<--PREV Doc #2004  |  Memorial Commission Home Page  |  First Term Table of Contents  |  Presidential Papers Home Page  |  Doc#  |  NEXT--> Doc #2006 Document #2005; September 30, 1956 To Lewis Williams Douglas Series: EM, AWF, Administration Series The Papers of Dwight David Eisenhower, Volume XVII - The Presidency: The Middle Way Part X: Cracks in the Alliance; May 1956 to September 1956 Chapter 21: "Grave difficulties in the Suez crisis"   Dear Lew:1 The intelligence about the effects of current Federal Reserve System policy contained in your last letter fits with certain other reports that have come to me.2 We are, of course, suffering some of the pains of prosperity. The supply of savings and money generally has never been greater but the demand is greater still. The confidence people have in the future has produced plans in a surging volume and the result is so-called "tight money."3 While the System's policy of restraint has been rightly directed toward the goal of stability at these high levels of activity, among us here we have had for some time certain reservations about the timing and extent of the policy. These opinions have been made clear to the Federal Reserve Board Chairman and I am sure he has accorded them full weight.4 But he feels strongly about his responsibility under the law, as he should. The general public, of course, makes no differentiation between the Administration and the fully independent Federal Reserve Board.5 We are continuing to explore ways both of making this fact clear and of securing further provision for the legitimate credit needs of small business and agriculture, and I have some reason for hope that the Federal Reserve Board will loosen some of their restrictions within the next few weeks.6 We must find a way to foster a healthily growing, high-employment, peacetime economy while containing inflation. It is a new and challenging task.7 I am always grateful to have the benefit of your thinking. Thanks again for writing. With warm regard, As ever 1 Gabriel Hauge drafted this letter for Eisenhower. 2 Douglas had written the President on September 24 to criticize the Federal Reserve Board's "hard money policy (so called)," which he said was creating a shortage of credit for small businessmen; harming construction; and restricting the amount of credit available to agriculture (AWF/A). Douglas had charged that the Fed, having failed to understand the dynamics of the current inflation, was now applying inappropriate remedies. Douglas feared that the Fed's policy would be "one of the factors which would probably throw Texas in the Democratic column" in the November election. In handwritten comments on Douglas's letter, Treasury Secretary Humphrey had noted that the distinctions Douglas made were correct "but the results can be equally bad unless restrained. I fully share his political fears but think a soaring cost of living would be far worse politically than [a] rise in the cost of money." 3 On August 24 the Federal Reserve Board had raised the discount rate a quarter point in a move to curb inflationary forces (see no. 1956). 4 On the Administration's differences with the Federal Reserve Board see no. 1877; see also Kettl, Leadership at the Fed, pp. 88-91. 5 See A. Jerome Clifford, The Independence of the Federal Reserve System (Philadelphia, 1965), pp. 229-72, 318-21. 6 The latter half of this sentence was added to the original draft (in AWF/A). The Board would, however, make no move to ease credit in October 1956. 7 On Eisenhower's appeal to labor and business leaders for "responsibility" in setting wage increases and in thus curbing inflation see Saulnier, Constructive Years, pp. 92-97. Bibliographic reference to this document: Eisenhower, Dwight D. To Lewis Williams Douglas, 30 September 1956. In The Papers of Dwight David Eisenhower, ed. L. Galambos and D. van Ee, doc. 2005. World Wide Web facsimile by The Dwight D. Eisenhower Memorial Commission of the print edition; Baltimore, MD: The Johns Hopkins University Press, 1996, http://www.eisenhowermemorial.org/presidential-papers/first-term/documents/2005.cfm <--PREV Doc #2004  |  Memorial Commission Home Page  |  First Term Table of Contents  |  Presidential Papers Home Page  |  Doc#  |  NEXT--> Doc #2006

Dwight D. Eisenhower Memorial Commission 1629 K Street, NW Suite 801 Washington DC 20006 Phone: 202.296.0004    Fax: 202.296.6464