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AMENDMENT TO SECTION 10 OF
FEDERAL RESERVE ACT
HEARING
BEFORE
THE
COMMITTEE ON BANKING AND CURRENCY
HOUSE OE REPRESENTATIVES
EIGHTY-THIRD
FIRST
CONGRESS
SESSION
ON
H. R. 4605
A B I L L T O A M E N D S E C T I O N 10 OF T H E F E D E R A L R E S E R V E
ACT, A N D F O B O T H E R P U R P O S E S
M A Y 5, 1953
Printed far the use of the Committee on Banking and Currency
UNITED
STATES
GOVERNMENT PRINTING
33168
OFFICE
W A S H I N G T O N : 1953
C O M M I T T E E ON BANKING AND
CURRENCY
JESSE P. W O L C O T T , Michigan, Chairman
R A L P H A. G A M B L E , New York
H E N R Y O. T A L L E , Iowa
C L A R E N C E E. K I L B U R N , New York
M E R L I N H U L L , Wisconsin
GORDON L . MCDONOUGH, California
W I L L I A M B. W I D N A L L , New Jersey
JACKSON E. BETTS, Ohio
W E S L E Y A. D ' E W A R T , Montana
M Y R O N V. GEORGE, Kansas
W A L T E R M . M U M M A , Pennsylvania
W I L L I A M E. M c V E Y , Illinois
D. B A I L E Y M E R R I L L , Indiana
C H A R L E S G. O A K M A N , Michigan
E D G A R W. H I E S T A N D , California
DOUGLAS R. S T R I N G F E L L O W , Utah
B R E N T SPENCE, Kentucky
P A U L BROWN, Georgia
W R I G H T P A T M A N , Texas
A L B E R T RAINS, Alabama
A B R A H A M J. M U L T E R , New York
C H A R L E S B. D E A N E , North Carolina
G E O R G E D. O'BRIEN, Michigan
H U G H J. ADDONIZIO, New Jersey
ISIDORE D O L L I N G E R , New York
R I C H A R D B O L L I N G , Missouri
W I L L I A M A. B A R R E T T , Pennsylvania
W A Y N E L. HAYS, Ohio
B A R R A T T O'HARA, Illinois
Willi\m J. Hallaran, Clerk
Orman S. Fink, Professional Staff
John E. Barriere, Professional Staff
n
CONTENTS
Paw
H . R. 4605. A bill to amend section 10 of the Federal Reserve Act, and
for other purposes
Statement of—
Evans, Rudolph Martin, member, Board of Governors, Federal Reserve System
Martin, William McChesney, Jr., Chairman, Board of Governors,
Federal Reserve System
Miscellaneous data submitted to the committee b y —
Board of Governors, Federal Reserve System:
Annual expenses of Board of Governors of the Federal Reserve
System, 1951-52
Annual expenses of the 12 Federal Reserve banks combined,
1951-52 (Reserve bank expenses include assessments for expenses of the Board of Governors)
Comparison of Federal Reserve expenses, 1951-52
Current earnings of the Federal Reserve banks, by sources, annually, 1951-52; also net profits or net losses on sales of United
States Government securities
Does cost of construction of Federal Reserve branch building
reduce amount of earnings available for distribution, specifically amount paid to Treasury
High and low prices of long-term United States Government
bonds in selected periods, 1917-34
:
Martin, Wm. McC., Jr., letter of April 14, 1953, to Hon. Jesse P.
Wolcott
Additional building facilities for branches of Federal Reserve
banks
Member bank earnings and profits as percentages of capital accounts, 1951 and 1952
Member bank earnings, 1951 and 1952
Prices of Government bonds
Sources and disposition of member bank earnings, 1951 and 1952.
m
1
1
1
4
5
5
4
41
15
46
46
6
5
13
6
AMENDMENT TO SECTION 10 OF FEDEBAL RESERVE ACT
TUESDAY, M A Y 5, 1953
H O U S E OF R E P R E S E N T A T I V E S ,
COMMITTEE ON B A N K I N G AND CURRENCY,
Washington, D. C.
The committee met at 10 a. m., Hon. Jesse P . Wolcott (chairman)
presiding.
Present: Messrs. Wolcott, Talle, Kilburn, McDonough, Betts,
D'Ewart, George, Mumma, McVey, Oakman, Hiestand, Stringfellow,
Spence, Brown, Patman, Multer, Deane, Dollinger, Boiling, and
O'Hara.
The CHAIRMAN. The committee will come to order.
W e have met to consider H . R . 4605.
(H. R . 4605 is as follows:)
tH. R. 4605, 83d Cong., 1st sess.]
A BILL To amend section 10 of the Federal Reserve Act, and for other purposes
Be it enacted by the Senate and House of Representatives of the United States of
America in Congress assembledy T h a t the second proviso contained in the ninth
paragraph of section 10 of the Federal Reserve Act, as amended (U. S. C., title 12,
sec. 522), is hereby further amended b y striking out ^$10,000,000" and inserting
i n lieu thereof "$30,000,000".
The CHAIRMAN. We have before us M r . Martin, Chairman of the
Federal Reserve Board. W e are very glad to have you back with us,
M r . Martin. Y o u may proceed in any way you see fit.
STATEMENT OF WILLIAM McCHESNEY MARTIN, JR., CHAIRMAN,
ACCOMPANIED BY RUDOLPH MARTIN EVANS, MEMBER, BOARD
OF GOVERNORS, FEDERAL RESERVE SYSTEM
M r . MARTIN. M r . Chairman, I have with me Governor Evans
who has been i n charge of the building work of the Board. If it is
agreeable, I will have him right here with me.
A t many of the 24 branches of the Federal Reserve banks construction of additional building facilities is urgently needed to take care
of the increased volume of work. This need cannot be met, however,
because of a provision of the law which placed a limit of $250,000
upon the cost of any building for a branch of a Federal Reserve bank
(exclusive of the cost of vaults, permanent equipment, furnishings
and fixtures and also exclusive of the cost of the land).
I n 1947, in order to take care of what were then the most urgent
needs for Federal Reserve branch building construction, Congress
amended the law to provide that this limitation should not apply as
long as the aggregate of such costs thereafter incurred for all branch
bank buildings of Federal Reserve banks, with the approval of the
1
A M E N D M E N T TO SECTION 10 OF F E D E R A L RESERVEACT?30
Board of Governors, was not in excess of $10 million. This amount,
however, has now been utilized or allocated, and a further amendment
to the law is needed to permit the use of additional funds for the
Federal Eeserve branch buildings which are now necessary.
Under the $10 million authorization provided by the 1947 amendment, the building occupied by the Cincinnati branch was purchased,
new buildings have been constructed for the branches at Jacksonville, Portland, and Seattle, a-major-addition to the building at the
Detroit branch has been constructed, and funds have been earmarked
for the erection of a major addition to the Los Angeles branch building, plans for which have been prepared.
Additional space is now required at many branches other than
those mentioned. In particular, new buildings or substantial improvements are needed for the branch Federal Reserve banks located at
Buffalo, Pittsburgh, Baltimore, Charlotte, Birmingham, Nashville,
New Orleans, Louisville, Denver, Oklahoma City, Omaha, E l Paso,
Houston, San Antonio, and Salt Lake City. The need for additional
building facilities at many of these branches is urgent, and a number
of them are emergency situations.
Most of the Federal Reserve bank branch buildings were built or
acquired over 25 years ago, and since that time there has been a
great expansion in the volume of business handled. The greatest
increases in volume of work have come in handling of currency and
coin and the collection of checks. Money in circulation, around
$30 billion, practically all of which flows through the Federal Reserve
banks and branches, is more than three times what it was before
World War II. Since 1940, the number of coins received and counted
by the Federal Reserve branches has more than tripled, the number
of pieces of paper currency received and counted has more than
doubled, and the number of checks handled by the branches has
nearly tripled. Moreover, much larger vault facilities are required
because of the necessity for larger reserve supplies of currency.
The estimates for the cost of the buildings and improvements at
the several branches mentioned above are necessarily rough at this
time, but, after allowance for a 10 percent margin, the total estimated
cost is about $18,500,000 (after the exclusions provided by the law).
This amount does not take into account needs that may later develop.
The Board wishes to emphasize that Federal Reserve banks use
their own funds, in the construction or improvement of their buildings.
N o appropriation of Government funds is involved. Costs of these
buildings are capitalized—that is, carried as assets of the bank.
Moreover, under specific requirement of the law, all construction
projects with respect to branch bank buildings, having first been considered by the boards of directors of the branch and of the Federal
Reserve bank, come before the Board of Governors for its approval.
In each case the Board considers the proposal in the light of the needs
of the branch, the type of building to be constructed, the reasonableness of the costs, the availability of materials, and whether the construction at this time is generally in keeping with the prevailing
economic situation.
In 1950 the Board recommended to Congress an increase in the
authorization for expenditure for branch Federal Reserve bank buildings above the amount authorized in 1947; and a bill for this purpose
was passed by the Senate and favorably reported by the House
A M E N D M E N T T O S E C T I O N 10 OF F E D E R A L R E S E R V E
ACT?
30
Banking and Currency Committee. A t about that time, however
the Korean invasion took place and the legislation was not enacted.
Because of the urgent needs above described, the Board now recommends that Congress increase the amount authorized for construction
of Federal Reserve branch buildings by an additional amount sufficient to meet the present situation, with a continuation of the requirement of the present law that the Board approve such expenditures.
The CHAIRMAN. M r . Martin, how many buildings have you now?
M r . MARTIN. There are 24 branch buildings. The program now
contemplated by the bank contemplates the erection of 6 new buildings, one at Buffalo, Nashville, Louisville, E l Paso, Houston, and
San Antonio, and we have major additions to 10 buildings, at Pittsburgh, Baltimore, Charlotte, Birmingham, New Orleans, Denver,
Oklahoma City, Omaha, Los Angeles and Salt Lake City.
The CHAIRMAN. In questioning the witness we might have in mind,
a previous report of this committee on this subject matter dated June
30, 1947.
Are there questions of M r . Martin?
M r . P A T M A N . I want to ask some questions, M r . Chairman.
T h e CHAIRMAN. M r .
Patman.
M r . PATMAN. M r . Martin, this money that is proposed to be used
to build these buildings, would become profits of the Federal Reserve
System, if it were not spent for this purpose, would it not? In other
words, it would become a part of the surplus of the Federal Reserve
banks?
M r . MARTIN. Well, these are capitalized expenditures, M r . Patman,
they become capital assets of the banks.
M r . P A T M A N . I know, you are talking about the other end. I am
talking about the spending of the money.
The money that goes out is money that would be a part of the
surplus, is it not, of the 12 Federal Reserve banks?
M r . MARTIN. It would be part of the surplus; yes, sir.
M r . P A T M A N . N O W , that surplus, as it is now, flows over into the
Treasury; 90 percent of it, does it not?
M r . MARTIN. That is true, not of the surplus but of the earnings.
M r . P A T M A N . I mean the earnings.
M r . MARTIN.
T h e earnings; yes, sir.
M r . PATMAN. It is money that would go into the Treasury if it
were not intercepted in this manner.
M r . M A R T I N . N O ; this would not go into the Treasury. This
becomes a capital asset of the System.
M r . PATMAN. I know. Y o u are talking about the other end of the
deal. I am talking about before you build the buildings. If you do
not build the buildings, the money becomes a part of the earnings^
I mean it is part of the earnings in the first place.
Number 1, it is earnings. Number 2, it flows over into the Treasury
90 percent, if you don't intercept it and use it to build these bank
buildings. That is correct, is it not?
M r . MARTIN. Well, if we did not have any buildings, we would
not have any operations or earnings at all.
M r . PATMAN. Well, of course, you have buildings. These are extra
buildings.
I am just talking about the effect of it.
AMENDMENT
TO SECTION
10
OF FEDERAL
R E S E R V EA C T ?30
(For explanation regarding cost of construction and earnings available for distribution, see p. 41.)
M r . PATMAN. M r . Martin, in the compendium that you have
assisted us so ably in preparing for the Joint Committee on the
Economic Report, I would like to have some of those tables brought
down to date. I do not want to take up the time of the committee in
interrogating you about them now, but, if I direct a communication
to you and seek that information, I assume you would be glad to bring
them up to date?
Mr. MARTIN. We will be very glad to bring any of the tables up to
date.
(Information requested above is as follows:)
B O A B D OF G O V E R N O R S OF T H E
F E D E R A L R E S E R V E SYSTEM,
May 7, 1958.
To: Mr.
Molony.
From: J. E . Horbett.
P u r s u a n t t o t h e request m a d e b y Congressman P a t m a n i n the course of the
M a y 5 hearings o n the bank-premises bill, there are h a n d e d y o u herewith, for
i n s e r t i o n i n t h e r e c o r d o f t h o s e hearing?, t h r e e c o p i e s o f t a b l e s s h o w i n g d a t a f o r
1951 a n d 1952 c o r r e s p o n d i n g t o t h e t a b l e s a p p e a r i n g o n pages 305, 306, 315,
a n d 566-69 of p a r t 1 of the report of the J o i n t C o m m i t t e e o n the E c o n o m i c
R e p o r t o n M o n e t a r y P o l i c y a n d the M a n a g e m e n t of the P u b l i c D e b t , 82d Congress,
2 d session.
J. E. H .
Current
earnings of the Federal Reserve banks, by sources, annually,
1951-52;
net profits or net losses on sales of U. S. Government
securities
Current earnings
Year
1951
1952
Annual
Total current Discounts
and
earnings
advances
$394,656,072
456,060,260
$5,139,059
14,083,126
expenses of Board
Year
1951
1952.
Acceptances purchased
U . S. Goveminent
securities
Industrial
loans and
commitments
$1,445
$389,125,363
441,629,317
$229,104
216,555
of Governors
of the Federal
A l l other
$161,101
131,262
also
Net profits,
or net losses
(—), on sales
of U . S.
Government
securities
-$1,586,123
1,991,647
Reserve System,
1951-52
Expenses
Ratio to total
expenses of
all member
banks
(percent)
Ratio to gross
national product of the
United States
(percent)
(1)
(2)
(3)
$3,977,007
3,966,270
0.178
.159
0.00121
.00115
A M E N D M E N T TO SECTION 10 OF F E D E R A L RESERVE ACT
Annual
5
expenses cf the 12 Federal
Reserve banks combined,
1951-52
(Reserve
expenses include assessments for expenses of the Board of Governors)
Expenses, in- Expenses, exclusive of re- clusive of reimbursable
imbursable
fiscal agency fiscal agency
expenses
expenses
Year
Comparison
Ratio to total expenses of a l l
member banks
of-
Ratio to gross national product of
the United States
of—
Percent
Percent
Percent
5.10
5.00
4.28
4.19
0.035
.036
$95,469,086
104,694,091
$113,775,881
125,171,030
1951
1952
of Federal
Reserve
expenses,
12 Federal Reserve banks
Board of Governors
Amount
Percentage increase2
$3,977,007
3,966,270
19&1
1952
Inclusive of reimbursable fiscal agency expenses
11.4
-.3
Percentage increase 2
Amount
$113,775,881
125,171,030
18.1
10.0
Percent
0.029
.030
1951-52
Annual expenses of—
Period
bank
Percentage increase
from previous
year in—
1
Exclusive of reimbursGross
able fiscal agency exExpenses national
penses
product
of all
of the
member
United
banks
PercentStates
Amount
age increase2
$95,469,086
104,694,091
15.8
5.2
10.5
12.1
16.3
9.7
1 Figures include assessments for expenses of Board of Governors.
2
Percentage increase or decrease (—) from previous year.
Member
bank
earnings,
1951 and
1952
[In millions of dollars]
Item
Earnings
Interest and dividends on:
U . S. Government securities
Other securities
Earnings on loans
Service charges on deposits
Other current earnings
Expenses
Salaries and wages
Interest on deposits
Taxes other than on net income
Federal deposit insurance 1
Other current expenses
Net current earnings
Recoveries, profits on securities, etc.:
Recoveries on securities
Profits on securities.Recoveries on loans
A l l other.l
Losses and chargeoffs:
On securities
On loans.—
..
A l l other
Net additions to reserves.
Taxes on net income
Net profits
Cash dividends 2
1
2
—
...
Estimated.
Includes interest on capital notes and debentures.
3316&—53 2
1952
1951
3,669
4,120
832
211
2,003
187
436
929
235
2,306
198
452
2,232
2,501
1,125
306
115
45
641
1,244
365
118
45
730
1,437
1,619
16
52
43
29
14
29
45
25
88
69
45
128
491
756
371
108
71
47
68
608
829
390
6
A M E N D M E N T
TO
SECTION
Sources and disposition
10
OF
FEDERAL
of member bank earnings,
RESERVE
ACT
1951 and 1952
[In percent]
1951
Sources:
Interest and dividends on:
U. S. Government securities
Other securities
Earnings on loans
Service charges on deposits
Other current earnings
Total earnings
Disposition:
Salaries and wages
Interest on deposits
Taxes other than on net income
Other current expenses
Total expenses
Net current earnings
Net losses
Taxes on net income
Net profits
Cash dividends1
1
1952
22.7
5.7
54.6
5.1
11.9
22.5
5.7
55.1
4.8
11.9
100.0
100.0
30.7
8.3
3.1
18.7
30.2
8.8
2.9
18.8
60.8
60.7
39.2
5.2
13.4
20.6
10.1
39.3
4.4
14.8
20.1
9.5
Includes interest on capital notes and debentures.
Member bank earnings and profits as percentages of capital accounts, 1951 and 1952
Percent of total capital
accounts
Year
Net current
earnings
1951
1952-
14.4
15.4
Net profits
7.6
7.9
Note—Net current earnings are total earnings from current operations less current operating expenses.
Net profits are net current earnings plus recoveries, profits on securities, etc., and less losses, chargeoffs,
and taxes on net income. Capital accounts consist of all forms of capital including capital notes and debentures, surplus, undivided profits, and reserves for contingencies. Capital account figures used for
ratios are averages of call reportfiguresduring year.
M r . P A T M A N . N O W in connection with my statement, M r . Chairman, in order to cut it down as much as possible, I would like the
privilege of extending my remarks to include, in connection therewith, certain matters that I consider material in connection with my
questioning and the answers of the witness.
The CHAIRMAN. Without objection, that may be done.
Do you want that information that you asked for a part of the
record, or in anticipation of other hearings?
M r . P A T M A N . I would like to have it included in these hearings,
I want to ask some questions and I do not want to take up too much
time, and I assure the chairman and members of the committee that
I shall be as brief as I can but I think this is a matter of tremendous
importance, and although the bill itself is minor in proportion to the
size of the volume of business of the Federal Reserve banks, it is a
matter that I think makes material many issues that are now current,
that we should, as a congressional committee having to do with this
Federal Reserve banking system, make diligent inquiry about.
M r . KILBURN. Are you against this bill?
The CHAIRMAN. I n this hearing.
A M E N D M E N T T O SECTION 10 OF F E D E R A L R E S E R V E
ACT?
30
M r . PATMAN. In this hearing.
M r . KILBURN. Are you against this bill?
M r . P A T M A N . A S i t is n o w , yes.
M r . Martin, I notice a statement you made the other day which
indicates to me that you consider the present situation more against
deflation than inflation, that you consider that from now on our
fight will be not so much against inflation, but to protect the country
against deflation.
Is my interpretation of your remarks correct or incorrect?
M r . MARTIN. Your interpretation is incorrect, M r . Patman. M y
position is the same as stated before your committee, that the primary
purpose of the Federal Reserve System is to provide, so far as monetary
resources can do it, a higher standard of living for the American
people.
That means we are always against deflation in the sense that inflation, unbridled inflation, leads to disastrous deflation. Now I have
not
M r . PATMAN. Well, right now do you view the situation as inflationary, deflationary, or in the middle?
M r . MARTIN. There are some tendencies on both sides. But it is
not sufficiently clear on either side so that I would not want to say
on which side is the preponderance, but there are still some inflationary
potentials in the picture and business is exceedingly good throughout
the country, in the majority of lines.
M r . P A T M A N . Y O U , as Chairman of the Board of Governors of the
Federal Reserve System, recognize that you do have control of the
volume of money of the country. Your Board, that is?
M r . MARTIN. Our Board has the problem of regulating
M r . PATMAN. T h e volume.
M r . MARTIN. The supply of money.
M r . PATMAN. The supply. Well, that is volume. Perhaps I have
used the wrong word, but I think we mean the same thing.
M r . MARTIN. Volume, availability, supply, that is all right.
M r . PATMAN. Either one is correct?
M r . MARTIN. That is right.
M r . P A T M A N . N O W , you control it. In other words, you make it
plentiful, or you make it scarce, depending upon what you believe
you should do in the interests of the general welfare of the country, is
that correct?
M r . MARTIN. Well, within the limits placed upon us by Congress
with respect to the reserve.
M r . PATMAN. Well, there are hardly any limits on open market
operations, are there?
M r . MARTIN. Well, there are always the limits of the currency base.
M r . PATMAN. One time, in interrogating M r . Goldenweiser, he got
to such astronomical heights I couldn't even follow him, he could even
issue enough Federal Reserve notes to pay off twice the present
national debt. So I quit going into it after we got that far.
M r . MARTIN. I accept your comment that we have a very serious
responsibility.
M r . PATMAN. Yes, sir. And there is hardly any limit to the amount
of Federal Reserve notes that you can actually put out.
M r . MARTIN. Well, there is a limit, but--—
A M E N D M E N T TO SECTION 10 OF F E D E R A L R E S E R V EA C T ?30
M r . PATMAN. But it is not in the foreseeable future, if there should
be any trouble, is it?
M r . MARTIN. Not in the foreseeable future.
M r . P A T M A N . N O W the regional banks, M r . Martin, do they have
any power over re-discount rates now, or is that all fixed by the
Federal Reserve Board?
M r . MARTIN. The 12 banks have the power of initiating, to the
Board, suggestion with respect to the discount rate, but
M r . PATMAN. The Board passes on it?
M r . MARTIN. The responsibility is of the Board.
M r . PATMAN. The responsibility is the Board's?
M r . M A R T I N . Y e s , sir.
M r . PATMAN. And the open market committee has complete control of the buying and selling of United States Government securities
for the 12 banks, has it not?
M r . MARTIN. The open market committee is the statutory body
having that authority; yes, sir.
M r . P A T M A N . N O W it is often referred to as the 12 men having so
much power, M r . Martin. I know you have heard that expression a
lot—12 men having so much power.
Is it not a fact, though, that the Board of 12 is composed of 7 members of the Board of Governors of the Federal Reserve System, and
5 presidents of regional Federal Reserve banks? That is correct,
isn't it?
M r . MARTIN. That is correct, sir.
M r . PATMAN. Is it not true, too, that the Board has the power to
accept or reject? In other words, to hire the presidents of the Federal
Reserve banks, the regional banks? That is correct, is it not?
^ M r . MARTIN. The Board has to pass on the salaries and qualifications.
M r . PATMAN. In other words, they pass on whether or not they
will accept them. Y o u determine whether or not you will accept a
person as president of a Federal Reserve bank, New York or Dallas,
Tex., isn't that correct, M r . Martin?
M r . MARTIN. We pass on the salaries.
M r . PATMAN. Well, now, do you not think you are just limiting
your power just a little too much there? Do you not have the power
to say whether or not that person is acceptable?
M r . MARTIN. In practice each bank has its own board of directors.
M r . P A T M A N . I am not talking about in practice. I am talking
about the powers. Under the Federal Reserve Act, is it not true that
you have the power to say whether a person is a president of a bank
or whether he is not a president of a bank?
M r . MARTIN. The president and first vice president, insofar as
their salary is concerned
M r . PATMAN. Well, I am not talking about that, M r . Martin.
M r . MARTIN. Well, now—:—
M r . PATMAN. I wish you would just answer. It should not be
any trouble. Y o u either know or you do not know. Or it is true
or not true. But is it not a fact that the Federal Reserve Board has
the power to accept or reject any person for president, of a regional
Federal Reserve bank? Now that seems to Be a plain simple question? Y o u either have the power or you do not. It is true or not
true?
A M E N D M E N T TO SECTION 10 OF F E D E R A L R E S E R V E
ACT?
30
M r . MARTIN. We have the power to accept or reject any person
for a Federal Reserve bank, but I do not think we would have the
power to initiate putting in an individual.
M r . PATMAN. Well, I did not even ask you that, M r . Martin. Y o u
are putting words in my mouth that I did not say at all.
M r . MARTIN. I just wanted it clear, M r . Patman.
M r . PATMAN. A t any rate, you have really answered the question
now. Y o u do have the power to accept or reject?
M r . MARTIN. That is correct. Under the law the president and
th§ first vice president are appointed by the board of directors of the
bank subject to the approval of the Federal Reserve Board.
M r . PATMAN. A l l right. We got that nailed down. Now these
five fellows, you also have the power to fire them, do you not, M r .
Martin?
M r . MARTIN. There is always the authority to get rid of anybody
for malfeasance in office.
M r . PATMAN. Well, either it is true or not true. Y o u tell me. Do
you have the power to remove, or do you not have that power?
M r . MARTIN. I would question whether we had the power to remove.
M r . PATMAN. To make it specific, do you have the power to remove
a president of a Federal Reserve bank? Is that power in the Board of
Governors of the Federal Reserve System?
M r . MARTIN. In my judgment we would not have the power.
M r . PATMAN. Well, now, you are bringing up something that I did
not ask you about, M r . Martin. Please pardon me for that intrusion,
but you are bringing up something that I did not ask you. Y o u either
know that it is true or not true, correct or incorrect, that the Board of
Governors has the power to remove a president of a Federal Reserve
bank?
M r . MARTIN. It could remove only, in my judgment
M r . PATMAN. Well, is it remove or not remove? It can remove,
can it not, for cause?
M r . MARTIN. Well, for cause, yes, that is right.
M r . PATMAN. Well, you can determine the cause.
M r . MARTIN. Let us emphasize the cause.
M r . PATMAN. There is no limitation on the cause, though, is there?
M r . MARTIN. Yes; I think there is.
M r . KILBURN. He is trying to answer, but you don't let him answer.
M r . PATMAN. Certainly I am willing to have an answer.
M r . KILBURN. Well, let him answer.
M r . PATMAN. Well, I am waiting for an answer.
M r . MARTIN. The cause would have to be a cause not of judgment
but of malfeasance in office.
M r . PATMAN. Well, anyway, the Board has the power to hire and
fire, in the language of the street, directors, and particularly the
presidents of Federal Reserve banks.
M r . MARTIN. The Board does not have any authority with respect
to directors. 6 of the 9 directors of the banks are elected by the
banks from the business and banking elements of the community.
M r . P A T M A N . Y O U are correct. I accept your amendment and
correction. Y o u are absolutely correct about that. But the person
that I am talking about, the president, you do have that power?
M r . MARTIN. We appoint three directors.
A M E N D M E N T TO SECTION 10 OF F E D E R A L R E S E R V EACT?30
Mr. PATMAN.
Mr. MARTIN.
Mr. P A T M A N .
does it not?
Mr. M A R T I N .
Mr. PATMAN.
bank?
That is right; you appoint three.
That is right.
N O W you appoint three. That includes the president,
N O ; it includes the Chairman of the Board.
The Chairman of the Board of the Federal Reserve
M r . M A R T I N . Y e s , sir.
M r . PATMAN. Doesn't the president have to be 1 of those 3, or not?
M r . M A R T I N . Oh, no.
M r . P A T M A N . H e c a n b e 1 o f t h e 6?
M r . M A R T I N . N O ; the president is
selected by the Board of
Directors.
M r . PATMAN. It could be 1 of the 6 or 1 of the 3, or could be outside
entirely?
Mr. MARTIN. Almost entirely outside.
M r . PATMAN. Almost entirely outside.
Mr. MARTIN. The president is not a director.
M r . PATMAN. A l l right. Now, then, this interest increase which
has been going on, who put that into effect? D i d the regional banks
initiate that or did the Board of Governors of the Federal Reserve
System?
Mr. M A R T I N . Y O U refer to what specific interest increase?
M r . PATMAN. What the bankers call "firming up the interest
rates," really increasing the interest rates. It has been going on since
March of 1951.
M r . MARTIN. That increase in interest rates has been achieved
largely by the market.
M r . PATMAN. Under the direction of whom?
M r . MARTIN. Under the direction of the composite of individuals
M r . PATMAN. B y the tolerance of whom?
Mr. MARTIN. Well, unless we are going to print money
Mr. PATMAN. Well, I say, by the tolerance of the Federal Board of
Governors, is it not, because you could have put volume in there.
M r . MARTIN. We unquestionably could have printed money; yes,
sir.
Mr. PATMAN. Of course you call it printing money when you don't
want to do it, but you do print a lot of money.
M r . MARTIN. We have tried to let the market forces play their
role in the credit function.
When the decision was made to unpeg the Government market,
there was returned to the market the price mechanism of the market.
A decision in the market place that had been preempted for a
number of years by Government policy.
And the idea was that the credit mechanism would begin to function
again as a governor on the flywheel of the economy.
M r . PATMAN. Yes, sir. Now this morning's paper carries a startling
statement. It says, "Marketable United States Government bonds
drop to record depths today." They have gone down to 91.
Now how far will those bonds have to go before the Federal Reserve
steps in and stabilizes the market and say that they shall not go
any further?
A M E N D M E N T T O S E C T I O N 10 OF F E D E R A L R E S E R V E
ACT?
30
M r . MARTIN. I will not make any prediction on prices, sir.
M r . P A T M A N . Y O U will not make any prediction?
M r . M A R T I N . N O , sir.
M r . PATMAN. I n your speech at Detroit, last week or the week
before, you made some statements there that caused me to gain the
iihpression—I just want to ask you if my impression is a correct one—
that although in the past you have said that the Board of Governors,
through the open-market committee, would step in in the case of a
disorderly market, or I believe you said if the market was not orderly,
but in this statement in Detroit, this speech, you said you had been
unsuccessful in your efforts to explain what a disorderly market was,
and left the impression with me that you would not try to find out,
and you had no intentions of supporting the market regardless of how
disorderly the market might become.
M r . MARTIN. What I said in that speech, M r . Patman, was that
I had difficulty in explaining to your committee, and in several other
places, just what a definition of an orderly market was.
M r . PATMAN.
Yes.
M r . MARTIN. And that the more we had studied the question and
watched the evolution of a freer market for Government securities,
the more we had been impressed with the fact that the emphasis
should be shifted toward correcting disorderly conditions rather than
our establishing an orderly level. It is just a change in emphasis.
M r . P A T M A N . I see your explanation there. I realize what you are
attempting to do.
But now I would like to know—and of course you have always said,
properly, I think, M r . Chairman, that you are an agency of Congress
and that you want to carry out the will of Congress, and particularly
that of the members of the Banking and Currency Committee—and
as one member of that committee, and I believe the other members
would be interested in knowing also, I would like to know just how
low you will permit that market to go, before you step in and support
it. Would you be willing to say that you would let it go down to 88?
M r . MARTIN. I simply would not comment on prices.
M r . PATMAN. Well, would you let it go down to 80?
M r . MARTIN. I will not make any comment.
M r . PATMAN. What about 75? Suppose it dropped to 75, would
you step in?
M r . MARTIN. I will not make any comment on prices.
M r . P A T M A N . Y O U would not make any comment.
The CHAIRMAN. M r . Patman, I do not think you should ask these
questions of M r . Martin. I suppose that is a matter of Board policy
and M r . Martin may not want to put a particular figure in the record.
M r . P A T M A N . I accept your reasoning and logic, M r . Chairman, and
I will not press him on that.
Now, you have a public-relations man. His name is Walter Williams, is it not? Is he not the public-relations man for the Federal
Reserve System?
M r . MARTIN. No, sir; there must be an error there.
M r . PATMAN. Oh, he is with the Secretary of Commerce; yes. He
says that business slumps, recessions, and depressions, are a part of
our economy, a price we pay for having a vigorous, dynamic, expanding
economy.
A M E N D M E N T T O S E C T I O N 10 OF F E D E R A L R E S E R V EA C T ?30
Williams outlined the Eisenhower administration's philosophy,
adding a list of methods to combat downturns. D o you agree with
what M r . Williams says that we must accept as inevitable booms and
busts in our economy?
M r . M A R T I N . Part of the purpose of the Federal Reserve A c t was
to minimize booms and busts, in that sense you work toward equilibrium, but there was never any intention to destroy flexibility of the
economy.
M r . P A T M A N . D O you mean to the extent that we would continue
to have booms and busts?
M r . M A R T I N . N O , sir, the matter of flexibility has to do with dynamism. There is always an element of judgment in what is a bust and
what is a boom.
Now our purpose recently in trying, over the last 18 months, to
restrain inflation, has been directed entirely toward achieving what
I am sure you and I are in agreement in achieving, which is a sustainable prosperity, and to making improbable disastrous deflation.
Now that is our objective in all of our work.
M r . P A T M A N . This committee would like to know—I know I would
like to know, as one member of it—if this program of yours, of the
Board of Governors of the Federal Reserve System, if this program
fails to work, and it should cause a ruinous deflation, where will this
committee put the blame in who will be to blame for that? Are you
to blame for it? Or is M r . Wilfiams? Or is the Administration to
blame for it?
M r . M A R T I N . M r . Patman, we must not exaggerate the role of
monetary policy. We do not want to underestimate it, but we do
not want to exaggerate it, either.
Now the lot of a central banker will never be a happy one, because
you have to lean against the breeze, whichever way it is blowing.
But to blame the Federal Reserve for a depression, or to give it
credit for a boom, would be a complete, in my judgment, misrepresentation of the limits and possibilities of monetary policy.
One of the things that contributes to a high level of activity, and
high level of employment, among those items, is a stable dollar, and
the ultimate achievement of it is the use of raw materials and initiative
and energy and workmanship in turning out products that are salable
at stable values.
Now if we rim our business all the time at the rate of a hundred-yard
dash, there comes a limit to how far you can sustain that type of drive.
The head of our Division of Research and Statistics, M r . Ralph
Young, who is not here today, has referred sometimes to this present
economy as an "overtime economy," because we have been under
forced draft a good part of the time.
We have got to have some normalcy, in the sense of recognizing
the fact that we cannot always be having new records at the cash
register every week. We have got to level this thing out, and we
have got to prevent monetizing the debt in such a way that we induce
inflationary pressures.
A M E N D M E N T T O SECTION 10 OF F E D E R A L R E S E R V E
ACT?
30
As I testified before your subcommittee of the joint committee,
I would like to have as low interest rates as it is possible to have,
without inducing those inflationary pressures, and that is the objective
of our policy.
We are not interested in promoting higher interest rates.
M r . BROWN. Will you yield, M r . Patman.
M r . P A T M A N . I yield.
M r . B R O W N . IS it your position that if we did not have the Federal
Reserve System, that these bonds that you are speaking of would not
go down as low as they have?
M r . M A R T I N . I do not know.
M r . PATMAN. But, having the Reserve System, we are fortunate
enough to have a system that can support them.
Had you finished, M r . Martin?
M r . M A R T I N . Y e s , sir.
M r . P A T M A N . N O W , I am
about to get ahead of myself here a little
bit. How long has it been, not counting this period since the so-called
Treasury-Federal Reserve accord, not counting that period, how long
has it been since Government bonds, long-term, went below par?
M r . M A R T I N . I think the last time was World War I .
M r . PATMAN. Right after World War II?
M r . M A R T I N . N O , World War I .
M r . P A T M A N . I mean World War I .
M r . M A R T I N . Y e s , sir.
M r . PATMAN. When they went down to about 80, according to the
market and in some places out in the country they went down to 75,
to my knowledge.
But that was about 1919, was it not, M r . Martin?
M r . M A R T I N . I should think that would be about right.
M r . P A T M A N . N O W from that time, when the market was stabilized,
of course, those bonds very quickly came up, and it didn't last long.
About how long was it before they got back to par?
M r . MARTIN. I would have to check it.
M r . P A T M A N . D O you have any statistics with you that could
quickly give us that information?
M r . M A R T I N . I do not think we have. I will get that information
and forward it to you,
(The information requested above is as follows:)
PRICES
OP
GOVERNMENT
BONDS
W i t h respect to prices of Government bonds, the record since World War I
shows that, except for periods of supported Government securities markets,
Government bond prices fluctuated in accordance with general money market
developments. I n periods of active demands for money, interest rates generally
rose, and bond prices declined. As a consequence, any outstanding bonds issued
with lower coupons than called for by the prevailing level of interest rates tended
to decline below par. For example, the Liberty bonds issued during World War I,
when the market was indirectly supported by Federal Reserve action, declined
sharply late in 1919 and early in 1920, when commodity price inflation was
rampant. Prices of some of these issues reached low points of 81 or 82 in M a y
1920 and continued in the 80's until the latter part of 1921.
3316&—S3
3
A M E N D M E N T TO SECTION 10 OF F E D E R A L RESERVEACT?30
From 1921 until early 1928, bond yields tended to decline, partly in response
to reduction in the public debt and partly because of additions to the credit base
from a gold inflow and other factors. Prices of outstanding bonds rose, with
Liberty bonds reaching premiums of 2 to 4 points above par. New refunding
issues of Government bonds were floated at gradually declining coupon rates—the
lowest for long-term bonds was 3% percent in 1927 and 1928.
With tightening credit conditions, accompanying the stock market boom of
1928-29, bond yields rose somewhat. Prices of a number of outstanding bonds
fell below par—the Victory bonds with a 4}i percent coupon to 98 and a fraction
and the more recently issued 3% percent bonds to 95 and a fraction.
With the development of easier money markets during the recession of 1930
and 1931, bond prices again rose to substantial premiums. In September 1931
the Treasury floated an issue of 20 year bonds with a 3 percent coupon. This
trend was interrupted in the latter part of 1931 because of pressures on United
States money markets resulting from depreciation of the pound sterling and also
from currency runs on United States banks. The new 3 percent bonas declined
to around 82 and other issues fell below par.
This tight situation was relieved somewhat by Federal Reserve open market
operations, following passage of the Glass-Steagall Act early in 1932, permitting
Government securities to be pledged against Federal Reserve notes. Money
markets, however, continued chaotic until after the bank holiday.
During the 1930's and early 1940's, with easy money conditions resulting from
the large gold inflow and the generally reduced demand for credit, bond yields
generally declined with but minor interruptions. Prices of outstanding bonds
rose to substantial premiums and new issues were floated at consistently lower
coupon rates. Long-term issues were floated with coupon rates Of 2)i percent
and medium-term bond issues at as low as 2 percent. Bond prices fluctuated
some during this period in response to market forces, and at times some of the
lower coupon issues dipped temporarily below par.
|
I
i
1
Low
High
i t m i
I
i: i•
!
|
j
JUL
S^iSwitils
I
Source: C. F. Childs, Concerning TJ. S. Government Securities, C. F. Childs & Co., Chicago 1947.
102.24 Aug. 1924 98.40 May 1929 103.30 Mar. 1927 97.22
102.00 July 1924 100.10 Nov. 1927 101.50 Dec. 1926
103.00 Aug. 1924 98.60 Aug. 1929 104.12 Mar. 1927 98.80
107.70 Nov. 1924 104.13 Mar. 1925 116.60 Jan. 1928
98.30
98.28 Mar. 1929 108.10 Jan. 1923 .89.16
95.12 Mar. 1929 103.10 Jan. 1928
87.20
83.00
82. 30
OQ
May 1920
May 1920
May 1920
Mar. 1923
J 5
High
I
Ks 1946-56
i
i
84.0
81.3
82.0
98.1
I
1925-29
!Oi
5t Liberty converted 4Ms
Low
-3
& I
1917-24
!
Dates outstanding
Jan. 1932
Jan. 1932
Jan. 1932
Jan. 1932
Jan. 1932
Jan. 1932
Feb. 1932 104.12
Low
1930-34
May 1934
High
A M E N D M E N T TO SECTION 10 OF F E D E R A L RESERVE ACT
'iiiiii
iriHrtHiHH
Ulttt
888223
mm
15
amendment t o section
10 o f
federal
r e s e r v ea c t ?30
M r . PATMAN. A t any rate, so far as you know, after that adjustment, which probably was not over a year, was it? Just as a rough
estimate, it was not over a year or two, was it?
M r . M A R T I N . N O , sir, I do not think so.
M r . PATMAN. They got back to par?
M r . MARTIN. That is right.
M r . PATMAN. From then on, say 1920 to 1951, it became traditional that the Federal Reserve System would protect the bonds
from going below par, did it not? It became traditional that the
Federal Reserve System would protect those bonds from going
below par?
M r . MARTIN. Whatever there was in that tradition, there was
nothing in the law that specified it.
M r . P A T M A N . I know there was nothing in the law, but people
buying bonds could look to the past and say, " W h y they have not
gone down in 20 years." " T h e y have not gone down in 25 years."
" T h e y have not gone below par in 30 years. Certainly we are justified m buying long-term Government bonds, because with that
knowledge and background and tradition behind us we know that
our Government will not let us down, and that the Federal Reserve
System will protect those bonds as they have always done." Do
you now think the people would be justified in believing that?
M r . M A R T I N . N O , I do not think they would.
M r . P A T M A N . Y O U do not think so. Now, then, this open market
committee, composed of 7 Board members and 5 presidents of Federal
Reserve banks, let us visualize that board. Seven Board of Governors
members on one side of the table, and 5 presidents of Federal Reserve
banks on the other side.
These 5 fellows on the other side, you certainly ought to have a lot
of influence with them. Y o u can hire them and you can fire them..
So in truth and in fact, the open market committee is composed of the
Board of Governors of the Federal Reserve System. Do you not
think in practice that is true?
M r . M A R T I N . N O , sir. In practice I am certain that that is not
true.
In theory, it might be conceived that way, but in practice it certainly is not true.
The 5 members of the open market committee coming from the
presidents' group, which is a statutory body, have equal status with
the Board of Governor members in reaching a decision on market
policy.
M r . P A T M A N . D O they take an oath like the governors to support
the Constitution, in other words the statutory oath?
M r . MARTIN. T h e y do.
M r . PATMAN. And the Board of Governors take the statutory oath
of a Federal official, do they not?
M r . M A R T I N . W e d o ; yes, sir.
M r . PATMAN. A l l of them do?
M r . MARTIN.
Yes.
M r . P A T M A N . N O W , then, do the presidents of banks take an oath
of office as a Federal official?
M r . MARTIN. Not as a Federal official; no, sir.
M r . PATMAN. Well, since the Federal Reserve agent is the person
who really is the go-between between the Government and the bank,
amendment to section
10 o f
federal
reserve
act?
30
in other words, he pulls out the money from the Bureau of Engraving,
and he keeps it in his possession, in his lockbox, and he delivers it to
the bank when and if the bank is qualified to receive it, do you not
think that makes him a public official to the extent that he should be
under the same oath as the members of the Board of Governors?
M r . M A R T I N . I will have to check on this, M r . Patman, but I
understand the Federal Reserve agent does take an oath.
M r . P A T M A N . He does take an oath?
M r . M A R T I N . That is my understanding.
M r . P A T M A N . A S a Federal official?
M r . M A R T I N . A S a Federal official.
M r . P A T M A N . In other words, the statutory oath, prescribed by the
Statutes of the United States, that all Federal officials take?
M r . M A R T I N . I will check that to be absolutely certain, but I think
that is correct.
M r . P A T M A N . Well, you think he should take it if he does not; do
you not?
M r . M A R T I N . Well, I would have to study it. M y impression is
he should.
(Additional comment supplied by M r . Martin: "After checking
the matter, I find that Federal Reserve agents execute the statutory
oath prescribed by law for Federal officials.")
M r . P A T M A N . fie handles millions of dollars, direct from the Bureau
of Engraving, which is the Government Printing Office for money.
The Board of Governors
M r . K I L B U R N . M r . Chairman, is this a single inquiry?
The C H A I R M A N . Well, we will permit the gentleman to go on a
little longer.
M r . P A T M A N . I assure the gentleman there is no use in making a
point of order, because I am not going to ask any questions
M r . K I L B U R N . I am just wondering if it is the privilege of one
single member of the committee to go ahead and ask questions.
M r . P A T M A N . Does not the representative of any district have
certain rights, including the right to interrogate the witness?
M r . K I L B U R N . I have got the same right.
M r . P A T M A N . Certainly you have. And I will not object to it.
M r . K I L B U R N . A l l right.
M r . P A T M A N . The regional banks of the Federal Reserve System
do not have much power now, do they, M r . Chairman?
M r . M A R T I N . D O not have what?
M r . P A T M A N . They do not have too much power to control the
economic affairs of the country, do thev?
M r . M A R T I N . Well, the regional banks can pass on discounts.
M r . P A T M A N . Well, now, do you not think you have overstated it
by saying "pass on discounts?" They can initiate a rediscount rate
but it is up to the Board to say whether it can be put into effect.
But your discounts do not amount to hardly anything, do they?
M r . M A R T I N . Recently they have been up as high as $2 billion.
M r . P A T M A N . Over the years, though, they have run down to even
less than, sometimes, a million dollars, have they not?
M r . M A R T I N . Until this recent period, the discount facilities had
fallen into almost, I might say, disuse.
M r . P A T M A N . Well, now, with all due respect to the regional banks,
and I do respect all the officials and I appreciate the fact that they
amendment to section
10 o f
federal
r e s e r v ea c t ?30
are ready, on the alert, to do anything that would be necessary that
would demand their services, or would permit their services to be of
assistance, they do not have a great deal of power. They do not have
the power to fix the rediscount rates, and this passing on discounts for
banks, that is more of a slide-rule proposition, is it not? Y o u have
got your standard there to go by. Y o u know exactly what you will
take and what you will not take.
There is never any close question involved in that, is there?
M r . MARTIN. There is a very real question involved at times, particularly in times like these, M r . Patman, because it means a great
deal to certain banks to have the borrowing privilege, and it is a privilege, not a right, borrowing for excess profits tax purposes, or for something that is not a temporary matter. They cannot be sure that they
can always come into the discount window and get their reserves.
M r . PATMAN. But the Board of Governors lays down certain rules
for these banks to follow, does it not?
M r . MARTIN. The Board of Governors does not lay down precise
rules on that. The Board of Governors recognizes that as a function
of the regional bank, because the regional bank is closer to the credit
problems of the area than is the Board of Governors.
M r . PATMAN. But it would be your duty to step in, if in any particular area, they were just giving banks money without question and permitting the reserves to be increased to such an unhealthy level that
it would be disturbing to the economy of the Nation? Y o u would
step in then, I assume?
M r . MARTIN. Well, as a coordinating body we would confer with
them.
M r . PATMAN. Y o u would naturally step in; yes.
Publicity was given recently to the Fort Knox gold. I know it has
been said in the recent past that we should check the gold to make
sure it is all there, and that gold has been checked, I understand, and
it has been found to be exactly as it has always been and thought to
be. It was there in place, in the good old hills of Kentucky, at Fort
Knox, the amount that the books record as having to be there. There
is no question about that, is there?
MR; MARTIN. Well, that was certified by the two Secretaries of the
Treasury, the outgoing and incoming.
M r . PATMAN. Yes. Now what has been done about checking the
Federal Reserve System's holdings of gold certificates? Has any
governmental agency ever checked the holdings of your money, that
you have gotten from the Bureau of Engraving and Printing, and the
gold certificates that you have received? Has any government audit
ever been made of that?
M r . MARTIN. We have an audit that is made, and we have had our
procedures passed on by Arthur Anderson & Co., certified public
accountants.
M r . P A T M A N . IS it not a fact, M r . Martin, that the Federal Reserve
Act is 40 years old this year, 1953, and that during that time the
United States Government has never made any audit of the Federal
Reserve System, or any Federal Reserve bank?
M r . MARTIN. Well, the Board of Governors is part of the Government of the United States.
M r . P A T M A N . I know, but it is part of the Federal Reserve System,
too.
amendment to section
10 o f
federal
reserve
act?
30
M r . MARTIN. It is part of the Federal Reserve System.
M r . PATMAN. But I am talking about any independent audit. No
independent audit has ever been made by any agency of the Federal
Government—that is independent audit. Of course you are a part
of the Federal Reserve System. I am speaking about Lindsay Warren's
group, or anybodv like that?
M r . MARTIN. If you are talking about the Board, that is correct,
sir.
M r . PATMAN. Or the Federal Reserve banks, either, I mean the
regional banks.
M r . MARTIN. That is correct.
M r . PATMAN. Never in 40 years.
Now, although we know that that gold is over there in Fort Knox,
and we have no reason to believe that the gold certificates and the
money is not just exactly as it should be, just like the gold, yet we
have had no audit of them, have we?
M r . MARTIN. There has been no audit.
M r . PATMAN. I n 40 years.
M r . M A R T I N . N O audit of the Federal Reserve banks.
M r . PATMAN. That is right, I mean the regional banks or the Board
of Governors.
M r . MARTIN. In my opinion they are the best audited group of
banks in the world.
M r . PATMAN. Well, how often do you audit the 12 Federal Reserve
banks and their branches?
M r . MARTIN. They are audited once a year.
M r . PATMAN. B y whom?
M r . MARTIN. They have been aduited by us, and recently, the
Board has been audited by Arthur Anderson & Co.
M r . PATMAN. Well, was it only after the Joint Committee on the
Economic Report complained about that, that you had an outside
auditor?
M r . MARTIN. I recognized that as one of the achievements of your
committee, M r . Patman.
M r . P A T M A N . I know, but that is the first time you ever had an
auditor from the outside?
M r . M A R T I N . N O , that is not the first time.
We did have Price Waterhouse some years before that.
M r . P A T M A N . Y O U have had audits annually, haven't you?
M r . MARTIN. We are required by law to have annual audits.
M r . PATMAN. That is right, but the reports are made to you. Do
you not think it would be within our discretion as members of this
committee to have access over those audits over the past few years,
and let us see what the situation is? We think everything is all right,
and you think it is, too, but you know, as an agency of this body, do
you not think those audits should be made available to the members
of this committee?
M r . MARTIN. Would you care to come down and look at them?
M r . P A T M A N . N O ; why not bring them up here?
M r . MARTIN. Because there are so many confidential items in
there, and I question very much whether they should be made a matter
of public record.
M r . PATMAN. But the members of this committee are responsible
persons, and the chairman is certainly a very responsible person, and
amendment to section
10 o f
f e d e r a l r e s e r v ea c t ?30
they would be in the charge of the chairman and the clerk, who is
also a very responsible person.
Mr. M A R T I N . We went all through this with your committee. I
would be Very glad to have you or the whole committee come down
and look at the audits.
M r . P A T M A N . What about bringing them up here, M r . Chairman,
do you not think that would be a reasonable request?
The C H A I R M A N . I doubt very much whether it is germane to this
bfll.
M r . P A T M A N . I know, but they are asking for $20 million. We want
an audit to find out whether or not we are justified in doing that.
The C H A I R M A N . I think if we get into the field of fiscal and financial
relationships, before the Joint Committee on the Economic Report,
we might suggest to the chairman that he might request such an
audit, and then serious consideration would be given to it.
M r . K I L B U R N . Who is the chairman, M r . Patman?
M r . P A T M A N . The Chairman is the distinguished member from
Michigan, M r . Wolcott. And a good one, too. But the Committee
on the Economic Report does not have the responsibility that, the
Banking and Currency Committee has.
The joint committee cannot initiate legislation.
This committee initiates legislation. Therefore, the inquiry should
be made right here, and here is the proposition. Although $20
million is at three and a quarter percent interest, it amounts to over
$2,000 a day, and the question is whether or not we should pay this
$20 million on the national debt and save over $2,000 a day or whether
or not we will let them spend it for more buildings. That is why we
should have an audit.
M r . K I L B U R N . M r . Chairman, is M r . Patman through here?
M r . P A T M A N . N O , I am not through.
M r . K I L B U R N . M a y I interrupt you for a minute?
M r . P A T M A N . Surely.
M r . K I L B U R N . IS it all right?
M r . P A T M A N . Certainly, sir.
M r . K I L B U R N . M r . Martin, don't you think the Federal Reserve
System has done a great service to this country ?
M r . M A R T I N . I certainly do, sir.
M r . K I L B U R N . SO do I . And if you get the impression that M r .
Patman is against it, don't get the impression that Congress is against
it, because they are not.
M r . M A R T I N . I am sure of that, sir.
M r . K I L B U R N . A l l right.
M r . P A T M A N . I hope the gentleman doesn't get the inference
that I am against the Federal Reserve System, properly administered.
Mr. K I L B U R N . I just want you to know that, M r . Martin.
M r . M A R T I N . Thank you.
Mr.'KILBURN. This committee is for you and against Patman.
Mr. P A T M A N . I didn't know that this committee had voted itself
against me.
Mr. K I L B U R N . We are voting now.
Mr. P A T M A N . It is all right for a member of the committee to
consider me obnoxious. If the other members want to do likewise,
they can, but it won't deter me.
Mr. K I L B U R N . Not obnoxious, M r . Patman.
A M E N D M E N T TO SECTION 10 OF F E D E R A L R E S E R V E
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30
M r . GEORGE. M r . Chairman, I came in late and I am slightly
confused. I find in front of me a bill, and I can't get the connection
between what we are considering and what is being discussed. I wish
the chairman would straighten me out, please.
The CHAIRMAN. Well, I assume M r . Patman is inquiring into the
functions of the Federal Reserve System to determine whether or not
these branches are necessary, and whether the Federal Reserve System is being operated as an efficient agency. He also takes the
position that although this comes out of the capital account, he
contends that certain amounts could be used otherwise by the Federal Treasury, so I assume M r . Patman thinks, anyway, that his
questions are germane to the bill.
M r . GEORGE. T h a n k you.
The CHAIRMAN. That is an assumption.
M r . PATMAN. M a y I finish now, M r . Chairman?
Mr. K I L B U R N . I still say that the other members—still ask whether
any other members of the committee have a right to question besides
M r . Patman.
The CHAIRMAN. The members of the committee will have an opportunity.
M r . PATMAN. In fact, I have not refused to yield, so that complaint
is not justified.
M r . KILBURN. It is not a complaint. Except why should we have
a field day, with you attacking the Federal Reserve Board?
M r . PATMAN. That is one man's opinion. I have a right to it.
M r . BOLLING. M r . Chairman, will the gentleman yield?
M r . P A T M A N . I yield.
M r . B O L L I N G . I would like to point out to the gentleman from New
York, M r . Kilburn, that the gentleman from Texas, M r . Patman, was
the chairman of a subcommittee of the Joint Committee on the Economic Report and was highly commended by all the participants and
all observers, for the absolute fairness of hearings over which he presided and which involved at some length the Federal Reserve.
Mr. KILBURN. But he isn't chairman any more.
M r . PATMAN. Not for the present. Y o u can't tell about the next
election.
M r . KILBURN. That is right.
M r . P A T M A N . N O W , about the weakness of the regional banks. I
mentioned that.
Charges have also been made that the large eastern banks have been
getting too much power in the Federal Reserve System. Y o u will
recall in the discussions of the Federal Reserve System, back prior to
the time it became law—December 23, 1913—that it was made very
plain that although it was referred to as a banker's bank, that the
bankers should never get control of it. That is right, is it not, M r .
Martin?
M r . MARTIN. That is correct.
M r . PATMAN. Illustrations were given, I believe, by Senator Glass
at the time, that it would be no more right for the bankers to have
control of the Federal Reserve System than it would be right for the
railroads to control the Interstate Commerce Commission, or business
to control the Federal Trade Commission. I believe that illustration
was given.
88168—C8
I 4
A M E N D M E N T T O S E C T I O N 10 OF F E D E R A L R E S E R V EA C T ?30
Now, there are a lot of people that believe, judging from the letters
that I receive and the statements that I hear made that the eastern
bankers have moved in too much recently on the Federal Reserve
System, and that they have initiated and caused all these increases
in interest rates. I know you would deny that, naturally. I know
that you don't feel that that is the case at all. I am not impugning
your motives. I am saying that you would certainly not permit that
knowingly to be done.
Mr. M A R T I N . I accept your statement.
Mr. PATMAN. But the directors of the New York Federal Reserve
Bank are 9 or 10.
Mr. MARTIN. Nine directors.
Mr. PATMAN. And one of the directors is president?
M r . MARTIN.
NO.
M r . PATMAN. Sproul.
M r . MARTIN. Sproul is not a director.
M r . PATMAN. He is the president of the board?
Mr. MARTIN. H e is president of the bank.
M r . PATMAN. That makes 10.
M r . M A R T I N . N O , he is not on the board.
M r . PATMAN. He is president, and there are nine directors.
Mr. MARTIN. That is right.
Mr. P A T M A N . N O W , of those nine directors, M r . Burgess was on
that board, was he not?
Mr. MARTIN. M r . Burgess would have been on that board if he
had not come to Washington.
Mr. P A T M A N . H O W many of that board have been used for places
in Washington in the last few months?
Mr. MARTIN. Well, I couldn't give you a tabulation. M r . Folsom
was a member of the board.
Mr. P A T M A N . I really want it for information. I am not trying
to be spectacular or anything like that. I just wanted it for the record.
Would you mind looking over your directors and presidents of Federal
Reserve banks all over the country, and file with a revision of your
remarks a statement of those that have been brought in from the
Federal Reserve Bank System to administrative agencies of the executive department, and state the positions they held with the Federal
Reserve and the positions that they were selected to fill in the executive departments.
Mr. MCDONOUGH. Will the gentleman yield?
Mr. P A T M A N . I will be glad to.
Mr. MCDONOUGH. Over what period of time?
Mr. PATMAN. Well, in the last 6 months.
The C H A I R M A N . Y O U mean since January 20?
Mr. PATMAN. That is all right.
Mr. MARTIN. Since January 20.
Mr. KILBURN. Will the gentleman yield?
Mr. P A T M A N . I will be glad to yield.
Mr. KILBURN. Put in there, too, who was put in in the last 20 years.
Mr. PATMAN. I am going to object to that. It doesn't relate to the
inquiry I am making at all.
M r . KILBURN. W h y not?
Mr. PATMAN. Suppose the gentleman waits until I get through.
Mr. KILBURN. Well, I can't wait.
A M E N D M E N T TO SECTION 10 OF F E D E R A L R E S E R V E
ACT?
30
(The information requested above is as follows:)
R. B.
Anderson
A t the time of his appointment by the President as Secretary of the Navy,
M r . Anderson was a class C director and deputy chairman of the Federal Reserve
Bank of Dallas and was general manager of W . T . Waggoner estate, Vernon, Tex.
W. Randolph
Burgess
A t the time of his appointment by the Secretary of the Treasury as Deputy to
the Secretary of the Treasury, M r . Burgess had been elected by the member
banks as a class A director of the Federal Reserve Bank of N e w Y o r k but did
not assume office because of his appointment as Deputy to the Secretary of the
Treasury. A t that time he was chairman of the executive committee, the
National City Bank of New York, N e w York, N . Y .
Joseph
M.
Dodge
A t the time of his appointment by the President as Director of the Bureau of
the Budget, Mr. Dodge was a director of the Detroit Branch of the Federal
Reserve Bank of Chicago (appointed by the board of directors of the Federal
Reserve Bank of Chicago) and was president, the Detroit Bank, Detroit, M i c h .
Marion
B.
Folsom
A t the time of his appointment by the President as Under Secretary of the
Treasury, M r . Folsom was a class B director of the Federal Reserve Bank of
N e w Y o r k and was treasurer, Eastman K o d a k Co., Rochester, N . Y .
Ray
M.
Cridney
A t the time of his appointment by the President as Comptroller of the Currency,
M r . Gidney was president of the Federal Reserve Bank of Cleveland.
Dr. John
A.
Hannah
A t the time of his appointment by the President as Assistant Secretary of
Defense, Dr. Hannah was a director of the Detroit branch of the Federal Reserve
Bank of Chicago (appointed by the Board of Governors of the Federal Reserve
System) and was president of Michigan State College, East Lansing, M i c h .
W. I.
Myers
M r . Myers was appointed by the President as Chairman of the National
Agricultural Advisory Committee and is a class C director of the Federal Reserve
Bank of N e w York and dean of the N e w Y o r k State College of Agriculture at
Cornell University, Ithaca, N . Y .
Robert
T. Stevens
A t the time of his appointment by the President as Secretary of the Army,
M r . Stevens was a class C director and chairman of the Federal Reserve Bank
of N e w Y o r k and was chairman of the board, J. P . Stevens & Co., Inc., New
York, N . Y .
Philip
Young
A t the time of his appointment by the President as Chairman of the C i v i l
Service Commission, M r . Young was a class C director of the Federal Reserve
Bank of New York and was dean, Graduate School of Business, Columbia University, N e w York, N . Y .
NOTE.—All of these appointees, with the exception of M r . Myers, have resigned
from their positions in the Federal Reserve System.
M r . PATMAN. M r . Martin, about this Treasury and Federal Reserve accord: That was announced March 4, as I remember it, 1951.
Isn't it a fact that farm prices commenced going down almost immediately after that?
M r . MARTIisr. Governor Evans here is a farmer. I couldn't give
you the precise time that farm prices began to go down.
M r . PATMAN. They have been in a slump, though, in the last couple
of years; haven't they?
M r . MARTIN. They have been declining; yes.
M r . PATMAN. Isn't it a fact that that decline started after that
accord, when notice was given that you were not going to support
amendment
to section
10 o f
f e d e r a l r e s e r v ea c t ?30
Government bonds, and you were going to tighten up on the money,
and make it scarce, which would cause interest rates to go higher, and
isn't it a fact that farm prices more quickly respond to monetary
changes than any other group of commodities?
M r . M A R T I N . N O , I wouldn't accept that.
M r . PATMAN. What other groups of commodities would you say
would respond more quickly?
M r . M A R T I N . T O monetary policy?
M r . PATMAN.
Yes.
M r . MARTIN. I wouldn't want to list any group.
M r . P A T M A N . Y O U wouldn't want to list any, but do you know of
any group that responds more quickly, either up or down?
M r . MARTIN. I won't accept monetary policy as starting a decline
in any set of prices, per se.
M r . PATMAN. But you will admit that the Treasury-Federal Reserve
accord was a definite monetary policy, being promulgated; will you
not?
M r . MARTIN. The Treasury-Federal Reserve accord was just what
it purported to be.
M r . PATMAN. Well, it was a policy being promulgated?
M r . MARTIN. It was an understanding between the Treasury and
the Federal Reserve Board, that we would do what we could to see
that the requirements of the Treasury were fully met, in accord
with the processes of the market, while minimizing monetization of
the debt. That was a joint working relationship between the Treasury
and the Federal Reserve Board.
M r . PATMAN. Well, I am not going to go into the qiiestion as to
whether or not it was really an accord, or whether somebody jumped
the gun on the accord. I am not going into that. But the question
is, when that accord was announced, farm prices commenced going
down, and have been going down ever since, except just a few of
them now and then. Generally, though, they have been going down.
M r . MARTIN. Well, I won't accept an inference that it was the
accord that- started farm prices going down.
M r . PATMAN. What is that?
M r . MARTIN. I said I won't accept an inference, if that is what
you are driving at, that it was the accord that started farm prices
declining.
M r . PATMAN. Well, they did commence declining right after that.
M r . MARTIN. The forces of the market, supply and demand, are
the controlling elements in prices.
M r . P A T M A N . Y O U didn't put that accord into effect right away,
did you? Didn't you continue to support Government bonds for a
long time after that?
M r . MARTIN. The agreement with the Treasury was that we would
work closely with them, and we did, step by step, with respect to
M r . PATMAN. But you had in mind eventually withdrawing entirely
from the support of Government bonds?
M r . MARTIN. We hoped that we would not have to decree prices.
That prices would stand on their own, and not be a matter of K i n g
Canute saying to the ocean "stand back."
M r . P A T M A N . N O W during that time, M r . Martin—of course, I
don't claim that the Board of Governors selected the time for that
reason—but that was at the point of lowest popularity of the then
amendment t o section
10 o f
federal
reserve
act?
30
President of the United States, M r . Truman. A n d the fact that he
was low in popularity, and the fact that the MacArthur firing and all
that trouble came on right after that, when he got a little bit lower
in popularity, that didn't cause the Board to have more courage in
defying the President and failing to support the Government bond
market; did it?
M r . MARTIN. M r . Patman, I cannot accept your earlier statement
imputing motives to me. There were no motives in the part that I
played in the Federal-Reserve-Treasury accord.
M r . P A T M A N . Y O U were in the Treasury at the time. Y o u were
not then Chairman. But you know the President was insisting that
the Open Market Committee should continue to support Government
bonds and in fact after having a meeting with the Open Market
Committee announced in the press, that they were all in agreement,
that they were going to continue to support the Government bond
market.
M r . MARTIN. I was not at that meeting.
M r . P A T M A N . Y O U were then Assistant Secretary of the Treasury.
I overlooked that.
M r . Chairman, I thank you very much for your indulgence, also
the members of the committee, and I don't believe I have any more
questions.
The CHAIRMAN. Are there other questions?
M r . SPENCE. M r . Martin, I want to say that I have a very profound
respect for you and your ability and your modesty.
There is one question I would like to ask. The interest rate is a
very sensitive mechanism because it has a very great effect on our
national economy; isn't that true?
M r . MARTIN. That is correct, sir.
M r . SPENCE. The rise in the interest rate on recently issued longterm Government securities would have an inevitable effect upon
securities outstanding. Didn't that increase depress the price of outstanding bonds in the market?
M r . MARTIN. That unquestionably depresses them; yes.
M r . SPENCE. That wasn't done by the Open Market Committee.
That was done by act of Government. Now, what effect does that
have upon the future sales of our Government securities to the people.
Everywhere, through the Nation, it was advertised that it was the
safest investment in the world. "Invest in the bonds of your Government."
Now, when you come to sell securities to the people again, what
effect is that going to have?
M r . MARTIN. If we can make progress toward balancing the budget,
and putting our monetary and debt-management problems on a sane
basis, there isn't any question in my mind but what it will cause
Government securities to rise ultimately and sell at premiums.
M r . SPENCE. Well, don't securities respond to the interest rates?
M r . MARTIN. Well, let me state clearly that when the maturity
arrives, you don't have any risk in a United States Government
bond. There is nothing sounder in the world. B u t you don't want
to kid the people of the country about the purchasing power of their
currency. If their bonds sell at 101^, but the purchasing power of
their currency is reduced in half, in the course of it, you are just
amendment to section
10 o f
f e d e r a l r e s e r v ea c t ?30
kidding the American people with respect to purchasing those securities.
M r . SPENCE. I am afraid that when the maturity date arises,
I will not be here. So it is very essential to a great number of Americans that the bond would have a continuing value; isn't it? And
that we wouldn't have to wait until maturity?
M r . MARTIN. Well, the continuing value will be there, M r . Spence.
M r . SPENCE. I know that, of course, the market depreciation of the
bonds has depreciated the assets of all banks holding long-term Governments, but the banks,, by reason of the increased interest rate,
will have a corresponding opportunity to offset it. But the people
who bought these bonds and put them away as an investment, they
don't have any such corresponding benefit, because they are not the
beneficiaries of any interest except that on their bonds.
M r . MARTIN. That is correct. They have been penalized because
of the decline.
M r . SPENCE. What psychological effect will that have on future
issues? Of course, a man ought to be willing to sacrifice himself for
his country. A man on the battlefield does sacrifice himself, and
maybe a man ought to have the same spirit when he buys securities,
but as a matter of fact he doesn't have that same spirit in buying
securities. What effect will that have on future issues?
M r . MARTIN. When we get a sound fiscal-debt management program, it will ultimately benefit all Government securities.
M r . SPENCE. Y o u think that the bonds that are now depressed,
that are down to 91, you think before long they will go back to par?
M r . MARTIN. I don't want to make any predictions on prices as
I said to M r . Patman, but I want to make that point that interest
rates can go down as well as up.
M r . SPENCE. I am not cirticizing you in the least. I know you are
a very good Government servant and you are trying to do your best.
But those things disturbed me. It seems to me they are fraught with
danger for the future of the country.
The CHAIRMAN. I n connection with M r . Patman's questioning concerning the prices of all commodities, the accord was in February 1951.
M r . MARTIN. M a r c h 4, 1951.
The CHAIRMAN. Yes, and in March 1951, the commodity price index
for all items stood at 111.
February, 1953, it stood at 113.4.
M r . P A T M A N . I S that just farm prices?
T h e CHAIRMAN. A l l commodities.
M r . PATMAN. What about farm prices?
The C H A I R M A N . January 13, they came down to 111.5. About 1
point lower in February of 1953 than they were at the time of the
accord.
M r . PATMAN. Suppose we ask the chairman to submit a table on
the different commodities and to indicate how they have reacted since
the accord.
The CHAIRMAN. That table would be in the Economic Indicators
for April 1952.
M r . P A T M A N . I have seen that, but it doesn't seem to break it down.
The CHAIRMAN. It breaks it down to apparel, transportation, and
so forth.
M r . PATMAN. M a y I see it, please?
A M E N D M E N T TO SECTION 10 OF F E D E R A L R E S E R V E
T h e CHAIRMAN. Surely.
M r . DEANE. M r . Chairman.
T h e CHAIRMAN. M r . Deane.
M r . D E A N E . I would like to
ACT?
30
commend M r . Martin. I recall last
year ^ that I had the opportunity of visiting the Federal Reserve
headquarters here in Washington, and I think it would be of interest
to each member of the committee to take time off and go through
the Federal Reserve headquarters.
The thought I would express now is that concerning the factors of
interest rates, debt management, causes and effects. I am a complete
novice. I have recently gone into my district and I was concerned
about business conditions. One furniture dealer who spoke to me
said) " Y o u fellows made a mistake in eliminating this downpayment.
It is very difficult for me to compete with big stores who require no
downpayment."
And I realize that some of these questions are not related to this bill,
which I support, but at the same time, we seldom hav^e an opportunity
of having an able witness like you, who can probably help us in solving
these perplexing problems of our constituents. I wonder if you have
a comment to make on the general credit trends. Should we begin
to tighten our belts? Should business firms do so? Should we
encourage people to continue to go into debt?
What is the policy and thinking of the Federal Reserve System?
M r . MARTIN. Well M r . Deane, I welcome that question. I have
commented on it a number of times.
I say with due deference to the committee that I think the Congress
did make a mistake in removing regulations W and X at the time that
they did.
i ou will remember that I testified so at that time.
Subsequent to the removal of regulation W there has been a very
substantial increase in consumer installment credit.
The CHAIRMAN. A t that point, would you yield to me?
What has been the increase in bank credit during the same period?
M r . MARTIN. The increase in bank credit has been very substantial
also, M r . Chairman, but it is not quite as easy to put the finger on
consumer credit, M r . Chairman, as it is, through general controls,
on bank credit, through general controls.
Now, as I said before the Senate committee, my own thinking on
this matter has changed somewhat since I came into the system. I
would think that, with the mass production, mass consumption
economy, of the type that we have today, that it might be desirable
for the Federal Reserve Board, as a part of the Federal Reserve Act,
free from the political pressures on one side and the private pressures
on the other, that M r . Patman has rightly said, the role that we should
play would be to have this authority invokable from time to time, in
the same way that open market operations, reserve requirements, and
the discount rate are invokable.
However, that is all water over the dam and we are not seeking that
authority at the present time. That is something in the future, and I
could conceivably be wrong in that judgment.
The CHAIRMAN. Well, this committee will have it before it when we
take up the Defense Production Act.
M r . MARTIN. That is right. But what I am saying to M r . Deane
is that leaving past history out of it, it is not the volume of consumer
A M E N D M E N T TO SECTION 10 OF F E D E R A L R E S E R V EACT?30
credit that has alarmed us, because relating it to the gross national
production, I am not convinced that it is excessive, but the terms of
the credit, as reported to us, from time to time—granted that our
information is not quite as precise as we would like to have it—have
not always been prudent, and I question, as a matter of prudence,
making sales with no downpayments, or whether it is completely
fair to the consumer if the downpayment is obscured in the body of
the terms.
That is a matter of prudence, not of credit policy, however.
M r . DEANE. Stepping forward and bringing in the interest factor,
to what extent do you think will mortgage bankers and lending
agencies begin to participate now in the F H A and V A programs, so
far as extending further credit on the basis of higher interest rates
now that they have been granted?
M r . M A R T I N . I think there is an additional incentive for them.
M r . D E A N E . I have here before me, an editorial by one of our
country editors. I think sometimes it helps us to get back to the
grassroots. I want to read just what he has to say here. He is a
gentleman that has gone through some of the depressions of the past,
a man advanced in years, but a keen student of practical economics.
This is what he says:
The value of money is measured not by commodity prices, but by the rate of
interest it will bring. Cheap money or "dear money, in relation to commodity
prices, is a misnomer. It is true, of course, that high prices are a hardship to
people whose income does not respond to the higher movement. It is an economic general law that when interest is high, labor and commodities are cheap,
and conversely, where wages and commodities are high, interest is cheap.
We have lived through the year when interest was high, and commodities were
cheap. If our contemporary—
and he was referring to an editorial in a neighboring daily newspaper—
if our contemporary wishes to reverse this and have cheap labor and high interest,
we cannot go along with our neighbor.
T o what extent do you think that this old gentleman is correct i n
his analysis?
M r . M A R T I N . I don't think he is correct at all, in terms of cheap
labor and his high prices. I think that the whole purpose of our
policy is to protect the job of the laborer—not protect it in the sense
of cheapening the value, but putting the sustainability of his labor on
a basis through the competitive processes, so that he will have permanent employment, and so that you can have an improving standard
of living through increased production and productivity. Not through
monetary policy.
M r . D E A N E . I understood you earlier to say that the success of the
program now being followed, so far as interest rates and debt management are concerned, will depend upon a balanced national budget.
M r . MARTIN. That is correct.
M r . DEANE. Well, now, assuming that we do not have a balanced
national budget, which is likely, in view of the national, emergency
in which we still find ourselves; the current thinking, in the minds of
some, of a tax cut; and if you proceed on the basis that we are now
going, so far as interest rates and debt management, don't you think
this gentleman is correct?
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M r . MARTIN. If we don't manage it, there would be an element of
truth in it, but I may say that the management of these things is very
difficult.
M r . DEANE. T h a n k you.
M r . PATMAN. M r . Chairman, may I interrupt for just one thing?
Y o u mentioned about prices, and I have looked at it. We have
here Washington bank trends by M r . Wilcox. He has wholesale
•commodity prices, issued M a y 1953, indicating that in January 1951,
at the time of the so-called accord, farm products were 112.3, whereas
last week, the current week, they were 99.3, down a little more than
12 points. Processed foods are also down, and meats particularly
are down—from 113.6 in January 1951 to 94.7 in the current week.
I think that in view of that difference of information, M r . Chairman, we would be justified in asking Chairman Martin to prepare a
statement to show how farm prices have reacted since the accord.
M r . MARTIN. I will be very glad to have a statement of prices
prepared.
The CHAIRMAN. Perhaps we should have it, but I wonder if we
don't want to break it down further.
M r . PATMAN. M y point is that they have gone down as a result of
the failure to support Government bonds.
M r . MARTIN. I want to be on record as disclaiming any connection
between the accord and the decline in farm prices.
M r . PATMAN. Of course, they are not the only prices. Some other
prices went down, too.
The CHAIRMAN. Well, aren't we charged with the responsibility of
establishing, or of stabilizing the economy, as opposed to accepting
inflation as a matter of Government policy? Isn't that what you are
trying to do, trying to go from an inflation to a stable economy?
M r . MARTIN. That is correct.
The CHAIRMAN. Isn't that what you ar$ engaged in now?
M r . MARTIN. That is correct.
The C H A I R M A N . SO that you, and I assume we also here in the
Congress, don't want to accept inflation as a matter of Government
policy, interminably.
M r . MARTIN. That is correct.
The CHAIRMAN. We are going through this transition period now,
of stabilizing the economy.
M r . MARTIN. B i g h t .
The CHAIRMAN. Was there any room by which we could decrease
interest rates as a means of offsetting a depression or recession, previous to the time you adopted this new policy for combatting inflation? D i d you have any room in there where you could stabilize
interest rates? Y o u had them down as low as 1 percent at one time.
That rate is pretty low.
M r . MARTIN. Well, at the first appearance of a downtrend, certainly we would do everything, and use all of our resources to lean
against the opposite trend.
The C H A I R M A N . Y O U didn't have much to lean against, did you,
when interest rates were down as low as they were? Y o u were treading on rather thin ice.
M r . MARTIN. That is correct.
The CHAIRMAN. Are there other questions?
M r . MUMMA. M r . Chairman.
A M E N D M E N T TO SECTION 10 OF F E D E R A L R E S E R V EACT?30
M r . MCVEY. M r . Chairman, I wish to commend the steps which
M r . Martin has taken in his efforts to stabilize our economy. I think
that we are not through with inflation yet. We certainly do not have
any signs of deflation, and I think we should recognize the fact that
inflationary spirals can be more damaging to a country than deflationary tendencies.
M a n y of the countries of the world have been ruined by unbridled
inflation.
I note at the present time that consumer industries are operating
at 40 percent above a year ago, heavy industries at 7 percent above a
year ago, and electric power output 10 percent above a year ago.
Certainly those figures do not indicate that we are in a deflationary
spiral.
What we need to have, it seems to me, and I agree with M r . Martin,
is a balance. I believe that is what his Board of Governors is striving
for, a balance between the forces of inflation and deflation, and inflation is more of a danger today than deflation, despite the fears that
are expressed occasionally, that we may be going into a deflationary
spiral.
I think there are many problems entering into the farm situation
besides the failure to support Government bonds. Supply and demand has a great deal to do with a situation of that kind. So, it
seems to me that we ought to support the action of M r . Martin's
group in trying to strike this balance between inflation and deflation.
There is a question I should like to ask. When your examiners
enter banks, for the purpose of examining the banks, are the banks
allowed to list there Government bonds at par?
M r . MARTIN. That is substantially correct. However, to be somewhat more accurate, banks are permitted to carry their United States
Government obligations at amortized cost.
M r . MCVEY. What about insurance companies?
M r . PATMAN. They are all under State law.
M r . MARTIN. I think they can also, but I would have to check on it.
M r . MCVEY. Insurance companies are large holders of Government bonds. It seems to me they might be in a rather bad position
were they required to carry Government bonds at 91 cents on the
dollar.
M r . MARTIN. It is my understanding that, under the valuation
procedure approved by the National Association of Insurance Commissioners, insurance companies are permitted to carry Government
securities, as well as certain other securities, at amortized cost.
M r . PATMAN. W i l l the gentleman permit an interruption?
Mr. MCVEY.
Yes.
M r . PATMAN. The insurance business is one business that we all
know doesn't come under the Federal Government at all, and I think
the gentleman will find that all these insurance companies can, under
State law, that the State will require them to carry their bonds at the
listed value at the time, and, of course, as far as the Federal Government is concerned, they have a right to just say, to carry them at
par, which they do and have done. But I have never heard of an
insurance company being allowed to carry a bond at more than its
actual value at the time, at the time of the investigation or audit.
M r . MIJMMA. W i l l the gentleman yield?
M r . PATMAN.
Yes.
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M r . MUMMA. Wasn't there a ruling somewhere in 1932, where the
Government was credited with saving a lot of insurance companies
by allowing them to put their assets in bond items at par value rather
than at market value?
M r . PATMAN. Yes, in dealing with the R F C . But one insurance
company actually went broke. I put the facts in the Congressional
Record at one time. That actually broke one insurance company.
M r . MCVEY. That is all I have, M r . Chairman.
M r . HIESTAND. We have been discussing the price of bonds, and
their marketability, which is determined by the demand.
M r . Martin, in your opinion, would the inclusion of the gold clause
make the bonds more attractive, to consumers, let us say, or to purchasers?
M r . MARTIN. It might. It is a matter of judgment, M r . Hiestand.
I wouldn't have any strong feeling on it.
M r . MCVEY. M r . Chairman, may I ask one more question?
T h e CHAIRMAN. M r . M c V e y .
M r . MCVEY. Isn't it true that the public has been purchasing savings bonds in greater amounts than they have been retired in recent
months, in the last few months?
M r . MARTIN. Recently, that is correct, sir. I don't have the figures
right up to date.
M r . MCVEY. U p until a few months ago, they were cashing i n their
bonds faster than they were buying them, isn't that true?
M r . MARTIN. That is correct.
M r . M C V E Y . D O you think that the principles under which you are
operating at present might have some influence in that matter, that
is your efforts to stabilize the dollar?
M r . MARTIN. I wouldn't want to claim too much with respect to
those sales, but I am quite confident that it hasn't hurt sales any.
M r . MCVEY. For some reason the public has more confidence in
those bonds than it had a few months ago.
M r . G E O R G E . D O you consider that we have operated under a
sound fiscal policy in the last 10 years?
M r . MARTIN. That is a pretty hard question to answer. I think
there have been some questionable aspects of our policy in the last
10 years.
M r . GEORGE. Well, I would like to develop a little further the value
of bonds.
I personally know some individuals that bought bonds in 1941,
from money obtained by sale of a brick house. A t the end of the 10year period, they cashed in the bonds and tried to buy the house back,
and they lacked $5,000 of having enough money to do it at the going
market price.
It seems to me that in a 10-year period, our fiscal policy destroyed
the value of that person's actual earned and saved profit. What is
your opinion of that?
M r . MARTIN. There was depreciation of the dollar during that
period.
M r . GEORGE. About 50 percent, wasn't it?
M r . MARTIN. Well, I wouldn't want to put a precise figure on it,
but* I would say that it was about 50 percent; yes.
M r . GEORGE. Didn't that in actual effect cut the savings of everybody's ] ife insurance, everybody's annuities, retirement, i n like
amount?
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Mr.
Mr.
Mr.
The
MARTIN. I n purchasing power materials; yes.
GEORGE. Well, after all, a dollar is only worth what it will buy.
MARTIN. That is right.
CHAIRMAN. Are there further questions?
M r . MCDONOUGH. M r . Chairman.
T h e CHAIRMAN. M r . M c D o n o u g h .
M r . MCDONOUGH. M r . Martin, could you inform the committee
whether the purchasing power of the dollar has increased, and how
much it has increased, as a result of the fiscal policy of the Government in the last several months?
M r . M A R T I N . N O , I couldn't inform you on that. I would say
that there has been no further depreciation of the dollar in the last
18 months.
I would say further, with respect to monetary policy, as I pointed
out earlier, that it has limited power. Y o u can't restore purchasing
power of the dollar after it is lost, by monetary policy. That can only
be restored by productivity and production.
M r . MCDONOUGH. What do you consider the purchasing power of
the dollar today?
M r . MARTIN. Well, I don't have the figure, but
M r . MCDONOUGH. T h a t is
The
CHAIRMAN.
52.85,
isn't that right?
M r . PATMAN. Based o n 1939.
T h e C H A I R M A N . 1935-1939.
M r . M C D O N O U G H . A n d you
maintain, to increase that above 52.85,
that productivity and demand will increase the purchasing power of
the dollar?
M r . MARTIN. That is the only way in which it can be increased, in
my judgment. It can't be done by monetary policy, unless you just
want to produce needless unemployment and waste.
M r . MCDONOUGH. Well, if we service the public debt, that is part
of the monetary policy. Wouldn't that increase the value of thes
dollar?
M r . M A R T I N . Y O U service the public debt?
M r . MCDONOUGH. Well, provide means for retiring it. We are
not doing much about that now.
M r . MARTIN. I still don't think that that will restore the purchasing
power of the dollar. That is my judgment on it. Not unless you go
a great distance, and I don't think that is practical. I think that
theoretically you could say, "We will create such a surplus that we
will retire the entire debt," but I don't think it is practically possible.
M r . M C D O N O U G H . D O you think that the increase to 4% percent
on G I loans, which is now in effect and has been for the last 24 hours,
has reduced the purchasing power of the G I loan dollar for buying, a
home?
M r . MULTER. Would you yield? Don't you think that question
is loaded? Why not ask him about the buying value of the dollar
generally. If he is going to pay more money for interest, he is going
to have less money for food and clothing.
M r . MCDONOUGH. That is what I am asking.
M r . MULTER. Would you reframe that question?
The CHAIRMAN. Let's stay away from that because I think; to
answer that question M r . Martin has to take into consideration
the actions of the Housing and Home Finance Agency in eliminating
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the last vestiges of regulation X , such as eliminating down payments
on G I loans, extending maturities, and the like. So, all of those
things have to be taken into account to determine whether you are
going to have more money to buy goods. So, perhaps we had better
not take that up at this time.
M r . TALLE. M r . Chairman.
T h e CHAIRMAN. D r . Talle.
M r . T A L L E . I want to explain
to Chairman Martin, and my fellow
Iowan, M r . Evans, of the Federal Reserve Board, the reason I came in
late was that I had a legislative matter to attend to, the House
meeting at 10.
Since this appears to be a period of confession, I want to say to you
that I approve of what you are doing. It seems to me the Treasury
has acted wisely in setting up an orderly program of finance.
I remember M r . Eccles, and how disturbed he was because such
large lumps of debt fell due at a particular time. It seems to me
the Treasury is setting up an orderly program of finance.
Now, it costs money, doesn't it, to refinance debt?
M r . M A R T I N . I t does.
M r . TALLE. And it seems to me that too much of our debt was in
short-term obligations. T o be sure the rate was low, but the term
was short, requiring frequent refinancing, and as I examine the present
program of the Treasury, and observe the conduct of the Federal
Reserve, you are moving toward an orderly method of financing that
brings confidence to the people who are trying to save, and I know for
a certainty that people in my State, Iowa, have greater confidence in
E bonds now than they have had for quite some time.
Savings are increasing, and the sales of E bonds are going up and
the cashing-in's are going down. So, the buyers exceed the sellers.
So, I want to say I approve of what the Federal Reserve and the
Treasury are doing. You are putting some backbone in the dollar.
M r . MULTER. M r . Chairman.
T h e CHAIRMAN. M r . M u l t e r .
M r . MULTER. I appreciate that we are dealing with a rather sensitive subject here.
The CHAIRMAN. The subject is whether they should be authorized
to have an increase in authorization from $10 million to $30 million.
M r . MULTER. I am interested, M r . Chairman, in the more sensitive
offsprings or tangents that we have gone off on the subject. If the
Board is going to spend money, we should know where it is going to
come from and whether they are going to remain solvent after they
spend this money.
Y o u were asked awhile ago about the fiscal policy of the administration during the last 10 years and declined to answer, and I can
understand why you would rather not comment upon it and can go
along with you on your desire not to comment upon it.
Let me ask you about this: How about the fiscal policy of the
Federal Reserve Board during the last 10 years. I n your opinion,
has that been in the best interests of the country?
M r . MARTIN. Well, I would like to say that I have been in the
Federal Reserve since April 2, 1951. I wouldn't attempt to pass
judgment, one way or the other, on previous administrations of the
Federal Reserve Board.
A M E N D M E N T TO SECTION 10 OF F E D E R A L R E S E R V EACT?30
M r . M U L T E R . I don't blame you for that, either. Suppose we
confine it to the time you have been there. Since 1951, do you believe
the fiscal policy of the Federal Reserve Board has been in the best
interests of the country?
M r . MARTIN. In my judgment, insofar as human beings can handle
it, it has been in the best interests of the country.
M r . MULTER. Has the increased interest rate, by the Treasury
Department, on its last bond issue of a billion dollars, been recommended by the Federal Reserve Board?
M r . MARTIN. The Federal Reserve and the Treasury work very
closely together in these problems. It isn't possible to completely
separate, in my judgment, debt management and monetary and
credit policy, but we have worked, since the accord, toward a mutual
understanding witkrespect to the problems of each other, the Treasury having the primary responsibility for debt management and the
Federal Reserve for monetary and credit policy.
Now, we have not been making specific recommendations, That
wouldn't be our province, with respect to Treasury debt management, but we have been informing them fully of our monetary and
credit problem, and we have been trying to work for a mutual understanding on how best to handle both.
M r . MULTER. M a y I ask whether or not the Federal Reserve
Board has disapproved of the increased interest rate as announced
by the Treasury Department?
M r . MARTIN. The Federal Reserve has said that in terms of
monetary and credit policy it has seen no objection to the course that
the Treasury debt management is pursuing.
M r . MULTER. Y o u remember, as I do, that a great hue and pry
went up all through the country only a short time ago under the
previous administration that the administration was trying to take
over and dictate policy to the Federal Reserve Board and the Federal
Reserve Board was answerable only to the Congress and the Federal
Reserve Board ought not to sit down and talk to the Treasury Department about its policies. Y o u recall that, do you not?
M r . M A R T I N . I do.
M r . MULTER. Has that changed today, so far as you know? Is
it perfectly all right under this administration for the Federal Reserve
Board to sit down and talk to Treasury about these policies and
arrive at a good policy for the country?
M r . MARTIN. There has been no change at all in the position that
I can see.
A t the time of M r . Patman's hearings—which I might say M r .
Patman has constructively handled and which I thoroughly enjoyed
participating in—Secretary Snyder testified to the desirability of the
independence of the System and in this administration M r . Humphrey
testified that the System should have its independence. So that the
working relationship has been maintained in accordance with that
understanding.
M r . MULTER. I would like to have you clarify some misunderstandings or confused thoughts that I have on the subject of bojids
and interest rates,
We hear a great deal about this great law of supply and demand,
and when the demand is in excess of the supply, the price goes up.
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How do you reconcile it, or can you reconcile it, or do you care to
mate any comment on the fact that the prices of outstanding bonds
of the United States Government are constantly going down. We
are told on the one hand that the people are holding their bonds,
and they are not being offered for sale, and in that kind of a market
we would expect if bonds were held off the market, that the price
would go up? What accounts for the fact that day after day the
price of these bonds is going down?
Mr. MARTIN. I don't want to make any comment on prices, but I
will say that the market has been freed.
Mr. MULTER. Has been what,-sir?
Mr. MARTIN. Has been freed.
Mr. MULTER. Has been freed?
Mr. MARTIN. We have not intervened in it. It has been a market
determination.
M r . MULTER. Yes, but in a free market, supply and demand govern
price. That is what we are told. Is that theory to be discarded?
M r . M A R T I N . A S far as I know, supply and demand govern price
at the moment.
M r . MULTER. Have you any explanation then as to why the price
of Government bonds is going down? Is there any more reason for
those bonds to sell at 89, or 90 and 91 cents on the dollar than selling
the United States currency at 89, or 90 cents, on the dollar?
M r . MARTIN. There is a difference between currency and bonds.
One of them is a marketable security and the other is transferable
money.
M r . MULTER. But fundamentally there is no difference. That
piece of paper that the Government issues as currency, that dollar
bill, the Government guarantees the holder of that will get a dollar
for every dollar of currency. And your bond is guaranteed by the
United States so that for every dollar of par value you have a dollar
plus interest. So what is the difference?
Mr. MARTIN. The maturity date. One is marketable security
and the other isn't.
Mr. MULTER. When you are supporting the market you are getting
a dollar for dollar on those bonds.
Mr. MARTIN. If you are supporting the market on it, if you are
advocating a return to the peg, on those bonds, why you are decreeing
a price that is not valid.
Mr. M U L T E R . Y O U mean you no longer have a free market?
M r . MARTIN.
Exactly.
Mr. MULTER. But don't you destroy the free market when the
Government issues bonds at a higher interest rate than those outstanding?
Mr. MARTIN. Because the Treasury, in going to market, attempts
to evaluate what the market is. It can't pinpoint the price exactly,
but the market determination is the important focal point, and I
want to emphasize, on this point, that this matter of interest rates
going up or down is really at the heart of the free-enterprise system,
because if you are going to say that you should not pay to receive this
money X amount, you are driven, ultimately, to the conclusion that
perhaps you should not pay any interest on money, and if you don't
pay any interest on money, why, then you have a completely socialistic
economy. That is really what the heart of the problem is.
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M r . M U L T E R . We get a socialistic economy by the Government
supporting the price of its bonds?
M r . M A R T I N . If the Government is going to decree a given rate of
interest, why isn't the ultimate not to pay any interest at all? If you
say, for example
M r . M U L T E R . IS that any more socialistic than the Government
taking that money from you by taxes? If the Government needs the
money and wants it, and wants to be arbitrary, it simply takes your
money away. I t can let you have the interest on one hand and take
it away from you on the other haiid in taxes.
M r . M A R T I N . Taxes are voted by a free people.
M r . M U L T E R . Y O U haven't been around Congress long.
M r . T A L L E . M r . Multer, will you yield?
M r . M U L T E R . I n a moment. Let me pursue this first, please.
Y o u said a few moments ago, or you agreed with Dr. Talle's statement that it costs money to refinance. Isn't the usual custom for
refinancing whether it is industry or Government, to try to refinance
for the purpose of saving money? When you have got outstanding
loans at low interest rates, you let them run. Y o u don't refinance
ordinarily at a higher interest rate. Y o u will refinance to get a lower
interest rate. Isn't that the usual way of refinancing, if you are not
in trouble?
M r . M A R T I N . I t would be very nice if that were the usual way, but
unfortunately sometimes the Government needs the money.
The C H A I R M A N . He qualified his question by saying "if you are
not in trouble."
M r . M U L T E R . Yes, hasn't it always been the practice, industrialwise, in big industries, and utilities, and in Government, that when you
have loans outstanding at low interest rate you do not refinance them,
but if you have loans outstanding at a high interest rate, you will
try to refinance and get a lower interest rate. Hasn't that been
historical in this country?
M r . M A R T I N . That is good business practice, and very desirable
to do if you can do it.
M r . M U L T E R . And we have done it, haven't we, during the last
20 years, both business and Government?
M r . M A R T I N . We have done it to some extent, but to the extent that
it has been done by pegging markets, it has caused errosion of savings,
and the pension funds, and the social security of all the people of the
country.
M r . M U L T E R . N O W let me ask one other thing, sir
M r . T A L L E . W i l l you yield?
M r . MULTER.
Yes.
M r . T A L L E . Something important is surely being overlooked here,
and that is that a person who has money to invest, doesn't have to
invest in Government bonds. He has a lot of other choices. He
may buy State bonds, municipal bonds, corporation bonds, or invest
his money in many other things. That is always true in a free market.
So, of course, Government bonds must compete with other investments. That is pretty important in the price of the bonds.
M r . M U L T E R . It is very important and that is precisely the next
point I was going to make. When the Government comes along and
raises its interest rate by three-quarters of 1 percent and permits
veterans' loans to go up another half of 1 percent, that same man
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with money in his pocket, who wants to invest, is going to look around
for investments, and he is going to look for the high interest rate,
which means that the business which wants to float a bond issue, or
get a loan, has got to pay more, and he must push his interest rates up.
Isn't* that *so? If he wants to catch some of that free money that
the man has in his pocket, the minute the Government raises the
interest rate, industry must raise its interest rate in order to get that
money, isn't that so?
M r . MARTIN. That is what the process of saving and investment is.
Now, at some point he has to make the decision as to whether he
couldn't postpone the expansion that he wants to go into.
M r . M U L T E R . A S long as his loan is coming due, he can't postpone
it. He must then float a new bond issue or take it up. If he doesn't
l a v e the money to take up the issue coming due, he has to meet the
market, and for private interest to meet the market they have to pay
more interest than the guaranteed bonds of the United States Government, isn't that so?
M r . MARTIN. They can make an attack on their cost-price structure
also.
M r . M U L T E R . Y O U mean cut the price?
M r . MARTIN. Well certainly, we won't always have a seller's
market. It isn't normal to say that you are always going to have a
seller's market where the salesman is doing you a favor to sell you
any commodity or item or automobile. It is more normal by and
large to have buyers' markets.
M r . M U L T E R . DO you have a seller's market today?
M r . MARTIN. In a great many items we do still.
M r . MULTER. Isn't it a fact that in most items we do not have
a, seller's market?
M r . MARTIN. I am not going to make a judgment on the degree,
but I would say that there are still many items in which there is a
seller's market.
M r . MULTER. But I think in order to be fair and arrive at your
policy, is it necessary for you and your Board to determine that very
question, whether tins is a buyer's or a seller's market, is that not so?
M r . MARTIN. If it
M r . MULTER. If you are doing this to beat inflation, you must
make a detenmnation that we are in inflation, and that prices are
going up, which means a seller's market.
M r . MARTIN. That is what we are doing 24 hours a day.
M r . MULTER. Right. I am not being critical.
M r . M A R T I N . I understand.
M r . MULTER. But I think in all fairness to this committee, you
must say to us that you have evaluated the market as to whether
there is a buyer's or seller's market, and whether we are going into
inflation or deflation, and as a result of that determination, you have
said that this is a good thing to do, this increased interest rate, isn't
that so?
M r . MARTIN. I have said that it is a mixed operation today.
There are inflationary and deflationary factors, but by and large we
have been trying to restrain the inflationary factors because we think
that will minimize distortions and balance out the economy in a way
that will lead to a higher level of activity ultimately.
amendment to section
10 o f f e d e r a l r e s e r v ea c t ?30
M r . M U L T E R . A n d although most of the general public seem to be
of the impression that we are in a deflationary cycle at the moment or
at the beginning of it, that there is going to be no more inflation but
rather that we are going to have deflation from here in, the determination of your Board and the Treasury Department, in arriving at the
conclusion that this is a good time to increase rates, must have come
to the conclusion that the inflationary pressures are greater than the
deflationary pressures.
M r . M C V E Y . On what basis do you assume that we are in a deflationary spiral now?
M r . M U L T E R . On the basis of my travels since election day, over
10,000 miles in this country, from talking to people on the street and
to businessmen throughout the country.
M r . M C V E Y . Have you been reading statistics on production
throughout the country?
M r . M U L T E R . Yes; and talking about statistics, Professor Harris,,
of Harvard University, says:
Since early 1951, the inflation has been a minimum, less than 3 cents a year in
the cost of living, and a decline in wholesale prices, and since that time the decline
has been even greater, and the inflationary increase has practically disappeared,
with the exception of 1 or 2 items here and there.
M r . M C V E Y . M y inquiry concerns index of production. In some
lines it is 40 percent above a year ago. Seven percent in heavy
industry.
M r . M U L T E R . Y O U are talking about production?
M r . M C V E Y . I am talking about production.
M r . M U L T E R . What about prices? If you are going to go along
with the theory of supply and demand, then this very production
you are talking about, this increase in production, is pushing prices
down. That proves that I am right and these people are right who
have been telling me what I report back to you, that we are now in a
deflation cycle. The inflationary spiral has reached its stop and we
are on the way down again and the overproduction is bringing it
about.
M r . M C V E Y . Wholesale price index is 7 percent below a year ago.
M r . M U L T E R . And your retail prices are dropping, too, and dropping
fast.
The C H A I R M A N . W i l l you yield?
M r . M U L T E R . Surely.
The C H A I R M A N . Last year the total production stood, in February
1952, at $222 billion.
This year, March, $241 billion.
M r . M U L T E R . That is right. And with that increase in production,
we. are getting decreases in prices, wholesale and retail prices, are we
not?
M r . M A R T I N . Well, is that necessarily a bad thing?
M r . M U L T E R . I am not talking about whether it is a bad thing. I
am trying to find out this information for this committee: If we are
now in the beginning of deflation, if inflation is behind us, why has
anyone in the Federal Reserve Board or in the Treasury Department,
or together, arrived at the conclusion that we have got to stop inflation
by increasing the interest rates? That is the explanation I am trying
to get at.
M r . M A R T I N . Well, I didn't mean to bypass that. I don't know.
I have tried to make it clear to you that I don't know whether it i&
A M E N D M E N T TO SECTION 10 OF F E D E R A L R E S E R V E ACT?
30
inflation or deflation, but I am not impressed with the talk that goes
on around the country.
I have got to have more than the impressions of people for the
Board to want to act on it. Now, it is a very difficult thing with the
economy we have today, to really measure it, but we have been
experiencing about as good business as I have ever seen in my lifetime,
despite the fact that there are conflicting crosscurrents of it.
Now we have had some adjustments. Y o u had the textile industry
make adjustment a year or so ago, and it has come back. Right
now it is still coming back. But it had a period of doldrums.
In a flexible economy those adjustments are going to have to be
made. We hope they will be made on a serial basis, and not in an
aggregate. But the flexibility of the economy requires that we face
up to the situation as we see it from day to day.
Now, I am not trying to say which is in the ascendancy at the
moment, inflation or deflation. W i t h respect to the rise in interest
rates, I am not seeking an increase in interest rates. Our whole
problem is to let the market forces determine. Now, this trend can
reverse irself very quickly. Interest rates can go down as well as
up. And they often reverse themselves when you least expect it,
and nobody can gage or forecast precisely which or when these turns,
will be, but it is our job to work 24 hours a day on this, and to weigh
carefully—and I am very glad to have your opinion this morning—
this problem of inflation and deflation.
But as a policy matter, we have got to go on all the data we have
and make the best judgment we can. But there is no disagreement
whatever in our ultimate purpose, yours and mine.
M r . M U L T E R . D O you think, sir, that there will be more G I loans
made in the next 6 months with the 4^-percent rate, than were made
in the last 6 months at the 4-percent rate?
M r . MARTIN. Well, I haven't got a very strong view on it. Because
of the special restrictions I am inclined to think that there may be an
increase of them. But that is just a guess.
M r . MULTER. What restrictions do you refer to?
M r . MARTIN. The fact that as of June 30 this year there will be no
downpayment required. Now, you are out of my field here. I am
not a veterans' administrator or a housing man, but I think I am
correct in that, am I not? I am told it is in effect now.
M r . MULTER. Do you think the amount of money available for
those loans has increased in the last 6 months?
M r . MARTIN. I wouldn't want to hazard a guess. The money
supply has generally tightened. I will make that point. B u t there
it is a choice of items, you see, and the choices across the board are
what bring about the problems.
As long as you have money flowing easily, without any problem
whatever, then nobody has to make a conscious choice about anything.
M r . DEANE. W i l l you yield?
M r . MULTER.
Yes.
M r . DEANE. M r . Martin, I appreciate your views as you expressed
them a little while ago, that it would show a feeling back yonder that
this downpayment on time purchases should be retained. Wouldn't
that be equally true so far as real estate, that some downpayment is
sound business operation?
M r . MARTIN. In my judgment, personally, it is, yes, sir.
A M E N D M E N T TO SECTION 10 OF F E D E R A L R E S E R V EACT?30
M r . D E A N E . I want to see our veterans have the homes they need,
but I would question whether or not we are not contributing to this
deflation by forcing on the market, one of these days, a great many
homes. I am thinking of a veteran who can go out and rent a house for
$35 a month, whereas his mortgage payments are $65 to $70. What
is your view there?
M r . MARTIN. Well, my view wouldn't be worth very much, M r .
Deane, but I think we may easily be. I think we have got a sort of a
crazy quilt of all of these things together, and I don't think we are
going to come out of this thing completely scot free. I don't think it is
possible for everybody to come out scot free.
M r . M U L T E R . A S part of that crazy quilt, I think this record ought
to show this: Yesterday, United States bonds sank to a new low, the
lowest they had sold for in 20 years.
M r . PATMAN. Really, to be correct, that should be 30 years.
M r . MULTER. I will accept that correction.
This is a quotation from the Washington Post of yesterday:
Security dealers blamed the losses in bond prices today on the Governmentsponsored rise i n interest rates, and the continuing flood of new financing.
Taking that statement, and the fact that bonds sold at their lowest,
and taking also this statement, that yesterday borrowing cost& were
the highest in 20 years—that is the reason for the 20-year comparison—bonds selling at the lowest in 20 years, and the Government costs
of financing, the highest in 20 years—-do you care to make a comment
about that?
M r . M A R T I N . N O , I don't want to make any comment on prices of
Government securities.
M r . MULTER. Or the interest rate?
M r . MARTIN. Or the interest rate.
M r . M U L T E R . T h a n k y o u , sir.
M r . MARTIN. Other than what I have made.
M r . T A L L E (acting chairman). Are there further questions?
M r . BETTS. Before we leave, I would like to ask this question:
What is the name of the fund, this $30 million fund? What do you
call it?
M r . MULTER. It is $20 million extra, added to $10 million.
M r . BETTS. A n d what is the name of the fund that you get this
$20 million from? Is that called surplus?
M r . MARTIN. Yes, that is out of the capital account.
M r . B E T T S . H O W much is currently in that fund now?
M r . MARTIN. I will ask M r . Leonard who handles our bank operations to answer that question.
M r . LEONARD. The paid-in capital stock at the present time is
$257 million, and the surplus about $585 million. The surplus is
built up through earnings. The capital stock is wholly paid in by
the member banks.
M r . B E T T S . SO there is sufficient money to meet the request made
in the bill, isn't that true?
M r . M A R T I N . N O question about it.
M r . B E T T S . I knew that was true, M r . Martin, but I asked the
question because I think the record shows everything else but that
point, and as a lawyer I thought before we passed on the bill, that the
record ought to show the answer to that question.
A M E N D M E N T TO SECTION 10 OF F E D E R A L R E S E R V E
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30
M r . GJJQRGE. Isn't i t true that money only gets into the surplus
or capital account after the Government gets their 90 percent out of
the current earnings? I understood M r . Patman to say that the
Government gets 90 percent.
M r . MARTIN. M r . Leonard will take up that question.
M r . GEORGE. That would be out of current earnings. A t least
that is the way we keep books.
M r . L E O N A R D . Y e s , sir.
Mr.
GEORGE. D O
M r . LEONARD.
you want the question again?
Please.
M r . GEORGE. The money is only put into the surplus account after
the earnings are divided between the Federal Reserve and the Government?
M r . LEONARD. That is correct!
M r . G E O R G E . SO there is no big drain on the Government. Y o u
ipay jbe paying out i^ent for buildings that you need for the purpose,
and it is a case of where you don't have your own property?
M r . LEONARD. That is correct.
M r . MARTIN. I would like permission to insert in the record a brief
statement explaining the capitalization of the account.
M r . T A L L E . I t is so ordered.
(The information is as follows:)
D O B S T H E C O S T OP C O N S T R U C T I O N OF A F E D E R A L R E S E R V E B R A N C H B U I L D I N G
R E D U C E T H E A M O U N T OF E A R N I N G S A V A I L A B L E FOR D I S T R I B U T I O N , S P E C I F I C A L L Y T H E A M O U N T P A I D TO T H E T R E A S U R Y ?
I n accordance with business practice, the cost of a Federal Reserve branch
building is not charged to expense but is capitalized and charged to bank premises
account, which is an asset of the bank. The cost of the building, therefore, does
n&t reduce the amount of earnings currently payable to the Treasury. In accordance with customary business practice, provision for depreciation is made regularly and such charges are included in expenses over the years.
Expenditures made by Federal Reserve banks, and other banks and businesses,
are of two kinds:
1. Those immediately charged to expenses. Such expenditures reduce
the amount of net earnings available for distribution. Examples: Salaries,
rent, supplies, etc.
2. Those representing fixed assets or investments. These expenditures are
not charged to expenses and do not, therefore, reduce the amount of net
earnings available for distribution. The properties acquired through these
expenditures are carried as assets on the books of the Federal Reserve banks.
Examples: United States Government securities, bank buildings, etc.
There is a difference between business practice and the Government practice
in the treatment of building costs, and this may be responsible for some misunstanding. Under Government practice, accounting generally is on a cash receipts
and expenditures basis, buildings are paid for out of appropriated funds, and the
costs therefore reduce the amount available for any other current use. T o this
extent they are treated in a manner similar to expenses in business practice. AS
indicated above, in business the purchase or construction of a building results i n
the acquisition of an asset, and the amount of earnings available for distribution
is not reduced.
M r . B E T T S . I think that is a fine point, M r . Martin. I didn't want
to be facetious, but I think the record has shown everything else except
that you had the money for the purpose.
M r . MARTIN. I welcome that suggestion and would like that i n the
record.
M r . PATMAN. M a y I suggest to the gentleman if our Chairman
pursues the policy that he has pursued, in another bill, and announced
for future action, it is possible he will want this surplus fund to pay off
A M E N D M E N T T O S E C T I O N 10 OF F E D E R A L R E S E R V EA C T ?30
the national debt. Y o u see, there is over $500 million in the Federal
Reserve surplus fund, which is a lot of money. And they don't need
it. If the chairman of the committee carries out his policy of recapturing some of this surplus money that is not needed, he might ask
that all, or ask for the surplus of the Federal Reserve banks to apply
to national debt and I think he would be logical.
M r . O'HARA. M r . Chairman, will the gentleman yield?
M r . P A T M A N . I yield.
M r . O ' H A R A . D O I understand, M r . Patman, that if that were done
following a pattern previously established here, that it would reduce
the national debt $2,000 a day?
M r . P A T M A N . N O , I said that if you were to pay the $20 million on
the national debt instead of letting them build these new buildings, it
would save, at 3% percent interest, $2,000 a day for the taxpayers.
M r . O'HARA. Doesn't the gentleman think that would be more
agreeable to the American people than spending the money to build
some nice new buildings for bankers?
M r . PATMAN. Well, that is the question.
M r . MUMMA. Well, you would have to rent this space.
M r . O ' H A R A . I am wondering, Mr. Chairman, what I can say
to my constituents if I should vote authorizing the spending of $20
million for these new buildings, even though they are nice buildings,
when we have been practicing the most rigid economy in matters
that more intimately reach into the public welfare.
M r . B E T T S . IS it not true, Mr. Martin, that this money is not
taxpayers money, but has been accumulated by the banks?
M r . PATMAN. M a y I answer that? Y o u see just because they are
keeping 10 percent does not mean anything. We could have them
turn that in tomorrow, if we wanted to.
M r . MARTIN. I want to make one basic point on this. I do not
think M r . Patman you are suggesting that we liquidate the Federal
Reserve System and turn the assets over to the Treasury?
M r . PATMAN.
N o t a t all.
M r . MARTIN. Well, it is the earning process that is the thing that
we are concerned with here.
M r . PATMAN. But you are privileged to buy bonds, and you get
most of your earnings from that. In other words, you convert a
non-interest-bearing Government obligation, to an interest-bearing
obligation, and hold the interest-bearing obligation and collect interest
on it.
M r . OAKMAN. W h y not earmark it for education? I ask facetiously.
M r . PATMAN. Of course that is being suggested all over the place.
M r . MARTIN. Well, I would just like to say to M r . O'Hara, for
your constitutents, that if checks do not clear, and the banking
system breaks down, you have something to explain to your constituents also.
M r . O'HARA. Yes, and I hope, against my fears, that my constituents will still be, after another year or two, in the possession of
checks.
M r . MARTIN. Well, we are trying to fix it so they will be.
M r . O'HARA. And you are trying to fix it by raising the amount
of money they have to pay in interest. I cannot go along with you.
It is too much on the pattern of the reasoning in the late twenties.
A M E N D M E N T TO SECTION 10 OF F E D E R A L R E S E R V E
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M r . MARTIN. I just want to make this point over again. I am not
trying to boost interest rates. I am letting the forces of the market
determine what these interest rates should be.
M r . O'HARA. Did I not understand, M r . Martin, that you approved
of the action of the Treasury in raising the interest rate?
M r . MARTIN. In answer to M r . Multer, I said that so far as monetary and credit policy was concerned, that I did not object to the
course the Treasury was pursuing.
We did not recommend to them the issue, and that is not our
prerogative, to handle debt management.
M r . O'HARA. B y telling them that you did not object, was that not
tantamount to telling them that what they proposed was agreeable
to you? I am merely seeking information.
M r . MARTIN. Well, I think that the distinction may be fine, but
if we are going to run debt management, we ought to make our
judgment on what the market is. The Treasury made its own
judgment on the market. That is the point I am trying to make,
and the Treasury is in control of debt management.
Now so far as monetary and credit policy is concerned, we consulted
with them and we did not raise any objection to the course that they
Were pursuing.
M r . O'HARA. Has there ever been a time when you have objected
to anything the Treasury was considering?
M r . MARTIN. The Federal Reserve objected to pegging bonds at a
fixed rate.
M r . O'HARA. Having objected on a previous occasion, was there
any ethical or procedural reason why you could not have objected in
the present instance provided you actually were not in agreement?
M r . MARTIN. We could have objected but that does not mean—
then we try to have a meeting of the minds. That is the problem
between the Treasury and the Federal Reserve.
M r . O'HARA. What I am saying is by not objecting you agreed to
it.
M r . MARTIN. We were acquiescing, let's put it that way. I am
not trying to engage in semantics, M r . O'Hara.
There is a difference.
M r . O ' H A R A . I am not trying to be dramatic. I happen to be a
younger member. I do not mean in years, but in period of service
on this committee and I am seeking information.
M r . MARTIN. I didn't say dramatics, I said semantics; sorry.
M r . O ' H A R A . I am sorry. I misunderstood you.
M r . MUMMA. Will you yield?
M r . O ' H A R A . I yield.
M r . M U M M A . IS not the basis of this whole problem that the
Treasury has an enormous job to refinance these short-term securities
and that they have to either refinance or find the money somewhere
to make good their promise to the American people, and when they
liave to do that, don't they have to go out and pay the market price
for money, considering the stability of the Federal Government?
Y o u would not be raising the interest rate, if you could get it cheaper;
is that not a correct statement?
M r . MARTIN. That is correct.
Mr, M U M M A . Y O U must redeem those short-term loans this year,
$40 billion worth, I believe.
44
A M E N D M E N T TO S E C T I O N 1 0 OF FEDERAL RESERVE ACT
M r . MARTIN. We would hope that the time would come, which
M r . Multer refers to, when each Treasury issue could be refinanced
at a lower rate.
M r . MUMMA. Business people do not refinance at lower rates unless
they are sure the market affords them the opportunity of getting the
money.
M r . MARTIN. They cannot.
M r . MUMMA. I t is not always in that shape; is it?
M r . MARTIN. T h a t is right.
M r . MUMMA. We just happened to h i t a bad time. Thank you.
• M r . O'HARA. M r . M a r t i n , I was late i n getting here today, being
unavoidably detained. Is there a pressing need for this new construction?
M r . MARTIN. There is a very pressing need, M r . O'Hara. You see,
we came forward w i t h this bill in 1950.
A t that time the volume of money m m increasing, and facilities
were being pressed, space was very difficult, but Korea struck. T h e
b i l l had passed the Senate at that time, and there was a shortage o f
materials; and for 3 years, i n the period when the supply of money has
increased, a great deal, and the volume of checks cleared has increased,
we have had difficulty managing. Now the material problem is not
the problem.
M r . O'HARA. As I have interpreted it, the policy of the administration seems to be to hold off, pretty generally in all lines, for a year,
pending a study of conditions. I am wondering if this could not wait
another year?
M r . MARTIN. I n our judgment, no, sir; because we have a number
of banks that are so crowded, and the facilities so limited that we
question seriously whether we are going to be able to carry on-efficiently and effectively, unless some changes are made.
M r . O'HARA. A n d after this authorization is given, will there, i n
the immediate future, be other requirements, for other construction?
M r . MARTIN. Well, this is what we can see.
M r . O'HARA. This will clean i t all up?
M r . MARTIN. Well, i f 15 years ago you had asked us about the
expansion in, let's say, the Southwest, I would have told you you were
crazy to think that we would need additional facilities, but I would not
want to forecast what i t may be 20 years from now.
M r . O'HARA. NO; I mean the immediate foreseeable future.
M r . MARTIN. Oh, i n the foreseeable future; yes, sir.
M r . O'HARA. T h a n k y o u .
The CHAIRMAN. Are there further questions?
M r . MULTER. One question, M r . Chairman.
The CHAIRMAN. M r . Multer.
M r . MULTER. Can you tell us whether or not you know of a single
other instance i n the history of this country when Government
jumped its interest rate as much as three quarters of 1 percent a t
one time? On long-term bonds? Hasn't the history been one of
refinancing b y the Government, to jump a quarter of a percent and an
eighth of a percent at a time, and never as much as a three-quarters
of 1 percent at one time as on this last issue?
M r . MARTIN. I cannot answer that, M r . Multer, without looking
i t up, but I would like to counter by saying, Has there ever been a
period i n the history of the country that has been really parallel to this?'
A M E N D M E N T TO SECTION 10 OF F E D E R A L R E S E R V E
ACT?
30
M r . MULTER. I do not think anybody has ever tested, before putting out this issue, whether they could get it at a lower interest rate.
I think the Treasury Department decided they were going to issue
this bond issue at 3% percent and that is what they did. If I am
wrong, I would like to have somebody tell me so.
M r . MARTIN. I think you would have to direct your question there
to Secretary Humphrey and M r . Burgess.
I am inclined to think that they tested the market, and surveyed
the market as thoroughly and as carefully as any individuals could.
However, I cannot speak for them.
M r . OAKMAN. Isn't the answer, M r . Multer, that if we think that
somebody has taken, advantage of the Government by getting this
unduly high interest rate, that they could not have taken very bad
advantage of the Government when one can go in and buy the bonds
today for less than was paid for them a fortnight ago, or less.
M r . MULTER. That just points up that there is no such thing as a
free market in Government bonds. It is a manipulated market, and
this Government is doing the manipulation today.
M r . OAKMAN. I think it proves the country. The allegation was
that the rate of 3% percent was not a realistic rate, that it was an
inflated rate; and no need for it. The very fact that you can go out
and buy these bonds with a 3 ^-percent coupon at less than par, shows
that it was a pretty good, realistic rate.
M r . MULTER. I think you miss the point. The bond that is
selling at less than par, these bonds that are selling at 90 and 91 are
the bonds paying 2K-percent interest, and they are being bought in at
less than par, not only to make a capital gain, but in order to equalize
the rate to bring it up to the new 3}{-percent interest rate.
The man who owns that low interest rate, if he needs his money,
must sacrifice it, and the buyer is now going to buy it at a discount so
as to get the same net return as the new 3^-percent rate fields and that
is what happens all across the country, with this new rate. Everybody who must borrow money is going to have to pay more, and
everybody lending money is going to charge more, because they are
going to meet the rate fixed by the Government.
The CHAIRMAN. I do not think it is quite generally understood that
we have a credit inflation.
M r . TALLE. M r . Chairman.
T h e CHAIRMAN. M r . Talle.
M r . TALLE. M r . Chairman, I should like to volunteer the categorical statement that there has never been a time in the history of
our country when we have had so much short-term financing as we
have had in the past 20 years, and I might cut that down to 10, and
the idea of borrowing money on short term at a low rate, requiring
constant refinancing, and having large sums coming due at frequent
intervals, is simply bad policy, and therefore I commend the Government for setting up an orderly arrangement in finance.
So I have no criticism against either the Treasury or the Federal
Reserve System.
These gigantic sums, on short term, are simply not good financing.
The CHAIRMAN. Are there further questions of M r . M a r t i n or M r .
Evans?
A M E N D M E N T T O SECTION 10 OF FEDERAL RESERVEACT?30
Without objection, the letter from Mr. Martin to the chairman,
will go into the record, together with the statement accompanying
the letter.
(The information referred to is as follows:)
B O A R D O F G O V E R N O R S OF T H E F E D E R A L R E S E R V E
Washington,
H o n . JESSE P .
Chairman,
House
M Y
DEAR
SYSTEM,
April
14,
1953.
WOLCOTT,
Committee
on Banking
and
Currency,
of Representativesy
Washington,
D. C.
M R . CHAIRMAN:
T h e B o a r d of Governors wishes t o r e c o m m e n d for
the consideration of your committee legislation to modify the limitations now
contained in the Federal Reserve Act upon the cost of buildings for branches of
the Federal Reserve banks. The amount which may be used for this purpose
under the provisions of existing law has been fully utilized or allocated, and new
buildings or substantial improvements are urgently needed for the branches of
Federal Reserve banks in a number of cities. I am enclosing a memorandum
which fully describes the need for this legislation, together with a draft of a bill
for this purpose. The Bureau of the Budget has advised that there is no objection
to the submission of this proposal to the Congress, and we trust that the matter
will have your favorable consideration.
Sincerely yours,
WM. M c C . MARTIN, Jr.
ADDITIONAL
B U I L D I N G F A C I L I T I E S F O R B R A N C H E S OF F E D E R A L R E S E R V E
BANK&
At many of the 24 branches of the Federal Reserve banks construction of
additional building facilities is urgently needed to take care of the increased
volume of work. This need cannot be met, however, because of a provision of the
law which placed a limit of $250,000 upon the cost of any building for a branch of a
Federal Reserve bank (exclusive of the cost of vaults, permanent equipment,
furnishings and fixtures, and also exclusive of the cost of the land). In 1947, in
order to take care of what were then the most urgent needs for Federal Reserve
branch building construction, Congress amended the law to provide that this,
limitation should not apply as long as the aggregate of such costs thereafter
incurred for all branch bank buildings of Federal Reserve banks, with the approval
of the Board of Governors, was not in excess of $10 million. This amount, however, has now been utilized or allocated, and a further amendment to the law is
needed to permit the use of additional funds for the Federal Reserve branch
buildings which are now necessary.
Under the $10 million authorization provided by the 1947 amendment, the
building occupied by the Cincinnati branch was purchased, new buildings have
been constructed for the branches at Jacksonville, Portland, and Seattle, a major
addition to the building at the Detroit branch has been constructed, and funds
have been earmarked for the erection of a major addition to the Los Angeles
branch building, plans for which have been prepared.
Additional space is now required at many branches other than those mentioned.
In particular, new buildings or substantial improvements are needed for the
branch Federal Reserve banks located at Buffalo, Pittsburgh, Baltimore,
Charlotte, Birmingham, NashviUe, New Orleans, Louisville, Denver, Oklahoma
City, Omaha, E l Faso, Houston, San Antonio, Los Angeles, and Salt Lake City.
The need for additional building facilities at many of these branches is urgent, and
a number of them are emergency situations.
Most of the Federal Reserve bank branch buildings were built or acquired
over 25 years ago, and since that time there has been a great expansion in the
volume of business handled. The greatest increases in volume of work have
come in handling of currency and coin and the collection of checks. Money in
circulation, around $30 billion, practically all of which flows through the Federal
Reserve banks and branches, is more than three times what it was before World
War II. Since 1940 the number of coins received and counted by the Federal
Reserve branches has more than tripled, the number of pieces of paper currency
received and counted has more than doubled, and the number of checks handled by
the branches has nearly tripled. Moreover, much larger vault facilities are
required because of the necessity for larger reserve supplies of currency.
A M E N D M E N T TO SECTION 10 OF F E D E R A L R E S E R V E
ACT?
30
The estimates for the cost of the buildings and improvements at the several
branches mentioned above are necessarily rough at this time, but, after allowance
for a 10 percent margin, the total estimated cost is about $18,500,000 (after the
exclusions provided by the law). This amount does not take into account needs
that may later develop.
The Board wishes to emphasize that Federal Reserve banks use their own funds
in the construction or improvement of their buildings. N o appropriation of
Government funds is involved. Costs of these buildings are capitalized; that is,
carried as assets ot the bank. Moreover, under specific requirement of the law,
all construction projects with respect to branch bank buildings, having first been
considered by the boards of directors of the branch and of the Federal Reserve
bank, come before the Board of Governors for its approval. I n each case the
Board considers the proposal in the light of the needs of the branch, the type of
building to be constructed, the reasonableness of the costs, the availability of
materials, and whether the construction at this time is generally in keeping with
the prevailing economic situation.
In 1950 the Board recommended to Congress an increase i n the authorization
for expenditure for branch Federal Reserve bank buildings above the amount
authorized i n 1947; and a bill for this purpose was passed by the Senate and favorably reported by the House Banking and Currency Committee. A t about that
time, however, the Korean invasion took place and the legislation was not enacted.
Because of the urgent needs above described, the Board now recommends that
Congress increase the amount authorized tor construction of Federal Reserve
branch buildings by an additional amount sufficient to meet the present situation,
with a continuation of the requirement of the present law that the Board approve
such expenditures. A draft of a bill for this purpose is attached.
The C H A I R M A N . If there are no further questions, we are very
appreciative of your coming dowp. here and giving us so much information on so many subjects, Mr. Martin, and Mr. Evans.
This afternoon the House will be in the Committee of the Whole on
general debate on an appropriations bill, and if it develops that we
can, perhaps we should arrange to meet this afternoon at 3 o'clock to
go into executive session on this bill. We have some other matters
coming up tomorrow.
So we will recess to reconvene at 3 o'clock this afternoon. If
we cannot meet this afternoon, the committee members will be notified
and the committee will stand in recess until 3 o'clock this afternoon,
or subject to the call of the Chair.
(Whereupon, at 12:31 p. m., the committee recessed.)
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