Regional President Speech

ECONOMIC DEVELOPMENTS - DOMESTIC AND FOREIGN: 1929 - 1954 Notes of Lecture by KARL R. BOPP Vice President, Federal Reserve Bank of Philadelphia before the 1955 Executive Program in Business Administration Graduate School of Business, Columbia University Arden House, Harriman, New York July 21-22, 1955 and Sept. 22-23, 1955 ■ iBBBKBHBBHHHHBBBHBHHHHBi- Introduction 1. In an hour I 1 year - 2 minutes 2. Many important episodes will slip by while I pause for breath. - I suggested different question. I. Where were we in 1929? (I started teaching that year. My students had no recollection of World War I.) A. The economic façade 1. The world had restored an international monetary system - Major producing and trading nations on gold standard 2. New era of perpetual prosperity in U.S.A. - Monetary policy alone could and would do the job Fringe of qualified but unsatisfied borrowers B. Stresses and strains 1. Overvaluation of the pound (1925) 2. Undervaluation of the franc (1926) a. France accumulates great financial power - gold and foreign balances 3« Reparations, war debts, and foreign loans 4. Diverse developments in U.S. economy a* Real factors vs. stock market - fed by brokers loans b. Tight money to restrain stock market increased strain abroad borrowing short / lending long Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 2 - II. The Great Depression A. Initial reactions to stock break 1. A necessary / healthy readjustment a. There were obvious extravagances e.g. investment trusts 2. Prosperity just around the corner B. emulative nature of credit liquidation 1. Conventional thinking on fiscal policy - both parties 2. Conventional ideas of banking and central banking donft save bank stockholders liquidate failed banks lend only on commercial paper C. Financial crisis in Europe 1. March 1931 Brüning Anschluss proposal 2. May Kreditanstalt a. England vs. France (France refuses to help unless drop] b. France vs. Hoover moratorium proposal withdrawals by foreigners 3. Nordwolle failure 4. Darmstadter Bank failure July 13 5. MacMillan Report June 23, 1931 a. London owns f 150 million b. London owes $ 400 million 6 . England borrows abroad: French conditions Bank rate 2^ to 4j 7. England leaves gold September 21, 1931 D. &ise of Economic Nationalism 1. Detach themselves from international system 2. Monetary policy in national interest 3* Direct controls - Germany, a note on rise of Hitler Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 3 - E. Despair 1. Individual caught in forces he does not understand and for which he is not responsible - industrial society dependent on money income 2. Rise of dictatorship in Germany 3. Greater role for government everywhere 4* Determination never to let happen again - mere determination is not enough F. The new economics 1. Inadequacy of conventional thinking to explain - temptation to throw it all overboard 2. Search for a new explanation a. Pump priming b. Compensatory fiscal policy 3. Improvising in the U.S.A. a. From W.E.C. in London 1933 to Lend Lease b. Did not have full recovery in 1939 c. Role of Government in stable economic progress III. The Second World War A. In real terms 1. We increased total labor force by 10 million 55—)65 million 2 9 10~>1 . We reduced unemployment by million 3 12 8 . million to armed forces, million to manufacturing 4. Increased work week by 20% - 38 to 4-5 hours B. In 1944> Federal Government took $90 bill, of $210 bill. G.N.P. yet we had little real suffering in standards of living C. In financial terms Calendar 1941-1945 $ billion % Fed. Gov't expend........ 378 100 Tax receipts............ 150 40 Borrowings = Tin liquid assets Com. banks............ 72 19 22 6 F.R. Banks............ Other.................. 134 35 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis u - - D. Economic controls 1. General, via fiscal and monetary policy (Why finance at a fixed rat^ 2. direct: Know Government needs - priority Equitable ♦ of remainder a. Price and wage cailings ) tend to proliferate priorities —} rationing —> more b. Rationing rationing 3. Use of direct controls repressed evidences of inflation a. "Forced" savings in the form of money and other liquid assets IV. Post-war Developments A. Heritages of the war 1 . Shortages 2. Money and liquid assets 3. In rest of world restoration of devastation B. Why no more was done to halt inflation Large cash surplusses - didn't halt 1. Motive to remove direct controls 2 . Fear - periodic - of deflation - bear of by the tail C.E.D. The spring lulls 3. Inflation accompanied by rapid rise in real standards of living as war output went to civilians C. Conflict between F.R.S. and U.S. Treasury D. Korean Invasion E. Restoration of monetary policy (You had discussion of foreign aspects on Monday and Tuesday) F. What the free world fears of our economy - boom and bust Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Karl R. Bopp (1955, September 22). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19550923_karl_r_bopp

@misc{wtfs_regional_speeche_19550923_karl_r_bopp,
  author = {Karl R. Bopp},
  title = {Regional President Speech},
  year = {1955},
  month = {Sep},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19550923_karl_r_bopp},
  note = {Retrieved via When the Fed Speaks corpus}
}