­ FRB? flow or slow it down. It is, in fact, a duty of ment on how to curtail the private extension At the outset of World War II, when it the Board to do so when prices are rising. of credit. w:m obvious that the Government was going But the Board has delayed action because of When a bank makes a loan, its effect is ·to do a huge volu:ne of deficit financing, a stand taken by President Truman's crony, to create new purchasing power. In some there was no option for the Board. It had Secretary of the Treasury Snyder. periods of history, when the total of loans to stand ready to :my Treasury securities at The Reserve Board can cut down on the keeps expanding, and .faster than the result­ the price they were offered : nd at a low amount of money banks have available to ant increase in the supply of goods, the effect interest rate. It was r.ecessary publicly to loan by abandoning its policy of buying Gov­ can be to create excess money-too much guarantee the market so that private buyers ernment securities from banks at par or bet- money compared to the supply of things in would be assured against a loss and would . ter. Allowing banks to cash in securities at the market to be bought. therefore be willing to absorb the billions a pegged price gives the banks more money The Federal Reserve Board contends that of Government securities that were issued. for loans. In fact, because of the workings just exactly that has been happening. It In this process the FRB was, of course, of our banking system, a $10,000 Government further contends that, because of Treasury s' ipped from controlling or influencing the bond cashed by a bank could add $50,000 policy, the Board is powerless to stop it. In supply of money and credit by effecting worth of bank credit, or check-book money, fact, it has been forced to facilitate or en­ changes in the interest rate. to a community. courage the process. But after the war, it wanted to get back By supplying purchasing power not previ­ It has become, itself, an "engine of infla­ into the business Congress gave it, of regu­ ously existing, banks have contributed to the tion" instead of fulfilling the function Con­ lating the supply, availability and cost of bidding up of wholesale prices which are gress assigned it, which is to regulate the credit. Its main useful tool for doing this quickly reflected in retail prices. supply, availability and cost of credit. is to sell Government bonds vigorously on The Reserve Board can cut that artificial Here is the way the FRB feels that comes the open market when it wants to blot up purchasing power by changing its policy of about: bank reserves and curtail lending, or to buy buying up Government bonds at par. Lower When a bank makes a loan, it increases its bonds when it want:- to reverse the procesi;. bond prices would discourage banks from dr osits-or at least total deposits in the Now, however, it has no choice and no cashing in Government securities. They whole banking system-usually by the same initiative. The Treasury wants it to keep would hold them to maturity to collect the aimount as the loan. The borrower simply on pegging the pric3 of Government obliga­ full price. gets a credit of the loan amount set up in tions at a fixed level, and, so far, the FRB If the Federal Reserve removed the guar­ his drawing account, or he may take a check has complied, more or less. This means it Q.n teed prematurity price, or pegged it lower, and deposit it in another bank, or pay off a buys whenever someone wants to sell and the effect would be to increase interest rates second person who, in turn, deposits it. can find no private buyer. on Government securities. When the Treas­ But whenever a bank that is a member of The result, the FRB argues, is that any ury offered .a new issue it would have to pay the Federal Reserve System obtains increased bank wanting to make a new loan can be XCVII-94 1488 CONGRESSIONAL RECORD-SENATE FEBRUARY 22 sure of obtaining the statutory reserves it 6 and 33, respectively, in 1919-20-had no You are likely to· hear a great deal more will need. It .simply sells Federal securities effect in stopping inflation, Snyder has about the issue in the months to come. The from its portfolio. It knows that the FRB declared. fight will probably get worse before it gets will buy them, if no one else wants them, at The idea that banks would be willing. to better. a fixed price, so there is no risk of capital hold onto Government securities at 3 per­ F. EDITORIAL FROM THE WALL STREET JOURNAL, loss to the bank when it sells its Federal cent, but not at 21h percent, when a glowing FEBRUARY· 2, 1951 bonds. · opportunity to make a 4, 5, or 6 percent loan Indeed, its holdings of those securities presented itself, is sheer nonsense. Nor A dangerous maneuver have '. Jecome, in effect, interest-bearing would banks hesitate to take a small ·capital There took place. in Washington Wednes­ cash; they can be converted instantly to loss (as bond prices dropped when the yield day afternoon a meeting which should never cash without any capital loss. increased) in order to make such an attrac- have happened. That was the meeting be­ The FRB feels that if it were relieved of tive loan. tween Federal Reserve officials and President the obligation to.peg the prices of Govern- As one expert put it, the idea that a .frac­ Truman, which the latter called at the White ment obligations, and if the free market tional change in the interest rate is a con­ House. were allowed to find the price at which in- sequential matter to a would-be borrower or The President was taking sides with the dividuals and institutions would willingly lender is "academic fiction." Treasury in its firm stand to maintain low buy and hold Government bonds, then the To all of which the FRB would reply that interest rates, and he wanted to impress the opportunity and the invitation to banks to anyone who doesn't believe a change in in­ Reserve people with the importance of this. create additional reserves would be sharply terest rates-even a small one-has the most In other words, they ought to conduct them­ reduced. profoun.d effect on credit extension is flying selves and their operations in a manner to It further believes that this happy state in the face of economic history, and is an support a low-rate policy. would come to pass, with the market sup- econo:r;nic idiot to boot. Now, the reason that this meeting should porting Government issues without an FRB 2. Raising the interest rates on Govern­ not have happened is that the President has guarantee, if yields were allowed to rise by men·t obligations by one-half of 1 percent no authority to dictate to the Federal Re._ about one-half of 1 percent. Would-be would cost the Treasury an additional serve. He appoints the members of the Re­ sellers, the FRB thinks, would then find $1,M0,000,000 a year in carrying charges on serve Board, as vacancies occur, and he names buyers outside the FRB; the FRB itself the public debt, Snyder declared in a recent the Chairman. But the Federal Reserve Act would be able to avoid purchasing Govern- interview. This would be about th"e most which gave birth to this central banking ment bonds and thereby expanding bank inflationary measure one could conceive of. system specifically says that the Board shall reserves willy-nilly. report annually "to the Speaker of the House Holders. of Government bonds would not The FRB experts challenge the calculation, of Representatives, who sh!'l.11 cause the same then have "interest-bearing cash.'.'.. Banks_ In the first place, the proposed increase to be printed for the information of Con­ .would have to run the test of the market' in would not apply to savings bonds. - Second, gress." selling their Federal holdings. Accordingly, it would make no difference with respect to So the Reserve Board is responsible to Con­ the FRB argues, they would be deterrectfrom-- those Federal bonds already held by Govern.­ gress, not to the President. And when the extending credit so freely because they would ment trust fu17ds-just paying out of one President steps in to tell Reserve officials not be able to obtain reserves so easily and Fede~f!.l pocket mto another. what they ought to do, or ought not do, he without risk of capital loss. This leaves. 8:bout $145,00~,000,000 of mar- is assuming power which he does not have. It is probable that a majority of American ketable securities .to be considered. If all of The Federal Reserve System was founded economists go along with the FRB argu- them were ref~nded at an interest rate one­ 37 years ago with a specific aim in mind. ment, as did a subcommittee of the Joint half percent higher, the added cost would be That aim was to provide fiexibility for the Congressional Economic Committee which between seven hundred and eight hundred banking and credit operations of the coun­ studied the subject last year. million dollars a year. But of this one-third try. The aim was to set up an independent The Treasury disagrees most vehemently, to two-fif~hs would return to ~he Treasury body which could regulate credit and and has many prominent economists on its through higher income-tax receipts. money-in a way to combat excesses either side, for example, the President's three-man T~_e last w~rd, for the present, on this argu- of inflation or deflation. Council of Economic Advisers. men~ was said in a recent staff study of the If the supply of credit becomes too tight The classic statement or°opposition to the ~oint Congressional Economic C?m~itt~e: and interest rates are too high, the Reserve FRB position was expressed by Treasury Sec- If you could only be sure that this mild m­ System, under the theory of its founding, retary Snyder in a speech January 18. He crease of Federal security interest rates would can take steps to make more credit avail­ said in part: · actua~ly c~rb credit and combat inflation, the able. Resultant borrowing can expand busi­ "The Treasury is convinced that there is resultmg increased cost of carrying the Fed­ ness activity. If, on the other hand, too no tangible evidence that a policy of credit eral debt would be a small price to pay." much credit is available and borrowing leads rationing by means of small increases in 3. pnpegging the rates and prices on Fed­ to infiationary excesses, then the Reserve the interest rates on Government-borrowed eral securities might cause a real panic, the System can take actions designed to curb funds has had a real or genuine effect in T:·easury group has argued. That might be · credit. cutting down the volume of private borrow- just the way to destroy all public confidence That is the theory of Reserve operations, ing and in retarding inflationary pressures. i:r. Federal obligations. but in recent years its practice has been The delusion that fractional changes in in- On the contrary, says the FRB, the real curbed-to put it mildly-by political con­ terest rat es can be effective in fighting in- danger to the future acceptance of Treas1Jry siderations. The· Federal Government has flation must be dispelled from our minds. issues is that the public will not buy them become by far the biggest borrower. Not "The 21h percent rate of interest on.long- because it fears what inflation will do to their unnaturally, Treasury Secretary Synder is term Government securities is an integral value. -concerned at the interest cost of the Gov­ part of the financial structure of our coun- Furthermore, says the Board, it has no ernment's huge debt, which may become try. It dominates the bond markets-Gov- intention of moving out of the open market even larger. So he is putting all the power ernment, corporate, and municipal. entirely; it will and must continue to .par- of his office behind maintenance of low in­ "Any increase in the 21h percent rate ticipate in the buying and selling of the terest rates. And the Federal Reserve has would, I am firmly convinced, seriously upset issues to maintain an orderly market and reluctantly cooperated by supporting the the existing security markets-Government, p -:- event any panic. Its point is, however, prices at which Government securities sell. corporate, and municipal." that it does not want to participate at pegged The danger of that supporting practice is Part of the problem that the FRB com- rates; nor always maintain its position on that it all but eliminates the Reserve's power plains of, according to proponents of the one side of the market-the buying side. to control credit. Just why that is so is Treasury view, will solve itself as the defense 4. The . Federal debt has assumed over­ discussed elsewhere on this page by Dr. E. A. program progresses. They say that the op- whelming importance in the last 10 years in Goldenweiser, for many years economist of portunities to make loans will dry up, just its. effect on all financial developments. the Reserve Board. In recent months the as they did during World War II. Even Previous theory on the effect of changes in Reserve officials have become more than re­ though the banks had enormous Federal se- the cost of credit no longer are valid. luctant to continue their practice. They see curity holdings with which they could have The Government debt is now half of the the further inflation threatening; they be­ obtained reserves, they did not' expand loans. whole debt of the Nation. As a result, inter- lieve they should be free to do their part in Furthermore, some lending should be stim- est rates on private transactions are closely combating it. Otherwise the aim originally ulated for the time being to increase produc- tied in with those on Government issues. An given this central banking system is gone. tion facilities, this group argues. Let lend- increase of one-half of 1 percent on Govern­ But there is a much greater danger in this ing for nonessential purposes, causing infla- ment issues would be quickly reflected by an than appears on the surface. The power to tion, be curbed by selective controls. But equivalent rise elsewhere. inflate currency and credit is the power to don't burn down the house to obtain a few If banks received another one-half of 1 per- destroy an economy. This can be done by roast pigs. cent interest on the Government holdings, printing currency or it can be done by limit­ Here are some expansions of the Treasury they would have the prospect of at least that less expansion of credit. arguments, with the FRB counterarguments: much of an increase on future commercial The Federal Reserve System was set up 1. Very high interest rates in the past- loans, so +,here would be no more incentive as a check on this power. But 1f its banks 5 percent on. short-term Government. .issues than before. to .hold on. to .the Federal secu­ are to become ever-expansible stuffing boxes_ and 20 percent on call money · in 1!)29, and rities-in fact, probably less. for Government securities, then the check 1951 CONGRESSIONAL RECORD-SENATE 1489 on inflation of Government and private credit paid by our taxpayers on bonds sold for issues of State and municipal bonds and is gone. municipal improvements. We ask you to securities be subject to Federal taxation; and The Congress in 1913 had this in mind exert all efforts to defeat proposal. Whereas such proposition would materially when it passed the Federal Reserve Act. It JOHN R. ZELLWEGER, affect the borrowing ability of municipalities saw the dangers, we're sure, of administrators Borough Clerk. . and would result in a substantial increase Jn who might lose all fiscal conscience. the interest rates which municipalities would We believe the Reserve officials, despite THE CITY OF EAST ORANGE, N. J., have to pay on their future borrowings, which White House pressure, should stick by their February 20, 1951. in many instances would be double the rate view-to be free to fight inflation. We Hon. ROBERT c. HENDRICKSON, they are paying at the present time; and hope, too, that Congress will recognize the Senate Office Building, Whereas we believe such proposition would dangerous maneuver which the President has Washington, D. C. re:mlt in increasing the cost of local govern­ made. · MY DEAR SENATOR HENDRICKSON: The fol­ ment and that such increased cost would lowing resolution was adopted by the City necessarily be. transmitted directly to the PROPOSED TAXATION OF INCOME FROM council of the City of East Orange. on Feb­ local taxpayers; and · MUNICIPAL BONDS ruary 19, 1951, and approved by the mayor Whereas such proposition strikes at the Mr. HENDRICKSON. Mr. President, on February 20, 1951: . very foundations of our system of govern­ there is pending before the Ways and "Whereas it appears from the public press ment which has preserved the immunities that the Congress of the United States has from taxation between Federal and State Means Committee of the Hous9 of Rep­ under consideration the Federal taxation of Governments, which immunities have been resentatives an extremely controversial State and municipal securities; and d :ifended repeatedly by the courts and Con­ measure which is designed to tax the in­ "Whereas it is self-evident that the re­ gress heretofore: Now, therefore, _be it come from municipal bonds. I now hold moval of the present tax exemption from Resolved by the Board of Commissioners in my hand a number of telegrams, reso­ future issues of municipal securities would of the City of Camden, N. J., That it hereby greatly increase the interest rates munici­ records its disapproval of such proposition lutions, and other forms of communica­ palities would have to pay on future borrow­ and strongly urges Congress to reject said tion which indicate that this proposal ing: Be it proposal; and be it further should be studied with great care by both · "Resolved, That the mayor and members of Resolved, That certified copies of this reso­ Houses of Congress before it is enacted the City Council of the City of East Orange lution be forwarded to the Members of Con­ into law. do hereby record their opposition to any gress from this State. a~endment to the law exempting the tax­ Dated February 21, 1951. To the end that the Senate may have ation of municipal securities, and do re­ before it the ·expressions of many New f?pectfully urge that the Members of Congress Mr. TOBEY. Mr. President, will the Jersey municipalities, I ask unanimous from New Jersey oppose any legislation Senator yield? consent that these telegr'.1_ns, resolu­ tending to remove such tax exemption or Mr. HENDRICKSON. I am very glad tions, and other communications may to otherwise exercise Federal control over to yield to the distinguished Senator municipal finances; and be it further from New Hampshire. be printed at this point in the RECORD, "Resolved, That a copy of this resolution as a part of my remarks, and may be be forwarded to Senators H. ALEXANDER Mr. TOBEY. I think the Senator appropriately referred. SMITH and ROBERT c. HENDRICKSON, to Con­ from New Jersey will find ·that he has a There being no objection, the tele­ gressmen ROBERT w. KEAN and HUGH J. AD­ _ great many powerful allies throughout grams, letters, and resolutions were re­ :PONIZIO, and to the executive director of the the country on the thesis to which he is United States Conference of Mayors." now addressing himself. I speak for the f erred to the Committee on Finance, and Very truly yours, ordered to be printed in the.RECORD, as New England cities. I know that all ALICE !. WEBSTER, . over the country there will be a feeling follows: City Clerk. of very righteous indignation in regard CAPE MAY, N. J., February 21, 1951. to any proposal to tax the income from Senator ROBERT c. HENDRICKSON, RIVERSIDE, N. J., February 21, 1951. Senate Office Building, Hon. ROBERT c. HENDRICKSON, municipal securities. As the Senator Washington, D. C.: Senate Office Building, knows, the burden alieady is becoming Commissioners City of Cape May strongly Washington, D. C. very heavy. The States certainly still opposed to taxation of .income from .munici­ DEAR Sm: The members of the Township have some rights as to their taxing pow­ pal bonds greatly increased interest on future Committee of the Township of Riverside wish ers, rather than to have them taken over issue of local bonds wm cause further real to register protest against the proposed leg­ entirely by the Federal Government. estate tax increase. islature which would tax municipal bonds, Mr. HENDRICKSON. I thank the SAMUEL ELDREDGE. and have asked that I urge you to oppose SOL NEEDLES, Jr. this measure. If enacted it would add at Senator. I know the Congress will zeal­ CARL YOUNGBERG. least l percent to the interest rates of any ously guard the principle of States' future municipal issues and add directly to r1ghts ~s it involves itself in this issue. SAYREVILLE, N. J., February 21, 1951. the cost of government at the local level, LEGISLATIVE PROGRAM Hon. ROBERT c. HENDRICKSON: which is at the present time a very expensive Resper:itfully urge your strong oppositlon proposition. Mr. McFARLAND. .Mr. President, if to taxing income from municipal bonds since Thanking you for your interest in this there is no further business to be trans­ it wm add greatly to already heavy burden matter, we remain, acted at the session today-- of municipal financing. Very truly yours, Mr. CASE. Mr. President, will the . BOROUGH OF SA YERVILLE, TOWNSHIP COMMITTEE OF THE majority leader yield for a question? By FRANK P, KOLB, TOWNSHIP OF RIVERSIDE, Borough Clerk. ELMER T. DECHANT, . Mr. McFARLAND. I yield. . Township Clerk. Mr. CASE. Will the Senator from NEPTUNE CITY, N. J., February 21, 1951. Arizona tell us about the program for . Hon. ROBERT c. HENDRICKSON, CITY OF CAMDEN, . Monday? I understand that the first Senate Office Building, February 21, 1951. order of business for Monday will be the Washington, D. C.: Hon. ROBERT c. HENDRICKSON, consideration of House bill 1 or the Unalterably opposed to taxation of income Senate Office Building, substitute therefor. from municipal bonds. Urge best efforts to Washington, D. C. Mr. McFARLAND. Yes; that will block passage of pending bill before House DEAR SENATOR HENDRICKSON: Enclosed find Ways and Means Committee. certified copy of resolution adopted by the come first. BOROUGH OF NEPTUNE CITY, Board of Commissioners of the City of Cam­ Mr. CASE. Following that, will we GEORGE E. AMBROSE, Mayor. den regarding its disapproval of the. propo­ consider certain proposed legislation sition of ~he Secretary of the Treasury to coming from the Committee on Armed subject future issues of State and municipal DUMONT, N. J., February 21, 1951. Services? bonds and securities to Federal taxation. Mr. McFARLAND. Yes; first we shall Senator ROBERT c. HENDRICKSON, We strongly urge you to vote against such Washington, D. C.: proposition if the same ever comes before dispose· of House bill" 1, the so-called Mayor and Council of Dumont, Bergen the Congress. Servicemen's Indemnity Act of 1951; County, N. J., oppose proposal now before Very truly yours, and there is a possibility that following House Ways and Means Committee to tax GEORGE E. BRUNNER, Mayor. income from municipal bonds. Such action that we shall take up Senate bill l, the would result in increasing interest paid by Whereas the Secretary of the Treasury has so-called universal ·military-training our tax income from municipal bonds; such proposed to the Ways and Means Committee bill. action would result in increasing interest of the House of Representatives that future Mr. CASE. _ I thank the Senator. 1490 CONGRESSIONAL RECORD-HOUSE FEBRUARY 22 RECESS TO MONDAY ask in the name and through the merits Mr. ADAIR read the Farewell Address, Mr. McFARLAND. Mr. President, .I of Jesus Christ, Thy Son, our Saviour. as follows: now move that the Senate stand in re­ Amen." cess until Monday next at 12 o'clock To the people of the United States: The Journal of the proceedings of ' FRIENDS AND . FELLOW CITIZENS: The noon. Tuesday, February 20, 1951, was read The motion was agreed to; and