Evening star., 1949-11-27


lmony of a Lindbergh, standing
you really had to know a Senator
ness, however, it must be stated
that to this writing Senator Doug
las has puzzled observers as to
his full objectives in directing the
present hearings. ~.
A hearing like this entails some
preparation in the form of staff
work. Most Of the joint commit
tees staff work on all phases of
the committees work. Senator
Joseph c. QMahoney, Democrat.
of Wyoming. being chairman of
the full Joint Committee on the
Economic Report, has put at the
head of it's staff Dr.. Theodore
Kreps. who shares Senator O'Mah-
oney's strong anti = monopoly
views. But for the particular staff
work Of the monetary and credit
subcommittee, Senator Douglas,
its chairman, selected Prof. Lester
v. Chandler, 44-year- old Amherst
economics professor, who happens
to be Republican.
Question of Bond Prices
Since one of the crucial ques-
tions before the subcommittee in
these hearings is whether the
price of Government bonds ought
to be supported by a "f1oor." it is
interesting to note that Prot.
Chandler, in the American Eco
nomic Review. this year raised
some Is pages of questions as to
the wisdom of this still-existing
war-born policy. He then said:
1T is of first Importance that the
Federal Reserve regain its free
dom to control the money supply
in the interest of economic sta
bilization, so that either the sta
bility of Government bond prices
or the stability of coupon rates on
those bonds should be sacrificed" u
When, before December 81, the
Douglas subcommittee reports to
the full committee on the sub
jects of the present hearings, the
report will be drafted under Prof
Chambers direction.
Control or non-control of Gov
ernment bond prices is of great
Importance in the economy. When
ever bond prices change. interest
rates tend to change in the oppo-
site direction. For instance, when
a 2 per cent bond sells at par,
it yields to the holder 2 per cent
per annum. But if the same
bond sells on the open market at,
say. only go" per $100 of face
value, the So per hundred repre-
sented by the bond coupon gives
the new buyer an actual yield of
2.22 per cent.
The level of the bond market
determines the level Of interest
rates. With the Governments out
standing debt enormously in
creased as result of the financ-
ing Of the war, every segment of
the economy is affected by al
change in the cost of borrowing
money. A change in the level of
Government bond prices indirect
ly causes banks to change the
interest charge they make to their
customers. BY buying or selling
Government bonds on the market
the Federal Reserve banks can in
fiuence the whole economy.
Treasury Biggest Debtor
The Treasury is the biggest
debtor in the country. Its out
standing obligations in the hands
OF banks and the public exceed
$3.50, ,000. 100000 and are now in
creasing. Every year the Treas
ury must find several billion dol
lars merely to pay interest on the
public debt. Naturally, the Treas
ury doesn't want to see bond prices
decline, for then, when Its obli-
cations gradually mature and have
to be paid of and new money
must be borrowed for the purpose
the rate of interest on the new
money is determined by the then
level OF the prices of Government
bonds. Although, the Federal Re-
serve banks are supposedly inde-
pendent of Government, their pol
icy in this regard is in reality
dictated by the Treasury for rea-
sons which space does not per-
init discussing here. AS a result,
the Treasury in this matter DOM
mates the country's cenral bank
ing system.
During the current hearings this
subject has been tackled by vari-
GUS witnesses. AS in the case OF
other topics, wide differences of
viewpoint have been developed.
Chairman Maple Harl of the Fed
eral Deposits Insurance Corp. which
insures bank deposits up to $4,000
each, stoutly defended the support
OF Government bond prices at par
or more. He said that the bonds
were sold all through the war on
such a promise, indefinite in du-
ration. In this he was disputed by
w. Randolph Burgess, vice chair
man Of the National City Bank of
New York and wartime bond
drive director on the Treasury's
behalf. Mr.. Burgess argued for a
flexible bond market, saying that
the wartime need for cheap money
has passed and that the present
drift toward imitation calls for
"dearer money"
Alfred Williams, president Of
the Federal Reserve Bank of
Philadelphia-who undoubtedly re-
fleets the views Of other Reserve
Bank presidents-also lined up
against the Treasury's and Mr..
Harris position. Mr.. Williams
poured out his concern over the
threats to our economic stability
that arise from "the zeal for So
cial justice" the emphasis on full
employment at constantly rising
= u