struction and Development. The Bretton Woods Agreements Act of 1945 (22 U. S. C. 286-286k) provided for United States membership in these international bodies in accordance with the Articles. The Secretary of the Treasury is the United States Governor on the Boards of Governors of both institutions. The Act also created the National Advisory Council on Monetary and Financial Problems with the Secretary of the Treasury as Chairman, and with the Secretaries of State and Commerce and the Chairman of the Board of Governors of the Federal Reserve System and the Chairman of the ExportImport Bank as members. The Foreign Assistance Act of 1948 included the Administrator for Economic Cooperation as a member of the Council, and the Mutual Security Act of 1951 replaced him by the Director for Mutual Security. The Council is required to coordinate policies and operations of all agencies of the Government which make or participate in making foreign loans, or which engage in foreign exchange or monetary transactions. The Council gives guidance to United States representatives on the International Monetary Fund and the International Bank, and advises the President on international financial matters. The Secretary of the Treasury, in consultation with the National Advisory Council, administers the Anglo-American Financial Agreement of December 6, 1945, as authorized by a Joint Resolution of July 15, 1946 (22 U. S. C. 2861). With the inauguration of foreign assistance programs under the Interim Aid Act, the Foreign Assistance Act of 1948 and its amendments, and the Mutual Security Act of 1951, the Council has from time to time made recommendations to the Congress on the financial aspects of these programs and subsequently has advised the administering agencies. With the shift in emphasis from economic recovery assistance to the task of strengthening the defenses of the United States and the free world, the Secretary of the Treasury was invited by the President to participate in the National Security Council, which considers over-all problems affecting the national defense. In addition to these major functions, the Treasury also advises other agencies of the Government, such as the Department of State, the Department of Defense, and various independent agencies on a wide variety of international financial problems arising from their operations abroad. EXHIBIT A List of current major statutes which bear upon economic objectives of the Treasury Department Section 1 of the Employment Act of 1946 (15 U. S. C. 1021), declaring it to be the continuing policy and responsibility of the Federal Government to use all practicable means consistent with its needs and obligations and other essential considerations of national policy to create and maintain (in a manner calculated to foster and promote free competitive enterprise and the general welfare) maximum employment, production, and purchasing power. Act of September 2, 1789, as amended (5 U. S. C. 242), prescribing the general duties of the Secretary of the Treasury. Second Liberty Bond Act, as amended (31 U. S. C. 747, 752–754, 757-758, 760, 764-766, 769-771, 773, 774 (2), 801), containing the basic authority for the issuance of securities of the United States and vesting broad authority in the Secretary of the Treasury in connection with such issuance and the deposit of the proceeds. Section 15 of the Federal Reserve Act (12 U. S. C. 391), providing that moneys in the general fund of the Treasury and the revenues of the Government may be deposited in the Federal Reserve Banks upon direction of the Secretary of the Treasury. Bretton Woods Agreements Act (22 U. S. C. 286–286k), providing for United States membership in the International Monetary Fund and the International Bank for Reconstruction and Development and creating the National Advisory Council on Monetary and Financial Problems with the Secretary of the Treasury as Chairman of the Council. Gold Reserve Act of 1934, as amended (31 U. S. C. 315b, 405b, 408a, 408b, 440-446, 752, 754a, 754b, 767, 821, 822a, 822b, 824; 12 U. S. C. 213, 411-415, 417, 467), authorizing the Secretary of the Treasury to purchase and sell gold and to prescribe the conditions under which it may be acquired and held. The gold parity statutes contained in the Gold Standard Act of 1900 and the Act of May 12, 1933 (31 U. S. C. 314), making it the duty of the Secretary of the Treasury to maintain all money of the United States at parity with the gold dollar. Silver Purchase Act of 1934, as amended (31 U. S. C. 311a, 316a, 316b, 405a, 448-448e, 734a, 734b), authorizing the Secretary of the Treasury to purchase and sell silver. Section 4 of the Emergency Banking Act of 1933 (12 U. S. C. 95), prohibiting member banks of the Federal Reserve System, during such emergency periods as the President may prescribe, from transacting any banking business except to the extent permitted by the Secretary of the Treasury, with the approval of the President. Section 5b of the Trading with the Enemy Act, as amended (12 U. S. C. 95a), granting to the President broad powers in time of war or national emergency over financial transactions, which powers have been delegated to the Secretary of the Treasury. Thomas Amendment to the Agricultural Relief Act of 1933 (31 U. S. C. 821), authorizing the President to direct the Secretary of the Treasury to enter into agreements with the Federal Reserve System whereby the Federal Reserve Banks will (1) conduct open market operations in Government obligations and (2) purchase directly and hold in portfolio Government obligations in an aggregate sum of $3 billion in addition to those they may then hold; the original provision in the Act authorizing the President to take certain other measures in event such agreements could not be reached has since been terminated. 2. State the general economic objectives which the Treasury Department seeks to further through the use of the powers which have been given to it by Congress. Emphasize particularly the overall objectives of the Treasury Department in managing the public debt. The general economic objectives of the Treasury Department are those expressed by the Congress in the declaration of policy contained in the Employment Act of 1946. So far as is practicable, the Treasury Department endeavors to determine and administer its policies with a view to promoting maximum employment, production, and purchasing power under a competitive free enterprise economy. The discharge of its special responsibilities under the law is consistent with these general objectives. I might broadly summarize what I conceive to be its major objectives as follows: 1. To Maintain Confidence in the Credit of the United States Govern ment This has been the basic objective of the Treasury since it was first established. Every Secretary of the Treasury has recognized that, in peace or war, any substantial impairment of the credit of the Federal Government would be a major blow to the maintenance of high-level production and employment, and to the orderly operation of our private enterprise system. Every effort has been bent, therefore, to maintain confidence in the Government's credit. In the broadest sense, safeguarding the credit of the Government depends on our ability as a Nation to keep our free enterprise economy healthy and growing, and to use our governmental instruments wisely in promoting this end. In the financial area alone, however, maintenance of confidence in the credit of the Government requires action on many fronts. With respect to our domestic policies, this objective requires revenue and expenditure programs which operate within the framework of a Federal budget policy appropriate to economic conditions. It requires continuing attention to greater efficiency and lower costs of governmental operations. It requires a debt management policy which acts to counter any pronounced inflationary or deflationary pressures; which provides securities which meet the current needs of various groups for investment outlets; and which succeeds in maintaining a sound market for United States Government securities. It requires the use of debt policy cooperatively with monetary-credit policy to contribute toward healthy economic growth and reasonable stability in the value of the dollar. It requires the conduct of day-to-day financial tions of the Treasury so as to avoid disruptive effects in the money markets and to complement other economic programs. It requires keeping down the interest cost of the public debt, to the extent that this is consistent with other policy objectives. (See the answer to Question 29.) In matters which reach into the international area, maintenance of confidence in the credit of the United States requires appropriate international financial policies and management of gold and silver reserves with the aim of maintaining a sound currency domestically and internationally. 2. To Promote Revenue and Expenditure Programs which Operate within the Framework of a Federal Budget Policy Appropriate to Economic Conditions It is clear that an important part of the responsibilities which have just been detailed, particularly those relating to revenues and expenditures, rests directly on the American people and on their elected representatives in Congress. In each of the policy areas which have been mentioned, however, the Secretary of the Treasury has been charged by Congress with certain specific responsibilities. As a result, the Secretary of the Treasury has a clear obligation to advise the Congress on revenue matters and to manage the revenues, within the limitations set down by law, in the best interests of the economy. With this in mind, the Treasury repeatedly urged that sufficient taxes be levied to cover Government expenditures during the present period. The Treasury also urged the importance of having the right kinds of taxes consistent with a strong free enterprise system. To seek revenue by taxation is not enough. The burden of the taxes must be equitably distributed; and furthermore it must be adjusted in such a way as to preserve the incentives of our free enterprise system. Both revenue and expenditure policies, of course, operate within the broad framework of the Federal budget. Through action of Congress and by Executive decisions, the budget is subject to constant change; and it is of the utmost importance that it be kept appropriate to changing economic circumstances. In the executive branch, work on the budget programs is divided between the Bureau of the Budget (which handles the expenditure side) and the Treasury (which is responsible for the revenue side). Both agencies work closely with the President who, of course, makes the final decisions as to the programs embodied in the Federal budget. The ultimate decisions on receipts and expenditures are made of course by the Congress. A major budget objective, in my opinion, is to plan our receipts and expenditures so that there is a budget surplus in inflationary periods. This offers a counter-inflationary drag and helps to keep the debt down. Both President Truman and I have repeatedly stressed the importance of reducing the level of the public debt in periods of prosperity such as we have enjoyed since the close of World War II. *The progress made in debt reduction between the end of the war and the present provides us with a lower base to which any future net borrowing would be added. As I have stated on many occasions, I am committed to the position that the Treasury should press toward reduction in the present high level of the debt whenever this is consistent with our basic economic objectives. 3. To Give Continuing Attention to Greater Efficiency and Lower Costs of Governmental Operations In addition to specific duties and advisory functions with respect to revenue and budget policies, the Secretary of the Treasury, along with the heads of other departments and agencies of the Government, has a continuing obligation to keep Government expenditures down by promoting maximum efficiency of Government operations at a minimum cost to the taxpayers. This is a management function which has been given particular thought and attention in the Treasury Department during the postwar period. Both within the Department and in association with other bureaus and agencies of the Government, gratifying progress has been made by the Treasury during recent years in promoting efficiency of operations, uniformity of accounting and other financial practices, elimination of overlapping services, and improvement of operating techniques in general. While management improvement programs seldom make the headlines, they are of very great importance in assuring the maintenance of a well-run Government-one of the essentials, in my view, of a Federal Government credit position which will command the continuing confidence of the citizens of the Nation. (A memorandum on management improvements in the Treasury Department will be found in the Appendix to Chapter I on p. 199.) 4. To Direct our Debt Management Programs toward (a) Countering Any Pronounced Inflationary or Deflationary Pressures, (b) Providing Securities to Meet the Current Needs of Various Investor Groups, and (c) Maintaining a Sound Market for United States Government Securities (a) Countering any pronounced inflationary or deflationary pressures.-In order to counter any pronounced inflationary or deflationary pressures, the Treasury endeavors to arrange its borrowing and debt payoffs so that the net effect is to help contract bank deposits in boom periods and expand them in depressed periods. For example, in the last five fiscal years (ending June 30, 1951), during which inflationary pressures were strong most of the time, the Treasury retired holdings of Federal securities of commercial and Federal Reserve Banks by almost $27 billion. Three sources of funds were used: $8 billion of budget surpluses; $12 billion of in crease in nonbank ownership of Federal securities, largely by Government trust funds; and $7 billion of reduction in the Treasury's own cash balance. By working with the Federal Reserve to provide the proper impact on bank reserves and bank deposits, the Treasury was able to coordinate its efforts with the Federal Reserve program at this time. The significance of this debt reduction program becomes apparent when it is noted that the amount of the reduction in Government holdings of the commercial banking system was almost sufficient to offset the increase in bank credit to private borrowers which took place during the same period. In the absence of the Treasury's aggressive program for reducing bank-held debt, inflationary pressures might have been more serious. Another way in which the Treasury has acted to counter inflationary pressures during the postwar period has been to encourage people to save rather than spend. We have tried to encourage savings in general, as well as investment in United States savings bonds. The Treasury may also help to combat an inflationary or deflationary situation by means of the influence which it exercises, through suitable debt management policies, in the money and investment markets. This influence is brought to bear through actions which are taken to meet changing supply and demand relationships for Treasury securities of various maturity groups. The Treasury can "flood or starve" certain parts of the market and thereby produce fundamental changes affecting liquidity, bank reserves and deposits, and interest rates. This matter is discussed more fully in the answer to Question 32. (b) Providing securities to meet the current needs of various investor groups. The Treasury's program of providing securities which meet the needs of the various investor classes has made it possible to place a large amount of Government securities with nonbank investors. During the postwar period, when inflationary pressures have predominated for a large part of the time, this has been particularly important. The Treasury's action in this respect made it possible, moreover, to reduce bank-held debt substantially. The Treasury's saving bond program is particularly well adapted to the needs of small investors. With respect to other investor groups, the Treasury has maintained a constant study of the investment markets in order to provide the securities which would succeed in attracting the funds available for investment at the time. The Treasury recognizes that insurance companies and mutual savings banks, for example, are mainly interested in relatively long-term securities. Business corporations, on the other hand, which are accruing funds to meet their taxes or for working capital purposes, generally seek short-term investments, such as Treasury bills and certificates. Commercial banks, likewise, seek mainly short-term investments. The Treasury recognizes all of these variations in order to tap investment funds appropriately and to succeed in raising the necessary amounts in a manner which will best contribute to stability in the price level and to the smooth operation of the economy in general. The Treasury also recognizes another factor in this connection in planning its security offerings-that is, the need to help maintain the strength and integrity of our private business and financial organizations. These are a vital part of the free enterprise system, and we want them to flourish. |