Abstract
The Federal Reserve was created to promote stability and growth by means of an elastic currency, a task at which it failed miserably during the Great Depression, but which inspired the additional tasks of assisting employment and price stability. Martin’s term as chairman of the Federal Reserve Board and the Federal Open Market Committee (1951–70) was characterized by conflicts between his desire for stable prices, bolstered by his skepticism regarding the stimulative effects of inflation, and Keynesian and administration desires for the Fed’s financing of government deficits.
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- 2.
The three-member Council of Economic Advisers in the Executive Office of the President is charged by the Employment Act of 1946 with “offering the President objective economic advice on the formulation of both domestic and international economic policy.”
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For more than twenty years after its formal establishment in 1935, the FOMC selected from among its members an executive committee of five, which met more frequently and oversaw open-market operations within the broad framework of policy laid down by the full committee.” At the June 1955 meeting Martin’s proposal to terminate the Executive Committee was agreed unanimously, including by the New York bank even though the measure might be interpreted as reducing New York’s influence. In fact, most or all FOMC members, as well as Bank presidents not currently on the Committee, had attended Executive Committee meetings (Youngdahl 1960; Meltzer 2009, pp. 70–71).
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During hearings of the Senate Finance Committee, 85th Cong., 1st sess., June–August 1957. For a critique of this theory, see Horwich (1966). Hetzel and Leach (2001) suggest that the Fed’s economists, led by Riefler at the Board (advising McCabe and Martin) and John Williams at the New York Bank (and Harvard), recognized that “the most important policy problem after the war was inflation rather than depression,” and “recognized the importance of monetary and its relation to inflation some 20 years before the economics profession began to debate seriously that possibility.”
- 5.
Presidents appoint Fed chairmen from among Board members for four-year terms not coterminous with president’s terms, which meant that Martin’s term as chairman would end in February 1963. Presidents have sought to make chairmen’s terms coincident with their own without success. Martin had offered to resign when Eisenhower became president in 1953, but was asked to remain. In 1961, however, since Martin and the Fed’s monetary policy had been made campaign issues, he felt that as a matter of principle he should not offer his resignation (Meltzer 2009, p. 269).
- 6.
For example, Economic Report of the President, 1964, pp. 36–39. Except for two quarters in 1955, there was a continuous deficiency (gap) between potential and actual GNP from mid-1953 through 1963.
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Wood, J.H. (2020). Chairman of the Fed. In: Who Governs?. Palgrave Studies in American Economic History. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-33083-5_6
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