Full text of Robert Hetzel Oral History Collection : Robert C. Holland Interview, March 2, 1995 : Transcript

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Interview of Robert Holland
Conducted by Robert L. Hetzel
March 2, 1995

ROBERT L. HETZEL: To what extent during the period ’67, ’68 did Martin get the
monetary policy that he would have desired in the absence of all kinds of external constraints?
If he had been the kind of archetypal Fed Chairman that’s in the textbooks, that’s independent
in the sense that he has complete direction to set interest rates, would he have worked as hard
to substitute fiscal restraint from monetary policy? Or, would he have moved more quickly
than he did to push interest rates up? In particular, in the period—let me start again.
Martin obviously very much wanted a tax increase. That was the fundamental
problem, guns and butters, too much demand was being placed on the economy’s resources.
In summer of 1967, after a period of almost—or two quarters of very little growth, the
economy began to grow strongly again, inflation moved back up to 3%. Ordinarily at that
point, the Federal Reserve System would have raised interest rates and yet, Martin and the
Committee held off because they were afraid that if they raised rates sharply, that would make
Congress less willing to pass the tax increase.
Do you think that after the fact Martin a, wished he had raised rates more quickly and
b, you know, felt like that if he’d wanted to, he could have? Or, a, wished he’d raised rates
more quickly but really was doing what he could, given the kinds of political constraints he
was subject to?
ROBERT HOLLAND: Let me answer that in sort of a—I think it’s going to be three
levels. One, in those years, ’67, ’68 and you really have to keep in mind everything from
about ’65 on because, while we had some softening in ’66 and the early part of ’67, there
were threads that were running through all that period that represented in effect increasing
waves of excessive demand growing up in our primarily because of the growing Federal
deficit, the expenditures that were in there for more military goods and services for the war in
Vietnam and so forth.
And that stuff—what was clearly wrong through that period, if you were looking at it
as an economist, was that we had too much fiscal stimulus. And if that was a problem, the
most efficient and effective way to correct is to reduce the fiscal stimulus. But if you can’t cut




that kind of spending, and maybe that couldn’t be done, then increasing taxes was the way to
do it. That was clearly the logical answer to the excessive demand problem of ’67 and ’68 and
that was—I think every member of the Board and the Federal Open Market Committee from
Chairman Burns right on around that table, knew that and understood, as did a good many
people in the Congress and I think the President’s Council of Economic Advisors.
That analysis was there and I think most reputable economists thought in that same
kind of way. Most of them saw it at the time. Once the evidence finally began to come out
about that upsurge in military spending and the guns and butter total, which as you’ll recall
from our earlier conversations I said we came only to know belatedly in the Federal Reserve,
as did a lot of other economists. But once that upsurge became public in its dimensions and its
thrust and its continuity, I think the major problem was too much fiscal stimulus and the right
solution was to reduce it. And I think you’ll find statements on the record by the Chairman
and other people in the Federal Reserve to that error who were speaking out, who were
advocating reducing fiscal stimulus and that usually translated into at least partly a tax
increase.
[00:05:05]
So, that was the situation and that was the preferred solution. It clearly indicated that
that kind of change would be better than trying in effect to mop up or offset fiscal excess by
monetary tightening, which has a somewhat different kind of effect in distribution—in
distributional effects and impact effects to an economy and which is—wouldn’t do as good a
job and as fair a job of offsetting the inflationary stimulus as would be what could come from
reduction in the fiscal stimulus directly through a tax increase or spending cuts, where they
were possible.
So, that was the overall situation. I’m sure the Chairman—well, I know the Chairman
was outspoken privately in conversations he had with the people of the Treasury and with the
Administration and in his testimony, I think you’ll see time and again was calling for a
reduced fiscal stimulus, need to fight the inflation and expressing in considered terms support
for some kind of extra fiscal restraint in the Fed that might involve a tax increase. And as a
matter of fact, from time to time during that period, there would be tax increase efforts
launched or promised by key power sources in the Administration or in the Congress or both
that would say we are—the Administration and Congress are going to enact a fiscal restraint
with tax increases.
I’m sure the Chairman must have personally applauded that kind of approach and I
think the rest of the Open Market Committee also saw that as the preferred solution. And so,
there was a tendency I think to—those kind of bills were up and about to go through and so
forth, or be considered at least, there was a tendency to wait and give that action a chance as
the preferred way of dealing with inflation before the Fed stepped forward and took some
additional amount of inflationary restraint. Indeed, I can recall some analytical debates, I’m
not sure they always made it into the record, the extent of which even the announcement of
intentions to introduce tax increases and clear actions that looked like they were moving
clearly up the line to restrain it. That itself would have a kind of dampening effect on demand,




-2-

make people and businesses a little more inclined to save, less ready to spend as they waited
for that kind of action and so forth.
Those sort of speculations were—well, they were kind of—one wasn’t sure, there
wasn’t evidence on that score. But that sense that even an effort—the beginning of what
looked like a sincere and hopefully successful effort to do it would have some dampening
effect. It was an idea that got expressed in discussions here and there in the system. Anyway,
there was that tendency to wait a bit when it looked like we really were going to get a tax
increase, to let the tax increase do the work that really was most directly successful in slowing
up stimulus.
But then, time after time, those efforts would peter out or fade away or get flawed, and
then we’d have to face up to it again. And eventually of course we did. Through that period—
oh, over and above that idea of occasional waiting a bit and get fiscal policy a chance to do its
responsible job, which was advocated to us from a number of sources inside and outside the
Federal Reserve, inside and outside the Congress and the Administration, over and above that,
the question of whether there was any more deterrence or not is a little harder to answer.
We were, I believe, getting in those intervals when it looked like the Fed might be
getting ready to do something, we were, I believe, getting through the Chairman and
occasionally the representations in the press, urging at various times from various places, and
the Administration, fairly high levels in the Administration and also some keyly placed
financial committee chairman in the House and Senate, urgings to go slow, not to spoil the
insipient recovery, not to prevent the additional employment that could come and some of
those encouragements, as I recall them, had in them references to if need be administrative or
legislative changes or constrictions on the power of the Federal Reserve to be sure indeed that
it—if the Fed was so anxious to increase, make interest rate increases so high as to “hurt” the
economy.
[00:10:32]
I think some of these pressures came in pretty subtle fashion and in individual
conversations with the Chairman. But I think they did come episodically and that’s something
the Federal Reserve Governors and Board members, members of the Federal Open Market
Committee are supposed to understand and know how to stand up to. I believe that kind of
pressure was coming through that interval as I recall it, episodically not all the time,
sometimes from less credible sources, sometimes from more credible sources.
But my recollection of that period is that frequently that kind, a nudge in that direction
was expressed through one or another of those channels and the Fed had to measure up to it.
The Chairman, of course, bears the brunt of those kind of representations. People who want to
make that kind of representation figure he’s the best single person to make it to, but
sometimes it stretched down the line to other members of the Federal Open Market
Committee or just generally in terms of what was a public or quasi public statement by some
public person on the other side of the fence.




-3-

There are, as you know, regular meetings below the level of sort of president and
committee chairman and chairman of the board to exchange economic information and
developments and so forth, that kind of thing, the weekly meeting with some of the senior
Treasury staff, the episodic meetings of the members of the Council of Economic Advisors
and so forth. So, there were channels through which representations could be—and then
occasionally with staff people in the Congress, less often, but once in a while happened. So,
there were various channels through which that kind of thing could come.
I don’t recall any of it explicitly in terms of a sentence I could quote to you, but I
certainly had that sense all the way through there. Those were…
ROBERT L. HETZEL: Difficult times.
ROBERT HOLLAND: Well, they were difficult, but we’ve had more difficult ones,
but those were—you had a sense the Fed was under pressure and—I did and maybe under
siege is a little too strong a way to put it, but it was—but I think some of the efforts were
pretty intense.
ROBERT L. HETZEL: Let me ask you about the Senate Banking Committee. My
reading of the last 20, 30 years is that that Committee’s very important in the sense that the
House Banking Committee is almost always hostile to the Fed.
ROBERT HOLLAND: Yeah.
ROBERT L. HETZEL: And so, that makes the Senate Banking Committee that
much more [cross talking 00:13:27].
ROBERT HOLLAND: And let’s see now, was Proxmire the Chairman at that time?
Have I got my timing right?
ROBERT L. HETZEL: In ’65, I believe it was still Willis Robertson.
ROBERT HOLLAND: But didn’t Proxmire come in in six…
ROBERT L. HETZEL: I think—wasn’t it Sparkman and then Proxmire?
Proxmire…
ROBERT HOLLAND: I think you’re right. I think you’re right. Prox was a little
later.
ROBERT L. HETZEL: But he was definitely an influential member of the
Committee at this time?
ROBERT HOLLAND: Yeah. And what happened—now, Willis Robertson was by
and large—I would say on a scale of relativism, Willis Robertson was a relative defender of
Federal Reserve independence. Sparkman in some respects seemed to be, but he also seemed
to move a little bit in being more concerned about this problem. He was getting pushed by




-4-

some of the junior Democrats and everybody is on the staff and he allowed some of that to
happen and so on through so that the Sparkman era got tougher and tougher on the Fed is my
recollection in terms of what they would say about changes that were need in the Fed and
what it was doing that was right and wrong and so forth. And then when Prox showed up—
even then, as you say, Proxmire was an influential member of the Committee, one of the
pushers, and when he got the Chairmanship, he just made us that more, miserable is not the
right word, more uncomfortable because he was very smart and very adroit and very well
informed.
[00:15:01]
ROBERT L. HETZEL: And also very political.
ROBERT HOLLAND: And very political, that’s right. That’s right. That’s right.
That’s right.
ROBERT L. HETZEL: At one time he could say things that were really profound
about monetary policy…
ROBERT HOLLAND: Yes.
ROBERT L. HETZEL: …and then the next time, he’d be—it would be populous
diatribe about unemployment and—well, anyways.
ROBERT HOLLAND: Yeah, yeah, that’s right. But boy, you don’t tell a Chairman
of the Senate Banking and Currency Committee you’re inconsistent, you know, even when he
was. You just—we had to be careful and doubly careful with him because, as you say, he was
the safety valve for the Fed. If the House Banking and Currency Committee got persuaded by
Chairman and by the anti-Fed agitators among its membership to push something really bad.
There was—and because it looked like that kind of influence in both those Committees was
going to be there for quite a while, the Fed people who dealt with them had to be careful.
They had to take it kind of a long term view, so if one of those key Congressional figures said
something for political campaign reasons, it was short sighted and we even suspect that that
person himself knew it was in the long run disadvantageous and certainly we could see that in
the long it was disadvantageous.
We still sometimes bite our tongue, and not saying anything. Well, we usually would
bite our tongue and not say anything about it publicly because you just don’t—we were trying
very hard not to irritate those people in ways other than ways that we felt we had to for
purposes of the integrity of monetary policy. So, we were—and we would do sometimes
trivial things to keep from doing it. For example, I remember during that interval two or three
different occasions when we made changes in our budgets and how much we spent on various
things because—and we didn’t want to give Patman some new fuel for the fire of blasting the
Fed and so forth.




-5-

But we were trying to really be like Caesar’s wife, bending over backwards not to do
anything outside of monetary policy that would be open to any kind of criticism or that would
indeed aggravate the Chairman.
ROBERT L. HETZEL: Oh sure, I’ve maybe told you this story, but Patman would
make surprise visits on the Richmond Fed, go to our auditing office—or purchasing office and
pull out invoices and then we would have to justify those invoices. And we had to explain, for
example, why we didn’t only get the cheapest Bic pen, why we got other kinds of pens as
well, we also had…
ROBERT HOLLAND: That sounds familiar.
ROBERT L. HETZEL: …we also had to explain why the library got to Washington
Post.
ROBERT HOLLAND: [Laughter] and whereas you could have some with—with
unreasonable grounds thing, for heaven’s sake. That’s not something you should be poking at.
It’s not your business and there’s nothing wrong with it and I’m not going to defend it, but
you don’t say that to a Chairman of a House Committee, let alone a Senate Committee.
ROBERT L. HETZEL: We just went through that with Gonzalez.
ROBERT HOLLAND: Yeah, that’s right. That’s right.
ROBERT L. HETZEL: And so it’s…
ROBERT HOLLAND: Those guys are…
ROBERT L. HETZEL: It’s a way—it’s a kind of tactic to wear you down because
just enormous amounts of staff time were required to meet his requests and it had to be done
at the top…
ROBERT HOLLAND: Yeah, we used to suspect that there were staff people on the
staff who just spent their time thinking up these little sort of ways to needle and harass the
Fed, like they would weaken us by, you know, the battle of a thousand cuts, so to speak.
ROBERT L. HETZEL: Well, and then he would turn around and ask for the same
information the next year so that we would have the same—and well, you know, I had—I
talked to Bob Auerbach at a cocktail party once and he said, you know—I said, why are you
doing this? And he said well, you know, we hope to turn up something that will look like a
scandal which will then be—suggest that well maybe the Fed needs oversight from Congress.
ROBERT HOLLAND: Yeah.
ROBERT L. HETZEL: And if it needs oversight, then maybe we ought to have
GAO audits and you on down the line, you finally end up with putting the Fed on budget.
Anyways…




-6-

ROBERT HOLLAND: Yeah. No, no, that’s the path and we were—so those were—
those sort of—that sort of a thousand cuts were nipping away at us through that period.
Proxmire had his own style that gave us fits later on when he got into the Chairmanship, but
they were going on at that time, too. Patman and his people were good at it.
ROBERT L. HETZEL: Well yeah, Proxmire’s a whole different story.
ROBERT HOLLAND: Yes.
ROBERT L. HETZEL: Proxmire pushed the Fed very hard in ’71 and ’72 to
concentrate on unemployment…
ROBERT HOLLAND: Yes.
ROBERT L. HETZEL: …and then when we got high inflation in ’73 and ’74, he
jumped on the Fed for not concentrating on inflation. So that—I said, he had his own set of—
anyways, let me say one thing about…
[00:20:00]
ROBERT HOLLAND: Did I put it—I wanted to put it in that broader context in that
reply to that kind of thing, but that’s about what I feel like I could say with what I recollect
from that period.
ROBERT L. HETZEL: Sure. Let me say one thing about Robertson and maybe this
will ring a bell with you, in 1966, Patman had a bill that would subject all bank deposits to, I
think, it was a 4% ceiling—interest rate ceiling which was, you know, well below market
rates and that would have been a real problem for large banks. You would have massive
disintermediation and the Fed opposed that bill and what came out of it, the Treasury pushed
the bill that we finally got, which allowed the Fed to impose different ceilings so that you
could have a lower ceiling on passbook savings accounts that competed with the S&Ls than
you had on large…
ROBERT HOLLAND: Yes.
ROBERT L. HETZEL: …CDs and it also had discretion to set the ceilings. And I
came across a memo from Henry Fowler to President Johnson, it came from the LBJ Library,
saying that the Fed—the Governors had been opposing any change in Reg Q, but that he had
gotten Robertson to sign onto this—to the Patman—that Robertson and Patman had both
agreed to sign onto the bill.
ROBERT HOLLAND: The stair step ceiling bill.
ROBERT L. HETZEL: No, to the more drastic.
ROBERT HOLLAND: Oh, to the more drastic one?




-7-

ROBERT L. HETZEL: Right. And that that suggested then—then he was
suggesting, well that that’s then when the Fed agreed to come onboard and supported this
Treasury compromise, when it was afraid that both the Senate and the House Banking
Committees would sign onto this single set in stone legislative ceiling on all bank deposits.
ROBERT HOLLAND: And the memo implied that Robertson agreed to a single
ceiling…
ROBERT L. HETZEL: Yes, and that’s…
ROBERT HOLLAND: Below market ceiling?
ROBERT L. HETZEL: Yes, and then that’s what then kind of made the Fed willing
to kind of back off in its opposition to any kind of change and going to go along with what we
ultimately got.
ROBERT HOLLAND: Gee, I don’t remember that particular feature.
ROBERT L. HETZEL: It made me think—well, of course it may not have, you
know—well, you know, who—it may not have been something that was—I don’t know, it
may even have been a tactic designed to pressure the Fed Vice Chairman, the other
Robertson.
ROBERT HOLLAND: Oh, I thought you were meaning Louie—you mean it was
Willis Robertson…
ROBERT L. HETZEL: Willis Robertson.
ROBERT HOLLAND: …that agreed to that…
ROBERT L. HETZEL: Yes.
ROBERT HOLLAND: …that harsher one. Yeah.
ROBERT L. HETZEL: Yeah.
ROBERT HOLLAND: Yeah.
ROBERT L. HETZEL: But it did make me think a little bit of 1972 when the Fed
was threatened with extension of price controls to interest rates.
ROBERT HOLLAND: Hm-hmm [affirmative].
ROBERT L. HETZEL: It’s—again, it seemed like ’66 was like ’72 in the sense that
the Fed really did have to be concerned that there would be enough pressure in Congress to
get through a bill, you know, setting price controls and all.




-8-

ROBERT HOLLAND: Yeah, setting an interest rate ceiling.
ROBERT L. HETZEL: Hm-hmm [affirmative].
ROBERT HOLLAND: Yeah, that’s right, those were pretty scary, you know? And as
you say, in effect, we lost the argument for the one because we never did—we weren’t able to
beat that Treasury compromise.
ROBERT L. HETZEL: When do you think the differential—I think it was a half a
percentage point then between S&L and bank deposits, do you have any recollection of how
that got stuck in there? Probably not. probably on the of the Banking Committees.
ROBERT HOLLAND: Well, my recollection is—gee now this—I’m really vague on
this one, Bob, but my recollection is there was a base period when the margin was that size or
larger.
ROBERT L. HETZEL: Yeah, it may even have been three quarters initially and
then…
ROBERT HOLLAND: Yeah. No, no. I mean, a period in history. But it was not one
pulled off a wall, there was a time when the two systems, the S&L system and the banking
system functioned with banks being able to pay a half or three quarters of a point on average
less than the S&Ls and the amount of—the net flow between the two didn’t seem to be very
big.
[00:25:11]
ROBERT L. HETZEL: Yeah.
ROBERT HOLLAND: Yeah. So, I mean, there was—I don’t want to use the term
stable…
ROBERT L. HETZEL: No, I think it was 3%, I mean, basically they passbook it,
S&Ls paid 3% and bank rates had moved up to almost 4.5% on CDs.
ROBERT HOLLAND: On CDs, but not on passbook.
ROBERT L. HETZEL: That’s right, but they were moving up to…
ROBERT HOLLAND: Well, as I recall passbook was less at commercial banks and
S&Ls, wasn’t it? Passbook? And banks invented the CD as—and left the passbook rates low
and invented the—well, they did…
ROBERT L. HETZEL: That sounds right.
ROBERT HOLLAND: …they did start moving their passbook up too, but I believe
there was a time when…




-9-

ROBERT L. HETZEL: Hm-hmm [affirmative], that sounds right.
ROBERT HOLLAND: …when there was a margin of about like a half a percent or
so. My recollection is the way it got into law was that there was a period in the recent past
when that margin prevailed and it sort of—that was a justification for trying to hold that one,
not that it was a completely arbitrary number or one designed to strip the banks with
[unintelligible 00:26:11] would actually look like the flow pattern was fairly stable. What
changed the stability, of course, was the CD.
ROBERT L. HETZEL: Yeah. Yeah, absolutely. Let me go back to ’65 just a minute.
’65, at least for somebody coming back and reading this history ex post, seems to be kind of a
dividing point in that in ’65, Chairman Martin was very aggressive in taking the
Administration on over its view that interest rates didn’t have to rise.
ROBERT HOLLAND: Yeah.
ROBERT L. HETZEL: He gave public speeches a number of time, some off the
record, to business groups…
ROBERT HOLLAND: That’s right.
ROBERT L. HETZEL: …the Columbia speech on the record. He was, let’s just say,
very aggressive in his…
ROBERT HOLLAND: Well, remember he lived through the peg era and the
compromise to get loose from it and I think he was firmly convinced that trying to peg interest
rates or hold them down below what was needed [unintelligible 00:27:18] was bad for the
market, bad for the economy, bad for everything. And I think he was seeing some language
being said that reminded him of some of those old battles that he’d helped win over a decade
earlier.
ROBERT L. HETZEL: Yeah, that’s a good point.
ROBERT HOLLAND: Yeah.
ROBERT L. HETZEL: In December ’65, after the discount rate increase and
Johnson, I guess it was in San Antonio, publicly denounces the Fed move.
ROBERT HOLLAND: Yeah.
ROBERT L. HETZEL: Do you think Martin was worried that Johnson might have
called for his resignation? Several people within the Administration, Fowler and Ackley said
they had to call Johnson to calm him down. Do you think that was a possibility, that Johnson
might have, you know, publicly called for Martin’s resignation?
ROBERT HOLLAND: Oh yeah.




- 10 -

ROBERT L. HETZEL: because, I mean he did have a temper.
ROBERT HOLLAND: Oh yeah. No, no, that’s right. That’s right. That’s right. But I
think—and Martin wasn’t a guy who loved that job and would do anything to possible to keep
it. I think he did see himself, and he had a lot of people in the financial community who was
telling him that Bill, if the President’s firing—if you go, if the political process squeezes you
out, that’s going to be a terrible setback for America—the American financial structure. But I
never found Martin with any ego or that would say, geez I don’t want to give up that job.
I think if Johnson had fired him for that kind of stand, he’d have accepted the firing,
he’d even—I think he was careful because he was—he recognized he was in some sense a
bulwark [00:29:00] and then more acceptable to both sides—a larger share of both sides than
anybody else and so forth and that it was important for him to—important for the Federal
Reserve System for his leadership not to be overturned for that issue, that is in effect for the
guys who were against interest rate increases to win the day and for the Central Bank to have
to function under that implicit directive for as long as those people stay in office.
ROBERT L. HETZEL: So, he wouldn’t have been like Eccles and wouldn’t…
ROBERT HOLLAND: No.
ROBERT L. HETZEL: …have stayed around?
ROBERT HOLLAND: No, he didn’t have Eccles’ ego. [Unintelligible 00:29:34] but
I think he would have—however, my impression was after he came back from that meeting
with Johnson [unintelligible 00:29:41] that he was—that he didn’t think that ended in a way
that would have Johnson firing him and I don’t—that was my impression.
[00:29:55]
ROBERT L. HETZEL: Yes, well he apparently spent a long time talking to Ackley
about the fiscal [unintelligible 00:30:02] the ‘60s.
ROBERT HOLLAND: Yeah. Well, and he wasn’t getting any argument from
Gardner other than the fact that Gardner had to be careful not to undermine the party line, so
to speak. Gardner was in a very awkward position. Gardner was a good enough economist to
know that the right way to—the best way to deal with that fiscal stimulus was to cut it back
and use something else. But Gardner—you know, when you’re Chairman of the Council of
Economic Advisors you got a President or two to deal with and so on. I do think that the
biggest difference between ’67, ’68 and—well I guess I should ’67 and ’65 was in ’65, no
way were we being given any hope for fiscal restraint.
Whereas in ’67, it was being proposed and we were—you know, several episodes
during that year when it sounded like a tax increase was in the offing or could be. Certainly
my recollection is very clear the Chairman was very strong for fiscal restraint in that era.
ROBERT L. HETZEL: Sure.




- 11 -

ROBERT HOLLAND: I don’t remember how much he talked about it in terms of tax
increase. I know he was certainly—he certainly felt a tax increase was better than doing
nothing. And I’m sure the fact that he spoke out so strongly for it, and I think some other
members of the Board felt the same way, gave him a little pause when it looked like Congress
was finally going to do it, or the Administration was finally going to stick out and announce it
and so forth and that information—to let that preferred monetary fiscal correction come
forward, slowed us up a bit episodically when the hope rose and then when it was dashed by
what happened and we had to go back and try to do what we could.
ROBERT L. HETZEL: It looked like the first time that took place seriously was in
the fall of 1966, President Johnson gave a speech in September. He suspended the investment
tax credit and there was something, I think limited accelerated depreciation. My reading is at
that point it looked like the Fed thought that Johnson would ask for a tax increase in the State
of the Union address in January, 1967. And at that point, the Fed was willing to make sure
that the economy stayed strong. It was willing to stimulate the economy with the anticipation
that it would get a tax increase in ’67, but then the economy slowed down in response to the
increase in rates in late summer ’66, the disintermediation and so on, and as long as the
economy was slow, then there was no chance of getting a tax increase through.
And so what ended up I think, this is just my reading, was that the Fed, you know,
kept rates at a level that would keep the economy growing strongly, but it was frustrated in its
anticipation of getting, you know, a tax increase early in ’67.
ROBERT HOLLAND: Yeah, well and as I say, we would—we were hoping it was
going to happen, we knew it would be a better solution to the problem and so forth and we
would wait a bit. Then when it wasn’t done—and do something and then we got caught in this
kind of chicken and egg argument, you know, if we tighten monetary policy and it slows the
economy some, then, as we did, then some of the opponents on the tax increase and the
opponents of tightening up on the fiscal side, used that slowing as an argument for not letting
any fiscal restraint go through and it worked. That argument worked and so we didn’t get the
fiscal restraints, you know?
So, you had a feeling that you were, gee whiz, we’re kind of trouble if we did and in
trouble if we didn’t.
ROBERT L. HETZEL: Right. And then in the summer of ’67 when the economy
does—it’s clear that the economy is taking off, inflation has fallen to 2% and moves back up
to 3% when the Fed would have tightened, then Johnson submits the tax bill to Congress and
there’s a feeling that, well if the Fed now goes ahead and raises rates, Congress will use that
as an excuse and say, oh the Fed has done our dirty work for us, we don’t have to bite the
bullet to the…
[00:35:01]
ROBERT HOLLAND: And we had ’67—the ’66, ’67 experience to have burned that
kind of rationalization home in our mind.




- 12 -

ROBERT L. HETZEL: Hm-hmm [affirmative]. In summer ’66 where—you’re
saying where the Fed was letting the economy…
ROBERT HOLLAND: Well no, no [unintelligible 00:35:21] then started to cinch up
and then in about ’65, ’66—I’m a little fuzzy now about these dates—and then the economy
slowed down. Then that slowing turned out to be the Wining argument for not increasing
fiscal restraint at that time.
ROBERT L. HETZEL: Yeah, that’s fall ’67—sorry, fall ’66…
ROBERT HOLLAND: Six, yeah, that’s right. That’s right.
ROBERT L. HETZEL: …through June of ’67.
ROBERT HOLLAND: Yeah. So then when we saw the surge coming—the rise
coming again in the fall of ’67 we had that lesson from the preceding year, you know? Not a
lesson that says it was right not to do it, but a lesson that that’s one of the things that could
happen if we stepped in there and pushed is that the very tightening that we do there can be
used, we had seen it used in Congress as a reason for defeating fiscal restraint, even though
fiscal restraint was clearly the better policy to bring to bear. And we were going at it
reluctantly because we were using the second best instrument, but we were using it because
the first best we couldn’t get it used and neither—for reasons you and I have been talking
about.
ROBERT L. HETZEL: Let me ask you about…
ROBERT HOLLAND: Because you can tell, even as I now think back of it, you
can—I hope my tone of voice gives you a sense of some of the frustrations we were living
through at that time.
ROBERT L. HETZEL: Yeah. Let me ask you about late 1967—and again, reading
this record, I get the feeling that initially in fall—late summer, fall ’67 it was difficult to raise
rates for the reasons we just explained and then the sterling crisis put off…
ROBERT HOLLAND: Put it off a bit more, yeah.
ROBERT L. HETZEL: …the undertone seems to be that if sterling falls to the
speculators, then the gold pool won’t be sustainable, the United States won’t be able to sell
gold in sufficient quantities to the speculators and if we have to close down the gold pool, the
dollar will come under attack and then we’ve got real problems, particularly in…
ROBERT HOLLAND: Yeah. Well, that’s the dramatic, the most powerful and
dramatic and sort of an extremist argument for not doing more at that time. The simpler
argument for not doing more at that time is, you know, the Bank of England was doing its
very best to try to protect the pound under all that pounding it was taking.
ROBERT L. HETZEL: Well, it kind of was and wasn’t. The labor…




- 13 -

ROBERT HOLLAND: Well, that’s right. The labor guys handing [cross talking
00:38:03] doing the best—the best our government would let them do, put it that way.
ROBERT L. HETZEL: They were very tardy in raising…
ROBERT HOLLAND: Yeah. No, that’s right. They had their own version of the
same problem we’re talking about the United States having. And as the Bank of England took
belatedly impartial actions that were needed, I don’t remember for a fact, but I—I’ll say this,
but it’s a matter of opinion Bob because I don’t remember it as a fact, I think the idea the
Bank of England feeling of not saying gee, now I hope the Fed won’t in effect neutralize what
[00:38:47] the firming we have managed to do by raising rates over there themselves, a little
bit like I’m sure the Bank of Mexico felt about United States monetary policy over the last
year, you know?
ROBERT L. HETZEL: Right. And then the Treasury gets involved and, you know,
the Treasury has its own strong opinions.
ROBERT HOLLAND: Yes. No, no, that’s right. And then that very…
ROBERT L. HETZEL: As soon as you get…
ROBERT HOLLAND: I mean, and those are very knowledgeable guys, respected
experts in their own right over at the Treasury who were arguing—talking about some of that
kind of stuff.
ROBERT L. HETZEL: Well, as soon as you get involved in international, then the
Treasury feels like it should be calling all the shots because [cross talking 00:39:19]…
ROBERT HOLLAND: Well, it has the legal authority to. I think the secretaries and
deputy secretaries on monetary affairs, and this is Treasury, every so often remind every
chairman of the Federal Reserve Board of that, you know?
ROBERT L. HETZEL: [Laughter] yes, they certainly do.
ROBERT HOLLAND: We had the say so on it, the final word on this, not you.
ROBERT L. HETZEL: Well, I get the feeling from reading the minutes that what
was going on is that the Treasury had the idea if the Bank for International Settlements put
money into the Eurodollar market, that would lower the Eurodollar rate and take the pressure
off the pound and given that strategy, it was not acceptable to the Treasury for us to raise rates
domestically because that would have offset what they were trying to do with the Eurodollar
market.
[00:40:07]
ROBERT HOLLAND: And with the other central bankers at the BIS, you know?




- 14 -

ROBERT L. HETZEL: Right, who were…
ROBERT HOLLAND: For whom that would have looked like an undermining
move…
ROBERT L. HETZEL: Right. At the same time, they were being asked...
ROBERT HOLLAND: …of the U.S. Central Bank, that’s right.
ROBERT L. HETZEL: At the same time, they were being asked to put together a
very large credit package…
ROBERT HOLLAND: Yes.
ROBERT L. HETZEL: …to bail out…
ROBERT HOLLAND: Sure.
ROBERT L. HETZEL: …Britain. We’re putting the package together…
ROBERT HOLLAND: Yeah.
ROBERT L. HETZEL: …it doesn’t look appropriate for the Fed to take actions
which seem to…
ROBERT HOLLAND: The purpose of the package, that’s right.
ROBERT L. HETZEL: Yeah. I mean, this is not a big…
ROBERT HOLLAND: That happens every once in a while.
ROBERT L. HETZEL: Yes [laughter].
ROBERT HOLLAND: No, I mean that kind of argument about the conflict between
domestic and international considerations. Short run conflict, I better be careful to—I’m a
member of the theory that thinks in the long run the two can’t be inconsistent.
ROBERT L. HETZEL: But in this particular instance, it came at the end of this
period where we were constrained for—you know, just one more thing that added on…
ROBERT HOLLAND: Yeah, one more reason to delay.
ROBERT L. HETZEL: …piled up.
ROBERT HOLLAND: Yeah, one more reason to delay is what it was, one more
reason to wait another FOMC meeting.




- 15 -

ROBERT L. HETZEL: Then things at least internationally, I mean, things really got
difficult in the first part of ’68 when the gold pool had to be closed. I’m kind of interested in
the intersystem debates that took place at the time. Later that summer, Andy Brimmer wrote
a—gave a speech criticizing the New York Fed in March of ’68 for protesting the half
percentage point increase in the discount rate by not ratifying it immediately, holding out for a
full…
ROBERT HOLLAND: Oh, that’s right.
ROBERT L. HETZEL: …percentage point increase. Apparently what went on, was
that when the Fed did raise the discount rate in March and when the gold pool was closed
down, it sounded as though Martin coordinated discount rate changes among central banks in
such a way that when we raised our rates, the effect on the dollar wouldn’t be offset by other
central banks then raising their rates in tandem to protect their currency so that the rate move
was coordinated and the directors of the New York bank were cut out of that.
And they were thinking just domestically and thinking that the Fed ought to on its own
be taking much more dramatic action and there was a misunderstanding, miscommunication
at the time that and it eventually gave rise to Brimmer’s memo. Does that sound at all right?
ROBERT HOLLAND: It doesn’t quarrel with any of those snatches of recollection I
have from that period. The action of the New York Fed in delaying for a bit was sort of an
arcane signal that only insiders to the market could appreciate, but some did. You know, a
reserve bank, particular reserve bank boards of directors have relatively few ways of
reflecting to the public their differing—their judgments that differ with the policies of the
organization as a whole and that’s one of them. And they hadn’t often chosen it, the New
York Fed’s directors. Gosh, I can’t remember the last time, maybe it goes back to the battle
of the ‘20s or the ‘30s.
ROBERT L. HETZEL: Well, and according to Brimmer’s speech, 1955 was the…
ROBERT HOLLAND: The last time—the previous time it had happened that way?
ROBERT L. HETZEL: Yeah.
ROBERT HOLLAND: Okay. Well, that was probably when Sproul was starting to
try to push the peg out. [00:44:22].
ROBERT L. HETZEL: Right.
ROBERT HOLLAND: Or trying to put pressures on the direction that would
eventually lead to getting rid of the peg. But that’s right. And, you know, they—it’s by that
standard of it as an arcane signal I think that Brimmer felt that [00:44:44]—well, I should let
Andy speak for himself.
ROBERT L. HETZEL: Oh sure.




- 16 -

[00:44:49]
ROBERT HOLLAND: His speech does and he felt that the New York Bank had had
its innings. I mean, the view that the increase should be larger had been considered carefully
inside the Federal Reserve System with an awareness of how the New York people felt about
it and that had lost in the consensus building inside the Federal Reserve and the one half point
increase prevailed and I think Andy felt like a good soldier, the New York Bank should—it
had had its shot, it was given a fair shot at it, couldn’t persuade the system and it ought to go
along for external solidarity and the interest of not furthering weakening the Federal Reserve
System as an institution.
And the New York directors I think for their part felt we’re right and the rest of the
system doesn’t understand as much as we—it isn’t giving adequate weight to the seriousness
of this problem and we have thought about it very seriously also and we believe we were right
and we want a way to reflect that in effect we disagreed with this weak kneed policy of
fighting inflation [laughter].
ROBERT L. HETZEL: The issue came up again in a different context in August ’68
when, after the tax cuts…
ROBERT HOLLAND: Yeah—well go ahead.
ROBERT L. HETZEL: …the tax increase, market rates fell and then they started
moving back up again in August and the Fed decided to keep them down with a discount rate
cut…
ROBERT HOLLAND: Yeah.
ROBERT L. HETZEL: …and the directors of the New York Bank and I think St.
Louis and maybe two other banks, San Francisco and Atlanta, did the same thing, they
postponed for two weeks…
ROBERT HOLLAND: Yeah.
ROBERT L. HETZEL: …before they lowered the discount rate.
ROBERT HOLLAND: Yeah, that’s—I tell you what’s involved here as much as
anything, maybe more than any other single thing, is it is a—the tradition that when the
decision is finally made as to what size discount rate is to prevail, to close ranks among all the
Federal Reserve bodies and support it. That’s a very helpful [00:47:11] tradition for us, for the
Chairman of the Federal Reserve System.
ROBERT L. HETZEL: Oh sure.
[0047:15]




- 17 -

[END TAPE 73, SIDE B]
[START TAPE 72, SIDE A]

[00:47:19]
ROBERT HOLLAND: …the directors don’t. The President can get away with—the
President of a Federal Reserve Bank can get away with this sort of a disparaged speech. Bob
Black has been known to do it in his day, you know, and Aubrey didn’t do it so much, but—
oh, who was it? Leach before him. Leach used to do it a little bit, Hugh Leach. You look at—I
don’t remember that all his speeches were written, but Hugh was capable of sounding a
dissonant note, to put it politely. For a reserve bank, the board of directors which has really no
voice, you hardly ever see a director of a Federal Reserve Bank giving a policy speech and I
think most presidents would discourage it.
The presidents of the reserve banks would discourage it if they tried. That tradition is
pretty strong. So about the only flag the directors can fly is offbeat timing of their discount
rate. Either a proposal for increases or their slowness in improving a change they didn’t like
[00:48:18]. And while my colleagues at the Board would say—like Andy would say, it
complicates the decision making pattern, it shows a, you know, a crack in the Federal Reserve
System and we can just up it to send a mixed signal and so forth and so on.
I’m a little more inclined to think well, it does create those periods of awkwardness
and it is an indication of a certain amount of—if not discontent it was disagreement over that
particular policy decision by at the least the board members of one bank. But if allowing a
reserve bank to do that occasionally is one of the prices of keeping vigorous and viable
Federal Reserve Bank as part of a Federal Reserve System, I’ll put up with that kind of
awkwardness. And I kind of think it is.
ROBERT L. HETZEL: Sure. Well, in the minutes Dewey Daane defended…
ROBERT HOLLAND: Well, you can tell us guys who had Federal Reserve Bank
roots. We’ll sound like that a little bit.
ROBERT L. HETZEL: Yeah. Well, in response to that the Council of Economic
Advisors put together proposed legislation that they hoped that Johnson would have included
in the next State of the Union address. Of course, Humphrey was defeated and there was no
Democratic State of the Union address, but Warren Smith in particular at the Council of
Economic Advisors worked with White House staff to put together a bill that would take the
regional bank presidents off the FOMC.
ROBERT HOLLAND: Out.
ROBERT L. HETZEL: Yeah.




- 18 -

ROBERT HOLLAND: Yeah, that’s right.
ROBERT L. HETZEL: There was a lot of communication between the Council and
the Board at that time, so the Board must have been aware of what the Council was trying to
do.
ROBERT HOLLAND: Yeah, that’s right. It was. There was. There was an
awareness of what was going on and the reserve banks sure didn’t like it. The amount of
discomfort of the Board depended on the extent to which the particular person expressing that
attitude cared a lot for the diversity and check and balance inside the Federal Reserve System
and was willing to put up with some discord or didn’t like that kind of cacophony and was
willing to see it, you know, fenced in.
There weren’t many like that at the Board, but there were some and Warren Smith
sure felt that way, you know.
ROBERT L. HETZEL: Yeah. Well, Jim Parthemos said that Dan Brill shared that
feeling, that life would be simpler without—or at least that was impression.
ROBERT HOLLAND: Yeah, and I don’t disagree with Dan. I think life would have
been simpler without the Federal Reserve Bank. It just wouldn’t have been better [laughter].
Board life would have been simpler. But, you know, Dan had to do a lot of the staff work
behind the sort of arguing out and presenting arguments and go back to the Congress, the
Administration on these reserve bank deviations from norm, if I can put it that way, you
know, particularly between the Board and the Federal Reserve Bank of New York, there was
enough of a sense of worthy match or parallel strength of intellectual powers and interests that
those tussles were pretty lively sometimes.
[00:52:31]
I think those of us who had a little Federal Reserve Bank blood in our veins always
felt the awkwardness was more than worth the trouble.
ROBERT L. HETZEL: Well, presumably this was something that put Martin under
additional pressure. I mean, he’s the one who brought the regional bank presidents in in the
first place.
ROBERT HOLLAND: Oh no, that’s right. Bill was not only—he was a better
political scientist than most people give him credit for. He was also an adroit judger of how
political tides and changing moods run in Washington and I think he saw very clearly the
regional reserve banks, if they were respected, that is if they were behaving and running a
way that was respected, would involve people who were respected and so forth, could be a
very powerful bulwark in preserving the independence of the Federal Reserve System.




- 19 -

That was very clear in his mind I think and I don’t know that he ever wavered from it.
Sometimes he talked about it more than others, but I think he always saw that as a strength.
And so he was a defender of the President, as you’ll see I think in the record—you must have
seen as you look at it.
ROBERT L. HETZEL: Sure. In terms of the expression of New York’s point of
view, how effective an expositor in FOMC meetings was Al Hayes? When I read the minutes,
basically all one sees of Hayes, unless he was running the meeting is the prepared statements
that come from the New York Fed. And of course, the statements are very carefully done,
they’re very thoughtful, they’re very good, but there’s very little indication in the record of
the extent to which he took part n the give and take and the ultimate shaping of a final
decision. Is that a fair statement or no?
ROBERT HOLLAND: Yes, but it varied a little bit over time. Remember, when Al
first came into that Chair, he had two big handicaps. One was the President he was
succeeding, Allan Sproul was a towering intellectual figure, not only in New York but around
that table. Allan was a vigorous opponent of ideas he didn’t believe. And he used good—he
was a good strong arguer, that is he didn’t try to win an argument by exaggeration or by
putting up straw men and that kind of stuff, which you know is a lot of standardized tactics.
Allan always hit hard but hit fair and he would hit strong.
And everybody knew he was his own man. He wrote most of his own speeches. What
he said was what he felt and that added power to what he—and he wasn’t bashful and he was
willing to speak out and interrupt the Chairman at a key point in the discussion to make
another point or to ask for a point to be considered and so forth. He was a pretty assertive guy
at the Chair. I remember more than one regional reserve bank president who’d think, gee I
wish Allan wasn’t so pushy, you know. And they had a feeling that while some people at the
Federal Reserve Bank of New York thought the Board people looked down on the New York
Bank, a fair number of Federal Reserve Bank people in other Federal Reserve Banks felt that
Allan Sproul and the New York Fed looked down on all the other reserve banks.
Well anyway, and the other bid handicap Al Hayes came in with, he had top notch
staff immediately underneath him who we all k new were drafting his statement, providing
him with arguments, giving the fill in [00:56:34], you know. At various times, let’s see, he
had—because he still had Rouse didn’t he at the beginning?
ROBERT L. HETZEL: Yes.
ROBERT HOLLAND: He had Rouse.
ROBERT L. HETZEL: I think until about ’58.




- 20 -

ROBERT HOLLAND: Yeah, and I’ve forgotten where Roosa’s timing comes in
there and then out and so forth.
ROBERT L. HETZEL: Well, Roosa came in with Kennedy.
ROBERT HOLLAND: That he came into Treasury, but I mean when he was at the
Fed of New York?
ROBERT L. HETZEL: Well, I think through—it would have been through ’59 I
guess.
ROBERT HOLLAND: Yeah, see so he had Rouse as a market arguer and Roosa as
an intellectual researcher. I think Bob was Director of Research in those days. Top notch
minds, very sharp, very acute, great writers and arguers all of whom undoubtedly, if they
didn’t draft they certainly at least reviewed and polished every one of Hayes’ statements. And
everybody else around that table knew that when Al sat down to read that—when it came his
turn to say what he thinks about monetary policy, they knew he was looking at a draft that had
been gone over line by line by two of the best minds in the system, Bob Rouse and Bob Roosa
and the two major dimensions of policy where the New York bank usually tried to speak the
hardest, that’s open market policy and international policy.
[00:58:00]
Open market management and then the larger economy and so forth and then Bob was
handling international pretty well too. Well, that meant Hayes started with a real handicap in
terms of conviction that what he was saying was personally very strong and very authentic
[00:48:20] and you should really listen to Al, you see?
ROBERT L. HETZEL: Sure.
ROBERT HOLLAND: The institution—and some people would say he learned his
lessons well in communicating with the Open Market Committee and so forth. My
recollection is over the years, Al got gradually better at communicating both the fact that he—
he felt what he was saying and that it had some of his imprint on it when he talked about
monetary policy around the room and so forth. And also in terms of making comments as the
meetings went on. That may not be so, but in effect as he got more experience in that spot, I
think he had a little bit—but I don’t think he ever completely got away from those two
handicaps. They were just too strong. I mean, Sproul had been too powerful a figure, a
personal intellectual and pervasive arguer around the table figure while he was there and
Hayes just had this blander way about him that, you know, he was the like the guy who ran
for senator after William Jennings Bryan stepped down, you know, gee whiz.




- 21 -

It doesn’t sound like he ever said anything even though he was wiser than Bryan, you
know, and he continued to have that top notch staff up there, particularly in two or three key
spots to equip him and, to give him his due, that’s exactly what he should have done. He
should have brought the best thinking of his staff to a fruition in his own mind and then
declare it, you know? So, it’s a—he had a tough spot in that sense to play. But he reflected it
well, I mean, in the sense that what he said I think always carefully reflected the best
judgment of the Federal Reserve Bank of New York.
ROBERT L. HETZEL: You said one thing about Sproul I wanted to follow up on.
Sproul thought that to implement monetary policy, you really had to be in touch with the
markets, you had to have a sense of what was going in the market at all times. So, from his
perspective you really had to a significant extent run policy out of New York, it was the way
he looked at the world.
ROBERT HOLLAND: Well, at least he thought what New York had because of its
proximity to the marketplace was an unparalleled insight into the workings of monetary
policy in the marketplace and all the rest of the system should have listened to it. I’ll put it
that way, how’s that?
ROBERT L. HETZEL: Hm-hmm [affirmative]. But as the person there watching the
level of interest rates, the term structure of interest rates, the flow of credit between dealers
and how they were financing their positions, you know, as the person who was actually there
with that information who was able to—who was in the best position to, you know, decide
what the Fed should do. It was more extreme…
ROBERT HOLLAND: I would put it a little softer than that. I would say you thought
the person in that position himself was being informed by all—was in a position to make
recommendations for how all the monetary policies including the Fed of New York should
vote as to what to do. And I think that’s the way Sproul thought of it. I never thought—I don’t
think he—I never thought of him, put it this way, as a man with ambitions to pull the decision
making to New York.
ROBERT L. HETZEL: No, but he thought.

ROBERT HOLLAND: Now, he worked—the guy, you know, Ben Strong in the ‘20s
did.
ROBERT L. HETZEL: No, but…
ROBERT HOLLAND: Ben Strong wanted the decisions made—wanted to make the
decisions. I don’t think Sproul ever thought that was possible.




- 22 -

ROBERT L. HETZEL: Oh, he didn’t think it was possible. But on the other hand, he
thought that it would be a mistake to concentrate all of the decision making in Washington…
[01:02:18]
ROBERT HOLLAND: Oh absolutely, he thought they were getting an absolutely
unparalleled kind of information out of the play of monetary policy in the marketplace and
that that information which he and his managers were passing onto the Open Market
Committee was probably the most important information the Open Market Committee was
getting. I put it that way, see.
ROBERT L. HETZEL: In a sense, he was like Martin in that respect. Martin thought
the best education for becoming a monetary policymaker was to understand the markets and
the bond markets and then, with that understanding, what you needed is a lot of contact with
businessmen in the business community to give you information about the economy. Sproul
carried that further and Martin was less interventionist, more inclined to concern himself with
the short term interest rates and let the rest of the term structure do what it—you know, let
market forces set Sproul with…
ROBERT HOLLAND: Yeah.
ROBERT L. HETZEL: Sproul was much more wanting to control the whole
structure, depending upon what he thought was kind of the problem of the time or…
ROBERT HOLLAND: Yeah, but now you have to remember both of those men
were, I don’t want to say influenced, but were informed by a pyramid of really first class
minds underneath him that were feeding up information, draft analyses of what was
happening in the market and what policy ought to be and so forth. Sproul had his Roosa and
Rouse up there in New York who were very market minded, who perceived the imperfections
in the market and thought the Fed could help to smooth some of those over, who could
perceive the weaknesses of the market under stress and thought the Central Bank ought to
help to cushion those weaknesses. That’s the way they would put their interventionist theory,
I think.
But on the other hand, down in Washington the rising powers of the intellectual towers
in the Fed staff, the Rieflers, Thomas…
ROBERT L. HETZEL: Young.
ROBERT HOLLAND: …Young and Youngdahl through this—Youngdahl cut a
swathe with Martin. All were all for letting the market shape the yield curve and they were
feeding that stuff up to Martin, very strongly reasoned, very carefully put and while Martin
had some of that feeling himself, I don’t mean they changed his mind, they were giving him




- 23 -

an undergirding and a strengthening and reasoning and rational analysis for that view that
grew stronger and stronger through the years. And Sproul was getting reasoning that
supported this intervention, help the market be a market kind of view that Rouse and Roosa
had.
Although, you know, both Rouse and Roosa would say, well in the first instance we
are market people, we want to see the market do it and we only want to deal with market
imperfections—we want to help the market imperfections because even our markets are still
not perfect. So, that’s the kind of the way the reasoning would have gone I think in the two
groups. And that’s what made the exchanges between Martin and Sproul so interesting and so
deep because it was that oomph behind it.
ROBERT L. HETZEL: Sure. Ralph Leach is another name from that early period at
the Board.
ROBERT HOLLAND: Yeah, Ralph was a big free market man too. Yeah.
ROBERT L. HETZEL: Riefler in his own right was a real intellect, I have less of a
feeling for Thomas and Young, although they were—I mean, clearly they were very capable
individuals. I have less of a feeling for what their intellectual feelings were about events, you
know, the way we analyze things as an economist. But they were clearly very strong
individuals. Do you think it made a difference going from the ‘50s to ‘60s, the change in staff
people working for Martin?
As you got into the ‘60s, you still had very strong capable individuals. You know, Dan
Brill, and then a younger group of people coming up under them, Partee and Axilrod, but they
were people of a very different education, a different generation, a different temperament.
They were Keynesians as opposed to the older generation, which formed its views during the
depression. Do you think that made a difference or, you know, kind of…
[01:07:20]
ROBERT HOLLAND: Yeah.
ROBERT L. HETZEL: …Martin was basically Martin, whether it was ‘50s or ‘60s
and it didn’t make a difference.

ROBERT HOLLAND: I mean, the quick answer is yes, two things—for three
reasons really. One, the amount the staff influenced Martin was always a little hard to tell.
Martin was nice to everybody, but in a way he had some of his own mind making up inside of
him that—but after all, those other people were with him in his salad [01:07:58] days in the




- 24 -

Chairmanship and I think—and they were powerhouses, Win in particular who was the one I
think who was closest to Martin.
Win was a superb intellectual. Win—I know Arthur Burns though Win-Riefler was the
smartest thing he’d ever seen in the Federal Reserve System.
ROBERT L. HETZEL: Yeah, well Riefler helped work out the Accord. He was the
key figure on [cross talking 01:08:21]…
ROBERT HOLLAND: Yeah. Yeah, that’s right. That’s right. He not only had an
excellent grip of economic theory, and not just Keynesianism and not just the Austrian school,
but the whole international theory that most other economists up until that time had neglected
to try to integrate in the way they were thinking. Not with Win, you know, Win was great, he
really was. He was a little supercilious, he had a little of the Dean Atchison in him but he was
great. And Martin found him very helpful and he was very adroit with words, so he really
helped Martin around some of the rough edges when we were trying to make decisions at the
Board level.
That was really—and those—it’s hard to—well, I’m probably biased on this score
because I had Win’s job for about 10 years long after he was gone, but that business of
finding the right words to capture the essence of a policy thrust that you could get at least 10
or 11 bright intelligent people to agree on is very hard and Win was very adroit at it and
Martin appreciate that value on his part. So, Win was something special, he really was.
Thomas and Young were real anchors in their respective areas. Well, they had a very
good grasp of the banking system. They were a troika that was really strong and Martin
respected both of them, but he had this particularly strong bond I think to Win and so forth.
ROBERT L. HETZEL: Well, I mean Riefler stood out as, I don’t want to use a trite
expression, but towering intellect. He really had an extraordinary…
ROBERT HOLLAND: Yes.
ROBERT L. HETZEL: …intellect that set him apart. Young and Thomas were kind
of very competent, very knowledgeable…
ROBERT HOLLAND: Oh no, they were better than that. They were better than that.
Ralph had a wonderful vision for how the findings of research could inform policy and shape
policy and how the lines over which research could mature in the future, in ways it could be
more helpful and the kind of changes or improvements that were needed to do it. That was a
gift, you know. He’d had those years at the National Bureau to help him think in these kind of
long term bases, but he was very good at that. Boy, he was a bearcat on the English language.




- 25 -

Don’t send in a document with something wrong, a comma or English language that kind of
stuff [01:11:14] to Ralph.
And Woody was very strong in the banking system and how it functioned, what was
going on in that kind of area. So, they were all three strong guys and those of us who came
along behind them—well, I don’t think Win ever—Chairman Martin ever had an alleg—a
fondness and an acquaintance for anybody else like he did for Riefler. Let’s see, I believe
when Riefler stepped down, Young took Riefler’s position as Secretary of the Open Market
Committee and Ralph had two jobs in there for a while and so forth. By the time we had gone
full circle, so it was Brill over the Research Division and Solomon on the International and
me on the Money Market, with all three of those gone, it was different.
[01:12:17]
By that time, Martin was longer and older in the job, he was very kind to listen to us. I
think he respected what we had to say, but he wasn’t as dependent on us as he was on those
other three or four guys and Youngdahl and Leach behind him and so forth. Also the battles
were different. The battles that they helped him most with were really big, intellectual battles
of how to alter the workings of the whole monetary system and economic system and so forth.
The battles he was fighting more in his time were really more structural battles, differences of
the argument between us and the Administration, then Congress and so forth, if you think
back on it.
We had some periods when we had disagreements within the Fed and it was a really
intellectual disagreement for how to proceed and so forth, but these other arguments—in
addition—on the other hand what had happened is that the membership and the Board began
to change. There were more economists, or at least economics oriented members of the Board,
coming on who listened more to the up to date economic theory and presentations that Dan
was developing, Bob was developing international and so forth and so on.
So, I think the other members of the Board grew to value very much—so I would say
the weight of that part of the staff grew a little bit with the rest of the Board, even if it wasn’t
as much with Martin because Martin didn’t need as much help.
ROBERT L. HETZEL: Well, there was kind of an agreement between what
economists was interested in at the time and what the practical problem was at the time in the
middle ‘60s…
ROBERT HOLLAND: Then one other thing happened—are you there, Bob?
ROBERT L. HETZEL: Yeah, oh yeah.




- 26 -

ROBERT HOLLAND: One other thing happened that was a significant part of the
intellectual life of the Board for a while, I think it was shortly after George Mitchell came on
the Board. He was sort of the first of that new breed of economists that made it to the Board.
And George persuaded Martin that we would be smart if the Board created an outside
advisory group, not with any power, but just get some of the economists of the country from
both sides of sort of the spectrum, or from several different sides of the spectrum, that we
would let come in and talk to the Board once or twice a year.
And I think it was George that came up with the idea that we ought to have a very
respected economist not allied with any particular line of monetarism or Keynesianism as
Chairman. They chose Lee Bock [phonetic 01:15:14] who was an inspired choice and Lee
would bring in—I don’t remember if it was once or twice, I think it was a twice a year—Lee
would choose about—well, I guess there’d be eight or 10 of those economists around the table
from different poles of economic thinking, with a mixture of change from time to time,
depending on what the issue was that the Board wanted them to address or that they wanted to
address—they were never constricted as to what they talk about—Mitchell, who handled that
for the Chairman and Bock were very careful about the academic freedom in terms of what
those advisors could say at that Board table was never restricted.
And that’s one of the reasons they got a splendid list of people to come. I mean, I
think almost every one of the six Nobel Prize Winers from America had been on that Fed
Advisory Council at that time.
ROBERT L. HETZEL: Yeah, I think so. Yeah.
ROBERT HOLLAND: Lee just picked a blue ribbon group and he handled it
beautifully so that when a Milton Friedman or a Franco Modigliani said something, or a Jim
Tobin said something, there was nearly as distinguished and smart a economic professor on
the other side of the table to point out any hoopla in that argument, you know, and so that
they—the Board members didn’t have not argue with them, they argued with one another to
the extent their ideas didn’t quite mesh and so forth.
They all like Mitchell. They all liked Lee, so it was always a friendly gathering, even
when Milton Friedman was there, Anna Schwartz was there, it was always friendly. The
disputes were only intellectual and they were mostly between the various professors, the
Board members didn’t jibe in, Martin in particular kept quiet. It was a wonderful idea and it
was so stimulating that, pretty soon, I think—who was chairing the Council at that time?
ROBERT L. HETZEL: Well, Ackley.
[01:17:16]




- 27 -

ROBERT HOLLAND: Ackley. Ackley either asked to come over, wanted to come
over, wanted to get briefed on it and so forth, it was first class stuff, I tell you. I was sitting in
the back row at that time and, man that was intellectually exciting. And it gave the Board—it
was a mind opening experience for the Governors even though some of the complained about
it, particularly the ones who weren’t so academically minded. And I don’t think the Chairman
was thrilled with that discussion, that wasn’t really his cup of tea. But he sat there and
absorbed it because he saw how wise it was for the system to have some input like that.
I was really sorry when that died because I think that was a wonderful thing for them
to have.
ROBERT L. HETZEL: Yeah, it must have been exciting. Although, unfortunately,
the profession doesn’t have the same expertise in monetary policy today that it used to have.
For whatever reason, it seems to have gotten away from…
ROBERT HOLLAND: Well, I’ll tell you, Lee Bock used to say—let me think, I
remember him saying it on more than one occasion, it isn’t only the Governors who learn
when we get that group together, you know? The academics take back some stuff, not only
from one another, but particularly from those members of the Board who speak up, you know,
like Mitchell. Mitchell was a very good prober questioner with those academics because he
was sort of accepted as sort of the Lead Governor for any substantive discussion with them,
but George was smart so when he’d ask a question, it would be a blunt, tough one and they
came to respect him for it and so forth.
And Dewey later on would step in occasionally. Andy would step in and then, as the
list got bigger with Sherm [01:18:56], you know, we got Governor after Governor, those
exchanges were first rate and they also—they helped provide information—background for
the Chairman besides what he was getting from the staff. It probably weakened the staff’s
influence on him a little bit, but that’s good. I mean, it broadened his input and I’m sure it
worked that way for the other Governors too. Well, I don’t think it weakened the staff with
the other Governors, the staff could hold its own with those guys, with that academic group in
terms of the—not in terms of reputations, but in terms of sort of the technical arguments of
the day, but the staff never got in arguments with them.
They would meet with them afterwards one on one and talk about it [unintelligible
01:19:37] something and the staff would—I think we always gave them our latest economic
show, appropriately sort of censored, you know, before they met with Chairman. Or maybe
I’m confusing that with the Federal Advisory Council. I don’t believe we did. I don’t believe
we showed them our show because that’s not what we wanted the comment and criticism
there.
ROBERT L. HETZEL: Let me ask you some…




- 28 -

ROBERT HOLLAND: But anyway, I passed that—you know, when you start to talk
about what happens in the post-Woody when Young or—and so forth, I have to throw in that
because that helped—and that helped us build some of the intellectual bridges from one view
to another. It was particularly helpful, surprisingly, in the international field where really our
understanding of international capital and credit flows and what were sensible and not
sensible things for central banks and governments to try to do and so forth, broadened a lot in
those years and Solomon was very good at that kind of thing and that was for—Ralph Young,
who had headed the International Division before Bob, that was his second territory, not this
first, so he didn’t have quite the feeling for it Bob did, although Bob always respected Young
a great deal.
Young was a terrific student who would just study and soak up anything he was asked
to look into. He would sound like an encyclopedia when he next talked to you about that
subject, you know? But still, he didn’t—some of that stuff you have to have a feel for and
Bob had—I sound a bit like a New York staffer when I say that, but Bob had that kind of feel,
and I think Bob got very close to the Chairman. Bob got close to the Chairman through that
interval on the international side of things for that reason.
ROBERT L. HETZEL: Let me ask you about some of the early Board members that
are just names to me in the Federal Reserve Bulletin and how they interacted in FOMC
meetings.
ROBERT HOLLAND: Before you do that, can I say one more thing on this other
subject?
ROBERT L. HETZEL: Oh sure.
ROBERT HOLLAND: One other thing—we also in effect during that whole period,
we kind of institutionalized some of what I’ll call the staff wisdom in a way it hadn’t been
institutionalized before and that has something to do with this whole shift. It took some of the
egos—instead of the three big egos, it spread things a little broadly. And when I say
institutionalized, I mean for example, the Greenbook got bigger and broader. Ralph had
started it, Dan expanded it, considerably deepened, brought the flow of funds in it in an
increasingly valuable way and so forth and that kind of thing.
[01:22:18]
On the international side, the analytical stuff was beginning—was broadening more on
what could be done. On the money market side, we gradually evolved the idea of a Bluebook,
which sort of institutionalized the estimates and the tolerable ranges and that kind of thing and
so forth. Nothing like that existed in the Win-Riefler-Thomas days. Well maybe—I guess we
began it a bit under Ralph, but it really was a product of the troika of Brill, Holland and




- 29 -

Solomon and I think that helped a lot to regularize decision, to improve consensus building,
but it also depersonalized things like, what’s your estimate of the Federal Funds Rate within
the next six weeks that will keep the M1 growing between, you know 2% and 5% annual rate
kind of thing.
ROBERT L. HETZEL: Hm-hmm [affirmative]. Well, I suppose it started with the
credit proviso in the projections of reserves that the Board [cross talking 01:23:16]…
ROBERT HOLLAND: Yeah, that was the first step I think.
ROBERT L. HETZEL: …that that was probably the—well, ’66 or…
ROBERT HOLLAND: But it was all unfolding. Some of that existed more in the
back of our staff minds and the rest of the Board knew. We saw these as a series of stepping
stones, frankly, which the Bluebook was sort of the mature product. And at that time also
remember we developed—we finally—we started the beginnings of what was then the Red
Book, it’s now the Beige Book, the input from the regional banks.
ROBERT L. HETZEL: Right. Yes.
ROBERT HOLLAND: Yeah. I had to argue a lot to get over some humps on that
one, but I think it turned out to be a very useful institutionalization of the input of
knowledge—about regional differences that were not well represented, except anecdotally
around that table until they got a little more institutionalized in the Red Book, now Beige
Book. So, those kind of instruments helped sort of change the whole interface between the
voting members of the FOMC and the staff and I think changed it for the better. I don’t think
any one of us was as smart as Win Riefler, but I think we created a more consensus building
set of instruments and vehicles for helping the FOMC reach that very difficult consensus
decision.
ROBERT L. HETZEL: Let me ask you about some of the early…
ROBERT HOLLAND: Now it’s your turn. Yeah, okay.
ROBERT L. HETZEL: Let me ask you about some of the early Governors, which I
say are, you know, primarily names to me [unintelligible 01:24:43] they interacted in FOMC
meetings, their own perspectives and temperaments. What can you remember about Canby
Balderston?
ROBERT HOLLAND: Am I on tape or off tape?
ROBERT L. HETZEL: I’ll do—I’ll turn the tape off if you want or…




- 30 -

ROBERT HOLLAND: No, you tell me which way you’d rather have the information
come.
ROBERT L. HETZEL: Well, if the…
ROBERT HOLLAND: You’re probably better off getting it on tape, aren’t you?
ROBERT L. HETZEL: I guess so.
ROBERT HOLLAND: That’ll protect you from my little idiosyncrasies. Canby’s an
interesting person to start. I first knew him when he was Dean of the Wharton School and I
was going through the Wharton School. Canby was—had a ponderous kind of manner
himself. He was nominated by the idea of bringing—having real management talent and
bringing management to the Board, a management style to the Board. And I think he
contributed some organizational ideas, but I think he felt himself as more—as bringing in
effect that portion of economic wisdom that can be marshaled from the academic world as he
had been exposed to it in an outstanding university. So, he would ask economic questions and
probe a bit. He was polite in the way he probed the staff.
He was very aware of what he felt was his role as a Vice Chairman of the Board and
that was to help the Chairman manage what could be an unruly group of seven or 12 or 19
well informed, knowledgeable, independent and opinionated individuals. So, I can never
recall Balderston saying something at odds with what the Chairman said. I can recall him a
number of times saying things that—speaking in ways that I’m sure he felt would help the
Chairman, help him reach a consensus, help him get over a tough point, free him from the line
of argument, move the discussion forward, although not so much the latter, he was willing to
be patient.
He was quiet for the most—he was comparatively quiet as a member of the Board. But
then most of the others were most of the time.
[01:27:12]
ROBERT L. HETZEL: You must have put a lot of work into—or kind of trying to
capture the essence of what people said. It’s extraordinarily hard to go from conversation to
transcript and make things—when you talk to people, you kind of understand what they mean,
but that’s a whole different ballgame than trying to get down a paper a coherent statement. It’s
an enormous effort that goes into that. You must have really labored, worked as Secretary.
ROBERT HOLLAND: Well, so did Ralph before me. So did Merritt Sherman before
him and Win—and Win Riefler, they were all real wordsmiths. And you did, you had to work
very hard, you had to find—sometimes it was just your choice of a single word over another
that would make the difference in capturing an essence you couldn’t before. We never got an




- 31 -

off—I never remember an awful lot of arguments about the minutes afterward. Probably
[01:28:11] that’s because they were so carefully done. And that had been the tradition of that.
Also I shouldn’t leave out Sam Carpenter, who was Merritt’s predecessor I think as Secretary.
All people who were just punctilious, it’s about words and so forth, all inveterate note takers.
It was the best post-graduate education in writing I’ve ever had. Man.
And yet, I think the records stand up well as a result. You look at them a lot more than
I. What do you think as you look back over them?
ROBERT L. HETZEL: Well, they make sense to me. Sure, that’s the test. Well, but
Martin must have been a special challenge. I get the feeling from reading the minutes, you
know, that he never presented an organized statement, but he talked a lot in terms of analogies
and lots of—the horse is out the barn door and we can’t bring him back in. Was it hard to
capture the essence of what he said or…
ROBERT HOLLAND: A little bit, yes, because Bill used his—well, you described
the kind of expressions he would use in trying to both communicate and in his own way
convince the other members around the table to go in a certain direction. He would use
various kinds of analogies, but they lose a fair amount of—he always did it in such a
considerate and essentially charming—ingenuous tone of voice that they gained more
conviction than just the words written on the paper have, when he’d look across the table and
say or look at a word and say, well Canby, dah, dah, dah, dah or, you know, to that kind of
way.
It really—that’s sort of something that you can’t put on paper at all, was I think one of
the key elements in his being as successful as he was as a Chairman and bringing the Board to
consensus and the FOMC to consensus time after time after time. It was just awfully hard to
get in a fight with Bill—Martin, it was even hard to get in a real argument with him because,
you know, you might launch what you think is an argument that’s logically aimed at a flaw in
a position that the Committee was moving to and he seemed to be tolerating and he’d make
what you think was an incisive statement aimed at it—and I know because one of the things
I’d get asked to do while I was Secretary was sometimes one of the Governors would come in
and say I’m going to attack this kind of thing, help me work on the language of this will you?
And I would. That was part of my job and I’d never tell anybody else either because it
was that Governor’s choice as to when it got told and why. And, you know, he’d fire—one of
those Governors would put off this sort of incisive argument and Martin might say, well Andy
you know, that’s very interesting and I think there’s a lot to what you say and I really think it
ought to—but here around that table, listen to that and listening on the table seems to me like
something like this is sort of in the ballpark of what we ought to do, you know, and the




- 32 -

ballpark wasn’t one of the Chairman’s phrases. He had a phrase he’d use and I can’t quite
recall it now and so forth.
And it would make it easier for the other voting people around the table to go along
and make it hard for Andy to refuse and yet, there would never have been an argument, you
know [laughter]?
ROBERT L. HETZEL: Yeah, well one of his favorite expressions had to have been
cross currents, well there are lots of cross currents here where I see us coming out is, so he
would give everybody their due for different…
[01:32:08]
ROBERT HOLLAND: That’s right. That’s right. I don’t remember him ever putting
down anybody with another point of view around the table. We had other Chairmen who were
a lot quicker and a lot more obvious in expressing what they thought [laughter], a view that
they thought was wrong that some other member might have around the table, never Bill. And
that was part of his way of managing.
ROBERT L. HETZEL: Okay. Let me work through these Governors. What about
Governor King?
ROBERT HOLLAND: Well, King was not a heavy hitter around the table. There
were a few subject areas in which he had particular interest and knowledge, but they weren’t
all that close to monetary policy. No, Harold was—and he—I don’t mean he was a rubber
stamp, he wasn’t that much of a nonentity, but he was inclined to go along. And I think he
appreciated a little bit the fact that the Chairman really was the guy who had all the
information and all the contacts and that’s where he seemed like—think was the right way to
go. Unless he had some real strong knowledge to the contrary, he’d just go along.
ROBERT L. HETZEL: How about Abbott Mills?
ROBERT HOLLAND: Well, Abbott was not such a go-alonger. Abbott had his own
peculiar way of thinking. We used to occasionally come out of a boardroom and have a little
game among two or three of us on the staff, what do you think he said, what do you think he
meant [laughter] because he had these peculiar ways. He was one of the toughest ones to write
down the minutes for because he would use these involuted sentences and he would start off
on a subject that seemed to us to be very tangential to the subject. Obviously when he
finished, he thought he had said something that brought it right into the heart of the issue and
the rest of us, you know, lost him on the last—around the curve and so forth.
And he could be a little testy. He was a little touchy, but he was respectful of the
Chairman.




- 33 -

ROBERT L. HETZEL: He did challenge the Chairman in 1960…
[[01:34:30]

[END TAPE 72, SIDE A]
[START TAPE 72, SIDE B]

[01:34:41]
ROBERT HOLLAND: Abbott was willing to disagree. Yeah, he was not…
ROBERT L. HETZEL: …challenged and then for a while, Martin had the FOMC
the vote on the consensus statement I think in deference to Mills, who felt like his view
wasn’t being captured in that directive.
ROBERT HOLLAND: Yeah. Yeah. Yeah. Yeah. Well, and usually it wasn’t. He had
a view at odds with the majority of the vote and aside from trying to put in a sentence or a
phrase that might reflect some portion of Mills’ argument that we thought was acceptable to
the rest of the group, we had to leave him out of most of those.
ROBERT L. HETZEL: Yeah. Well, he seemed at that point more liberal than most
of the Committee too, I guess, as a Kennedy appointment.
ROBERT HOLLAND: Oh liberal in some respects, but his attitude toward
international matters I would say he was more conservative, you know? He didn’t want to
give them as much weight.
ROBERT L. HETZEL: Well, he thought not enough attention was being paid to
unemployment.
ROBERT HOLLAND: Yes, that’s a better way of putting it. That’s a better way of
putting it, yeah.
ROBERT L. HETZEL: Well, what about Shepardson?
ROBERT HOLLAND: Shepardson was a good agriculture professor and he was
brought in partly to help give that more rural part of America a voice at the table. Shepardson
was a kindly old gentleman. He was of advanced age when he was appointed. The Chairman
gave him the job of overseeing the staff administration. I’m not sure—he may have started
that with Shepardson. Canby may have had that task vaguely, but Shepardson got it overtly so




- 34 -

the rest of us on the staff knew on staff administrative matters it went to Shepardson. Went to
Shep we would say, although we didn’t call him Shep to his face. He wasn’t touchy, he was
just the kind of guy who generated a certain aura of respect. He looked like a grandfather, you
know?
He was a pretty pinch—tight fisted hand with money and he’d budget expenditures
maybe the first one of a—a wave of a long series like that that came in, hardly reflecting the
Patman push and that kind of thing. But that was okay with Martin and with Balderston too.
They were both basically thrifty folk. Shepardson was okay with it. On policy, he tended to go
along with the Chairman. I think, to be fair, [01:37:22] I think the Chairman had it right most
of the time. Shepardson had kind of mainstream thinking in terms of policy is the way I think
of him, monetary policy. On certain structural matters, he had somewhat different views.
ROBERT L. HETZEL: What about Szymczak?
ROBERT HOLLAND: Well…
ROBERT L. HETZEL: He didn’t lack experience.
ROBERT HOLLAND: Oh no. No, no, no. He got the job, it was a very political
appointment and for an awful lot of that time, he’d speak up often, yet—I didn’t overlap with
him much, but I did a little bit. You had a feeling that—and I picked up sort of some of the
Szymczak lore from my colleagues on the staff. You had a feeling that he hadn’t dug very
deeply in the many issues on which he expressed himself. He was a bit of quick study. He
also—he sort of picked and chose where he spent his time trying to understand things invested
in and so forth.
He didn’t want to cause the Chairman trouble. He got a little more interested in bank
regulation, I believe, and I think the lawyers and the bank regulators felt a little closer to him.
That was pre-Robertson to some extent. After Robertson came, clearly the allegiance of the
legal and regulatory division went to Robbie. I told you why Robbie got on the Board?
ROBERT L. HETZEL: Yes, that was a good story. I had not heard that.
ROBERT HOLLAND: Yeah. Yeah. And Martin trusted Robertson and Robertson
was an exemplary, I think, lieutenant and ally in that field. And it came to be his to deal with.
And Szymczak was sort of coasting by the time I got there close enough to have news about
him and so forth.
ROBERT L. HETZEL: Hm-hmm [affirmative]. What about some of the older
generation Presidents that I wouldn’t—you know, have no firsthand or even secondhand
knowledge of? One that…




- 35 -

ROBERT HOLLAND: I can go back to ’51, not before.
ROBERT L. HETZEL: [Laughter] well, what about Karl Bopp?
[01:39:40]
ROBERT HOLLAND: Karl—I’m biased on Karl.
ROBERT L. HETZEL: Yeah, people seem to have liked him. He must have been
very bright.
ROBERT HOLLAND: He was bright. He was—while he was head of Research at
the Fed of Philadelphia, he taught a graduate course in central banking at the Wharton School,
the University of Pennsylvania. I took it, that’s where I first met him. But I went through the
Wharton thing and that was the best doggone education in central banking you could get in
any place in the world, even the University of Chicago, although some people would have
thought differently. But Bopp and [unintelligible 01:40:13] a few were that type, they were
really first class. Bopp was a delightful teacher, very warm, friendly, considerate person. Not
a pushy person. He almost had a Quaker like approach to other people and their problems or
their views and so forth.
But he was wise. He had been an author. He wrote some very insightful books about
various aspects of monetary policy, money and banking, central banking, history and so forth.
And he was respected as sort of a source of—I don’t want to say historical wisdom, not quite
that. Maybe a source of theoretical wisdom on central banking by I think the other Directors
of Research and by the other Presidents when he got to be a President.
ROBERT L. HETZEL: Well, he was a student of the Federal Reserve System.
ROBERT HOLLAND: Yes, really, that’s a good way to use it. Good way to use it,
and a very good one. He wasn’t as good a manager I don’t think as he was a student and so as
President of that Bank, he was on some of the sort of managerial and administrative matters, I
don’t think he was quite at his best. And he was always a gentleman, always a gentleman, you
know. Karl was another one like Riefler who had an early intuitive—well, partly intellectual,
partly intuitive sense of the international implications and cross currents and that kind of thing
and so forth before most others did. That was helpful to the Reserve, thinking in the system
from time to time.
ROBERT L. HETZEL: What about Bryan, Atlanta?
ROBERT HOLLAND: Malcolm was a relatively strong spoken President. He was
inclined to speak out, he was a likable guy, likable person but he had—he would speak out
strongly and when he was going to disagree with you, he would tell you, he said now George,




- 36 -

or someone, I just see it differently and then—he wouldn’t pull any punches in his argument,
but he would start it out in a courteous way. And you never felt you were arguing with
somebody who had a secret agenda or was trying to move you around in a Machiavellian way,
you felt like you were listening to somebody who was trying to wrestle and deal with the
problems.
He was, I think, one of the earlier ones to be drawn to some aspects of the monetarist
theory.
ROBERT L. HETZEL: Right. He and Johns in, I guess, ’60 and ’61 were talking
about money.
ROBERT HOLLAND: Yes. Yeah, that’s right. That’s right. They were sort of that
first wave kind of thing. At least I don’t remember any before then.
ROBERT L. HETZEL: I don’t think so.
ROBERT HOLLAND: Yeah. Yeah. And he knew he was first wave and he knew he
was a little ahead of the curve with that kind of thing and he had enough of sort of the teacher
in him to try to help bring that understanding along on the part of his counterparts and the
Board members or banks around the table, but not in a way that was offensive. I’d say—I
mean, he carried a fair amount of influence. I would say probably a tad above average
influence among the 12 people who were then voting members of the FOMC when he was on
it.
ROBERT L. HETZEL: The one I just mentioned, Delos Johns, St. Louis?
ROBERT HOLLAND: Yeah. Well, Johns was a lawyer, a first class lawyer and that
influenced how he approached a number of the problems the system had to deal with. It meant
that on this monetarist side, he wasn’t as well equipped to hear it, mull it over, probe it
intellectually himself and decide what to do. He had some people working for him, he heard
people also saying some things [unintelligible 01:44:10] and he pushed it.
And he was—he knew how to be a good advocate in a consensus building group. That
is, he would put his ideas forward in a way that would show them in their best light or show
them in a way most likely to command some other support around the table. I mean, it’s a gift
they do that kind of thing. In contrast to some others who may have good ideas and express
them in a way where it’s hard to agree with around the table, you know? So, Johns was a—I
forgot. He had a nickname, I’ve kind of forgotten what it was.
[01:44:44]
ROBERT L. HETZEL: Oh, I wouldn’t know.




- 37 -

ROBERT HOLLAND: Okay. Go ahead.
ROBERT L. HETZEL: Watrous Irons?
ROBERT HOLLAND: Bob Irons was a very well-liked fellow who rose through—I
guess he—I think he taught someplace then he was Director of Research at the Fed of Dallas
and then he was one of those Fed economists who was raised to Presidency. He was—I
started to say old fashioned economist. I guess that’s not a condemning term, after all so was
[laughter]…
ROBERT L. HETZEL: Well, we’ll all be old fashioned before too long, you know,
it’s just a matter of time. It happens to us.
ROBERT HOLLAND: Okay. What I meant is I don’t—he didn’t reject new ideas,
but he was comfortable with that older philosophy of international and domestic—he heard
Keynesianism and worked with it and so forth, but he didn’t—it wasn’t his heart and soul. He
had good judgment, however. He didn’t speak a lot. When he did, he usually spoke in a way
that tried to be constructive. And the guys liked him, you know?
ROBERT L. HETZEL: I guess let me pursue that. There was a generation of
economists who came out of the depression, but they didn’t come out as Keynesian
economists. On the one hand, they had the old view that the depression had been caused by
speculation, excessive credit extension, so they were very sensitive to inflation. They thought
that the Fed had to keep inflation under control. It differentiated them from the Keynesians.
On the other hand, having grown up in the depression and the New Deal, they felt that the
government had a responsibility for the economy. They felt that the government hadn’t
been—or at least the Federal Reserve System hadn’t acted vigorously enough in the recession.
So, there was kind of this mixture of business economists, somewhat activist
Keynesian economists, yet old line, very kind of hard on inflation…
ROBERT HOLLAND: That’s a pretty good description of Bob Irons I think.
ROBERT L. HETZEL: And I think—I mean, there were a number of people in the
‘50s that would have fit into that mold, but didn’t fit into the standard academic mold of
whatever, Keynesian and then monetarists.
ROBERT HOLLAND: No, that’s right. That’s right. That’s right. That sounds a lot
like Bob Irons. Bob was another one of those who appreciated that it was hard to reach
agreement with many different people around the table and who would try to assist reaching
that agreement rather than trying to shine the brightest light on his own view.
ROBERT L. HETZEL: Hmm, that’s an interesting way to characterize. Clay?




- 38 -

ROBERT HOLLAND: Well, Clay is another lawyer, more valuable than Johns and
with a wider ranging way of expressing—a looser way of expressing himself. He had a little
more of the west in him, if I can put it that way. But George had also a lot of innate wisdom in
him and so he was pretty influential among the Presidents. On monetary policy, not so
influential until he got that high powered staff. Once he got Gramley and Sam Chase and who
was the third guy there? Will Billington.
ROBERT L. HETZEL: What was the name?
ROBERT HOLLAND: Billington. I think Will did the agriculture stuff initially and
then grew. No, no, no. Maybe I got Will in the wrong spot. Anyway, the two young
powerhouses were Gramley and Chase and the more they did work for Clay, the better his
statements were.
ROBERT L. HETZEL: Are they still…
ROBERT HOLLAND: Of course, eventually the Board got both of them in
Washington. Dan Brill and I—well, we realized that was a smart bunch of guys over there. In
fact, we used to knock heads with them when we were in the Research Department of the Fed
of Chicago. No, not knock. Occasionally, we’d produce papers on different views and so
forth. But when we got down to Washington, we knew that both Gramley and Chase were top
notch minds and the Board managed to get them both as Board staff. [01:49:27]. In fact,
we—there was a time when—I think Ralph Young started this more than anybody else, of
bringing in economists from the Reserve Bank for short times at the Board.
[01:49:42]
ROBERT HOLLAND: I mean, he got me down there on the discount window
revision for a while. I don’t know how much that had been done before. Well I just don’t
know by my own experience, but boy he had me down there within a couple of years for a
short time. At the time, it got to where Dan and Bob and I were the troika from the staff that
was looking at things. We were deliberately looking at the reserve banks for bright minds that
we could bring in on the economic side for exposure and to learn from and benefit from.
And then as I got more managerial responsibility, I deliberately began to look for
talent in other aspects of the Federal Reserve Bank operations who we could bring in at least
for a time and work on the Board so a, the Board could learn from that and those people could
then go back to the reserve banks with an awareness of the Board and what it was like. I saw
that kind of talent exchange as a way of strengthening the Federal Reserve System, or making
use of its strengths and strengthening the bonds within the system because when I was coming
along, still at first there was—it was pretty easy to stir up a little hostility between the Reserve
Bank and the Board, a little friction.




- 39 -

And Dan and Bob and I said we got to be trying to look for things that screwed that
out and convert all of that power out there into practical use for the system and making sure
the reserve banks and the Board understand each other better by building in future generations
of people coming up in both places that understand the other part. I’ve lost a little track since
then of how much that continued to be done, but I—what do you think, is it still being done?
ROBERT L. HETZEL: Mm, I’m not sure. You know, the Board staff is so
enormous, it’s so huge and relative to the sizes of the regional bank staffs, I still think capable
people go from regional banks to the Board, but I don’t think there’s as much interaction just
because the Board staff has so many resources in itself, that’s my guess. We were pretty selfcontained.
ROBERT HOLLAND: I used to deliberately try to make spots and there was one
time I was proud to be able to say, four of the first Vice Presidents of the Federal Reserve
System had served terms work at the Board staff and we were working on that. But that’s on
the nonmonetary side of things. Of course, some of them had monetary experience too and so
forth. But, oh well, that’s history and a little irrelevant, I’m sorry to bring it up.
ROBERT L. HETZEL: Oh no, no, no, that’s interesting. Scanlon?
ROBERT HOLLAND: I think you have to have somebody who wants this kind of
thing to happen, it just doesn’t happen accidentally.
ROBERT L. HETZEL: Right. Yeah, because it takes time and everybody’s busy and
it doesn’t happen by itself.
ROBERT HOLLAND: Yeah, but I had the Chairman’s blessing to do that. Well,
Dan and I both did. The Chairman knew what we were doing. We said something and that
sounded fine to him and he understood why it was good for the system. Charlie came up the
bank examination route and Charlie had some of the best judgment about banking and
banking issues that was there around the table for a while. He was a top—he was a
crackerjack examiner, really—meaning about that not that just that he got the details right, but
he saw the broad issues to which examination had to relate and so forth. He was really good. I
first knew Charlie at the Fed of Chicago, that’s where he grew up there, as I did.
And so, we were good friends. On the monetary side, he tended to rely more on the
staff than on his own, but that was, you know, that’s—in the old days, that’s the way it was.
Charlie was a little bit of a throwback to a kind of President who was very good at running a
bank, managing a bank and knew a lot about banking, but needed technical monetary policy
input from a staff that was supposed to help him understand what was the right thing to do.
Charlie was no dummy, he was smart, but he—that’s the way it worked.




- 40 -

ROBERT L. HETZEL: Sure. Hickman, Cleveland?
ROBERT HOLLAND: Yeah. Well, Brad had sort of a combination academic
business professional background, as I recall. Bright guy, but he was one of those that I had in
mind when I made the statement that I thought, you know, some guys can put their ideas in a
way that gives those ideas more weight than they deserve on their own merits, for example.
Brad was a guy who could express his ideas in ways that gave his ideas less weight than they
deserved around the table.
[01:54:40]
He had a sort of a—it was easy for him to slip into a way of talking that was sort of
irritating to other well informed people around the table. But he felt strongly—I mean, he had
plenty of economic training. He felt strongly about monetary policy, expressed himself
strongly about it and was willing to express it even when it was a dissenting or a distracting
voice, expressing his judgment. He was no intellectual tower.
ROBERT L. HETZEL: Ellis?
ROBERT HOLLAND: But he was no sorehead.
ROBERT L. HETZEL: Sure.
ROBERT HOLLAND: George, another research man who rose to be President. Well
liked, nice way about him, steeped in sort of that New England higher education tradition…
ROBERT L. HETZEL: [Laughter] yeah.
ROBERT HOLLAND: …George was inclined to sort of look for the common
ground in arguments. He’d oftentimes be trying to weave a position out of a couple of
disparate views, not that he didn’t have views of his own, but he was one who would try to
help build a consensus around the table. And he was a little more interested in the monetary
side than the rest of the side of the bank, which wouldn’t be surprising. I mean, that’s part of
why they chose him. He was a good, sound, middle of the road man, is the way I would put it.
ROBERT L. HETZEL: Hugh Galusha, Minnesota.
ROBERT HOLLAND: Hugh was one of the intellectual bright lights that shone
through the system for a while. I’ve forgotten quite where Hugh came from. I know his last
position before he went into the Minneapolis bank was a business position, but that didn’t do
credit to the breadth and depth of Hugh’s intellectual vigor. Hugh was just bright as could be.
He was kind of a renaissance man or nearly that. I don’t mean in what he did, I mean in the




- 41 -

way he thought and where all the information sources he had, had a lot of vigor and charm at
the same time.
And he was innately courteous, which is something you don’t find all those things
going on together. It was fun to sit at a table with Hugh Galusha, regardless of what the
subject was, whether it was common loose talk over lunch or trying to decide monetary
policy. Fun, because he would always make it interesting, might even make it funny, he had a
good sense of humor. He and Mitchell really hit off, they had—they each really liked the
other. And Hugh brought that brilliance. Hugh also knew how to reach into the two richest
wells in the Minneapolis intellectual community into those business leaders who by national
standards are among the most enlightened and forward looking you can find anyplace.
And into the academic community to buttress what he brought to the table on
monetary policy. He used several different people over the years, but the one…
ROBERT L. HETZEL: Kareken would…
ROBERT HOLLAND: Kareken was—John was the—I think the most influential of
the advisors Hugh got for himself and John was so good and so adroit and Hugh was such a
good learner, that boy, you really paid attention when Galusha started to talk about monetary
policy around the FOMC table. And Kareken was so good that Dan Brill was busy in between
meetings grabbing Kareken or getting Kareken’s view on this and that and the other, some of
the economic issues and John Kareken loved that kind of intellectual give and take and
advancement.
I think he had a faculty appointment during most of this time too, but he gave quite a
bit of time to the Federal Reserve and it was—John was a great stimulus to thought and so
forth and yet, always did it in a way that was genial. So, he at the staff level, injected a kind of
spark the way Galusha did at the Presidential level and we were really sorry when he—to lose
him, yeah.
ROBERT L. HETZEL: Darryl Francis?
ROBERT HOLLAND: Darryl, I think Darryl also was a Director of Research before
he became President.
ROBERT L. HETZEL: Yeah, that’s right. Yeah.
ROBERT HOLLAND: Darryl was a man with the courage of his convictions and
earned respect around the table for that. As his increasingly—well, he—I don’t know which is
chicken and which is egg because I don’t know whether he began to be drawn to monetarist
thinking and so he started hiring monetarists for his research division.




- 42 -

ROBERT L. HETZEL: I think Homer Jones came first.
ROBERT HOLLAND: Homer came from the Board, but I don’t know if…
[01:59:43]
ROBERT L. HETZEL: I didn’t know that, that’s interesting.
ROBERT HOLLAND: Yeah. Yeah, Homer was on the Board staff. And he’d been
somewhere else first. I think he was a Household Finance Corporation before that, but
Homer’s budding monetarism wasn’t being well received among the peers he had. I mean,
that’s not the kind of thing that went down well with Woody and Ralph, you can imagine.
ROBERT L. HETZEL: What about Marget? Wasn’t he something of a quantity
theorist?
ROBERT HOLLAND: But more elegantly so. After all, his territory was more
international, at least that’s what he was responsible for, although he was perfectly capable of
global economic thought. But I don’t think he—he wouldn’t push hard against that
intellectual triumvirate of [02:00:31] Winfield, Thomas and Youngdahl. By that I mean, he
wouldn’t get down into the cut and thrust of day to day argument on some of this boiled up on
policy. Arthur was good at the broad view and he would discuss broad views with Win and
with those other fellows and so forth.
But he brought—I think he and—he communicated in that sense, a very broad
international understanding and its relevance to monetary policy. But loosely done, he did not
push. He comes incidentally with extraordinarily good academic credentials, as I guess you
probably know.
ROBERT L. HETZEL: Oh yes, yes. He has a famous book which is extraordinarily
hard to read, it’s very kind of dense, but it’s a great reference if you want to know anything
about the history of quantity theory, you know, you can go back and it’s in there.
ROBERT HOLLAND: It’s in there, yeah.
ROBERT L. HETZEL: It’s just that it’s very hard—it’s not something you sit down
and read. You know, I can’t say that I’ve read it for that reason. Are there any staff people left
from the Board from the 1950s that I should talk to that I might not have thought of talking
to?
ROBERT HOLLAND: Oh boy, that’s back a long way.
ROBERT L. HETZEL: Yeah, well I’ve talked to Ralph Leach and Dick Youngdahl,
so they go back pretty…




- 43 -

ROBERT HOLLAND: No, no that’s fine. Oh, you mean inside or outside the
system, yeah.
ROBERT L. HETZEL: Well yeah.
ROBERT HOLLAND: Well, like Ralph and Dick would have been the two that I
would have immediately said in terms of monetary policy.
ROBERT L. HETZEL: Don Anderson was one other person I’ve talked to who went
to Continental later on. But there aren’t too many that, you know, I could think of.
ROBERT HOLLAND: Don Miller was part of that.
ROBERT L. HETZEL: That’s it. Yeah, that was the name, Don Miller. I talked to
him. He wasn’t quite as helpful as the other two, but he was very nice to talk to.
ROBERT HOLLAND: Yeah. No, I think they’re all gone.
[02:02:37]




[END OF RECORDING]

- 44 -