In a Washington hearing last week, the
chairman of the House Banking Committee stared at one of the nation's
top managers of money. Grumbled Texas Representative Wright Patman:
“You can absolutely veto everything the President does. You have the
power to veto what the Congress does, and the fact is that you have
done it. You are going too far.”The object of Patman's wrath was ascetic-looking Alfred Hayes, president
of the New York Federal Reserve Bank and a ranking member of the U.S.'s
powerful central banking system. For three decades, Wright Patman has
fumed and fussed that the Federal Reserve System is too secretive, too
independent, too insensitive to the hopes of small borrowers. A
sharecropper's son, he often charges that it is a tool of Wall Street
bankers.Immediately after moving up to the chairmanship of the Banking Committee
last year, Patman started preparing what has become one of the
farthest reaching investigations in the Federal Reserve's 50-year
history. Patman has a team of economists and consultants studying the
system with a critical eye, intends to call twelve top non-Government
economists to the stand by month's end, and is pressing for new
legislation to curb the central bank.Expansion or Stability? The controversy comes at a pivotal time. Calmer
critics than Patman accuse the Federal Reserve of starting, or at least
contributing to, the recessions of 1958 and 1960 by hiking interest
rates and reducing the credit supply in its zeal to head off inflation.
Now that some prices are rising anew, the central bankers again must
ponder the question of whether to battle inflation at the risk of
nipping the economy's three-year-old expansion. In recent months
ChairmanWilliam McChesney Martin Jr.—who occupies what Patman somewhat
extravagantly calls “the most powerful job in the civilized
world”—successfully campaigned for a slight squeezing of credit and
rise in interest rates. But his colleagues are sharply divided on the
issue, and the Federal Reserve is being pelted with criticism from
several sides.Treasury Secretary Douglas Dillon, Presidential Economist Walter Heller
and M.I.T. Economist Paul Samuelson lately have taken up the argument
that Martin and his colleagues unwisely tightened money before the last
recession. Attacking the system's penchant for secrecy, such Democrats
as Wisconsin Senator William Proxmire complain that trying to find out
why and how the Federal Reserve makes its decisions is like “trying to
paste a custard pie on a wall.” To make the Federal Reserve more
dependent upon the President and upon Congress' easy-money advocates,
Patman is sponsoring bills that would:
>End its authority to set itsown budget and oblige it to come to
Congress for an annual appropriation. — Empower the General Accounting
Office to audit its books. — Expand its board of governors from seven
to twelve, with the chairman to be the Secretary of the Treasury. >Eliminate its credit-regulating Open Market Committee and transfer the
committee's powers to the expanded board. At least four members of this
board would be new presidential appointees, and they presumably would
be amenable to the wishes of Congress and the President.
