75-05-B6
- Main Page \ Reagan Radio Commentaries \ 1975
| << Previous Broadcast | Next Broadcast >> |
The Money Supply
TranscriptCongress may be able to bring inflation under long-term control with a bipartisan coalition now taking shape. I'll be right back. If an after-dinner speaker got up and said, "I'm going to talk about monetary policy," he'd find himself facing a wall of blank numb faces. Yet no aspect of government policy has caused the American people more grief in the last decade than our erratic monetary policy and since it affects each one of us we owe it to ourselves to understand it. Since Woodrow Wilson's day the Federal Reserve Board has controlled the amount of money in circulation in america. It's independent of the President and reports only to Congress. If the Fed as its nickname decides to shrink the supply of money as it did in the disastrous years of 1929 to 1933, many banks will fail for lack of capital and there's virtually no chance for you to get a loan from the ones that survive. There just isn't enough money. The result of such a policy is deflation and depression. On the other hand if the Fed decides to increase the money supply by ten percent in a year when the economy is growing by only three percent, the result is too much new money chasing too few goods and that's inflation. Recent studies have shown that the major factor governing the value of the dollar is the amount of dollars in circulation. in other words the policy of the Federal Reserve Board in a sense the Fed's too rapid expansion of the money supply doesn't cause inflation it is inflation. The symptoms of inflation, higher wages and higher prices, are not in themselves the causes they're the result of too much money chasing too few goods. This is why wage and price controls not only can't work but make you the scapegoat for the real villain, the government. Whether you're the employer or the worker so important is this matter of how much money is in circulation and so delicate is the balance between money and value that a growing number of influential economists have concluded that the supply of money is crucial, not only to a sound dollar but to economic health in general. Studies show that when the supply of money contracts the economy contracts when the money supply increases greatly the economy destabilizes through inflation but when the growth of money is kept more or less in line with the capacity for growth in the economy stability is not only possible but likely. The Federal Reserve Board followed such a stable policy for most of the post-war period until around 1967 until it began an erratic changing course which has caused the economy to go through a series of painful bumps and grinds. Now comes a group in Congress that wants to make the Fed follow a course of stable monetary growth. The impressive thing about this group is that it consists of both liberals and conservatives. One new bill would require the fed to expand the money supply at a set rate. another would make it expand the supply at a rate equivalent to current prospects for economic growth. If either one passes the nation will have laid the foundation for a stable non-inflationary prosperity and wouldn't that be a relief to everyone. This is Ronald Reagan. Thanks for listening. |
Details
| |||||||||||
Added Notes |
