The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
IRECD IN FILES SECTI AHALYSIS OF STABILIZATION AMENDMENT TO BANKING ACT Of 1'. By Dui can U . Fletcher Omitting all non-essentials and unimportant matters, my amendment inserts °nly four words in the House Committee's mandate to the Federal Reserve Board for the administration of our monetary policy as provided for in Title II of the Banking Act of 1955. I thus meet tho criticism that tho Houce amendment docs not sufficiently satisfy the constitutional requirement in stating tho legislative objective. The object of Title II is to give powar to the Federal Reserve Board to administer our monetary policy in such c way as to bring about or rostorc full omplcymont and business activity, and, theroaftor. to stabilize production, trade, prices • nd employment. In view of tho so facts, my amendment was drav.Ti as follows: "It shall bo the duty of the Federal Reserve Board to exercise such powers as it possesses in such manner as to promote conditions conducive to full employment and business activity, n.nd thereafter to mitigate by its influence unstabilizing fluctuations in the general level of production, trade, prices and employment, so far as may bo possible within tho scope of monetary action and credit administration." The words "full employment," the word "activity" and the word "thereafter*, as underscored, wore inserted by me in order to attain th-3 objective referred to of stating clearly both the legislative policy and the legislative will, in the form of a Congressional mandate bo tha Federal Kesorve Beard. Recently, I took the pains to point out that there now lies v/ithin the hrnds of bankers the potential makings for one of the most stupendous inflations this or any other nation has aver experienced. It is for this reason that I have said thai the Banking Act of 1935 is conceived as our most essential safeguard. My amendment is deliberately conceived with the expressed purpose in mind of strengthening the Act as a safeguard against both inflation and deflation. It is universally recognized, I believe, that our objective must be the restoration of industrial employment to the highest practicable level and to restore business activity to a maximum. That, it must bo conceded, is a legitimate and laudable obj ective. Consonant with the increase in industrial employment and business activity, there must of necessity take place a legitimate expansion of credit and em-r^ncy. To the extent that those three factors undergo a proportion.". 1 degree of change, inflation will not arise. It is axiomatic, I presume, that full employment and business activity cannot be expected to come about without the accompaniment of I sumowhat comparable rise in the general level of all pricos. After employment and business activity are restored, the Fodoral Rusorvo Board would be required to use all of it.: powers to "mitigate by its influence unstflbilizing fluctuations in the gonoral level of production, trade, prices, tnd employment, so far as may be possible within the scope of monetary action and credit administration,11 Those powers of the Board which are directly roforrod to as being "within the scope of monetary action and credit administration" are: first, thu power of the Board to direct Reserve banks to buy and sell eligible paper - including Government securities - in the open market; second, control over rediscount rates; and, third, the power to change the reserve requirements of member banks. Under this mandate, any administration can be hold responsible for the results. The power is given; and they can be held responsible if they do not exercise the power to restore and maintain full employment in industry and full business activity. The absurd objection that this monetary policy would interfere with member banks in extending credit as they see fit, has no foundation whatever in the pending Banking Act of 1935. The monetary policy of Congress is one thing the business of lending money by the member banks is another thing entirely. You will note that in the above amendment no particular reference is made to either silver, gold or & specific price level. This in my estimation is correct. International exchange, tariff3>embargoes, bounties, subsidies, the ownership of banks, and other issues must be dealt with wholly upon their own merits. It is, in my opinion, impossible fu/ us to find a common solution for any one or all of these issues in conjunction with the main issue raised in Title II, nomely, the aetermination of our monetary policy. For instance, international exchange agree- ments cannot be legislated by Congress for the obvious reason that Great Britian, France, Germany, Italy, Japan and other nations determine in individual cases onehalf of the international exchange equation. Tariffs, embargoes, bounties, and subsidies must be dealt with subject to the determination of: first, our monetary policy; and second, the international exchtn - 3 - ratios. The ownership of either tho Federal Rasjrva banks or conmorcial banks is not and cannot be made a part of the major problem: national monetary policy. namely, the determination of our Irr»3Spoctivo of who ultimately shall own the banks, i definite answer must be made cj LO ivho shall control the administration of our monetary policy and \vhat that policy shall be. A rise of prices resulting frotii an undue expansion of credit and currency or in excess of that necessary to promote conditions conducive to "full employment end business activity" would be an evidence of inflation. Conversely, a recession of prices accompanied by unemployment or the existence of more than a reasonable amount of unemployment, irrespectivo of any particular .price level, would be an evidence of contr ctiun or deflation. Under my amendment it would definitely be tile intention Rnd mandate of Congress that both inflation and deflation, as I have defined thorn, would be out-lawed; rnd that the Federal Reserve Board would be held strictly accountable for tho ultimate results arising fron the adiainistratiun of our m.moUtry policy under the mandate. In my estimation, the amendment as drawn satisfies the constitutional question which has been riised. At tho same time it avoids any embarrassment or disappoint- ment which might arise from the insertion of a particular price level, duo to the fact that any particular price level might prove to be either too low or boo high. Moreover, it has the merit of fulfilling almost all of the expressed "norms" or levels advocated by conservatives, liberals, and wleft-v/ingers"j in fact it writes into the law what every reasonable person must be willing to concede is just and proper. - 3 -.
@FedFRASER