Full text of Robert Hetzel Oral History Collection : Robert C. Holland Interview, January 6, 1995 : Transcript

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Interview of Robert C. Holland
Conducted by Robert L. Hetzel
January 6, 1995

Robert C. Holland: He was a fine young lawyer. And he came to Washington in the
first instance under the—he was born and raised in Nebraska. In a little tiny town out in the
central part of the state called Broken Bow, Nebraska because they found a broken Indian
bow laying there out on the side of the creek. A little dinky town, right on the edge of the sand
hills and sort of on the edge of the ranch country. So, there was a little bit the ranch and the
cowboy and the western stuff in Robby. But he had a first-class education, did extremely well.
Nebraska at that time, had a famous senator, very independent minded fellow named George
Norris. And he, I don’t know he found out about Robby, probably I would guess from the
faculty of the law school, but Robby met him, I’m not quite sure which one he went to. But
anyway, Norris brought him to Washington under his wing. I believe for a while he even
worked in the office with Senator Norris. Then but soon, he went into the Office of the
Comptroller of the Currency. I think he went into the legal side of that first, then they found
he was also a crackerjack administrator. And he began to rise in the inside the Comptroller of
the Currency because of that administrative ability, every bit as much as because of his legal
mind. And he had some of George Norris’s independent way of thinking. He thought
incisively, he was a well-trained mind. And he said his peace. And by the time 1951 came—
’50 and ’51 came along, he was one of the, I think one of the right arms of the Comptroller of
the Currency. I’m not—I think his title might have been Deputy Comptroller of the Currency
at the time he was appointed to the Board, as a matter of fact. But the Comptroller had found
him a very useful man in that operation. Well, as you remember through the starting in the
late 40s and increasingly through ’50 and ’51, the Board and the administration were having a
knockdown, an increasingly knockdown, drag out fight over the peg.
Robert L. Hetzel:
Yeah, I’ve been fortunate enough to talk to a few people from
that period, and anything else you can add to it let me know.
Robert C. Holland: Well, what I can tell you is that, Robby in his role as a
representative often times with the Comptroller and some of the discussions in so far they
involved him. Was, had some working with Bill Martin, who was then, what was Bill’s title
over at the Treasury Department?
Robert L. Hetzel:




Probably Assistant Secretary.

Robert C. Holland: I think he was Assistant Secretary, may have been Deputy under
Secretary, something like that. Anyway, Martin had occasion to see Robertson in operation in
some of the discussions between the Office of the Treasury and with Comptroller of the
Currency people on various kinds of things. I’m not sure how much of it included the peg
stuff per-se, but I think discussions about sort of how the banking system could stand the
stress of what would happen if that went out. And bank examination generally and banking
structure generally. Martin was impressed with Robertson’s quickness of mind and how he
grasped those issues and how he handled it. Well, Martin of course, was involved in those
negotiations over the peg and gets credit, and I think properly so for being the fellow who
produced the compromising the essential willingness to compromise on the parties that led to
the peg finally getting pulled under that kind of agreement. And then Truman, put Martin in
as Chairman to—I never knew whether that was part of the agreement passably, or that was
just simply what Truman thought was that this a wise position. He had an opening there, Tom
McCabe the President of Scott Paper had only taken that position really out of his concern for
the problem and his sort of concern for the Federal Reserve System as a system. He wasn’t
inclined to be a long time government employee, he had been running Scott Papers, you
know. And he had a first-class economist advising monetary and central banking specialist
advising him from the Fed of Philadelphia, who was part of this, who had helped Tom
perform as well as he did in that whole era. But when Tom stepped down, Truman then had
an opening at the Chairman of the Board level. And he told Martin he wanted him to be
Chairman of the Board.
Robert L. Hetzel:
Philadelphia Fed?

Well, what was the reference to the economist at the

[00:05:02]
Robert C. Holland: I’m just saying, McCabe…
Robert L. Hetzel:

Right he’d been a …

Robert C. Holland: …was much better equipped than the ordinary business leader
to come in and be the Chairman of the Federal Reserve Board. Because when he was on the
Board of Directors and I think…
Robert L. Hetzel:

That’s right.

Robert C. Holland: …was the Chairman of the Board of Directors of the Federal
Reserve Bank.
Robert L. Hetzel:

That’s right.

Robert C. Holland: Of Philadelphia. And the Fed of Philadelphia had this
wonderful monetary economist named Karl Bopp, B-O-P-P.




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Robert L. Hetzel:

Yes.

Robert C. Holland: Yeah.
Robert L. Hetzel:

Yeah, Absolutely.

Robert C. Holland: Yeah, Karl never wrote a lot, so he didn’t get as much credit as
he deserved, but he was just top-notch particularly in that whole era. And along with it had a
personality that made him easy to learn from. And McCabe, when McCabe got pressed to
begin to get in the picture on the resolution of the bank peg and then to go down to the Board
as Chairman of the Board, he realized very heavily on Bopp’s advice. And Bopp’s advice and
Bopp’s separation helped McCabe perform as well as he did during that interval.
Robert L. Hetzel:
Well, it’s interesting, I know Philadelphia has put together some
of this old papers, but I have not had a chance to get up there and look at them, and I certainly
want to do that. Bopp wrote some things in academic journals in the early 30’s. I think he was
a professor at the University of Missouri?
Robert C. Holland: Yes.
Robert L. Hetzel:

For a while? And he had a very good monetary department.

Robert C. Holland: Yeah, yeah, no, that’s right.
Robert L. Hetzel:

At that time.

Robert C. Holland: That’s right. And then for many years he taught central banking
at the Wharton School. And while he was on the—well when he was on the, as part-time, you
know, while he was head of research of the—that’s where I first met him. And he knew how
to continue to learn, he was peach, he was really was. And of course, of the fact that he was
out at Missouri, I think it made him easier for Martin to work, for him to work with Martin
because they both had some Missouri roots. And I think they knew some people in common.
Anyway, all I’m saying is that was a very congenial group basically, that started to work
together to try to work their way out of the peg. McCabe, Martin, Bopp.
Robert L. Hetzel:

Well, Winfield Riefler was the key.

Robert C. Holland: And Win, well, Win provided and awful lot of the academic
strengths to get out. The Win sometimes was a little hard to take at the roundtable. He was so
much smarter than almost anybody else on some of this stuff. But whereas Karl was very easy
to take around the round table.
Robert L. Hetzel:




That’s interesting. What…

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Robert C. Holland: Well anyway, to get on, let’s get to Robertson which is where
you want to get.
Robert L. Hetzel:
Well, okay, but I mean these are interesting things too. In terms
of the personalities, Woodlief Thomas was important too. Did you have a sense of his how
around the roundtable, how he came across as a personality?
Robert C. Holland: Well, Woody was not, neither Woody or Win, were let’s say
were negotiating compromises was not the strong suit for either one of them.
Robert L. Hetzel:

Yeah, that’s good. I was—I kind of figured that was the case.

Robert C. Holland: They were both first-class economists in their own right
[00:07:56] they were guys you could intellectually you could admire to beat the band. And
you could like them, but once you understood their respective personalities. I thought they
were both terrific. But Woody was a little brusque.
Robert L. Hetzel:

Yeah.

Robert C. Holland: Yeah. And Win had this wonderful, brilliant quick mind, so that
he could cut through and move and say things in ways that. But like some of those people,
with all that kind of capabilities, they don’t always suffer fools gladly. And there were some
people involved in those negotiations who weren’t nearly as well equipped in economics to
understand what was going on and the relative meaning of forces and the strength of them on
the one hand. And for whom the politics and even the turf was important, and that wasn’t stuff
that thrilled Win, you see. I mean, he could be a little patrition in the way he dealt with
comments that were concerned with those kind of considerations. Karl, on the other hand,
who had an easy way about him. The way he won arguments was not by trying to knock the
legs out from the other guy, on the other end of the table, or to point out what a fool he was.
But to say, well, now look, this, what you’re saying here ties into this here and so forth and
look and see. Karl was very good at that kind of thing.
Robert L. Hetzel:
Okay, I’m glad you told me that, because I’ve talked, I was
fortunate enough to talk to some people from the New York desk at that time, and there was a
lot of, what should I say, well, animosity. There was a lot of tension between the Board staff
and the New York staff before the accord, and right after the accord. And what you just told
me helps explain…
Robert C. Holland: Yeah, yeah, the.
Robert L. Hetzel:

…some of it given the personalities involved, I can see…

Robert C. Holland: I think the personalities contributed to that tension as much as
the intellectual—the differences in intellectual view.




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[00:10:06]
Robert L. Hetzel:
Well I can—I mean the people I talked to were traders and they
had a different kind of way of looking at things in the people of the Board and.
Robert C. Holland: Yeah.
Robert L. Hetzel:
As I say, there was a lot, I don’t know, misunderstanding or
whatever, but. I can understand now better…
Robert C. Holland: Well, there were really three views here. To place it in its, this
is going to be broad and a little simplistic Bob, but there was…
Robert L. Hetzel:

Sure.

Robert C. Holland: …there’s the traders view of the market, in which New York
really had some superb people.
Robert L. Hetzel:

Yeah.

Robert C. Holland: There was the economist view of the market in the marketplace.
Both which tended to be longer term than the New York view.
Robert L. Hetzel:

Yeah.

Robert C. Holland: And that’s really where I would say the Board staff excelled.
And then there were what for—the kind term I can think of it, is sort of the political science
view. Which not that it had no economics in it, but which had to consider the political
ramifications of every action. The other commitments the administration had, what they
thought the public would stand for and that’s it’s, you know, how soon is the next election.
And that was the Treasury’s—not only the Treasury, but also the White House. And I forgot
who was Truman’s advisor at that time, but he was strong, was it Keyserling?
Robert L. Hetzel:

Yes.

Robert C. Holland: Yeah. That…
Robert L. Hetzel:

Yeah, he was no friend of markets.

Robert C. Holland: No, no, that’s right. And he had another view on, you know, as
you say, no friend of markets, that’s a good way to put it. So, it wasn’t that Keyserling was
political so much as he was no friend of markets. And then there were some political people
in the White House, and to some extent, the Treasury people had to be political.
Robert L. Hetzel:




Sure.

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Robert C. Holland: To some degree. And those are the mixtures that were
makingup the peg. Well anyway, Bill Martin handled himself all through that whole episode
with all those four different points of view and all the rest with just superb skill. He had his
roots in the market and he understood the market well. But he wasn’t an economist, he wasn’t
a professional trader quite, although he done trades. But I believe that’s right, but he
understood the markets. He appreciated the wisdom that the market forces represented. He
was also was a superb negotiator and helping people along, keeping them from fighting,
calming them down, that kind of thing, and so forth. So, when the peg was finally decided, he
deserves much the credit for bringing that off. In terms of getting the personalities to standstill
for, then to appreciate why they should. And then he was a logical choice for the Chairman
when Tom McCabe stepped down. He came from Missouri, he had roots in Missouri which
suited President Truman. And he handled this peg well, and he was a Democrat, and so he got
that job. Well, Truman offered it to him, and he said, “Mr. President, I understand markets,
but I’m no expert on the banking system.” And that banking system, part of the Federal
Reserve responsibilities was important to them. And he finally said, I’m not quite sure
whether he made it a condition, probably he didn’t, and he wasn’t that kind of guy who would
have given a condition in that circumstance. But he said, if—so, I don’t know quite how he
put it, but it ended up being and he was like, “But I have Louie Robertson on the Board, go on
the Board with me to be the person who looks over the banking side, the bank examination
bank regulation side. While, I worry about the monetary side.” And Truman said, “Yes.” And
that’s how it happened, Louie came at Martin’s own request because he wanted that kind of
strength, knowhow and integrity on the bank examination, bank regulation side covered. And
he didn’t want—I don’t know that was he didn’t want to take that on himself, he felt he would
have a big enough job dealing with just the monetary side. And he didn’t want to have to
worry about it and he concluded not only was Robertson a smart guy who made sense time
and again in those discussions within the Treasury and the Comptroller of the Currency about
banking matters. But he was also a guy of real integrity and Martin felt somebody he could
trust, implicitly with that side of the business. And Martin was a good judge of people, and
when Robertson got over there, Martin found out that all of that was true. Robertson was
everything Martin had thought he would be, I think in that spot.
[00:15:03]
Robert L. Hetzel:
Robertson, I guess somebody I heard describe him as bulldog,
he spoke with a lot of self-confidence, a lot of authority. He was sure of himself when he
spoke, is that a good way to put it?
Robert C. Holland: Yes. But I think that doesn’t do justice to him. I put it this way,
he didn’t speak until he was sure of himself, and that’s a little different.
Robert L. Hetzel:

Yeah.

Robert C. Holland: I know because many times I had been called into his office and
he’d say, “Well, now what about this thing, this issue, the pros/cons.” And he’d often times




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ask me to do some digging or have somebody else do some digging, or look at some things
and so forth. Weigh it around back and forth back in his mind. And four days later when it
came up on the Board agenda, he would speak decisively about what he thought was the right
way to approach that problem and the right decision to make about it. And people around the
table would think, boy, there’s a man with a, you know. Robertson never in doubt, well he,
you know, he did his homework when he wasn’t sure about something. And, but he also was
not afraid to make up his mind, he was decisive, he was also not afraid to be independent.
And he sometimes voted differently from the rest of the Board, sometimes even differently
from the Chairman. He felt that independent responsibility of that role as a Governor very
strongly. And he was, I’d say, well, that’s enough said, I.
Robert L. Hetzel:
Well, no, this is interesting, that I know in once case in
particular where he dissented. Martin, in 1961 wanted the FOMC to become involved in
sterilized foreign exchange intervention.
Robert C. Holland: Yes.
Robert L. Hetzel:
And that was a responsibility that Congress had given to the
Exchange Stabilization Fund. Right or wrong, Carter Glass thought that the New York Fed
was behaving too much like a central bank and wanted to get the Fed out of that. And
Robertson felt like the Fed should not get back into that, unless Congress explicitly authorized
it.
Robert C. Holland: Yeah.
Robert L. Hetzel:
And he did dissent over that issue, and I’m sure that was a
major, you know, that was a major issue within the FOMC because it was something Martin
had, you know, basically…
Robert C. Holland: Well, that was one of those occasions. I mean, Robby was the
far out man on that. It was an issue that needed, that got considerable discussion at the Board
and back and forth between the Board and the Reserve Banks and the Treasury and so forth.
Martin was his sense of markets and his sense of the value of coordinated movements in
markets. Well timed with other central banks overseas, as well as well-timed between the Fed
and the Treasury. In sense that makes it—would make a big difference for the better if it was
well coordinated, and would be a real subtraction in market impact if it was uncoordinated.
Felt that it made good sense to get it coordinated. And that was sort of the market side of
Martin, and I think he was right, in that. Robertson felt that the law from the constitution and
the laws that had been passed and so forth, made it clear that that authority was with the
Treasury. Robby was never, I don’t want to say a lover of the New York Bank, he never had a
sense that just because they said it was so. He worried about the Fed getting too many things
on its—the Board getting, well the Fed, not the Board, getting too many things on its plate
and not keeping its eye clearly focused enough on its main jobs.




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Robert L. Hetzel:
I think that sounds right. And he was also concerned that this
was an issue—foreign exchange intervention ultimately involved foreign policy and that the
Treasury would be the dominant player and he was concerned that the Fed couldn’t be an
independent player and…
Robert C. Holland: And he was right.
Robert L. Hetzel:

Yeah, he was right.

[00:19:39]
Robert C. Holland: He was right. And to that, to Martin’s credit, Martin realized too
that the Fed would probably always be subordinate to the Treasury and that kind of thing. He
was willing to incur that subordination, or put up with it because he thought he saw the
additional value in terms of ability, the timely and effective operation in the marketplace. At a
time when he could see better than some, that that exchange market was going to need more
and more attention or American was going to have some serious problems out in the future. I
mean, Bill was really early in that appreciation of the need for more attention to what the
foreign exchange market was saying and doing. And I mean, what his movements meant for
the rest of the country, and for the larger economic picture.
Robert L. Hetzel:
Of course the, I think his most cogent statement on that is June
1965, he gave a speech at Columbia University that caused the stock market some difficulties.
But the main gist of that, was that if the United States didn’t restrain its expansion at some
point it could threaten the gold standard. So, he must have, well, it was obviously something
he thought.
Robert C. Holland: He thought long and hard about it. He made the staff work long
and hard on that kind of—on the analysis and the implications. He felt it was
underappreciated and that it was absolutely. That as a public servant in the position he was in,
he was obliged to speak out on that publically because he felt that by speaking out only inside,
that news wouldn’t get to all the places that needed to get to in order for things to get
changed. That was really the conscious of Bill Martin, as central banker, saying something to
the country and that he felt was a critical importance to its long range financial future. And
frankly, he hadn’t been able to persuade everybody in the administration at Congress of that
fact. So, it was—if he would have been able to persuade them internally, I’m not sure he
would have gone public. He’s not the kind of guy who loves to give big splashy speeches.
Robert L. Hetzel:
Well, up until the end of ’64, the Fed had been able to raise
interest rates in response to balance of payments problems, but the environment was really
changing in early’65 and Martin was the first one to sense that if you couldn’t respond to the
international situation, you know, you could lose the Bretton Woods system.
Robert C. Holland: Yes, no, no, no, he was very perceptive on that. He had some
advisors who were also superb and early to pick that up. People like, well let’s see, I think




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Win Riefler probably deserves to get some of the credit early, from some of the earlier
warnings of that.
Robert L. Hetzel:

Yeah , I think Riefler probably left in 1960?

Robert L. Hetzel:
Yeah, but see Riefler was a thinker ahead. He really was, so that
he would have planted some of these. He would have, in Martin’s mind I think, done some
preparatory observation because Riefler’s mind just ran that kind of way. Arthur Margets
came along well, was running the international division at the time, he saw this thing
increasingly well. Ralph Young was coming along behind Arthur, he saw it.
Robert L. Hetzel:

Yeah, I talked to him.

Robert C. Holland: Rob Solomon, well, you know, then the litany goes on of the
staff, the international staff at the Board, I think, were I don’t want say banging away at
Martin, because they were too respectful to A, bang away. But they would repeatedly talk to
Martin about these hazards, and he would talk to them about those hazards.
Robert L. Hetzel:

Tell me about Ralph Young, how long did he stay at the Board?

Robert C. Holland: Oh, gosh. When he left in ’66, he…
Robert L. Hetzel:

Okay.

Robert C. Holland: …was there when I came in.
Robert L. Hetzel:

Okay, that’s what I need to know. No, he’s…

Robert C. Holland: Sixty-one, and he had been there for quite a while. He ran the
domestic research division for a while.
Robert L. Hetzel:

Okay.

Robert C. Holland: Then in—then he moved over to Win’s place, and then to head
of international, it must have been about around 1960, maybe a little before.
Robert L. Hetzel:
me. Just…

Okay, I’m interested in that because he’s more of a cipher to

Robert C. Holland: He ran the domestic research division for a number of years
before that. And I think before that, he was part of the National Bureau.
Robert L. Hetzel:

Yeah, he…

Robert C. Holland: And probably on some faculty someplace, yeah.




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Robert L. Hetzel:
I mean, the only impression I can get from him for minutes is
that he was a very capable administrator. I mean, he was he was obviously trusted. Martin
would send him to the BIS whenever he needed to negotiate, but I never been able to get a
sense of him in the way one can with Riefler in terms of kind of how he looked at the world
and, you know, as an economist as opposed to a capable administrator.
[00:24:58]
Robert C. Holland: Well, and when kids my age were coming along, those of us
who were, you know, just that were down a notch and some of us down a couple of notches,
really, down two or three notches, I guess at the time when I went to Washington. The Dan
Brill’s, Bob Solomon’s and I, guys like me, really looked up to Ralph and Woody and Win.
We thought those were three powerful guys. Not that we sometimes didn’t disagree with
them, I mean, we’d argue with them and they would let us argue.
Robert L. Hetzel:

Yeah.

Robert C. Holland: But we thought they were really something, as people was not
only first-class economic minds, although each with their own specialty.
Robert L. Hetzel:

Yeah.

Robert C. Holland: But in addition broad. Now, Ralph did a number of fine things
for the Board. But one of his finest, was he organized that whole research operation into a
more effective and functional organization. He looked ahead and well, first he organized,
secondly, he was a bear or good statistics, and the Fed was responsible for a lot of statistics
and there were a lot of ways they could have been better than they were. And he imposed a
real statistical discipline, and the kind discipline thinking on the Board. Not that it was so
sloppy before, but just he raised it to a level of intellectual and rigor that was really
something. And you knew that Ralph really cared about those data, you know, if the sixth
digit was off, it bothered him, you know. And in addition, Ralph was very foresighted I think,
and thinking both of in what directions the economy was evolving, and in what directions the
science of statistics and of quantitative measurement of economic variables was moving. He
was in touch really with some of the people who were at the frontiers of theory, on both those
areas. He was very—he had a lot of contacts that came from his National Bureau days, he
made great use of them. He was really in touch with people who were on the forefront,
intellectually of the advancement in both and those various areas. That is the understanding of
direction of which the whole economic system of the country and the lesser extent the world
was evolving. The sense of what it would be important to try to understand or to measure and
then the sense of what measurement techniques could be seized upon that were coming along
that could be made use of and so forth. And all of that, he was really a driver and pushing all
that through the Fed staff, and he brought plenty of outside --he stepped up immensely, the
tradition, but well he made it a tradition really, of reaching out and bringing in outside expert,
academic expertise on various parts, or on various questions. Either hire as a consultant or
bringing him for a time, or bringing them in as a consultant group to meet with occasionally




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and so forth. All of that added to the intellectual rigor and the intellectual stimulation of
working at the Board. Then he also was very good at sort of seeing how these things fitted
together in terms of what had been called for the Board to do in the way of expanding,
revising, reforming and most of all expanding its own data collection efforts, the whole flow
of funds statistical system. Ralph was an early nurturer of, and he kept it and carried it all the
way through and so forth and that kind of thing. And that was a wonderful addition. I mean it
took us, gee, it took us more than 10 years even to understand what some of those numbers
meant and what their interrelations meant, and what was the trend, and wasn’t in those
doggone flow of fund numbers because a lot of them had to be guesses for years until we
could get data collection to fill in the holes in that flow of fund structure. But Ralph had the
vision that a comprehensive flow of fund statement, even though a lot of the cells in there
were yet empty because there weren’t measurement techniques for it, but they weren’t
reporting systems for it. But that would be an important additional understand of the—
addition to understanding of the financial system of the United States. And he would then
push to get reporting series developed in this and that and the other area in order to begin to
provide more quantitative input to fill in the boxes in this flow of matrix. And he pushed for
it, he pushed from the Bureau, he pushed on this, he pushed on data collectors and so forth.
He saw that whole vision. And also, he was a good economist in terms of understanding
domestic, and he learned enough in the international side to be very useful there too. And he
was very trustworthy. He was the soul of discretion, and I’m sure that’s one of the important
reasons that made him, made Martin feel comfortable to use him in various places, because he
knew Ralph would be discreet. And would be careful in what he said, would not say things
that shouldn’t get said, would not be flip, and or hot tempered and so forth. Ralph was very
controlled in the way he handled himself and so forth, and he was a very good servant for
Martin in those years.
[00:30:32]
Robert L. Hetzel:
Much of what you said made me think of Woody Thomas in
terms of the interest in statistics and numbers. What was the difference between Thomas and
Young in that respect?
Robert C. Holland: Well, Woody had more interest on in the banking system per-se,
and in the financial markets per-se. Ralph was more trained in the national economy, although
he, I mean, and that kind of thing. And each of them had knowledge that spread over into the
other’s territory, it wasn’t that they had compartments that they couldn’t where each was to
them self. But that’s essentially the way it worked out.
Robert L. Hetzel:
So, but didn’t—wasn’t Thomas, didn’t he more commonly
summarize the statistics for the FOMC in the 50s before they had the same kind of broad
availability of data that they developed in the 60s?




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Robert C. Holland: My recollection is he would summarize the financial, oh, no,
wait a minute, I got to come back. Yeah, I suppose that’s true, in fact, I think that part of that
step, wasn’t Ralph, Woody’s Deputy?
Robert L. Hetzel:

Yeah.

Robert C. Holland: Yeah. And Ralph was, because he was sole of discretion, he
wouldn’t step on Woody’s toes.
Robert L. Hetzel:

I got it, so, yeah. That makes sense.

Robert C. Holland: Then.
Robert L. Hetzel:
Thomas.

So, he must have been writing a lot of the statements for Woody

Robert C. Holland: I would think so. And they got—these guys, the three of them,
Riefler, Thomas and Young got along very well together. They each appreciated what the
other had to contribute and the overlaps between what they said and thought and so forth.
Never, so far as I know, I never saw any sign that it led to any serious frictions or anything
else, or any turf battles between them and so forth. I remember when the next round after that,
well it wasn’t exactly the next, but it turned out sort of and it was when Bob Solomon became
head of the international division and then Reel became head of the domestic research
division, and I became head of the market operation, at the Board end. I mean, the manager
was in New York, but I handled the money market end of the, what was Secretary of the
Board. I was Secretary of the old market—I succeeded Ralph as Secretary of the old market
committee. And I did that about ’65, I think. And as the three of us came along, some people
nickname, us the second Troika. The first Troika was Woody, Win and Ralph and I know as
Dan and Bob and I came along, we really admired Win and Woody and Ralph and how they
got along and how they worked. And we aspired to work together as well as those three did.
And we did, it turned out the three of us got along very well together too, and boy that made a
big difference because if you get—within the way that that staff was working at that time,
trying to defend particular turf lines would have been trouble, it would have been difficult,
and would have generated a fair amount of friction. And I saw no sign of that between Win
and Ralph and Woody at all.
Robert L. Hetzel:
So, as long as we’re on this, go ahead and tell me about your
responsibilities as far as communicating with the desk in New York. So, you would sit in on
FOMC meeting and in addition to writing FOMC meetings, and in addition to writing the
minutes, then you’d have the responsibility for sitting in on the morning call and
communicating with the desk to make sure that the?
Robert C. Holland: Well, be a little careful with the—I was Secretary of the Federal
Open Market Committee.




- 12 -

Robert L. Hetzel:

Right.

Robert C. Holland: But I always had an assistant who actually drafted the minutes.
And that’s the way that office had been served for—had been discharged for several years. I
mean, it was under Ralph, I think Merrett wrote the minutes under Ralph when Merrett was
Secretary, well no, no, that was Board minutes that Merrett was. A fellow named Ken
Kenyon, underneath Merrett wrote the Board minutes, drafted the Board minutes when
Merrett was Secretary of the Board. I eventually had both of those jobs, but under the FOMC
is the one you’re interested in because you’re interested in monetary policy.
[00:35:17]
Robert L. Hetzel:
Well, I’m kind of interested in both in sense that I’ve never seen
any Board minutes, but there must be discussions of discount rate changes that…
Robert C. Holland: Yeah.
Robert L. Hetzel:
available at the Board?

…relevant for the record. I don’t know, I assume those are still

Robert C. Holland: Yeah, we published a policy—an announcement of policy in the
back of the Board’s annual report. Yeah, they’re there.
Robert L. Hetzel:
But I assume the Board minutes themselves would be available
in the archives, discussions of discount rate changes and that kind of thing?
Robert C. Holland: I think so. They surely must be under the Freedom of
Information Act now. Yeah, they were never the focus of outside inquiry the way the FOMC
minutes were. But yeah, they are subject to the same legal requirements and in that respect.
The no, when Ralph was Secretary and then when I was Secretary, we both handled it the
same way. We treated the job as Secretary of the FOMC as an executive job, not as a
administrative or recording job.
Robert L. Hetzel:

Sure.

Robert C. Holland: And that’s the way the Board wanted it. And that’s the way the
FOMC wanted it.
Robert L. Hetzel:

Sure.

Robert C. Holland: Chairman wanted it. So.
Robert L. Hetzel:
Well, the minutes wouldn’t have made any sense if somebody
hadn’t gone through and written them so that they were, you know, you could…




- 13 -

Robert C. Holland: Well no, what happened was, and it was someway under both of
us in affect. We had an assistant secretary, it was an official Board title, assistant secretary of
the Board who would be the one who would draft the minutes. And then Ralph or I,
whichever one was Secretary of FOMC, would sit down, read them all over, look at them,
check them against their own notes and our own recollections and that kind of score. And then
we, well, there was a time when we I think we always gave them to the Chairman’s office a
day before we distributed them, in case the Chairman had any comments or questions to raise.
But I can never remember any Chairman I served, ever making any change in a set of FOMC
minutes I sent them. So, in terms of responsibility for oversight, yes. And I remember often
times I would write a section or so, rewrite one that I thought didn’t quite capture the essence
of the discussion right. That was my responsibility for the minutes. The…
Robert L. Hetzel:

Who was your assistant?

Robert C. Holland: Well, it varied. For a while it was Kenneth Kenyon, then it
was—then it became Arthur Broida, who was a first-class economist, very careful with
numbers and so forth. And Broida was stepped out of his role. In fact, it was even after I was
gone. That’s one set of that function, the second set of the function, I’m going to get around to
the daily call, but you’ll understand what I’m afterwards while…
Robert L. Hetzel:

Oh, sure, sure.

Robert C. Holland: …I’m telling this. The second function of the Secretary, at least
when while Ralph and I were doing the job and Win did it this way before. Win’s title, Win’s
most powerful title was Secretary of the FOMC when he was there too. Then he became,
when he was getting ready to step down and became just advisor to the Chairman. But our
second responsibility was to help develop the money market specifications for the money
market operations. And the, well, I got to try to remember here. When we developed
something as formal as the Blue Book.
Robert L. Hetzel:

In 1970, I think.

Robert C. Holland: You know what, the Blue Book is?
Robert L. Hetzel:

Oh, sure.

Robert C. Holland: Oh, okay, all right, well.
Robert L. Hetzel:

Oh, yeah, sure.

Robert C. Holland: Well, all right, before there was a Blue Book, there was still a
memo that went first just to the Chairman and then to the Chairman and the Presidents, and all
the other members of the Board and so forth.
Robert L. Hetzel:




Yeah.

- 14 -

[00:39:42]
Robert C. Holland: On the status of, well the description of the status of the money
market, was produced by the Fed of New York. Although, if we had a little different feeling,
we might talk to the Fed of New York about that kind of thing and in my days, that was
always whatever comments I made were always well received. I never tried to do anything
that would interfere with the judgment, I would try to help them. I would try to sometimes
point something out I thought they needed to pay a little more attention to. They write the
status of the open market committee. We at the Board would try to develop a sense of what
kinds of money and credit conditions might flow from alternative inputs of reserves or
extractions of reserves. And what that in turn might do to the bill rate and later, and the funds
rate and that kind of thing and so forth.
Robert L. Hetzel:
Yeah, I think I misspoke. I think the Blue Book itself started in
’65, but I think that listing of alternatives, A, B, C, where you had kind of menu of different.
Robert C. Holland: Yeah, Dan and I started that way back in the early 1960s. In
fact, I think Ralph was still in the Chair when we brought up this idea to him.
Robert L. Hetzel:

So, that was you and Dan Brill that started that?

Robert C. Holland: Well, yeah, it’s hard for me to, I don’t pull all that together. I
remember working, trying to generate the idea of serving up alternative options to the FOMC
that were internally consistent in terms of their economic and financial constraints and
implications, and projections. Dan and I were both concerned about disciplining the estimates
of what was going—projections of what might happen. Or thoughts or discussions about what
might happen if the Fed this or did that and so forth. About distilling them with internally
consistent assumptions and projections so that they would be more rigorous in their
estimation. And we could also look back and be a little clearer afterwards as to way we
missed if we missed and so on, that kind of thing. And my recollection, is that first it started
out first in informal memos to Ralph and to Jack Norris. And then it got, well I don’t quite
remember how it grew step—gradually, it went from that to it went to the Chairman. Then it
began to weave it into our Friday morning briefing and appropriations for the open market
committee meeting, which then was I recall about every.
Robert L. Hetzel:

Three weeks.

Robert C. Holland: Three weeks, yeah.
Robert L. Hetzel:

Yeah, a lot of work.

Robert C. Holland: Yeah, well that’s right. Well, we want his confidence, frankly is
what we would could project, so we had to meet more often to find out what happened, you
know. The whole technique of projections was not that far along then at that time.




- 15 -

Robert L. Hetzel:
So, I suppose you were associating free reserves targets with the
Treasury bill rate at that time?
Robert C. Holland: Yes. Let’s see, and…
Robert L. Hetzel:

Did you get.

Robert C. Holland: …when the funds rate came in and then gradually the
aggregates, the other aggregates began to appear, the sort of the intermediate and all the
aggregates began to appear. But that came later, and the flow of funds accounts helped us on
that score, helped give us courage to estimate some of those things. The flow of funds matrix
wasn’t old enough and firm enough to then generate projections. But at least gave us
confidence to stick our neck out a bit on some of those projections to the aggregates. And
then that eventually ripened in due course to the, yeah, the. Well so, the job of the Secretary
of the market committee, got to be producing the ABC with help from the staff. And there
was a staff interaction there that went back and forth. The research staff would—well, we
worked very closely together, it just worked out that way, you know. And by the time I came
along into that position of authority, about that time the Fed of New York was getting a new
open market account manager. And Alan Holmes, well, let’s see, Bob Roosa came in and out
of there.
Robert L. Hetzel:

Bob Stone preceded Alan Holmes.

Robert C. Holland: Yeah. But Stone succeeded Rouse. And Bob Rouse was a little
less receptive to this whole approach or to the input from the Board. Bob Stone was…
Robert L. Hetzel:
I’ve gotten a lot of comments about Rouse’s personality. You
can add anything you want to and it won’t…
Robert C. Holland: No, well, I really respected Bob Rouse. It was just that he was
almost icy in the way he handled issues and things. And that turned a lot of people off.
Robert L. Hetzel:
Most people knew he was kind of rigid and, you know, not
willing to compromise, you know, kind of…
Robert C. Holland: Well, no, well that’s right.
Robert L. Hetzel:

…listen to other people.

Robert C. Holland: But it was he was a little bit like Robby, he thought he was
right. But the…
Robert L. Hetzel:
Yeah, but there’s a difference. I mean, in what people have told
me, Rouse didn’t have nearly the background that…




- 16 -

Robert C. Holland: He didn’t have economic background as Stone or of Holmes.
Robert L. Hetzel:

Yeah.

Robert C. Holland: But Rouse had a market field. He, you know, that and some of
that you’re born with not made. Rouse, had a good feeling in the market place and the
personality is on the other side of the transactions. That was I’d say his strong suit. But I feel,
see I feel differently about Rouse than some people. When I first got started, at the Fed of
Chicago, I don’t think the Fed out there had had a real money market economist. And that’s
what they hired me to be. I was going to be their junior economist and the people who would
watch over the money market for them. And the research guy out there and the president of
the bank, God bless them. After I had been there long enough to get my feet wet, the president
of the bank arranged first for me to start for about six months, he arranged for me to go over
every morning to across the street to the Continental Illinois, which then was the biggest bank
in Chicago, and had the sharpest money market people. Including a guy they had hired from
the Board staff. And it was run by Dave Kennedy, who later became Secretary of the
Treasury. No, it was a top-notch group over there. And Hap Young, the President of the Fed
of Chicago, arranged, but then he said he talked to their guy in charge of the whole thing and
their Chairman and he said, and what they agreed to do, is I could come over and I’d sit right
in on all their meetings, no secrets. In terms of their daily money market meeting, how they
read the market, who they talked to, I could listen in on the telephone conversations. I could
watch them make their own decisions and so forth. It was…
[00:47:05]

[END TAPE 85, SIDE B]
[START TAPE 86, SIDE A]

[00:47:08]
Robert Holland: Hap arranged for me to come up to New York and sit in on the
trading desk under Rouse. I don’t mean directly under Rouse - there was quite a hierarchy
there - but to just sit in for a while and learn what goes on in that New York manager’s desk
for market operations. And the New York people were very glad to have me come, I must say,
partly - can I say this?
Robert Hetzel: Yeah.
Robert Holland: Partly because I think they thought they could educate this
outlander and educate the Federal Reserve Bank of Chicago, which they thought sometimes




- 17 -

was a little too insular in its thinking and its voting in the FOMC meetings. So they welcomed
the chance to help add some understanding and sophistication to this young buck that had
been added in the staff out there, and was now‒ I was writing this stuff for the money market
side of the president before he went into FOMC meetings and so forth. The president of the
bank, that is. So I spent - how long was I in New York? At least three months, I think. Rouse
was very kind to me, in his curt, icy way. He really saw it would be helpful to the system and
to the Fed of New York if a guy like me could understand more about how that operation
really worked, and could carry that back to the Fed of Chicago. And he just couldn’t have
been nicer. Not friendly, but what he allowed me to learn, what he helped me learn, was really
something.
Robert Hetzel: So what year was that?
Robert Holland: Ooh, let’s see. ’59 and ’60, I guess. Probably ’60 was when it was.
No, no, no, no, that’s too late. That’s too late. ’49? No, it would’ve been ’52 or ’53 that I was
in New York. Anyway, I tell you all of this because it affects my appraisal of Rouse. I’d say it
didn’t bias me. It made me appreciate that was a very savvy guy, who had know-how, and
knew where it belonged. Not that he was easy to get along with or anything else, but I had
quite a great deal of respect for his savvy, and I watched it work and pay off day after day in
the marketplace up there.
Robert Hetzel: So you were there when Sproul was still president?
Robert Holland: Yeah.
Robert Hetzel: Oh, I didn’t realize that.
Robert Holland: Yeah. Well, I got acquainted with‒ It was kind of serendipitous.
Just a couple of years after I went to the Fed of Chicago, Hap Young became Chairman of the
Presidents’ Conference. You know what the Presidents’ Conference is? You do, don’t you?
Robert Hetzel: Sure. Oh, sure.
Robert Holland: Yeah, all right, well, Hap became Chairman of the Presidents’
Conference, and the tradition was that the secretary for the Presidents’ Conference who made
the arrangements and wrote up the notes and so forth would come from whatever bank the
president was from. And so Hap asked me to be the secretary of the Presidents’ Conference.
Well, I think I was the youngest guy that had ever been secretary of the Presidents’
Conference, and the probably the lowest titled one at the time too. But the guy I succeeded, a
fellow named Aubrey Heflin, who was the general counsel of the Fed in Richmond, was very
kind to me in training me and getting me ready. So I spent, gee‒ I think I had that job for,
golly six, seven‒ No, I had the job for Hap, and then people liked how I did it so well, that I
stayed on for some years. So I had that job for several years, and in the process I got well
acquainted with all the presidents, including Sproul. And that was helpful to me. And it meant
when Hap asked if I could come to New York, it was easy for Allan Sproul to say yes. I




- 18 -

wasn’t a nobody to him. He knew‒ he’d seen me function. And so things just sort of fit
together serendipitously I think.
Robert Hetzel: When you were there, did you get a sense of what the major
differences were between Sproul and the Board in terms of‒
Robert Holland: Oh, yeah.
Robert Hetzel: ‒how the desk should be operated. I mean, there were two kinds of
issues: there was one issue of who was going to have oversight of the New York desk, and
then there was the issue of how it was going to be run ‒ either through tone and feel or
through the kind of more quantitative‒
Robert Holland: The kind of stuff Win developed, yeah.
Robert Hetzel: Yeah, right. It was kind of Riefler‒ Did Rouse and Sproul think just
exactly the same way in these things, do you know?
[00:52:07]
Robert Holland: To the extent I understood that situation, I’d say yes. I think‒ and I
expect they each learned from the other, because Sproul was way too smart to just believe
whatever Rouse said. But he was also smart enough to know that Rouse knew an awful lot
about that market. And I never saw any important difference of view between Rouse and
Sproul. Now they were both sophisticated enough, and could be impassive enough when they
wanted to be, so there might have been some that I didn’t know about, but either there or
when they came down to the Open Market Committee meeting, I didn’t see any display of it.
And I was going to the Open Market Committee meeting sometimes even while I was still at
the Fed of Chicago, so I saw them off and on, a number of different places for quite a while.
Robert Hetzel: And apart from the issues of governance and where decisions were
going to be made, the major philosophical difference between New York and the Board was
that New York wanted to exert more control over the entire yield curve, over the entire
structure. They wanted to influence long-term and short-term‒
Robert Holland: Well, no. In the first place, if I can back you up a bit Bob, I think
it’s, when you say, ‘apart from the concern about governance,’ it’s very hard to separate those
two. I think that was very important to both Sproul and Rouse.
Robert Hetzel: Sure.
Robert Holland: They felt the Board was being too restricting, or restrictive, in what
it was asking. I mean, they felt the Board and the Board staff were nibbling around the edges
on what was properly the responsibility of the New York desk, and they consistently thought
there were sort of tiny little tug-of-wars going on around the edges, with the Board trying to




- 19 -

nibble away at some of their prerogatives and their responsibilities, and some things in which
they were accountable, and back to the FOMC, not just to the Board. And so the fact that
when the Board staff niggled them and pushed them like the Dick Youngdahls, who was a
little undiplomatic in the way he handled that kind of stuff. And Dick was a young tiger at that
time, as you know, underneath‒
Robert Hetzel: Yes, I’ve talked to him and Ralph Leach.
Robert Holland: Yeah, well, those are two good people to talk to for some of the
color and feel of that time. That was very important in Sproul’s and Rouse’s mind, and I
think, frankly, that probably was in the back of their mind, and to some extent may have
conditioned stands they took on other things as well. But if you ask me what, in terms of
operations, the practicalities of operations, the biggest argument, I would say, the most
important argument was over tone and feel versus first it was free reserves, and later it came
to be, you know, the reserve totals and the aggregates more generally and so forth. That tone
and feel was very strongly defended and very jealously guarded by the New York
management, Sproul down through Rouse and successors too. And the idea that they could do
something out along the yield curve is really almost a corollary to operating on tone and feel.
You see, if you feel like you can understand the tone and the feel of the market, and where it’s
going and what it’s saying, it gives you more confidence that you can work along that yield
curve on the basis of the knowledge you have of why that yield curve is where it is, relative to
where you would like it to be, and how the market would feel if the yield curve was somewhat
different, see?
Robert Hetzel: Yeah. You also put the relationship between the two issues very well.
I hadn’t quite thought of it that way, but if you have a quantitative target - free reserves - then,
well, it’s simple to articulate that from Washington and give it to New York.
Robert Holland: Right.
Robert Hetzel: If your approach is tone and feel, then you know, it’s got to be done in
New York by people who are there on the market.
Robert Holland: Right.
Robert Hetzel: So I see what you mean. There’s no way to separate the two‒
Robert Holland: That’s right. And also it deals with the yield curve and the market
intervention kind of thing. If you believe in free reserves, you have intrinsically a kind of
sense, and then the market will put the yield curve where it ought to be for that supply of free
reserves. And also, there was an undertone along here, was, in effect, a free reserve target is
something to which you could hold the money market manager in New York more to account.
[00:57:15]




- 20 -

Robert Hetzel: Yeah.
Robert Holland: I mean, he was supposed to hit that $350 or $500 or $750 million
free reserves. And you could see after three weeks and he came back, whether or not he
achieved what the committee had wanted him to achieve. When you’re doing it tone and feel,
that’s a touchy-feely, you know, and the FOMC can’t ask for things in such a precise way,
and it can’t hold the manager accountable if things didn’t turn out the way the FOMC wanted,
because there isn’t something to point to, see?
Robert Hetzel: Oh, sure.
Robert Holland: Yeah. Now one of the consequences of this, down the line, was the
daily money market call. And I don’t know which and what came first, and how this all
evolved, because this all happened before I got there, so by that time‒ In fact, it was
happening while I was still in Chicago. That is, somebody somewhere came up with this idea
of a daily open market call, which would have on that call a representative of the desk usually the manager in New York. At first I think the Chairman himself sat in some, but my
guess is before long it got to be a sort of representative of the Board. By the time I got there it
was Woody. It may have been Win at some earlier stage. And any governor who wanted
could drop in on that kind of thing. And then also a rotating one of the five voting presidents.
And that call went on every morning. And that was a‒
Robert Hetzel: Still does.
Robert Holland: That’s right. It still does, and so forth. And that was, in effect, a
way of keeping everybody informed about what was happening. The guy in the Board chair‒ I
know Woody felt that way. I felt that way. You always felt accountable to the committee and
to the Chairman, both. If something’s happening in New York‒ and then we’d sit down right
away, once the call was over, we’d write out a written report that would go to every member
of the Board. And as I recall, we also‒ Did we send that to the Reserve Bank presidents? I
think we did.
Robert Hetzel: Yeah, anyways, it certainly was, for a long time, it has gone‒
Robert Holland: Beg your pardon?
Robert Hetzel: For a long time it’s come down to the Reserve banks, so I’m sure it
does.
Robert Holland: Yeah, so that was an immediate accountability to all the Board
members and so forth. But if something really troublesome was going on, or surfaced, why
then, Woody or I or Ralph, whichever one of us was in that particular role at the time, you
know, we had an accountability to the‒ we thought, well, we’ve got to let the Chairman know
if something like that went on. That rarely happened for me when I was there, because I had a
very congenial pair of money market account managers in New York, and we didn’t have




- 21 -

fights. But I sat through some where Woody was on one and Rouse was on the other, and it
was pretty bristly.
Robert Hetzel: So what year would that have been, do you remember? If it was
Rouse it would have been before ’61 or so, right?
Robert Holland: No, wasn’t Rouse still on…?
Robert Hetzel: I thought Bob Stone was like ’62-’63.
Robert Holland: Well then it probably was that very first year. Yeah, that’s right, it
wasn’t long after… you know, I’ve got to sort out here what I heard and where, because I
would be on the call at the Fed of Chicago when the Chicago president was the president who
was covering the market call too. I would have been that for several years before. But I
remember hearing several instances of pretty testy exchanges between Woody and Rouse,
when‒ and they were still tussling over tone and feel versus free reserves, and that kind of
thing. They were essentially arguing over the daily applicability of one of those standards
versus the other, that kind of thing.
Robert Hetzel: So that was probably more early ‘50’s than later on, what you’re
describing.
Robert Holland: When did tone and feel go down the drain?
Robert Hetzel: Well, I‒
Robert Holland: I’m sorry, when did tone and feel get really subordinated? Reading
a history on this.
Robert Hetzel: I think the big fights would have occurred in 1953-1954, that period.
Robert Holland: But it lasted longer than that, didn’t it? As an important factor?
Robert Hetzel: Well, Al Hayes came in in ’56, and I think that, you know, one reason
that Sproul left is he had lost the big fights, and so I think‒
Robert Holland: Sproul lost the big fight, but he lost a fight that was really on the
governance issue, the big fight, yeah. That’s the big fight.
[01:02:14]
Robert Hetzel: Sproul‒
Robert Holland: Then - because Hayes was still defending tone and feel for a while.
Now it’s true he was defending it at a lower level. It wasn’t as predominant as it was earlier in
the ‘50’s, but I think the victories of free reserves and then in due course down the line‒ but




- 22 -

essentially then it was free reserves, was the alternative ‒ the victory of the free reserves thing
came gradually, and there was still some defense of tone and feel at that daily conversation
level, and I think, to some extent, at the meetings, as I recall, I would have guessed up until
the late ‘50’s. And then I get fuzzy as to when it changed beyond that.
Robert Hetzel: I have the feeling Martin was controlling things pretty closely in the
last part of the ‘50’s ‒ ’57, ’58, ’59.
Robert Holland: But Martin was not‒ while Martin was generally on the side‒ Well,
but Martin wasn’t completely antithetical to giving some weight to tone and feel.
Robert Hetzel: Oh, sure.
Robert Holland: Yeah.
Robert Hetzel: Sure.
Robert Holland: But, so there were still arguments between tone and feel and free
reserves, I think, going on‒
Robert Hetzel: Even after Hayes. Okay, I hadn’t realized that. I figured that was
settled when‒
Robert Holland: Well, you know, and sometimes‒ What it was, I think, was kind of
a gradual tipping of the scale. You could consider tone and feel at some times. It was
defended as an occasional or‒ first as a coordinate standard, then as a supplemental standard,
then as a modification, when the market system‒ that kind of thing, and so forth. And so you
could argue that on any given day it was better to pay attention to tone and feel than to try to
push that free reserve number around this late in the reserve week, that kind of thing, and so
forth.
Robert Hetzel: Yeah, well, of course that went on through the end of the ‘60’s, those
kinds of‒
Robert Holland: Yeah.
Robert Hetzel: But it didn’t have the same feel, I mean Sproul‒.
Robert Holland: It didn’t have the same ferocity, no.
Robert Hetzel: Yeah, Sproul really‒
Robert Holland: For those of us who were on the morning call, sometimes that was
pretty important, yeah.




- 23 -

Robert Hetzel: Sproul really had the feeling that New York, as opposed to
Washington, could remain the center of the Federal Reserve System, and it just wasn’t‒
there’s no way that was‒ it just wasn’t realistic.
Robert Holland: Yeah, that sounds more like Benjamin Strong than it does Al
Sproul, to me. I think Strong thought that. I think Sproul thought it should be important to not
be subservient to the Board. It should indeed‒ there were some things in which the Board
could boss it on monetary policy. It was clearly the Federal Open Market Committee that was
the authority, not the Board, and that they were an agent with broad license from the Federal
Open Market Committee. And of course then they had this independent - what quote they
thought as an ‘independent’ role as an agent for the Treasury. So my impression was Sproul
thought of it more in those kind of terms.
Robert Hetzel: Well, but before you had full FOMC meetings you had the Executive
Committee‒
Robert Holland: Yeah.
Robert Hetzel: And then you basically had [Note: break in recording] ‒was in that
smaller environment, New York was I guess an equal to the Chairman, as opposed to‒
Robert Holland: The way Sproul thought about it, yeah.
Robert Hetzel: ‒as opposed to one important member of a larger FOMC, so I think
that Sproul really felt like power was slipping away to Washington, where inevitably it would
become more political; that as long as New York was the key player, that he could keep it
non-political. Anyways, that’s kind of what some of the people explained to me.
Robert Holland: No, I think that’s right. If you say ‘the key player,’ I‒
Robert Hetzel: No, no, I agree with you. That was too strong.
Robert Holland: See, Strong thought that New York was more important than the
Board.
Robert Hetzel: Sure, sure, sure.
Robert Holland: My impression was‒ I’m now being simplistic‒ Sproul thought
New York was every bit as important as the Board, and shouldn’t be, you know, couldn’t be
ordered around like a lackey.
Robert Hetzel: Yeah.
Robert Holland: Yeah, that’s the distinction I’d draw between those two guys. By
the time Hayes came along he and the institution had had to accept the fact that in effect it’s




- 24 -

not only subordinate to‒ at a lower level than the FOMC, it’s also at a lower level than the
Board - at least those parts of the Board that serve the FOMC. Yeah. So that whole sort of
stewardship idea evolved there.
Robert Hetzel: Well, I talked to Bill Treiber also about the succession. I had the
feeling from talking to him that, I mean, you know, Hayes was the Board’s choice. Treiber
was New York’s choice.
Robert Holland: Yeah.
[01:07:16]
Robert Hetzel: And that was kind of the last really major‒ well, I hate to use the word
‘battle,’ but the last kind of major contest between the two [unintelligible 01:07:26]
Robert Holland: Well, it was certainly an intellectual and administrative struggle,
back and forth, and neither side wanted to lose.
Robert Hetzel: Yeah, well, it’s interesting, because there were so many strong,
capable personalities. I mean, you know, imagine Sproul‒
Robert Holland: That’s right. That was a high quality bunch on both sides.
Robert Hetzel: ‒Sproul on one side and Martin on the other side, and the staffs they
each had, a pretty amazing group of people.
Robert Holland: No, that’s right. That’s right. It was a very high order of intellectual
argument that went on back and forth. I’m sure there were plain old fashioned turf feelings as
well, but the arguments, and the way they were pressed and the way they were dealt with, and
the way they were put forward were intellectual and they were strong. And you couldn’t get
away with faking it, you know?
Robert Hetzel: Yeah, that’s a good way to put it.
Robert Holland: Yeah.
Robert Hetzel: Well, I don’t want to overextend my welcome. I’d love to keep
talking. Would you be willing to either continue or talk sometime later? How are you feeling?
As I say, I don’t want to‒
Robert Holland: Well, I’d rather get‒ We’ve rambled over some of this other stuff in
the process of creating some atmosphere for you.
Robert Hetzel: Yeah.




- 25 -

Robert Holland: [Note: break in recording] ‒talk again, but we’re deep into it now,
and you and I already understand sort of what we’ve talked about up until now and how that
lays the ground work for what’s to come.
Robert Hetzel: No, no, sure.
Robert Holland: If you can keep going for a while, I can.
Robert Hetzel: Oh, absolutely, no, I never have any trouble talking about the Fed.
Okay, well, let’s get back to‒
Robert Holland: Somewhere along the line, Bob, I suppose I ought to say to you,
you know, in the comments I make, and the way I see things, I think I’m objective, but I
recognize that I come out of a background that a number of people in the Fed system have
had, but by no means all, and a lot of people we’re talking about didn’t have, and that is I
spent about as many years in a Federal Reserve bank as I did at the Board.
Robert Hetzel: Yeah.
Robert Holland: And in not only the work at the bank, but the work I did in the
Presidents’ Conference, and the work I did [unintelligible 01:09:47] gave me a lot of sense of
the system, as one with interacting parts. And as I went on through my career at the Board, I
find myself often times talking about the system and getting the reserve banks and the Board
working together, coordinated, harmonized, mutually educated, whatever and this kind of
thing. Taking account of hurt feelings at this and that other Reserve Bank presidency, or at
this, that and the other governor’s office and so forth, but trying in general to‒ I find myself
frequently having more a sense of the system, and that meant more a sense of a role for an
appreciation of the Reserve banks relative to the Board in Washington than others who hadn’t
had that kind of experience on both sides of the fence.
Robert Hetzel: Yeah.
Robert Holland: No I would say Merritt Sherman, who was the Secretary of the
Board before me, had much the same kind of approach. And I admired Merritt, and I thought
he did the Board and the Federal Reserve System a great service with his awareness of both
the reserve bank the Board dimensions of the system and its responsibilities and its duties and
so forth. So when I talk about these kind of things, I talk out of that kind of a background.
Now I say that, well, to warn you or to tell you, or at least so you’ll understand why I may be
spending more time talking about the Federal Reserve system side of this, the Reserve bank
side of this than you would get from somebody on the Board, although less than you would
get if you talked to somebody at a Reserve bank.
Robert Hetzel: Yeah, sure.
Robert Holland: Okay?




- 26 -

Robert Hetzel: Oh, yeah, absolutely. No, I appreciate that perspective, because I
mean people tend to‒
Robert Holland: I felt what I learned when I was Secretary of the Conference of
Presidents stood me in awfully good stead in terms of a sense of how this Federal Reserve
system worked as an organism, and I regard that as one of the most helpful single experiences
I had, yeah.
Robert Hetzel: Getting back to ’65, ’66‒
Robert Holland: Right.
[01:12:05]
Robert Hetzel: Okay, you had the discount rate increase.
Robert Holland: Which one, the ’65 one?
Robert Hetzel: Yeah, December ’65.
Robert Holland: Yeah. Yeah.
Robert Hetzel: And what people don’t think about so much now, but what was maybe
even more important at the time, you had an increase in Regulation Q, so that the banks could
pay more to attract certificates of deposit. And that caused an outflow of funds from the
S&Ls. There was a competition that the S&Ls with their fixed interest rates‒
Robert Holland: Frozen long-term rates, in effect, yeah.
Robert Hetzel: Yeah, that they didn’t want to‒ that they weren’t ready to take part in.
And there was an enormous outcry from Congress.
Robert Holland: I don’t remember whether we had the term ‘disintermediation’ at
that time or not, but that was sure our first major introduction to it, I think.
Robert Hetzel: Yeah. So I’d like to talk a little bit about that period; about summer
’66, when Robertson when acting Chairman, when Martin was in the hospital, because I think
that’s an interesting period. People tend to think of the System and associate it with the
Chairman, but here’s a period where really some of the most interesting and difficult
decisions weren’t even made when the Chairman was there. The Chairman was‒
Robert Holland: Well, but remember, there was nothing wrong with the Chairman’s
head as I recall it.
Robert Hetzel: Okay. I’m interested in that, because he had an operation for a gall
stone, or…?




- 27 -

Robert Holland: Gall stone, gall bladder, something like that.
Robert Hetzel: Gall bladder, yeah.
Robert Holland: Gall bladder. I don’t know quite what was wrong with‒ I don’t
remember now what was wrong with the gall bladder, but it was the kind of operation that
took him away from the office for a while and he couldn’t come back right away because of
it.
Robert Hetzel: Okay. I remember it because there is a story about how Johnson
doesn’t want the Fed to raise interest rates, and he tells Martin that, ‘Well, you can’t do it
while I’m in the hospital having my gall bladder operation,’ and Martin tells him, ‘Well, I had
it, and it wasn’t so bad.’ So anyways‒
Robert Holland: I don’t know that that’s true, but‒
Robert Hetzel: No, it’s probably apocryphal, but… So during this period in the
summer Martin would have been in regular contact with Robertson?
Robert Holland: Yeah.
Robert Hetzel: He wasn’t just out of the picture.
Robert Holland: No, my recollection was‒ Well, there was one day when he was
under the anesthetic, and that kind of thing. My recollection is that almost every day
somebody went to see Martin, in the hospital, with news and information. I don’t remember
quite now who it was. I don’t remember that I ever went. If my memory’s foggy on this‒ I
think it was typically Ralph Young who went. And that would have been because Ralph was
one whose knowledge and grasp of issues covered both domestic and international, and the
international side was the side in which Robby was least experienced. I mean, that’s the way
Martin ran it. And that was fine. And Martin was more sensitive to being tuned into what was
happening on the international front at that juncture than he was on the domestic front. Well, I
think he thought the domestic front was‒ well, I shouldn’t say it‒ The international front was
harder to understand and to perceive what was evolving and where it was going and that kind
of thing. And some of the strength of the cooperation between the foreign central banks rested
on the personalities of the people involved, and Martin was a key in that kind of thing. So my
recollection is it was typically Ralph who went to see him.
Robert Hetzel: Yeah, that makes sense, given what you’ve told me about Robertson’s
expertise.
Robert Holland: But I was working closely with Robby at that time. We handled the
regulatory and the banking side of that kind of thing without a hitch, as I recall. I think that
Robby dropped in sometimes and talked to the Chairman in the hospital. They were good
friends, you understand.




- 28 -

Robert Hetzel: Sure.
[01:17:07]
Robert Holland: They were good friends. But remember, the Chairman trusted
Robby implicitly. He really did. And he had good reason to. Robby was as loyal a vice
chairman as you’ll ever find. Yeah.
Robert Hetzel: Tell me ‒ I guess this is jumping back, but ‒ Robertson’s term expired
in ’64 I guess?
Robert Holland: Yeah, and then he was reappointed.
Robert Hetzel: But it wasn’t a sure thing for a while. Wasn’t the story that Seymour
Harris thought that he’d been promised the position by Kennedy, but Martin didn’t at all get
along with Harris, Harris being just an absolute, rigid sort of Keynesian, and so there was
some tugging back, and war‒
Robert Holland: Well moreover, Martin didn’t want to lose Robertson’s expertise on
the regulation and administration and bank examination side of things.
Robert Hetzel: Yeah, okay. So I understand that now.
Robert Holland: That was very important to Martin.
Robert Hetzel: No, I didn’t understand that part before.
Robert Holland: Yeah. Yeah. And I don’t know this for a fact, but I have no doubt
Martin made the strongest case he could to Johnson that he needed Robertson there to handle
that kind of thing. And Robertson had already demonstrated his administrative capabilities at
the Fed as well as the Treasury. Usually when a tough administrative job came up, Martin
would turn to Robertson and hand it to him, you know? Eventually they sort of formalized it,
but you know, dealing with some parts of the Regulation Q thing, dealing with the foreign
credit restraint thing‒ things that the Board absolutely hated to take on, they turned to Rob
because they knew he would run it right and efficiently. And boy he did. He was an efficient
administrator. A little abrupt ‒ particularly some of the regulatees will tell you that, but
straight, honest as a hound’s tooth, never corrupted or strayed into unethical or anything like
that. He ran it fair and square as he called it. And that stood the Board in very good stead, and
when he was handling some things that could easily have been distorted in that kind of way.
So when Martin was in the hospital, he didn’t worry about the regulatory administrative side
of the Board. Robby was there. And he knew if anything came up that was important enough
or controversial enough to need his attention, Robby would tell him. So on that side of things
Martin felt content. As nearly as you can be content when having your gall bladder out, you
know?




- 29 -

Robert Hetzel: Yeah, right.
Robert Holland: But it wasn’t a case of Robby pulling a Newt Gingrich, grinning
and saying, hey, I’m finally in the Chairman’s chair, hot dog! No, no, Robby knew he was
there as a substitute for the Chairman, as a steward for the Chairman. He wouldn’t betray the
Chairman’s confidence or the Chairman’s trust or what the Chairman wanted to have happen.
That doesn’t mean he doesn’t, in his role as a governor, sometimes vote against the Chairman.
Robert Hetzel: Sure.
Robert Holland: That’s different. But when he is exercising the chairmanship in the
place of Martin, he was very loyal. He was just assiduous in every way in the way he handled
that stuff. And it was one that could easily have gotten messy.
Robert Hetzel: Yeah.
Robert Holland: Yeah.
Robert Hetzel: So in the first half of ’66 there was a vigorous debate within the
administration over whether to raise taxes, and Johnson finally made the decision in the
middle of June that year not to raise taxes. In effect the Fed had the green light to go ahead
and push interest rates up‒
Robert Holland: Well, be careful.
Robert Hetzel: Hmm?
Robert Holland: That wouldn’t be the way I would have described it.
Robert Hetzel: Okay. How would you have described it then? I read through a whole
series of memoranda that were sent to Johnson both from the Council of Economic Advisors
and also from Henry Fowler from the Treasury, and that’s kind of the story that I put together
from these memos, but you know, those aren’t necessarily a‒
Robert Holland: Well, no, I think you’re underestimating Johnson’s appetite to have
his cake and eat it too. And I describe it as an appetite because it wasn’t so much a case of
reasoned analysis on his part.
Robert Hetzel: Yeah.
Robert Holland: He didn’t want to pay the political price of raising taxes. He wasn’t
dead sure they were needed, you know? There was more room for the economy to expand, he
thought, and that’s what he would say, but he did not want to raise taxes, because he knew it
was politically tough. And he already had enough political problems, he thought, with




- 30 -

Vietnam and so forth. And he saw some more coming. He wasn’t a done. Secondly, he was
enough of a populist not to want low interest rates too, you know?
[01:22:27]
Robert Hetzel: Yeah.
Robert Holland: And so he wanted low interest rates and no tax increase.
Robert Hetzel: Right.
Robert Holland: I mean, that was what his appetite was. Now he had advisors, some
good and wise, who were telling him, you know, we’ve got to slow things down here
somewhere. Or not so much slow things down as, we are adding fuel here to the economic
expansion, more than it can handle, so we’re going to have to damp it somehow. If we don’t
do it with a tax increase, we’ll have to let the Fed do it with interest rates. And they tried, I
think, right up to the end of that argument with the President, when he said, in effect‒ I think
what was said to him by some of his advisors was, ‘If you don’t raise taxes, Mr. President,
you’re going to have to acquiesce at an increase in interest rates.’
Robert Hetzel: Right. That’s right.
Robert Holland: Yeah. But I don’t think Johnson’s appetite for a continuation of low
interest rates as well as no tax increase was eliminated with that thing. I think he still wanted
low interest rates and no taxes. He wanted interest rates as low as they could be kept and taxes
as low as they could. And no increase in taxes. And the fact that the economic analysts he was
paying, or were working for him in various spots, were telling him, you know, that the interest
rates are bound to go up if you do this. Well, he heard them, but I’m telling you what I think
he was feeling in his gut.
Robert Hetzel: Oh yeah, for sure.
Robert Holland: And he was, I think, repeatedly during that summer and fall, when
he or his administration representative would meet with the Chairman, they talked about
holding interest rates down. Hold them down as long you can. Don’t rush. Hold them down as
long as you can, that kind of thing. And I think the Chairman insulated the Board members
and the FOMC members somewhat from that pressure, but not entirely. They knew there was
pressure in that direction. And sometimes Johnson would try to apply it directly to individual
members of the Board, or somebody would in the administration, on his behalf and so forth. It
was a tough time. Meantime, the other important variable you ought to have in mind here is,
I’m not quite sure where along in that interlude Johnson made the decision ‒ with military and
Defense Department participation and so forth ‒ of escalating our side of that war in Vietnam
in an endeavor to try to bring it to a conclusion more quickly.
Robert Hetzel: That was July. That’s when we committed troops. Early July ’66.




- 31 -

Robert Holland: And that’s when the decision was made within the administration?
Robert Hetzel: No, that’s when it was made public.
Robert Holland: Yeah. When was it made within the administration?
Robert Hetzel: Well, there is a lot of debate over that. The memos were debated in
the National Security Council all that spring, but so McNamara and Johnson had a pretty good
idea as of late spring, early summer, what was going to happen. But the debate is over
whether that information was shared more widely, whether the Budget Office and whether the
Treasury in particular should have known about it, and whether they were able to give honest
information about what the government expenditures were going to be.
Robert Holland: Well I can tell you the Fed wasn’t told.
Robert Hetzel: Well, I can tell you that too, because a lot of these memos I have that
were prepared before Quadriad meetings have Charlie Schultze saying, ‘Don’t go over these
budget figures because it will give Martin an excuse to raise interest rates.’
Robert Holland: Yeah. No, that’s right. That’s right. And so through that‒ and even
when the troop commitment was made public, the dimensions of the accompanying orders for
materiel build up, equipment build up, that kind of thing also, I think were still suppressed,
because I remember with anguish going through that era of spring, summer and into the fall,
those of us on the economic financial analysis side of the Fed staff couldn’t understand. There
were perk-ups here, and loans, and‒
Robert Hetzel: There was a strength in the economy that nobody could‒
Robert Holland: ‒new orders and orders for quote ‘capital goods’ ‒ in effect, for
military goods and so forth, perking up orders for steel, perking up and so forth. We couldn’t
understand it.
Robert Hetzel: Yeah.
Robert Holland: We said, is this fluke, or is there something wrong with the
statistics? And as the summer went on and all that stuff got stronger, we kept trying to say,
where are the GNP drivers that are producing these kind of effects? Are they flukes? Are they
temporary? Or is there a force here in the economy that we aren’t appreciating that is getting
us a new kind of expansion that we ought to be worrying about? And if there is something, is
it temporary or is it permanent? We don’t see anything that looks permanent? We don’t see
anything that looks like a permanent sustaining up-thrust here in demand‒
[01:27:46]
Robert Hetzel: Yeah.




- 32 -

Robert Holland: ‒that could be going along with this stuff. So even if businesses
think they’re seeing some reasons to make a spurt of investment in equipment and so forth,
we don’t see it carrying through. In fact, there may even be a chance that inventories will
build up and we’ll have a kind of a softening period, you know, out here, because of the
miscalculations being made by American business. I remember going through this debate. I
remember one stage, Dan Brill and Bob Solomon and I went over to Brookings. We arranged
a meeting with Art Okun and some of his people at Brookings. We thought Art at the time
was one of the best business forecasters, and most solidly rooted in economics, of anybody
around.
Robert Hetzel: Yeah, he was on the Council at the time, I think. I think he was staff
for the Council of Economic Advisors.
Robert Holland: There was one time‒ well, when did Art go on the Council?
Robert Hetzel: Oh, pretty early.
Robert Holland: I’m not sure.
Robert Hetzel: He started on the Heller Council, I know, as a staff member, and then
gradually worked his way up. By then I guess he was a member of the Council, and then he
became Chairman.
Robert Holland: Well, I’m a little rusty on this, Bob. If you had asked me, I would
say this was‒ that we went to Brookings at a time when it was between Art’s official jobs.
That is, we didn’t go to the Council of Economic Advisors’ office, is my recollection. We
went to Art and George Perry and I don’t know whether or not Charlie was over there. I don’t
think so. Art and George, for counsel and advice. I may be off on this, because you’re asking
me to remember something a long time ago, but I know, in effect, we went to Art not asking
for secret inside information we thought he had. We went to him as an economic analyst,
saying, Art, we can’t make these numbers add up. Can you? We didn’t show him our
numbers. They weren’t numbers that were public, that the general had. When do you think it’s
going‒ Where is all this demand push coming from, Art? What do you think? We were trying
to find‒ and we talked back and forth, really, as economic analysts, trying to make sense out
of this situation. And I think this was sometime in the summer we had this kind of get
together. Then somewhere along here also‒ now this I’ve been told third hand, but I think it’s
true. Martin went to McNamara and asked McNamara about it, is there a Defense build-up
here that’s doing it? I’m not sure that we on the staff didn’t put him up to it, to try to get some
input that would help us define more precisely what we’re facing and how permanent it is and
how much does it need to be measured by offsetting demand restraint. But he may have
decided to go himself. I don’t know that one exactly. But I do know he did go, and he talked
to McNamara, met with McNamara, on that question, asking about the Defense build-up, and
is it getting stronger? Is it a source of this expansionary pressure? And they were good
friends. I’ve forgotten how‒ maybe they got acquainted when Martin was back at the
Treasury. I don’t know quite when they were‒ anyway, they knew each other. But McNamara




- 33 -

felt absolutely constrained by Johnson’s order not to tell. And he didn’t tell the Chairman, and
the Chairman came back and told us, ‘He gave me no indication that there was an accelerating
Defense build-up going on here.’
Robert Hetzel: Yeah, two things: I just looked it up. Art Okun became a member of
the Council, you know, one of the three, on November 16, 1964. I thought that he‒
Robert Holland: And then how long did he stay on as a member? Does it show?
Robert Hetzel: Yeah, he became Chairman in 1968.
Robert Holland: Well, without any interruption in between?
Robert Hetzel: Gosh, I don’t think so. Anyways‒
Robert Holland: Well, that’s neither here nor there. It may be significant from
political science point of view, but in point of view, we went and talked to Art not to get his
inside view, but to get his economic analysis. And I remember Art telling Dan later that Art
didn’t know either.
Robert Hetzel: Well that makes sense. This was probably 196‒
Robert Holland: Charlie knew, because Charlie was director of the Budget then,
wasn’t he?
Robert Hetzel: Yes. But I’ll bet this was summer of ’65. That’s what it sounds like.
Robert Holland: Yeah. Yeah. So I don’t think Art knew either, whether he was in the
government or‒ I remember him telling us later that he didn’t know.
[01:32:12]
Robert Hetzel: Yeah, people have different stories about Martin’s contacts. Dewey
Daane says that Martin talked to David Packard, who was at the Defense Department, and
Chuck Partee told me that Martin had contacts with McDonnell because of his St. Louis‒
Robert Holland: Those are all true.
Robert Hetzel: ‒because he knew people in St. Louis.
Robert Holland: That’s my understanding.
Robert Hetzel: So, and he also had contacts with the House, Congressional Defense
Committee, Richard [unintelligible 01:32:40], but‒
Robert Holland: He probably was, yeah.




- 34 -

Robert Hetzel: ‒Martin knew so many people that he must have been, as early as ’65,
he was getting, you know, learning, getting a sense of what was going on.
Robert Holland: No, no, I think you’re making the wrong judgment, Bob.
Robert Hetzel: Oh?
Robert Holland: I think in most of those contexts he was not told. He was making
contacts to try to form an impression of what was going on on that Defense side, and to try to
get some confirmation of what was happening, or what might be happening, and some sense
of the dimension of it, so we could take that into account.
[01:33:15]

[END TAPE 86, SIDE A]
[START TAPE 86, SIDE B]

[01:33:18]
Robert Holland: …that kind of score too. So I think for both those reasons, he was
trying hard to understand. But I think that, well‒ From what I heard, nobody ever told him.
Certainly not as early as the summer, I do not believe he was told the dimensions of that
Defense build-up. He was not given confirmation that would let that then be part of
information on which monetary policy could be adjusted.
Robert Hetzel: Okay, so when he gave his June 1965 speech at Columbia, that was
not because he already had a sense, knew that the orders were going out to defense
companies, and that there was going to be a build-up, even though there was no record‒
Robert Holland: Well, he’s no dummy, you know. There was something was
pushing up the economy, and that was the terra incognita in terms of‒ the Defense area was
the terra incognita in terms of whether or not something was going on there, but I don’t think
he had confirmation at that time. I think what he did feel was there was an expansionist wave
coming through, and we sure needed‒ [Note: break in recording] ‒in that speech? I’m a little
rusty on that speech now. Or did we get him to just say tighter macroeconomic? What did he
say?
Robert Hetzel: I think it was much more general. I don’t think‒ I think it was more a
general overview‒




- 35 -

Robert Holland: I think that’s right. Yeah. Well, you know, he was not a guy
inclined to sort of spit in the President’s eye, and take him on in public, and say, ‘I’m
independent. I can tell you you’re all wet.’ But I do know he felt compelled to speak out as a
public servant on this risk, this problem at that time.
Robert Hetzel: Sure.
Robert Holland: And as even-tempered as he was, you could see signs of frustration
in him as ’65 went on, that, you know, we didn’t have a firm enough handle on things to
know, to be sure what was the right thing to do. And one of the biggest debates, after the
numbers kept going up enough to say, well, it isn’t a fluke, that there is no increase at all;
there are some increases going on here in some of these kind of‒ to know whether or not this
was a temporary bulge, or a permanent, or worse, a longer-term accelerating one, to know that
was, the awareness of that, or the feeling that that was so came still later.
Robert Hetzel: The governors‒
Robert Holland: And some of the Reserve banks got a little itchy as the summer‒ as
you well know, I suppose. Yeah, so there was discount rate talk and that kind of thing, yeah.
Robert Hetzel: The governors that people perceived as being liberal, Maisel, also
Brimmer, in ’66, they really became the hawks that summer. Isn’t that your recollection?
Robert Holland: You mean the summer of ’65?
Robert Hetzel: Summer of ’66.
Robert Holland: Yes. Oh, no, no, by that time, you see, the evidence was undeniable
that we had a real demand expansion on in our country, fueled by guns and butter, in effect,
and you bet, they were for firming up. They saw the signs coming and they saw these things,
and their own economics training kept them in that‒ made them want to push. And it was kind
of surprising to some people, that here are these guys who we thought were liberals who are
pushing for firming. They weren’t the only ones pushing, but they were there.
Robert Hetzel: Well, it must have been a surprise. Maisel, for example, there are lots
of‒ not lots, but there are a number of letters from him to President Johnson in these memos I
got, so he obviously felt like he was on good terms with the President’s men, but he wasn’t‒
Robert Holland: Well, let me just add one more thing there Bob. Yeah, if you mean‒
Robert Hetzel: He felt like he could communicate with him.
Robert Holland: No, good terms is one part of why he did it. Sherm, I think, also had
a feeling‒ he was appointed by the President. It was clear he wasn’t just there to do what the
President wanted done and so forth, but he was appointed by the President. He was, in one




- 36 -

sense, accountable to the President in some very general kind of sense, and he felt, because of
the information flow to which he was privileged as a member of the Board, he also‒ it was
proper for him to advise the President, as one of his appointees, of‒ or at least communicate to
the President, his sense of what was going on in the economy and what was needed from the
vantage point he had.
[01:38:44]
Robert Hetzel: Yeah.
Robert Holland: Not that he was the only one to do it, but I think, for Sherm, it was
partly a matter of conscience. He felt like it was my responsibility to try to help the President
understand this and get him to do the right thing.
Robert Hetzel: Yeah, I think that’s right. That’s what the spirit of the letters sounds
like.
Robert Holland: Yeah.
Robert Hetzel: As you say though, well, the Fed was under enormous pressure at this
time‒
Robert Holland: Oh, boy. (Laughter)
Robert Hetzel: Was there ever a feeling‒ I mean, you know, Wright Patman was
there from year one‒
Robert Holland: Yes.
Robert Hetzel: ‒trying to get legislation passed to put the Fed on budget, and at this
point in particular, in 1966, his big push was to legislate an interest rate ceiling on all bank
deposits.
Robert Holland: Yeah.
Robert Hetzel: I guess 4.5 percent was the number that was mentioned‒
Robert Holland: I’ve forgotten what the number was, yeah.
Robert Hetzel: ‒most commonly. I mean, you’ve got to think‒ you can tell me, but
Patman’s a populist from Texas, and so is Johnson. It must have been of some concern that
well, Johnson could get together with Patman. They must have kind of looked at interest rates
the same way. Was there a feeling ever that Johnson would get together with Patman and do
something?




- 37 -

Robert Holland: Well, I don’t feel like my contacts are such to let me give you an
answer to that for sure, Bob, because the Chairman was pretty careful to keep‒ Chairman
Martin was pretty careful to keep me out of that political side. And that suited me fine.
Robert Hetzel: Sure.
Robert Holland: We had a legislative affairs officer on the staff whom he trusted and
whom he used to some extent for advice and counsel and that kind of thing, and with whom
he’d talk things like this over occasionally.
Robert Hetzel: You don’t remember his name now, do you?
Robert Holland: Well, Charlie Maloney is the one that pops into my mind. I think
that’s the right time for that kind of thing. But no, no Patman‒ the Chairman carried an awful
lot of that pressure just himself. He did not pass on that pressure in its full dimension and
force, neither to the Board, nor to the FOMC. I mean, they all knew that there was some
pressure. Some of them, I suspect, were individually contacted by some of the President’s
people. But I think the full intensity of the arguments, and if there were any threats, threats ‒
by threats I mean, you know, like, I’ll have to‒ any statement like Johnson saying ‘I’ll back
Patman’s law if you don’t do this.’ I don’t know how far that‒ I don’t know that that
happened. I don’t even‒ Don’t even say that in your mind as an example, because I have no
awareness that that happened. I’m just trying to explain to you what I meant. I don’t know
whether anything like that happened. I never heard of anything like that, of that nature, of
pressure. I never heard of any implications or hints that Patman and Johnson were either
operating hand in glove, or even as allies of convenience.
Robert Hetzel: Sure. I’m sure that was not the case.
Robert Holland: No, I was going to say, I don’t think there was‒ from what I saw, I
didn’t see that much love lost between Patman and Johnson. Now…
Robert Hetzel: Yeah, I think that’s right. But there is one, perhaps we could talk a
little about your memories of the Reg Q legislation at that time. The memoranda from Henry
Fowler to the President ‒ again, that’s just a one-sided story, but what they suggest is that,
you know, well, Patman had this legislation to impose an interest rate ceiling on all bank
deposits, which would have been lower than the ceiling at that time. It would have pushed it
back to what it was pre-December ’65, and the Board apparently had opposed that.
[01:43:42]
Robert Holland: Opposed the bill?
Robert Hetzel: Yes.
Robert Holland: Oh sure, yeah.




- 38 -

Robert Hetzel: And then Fowler wrote to Willis Robertson, who was head of the
Senate Banking Committee, saying that, in light of the Board’s opposition to using Reg Q to
lower the interest rates on small-time deposits to avoid bank competition with the S&Ls, that
he, Fowler, was going to go ahead and back this Patman legislation for a single ceiling. And
then a week later you get another letter saying that, well, we don’t have to do that now
because the Board has agreed to a bill that would allow it to set separate ceilings and use
those ceilings. So presumably this was a case where Fowler said, ‘Okay, look, I’ve lined up
the House and the Senate banking committees, and you know, go along with Regulation Q, or
we’re just going to do it with a sledge hammer legislatively.’
Robert Holland: I don’t have a clear recollection of how that discussion went. I
believe I’m right, that that sort of compromise legislation that the Board finally acquiesced to
gave it the power to set separate ceilings but did not require it to set separate ceilings.
Robert Hetzel: Right, but then the memos indicate that the Board had agreed that they
would in fact use the legislation‒
Robert Holland: I’m not sure about that one.
Robert Hetzel: Well, that could be. That could be just what’s in these‒
Robert Holland: That could be what Fowler said.
Robert Hetzel: Yeah, that’s what he says, but whether or not, you know‒
Robert Holland: Yeah, and if…gee… I don’t remember that. I don’t remember that
kind of an agreement.
Robert Hetzel: Although‒
Robert Holland: I remember the Board being very clearly aware that Reg Q was a
hell of a way to impose restraint on bank lending.
Robert Hetzel: Yeah, well, in 1965 that was his big objection to‒ part of raising the
discount rate was to raise Reg Q so banks could‒
Robert Holland: Yeah, no, no that’s right. That’s right. We thought we were getting
a‒ and the economists inside the Board staff were somewhere between fussing and‒ well, we
were pretty well behaved at this stage, but it was clear that we were sitting down with
something that was going to be a problem that would get worse and worse if you tried to use
Q to hold down‒ in effect, as a rough kind of monetary restraint. There was a time in that
discussion, I think, where some members of, I guess, the Board, saw Q as a monetary
restraint. Not that they liked that kind of market intervention, so to speak, but at least they
thought it had a silver lining in terms of slowing up bank credit creation. And that was‒ I




- 39 -

recall it being mentioned in some of the discussions, but I don’t recall any majority Board
opinion that that was workable in the long run, let me put it that way.
Robert Hetzel: Yeah.
Robert Holland: And then there may have been some debates over whether it’s at
least helpful here temporarily, and if you time it right when you change it, you can some of
that‒ Well, we thought restraint was badly needed on the system at that time, but that’s as far
as I can go, Bob.
Robert Hetzel: Oh sure. Well, but‒
Robert Holland: That’s as much as I remember, yeah.
Robert Hetzel: Yeah, once the legislation was passed, then the Fed was hostage to the
Federal Home Loan Bank Board differential that was built into it, and if the Federal Home
Loan Bank Board wasn’t willing to raise its ceiling rate, the Fed couldn’t raise its ceiling
rates. So‒
Robert Holland: Well wait a minute. Was it ‘couldn’t?’
Robert Hetzel: Couldn’t, because it had to preserve this quarter-point differential, and
if the Fed‒
Robert Holland: That’s right. That’s right.
Robert Hetzel: And if the Fed unilaterally were to change Reg Q on bank deposits,
and the Federal Home Loan Bank Board didn’t, you couldn’t keep that quarter-point
differential, which was built‒ [Note: break in recording] ‒lost that one, though. The other
thing that was done to try to diffuse the political heat from rising interest rates was a
combination of imposing increased reserve requirements on CDs in excess of $5 million as a
way of forcing the large banks into the discount window, and then telling them, well, if you
want to use the discount window, you’re going to have to be more selective on granting loans
to corporations, commercial and industrial loans. There was a big push, and this apparently
was initiated from the Treasury side, to have the Fed try to persuade banks to ration credit, to
deny some loans without raising interest rates. Do you remember any of that?
[01:49:23]
Robert Holland: Yeah, vaguely. I remember there was that kind of discussion.
Robert Hetzel: Well, at one point the Board actually sent out a letter to banks, telling
them if they wanted to use the discount window they had to become more selective.
Robert Holland: Yeah, but we didn’t do anything to the big CDs as I recall.




- 40 -

Robert Hetzel: Well, I think the Board did increase reserve requirements on CD
holdings over and above‒
Robert Holland: Oh, that’s right.
Robert Hetzel: ‒a certain amount. The idea that it would‒
Robert Holland: That’s right. We didn’t do anything with the ceiling rate, but we did
do something to increase their cost, that’s right.
Robert Hetzel: Yeah, I think the ceiling rate was lowered in September, when the
legislation went into effect for this new law.
Robert Holland: But it was lowered by the law, wasn’t it? Am I remembering
correctly?
Robert Hetzel: Well, no, it was discretion‒ No, the ceilings were discretionary, but at
least these memos suggest that the Fed really didn’t have any choice, that the deal was that if
the Fed didn’t do it of its own discretion, it was going to get a single legislated ceiling‒
Robert Holland: Yeah.
Robert Hetzel: ‒so that they did lower the‒ although, by that time market rates had
started coming down, so it didn’t bite the way it‒
Robert Holland: Quite as hard, yeah.
Robert Hetzel: ‒had been in August, and early September. Let’s see, so, then this is
something that I’m just going to kind of ask for an impression on. It’s not so much a kind of a
piece of information. In 1965 Martin is clearly very combative within the Quadriad. He’s
having very heated discussions with Johnson and with‒
Robert Holland: Fowler.
Robert Hetzel: ‒Ackley, in the Counsel, and you know, there’s a lot of dispute going
on. ’66, of course, in a way the Fed gets its way. It does raise interest rates in the summer,
although there’s just a firestorm in Congress because of the impact on housing. But‒
Robert Holland: And we also had that voluntary foreign credit restraint program
going through along in there too, remember? To try to deal with the international dimension,
which we couldn’t get much concern of in the Congress, but which was war in the Fed.
Robert Hetzel: Yeah, apparently there was never any serious possibility that the Fed
could raise interest rates for balance of payments reasons, the way it had in the Kennedy
administration. It was just a very different [unintelligible 01:52:31]




- 41 -

Robert Holland: Well the atmosphere, I mean with the firestorm we had going on
around our heads because of the domestic effects of the rates we had increased‒
Robert Hetzel: That’s the worst sort of politics to suggest to Congress that somehow
the domestic economy is going to suffer because of some foreign relations‒ [Note: break in
recording]
Robert Holland: ‒and as you know, there were various ideas developed and plunked
in there to try to help, to intervene one way or another in the international markets, to give
some relief on that side, but some way other than increasing domestic interest rates. We had
the interest equalization tax that came along there a little earlier, and then voluntary foreign
credit restraint was put in, which incidentally the Chairman asked Robertson to run, though
Robby was as opposed as anybody to that as an approach, as a market intervention. But he
was a good soldier, and when it was put in place, and the Board voted it, then Robby ran it,
and he ran it very effectively.
[01:53:34]
Robert Hetzel: Sounds like the credit controls in 1980.
Robert Holland: Yeah, it was the earlier incarnation of some of those same kind of
administrative and organizational adaptations.
Robert Hetzel: Well, in terms of similarities, it sounds like 1972 in that, in 1966 the
Fed was threatened with a law that would fix the interest rate on bank deposits at belowmarket rates; in 1972 it was threatened with a law that would have fixed the prime rate as part
of wage and price controls.
Robert Holland: Yeah, that’s right. Yeah.
Robert Hetzel: And in both cases the Fed would have been constrained in that, in
either event, if it had had a uniform interest rate ceiling on all deposits, or in the latter case, on
all bank lending, it would have been terribly constrained in its ability to raise its funds rate
target, or raise the level of short-term rates above that ceiling, because it would have caused
an enormous disruption in the banking system.
Robert Holland: Well, I’d even put it a little differently than that, or add a little more
onto it than that, Bob. I mean, had we gone ahead and done that, for reasons that we thought
we saw sufficient need for in the rest of the economy, what you get is monetary restraint with
regulatory ceiling squeezes and so forth, that has all kinds of at the very least, distortive, and
worst, disruptive effects on the financial system.
Robert Hetzel: Sure. Well, it’s what happened in August and September ’66. Banks
had to unload large amounts of municipal securities, and the municipal market basically




- 42 -

closed down, and the cities were in a terrible fix. They couldn’t issue debt. Let me get back to
this other issue‒
Robert Holland: Yeah, I may have thought of that as more of a market correction
than you do, or than you heard from other sources on that kind of score, but I agree that it was
a painful one, yeah.
Robert Hetzel: You mean‒ Say that again, the market correction for…?
Robert Holland: That whole episode with the municipal securities in the summer and
fall of that year.
Robert Hetzel: Well…
Robert Holland: I mean, I know you can find places where it’s described as a
catastrophe, you know?
Robert Hetzel: Yeah. So you think maybe it was overdone by people who were
feeling some pain, but‒
Robert Holland: Who, in effect were moving into an era where it took bigger bites to
get lending and credit availability conditions changed, and they got hit with some of the
bigger bites, and hollered very loudly.
Robert Hetzel: Yeah, well, it was clear that the real screams were coming from the
housing industry, because housing starts fell by, I don’t know, 50% or something.
Robert Holland: Oh, yeah.
Robert Hetzel: And Congress suddenly became‒ if Congress before had not heard of
the Federal Reserve System, they certainly knew about the Federal System‒
Robert Holland: Yeah, well, I guess‒ shall I put it to you another way? Compared to
what was going on in housing, what happened in the municipal bond market wasn’t so bad,
how’s that?
Robert Hetzel: Yeah.
Robert Holland: All right. (Laughter)
Robert Hetzel: Especially after fall 1966, at least I get a very different [Note: break in
recording] ‒rather than taking Johnson and Ackley on head on, is really trying to work
internally to get a shift in the mix of monetary policy. He’s trying‒
Robert Holland: Monetary and fiscal policy.




- 43 -

Robert Hetzel: Yeah. Correct me if I’m wrong ‒ His view that the problem was an
increase in the demand on the part of government for resources. Government wanted guns and
butter, and the solution was going to have to be a tax increase. We were going to have to be
willing to‒
Robert Holland: Yeah, no, that’s right. I don’t think he would argue that’s the only
problem, but he would say that’s by far the biggest problem, and it ought to be dealt with
directly. And I think he saw, and saw correctly, that in effect, it was the absence of‒ it was the
fact that that ‘guns and butter’ thing was throwing fuel on the expansion that was putting the
heat on monetary policy, and was generating the kind of demand that monetary policy was
being impressed into‒ monetary policy was seeing the kind of results in the financial markets
that by any decent rules of monetary policy require more monetary restraint. And he felt, in
point of fact, what was wrong was not that money was too loose; it was that fiscal policy was
too loose.
[01:58:20]
Robert Hetzel: And on the other side‒
Robert Holland: Of course he sees that also as a‒ and in fact we were taking all
kinds of political heat for fixing something that in effect Congress and the administration
ought to fix on the way of fiscal excess.
Robert Hetzel: Yeah. And on the administration side, as I read it, there was no way
Johnson was going to ask for a tax increase if the Fed had already put in place a tight
monetary policy. And Ackley, for his part, who thought that fiscal policy was an enormously
potent instrument, was not going to persuade Johnson to go for a tax increase, if the Fed was
at the same time going to raise interest rates. So Martin was kind of in a box.
Robert Holland: The way the argument went, you know? And the response‒ and so
far as I know, there was never any sort of quid pro quo discussion. I think, as I recall, our
analysis at that time, we were saying if we could get more fiscal restraint, this expansion
ought to slow down and we ought not to have to tighten any more. I don’t remember‒ we may
have been running some models that indicated we could even lower interest rates some, or
that interest rates might come down some with tighter fiscal policy, because that might at least
drop some of the longer term rates, because it would change the longer term outlook for
demand versus supply, real demand versus real supply. But it was more a sense of, this is bad
and going to get worse, in terms of inflationary expansion, if we can’t get the fiscal policy to
become a dragging anchor instead of a gasoline bucket pouring more fuel on the fire. And I
understand Ackley’s argument, but I think it’s‒ I don’t want to say… Well, I mean, you could
make that kind of argument, but from our side of the street, looking at the numbers, it didn’t
look like we had things tight enough to cool off the inflation. And indeed, there was plenty of
worry in our shop that tightening still wasn’t enough, and we were getting enough heat and
objections and disintermediating flows and shifts within the financial system as it was. And
having to do even still more work, if the surge got worse, was a real first class problem. So I




- 44 -

think probably you’ll find every member of the Board was a fiscal policy hawk, not just
Martin.
Robert Hetzel: But I get the sense, though, that Martin makes the assessment that if
he wants a tax hike, he can’t be overly aggressive with monetary policy, with interest rates,
and as long as Martin, during this period ‒ and I’m talking from summer ’67 through summer
’68 ‒
Robert Holland: Well, we had a little respite in there anyway, didn’t we?
Robert Hetzel: Right, the economy‒ Well, the economy cools off. It first becomes
apparent that it’s slowing at the end of ’66, and then it begins to pick up very strongly in the
summer of ’67. It was apparent it was going to pick up early summer, but it didn’t really
become clear in the numbers until summer of ’67. Now unemployment stayed below 4
percent, and inflation did come down, but it remained above 3 percent, which was high at the
time. But there was basically no change in industrial production from summer ’66 through I
guess spring ’67.
Robert Holland: Yeah.
Robert Hetzel: So the economy definitely cooled down. So for a while, there was
basically no conflict. The Fed pushed interest rates lower, and my reading of these memos is
that it was done on the understanding that in ’67 when the economy began to pick up, that
Johnson would ask for a tax increase. But then Johnson initially dragged his heals, finally
went for the tax increase in August of ’67, but as long as he was willing to actively lobby for a
tax increase, Martin felt constrained, as long as there was some possibility that it was going to
go through. He felt constrained in how high he could push interest rates.
[02:03:44]
Robert Holland: Well, yeah, but I’m not sure ‘constrained’ ‒ well, let’s see, there
were three things going on, I think, there at that time. There was the problem of what bites the
political hounds would either take out of us or force on us by passing laws if the rates went up
too much, or too much more, to put it that way. Secondly, there was a‒ the one additional fact
I remember, as we talk about it now, is I remember discussing how much dampening effect is
it in overall demand on, in effect, the expectations, and therefore the willingness of businesses
and consumers to spend that the administration is now willing to openly consider and even
advocate a tax increase‒ that that itself is a dampening on expectations that has a restrictive
element that we should take into account. Nobody knew quite how much of one, but that was
one more thing to take into account. It made it a little easier to wait a little longer before you
did anything to tighten, because there might be something to that argument. And we thought
expectations were partly what was fueling that upsurge anyway, which came pretty quickly,
when it came, as you said, in 1967, and that there might be an expectations dampening effect
from the announce‒ and from the intentions to call for tax increases that were beginning to be
apparent, and that therefore we should take that into account as itself an element of some




- 45 -

restraint on excesses. And therefore we could wait a little longer before, you know, throwing
out more of a monetary anchor.
Robert Hetzel: Okay, so let me‒ again, this is the question, but after the fact, it did
turn out that monetary policy was quite expansionary from fall of ’67 through the end of
1968. It was certainly more expansionary than the kind of monetary policy Martin had run in
the 1950’s, for example, and in the early 1960’s. And we’ve talked about three ways, three
possibilities ‒ or maybe they all work in combination ‒ One is, that you just mentioned, is
that, you know, it was simply a misjudgment in terms of whether monetary policy was
expansionary or not. You know, we thought we were running a restrictive policy; it just didn’t
turn out to be that way. And the second possibility is that Martin miscalculated. He thought
that he could get an increase in taxes and he thought that it was fiscal policy that should be
bearing the burden of restriction‒
Robert Holland: Yeah, he thought that was a preferable use; that was the instrument
to be preferred for tightening up, because that was the instrument that was causing the trouble.
Robert Hetzel: Yeah. But he simply was kind of overly optimistic about when he
would actually get that tax increase that came‒ [Note: break in recording] ‒he had thought.
And then the third possibility is that, well, no matter, miscalculation or not, he simply didn’t
have any other choice, because if he had gone his own way with the restrictive monetary
policy, Congress would have stepped in and would have done something irrational.
Robert Holland: Yeah.
Robert Hetzel: So that‒
Robert Holland: Well, two things I’d say here. One is this extra point I just made to
you, I think was a point that had some weight around the Board table for a while in that
interlude, and that is the fact that the increasing intentions and increasing signs that were
sounding like there would be a tax increase were itself a dampening force on expectations,
and thereby, indirectly, on the force of the expansion. And we probably overestimated that‒
[02:08:20]
Robert Hetzel: Yeah, okay, that’s good.
Robert Holland: ‒as a dampening force. But that was one other factor that was a part
of what made it seem plausible for the Board to go slower and in smaller bites with the kind
of things it did. The second thing I’d say is simply, with 20/20 hindsight, we could see that
the settings on the monetary dials that we thought would apply incrementally more restraint
did not apply as much incrementally more restraint as we thought at the time we debated and
we set those dials; partly because we weren’t looking at all the right dials, partly because the
sheer level of a particular interest rate of a monetary aggregate of that time was less restrictive
on what was the welling up of demand on the economy than we thought, or indeed, I would




- 46 -

say even than was consistent with the past. Because by that time we had some econometric
work that was helping us to get a sense of what degree of effect on the larger economy should
incremental changes in this monetary instrument or that instrument be associated with. What
were they associated with historically? Pretty rough stuff, but we still had something like that.
And in retrospect we can see that we just simply underestimated how restrictive the steps
were that we indeed took.
Robert Hetzel: Well it may be that a given level of market interest rates was less
restrictive in an environment where the inflation rate was building up from 1 percent to 3
percent‒
Robert Holland: Oh, sure, I mean, that was part of it. In retrospect I can see it, and
we probably, I don’t think, were paying as much attention to what independent information
was being conveyed by what was happening to various of the aggregates either. And looking
back, in respect, if we’d have paid more attention to that I think we might have behaved a
little differently, although my memory is rusty on that extent. My sense from that whole era,
from ’65 to, well, ’76, when I stopped being a member of the Fed, and therefore shouldn’t
speak authoritatively, in that whole era, looking back in retrospect, we were simply too little
and too late. And knowing what I did about the analytical evidence we were looking at at the
time, ironically, time after time, in looking back over that period, we thought we were being
as tight as we could get and still be responsible. We got more worried about the distortions in
the financial system that would come if interest rates went up faster, or much further, or much
quicker. We were worried about the international flows that would come with that one way or
another. We were worried‒
Robert Hetzel: Well, there was this concern about housing again.
Robert Holland: We were concerned‒ well, that’s right, particularly about housing,
but also in some other areas too. And we thought the housing drag on the market might be
enough to slow the whole economy, and it didn’t slow the rest of the economy as much as we
thought it would. It distorted the economy, and it did some slowing, but not as much as we
thought. I mean, time and again, looking back, what we thought at the time were, if not
adequate tightening instruments, at least as tight as we could responsibly get at that time,
given what we thought the financial system would stand, and to some extent, although it’s
hard for me to say what, secondarily, what we thought, in effect, the rest of government
would sit still for ‒ I put that second to the stress on the financial system, because I think the
people in those chairs at the Board were a little more worried about the financial stresses
accompanying tightening, and the distortions because of these various interventions and that
kind of thing ‒ than was general within the conversation, either within the government, and
certainly within the larger community. But we also knew that there was a Congress with some
people in there who were hollering for our heads and talking about passing laws that would be
much worse than what we were doing if they were actually passed, and a President who was
out of sympathy with what we were doing. So we knew we were on touchy ground. But we
did not think that‒ my impression of the Board and the Open Market Committee, with some




- 47 -

exceptions, as we went through that period, we did not think we were applying less restraint.
At the time we were acting on it and debating it, we did not think we were applying less
restraint than was responsible in the circumstance, because we were afraid of the political
backlash. We thought we were applying all that was responsible, and we thought it would
indeed generate some restraint. And then the uncertainties over how much was temporary and
how much was permanent and so forth, we thought the uncertainties were enough so that if
we were a little slow in tightening up, we still were working in the right direction, and what’ll
I say ‒ on the right order of magnitude? We might still be a little soft, but we did not think we
were running a blatantly inflationary monetary policy, which we knew how to stop and which
we could stop responsibly, but we didn’t because of the political threats from Capitol Hill and
from the administration. While there were differences of view among the people in there, I
think we thought we were dragging pretty darn hard, particularly when you recognize the
disintermediation in the [unintelligible 02:14:26] flows and what they might do in the way of‒
So we felt we had our foot on the brake about as hard as a central bank in our situation should
have it, put it that way, see?
[02:14:41]
Robert Hetzel: Yeah.
Robert Holland: Now we look back in retrospect ‒ and I don’t mean to speak for
anybody, but I can certainly say that I look back in retrospect, and I think that the proper
lesson to draw from all that is in retrospect, we were consistently too little and too late in the
monetary restraint we applied. But that’s with 20/20 hindsight. With 20/20 foresight, we were
an order of magnitude tighter than was acceptable almost anyplace else in the country.
Robert Hetzel: Yeah.
Robert Holland: You know?
Robert Hetzel: Yeah, I’m sure. Yeah, no, that sounds right. I’ve just got some notes
here. Do you know a Bill Sherel? S-H-E-R-E-L? His name came up and it didn’t ring a bell at
all with me‒
Robert Holland: Well, I think it’s misspelled. I assume it’s referring to a member of
the Board of governors named Bill Sherrill.
Robert Hetzel: Oh. That’s got to be it. Okay, I just had these notes. This was a
memorandum from Joe Califano, advisor to President Johnson. It said, ‘I talked to Bill Sherel
this morning on the phone about the Federal Reserve Board meeting‒’ This would have been
November of ’67. ‘He said they will raise the discount rate from 4 to 4.5 percent. I asked Bill
to stop by after their meeting this afternoon and give me a readout. He said he’d be delighted
to do that.’ It didn’t ring a bell who this ‘Sherel’ was, but that’s got to be it.




- 48 -

Robert Holland: Sherrill was a businessman who… let’s see, let me look. Where’s
my notes? I’ve got a thing here with a couple of notes in it that might help me look at… Oh, I
know, I’m in the wrong decade, that’s why I can’t find what I want. Where is Board
management? Oh, here we go. Sherrill was appointed to the Board in 1967 by Johnson, and he
was well thought of. He came in with a very good reputation in management, and some of the
new management principles, and the Chairman gave Bill the responsibility to be the governor
to preside over the administration of the Board with the idea of introducing a new
management-oriented planning and budgeting process. I worked very closely with him,
because at that stage of the game that was part of what was under my bailiwick too. I was, at
that stage of the game, kind of an informal executive director of the Board at that time, for
working with the Chairman and handling the Board’s management. We didn’t have an
executive director. The Board had never had an executive director at that time. Finally, in
about ’71, they gave me that title of executive director. But at that time I was working closely
with Sherrill, and with the Chairman; with Sherrill on management matters, which was his
strong suit. But it doesn’t surprise me that there was some interchange between Sherrill and
the President’s men. Johnson would often have his‒ well, not often‒ would have his people
contact either the Chairman or one of the members of the Board that he appointed, and talk
about that. And I think the most typical response that‒ I don’t know all the facts on this matter
for any of the governors. For the few and partial occasions where I know about it’s
happening, I think the more typical response was, I was to tell the President or the President’s
representative what this person thought, but not presume to tell them what the Board thought.
Robert Hetzel: Oh, yeah, sure. Yeah, and apparently there were a lot of contacts
between Counsel members and members of the governors‒ well there were lunches and they
would exchange information‒
Robert Holland: Sure, and we saw each other often. We were working on
coordination. We had a standard weekday lunch, I think, with the members of the Counsel
and a standard weekly lunch with the Secretary of the Treasury, or Undersecretary typically,
but Treasury people might vary who would come. Sometimes it would‒
[02:19:26]

[END TAPE 86, SIDE B]
[START TAPE 88, SIDE A]

[02:19:30]




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Robert Holland: That was an important part of what we conveyed, you know? A
sense of what our numbers were showing, what we were hearing from around the country,
that kind of thing.
Robert Hetzel: Well, you had a staff that could do forecasting that no other‒ neither
the Council nor the Treasury had anything that was even comparable or close to it, so I
assume that‒ well, the staffs worked‒
Robert Holland: Yeah. But that, incidentally, more credit for that goes to Ralph
Young and Dan Brill than any other two people, for building that kind of quality and that kind
of capability. A lot of people had their hands in it, but I would put at the top of the list for the
cause of that kind of thing, those two.
Robert Hetzel: Okay, so the tax surcharge passed in late June 1968, and the Council
was‒ well, Johnson had had to accept more cuts in domestic expenditure than he had wanted,
and I gather that was the big hang-up in getting it through, that the liberal democrats in
Congress were willing to forego a tax increase as a way of protesting the war. You had riots in
the cities, so to get the tax bill through you had to sign up conservatives, Republicans, and the
quid pro quo was a big decrease in domestic expenditure. And negotiations over that dragged
on and on and on.
Robert Holland: Yeah.
Robert Hetzel: And finally they came to a conclusion, although I gather Mills and
Johnson never did really come to an agreement between themselves. There was a lot of
animosity, I gather. So when the tax bill was passed, it was more restrictive than the Council
had anticipated, and Okun was certain that without an easy monetary policy it would cause a
recession. And apparently that feeling was shared by the Board staff, Dan Brill in particular,
that if the Fed didn’t lower interest rates, housing would take a hit, and the economy would go
into a recession. Do you remember that discussion?
Robert Holland: ’68?
Robert Hetzel: Yeah, summer of ’68, after the‒
Robert Holland: Very vaguely. Very vaguely. Yeah.
Robert Hetzel: So in fact the Fed did push interest rates down in summer ’68,
although it never pushed them down nearly to the extent that the Council thought was
necessary.
Robert Holland: Yeah.
Robert Hetzel: But, you know, after the fact it turned out that the economy didn’t
weaken because of the tax increase. The economy came on very strong, and the inflation rate




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rose to 4 percent. Dan Brill left after that. Martin thought that he’d been given bad
information on what he needed to do to offset this‒
Robert Holland: I don’t know that. The impression I had for Dan’s leaving was that,
you know, the salaries for Board people were way below what they were‒ the salaries for the
talented Board guys in the key spots were really way below what they could make in the
marketplace, and Dan got a very juicy offer from people whom he trusted, and who had
gotten acquainted with him from his work, and then he took it. I’ve forgotten what
relationship his kids were to college and tuitions and that kind of thing, but I know he wasn’t
loaded, and I know the offer was a big one. And I had always assumed, I took in on face value
that was it, that that’s why he left. Dan was vigorous, and a tough customer. But my
recollection was, he didn’t have trouble admitting that in retrospect we got easier than was
necessary in that episode, again, with 20/20 hindsight.
Robert Hetzel: He was a new generation of economist, right? I mean, he was a kind
of Keynesian in his‒
[02:24:30]
Robert Holland: Yes, but shoot, we were all Keynesians in one degree or another,
and so was the generation ahead of us. Dan was‒
Robert Hetzel: Well‒
Robert Holland: Dan was a little more quantitatively Keynesian, I think, than others,
and I don’t know‒
Robert Hetzel: Well, the people you described to me before, Riefler, Thomas, Young
‒ I don’t in any way associate those people with Keynesianism. But I do with Dan Brill, and
the staff at that time, the new generation of people who came, and they thought fiscal policy
was, you know, the dominant way of moving the economy around.
Robert Holland: Well, if that’s what you mean by Keynesianism, I’d say yes, I think
that’s right. The fact that the‒ the appreciation of the effect of the macroeconomic
environment on the economy, I think, wasn’t lost on the Rieflers and Thomases and Youngs
of that earlier era, but they may not have had it in as strong a degree as Dan. I didn’t have a
sense of‒ I think there was actually an evolving learning going on through the Board staff. In
my mind, that wasn’t a huge leap from one intellectual philosophy to another when Dan took
over for those guys.
Robert Hetzel: Okay. I guess‒
Robert Holland: If you say do I think he put more weight on fiscal policy than they
did, I’d say yeah, but not a huge amount of difference between one and the other. And I didn’t




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have the sense that when Dan got the job it was going to be much more strongly in that
direction than before. As I say, it was more in the sense of an evolution.
Robert Hetzel: Well, all the economists were new generation in the sense of they
believed in ‘lean against the wind,’ right? I mean, even Martin, he thought‒
Robert Holland: Yes.
Robert Hetzel: ‒if the economy was weak you should lower interest rates, and if it
was strong you should raise interest rates.
Robert Holland: That’s right. That’s right.
Robert Hetzel: That was very different from the generation that came before.
Robert Holland: That wasn’t absent earlier. We were maybe a little more aggressive
about it by that time. Also we were feeling burned by some of our past failures to lean into the
wind quickly enough on that kind of score. And while some of those earlier errors had been
failure to lean into the wind quick enough on the upside, we thought the lesson was
symmetrical, and that it was wise to try to lean into the wind earlier on both sides, because we
were becoming more persuaded and reading more and more evidence that made that lag in the
effect of monetary policy on the economy look longer, apart from the kind of jolts you get
because of running into interest rate barriers like Q and so forth. Apart from that, the lagged
effects were longer, and therefore we needed to act earlier. And by that time we were also
thinking we‒ well, enough said. Enough said.
Robert Hetzel: Yeah, no, but that makes sense in terms of these memoranda from the
Council with‒ [Note: break in recording] ‒assuming that there is going to be a tax increase by
the middle of ’67 and that the Fed should go ahead and lower interest rates well in advance of
that so that you get a reduction of interest rates in the fall of ’66, which is partly in
anticipation of a tightening of fiscal policy in ’67, except that, you know, the tightening of
fiscal policy didn’t come because lots of things intervened, you know? The economy
weakened, and then this long drawn-out fight over the surcharge.
Robert Holland: Yeah. Yeah. And we thought we were being responsible,
enlightened, and making use of the frontier of expanding economic knowledge in recognizing
that we were‒ the way we used to describe it sometimes to the Board members, or the FOMC
members is, you know, we’ve learned monetary policy is more of an oil tanker than it is a
sailing ship, you know? That the lags between our policy, the time we turn the dials or turn
the wheels, and the economy really does move in the direction being nudged by that are
longer than we thought. The whole response is slower than we thought. We get a much bigger
turning radius in time than we used to think we had, absent the kind of stumbling barriers that
a Q [unintelligible 02:29:27] for example. We were talking about in a free market, you know?
[02:29:31]




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Robert Hetzel: Yeah.
Robert Holland: In a market where the interest rates could move where they would
be forced to move by market pressures; and therefore we thought it was wise to plan to act
earlier in the interest of cutting off these kind of surges before they got higher and stronger,
and we thought that would actually produce a better and smoother result. And by that time we
were getting more confidence in our projections. Our projections were reaching out further
ahead. They were seeming to stand up better. So we thought all this fit together in what would
be an improved monetary policy adaptation of what was going on in the economy, and we
also thought that on the fiscal side, the kind of presumed agreements being developed
between us and the administration, and between the representations of the administration to
Congress on things like tax increases, timing and that kind of thing, would also allow fiscal
policy to be a little more foresighted too, so that planning and announcing, you know,
working on those changes, planning ahead when they would be needed and putting them in
place, that that would all give us a longer and wiser projection of fiscal stimulus or restraint to
go along with this projection further ahead of monetary restraint, and the larger turning radius
it would take, particularly monetary policy, but to some extent also fiscal policy, to steer the
tanker around in an uninflationary direction. And the Council was talking that way. I’m sure
you could judge from the memos. That all sounded like we’d made progress from the last time
we’d tried to do something to [unintelligible 02:31:18]. And what happened was, in effect, the
process to produce fiscal restraint didn’t live up to that kind of declaration of intentions at all,
for reasons, some of which could be foreseen and some of which couldn’t. And we sure didn’t
have Congress on Board, you know?
Robert Hetzel: Yeah, well, that was the time of the discussion of the optimal policy
mix‒
Robert Holland: Yeah, that’s right.
Robert Hetzel: ‒and people were going to make‒ well, they were going to manipulate
the curve, shift the [unintelligible 02:31:50]‒
Robert Holland: No, no, no. And you know, all of that really had a flavor of we were
improving, in effect, both the horizon, the working operations of macroeconomic policy, its
coordination and the trade-offs between the two. We all thought we were helping to fix the
shortfalls of recent history by improving our policy formulation and our policy mix, and
turned out to be wrong.
Robert Hetzel: Well, but it’s important that people understand the environment in
which decisions were made, and that’s a very useful comment that you made. I appreciate
that. So in August ’68 the Fed lowered the discount rate, but it was an odd sort of a thing. It
was lowered from 5.5 to 5.25, and it took two weeks for all the member banks to ratify it. At
the time there was considerable difference of opinion, apparently, between the Board and the
regional banks over‒




- 53 -

Robert Holland: Oh, no, no, no. You’ve got‒
Robert Hetzel: No?
Robert Holland: Well, there was considerable difference between the regional banks.
Robert Hetzel: Okay. Okay.
Robert Holland: Yeah, between the Board and some of the regional banks also. But
there were some regional banks who were quite willing, even ready to change the discount
rate, and had a discount rate decrease down in front of the Board.
Robert Hetzel: I think that’s a better way to put it.
Robert Holland: And other reserve banks whose directors felt inflation was still an
unlicked beast, and it would be a mistake to let up, and they were very laggard, you know?
They wouldn’t be in the initial round at all. They came along belatedly when it was‒ when, in
effect, eventually, to some of the directors of some individual banks, I think the Presidents
probably had to say, look, now we’re the only one who hasn’t gone up [unintelligible
02:33:48], and one thing we’ve learned from history is we can’t run a Federal Reserve system
with a lower discount rate in one district than in all the others. So we won’t have any choice.
We’ve got to go along.
Robert Hetzel: Yeah, that’s one area I haven’t done my homework on, is kind of
going through bank by bank and seeing when the discount rate changes were put in, but I
think that would be a useful exercise.
Robert Holland: Yeah, I don’t know what kind of record trail you can find for that,
Bob. I assume you’ll find out, but I don’t know.
Robert Hetzel: I assume that it’s in the Board minutes, when they discussed whether
to change the discount rate or not, that’s part of the record of who’s submitting‒
Robert Holland: I haven’t looked at those and I don’t remember how we handled, in
the minutes, a discount rate that, let’s say, came in from one bank on a Thursday, and no other
reserve bank came in, and it might be three or five days, it might be a week before action is
taken on it. But when the action is taken, that clearly will be in the Board minutes. What’s in
the record on when the discount rate change is first received from any reserve bank, I don’t
know.
Robert Hetzel: Okay. Well, that’s something I have to find out, because it would be
interesting. I assume‒
Robert Holland: Yeah, sometimes the delay is‒ sometimes it’s almost immediate.
For example, if it was a period where there was a lot of unanimity and there’s been an FOMC




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meeting and the presidents all go home with a sense that an increase in the discount rate is
now timely, and will be in accord with the open market monetary policy and all the rest, then
things come in boom-boom-boom-boom, within a day or two. But sometimes they stretch out.
Particularly they stretch out if there’s just one maverick reserve bank who’s ahead of all the
others, who has a Board of directors who, by gosh, they think it’s time to do blank, and make
this change, they vote it and send it down. And the Board has the legal right to sit on it. I’ve
forgotten how long. I’m not even sure there is a legal limit on how long we can sit on it.
Robert Hetzel: Yeah, I think indefinitely.
Robert Holland: But I do know that we sometimes sat for a while on a discount rate
increase, particularly when it was one maverick reserve bank that was representing what we
thought was out ahead of what was the consensus of the Federal Reserve policy makers,
Board and reserve bank.
Robert Hetzel: Well, I suppose at this point, summer of ’68, it would have been the
New York bank and St. Louis that would have been in disagreement with reduction in the
discount. Again, I can check that. There must be‒
Robert Holland: I’m more sure of St. Louis than I am of New York on that one,
yeah.
Robert Hetzel: Well, usually New York is pretty sensitive to international things,
although at this point the dollar had been under stress earlier in the year, but by that point it
wasn’t as much of a problem because there had been so much‒
Robert Holland: I think that’s right, yeah.
Robert Hetzel: There’d been the student riots in Paris, and then the invasion of
Czechoslovakia, so the dollar suddenly‒
Robert Holland: The dollar was in pretty good shape right then.
Robert Hetzel: Yeah, the dollar was looking good right then, so yeah, you’re
probably right. It was probably primarily St. Louis.
Robert Holland: St. Louis. Maybe it was St. Louis and Boston, I don’t know, that
were slow. Well anyway, I just alert you to the fact that the date that they are acted on at the
Board can sometimes vary quite a bit from the date they were received at the Board.
Robert Hetzel: Ultimately how did Martin look back at this period? I know, you
know, in ’69 monetary policy became quite restrictive, but when Martin looked back at this
period, ’67, ’68, do you have any sense of how, kind of retrospectively, he viewed it?




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Robert Holland: No. I don’t. No, I don’t. He was not a man to mull over old
decisions indefinitely. I don’t mean that he didn’t learn from what happened, but he was not‒
at least in my contacts with him ‒ he was not one to sit back and sort of reflect back again
over the past, and how it should have happened, what could have been better and so on. If he
did it himself ‒ and he surely must have, some ‒ as far as I’m concerned, he kept it to himself.
Robert Hetzel: Well, I mean, he was a combination of a lot of things, but he wasn’t
an intellectual. He didn’t sit around and talk about ideas the way Burns would have, or
Volcker, or Greenspan.
Robert Holland: No, no, and regurgitate history and try to develop meaning, a lot of
which Burns might do, and so forth. Well, actually now, even Burns, I don’t think, did that as
much once he became Chairman. The Chairman’s job is a lonely job, essentially.
Robert Hetzel: Yeah.
Robert Holland: And my impression is, on things like that‒ ‘What would have
happened if…?’ ‒ probably all the chairmen pretty much kept their own counsel.
[02:39:31]
Robert Hetzel: Yeah.
Robert Holland: And I know three of them very well. That’s my impression. I knew
them only professionally, not personally, so they may have had personal conversations with
other people, with whom they were close personally, that I don’t know about, but I don’t
remember those kind of things. I know we were driving the staff hard to incorporate the
lessons of the recent past in serving up the current crops of forecasts and analyses and so
forth, and Chuck Partee and Lyle Gramley, after Dan went and left‒ and Dan, as long as long
as he was there, and then Chuck Partee and Lyle Gramley after, were really driving the staff
to learn from those lessons, to incorporate them in their projections, to incorporate them in
their analysis, to take account of it and so forth. And so there was flavor of that, I think you’ll
see, in the staff presentations to the Board that may have served all the Board members
substantially well for that purpose. The ironic part about it is, if you ask me to think about this
real broadly, I would say from ’64 on to ’76, all the years I was really at the Board and as a
part of that whole kind of thing, each successive time we went through one of these tightening
and then easing episodes, we looked back and could see we were too little and too late. And
we tried to think our way through ‒ certainly at the staff, but I think also at the governors’ and
presidents’ level ‒ we tried to think our way through, how do we correct for that so that we
don’t do it again? And the next time, we act what we think are a little sooner and a little
firmer, and we look back in retrospect, and see it was still too little and too late. And the next
time we act what we think is still firmer and still earlier, and we look back in retrospect and
see it was too early and too late. I mean too little and too late.
Robert Hetzel: Yeah.




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Robert Holland: Yeah, and I think all the way through those eras, that was‒ we were
learning as we went along in each‒ we thought we were, and we thought we had allowed
enough. We thought we were bringing the most sophisticated tools we could bring to bear on
that analysis of that situation, and to adjust for it, and each time the economy was stronger
than we thought, more resistant to what we were doing than we anticipated in advance, and
the combination of those two were‒ and it happened for all kinds of reasons, sometimes
different reasons from one wave to another. But it was a succession of intervals where each
time we thought we were being firmer and faster and earlier because that was what was
required to fix the one before. And it wasn’t enough.
Robert Hetzel: You know, I remember even when I came in ’75, there was a general
feeling that you would change the funds rate and then see what happened. And you didn’t
want to do it too much, because you could do some damage.
Robert Holland: Yeah. Yeah.
Robert Hetzel: And so that period of kind of probing and testing was too cautious.
People thought they were being prudent and they thought they were being careful, but it
turned out to work differently.
Robert Holland: Yeah, well, moreover, as I say, each time I think we thought we
were squeezing earlier, firmer; we were correcting for the mistake we made last time, which
was to be too little and too late. And each time, still we didn’t correct enough. I think the
problem actually got stronger, and our bite got weaker, or at least more distorted, for a variety
of reasons. But you can see that pattern. And moreover, we were encouraged to think of it that
way, because in each one of those episodes, every time we started to‒ we did what we thought
was firming, we were getting ‘Hail Columbia’ from a whole variety of sources that said you
are too tight, too soon.
Robert Hetzel: Yeah, most of the economics profession.
Robert Holland: That is, it wasn’t just the politicians. Most of the economics
profession thought we were being too tight too soon in each one of those episodes.
Robert Hetzel: Yeah, absolutely. Even ’72, when people go back and jump on the
Fed, it wasn’t until the very end of ’72 that the economics profession began to say, well, gee,
maybe you ought to tighten up. So basically‒
Robert Holland: Yeah. Yeah, so that‒ we would say to ourselves, well, we’ve got to
be close to right, because we’re sure getting ‘Hail Columbia’ on that for doing too much.
Maybe we’ve at least… Well, anyway, that, I think, is a broad overview that is worthwhile
keeping in mind as a way of viewing that whole episode from ’64 through ’76.
Robert Hetzel: Well, you have an incredible memory. I’m very impressed.
Absolutely. You’re talking about this as though it was last week. And it wasn’t last week.




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[02:44:56]
Robert Holland: Well, it’s ingrained deep in my mind. It takes your questions to dig
some of it out, I must admit, and I’ve got this little book of working at the Board that I’m
using once in a while to refresh me as to when Sherrill showed up and things like that. But
still, there are lots of details I no longer remember. But this [unintelligible 02:45:17] ‒
Robert Hetzel: I’m impressed.
Robert Holland: ‒ I have a very clear sense of, because that was burned into my
mind, heart and soul for those ten years, because we thought we were bringing to the system
really the kind of progressively learning and advanced economic and financial apparatus that
would improve our decision making and help hold down inflation. We knew inflation was, in
the long run, the most serious problem, or serious risk, and in retrospect, my generation and
the people who ran the system, was all too little and too late. But that’s a mistake only in the
eyes of 20/20 hindsight‒
Robert Hetzel: Sure, sure.
Robert Holland: ‒compared to the conventional wisdom of the time, both political
and economically, we were too soon, too fast and too hard.
Robert Hetzel: Yeah, absolutely. Well, that’s one reason to go back and do a history,
so that people get the decisions in the context in which they occurred.
Robert Holland: Well, I hope you do do that, and I like the way you include both‒ in
talking about that sort of the judgment of outsiders, you include not only the political view ‒
which is an important one, to be sure ‒ but also the conventional view of the economic and
financial community, because those are, continually throughout this area, those were more
wrong than the Fed was.
Robert Hetzel: Yeah, that’s right. Okay, well, you’ll go ahead and send me that, your
book?
Robert Holland: Yes, I’ll drop one in the mail.
Robert Hetzel: And I’ll give a call and see if Libby Jones is‒ [Note: break in
recording]
Robert Holland: ‒she isn’t, my old secretary, Shirley Sherman, who is now at the
CED, and that number I gave you‒
Robert Hetzel: Oh, yeah, right.
Robert Holland: Yeah, which is probably the quickest and most convenient resource.




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Robert Hetzel: Okay, yeah, I’ll give her a call.
Robert Holland: She knows how to run down people, or who to ask in the Fed to run
them down if she doesn’t know herself.
Robert Hetzel: Right. So, I’m going to work through‒ I’m going to do some more
work on this era, and then I’ll move on to the Burns era, so I hope I can give you a call
sometime in the future, and you’ll be as generous with me as you’ve been so far. I’ve really
appreciated this.
Robert Holland: Well, I’m glad to do it Bob. I don’t have the time to say I’ll read
what you do and give you reactions on it, because I’m stuck doing so much, two other things,
and I don’t want to really interfere with‒
Robert Hetzel: Well, what you’ve done is the most, the greatest thing you could do
for me. You know, we’ve talked for three hours and fifteen minutes?
Robert Holland: Yeah.
Robert Hetzel: That’s pretty nice of you. I appreciate it.
Robert Holland: Well I’m glad to share. I hope it’s been helpful. And I feel a stake
in getting the story right and well-rounded too, and I’m glad to be able to contribute
something to that.
Robert Hetzel: Okay, well, thanks a lot.
Robert Holland: You bet. Bye.
[02:48:17]

[END OF RECORDING]




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