You know, I was the author of the Full Employment Act in the House. And we put in there, "and maximum purchasing power." You never mentioned that. Mr. MARTIN. I would be glad to mention it. I have mentioned it many times. The CHAIRMAN. I have never noticed it. I notice you mention the others. Mr. MARTIN. Maximum production, maximum employment, and maximum purchasing power, I have mentioned a number of times. The CHAIRMAN. That is good. I hope you keep it up that way. Mr. MARTIN. I just want to say that our objectives are exactly the same. The methods by which we get them seem to be entirely different. And I don't think that the Federal Reserve System has been the bane on the body politic that you think it has been. But if it has, I agree with you that we ought to do something about it. And I also think that if I am violating the law, which the Congress has given, that the quicker I am put in jail the better off we will be. The CHAIRMAN. No, you cannot be put in jail for it. But I will tell you where you violate the law, if you want me to tell you so. Let me just make this one comment on where you do violate the law. The law says that the Open Market Committee shall be composed of seven members of the Federal Reserve Board and five presidents of Federal Reserve banks. But you bring in not only the 7 members of the Board, and the 5 presidents of the Federal Reserve banks, but you bring in the 7 other presidents of Federal Reserve banks, and you have 50 people in that room, the Open Market Committee room, helping to fix the volume of money and the cost of money. Mr. MARTIN. Well, we have been over this one many times before, as you know. Only the statutory members vote on issues brought before the Open Market Committee. Mr. MULTER. Mr. Chairman, may I make one observation-even though I am not a member of the subcommittee? In view of what has been said about the differences between the Republicans and Democrats and we have not yet heard the Republican view of it as a party view-on the proposed legislation before us in these hearings may I suggest there is no Republican Party way and no Democratic Party way of running a central bank. And I am sure that when we get into executive session, after we get through these hearings, we are going to approach this from the viewpoint of what is good for the country, and not try to make a political issue or a political football of the Federal Reserve System. The CHAIRMAN. Has the gentleman seen the statement the Republican members put out? Mr. MULTER. I did see it, sir, and that is one of the reasons I am making my comments. The CHAIRMAN. All right. We will expect you in the morning at 10. (Whereupon, at 12:05 p.m., the subcommittee recessed, to reconvene at 10 a.m. Wednesday, January 22, 1964.) THE FEDERAL RESERVE SYSTEM AFTER FIFTY YEARS WEDNESDAY, JANUARY 22, 1964 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON DOMESTIC FINANCE OF THE The subcommittee met, pursuant to recess, at 10 a.m., in room 1301, Longworth House Office Building, Hon. Wright Patman (chairman) presiding. Present: Representatives Patman, Multer, Reuss, Ashley, Vanik, Minish, Weltner, Wilson, Kilburn, Widnall, Bolton, and Brock. The CHAIRMAN. The committee will please come to order. Mr. Widnall? Mr. WIDNALL. Mr. Chairman, I would like to ask permission to insert in the record, just prior to your own remarks yesterday, a statement that was issued by the Republican members of this committee, together with the names of those who signed the statement. The CHAIRMAN. Without objection, it is so ordered. I also ask permission to include immediately after Mr. Widnall's statement a statement of my own. Without objection, it is so ordered. That will be preceding my statement yesterday interrogating or commenting on Mr. Martin's statement. I think I took all the time I should yesterday. So this morning I suggest that we have 10 minutes for each member of the subcommittee, so as to get a little more time. And then after we go around, we will have unlimited time for the subcommittee members, which will give an opportunity to fully explore the subject matter. At this time, I will recognize Mr. Widnall. (The statements referred to above may be found on pp. 29-30.) Mr. WIDNALL. Mr. Chairman-I had hoped, and I believe other members of the committee had hoped, when there was preliminary discussion about the hearings with respect to the 50 years the Federal Reserve System has existed, that we would surely hold these hearings to evaluate the 50 years of service of the System. I am inclined to feel, from some of the statements that have been made by the chairman, that already there has been an evaluation of the System, without giving us the benefit of the various views of the witnesses who will appear before the committee. I hope that we can dispassionately consider all of the presentations that will be made, because I am sure that those on the minority side, as well as those on the majority side, would like to have the opportunity to fully evaluate what has gone on during those 50 years. The CHAIRMAN. Mr. Widnall, would you yield to me briefly, please? Mr. WIDNALL. I would; yes, sir. The CHAIRMAN. Now, yesterday morning, when the committee met, there was before each member, on the desk, a statement signed by the Republican members, which you inserted in this record this morning, to go in the record of yesterday, which I think was pretty partisan and made it somewhat of a political issue, right in the beginning. And any partisanship that has been exhibited, I think, was provoked at least in part by this particular statement, which I referred to yesterday. Mr. WIDNALL. Mr. Chairman, and the other members of the committee, I would like to say this: An allegation has been made by one of the gentlemen on this committee that our statement showed a callous disregard for the unemployed in America. I don't think there can be any more callous disregard of unemployed than to allow the forces of inflation to work and to have monetary policies that would encourage inflation, and take away any gains that labor obtains, either through legislation, negotiation, bargaining, or what-have you. And we are deeply concerned that the American public will not know, unless we point it up, that there are inherent dangers in some of the proposals, as to change, with respect to the Federal Reserve System. Now, Mr. Martin, I think you made a very lucid statement yesterday, as you always do in your presentations before this committee. I would like to first ask you this: Has any President to date, to your knowledge, recommended changes in the Federal Reserve System that have not been accepted by the Congress and put into effect by changes in the law? STATEMENT OF WILLIAM MCCHESNEY MARTIN, JR., CHAIRMAN, FEDERAL RESERVE BOARD; ACCOMPANIED BY C. CANBY BALDERSTON, VICE CHAIRMAN OF THE FEDERAL RESERVE BOARD Mr. MARTIN. I am not sure, Mr. Widnall, whether there are any recommendations that any President-I think President Roosevelt did recommend the changes that are in the Banking Act of 1933 and the Banking Act of 1935, and those were enacted by the Congress. I don't believe there have been any other recommendations, with the possible exception of President Kennedy a year ago recommending a bill with respect to the salaries of the Chairman and the other members of the Board, and also to make the term of office of the Chairman and Vice Chairman coterminus with that of the President. That was contained in his message to the Congress. So far as I know, there have been no hearings on that bill. Those are all I can think of at the moment. Mr. WIDNALL. So that to your knowledge actually the Presidential recommendations have been largely accepted with that one exception, as long as the Federal Reserve System has been in existence? Mr. MARTIN. That is correct. Mr. WIDNALL. I would just like to have this repeated again for the record. What do you see as the function of the Open Market Committee with respect to the matter? I have in mind now its application to unemployment, to our balance-of-payments problem, and to other features that were incorporated in the Employment Act when that was enunciated by the Congress. I am sure that the Federal Reserve System, through its Open Market Committee, has not just been interested in changing inter est rates. What do you feel is the basic problem that you have to attack through the use of the Open Market Committee? Mr. MARTIN. I think that could be stated in a good many different ways. But in terms of my discussion with Mr. Patman yesterday, I would subscribe fully to the view that the Open Market Committee is concerned with maximum production, maximum employment, and maximum purchasing power-that those are its objectives and purposes. Another way of saying that would be that it wants orderly economic growth, and it does not want inflation, because inflation does not lead to orderly economic growth. Mr. WIDNALL. And in order to make your best judgment on these matters, you have a permanent staff of economists who work with you, keeping check on all of the various factors that go into our economy, is that right? Mr. MARTIN. We do, indeed. As Mr. Patman has pointed out, at the meetings of the Open Market Committee, because of the fact that under the law there is rotation of the presidents, year by yearthere is only one president, the president of the New York Bank, that stays permanently on the Committee all of the 12 presidents of the Reserve banks, have been attending the meetings although only those permitted by statute to vote, vote. And we have had the best economists and staff assistants that we can obtain participate in those meetings. We think this has contributed to bringing the best brains that we have in the System to bear on the problem. Mr. WIDNALL. I think a point was raised yesterday about the meeting of the Open Market Committee, about many others who were present at the time of those meetings, and perhaps should not have been present because they did not perform any function by way of voting. What is the function of those who participate in the meetings but actually do not have any part in the decisions? Mr. MARTIN. Well, they are there to advise or to render advice to any of the principals at any time. We have the best economists in the System there. We ordinarily open the meeting of the Committee by having a presentation of current economic conditions by one of our top staff economists. Then we have a presentation of credit conditions. Then we follow that with the review of the balance of payments. Then we give each president around the table an opportunity, for 5 or 10 minutes, just as you operate here in the committee, to speak to the problems of his district, and to make any comments that he would like to make with respect to current money market conditions. And after that go around is completed, we then are at liberty to ask questions. And I might say that when these economic reviews are made, anyone there at the meeting may be recognized by the chair |