Alloca~n oo The Basic

The financial system of the United States contains two large subsystems. The function of the first, generally referred to as monetary policy, is to control the total volume of credit for the purpose of aggregate economic stabilization. The second sub-system, which has no name, consists of a maze of regulations, institutions and tax practices designed to influence the allocation of credit, and hence of resources, among different classes of potential users. The two sub-systems interact in complex ways. In its attempt to control the volume of credit, monetary policy inevitably influences the cost and allocation of credit. Similarly, the existence of an allocative sub-system and changes in it, have an important influence on the conduct of monetary policy. A third form of interaction arises because the monetary authorities exercise control over part of the allocative sub-system and use this control in conjunction with their more general powers over the volume of credit. As its title indicates, this conference deals with issues in all three areas: the conduct of monetary policy, the allocation of credit, and the actual and potential influence of each on the other. While the title does not so indicate, the origin of the conference itself lies in the growing dissatisfactions with the performance of the system as a whole, particularly during periods of credit restraint such as 1966, 1969-70 and 1973.