Evening star. [volume] (Washington, D.C.) 1854-1972, 1935-05-09
POLITICAL CONTROL
OF S.BANKSSEEN
administration Measure
Gives President Full Power
- Over Board.
BY DAVID LAWRENCE.

The second experiment in polit-
ically controlled central bank Is about
to- be undertaken, but with greater
powers to the Federal Government in
its control of banks and banking than
ever before in American history.
THE questions at issue in the bill
which is expected to pass the House Of
Representatives this week is whether
business and banking shall have any
real voice at all hereafter in the man
agement and volume of credit, and
whether the Federal Reserve System
set up by President Woodrow Wilson
In 1918 shall be completely over
thrown.
The administration measure, spon-
sored by Gov. Eccles of the Federal
Reserve Board and approved in the
main by President Roosevelt himself,
would vest ir a board, appointed by
the President and really removable at
his pleasure, the power to bring on
imitation or to institute defiation, de-
pending upon the judgment of the
small board in Washington.
Suggestions Rejected.
In effect, the proposed measure
makes it possible for as large or as
small an amount of the deposits of the
American people to be used by Federal
Reserve banks for the purchase of
Government securities whenever the
Federal Reserve Board shall raise or
lower the so-called reserve limits,
which hitherto have been fixed by law
and now become matter of govern
mental whim.
The American Bankers Association
began last october, after its truce
with the White House, series of con-
ferences with the idea of collaborating
with the administration in the work.
ing out of a sound measure. Con-
structive criticism was given without
public controversy. The bankers were
advised that the administration would
welcome constructive advice.
Now, after several months of such
conversations it is apparent that the
administration has rejected the funda-
mental principles of the main sugges-
tons made, and the bankers are just
where they were six months ago, only
now they know that most Of the So
called pleas for constructive criticism
and suggestions are mere lip service
because the administration has pre-
conceived notions about what it wants
to do. anyhow.
Plan to Produce Conflict.
The plan of the administration is
going to produce a conflict which
probably will bring repercussions
throughout the United States, in every
city and town where the people who
understand the difference between
politics and business management are
likely to have the question pre- lted
to them.
Congress is particularly responsive
to pressure nowadays. and it IS prob
able that Father Coughlin will get
behind the administration banking
bill and tend further to crystalline the
points at issue. It will be interest
ing to learn whether the depositors
in the banks of this country who
are anxious to have their funds safe
guarded are more numerous than
the disciples of political banking.
The administration plan, Of course,
has no purpose except nationalist
ton of banking, although any such
objective is denied. The officials of
the administration insist also that,
under their plan, the peoples money
will be safer than it has been hereto
fore.
The trouble, of course, is that po-
1itical pressure exerted upon a govern
ment board tends to encourage inf1a-
ton and never to arrest a boom by
deflation, whereas private banking, as
Q, whole, however overcautious or I'M
wise it may have been in particular
instances, will never hesitate to call a
halt when unsound conditions are on
the horizon.
Points at Issue.
Thus, the history of the Federal
Reserve Board shows that Congress
has passed resolutions and exerted
pressure upon that institution when
ever deflationary measures were I'M
der consideration.
The points of difference between
the American Bankers Association
and the administration go to the heart
OF the matter of political or business
management. Here are the points:
Il. The administration wants a
Federal Reserve Board Of eight, all
the members Of which would be ap-
pointed by the President and really
removable at will, for such is the
power claimed by Mr.. Roosevelt with
respect to all executive appointments
2. The bankers suggested a board
Of five members, with the term of
office fixed at IL years and with pen
sions provided for retirement, so that
members would be independent of
any inducements to return to private
banking.
3. The administration insists that
the power to fix rediscount rates, to
raise or lower reserves and the power
to initiate open market purchases of
Government bonds shall be left en-
tirely to the board, as at present con-
stituted, and that the Secretary of
the Treasury be retained as mem
ber
Government Would Control.
4. The bankers want a committee
of four governors, selected from the
governors of the IL Federal Reserve
banks, to sit with the Federal Reserve
Board of five, making a total of nine
members, and they ask that this group
shall decide on open market pur-
chases of Government securities and
rediscount rates. Under this plan, the
Government would have five votes and
the Federal Reserve banks four votes,
but the bankers feel that, If the Presi-
dent appoints five capable men for a
tenure OF IL years, as nearly disinter-
ested judgment as possible would be
obtained.
The Federal reserve banks are pri-
vately owned and managed. If the
administration plan goes through,
there would be a small committee of
governors of reserve banks to act in
an advisory capacity, but without vote.
Thus will the Government, through
political appointees, entirely control
the volume of credit and the power
to initiate or debate at will. The issues
ka1 f,gkn