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THE MEN WHO
MADE THE FED

Federal Reserve Bank of Philadelphia


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THE MEN WHO MADE THE FED
By Lawrence C. Murdoch, Jr.
The Federal Reserve, our central bank, draws strength from
its diversity. It is a regional system which blends opposing
attitudes, interests, hopes and fears. It was created by Congress,
but it has many characteristics found in private enterprise.
The people who played major parts in the birth and growth of
the Fed also were a diverse lot with different kinds of strengths
and abilities. But because of luck, fate or whatever, the right
kind of person seemed to emerge at the right time.
The first of the men who
made the Fed, Carter Glass, we
will call the fighter. He was only
five foot-four, but he could rip
the opposition like one of the
Bantam roosters he kept as a
boy in Lynchburg, Virginia.
Glass was born in 1858 to an
aristocratic Southern family.
The Civil War wiped out his
parents' fortune, and he grew
up knowing poverty and bitterness. At 13, he left school and
Carter Glass fought the
found work as a printer's devil.
controversial Federal ReHe had to fight to survive as a
serve Bill through a hostile
boy, and he kept doing it all his
Congress.
life.
By age 30, Glass was the owner of the Lynchburg Daily
News. His opinionated editorials led him into politics, and in

In this pamphlet the author attempts to draw caricatures rather than paint portraits. The former simply captures a few outstanding features and exaggerates
them while the latter shows more of a lifelike image.


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1902 he ran successfully for Congress.
As it turned out, Glass was the kind of warrior it took to fight
the controversial Federal Reserve Bill through a hostile
Congress. He had to overcome opposition from Wall Street and
the bankers on the one hand and the agrarian, easy-money
interests on the other. He got the job done, however, and the
Fed was created just before Christmas in 1913.
Glass was just as pugnacious in the 1930s when efforts were
being made to bring the Fed under more central control. But, as
we shall see, the results were somewhat different.
Benjamin Strong, the first president of the New York Reserve
Bank, was the organizer. He started the Bank from scratch and
played a major role in financing World War I. He helped discover
how open market operations affect the economy and was
instrumental in the restoration
of the gold standard in the
1920s.
Strong had three older brothers who, like his father and
grandfather, graduated from
prestigious colleges. But when
his time came, the family funds
had run out, and he went to
work as a bank clerk. Although
he lost his first job because
of poor penmanship, Strong
eventually rose to become president of Bankers Trust, and in
1914, was persuaded to take
Benjamin Strong organized
the presidency of the brand new
the New York Reserve Bank
Federal Reserve Bank of New
and tried to dominate the
York.
Fed.
In principle, Strong did not
favor a regional central banking system, but since there was
one, he felt the real power should be located in New York. He
called the Board of Governors "a timid bunch" and dominated

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the System from Manhattan. He managed this partly because
of New York's status as the nation's financial center and partly
because of the force of his own personality.
Marriner Eccles was the centralizer. He was appointed a
Federal Reserve Board Governor in 1934 near the bottom of
the Depression. As a New Dealer, he felt that monetary policy
should be part of an overall
coordinated effort, and he
sought to bring the 12
Reserve Banks more under
the authority of the Board of
Governors in Washington.
Carter Glass, who was in
the Senate at the time, was
bitterly opposed to Eccles'
plan because he feared it
might reduce the System's
independence. The aging
warrior fought hard, won a
few skirmishes, but lost the
Marriner Eccles sought to
battle.
centralize authority in the
The Banking Act of 1935,
Board of Governors.
which Eccles backed, gave
complete control over the purchase and sale of government
securities to the Federal Open Market Committee. Before that,
the individual Reserve Banks had had some degree of authority
to conduct such transactions on their own.
The act authorized the President to appoint the Chairman of
the Board of Governors and, in turn, gave the Board the power
to approve the selection of Reserve Bank presidents and first
vice presidents. In addition, the Board got new authority over
discount rates, reserve requirements, and the management of
Reserve Banks. President Roosevelt used his new power and
appointed Eccles Chairman in 1936.
Eccles' grandfather brought his family from the slums of
Glasgow, Scotland, to Utah, where the clan prospered, and his

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father, David, built up a chain of successful businesses. From
the age of eight, the young Eccles worked every summer in one
of his father's factories and put all his earnings in a bank. At 19,
he began a two-year stint as a Mormon missionary in
Scotland.
David Eccles died when his son was 22 and left him a
business empire worth $7 million. Marriner Eccles managed
things so well that he was head of a chain of 26 banks, as well as
many other businesses, when he came to the Fed.
He was a small man with a narrow face and keen eyes. A
biographer said he had a dry, impersonal manner and let
himself go only when out shooting ducks or when given a bag of
peanuts.
Eccles' ideology was fervent but far from flexible. He favored
easy money and deficit spending in the depressed 1930s, but
in the later 1940s, when inflation was the greater problem, he
pushed for higher interest rates and a balanced budget.
The Federal Reserve had "pegged" interest rates at low
levels in order to help finance World War 11. When the hostilities
were over, the Treasury wanted the low rates to continue in
order to make it easier and cheaper to manage the huge
federal war debt. Eccles called the low-rate policy an "engine
of inflation" and tried hard, but unsuccessfully, to pull out the
pegs.
When Eccles' term was up, Thomas McCabe, president of
Scott Paper Company, was named Chairman of the Board of
Governors while Eccles remained as a Board member. McCabe
also wanted to free the Fed to raise interest rates and fight
inflation. However, he differed from Eccles in personality and
method. Eccles was introverted and autocratic while McCabe
was outgoing and flexible - the characteristics of a good
salesman.
McCabe reached an accord with the Treasury in 1951,
negotiating with a young undersecretary named William
Mcchesney Martin, Jr. The accord freed the Fed to raise
interest rates and restored monetary policy as a viable

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economic tool - something it
had not been for 10 years.
r
Soon after the accord,
McCabe resigned. President
Truman then appointed the
Treasury's Martin to chair the
Federal Reserve Board and
carry out the policies he had
helped to establish.
Martin was the persuader.
He operated by consensus and
often called 1O a.m. meetings
of all the Governors where they
decided major issues.
He also returned some power
Thomas McCabe helped
to the Reserve Districts. He
to make monetary policy a
encouraged the conferences of
viable tool again.
Reserve Bank presidents and
Reserve Bank chairmen and called frequent meetings of the
Federal Advisory Council, which Eccles had called "a statutory
nuisance." Perhaps most important, he began holding meetings
of the Federal Open Market Committee with all Reserve Bank
presidents attending and speaking their piece rather than just
those whose turn it was to vote.
Martin's father was the president of the Federal Reserve
Bank of St. Louis, and when young William graduated from
Yale in 1928, he got a job in that Bank's examination department.
A year later he joined a brokerage firm as a statistican. He spent
the 1930s in New York working in the stock market, eating at the
automat, studying economics at Columbia, and playing tennis
on weekends. He was one of the top amateurs in the area and
his wife, Cynthia, is the daughter of the donor of the Davis Cup.
At the age of 31, Martin became the "boy wonder"
president of the New York Stock Exchange. Several years
later, in 1941, he was drafted into the Army as a private,
exchanging his $48,000 annual salary for $21 a month plus


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free room and board.
He ran the Fed with quiet
dignity and was so respected
that he served under five different Presidents. His adaptability
and insight brought the Fed
through two entirely different
kinds of decades, the "laidback" 1950s and the activist,
acrimonious 1960s.
Arthur Burns, whom we might
cal I the scholar, became
Chairman of the Board of
William McChesney MarGovernors in 1970. He spent
tin, Jr., steered the Fed
through the "laid-back" many years in teaching and
1950s and the activist research before coming to
the Fed. When he spoke, his
1960s.
knowledge of economics and
erudite manner blended with his instinct for politics and
worked to impress Congressmen and colleagues alike.
Burns reorganized the Board more along corporate lines and
he himself operated like a chief executive. Even though he had
only one vote, his self-assurance and forceful personality
made him a powerful figure.
At FOMC meetings Martin always spoke and voted last. In
contrast, Burns frequently opened the discussion, and when
voting started, he often went first so that the other members
acted with the full knowledge of where the Chairman stood.
During Burns' time in office, the System adopted a more
modern style of management, which brought a new efficiency
and cost consciousness to the Reserve Banks at a time when
the economy in general, and the payments mechanism in particular, were changing rapidly - in large part due to computers.
Burns was born in Stanislau, Austria, in 1904. He arrived
in the United States at the age of six, just a few years
before Benjamin Strong opened the New York Reserve Bank.

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He received his Ph.D. from
Columbia and was a lecturer,
writer, and expert in business
cycle behavior until he went
to Washington to head the
Council of Economic Advisers
in the 1950s.
Burns, with his shock of white
hair parted in the middle, and
ever-present pipe, became a
symbol of monetary integrity
throughout the world just as
William McChesney Martin had
been before him. Thus, in 1977
President Carter faced a difficult Arthur Burns moved nimbly
decision: whether or not to re- through political proappoint Burns to another term blems and monetary
crises.
as Chairman. If he did, he would
lose a chance to put in someone more identifiable with his own
administration. But, if he didn't reappoint the Chairman, the
world might take it as a sign that the U. S. was placing less
emphasis on the fight against inflation.
After many months of deliberation, the President picked G.
William Miller, a lawyer who headed the Textron conglomerate.
He brought a change in style to the job of Chairman. Traditionally,
central bankers seemed to feel that silence in public was part of
their role, and Eccles even said that it was his duty to talk as little
as possible. Miller, in contrast, was frank and outspoken and
gave frequent interviews.
Miller moved on to become Secretary of the Treasury, and
then to private life. Paul Volcker was appointed Chairman of the
Federal Reserve Board in 1979. He had been president of the
New York Reserve Bank and before that held a high position in
the Treasury Department, combining parts of the backgrounds
of Benjamin Strong and William Mcchesney Martin. Although
he undoubtly will enjoy a high place in the history of the Federal


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Reserve, the fact that Chairman Volcker is in office as this is
printed makes it appropriate to delay discussion of his achievements.
The men who made the Fed varied considerably in style,
personality and philosophy, but what they had in common was
dedication and an ability to sense and work towards the nation's
current goals.

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Rev. 3-86

For additional copies of this pamphlet or for a list of other
available publications, write to
Public Service Department
Federal Reserve Bank of Philadelphia
P. 0. Box 66
Philadelphia, Pennsylvania 19105

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RESERVE BANK OF

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