Speech

31 Speech delivered over C-B-S Radio Network, New York, N.» Y. fecember H, 19A8 WHERE DO WE GO FROM HERE? Frankly, this would be an easy question if it were put differently, Whore do we wish to go from here? For what all of us wish is better prices and larger supplies of the things we need, ana at the same time for everybody to stay employed. We do not wish to have further price .inflation, with the cost, of living rising faster than our incomes. or do we wish a general downturn in business with large scale unemploy- ment. in other words, we want stability. No one is now in a position to state with certainty whether things ^jill go the way we wish or not. For the course from here on depends -tirst on what the consumer public and business firms do, which is always difficult to forecast with any great degree of accuracy. It depends second, on what the Government does that is, on the size of Government spending, particularly for foreign aid and defense—which the present ^settled state of international relations makes so uncertain. Finally, ^depends on the methods used by the Government to finance the spending vhich is actually undertaken. So far as the buying public and. business firms are concerned, there las recently been evidence that the pressure of inflation may be subsid- es, at least temporarily. But this is not the first time things have •Looked that way since the war: and so, to judge the current situation Properly we must place it in the setting of the entire postwar period. of Inflationsry Pressures We all know that the economic developments that we have experienced ^ the postwar period to date have been an outgrowth of the war itself. "'St', while the war 3.asted, it absorbed about 4.0 per cent of our produc- and as a result the things we were accustomed to in civilian life ockme either scarce or not obtainable. Everyone had to do without, had 0 Postpone buying till the war was over, had to await the return of Peace and prosperity. Second, in addition,, the war left us with heavy ^possibilities for relief and reconstruction abroad, placing a further leavy demand on our factories, on our farms, and on our other productive 1>esources. And finally, the method of getting the money to pay the cost of the ,f"r hns also been an important factor in the postwar inflation. Less ^"n naif the expenditure for war goods and services was financed by the ^^-inflationary method, namely by taxation. The remainder was financed trough Government borrowing, which is inflationary. This heavy reliance 0r} Government borrowing meant that when the war ended people had avail- able f sp } - g both their high current incomes and also a large ac- or Cn( ; Ln CUmulation of savings put away during the war. Besides that, they had exceptiona] .ly easy access to credit. Consequently, people had a tre- endous, long-deferred demand for goods for both personal and business ses; and to back up that demand they hsd more dollars than they had ever before. 9 32 You can see, then, that the result has been that the public has been trying to buy things faster than they could be produced. The demand was greater than the supply. Therefore, prices have risen steadily. And rising prices produce greater incomes, which in turn produce still greater demand, which in turn piortuces still higher prices. 'Jhus the vicious spiral goes round and round end up and up. And here, in brief, are the results: l/holescle prices have increased about 115 per cent since 1939; consumer prices, 75 per cent; and personal income increased almost 200 per cent. Domestic Impact of the International Situation Now it is important to note that the problem of raintaining the price stability has been considerably aggravated by a distuibed international situation. The end of World War II meant the termination of hostilities but not the resumption of peace, except pe-ice of a very uneasy kind. VJe have not been able to ignore the possibility that an international crisis might develop at any time. As a result, expenditures for national defense are higher than they ever were in peacetime and are going still higher. Added to these are the country's vast foreign aid programs for relief and' reconstruction/-' which reflect not only humanitarian motives but also a desire for secur- ity. We have been sending abroad more gooc.s than we have been receiving? • and this excess is financed largely by Government aid. Though this ex- cess of what wo send out of the United Sta.tes over what we receive from abroad has declined from its peak reached in the first half of 1947, it is nonetheless still very great. Past Interruptions in the Course of Inflation However, the postwar inflation has not followed an entirely uninter- rupted course. In the period from March to June last year, and again in the first two months of this year there was evidence that things were get- ting better. But each time it turned out to be only a temporary lull, after which the inflation resumed its progress, carrying prices' to still higher levels. Recent Indications of abatement of Inflationary Pressures And now again the pressure of inflation seems to be subsiding.- First; both retail raid wholesale prices on the average sre somewh:;t lower than they were at the peak last August. Second, the supply of many goods is now in better balance with demand at current prices than at any time since before the war. Third, the big harvest of this year has resulted in re- duced prices of such basic crops as wheat, corn, ana cotton, which are now down close to the levels supported by our Government; also important is the fact that the agricultural situation abroad has also improved. Fourth, the number of new houses and apartments started each month has been declining since May of this year, in contrast to the pattern of 1947 when the number of new units started kept on rising through the summer and early fall. Fifth, department store sales for the past five weeks have been we'll below those for the corresponding weeks of a year ago. Sixth, the figures show that for some time now people seem to have been saving 33 larger portions of their current incomes above taxes, and this of itself ^ay reduce the demand for goods and the upward pressure on prices. Fur- aer, and finally, people seem to have been buying less on instalment credit; in October instalment credit increased much less than a year ago, aad also\ there lias been a noticeable slackening in the volume of addi- tional bo 11k credit extended to all types of borrowers. Elements of Continued Strength ^ But, mind you, this is not the whole story, because underlying fac- ers remain by which a considerable expansion is possible. In the first P ace, practically everybody is employed and wage increases are continu- -ag to spread. This increases incomes and purchasing power. Also, not business firms but people generally have largo bank deposits and hold amounts of Government securities which they can readily turn into / These factors form a strong base for continued high levels of buy- bY the consumer public. fv 5econd place, large programs still remain for expansion of S:orie« and Kanufacturin^ equipment, for railroads, utilities, and 0 her industries; also the profits of business corporations are still at levels. And, what's more, severe shortages persist for many i"ategic cormiodities, particularly metals and metal products; and these su°h are reflected in rising prices in many specific areas, as iron, steel, lead, sine, farm machinery, end automobiles. in ^ place, State and local governments, which have rapidly creased their spending throughout the postwar period, must still meet gent needs for schools, other public buildings, and roaaj Oct finally> perhaps the factor of greatest single importance in iq ^, ^lingCJ the cVUoUuJ.r sUVe, tUihJaUUt oWUuAr dUUolmlleVksJ tUiJ.Vc, eV^cUoinlWoJmIlJy wHiJ-lJ-Jl- t\J rlUaVvVei.l fX rJ. oUiUm hlietir et on dent» ^eden'l Government's expenditures. Even if the Presi- s recently recommended 15 billion dollar ceiling cn the military J.u l-i ?01' 1S "« °ll-nv°/ wod> , F•*•e deral eUx^pVeUnUdii UtUuir eVs^U fJ-o^l rj. tkhJi-ieV^ nlei^Ax tU fXiJ-sOc^Ua-lJ. yJ ear,, fJ. rJ. o<_mMU y ^ t,° June 1950 are still likely to be higher than for the current ^^ ^ ^ necessaiy to enlarge the military budget to a figure see- ^ excecs amount, as informed and able military leaders inr'Vrecoinnien^> according to published reports, then further price V e n t k o u nd follow unless we find seme positive means of pre- of What will we have to do? The answer is clear. The supply T, critically important materials will have to be tightly allocated, ^ es will have to be rai sed in order to avoid an inflationary Government if we fail to raise taxes sufficiently, we shall be able to av c°ntr install tial price increases only by extensive price and other direct dompe"^' °lear) then, that the problem of maintaining stability in our si+eS economy is greatly dependent on the state of the international In the absence of further substantial increases in defense Riiph? Ures' ^iere would be some grounds for believing that stability the achieved tnrough successive readjustments in the supply and in ijrice of one commodity after another. But if defense expenditures do ti r6-pidly, then this certainly means that we can avoid further infla- otl the ^ we have the courage to adopt vigorous countermeasures and wisdom to adopt them before it is too late. 3h Therefore, speaking broadly, and in ny opinion, where \re go from here depends largely on our collective action at home and the international situation abroad. J ' , . ' * • • ' i Thank you. .

M.S. Szymczak (1948, December 13). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19481214_szymczak

@misc{wtfs_speech_19481214_szymczak,
  author = {M.S. Szymczak},
  title = {Speech},
  year = {1948},
  month = {Dec},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19481214_szymczak},
  note = {Retrieved via When the Fed Speaks corpus}
}