Regional President Speech

INFLATION: Talk by Karl R. Bopp to the City Business Club Friday, September 25 1942, at the Bellevue Stratford Hotel. Inflation Preliminary Disclaim any official inspiration for this talk. Bill Glen "I do not call them the way I see them I I oall them as they are. " Do not know how well acquainted with the field you are so may repeat some things well known. Definitions not as important as understanding what is taking place Farmer Jones : "Is it correct to say, 'A hen is sitting or 'a hen is setting'? Farmer Brown: "When a hen cackles, it is much more important to know whether she has been laying or lying. I. Setting of the problem A. Winning this war, not inflation, is the most important problem today. Wars are won by the side which puts Into the struggle the better quality and quantity of resources-human and material. In other words, it is moral, logis- tics, strategy, manpower, and equipment that win. As a corollary, wars are never lost because of in- ability to finance them. finance Is important only in as far :as It effects the real factors. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis B* Finance does influence the distribution of the costs of war. Inflation is a topic of importance because it is one of the methods of financing a war— or determin­ ing who shall bear the burden* IX* Financial requirements of the war* A* The amount of funds involved* 1. Expenditure a by fiscal years* 1942-4 3 % 77 billion 1943- U 100 billion 2* Rapid growth in monthly expenditures * March 19*1*• $0*8 billion Maroh 1942** 3*1 ” August 1942* 5*2 ■ 3* Growth in the public debt. (In billions) ^ ® bob# v ax±^ ana) J&JL J 1842 Non-market issuas $24 + (8 Market isauts.... Jt>e2l ♦♦ U11 Totftl* ••*••* $86 7♦ |#2222 B* Sources of funds and their significance. 1* National income* Chang* alncB (In billions) }&&__________ mo. S *p I I <o 77..11 >>99 Total*.•..*•*• + t T M + I3A.9 Spendable by 14*5 individuals* ** 103*0 + + 29*1 let savings by individuals* ** 24*2 + 11* 5 + 16*5 2* Distribution of national, income illustrated* a* In terms of goods* Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 3ttppO#*I national inoame*...* Ilia billion Government manta**** * Available for © i v i l i a n a * . ♦ 50 • b* Id W n i of mooay. Matiottal imoQM*rt«« |il2 hllHfi. Oov^.tajea#.. $25 ■ hrtliiiH of 0OT»t»##OUP- 1UM« 17 Qor*t* portion#..*#. 13 Mm&y available for eivilianj.......,,* |70 a« IHaatraiioo of HJm capa". Cl). Tb* dvlHa* gap. Swgr rrailahl#.. |70 bill ion (toot* available.* « • O w i ir sap* «« # • (2) 79* l%l-L5k*lL+ a m * m r m. * •M biUlM to J & $ao Si ini* lr^sifft that ^ Government cloee the gap in some way. Doth the ph^ie«U. gap and the consumer gap can be closed if civilians invest $20 billion additional in Government securities* If they do not, the Government will have to secure the necessary funds elsewhere— fro a the banka—And prices would have to increase 40 par cant to close the consumer gap* Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis X. Inflation. A. How «uch have w« had? Sine# Sine# Jan. 1. Business; jT 1939 A942..- Production (IS)) ..•••••*•• + 73> + 10% teploym#nt*....................... + ^2 *♦'5 Payrolls*.*•••*•.♦••.*...* +122 + 19 Rrtail trad#,,*.......... + 54 + 15 Price*: Wholeaal#..*...*............ + 3h2 ! Farm* 75 Food• + 52 + 11 Retail - cost of living + 19 +_____6 Food••••«.•.••.••••* + 35 + ll Clothing**............ + 25 + 9 House furnishing#* • * +21 + 4 Hourly factory wage#.** +32 + 7 2* Credit and bankingt + 29 - 6 Investment in Goverrmenta. + 75 + 23 ♦ 50 + Hooey in cir<xilation* * * * . * + 88 ♦ 20 B* Ef1'eot# of uncontrolled inflation. 1* Impor*ri#h## the middle cla#i* 2* luinou# to fixed income group* 3* Endangers endowed institution#. 4* Dlirupt* trad# and industry* 5* Ooitly to th# Gcrrenwnt - taxpayer* 6* Destroy# capital - mumiploymecit, stagnation* 7. Impair# th# aorala of the people, C* Integrated polio/ and program against inflation* 1* Ineffectiveness of piecemeal approach. 2* Attack on all bamio front#* Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Heavy taxation. (1) Congress working on tax bill since March* (2) Majtlman expected %2J> - $27 billion. Control of price* - retail., wholesale, rent** (1) A general maxim* price cel ling i*~ posed to keep cost of living down. (2) But farm prices and wage rates are not controlled. Since December 1941- % Controlied prices*..... + 2 Uncontrolled price*,* * * + U±% Stabilisation of wages - wage celling*. (1) So definite policy - a body of prin­ ciple*. C ii a e-by-case method. (2) The famous "Little Steel* case in July# A "Yardstick* - 15% above Jan. 1, 19a * Two elevator clauses - (a) "Substandard* wages. (b) *Inequalitie*n of wage®. 3aorifice? Stabilisation of fan price* at "parity". ilV Many farm price* above parity# 2) As food oo*t* go up, labor demands higher wages. (3) As waged go up, production oosts go up. (4) Farmer must pay more for what ha buys. (5) Hence, a demand for a new and higher parity# The chicken and the egg dilemma* Or a dog phasing its own tail. Parity eaase* hlghr wage** iBlghmr wages aause hlghar parity* Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis How to atop this upward spiral in the coat of living? The far® bloc and the labor bloc* ©• Rationing of essential scarce commodities. (1) Only a few items - tires, automo­ biles, gas, sugar, (2) Heed for an over—all program to avoid inequalities. How to avoid "black markets•* f# Control of consumer credit. !1) Reduce credit and instalment buying, 2) encourage debt payments, (3) Promote savings. g. Purchase of Government securities, (1) War Savings Bonds - monthly rate****** $ 700 million First 8 mos. 1942* 5,600 * (2) Other securities - bills, notes, bonds. (3) Taj: savings notes, D, Effects of * controlled economy, 1« Invasion of Individual rights, but this is war. 2, Controls upset the traditional pattern of living but * oar stake is great* Must win victory* 3# Need for & new mental attitude, The task call* for "**,pliancy and resiliency of mind, for a willingness to discard old routines and ways of thought, for readiness to adapt one's self to the unexpected. It outlaws mental conservatism, it demands the same kind of self-reliant independence and readiness to experiment which the frontier demanded. Upon our ability to d*T«lap and those traits depends oar national sur­ vival today. That is a part of the challenge Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis that ooefroatt jxkjt g*e«r*tla«u* Donald E» l*l*ont Dnlrwriity of KiMoarl, Jun« 9, 1*U* Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Karl R. Bopp (1942, September 24). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19420925_karl_r_bopp

@misc{wtfs_regional_speeche_19420925_karl_r_bopp,
  author = {Karl R. Bopp},
  title = {Regional President Speech},
  year = {1942},
  month = {Sep},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19420925_karl_r_bopp},
  note = {Retrieved via When the Fed Speaks corpus}
}