Monetary Policy:1955-56: Hearings Before the United States Joint
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MONETARY POLICY: 1955-56 HEARINGS BEFORE THE SUBCOMMITTEE ON ECONOMIC STABILIZATION OF THE JOINT ECONOMIC COMMITTEE CONGKESS OE THE UNITED STATES EIGHTY-FOUETH CONGKESS SECOND SESSION PURSUANT TO Sec. 5 (a) of Public Law 304 (79th Congress) DECEMBER 10 AND 11, 1956 Printed for the use of the Joint Economic Committee UNITED STATES GOVERNMENT PRINTING OFFICE 85560 WASHINGTON : 1957 For sale by the Superintendent of Documents, U. S. Government Printing Office Washington 25, D. O. - Price 45 cents Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis JOINT ECONOMIC COMMITTEE (Created pursuant to sec. 5 (a) of Public Law 304, 79th Cong.) PAUL H. DOUGLAS, Senator from Illinois, Chairman WRIGHT PATMAN, Representative from Texas, Vice Chairman SENATE HOUSE OF REPRESENTATIVES JOHN SPARKMAN, Alabama RICHARD BOLLING, Missouri J. WILLIAM FULBRIGHT, Arkansas WILBUR D. MILLS, Arkansas JOSEPH C. O'MAHONEY, Wyoming AUGUSTINE B. KELLEY, Pennsylvania RALPH E. FLANDERS, Vermont JESSE P. WOLCOTT, Michigan ARTHUR V. WATKINS, Utah HENRY O. TALLE, Iowa. BARRY GOLDWATER, Arizona THOMAS B. CURTIS, Missouri GROVER W. ENSLEY, Executive Director JOHN W. LEHMAN, Clerk SUBCOMMITTEE ON ECONOMIC STABILIZATION WRIGHT PATMAN, Texas, Chairman JOSEPH C. O'MAHONEY, Wyoming -r AU3USTINE B. KELLEY, Pennsylvania ARTHUR V. WATKINS, Utah JESSE P. WOLCOTT, Michigan WILLIAM H. MOORE, Economist n Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis CONTENTS Statements in order of appearance: Page Bell, Elliott V., editor and publisher, Business Week magazine, New York 4 Levitt, Arthur, State comptroller, State of New York, Albany 23 Young, Robert R., chairman of the board, New York Central system, New York 41 Martin, William McC., Jr., Chairman, Board of Governors of the Federal Reserve System (accompanied by members of the Federal Open Market Committee) 71, 115 Haves, Alfred, president, Federal Reserve Bank of New York; Vice Chairman, Federal Open Market Committee (accompanied by members of the Federal Open Market Committee and Robert G. Rouse, manager of System Open Market Account) 71, 115 Statements and exhibits: Bell, Elliott V., editor and publisher of Business Week 4 Exhibit: Supplemental questions and answers 40 Hayes, Alfred, president, Federal Reserve Bank of New York 71, 115 Exhibits: Holdings of United States Government certificates and notes by weekly reporting banks and average yield on computed Government obligations, 1952-56 102 Treasury bill holdings of weekly reporting banks and average yields on Treasury bills, 1952-56 103 United States Government bond holdings of weekly re- porting banks and average yields on long-term Govern- ments, 1952-56 101 Member bank earnings and expenses in selected years 105 Ratio of net profits to total capital, member banks and leading corporations, 1946 to 1955 107 Levitt, Arthur, comptroller of the State of New York 23 Exhibit: State aid for school buildings, total paid in New York State for school years 1926-27 through 1955-56 25 Martin, William McChesney, Jr., Chairman, Board of Governors of the Federal Reserve System 71,115 Exhibits: Answers to Chairman Patman's supplemental questions 154 Biographical sketches of members of Federal Open Market Committee as of December 11, 1956 70 Boeckh indexes of construction costs for (1) resources, and (2) apartments, hotels, and office buildings, 1947-49 equals 100 90 Imports and reserves of foreign countries 99 Letter to Hon. Joseph C. O'Mahoney, and enclosures 98 Federal income taxation of commercial banks 110 United States gold stock and foreign dollar holdings 98 Rouse, Robert G., manager, Federal Reserve System's Open Market Account 71, 115,150 Young, Robert R., chairman of the board, New York Central Railroad Co 41 Additional information: Average prices paid by farmers at independent stores September 15, 1956, compared to September 15, 1947 161 Average prices received by farmers for farm products in United States, November 15, 1956, compared to November 15, 1947 162 Bond yields and money-market rates, 1947, and week ending Decem- ber 1, 1956. 161 Hi Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis IV CONTENTS Additional information—Continued Page Chairman Pat man's concluding summary statement 158 Corporate bonds advance while Treasury's drop, article in the New York Times, December 9, 1956, submitted by Hon. Joseph C. O'Mahoney 31 Farm wage rates, railroad freight rate index, and total transportation bill for farm products, 1947, 1955, 1956 160 Ike Disclaims Any Role in FRB Credit Moves, article in Washington Post and Times Herald, November 6, 1956 79 Michigan Fails To Get Any Bids for $52 Million Highway Bond Offering, article in the Wall Street Journal, December 5, 1956, sub- mitted by Hon. Joseph C. O'Mahoney 30 Supplemental question on Federal income taxation of commercial banks— 110 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis MONETARY POLICY: 1955-56 MONDAY, DECEMBEB 10, 1956 CONGRESS OF THE UNITED STATES, SUBCOMMITTEE ON ECONOMIC STABILIZATION OF THE JOINT ECONOMIC COMMITTEE, Washington, D. 0. The subcommittee met, pursuant to call, at 10 a. m., in the Old Su- preme Court Chamber, United States Capitol Building, Washington, JD. C., Hon. Wright Patman (chairman) presiding. Present: Representative Wright Patman (chairman), and Senator O'Mahoney. Also present: Grover Ensley, executive director; William H. Moore, staff economist; and Reed L. Frischknecht, legislative assistant to Senator Watkins. Chairman PATMAN. The subcommittee will please come to order. Senator O'Mahoney will be here, I am sure, and while we are wait- ing for him I will read the statement that has been prepared; and, Mr. Bell, will you take a place here, please. Mr. BELL. Yes, sir. Chairman PATMAN. Mr. Bell is our first witness this morning. It is very nice having you come down here to make it possible to give us the benefit of your views. Senator Watkins' administrative assistant is here to cooperate with us, and we are glad to have him. There would certainly be very few persons today who would dis- agree with the proposition that it is good sense, good business, and good government to strive in every reasonable way, within the frame- work of free enterprise system, to promote stability and high-level employment in our economy. The intention of the Federal Govern- ment to do its part toward those ends are stated in the policy declara- tion of the Employment Act of 1946. While there are doubtless many ways in which government plans, functions, and policy affect the operation of the economy, it is generally agreed that monetary, credit, and fiscal policies are the principal means of directly promoting stability, high-level employment, and growth. Having made such an undertaking, prudence dictates that Congress and the executive agencies of Government, with the help of experts in the field, give constant attention to the adequacy and the continual modernization of the stabilization tools. Later this week, this subcommittee is going to hold hearings on the subject of automation and technological progress in industry. In that field we know that engineers, scientists, and technicians are giving constant attention and thought to the improvement and working of 1 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 2 MONETARY POLICY I 1955-56 2 various machines and processes. The same kind of checking and pre- cautions are just as appropriate and called for in government and economics. We, too, must be continually sure that our instruments are regularly examined for rust and not allowed to be overtaken by obsolescence. That is precisely the purpose of these current hearings—putting an important stabilization device under examination to see how it is working and if its working can be improved upon. Other subcom- mittees of the joint committee give similar study to other major poli- cies affecting stabilization and growth, especially fiscal policy. The Joint Economic Committee, charged as it is with the duty of making continuing studies of matters relating to the working of the economy, has, over the years, conducted a series of such hearings and examinations of progress and knowledge in the field of monetary and credit controls. One great accomplishment under the authority of the Employment Act has been the extent to which general understanding and knowl- edge of monetary affairs by Members of Congress, the public, the press, and even experts themselves, have been materially aided by this series of periodic reviews. This hearing will undertake to bring the record on monetary policy up to date. This hearing is only another in this series of regular studies which the Joint Economic Committee makes. It is important that that fact be stressed in view of the rumors we have recently been hearing from various sources that the independence of the Federal Reserve System as presently constituted is being currently threatened. Whether there is any truth or not in sueh rumors, this hearing, at least, is not being held with any such notions in mind. It represents a good-faith search for information as to recent and current policy and its overall effects. While it is obviously impossible to anticipate what the evidence presented at these hearings may show, no report or immediate recom- mendation are likely or expected. The record will, of course, be thoroughly considered in connection with the joint committee's annual report due March 1. Hearings at this time are warranted by the need for public enlight- enment and the danger that the tight money policy may wreck the economy. As to the control and the kind of independence enjoyed by the Eeserve System, it is well to keep in mind that the Constitution is quite specific in assigning to the Congress the control over money and the value thereof. In the modern world the money supply, of course, takes the form in large part of credit and credit instruments.