Safeguards Against Monetary Inflation

January 21, 1941

Report Outline
New Proposals to Forestall Inflation
Excess Reserves and Danger of Inflation
Proposed Revision of Monetary Powers
Measures to Curb Excess Reserves

New Proposals to Forestall Inflation

The danger that the industrial boom now being promoted by the arms program may develop into a general and uncontrolled inflationary movement was brought forcibly to public attention at the beginning of 1941 by the submission to Congress of a special report on the subject by the Federal Reserve System. The report was submitted jointly by the Board of Governors of the Federal Reserve System, the presidents of the Federal Reserve Banks, and the Federal Advisory Council. It called for withdrawal of certain inflationary powers delegated to the President in the early days of the New Deal and recommended that new controls be instituted to reduce present risks of monetary inflation.

Federal Reserve Reforms and New Deal Theories

Since the report recommended discontinuance of the President's power further to devalue the dollar and abolition of other monetary powers which the administration supposedly considered valuable weapons to combat future depression tendencies, it was at once assumed the Federal Reserve proposals would encounter stiff opposition from the White House and the Treasury. While Secretary of the Treasury Morgenthau subsequently attributed a decline in prices of government bonds to the report, and Federal Loan Administrator Jones said he had seen no indications of inflation, President Roosevelt withheld comment. Certain passages in the President's budget message to Congress, moreover, seemed to indicate agreement with some of the Federal Reserve recommendations.

The proposals of the Federal Reserve report were not basically inconsistent with the general New Deal theory that the government in time of depression should encourage recovery by borrowing and spending and by following an easy-money policy, but that in time of prosperity it should reverse this procedure, work toward a balanced budget, and apply safeguards against inflation. Submission of a recommendation that the latter course now be taken signalized a belief by Federal Reserve authorities that the transition from depression to prosperity was well under way and might soon be expected to produce inflationary tendencies of dangerous proportions.

ISSUE TRACKER for Related Reports
U.S. Dollar and Inflation
Jul. 19, 2019  The Future of Cash
Oct. 2008  The Troubled Dollar
Feb. 13, 1998  Deflation Fears
Mar. 13, 1987  Dollar Diplomacy
Oct. 14, 1983  Strong Dollar's Return
Jul. 11, 1980  Coping with Inflation
May 16, 1980  Measuring Inflation
Dec. 07, 1979  Federal Reserve's Inflation Fight
Jun. 09, 1978  Dollar Problems Abroad
Sep. 20, 1974  Inflation and Job Security
Feb. 26, 1969  Money Supply in Inflation
Feb. 14, 1968  Gold Policies and Production
Dec. 15, 1965  Anti-Inflation Policies in America and Britain
Mar. 15, 1965  World Monetary Reform
Dec. 02, 1964  Silver and the Coin Shortage
Oct. 17, 1962  Gold Stock and the Balance of Payments
Dec. 15, 1960  Gold and the Dollar
Oct. 10, 1956  Old-Age Annuities in Time of Inflation
Jan. 17, 1951  Credit Control in Inflation
Aug. 10, 1949  Dollar Shortage
Oct. 04, 1943  Stabilization of Exchanges
Jan. 21, 1941  Safeguards Against Monetary Inflation
Mar. 25, 1940  United States Gold in International Relations
Dec. 14, 1937  Four Years of the Silver Program
Oct. 04, 1934  Inflation in Europe and the United States
Jan. 30, 1934  Dollar Depreciation and Devaluation
Sep. 05, 1933  Stabilization of the Dollar
May 29, 1933  Invalidation of the Gold Clause
Mar. 15, 1933  Inflation of the Currency
Oct. 25, 1924  Bank Rate and Credit Control Federal Reserve Policies and the Defaltion Issue
Financial Institutions