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GOVEWl^x.

L I B R A. R Y
F o r R e l e a s e on D e l i v e r y

Statement of W m . M c C . Martin, J r . ,

Chairman,

B o a r d of G o v e r n o r s of the F e d e r a l R e s e r v e S y s t e m ,
b e f o r e the
S u b c o m m i t t e e on General C r e d i t C o n t r o l and Debt Management
of the Joint C o m m i t t e e on the E c o n o m i c R e p o r t .

M a r c h 11, 1952

V\Qr
XS(r> 1
, W 'b

M r . C h a i r m a n and M e m b e r s of the C o m m i t t e e :
In c o m i n g b e f o r e you today I should like to e x p r e s s what I know
has been in the minds of all of us in the F e d e r a l Pveserve System in p r e p a r ing the a n s w e r s to your q u e s t i o n n a i r e .

We have w e l c o m e d this opportunity

to put down on paper our c o n c e p t s of what our function is in the G o v e r n m e n t a l
s t r u c t u r e and in the e c o n o m y .
we have all p r o f i t e d by it.

You gave us a heavy load of homework, and

I know that f o r m e it has been m o r e than a

r e f r e s h e r c o u r s e - - i t has b e e n a l i b e r a l education in what I p r e f e r to c a l l
r e s e r v e banking, rather than c e n t r a l banking o p e r a t i o n s .

The task of p r e -

paring a n s w e r s to the c o m p r e h e n s i v e and s e a r c h i n g questions has b e e n
fo r m i d a b l e and I will not pretend that I a p p r o a c h e d it without s o m e r e l u c t a n c e .
Now that the task is clone and the r e s u l t s a r e published I r e a l i z e how w o r t h while has been the time and e f f o r t expended not only by those of us in the
S y s t e m but by the many o t h e r s to w h o m you a d d r e s s e d q u e s t i o n n a i r e s .
I r r c s p e c t i v e of the c o n c l u s i o n s you m a y r e a c h as a C o m m i t t e e , you have
a s s e m b l e d a body of i n f o r m a t i o n that I think will p r o v e to be invaluable f o r
a long time to all who a r e i n t e r e s t e d in the s p e c i a l joroblems of g e n e r a l
c r e d i t c o n t r o l and debt m a n a g e m e n t .
Beyond
inquiry.

that, h o w e v e r , we have all genuinely w e l c o m e d this

The F e d e r a l R e s e r v e S y s t e m is a servant of the C o n g r e s s and,

through you, of the p e o p l e of the United States.
abolish or change it.

Our task is to

You c r e a t e d it, you can

c a r r y out your will and it is our duty

-2to lay b e f o r e you all the f a c t s at cur c o m m a n d f o r which you ask and to give
you our b e s t judgment on these important m a t t e r s .
V/e a r e glad of t he opportunity to make any contribution we can to the
i m p r o v e m e n t of this r e s e r v e banking m e c h a n i s m .
it is not p e r f e c t or i n f a l l i b l e .

In the n e a r l y four d e c a d e s of its e x i s t e n c e ,

the S y s t e m has undoubtedly made m i s t a k e s .
ience.

Like all human institutions,

It has a l s o l e a r n e d f r o m e x p e r -

One of the fundamental p u r p o s e s of the F e d e r a l R e s e r v e A c t is to

p r o t e c t the value of the d o l l a r .

Yet that value today in t e r m s of purchasing

p o w e r is l e s s than half of what it was when the S y s t e m was founded.

In this

span of y e a r s the country has engaged in tv/o w o r l d w a r s and is now in the
throes of what might be c a l l e d

an u n d e c l a r e d w a r .

With the vast e c o n o m i c

changes brought about by m i l i t a r y and s e c u r i t y n e e d s , m o n e t a r y p o l i c y by
itself cannot maintain e c o n o m i c stability and p r e s e r v e unchanged the p u r chasing p o w e r of the d o l l a r .

Even aside f r o m these d i s t u r b a n c e s , it is

p r o b a b l y fair to say that m o n e t a r y p o l i c y has not always been as t i m e l y or
as e f f e c t i v e as it could have b e e n .
Your

f i r s t c o n c e r n , I take it, is to look at the r e c o r d of the past

p r i n c i p a l l y f o r the light it can throw on the road ahead.
look f o r w a r d , as you a r e .

W e a r e trying to

In his f i r s t inaugural a d d r e s s as P r e s i d e n t ,

YVoodrow V/ilson included a statement, part of which is i n s c r i b e d in the
f o y e r of the F e d e r a l R e s e r v e Building:

-3"vVe shall deal with our e c o n o m i c s y s t e m , " he said, " a s
it is and as it m a y be m o d i f i e d , not as it might be if we had
a c l e a n sheet of paper to write upon; and step by step we
shall make it what it should b e , in the s p i r i t of those who
question their own w i s d o m and seek c o u n s e l and knowledge,
not shallow s e l f - s a t i s f a c t i o n or the e x c i t e m e n t of e x c u r s i o n s
wither they cannot tell. "
I am sure it is the p u r p o s e of this inquiry, as it is of all of us, to a p p r a i s e
j u d i c i a l l y this r e s e r v e banking m e c h a n i s m and to do whatever appears wise
so that it m a y render the b e s t p o s s i b l e public s e r v i c e .
The F e d e r a l R e s e r v e S y s t e m and the F e d e r a l R e s e r v e Banks s o m e times a r e r e f e r r e d to as b a n k e r s ' banks, but that d e s c r i b e s only a part of
their f u n c t i o n s .

The v a r i o u s s e r v i c e s which the R e s e r v e Banks p e r f o r m ,

f o r the banking c o m m u n i t y , such as supplying c u r r e n c y , t r a n s f e r r i n g funds,
and c o l l e c t i n g c h e c k s , have p r o v e d to be an essential element in keeping the
m e c h a n i c s of m o d e r n - d a y c o m m e r c i a l banking in step with the financial
needs of a growing and changing p r i v a t e e n t e r p r i s e e c o n o m y .

The o v e r -

riding p u r p o s e of this R e s e r v e J y s t e m is to s e r v e the i n t e r e s t s of the
g e n e r a l public in b u s i n e s s , industry, l a b o r , a g r i c u l t u r e , and ail walks
of l i f e .

A s I understand the intent of this inquiry and of these h e a r i n g s ,

it is to e x p l o r e how that i n t e r e s t of the public can best be s e r v e d in the
a r e a of g e n e r a l c r e d i t c o n t r o l and debt management on which the activities
of the F e d e r a l R e s e r v e 3 y s t e m have so important a b e a r i n g .

The a p p r o a c h

to this b r o a d subject by the m e m b e r s of this C o m m i t t e e and of the Banking
and C u r r e n c y C o m m i t t e e s and those of us to w h o m you entrust the duty of

-4c a r r y i n g out your wishes must be in the s p i r i t to which W i l s o n r e f e r r e d .
vVe must always question our own w i s d o m and s e e k c o u n s e l and knowledge.
C o n s i d e r i n g that m o n e y is one of the m o s t c o n t r o v e r s i a l of all
s u b j e c t s , it is rather r e m a r k a b l e that the r e p l i e s e l i c i t e d by your q u e s t i o n naire r e v e a l so little fundamental d i v e r g e n c e .

Honest judgments m a y d i f f e r

as to whether the R e s e r v e S y s t e m , f o r e x a m p l e , has done its j o b well or
poorly.

T h e r e a r e bound to be d i f f e r e n c e s of opinion c o n c e r n i n g the

structure and internal o p e r a t i o n s of the S y s t e m

but e s s e n t i a l l y I find

v e r y little d i f f e r e n c e in all the r e p l i e s on fundamentals.

T h e r e is a

g e n e r a l r e c o g n i t i o n of the need f o r a m e c h a n i s m of this kind to p e r f o r m
substantially the functions and to r e n d e r the s e r v i c e s that this S y s t e m
now f u r n i s h e s .

If the C o n g r e s s w e r e to do away with the p r e s e n t s y s t e m

s o m e other way would have to be found

to p e r f o r m its function and to

play its r o l e in the e c o n o m y .
B a s i c a l l y , the j o b of the F e d e r a l R e s e r v e S y s t e m is that of m o n e t a r y
management - - t o i n c r e a s e the m o n e y supply and make it m o r e e a s i l y
available when there is e v i d e n c e of weakness

in the e c o n o m y and to

r e d u c e the v o l u m e of m o n e y and make it l e s s

e a s i l y available when

indications show that there is

e x c e s s i v e expansion.

In other w o r d s , it

is the b u s i n e s s of m o n e t a r y management to contribute to the b r o a d o b j e c t i v e s of steady e c o n o m i c p r o g r e s s which is the ultimate goal of all
national p o l i c y .

The instruments by which thsse b r o a d p u r p o s e s of m o n e t a r y m a n a g e ment a r e a c h i e v e d a r e dealt with in detail in the a n s w e r s to your q u e s t i o n n a i r e .
How and when and why these instruments have been used is l i k e w i s e set
forth at s o m e length.

You will hove to judge how w i s e l y or unwisely they

have been used in the revealing light of hindsight.

You will have to judge

whether these instruments can be i m p r o v e d , o r others p r o v i d e d .

V/e have

called attention to s o m e of the v a r i o u s p r o b l e m s f o r which perhaps better
a n s w e r s can be found but we a r e not, as you may have noted,
any b r o a d o r sweeping c h a n g e s .

recommending

The test that I have no doubt you will

apply is whether the public i n t e r e s t is well s e r v e d .

I think that, g e n e r a l l y

speaking, it has been well s e r v e d by the S y s t e m .
The S y s t e m is a unique c o n c e p t , an ingenious m e r g i n g of public
and private i n t e r e s t s in a c h a r a c t e r i s t i c a l l y d e m o c r a t i c institution.

The

doctrine of the separation of p o w e r s , as M r . Justice B r a n d e i s once pointed
out, was adopted "not to p r o m o t e e f f i c i e n c y but to p r e c l u d e the e x e r c i s e
°f a r b i t r a r y p o w e r . "

The p u r p o s e was "not to avoid f r i c t i o n , but by

means of the inevitable f r i c t i o n incident to the

distribution of the G o v e r n -

ment p o w e r s among three d e p a r t m e n t s , to save the people f r o m a u t o c r a c y . "
d o u b t l e s s this r e s e r v e banking m e c h a n i s m could be m o r e e f f i c i e n c t l y d e vised o r d i f f e r e n t l y o r g a n i z e d in the Governmental structure but it would be
at the c o s t , I think, of something far m o r e i m p o r t a n t .

In any c a s e ,

such

an institution will in the last analysis r e n d e r good or bad public s e r v i c e depending
upon the abilities of the human beings engaged in its operation rather than uponits

organizational f o r m and s t r u c t u r e .

And by the s a m e token, the r e s o l u t i o n

of difficult p r o b l e m s and of c o n f l i c t s of opinion must c o m e out of the minds
of men and not f r o m the f o r m s in which they chance to be o r g a n i z e d ,
I have sought to indicate in a g e n e r a l way the attitude with
which we have a p p r o a c h e d this important inquiry into the p u b l i c ' s b u s i n e s s
as d i s c h a r g e d by the F e d e r a l R e s e r v e S y s t e m .

V/e have looked at this

S y s t e m , not as if we had a clean sheet of paper to write upon, but in the
light of the c o n c e p t s on which it v/as b a s e d and its p e r f o r m a n c e o v e r the
years.

We have tried to be honest with you and o u r s e l v e s .

we have nothing to withhold or c o n c e a l .

Certainly

The r e c o r d is an open b o o k .

We have sought to make c l e a r that m o n e t a r y p o l i c y cannot",
by i t s e l f , a c h i e v e stable e c o n o m i c p r o g r e s s but that it is an indispensable
means to that end.

It must go hand in hand with f i s c a l p o l i c y and debt

management.
We have tried a l s o to spell out as plainly as we can the m e a n ing of the a c c o r d which v/e r e a c h e d with the T r e a s u r y last M a r c h , in
which you are naturally i n t e r e s t e d .

Its a c h i e v e m e n t illustrates the

point which I mentioned b e f o r e that the solution of d i f f i c u l t p r o b l e m s and
the r e c o n c i l i a t i o n of d i f f e r i n g viewpoints depends upon the ability of men
to c o m e to a meeting of minds in the b e s t i n t e r e s t of the p u b l i c rather
than upon the f o r m s of institutional o r g a n i z a t i o n .

That a c c o r d was not

-7a t r a n s i t o r y or empty g e s t u r e .

It is a reality under which debt management

and m o n e t a r y p o l i c y a r e moving together toward the s a m e o b j e c t i v e s with
mutual understanding and meeting of m i n d s .
May I add that I c o n c u r fully in your C h a i r m a n ' s confident p r e d i c tion that the fundamental i s s u e s with which the C o m m i t t e e is c o n c e r n e d
" w i l l be found vastly too c o m p l e x to p e r m i t of f a c i l e g e n e r a l i z a t i o n . "
I think it m a y p r o v e useful to the m e m b e r s of the C o m m i t t e e f o r
me to present a s u m m a r y which I have p r e p a r e d of our r e p l i e s to your
questionnaire.

Attachment

S u m m a r y of R e p l i e s by the C h a i r m a n of the B o a r d of G o v e r n o r s
of the F e d e r a l R e s e r v e S y s t e m to the Q u e s t i o n n a i r e on
G e n e r a l C r e d i t C o n t r o l and Debt M a n a g e m e n t

This s u m m a r y p r e s e n t s f i r s t the m a j o r points of r e s e r v e banking
P h i l o s o p h y d e v e l o p e d in the a n s w e r s ,

s e c o n d , s a m e of the m o r e i m p o r t a n t

Positions taken on the i s s u e s r a i s e d , and, third, s e v e r a l g e n e r a l points as
to c h a n g e s in banking s t r u c t u r e and as to f o r e i g n m o n e t a r y o r g a n i z a t i o n and
experience.
asked
lve

E a c h r e p l y submitted u n d e r t a k e s to deal with the question

on its own m e r i t s

and to p r o v i d e a d i r e c t , o b j e c t i v e , and c o m p r e h e n s -

answer.

S e s e r v e Banking P h i l o s o p h y
The f o l l o w i n g v i e w s a r e e x p r e s s e d with r e s p e c t to the r o l e of c r e d i t
and

m o n e t a r y p o l i c y and the o r g a n i z a t i o n within the G o v e r n m e n t f o r such

Policy.
1) F l e x i b l e c r e d i t and m o n e t a r y p o l i c y , t o g e t h e r with f l e x i b l e debt
Management pol i c y and an adequate f i s c a l p r o g r a m , is e s s e n t i a l to e c o n o m i c
St*bility.

2)
to

The e s t a b l i s h e d r e l a t i o n s h i p of the F e d e r a l R e s e r v e B o a r d of G o v e r n o r s

other b r a n c h e s of the G o v e r n m e n t is c o n s i s t e n t with and adequate f o r the

A c t i o n which the R e s e r v e S y s t e m p e r f o r m s .
3)

The status of the B o a r d as an independent e s t a b l i s h m e n t of the G o v -

ernment

is sound on the b a s i s of a c c e p t e d p r i n c i p l e s of d e m o c r a t i c

g o v e r n m e n t a l o r g a n i z a t i o n ^ r e g a r d l e s s of any t h e o r e t i c a l q u e s t i o n as to
^ e b r a n c h of the G o v e r n m e n t in w h i c h it f a l l s .

4)

Changes in m o n e y market conditions and in i n t e r e s t rates r e f l e c t

the interplay of b a s i c f o r c e s of supply and demand f o r s h o r t - and l o n g - t e r m
credit.

Supply is made up of new individual and c o r p o r a t e s a v i n g s ,

accumu

lated c a s h b a l a n c e s o f f e r e d f o r investment, repayments on past l o a n s , and
credit expansion by the c o m m e r c i a l banking s y s t e m .

Demands f r o m

business e n t e r p r i s e s , f a r m e r s , c o n s u m e r s , State, l o c a l , and f o r e i g n
g o v e r n m e n t s , and the F e d e r a l Government f o r m the m a j o r c o m p o n e n t s of
credit demand.
5)

C r e d i t and m o n e t a r y p o l i c y o p e r a t e s p r i m a r i l y through its e f f e c t s

°n the a v a i l a b i l i t y and supply of c r e d i t ; it cuts out of the m a r k e t or brings
lnto

it f r i n g e c r e d i t d e m a n d s .

6)

In this p r o c e s s , c r e d i t and m o n e t a r y p o l i c y a f f e c t s , but d o e s not

d e t e r m i n e , i n t e r e s t rates in the m a r k e t .

Interest rates are p r i c e s which

P e r f o r m vital e c o n o m i c functions and they should be r e s p o n s i v e to b a s i c
Supply

and demand c o n d i t i o n s .

In a r i c h , high savings e c o n o m y with well

integrated financial m a r k e t s , significant changes in the availability of
credit,

and hence in the v o l u m e of spending, need be a c c o m p a n i e d by

° n l y s m a l l changes in the c o s t of m o n e y .
7) O n b a l a n c e the S y s t e m , through its support of G o v e r n m e n t s e c u r i t y
P r i c e s , accentuated postwar inflationary p r e s s u r e s .
8)

In e a r l y postwar y e a r s , the S y s t e m f a v o r e d and defended a support

P r o g r a m as a part of transitional adjustment and sought other means of
Restraining inflationary c r e d i t expansion.

This p o l i c y took account of the

^eed f o r time to d e v e l o p a debt management p r o g r a m that would lodge a

-3g r e a t e r p r o p o r t i o n of the public debt p e r m a n e n t l y in the hands of nonbank
investors.

A s time p a s s e d and the S y s t e m ' s support p o l i c y led to i n c r e a s -

ing m o n e t i z a t i o n of the public debt, the F e d e r a l R e s e r v e b e c a m e m o r e and
m o r e c o n c e r n e d about the contribution of its operations to inflationary
pressures.
9)

M o r e f l e x i b l e c r e d i t and m o n e t a r y p o l i c i e s , applied through the d i s -

count and open m a r k e t m e c h a n i s m within the f r a m e w o r k of an o r d e r l y
Government

s e c u r i t i e s m a r k e t , have d e m o n s t r a t e d their e f f e c t i v e n e s s

, s m c e they w e r e undertaken in M a r c h of 1951.
iO) l n addition to m e a s u r e s a f f e c t i n g c r e d i t g e n e r a l l y , f l e x i b l e c r e d i t and
Monetary p o l i c y includes the u s e , on o c c a s i o n , of s e l e c t i v e c r e d i t r e g u l a tions (relating to stock m a r k e t , c o n s u m e r , and real estate c r e d i t ) as well
as

of voluntary m e a s u r e s .

U) Credit and m o n e t a r y p o l i c y cannot be fully e f f e c t i v e without public
Understanding and s u p p o r t .

The S y s t e m s t r i v e s to keep the public fully

i n f o r m e d on all c r e d i t and m o n e t a r y d e v e l o p m e n t s ,
i^jor

Positions
Of the s p e c i f i c positions brought out in the a n s w e r s to d i f f e r e n t

Questions, the following a r e the m o r e i m p o r t a n t .
1) The F e d e r a l R e s e r v e B o a r d is subject to the E m p l o y m e n t A c t of
F a i r l y i n t e r p r e t e d , the C o n g r e s s i o n a l d i r e c t i v e stated in this A c t
lrnplies

a goal of m o n e t a r y stability and needs no m o d i f i c a t i o n .

2)

E x i s t i n g C o n g r e s s i o n a l d i r e c t i v e s to the F e d e r a l R e s e r v e S y s t e m

a f f o r d a b r o a d w o r k a b l e guide f o r p o l i c i e s and o p e r a t i o n s .
3)

The status of the B o a r d as an independent estabJishment of the

G o v e r n m e n t , s u b j e c t to the d i r e c t i o n and s c r u t i n y of the C o n g r e s s ,
be p r e s e r v e d .

should

B u d g e t a r y d i s c r e t i o n is e s s e n t i a l to maintain the b a s i c

c h a r a c t e r of the R e s e r v e S y s t e m .
4)

No l e g i s l a t i o n is r e q u i r e d with r e s p e c t to the o r g a n i z a t i o n a l r e l a t i o n -

ship b e t w e e n the T r e a s u r y and the F e d e r a l R e s e r v e o r the E x e c u t i v e and the
federal Reserve.
5) A d v a n t a g e s of the existing

r e g i o n a l status and o r g a n i z a t i o n of the

twelve F e d e r a l R e s e r v e Banks f a r outweigh d i s a d v a n t a g e s .
6)

C o n s i d e r i n g the f u n c t i o n s in G o v e r n m e n t of the F e d e r a l R e s e r v e

^ o a r d , a b o a r d type of o r g a n i z a t i o n m a y be p r e f e r a b l e to a s i n g l e g o v e r n o r
The weight of advantage m a y l i e , h o w e v e r , with a s m a l l e r - s i z e
board - - say five men.
7)

No substantial gain in e f f i c i e n c y of F e d e r a l R e s e r v e d e c i s i o n -

making would b e l i k e l y f r o m c e n t r a l i z i n g the authority f o r all c r e d i t
I r *struments

8)

in one b o d y , the B o a r d o r the F e d e r a l Open M a r k e t C o m m i t t c .

M e m b e r bank b o r r o w i n g at the F e d e r a l R e s e r v e should be the

Principal m e a n s of obtaining additional bank r e s e r v e s .

D i s c o u n t rate

changes and open m a r k e t o p e r a t i o n s should be the main i n s t r u m e n t s
through which c r e d i t and m o n e t a r y p o l i c i e s a r e adapted to changing c o n ditions in the e c o n o m y .

This m e a n s i n c r e a s e d u s e of the d i s c o u n t

M e c h a n i s m , i n c r e a s e d i m p o r t a n c e of discount

rates in c o m p a r i s o n with

credit p o l i c y e x p e r i e n c e of the past d e c a d e , and r e l i a n c e on open market
°Perations to r e i n f o r c e discount p o l i c y .
9)

The p r e s e n t organization f o r the execution of open m a r k e t operations

designed to p r o t e c t the public i n t e r e s t .

ls

The F e d e r a l Open Market C o m -

mittee is constantly studying this organization with a view to making
adaptations which will i m p r o v e it.

(Open Market C o m m i t t e e q u e s t i o n s . )

10) Open m a r k e t operations should be conducted i m p e r s o n a l l y without
resort

to m o r a l s u a s i o n .

(Open Market C o m m i t t e e q u e s t i o n s . )

11) Only in exceptional c i r c u m s t a n c e s should use be made of authority
change r e s e r v e r e q u i r e m e n t s , which is a blunt and inflexible i n s t r u m e n t .
12)

The existing s t r u c t u r e of r e s e r v e r e q u i r e m e n t s could be m o d e r n i z e d

s o m e r e s p e c t s f o r p u r p o s e s of m o r e e f f i c i e n t and equitable a d m i n i s t r a tion*

A l s o , standard legal r e s e r v e r e q u i r e m e n t s could be applied to all

k^nks without raising the question of the dial banking s y s t e m , the p r e s e r v a tl°n

which the B o a r d f a v o r s .

This is not an urgent p r o b l e m at the

R e s e n t time,,however.
13)

Extension of s e l e c t i v e c r e d i t regulation to a r e a s other than stock

Market, c o n s u m e r , and real estate c r e d i t is not f e a s i b l e .
lence
ls

Further exper-

with regulation in both the c o n s u m e r and the real estate c r e d i t a r e a s

needed to d e t e r m i n e their r o l e on a l o n g - r u n b a s i s .
14) With e f f e c t i v e n e s s of discount p o l i c y and open m a r k e t operations

^ e s t a b l i s h e d , disadvantages of s u p p l e m e n t a r y r e s e r v e p r o p o s a l s outweigh!

advantages.
15) D i r e c t c o n t r o l or rationing of bank c r e d i t by the F e d e r a l R e s e r v e or
any

Government a g e n c y should not be r e s o r t e d to except in an e x t r e m e

emergency.
g e n e r a l Points
S e v e r a l g e n e r a l points in the r e p l i e s a r e of i n t e r e s t .

T h e s e include:

1) G e n e r a l l y speaking, the banking s y s t e m has kept pace with both the
growing and changing c r e d i t needs of the d i f f e r e n t s e g m e n t s of the e c o n o m y .
Today, b u s i n e s s , a g r i c u l t u r e , and c o n s u m e r s are m o r e adequately supplied
with banking s e r v i c e s of v a r i o u s kinds than they w e r e 25 y e a r s ago.
2)

C o m m e r c i a l banks are meeting s h o r t - and i n t e r m e d i a t e - t e r m c r e d i t

needs of s m a l l b u s i n e s s e s r e a s o n a b l y s a t i s f a c t o r i l y .

P r o v i s i o n of s p e c i a l

l o n g - t e r m c r e d i t a s s i s t a n c e in this a r e a , such as would be authorized by
bills introduced in r e c e n t y e a r s , n a m e l y , G o v e r n m e n t guarantee of loans
r nade

by private financing institutions or the establishment of s p e c i a l

investment c o m p a n i e s , would be untimely in an inflationary p e r i o d .
3) F o r e i g n e x p e r i e n c e with c e n t r a l banking and m o n e t a r y p o l i c y does
not yield l e s s o n s that a r e d i r e c t l y applicable to the

United States.

lowing f o r e i g n d e v e l o p m e n t s a r e n e v e r t h e l e s s s u g g e s t i v e :

(a)

The f o l -

It has been

Widely r e c o g n i z e d , at least in the c o u n t r i e s of the f r e e w o r l d , that the
central bank should have a l a r g e m e a s u r e of independence within the
Governmental s t r u c t u r e ,
Policy

(b)

In a number of f o r e i g n c o u n t r i e s , postwar c r e d i t

was f i r s t operated mainly through s e l e c t i v e r e g u l a t i o n s , but subsequently

such regulations have been supplemented o r r e p l a c e d by m e a s u r e s of g e n e r a l
c r e d i t p o l i c y , such as r e s e r v e r e q u i r e m e n t s and discount rate c h a n g e s .