Speech

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM MONETARY POLICY AND FOOD PRODUCTION Remarks of R. M. Evans, Member, Board of Governors, Federal Reserve System at a meeting of the National Farm Institute, Des Moines, Iowa, February 15, 1952. 7 p.m., C.S.T. FOR RELEASE UPON DELIVERY Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MONETARY POLICY AND FOOD PRODUCTION We are all familiar with schoolbook definitions of money, as a medium of exchange, a measure of value, and a storehouse of future purchasing power. Money, however, means far more than these familiar phrases suggest. The dollar, for example, is looked upon throughout the civilized world as a symbol not merely of the material and, perforce, the military, might of the United States but also as a sign of the moral strength and fiber of the American people and their will to preserve its integrity. The men who deal with money matters in foreign lands--monetary officials, bankers, economists--watch our monetary affairs with an eagerness and a keen understanding which often surprises the American visitor who goes abroad. Their interest is quite im­ personal and detached and far above the concerns of any partisanship. They are profoundly interested because they so deeply feel that the survival of the free world depends in no small degree on the ability of the United States to maintain the value of its dollar against the deadly ravages of inflation with which they are all too familiar. They know that nothing so surely corrupts the moral stamina of a nation as the debasement of its money. There has been an extraordinary revival of confidence in the American dollar and in our Government bonds during the past year, not only at home but abroad. It is evidenced by the reversal of an outward movement of gold and by the more favorable attitude of well-informed investors toward Government bonds. The resurgence of confidence coincided with the demonstration that our Government bonds could stand on their own feet--not at par or above in this period of heavy demand for funds but nevertheless at high levels--that Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -2- there were individual and corporate buyers in the market as well as sellers, and that therefore it was not necessary for some instrumentality of the Government, in our case, the Federal Reserve System, to support the market at some preconceived level. In other words, there was a revival of confidence because the market became a genuine market. It is generally recognized, of course, that monetary policy is not the sole or even the controlling factor in a successful campaign against infla­ tionary forces. Nevertheless, it is an indispensable factor. This was brought home to me most forcibly last fall during my two months' trip through Western Europe. As a delegate to the International Credit Confer­ ence and to the meeting of the United Nations Food and Agricultural Organi­ zation, both of which were held in Rome, I had an unusual opportunity to exchange views with businessmen, farmers, and commercial bankers and central bankers from all parts of the world. In addition, the meetings were far enough apart in time to permit a rather extended sur vey of conditions in Germany, Belgium, Holland, France, England, Switzerland, and Italy. It would be difficult to overemphasize the importance which Europeans attach to the forthright steps which have been taken in this country subsequent to the outbreak of hostilities in Korea to deal with the inflationary pressures inherent in our multi-billion dollar defense program. Europeans have had much first-hand experience with the disastrous consequences of inflation, with the inability, or more often unwillingness, of government after govern­ ment to deal effectively with this pestilence which attacks the very core of Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -3- an economic society--its money. They have seen the hardship and dis­ illusionment, as well as corruption of the free will to resist one or another of the "isms" which have successively attacked one European country after another. The history of the practice of central banking in Europe is measured in scores of years while our experience--even counting the early attempts with the Bank of the United States--is measured in terms of a few decades. When, in country after country, the central bankers expressed the deepest interest in the progress we were making and the steps we had taken in the past 18 months, I gradually came to realize that these men were pinning their hopes for economic stability in the western world largely on the out­ come of our efforts. They recognized that the ystem of private free enterprise as it has been developed in this country was made possible by the gradual accumula­ tion of savings which could be reinvested to increase productive facilities and output. So long as there was confidence in the long-range stability of our economy and the intrinsic value of our money, there was ample incentive for thrift and saving, which formed the backbone of our capitalistic economy. As an example of what can happen when the opposite situation pre­ vails, I should like to repeat the experience of a famous writer of economic subjects for French newspapers. When he was a young man of 17 or 18, his father asked if he had determined upon his life work. After careful consider­ ation, the lad replied he had decided he wanted to write on economics. The Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -4- father cautioned him that such work would never pay very well and advised him to give further consideration to his choice. Several months later he asked the boy again, but still received the same answer. The father then told the boy that he wuld set up a trust fund for him, the proceeds of which would amount to some 1, 500 francs a year. This amount, the father felt, would supplement his son's earnings from the writing and permit him to live comfortably on the combination of incomes. The writer, who is now nearing 80, is still drawing that 1, 500 francs each year. Its value as supplemental income, on the basis of the present value of the franc, is a little over $4 in our money--about enough for one really good meal! His predicament could be repeated over and over again with stories from other European countries and from other parts of the world wherever inflation has been allowed to run rampant. It is experience of this type on the part of many Europeans that accounts for their gratification over our efforts to stabilize our economy and to preserve and protect the purchasing power of our money. They understand the relationship between the outcome of these efforts and the preservation not only of the private free enterprise system but of western civilization as we know it today. We sometimes think of this as essentially a military problem, but adequate preparedness in the military sense will be of little avail without a sound economy to back it up. These observations may seem to stray far away from the title which was assigned to me--"Monetary Policy and Food Production"-- Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis but it is obvious to all of you that food production as well as all the rest of the unrivalled output of this mighty nation rests upon the security of our money--and the will of the American people, through fiscal, monetary and related policies, to preserve and protect the purchasing power of the dollar. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

Rudolph M. Evans (1952, February 14). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19520215_evans

@misc{wtfs_speech_19520215_evans,
  author = {Rudolph M. Evans},
  title = {Speech},
  year = {1952},
  month = {Feb},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19520215_evans},
  note = {Retrieved via When the Fed Speaks corpus}
}