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/ There are ten CHAPTERS and the original press release. Link to them here -- I • II • III • IV • V • VI • VII • VIII • IX • X • press release
CHAPTER V of "A Primer On Money" -- continue to Chapter VI
WHO DETERMINES THE MONEY SUPPLY?
If the average man were asked to list the 10 most powerful groups of men in the world, the chances are that he would fail to mention one particular group with enormous power right here in this country. If the polling were continued, and the next question was to name the market where most claims to wealth are traded, the answer would again be faulty: it is neither the New York Stock Exchange nor the Chicago Wheat Exchange nor the other obvious markets. In fact, the pollster would probably retire on an old-age pension before he received the correct answer, so few are the people who know.
Further questions, about what the Federal Open Market Committee is or the so-called open market for Government securities, would still leave the pollster searching in vain. Few know about the Federal Open Market Committee or the open market, and very few people have even heard of it.
If by power we mean power over our economic lives, one of the most powerful groups of men in the world is exactly that unknown group, the Federal Open Market Committee. In many ways their power is equal to that of the President in deciding how the world’s greatest economic machine will operate. That is power enough to rank high on any list. Yet this group operates with such little publicity that its existence is virtually unknown except to those few-the major bankers, giant financial houses, and trained economists -- whose professional interests have provided them with knowledge about this sweepingly powerful arm of our Government.
There are 19 participants in this powerful body, 7 appointed by the President of the United States and confirmed by the Senate of the United States. Once appointed, however, a man serves for a period of 14 years, and cannot be removed by the President or by any other official body, except for cause. A 14-year term means that only the President succeeding the one who appointed the member can possibly replace him. Because the terms are staggered so that one new member is appointed every 2 years, a President can just barely hope to appoint a majority of the seven if he serves the two full terms allowed by the Constitution. These seven men are the members of the Board of Governors of the Federal Reserve System.
The other 12 men in this select group are elected to their places through the votes of private commercial bankers. Specifically, they are the presidents of the 12 Federal Reserve banks, elected to their posts indirectly by bankers from banks which are members of the Federal Reserve System.
In any one year, there are 12 voting members of the Federal Open Market Committee. The voting members consist of 7 members of the Board of Governors of the Federal Reserve System, plus some 5 of the 12 Federal Reserve bank presidents. The ‘President of the Federal Reserve Bank of New York also is always a member of the Open Market Committee. Thus there are eight permanent voting members of the Committee. The other four voting members are rotating members. Put otherwise, the other 11 Federal Reserve bank presidents serve on the Open Market Committee in rotation, so that only 4 of the 11 are formally members of the Committee at anyone time.
The Open Market Committee’s authority over the Nation’s economic life and its influence over the Nation’s position in world affairs lies in its power to determine this Nation’s credit policies. Determining credit policies means determining the Nation’s supply of money and credit and, therefore, the general level of interest rates, among other things.
There is no doubt about the influence of the Committee on interest rates. The Committee can and has changed the money supply at will to reach an interest rate objective. But sometimes the Committee will alter the money supply without changing interest rates. Rather what will change is the availability of money. Credit conditions, like the weather, have two dimensions. For weather, people want to know both the temperature-hot or cold-and the type of day, rainy or sunny. Similarly with credit, it is important to know not only what the going interest rates are but whether money is freely available at these rates.
Because of this two-dimensional feature, economists would say that interest rates are an example of “sticky” prices. By this they mean, a great deal of pressure for change normally must build up in the credit market before the general level of rates shifts. And this pressure expresses itself first in the changing conditions of availability of credit. Thus the availability of credit can be changed without changing interest rates. And sometimes this is all the Open Market Committee aims at.
Alternatively, the general level of interest rates can be changed under the right conditions with only a small accompanying change in the availability climate. So that it is roughly true to say that the two dimensions of credit, availability and price, can be changed independently of each other.
The notion of “sticky” interest seems to clash with some preconceived ideas about how interest rates are set in our economy. The public clings to the belief that interest rates are a textbook case of the workings of supply and demand in the marketplace. This blind spot about money prices does not exist in connection with prices of other goods.
For example, if you tell the average man that the price which the automobile manufacturers charge for new autos at the factory is determined only by consumer demand for autos and the number of autos the manufacturers have to sell (or have the capacity to produce) that week or month, he would reply without hesitation that you are mistaken. What is more, he would be right. Automobile manufacturers do not run the price of cars up and down in week-to-week or month-to-month response to changes in the supply-demand situation. Quite the contrary; they usually name a price for the year ahead and stick with it throughout the model year. Automobile dealers are more responsive to supply and demand changes.
Much the same behavior occurs in the pricing of money-that is, in the fixing of interest rates. True, interest rates are not nearly so rigid-so unresponsive to changes in supply and demand-as are the prices of automobiles. But many lending institutions do tend to maintain a given lending rate for long periods of time no matter how much credit they have available to lend, or how much their customers want to borrow.
The commercial banks of the country, for instance, may continue to be “loaned up” for a fairly long period. That is, on the basis of the volume of reserves which the Federal Reserve System permits the banks to have, the banks expand their loans to the maximum, consonant with sound banking practice, and can expand no further. Then borrowers seek more loans than the banks can supply, this situation results in a period of tight credit.
Then if the Federal Reserve decides to ease credit, it will increase bank reserves and give the banks added lending capacity to meet the demands of their customers. ‘When this happens, the usual result is that the banks continue charging the same lending rate on new loans as they charged before. It may be weeks, or even months, before rates are lowered to the new level made possible by the eased supply conditions.
This stickiness of interest rates in the United States has led to a situation of price leadership. The custom is for the commercial banks throughout the country to charge a scale of lending rates based on the prime lending rate charged by the big banks in New York City. With rare exception, when the New York banks lead the way the other commercial banks in the country shift their interest rate structure. The price leaders, then, as far as interest rates are concerned, are the big New York banks whose prime rate forms a base on which the Nation’s structure of interest rates rests. Changes in this prime rate signal bankers throughout the Nation to raise or lower their rates accordingly.
But what determines the prime rate? And what forces set off changes in that rate? The answer is that the few large New York banks set the prime rate and change it-combining their feel of the supply and demand for credit with their knowledge and expectations about Treasury and Federal Reserve policy, the combination then liberally laced with a large dose of discretion.
A price which has a relatively large penumbra of discretion surrounding it is a price open to negotiation. And when a large borrower faces the large banks, the price of the agreed-on loan is It negotiated price-negotiated within hailing distance, of course, of the going rate for the particular loan.
The prime example of a negotiated rate is that paid by the Treasury when floating a new loan. At almost all times the Treasury is borrowing huge amounts of money, usually to repay money which the Government has borrowed previously. Government bonds and other securities are always coming due and having to be paid off, and the Secretary of the Treasury issues new securities to replace them. It may appear that the Secretary of the Treasury is issuing these new securities to the general public, but, in fact, he must sell the bulk of any particular issue to a relatively small group of buyers -- a few big banks and financial houses. Therefore, he calls on advisory committees of representatives of these banks or financial houses for advice about setting the interest rate on any new security he anticipates issuing.
In other words, although the Secretary of the Treasury nominally sets the interest rate, in practice the rate is arrived at by means of negotiation between a very big seller of credit instruments and a small group of big buyers of these credit instruments. The outcome depends on relative bargaining abilities. If the Secretary of the Treasury is a tough negotiator, the Treasury will pay a lower price for the credit it obtains. If he goes easy with the big banks and financial houses, the Government will pay a higher interest rate.
On their side of the bargaining table, the big financial houses take into account their expectations about the money supply in the weeks and months ahead. If they anticipate tightening of credit, they will hold out for a higher rate than if they anticipate an easing in credit conditions.
Since it is the Federal Open Market Committee which decides whether credit will be tighter or easier, the giant banks and financial houses study the attitudes and policies of the Open Market Committee closely, and they can usually make a pretty accurate prediction as to the future policy of the Open Market Committee.
Thus we find the Government weighing heavily on both sides of the bargaining process. One arm of the Government, the Treasury, figures Importantly in the total demand for money because the Treasury is regularly the largest single borrower. On the other side, another arm of the Government, the Federal Open Market Committee, determines the supply of money and greatly influences the price the Treasury must pay.
In this all-important task of determining the size of the Nation’s money supply, the role of the Government has undergone fundamental changes over the years. Let us trace the pattern of this change. Before the National Bank Act the Federal Government largely confined its activities in the monetary sphere to the issuance of coins and currency, the quantity of which was determined at various times by the availability of gold, silver, or both. If the Government had a policy regulating the size of the money supply, it was this link to the money metals. Then, as now, the most Important source of the supply of money was the commercial banking system.
Except in the cities, where checking account money was used, note issue was the ordinary way banks created money. The importance of deposit creation was not commonly understood. This was why the limitations which the National Bank Act placed on the money supply were applied to bank notes, not to deposits. (Legal reserve requirements were intended to protect liquidIty, not to provide a mechanism for regulating the volume of money created; It was not until the establishment of the Federal Reserve System that the supply of money became a conscious objective of anyone.) The 10-percent Federal tax which made the cost of issuing State bank notes prohibitive caused numerous State banks to go out of business without ever recognizing that deposit creation was an available alternative, in many respects superior to note issue.
After the passage of the National Bank Act, interest rates were generally determined locally, as before, by the supply and demand for credit in the area. Of course, particular banks may have had local monopolies; but in general, a bank’s lending rate was usually what competition dictated. Under this system, the bank paid depositors the rate of interest necessary to keep them banking with it, rather than with some other bank; and, if possible, to persuade depositors in competing banks to transfer their deposits to it. (Banks paid interest on checking accounts until 1935.) On the other hand, the banks charged whatever loan rates competition and the State usury laws permitted, always hoping for a loan rate paying a margin of profit over and above the rate paid on deposits.
During the period of the National Bank Act and after, Congress attempted, slowly and hesitantly, to be sure, to assume the money powers reserved to it by the Constitution. First it had to put up a fight to establish its constitutional powers, which nominally covered coins and currency, but in fact had to include deposit money to be useful or meaningful. Then, its attempts at money management represented sporadic experiments with bank reserves, and with requirements about the type and amount of loans banks might make, the investment and liability of stockholders, and so on.
When the Federal Reserve System was set up in 1914, it was thought that a way had been found to free the economy from its money supply woes. Under the Federal Reserve System, the money supply was expected to grow with the needs of the economy. How was the System to accomplish this? By putting regulatory powers into the picture?
Were officials of a Federal regulatory agency expected to make arbitrary decisions about the quantity of money, then take steps to issue that quantity?
No. It was hoped that by monetizing “eligible” short-term commercial paper; by providing liquidity to sound banks in periods of stress; and by restraining excessive credit expansion, the banking system could be guided automatically toward the provision of an adequate and stable money supply to meet the needs of industry and commerce. A vital stabilizing element in this setup was the provision which the act made for an elastic currency.
The act created a money mill designed to meet day-to-day or seasonal changes in the public’s demand for cash without putting needless strains on the reserves of the banking system. In other words, under the Federal Reserve System, both notes and checkbook money are forms of money supported by the System’s reserves. Increases in the amount of cash which the public wants to hold can be readily met by setting the System’s printing presses in motion; excess currency is immediately absorbed. The System’s reserves would expand and contract via the discount window as cash and other needs made necessary. A member bank could increase its reserve account handily by borrowing from the Federal Reserve bank.
To safeguard their liquidity and provide a base for expansion, the member banks of the System could obtain credit from the nearest Federal Reserve bank, usually by rediscounting their “eligible paper” at the bank -- i.e., to repeat, selling to the Reserve bank certain loan paper representing loans which the member bank had made to its own customers (the requirements for eligibility being defined by law). If necessary, the member banks might also obtain reserves by getting “advances” from the Federal Reserve bank, which were simply loans made by the Federal Reserve banks to the member banks backed by pledged collateral. Whether through “rediscounting or “advances,’ the member banks could obtain reserves if necessary, based on the individual needs of the community served by the respective banks.
Thus, no specific limits were to be placed on the amount of money the system could create. Under these circumstances, some authority had to have control over discount rates, which would then limit the amount of money manufactured by the banks. Otherwise, the banks might force infinite reserve creation if their lending rate and the System’s charges were in a fixed favorable relation. Obviously, the rates at which the Federal Reserve banks lent or discounted paper the discount rate and the rediscount rate-would have great influence on the lending rates of the banks, and, therefore, limit the demand for money.
The controversy, over whether the private bankers or a public body should control the Federal Reserve System was compromised by giving the bankers a two-third majority on the regional bank boards which select the managements of the 12 Federal Reserve banks. These banks, and their banker-elected managements, were not, however, given the power to set the discount (or rediscount) rate. They could propose a discount rate. But the power to review and determine their proposed rate was lodged in a board in Washington, a public body.
At the time the Federal Reserve Act was passed, the discount rate was considered to be the important control element possessed by the system. Open-market operations were fairly insignificant. The individual banks conducted their open-market purchases and sales independently and often at cross-purposes as far as effects on the reserves, money supply, and Government bond prices were concerned. By the twenties, open-market operations ceased being handled so casually. A series of informal arrangements were initiated, evolving by 1930 into a “policy conference” of the 12 bank presidents, through which open-market operations were coordinated and the transactions handled by the N ew York bank for all the banks in the System. In the emergency banking legislation of 1933, the Open Market Committee (still composed of the Governors of the 12 Federal Reserve banks) was recognized as an official part of the System. In the Banking Act of 1935, it was reorganized to give the seven members of the Board of Governors majority influence, with only five of the bank presidents officially participating at any time.
The System’s open-market operations have become increasingly important as an instrument of monetary control; emphasis has shifted from control of the member bank’s reserves, during the 1920’s and 1930’s to support for Government bond rates, and then back to control of reserves since the so-called accord of 1951. But policy changes have been accompanied by technical advances: the Committee has sharpened open-market operations into a powerful tool In fact, it has become the fundamental technique of credit policy, far more Important than either the discount rate or reserve requirements; in addition, open-market operations are used more or less continuously, in contrast to fairly infrequent changes in either of the other two instruments.
A measure of how important open-market operations have become and how far discounting has lapsed is given by table 2, “Analysis of Combined Earnings of the 12 Federal Reserve Banks, 1914-63 (Selected Years).” The peak earnings from discounts and advances in any of the postwar years roughly equals the average of such earnings in the later 1920’s, when the money supply was far smaller than now.
TABLE 2.-Analysis of combined earnings, 12 Federal Reserve banks, selected years, 1914 -- 63
[In thousands]
You will have to check out this table in the .pdf of the book
Monetary economists tend to treat the shift to open-market operations to control the money supply purely as an example of the evolution of control techniques.
But this concentration on technical evolution, accurate as far as it goes, obscures a revolutionary change in the power structure of the System that accompanied the emergence of open-market control. Before exploring this point further, a few facts about the Open Market Committee will be helpful.
Who are the voting members of the Committee?
There are 12 members. They are the “{ members of the Board of Governors plus 5 of the 12 presidents of the Federal Reserve banks. Congress assumed, when it established the Committee, that the public members, with a 7 to 5 majority, would control the Committee. As for voting, the president of the New York Federal Reserve Bank always has a vote, the Cleveland and Chicago presidents vote in alternate years, and the presidents of other Federal Reserve banks are voting members every third year. Since the New York president and the seven Governors always are voting members of the Committee, there are eight permanent voting memberships and four rotating memberships.
When and where does the Committee meet?
The law requires that the Committee meet at least four times a year in Washington. In practice, the Committee meets much more frequently, approximately every 3 weeks.
Precisely what does the Federal Open Market Committee do?
It determines in general the amount of Government securities the Federal Reserve shall buy and sell in the open market, primarily to determine the level of reserves. In essence, the Committee determines U.S. monetary policy. Technically, this authority rests in the Board of Governors, which has sole possession of the other tools of monetary policy-the reserve requirements and the rediscount rate. In actual fact, however, open market operations are relied on predominantly, and the other tools are used to supplement open market operations.
How does the Open Market Committee symbolize the “power revolution” within the Federal Reserve System?
As the abbreviated history of the Federal Reserve Act emphasized, a key struggle during passage of the act was over who would control the System-public or private interests. (By private interests, banking interests are what is meant.) The adversaries in this conflict were quite conscious of what was at stake. The compromise over control placed what was considered at that time to be the master switch governing the money supply and interest rates-the discount rate-in the hands of a totally public body-the Board of Governors. This was a deliberate act. President Wilson rejected the notion of diluting the public nature of the Board with his now classic statement, “Which one Of you gentlemen would have me select presidents of railroads to be on the Interstate Commerce Commission to fix passenger rates and freight rates ?”
The commercial bank interests, it bears repeating, were given control over the board of directors of the individual regional banks. Six of the nine directors of each regional bank board are elected by the member banks of the region. The board of directors, in turn, elects the president and first vice president of each bank for a term of 5 years, subject to the approval of the Board of Governors.
The Federal Reserve Act was designed to have the decentralized System supply reserves only through the 12 independent Federal Reserve banks, by discounts or advances to member banks. At the time the act was passed no other method of extending credit was even contemplated. Because of this, the balance of power over the money supply lay securely, it was thought, with the public side of the System through the authority of the Board of Governors. But when the move toward the alternative open-market technique of control was given legislative blessing by Congress in 1933 and 1935 and a full-fledged central bank thereby created, the balance shifted radically toward the private, commercial banking side of the System.
When Congress authorized the Open Market Committee, and permitted it to engage in the joint purchase and sale of securities for the entire System, the prevailing assumption was that discounts and advances would continue to be the principal means of supplying reserves. It also believed that the legislation left the power arrangement of the Federal Reserve relatively untouched. The public members have a 7-to-5 majority on the Committee. Also, the selected five regional bank presidents swear an oath to protect the public interest when they become official members of the committee. (They take no such oath on becoming presidents of their respective banks.) But Congress was acting in the heart of the depression, and did not take the necessary care to see that the Committee it actually authorized accurately reflected its intentions.
What happened, in fact was that the public body-the Board abdicated control to the Open Market Committee. And the Open Market Committee, with five members who hold their regional bank positions through the votes of privately oriented directors, already represents a diluted public body. Further, to repeat the introduction, all 12 presidents participate in the Committee discussions and debates about the course of monetary policy. They make up part of the 19-member “discussion” Committee. They are free to influence and persuade as they see fit.
The upshot is that the institution and practices of the Open Market Committee have opened the door to the same private banking influences President Wilson was so careful to exclude. Now the private portion of the Federal Reserve System is not only well represented at the regional banks but has five-twelfths of the legal control over the money supply and an even stronger voice in the crucial decision making process.
None of this should be taken to imply that the regional bank presidents do not consciously seek to reach decisions purely in the public interest. But a man’s view of the public interest and of the best methods by which that interest can be furthered, as experience teaches, is inevitably colored by the environment and circumstances of his daily life. That is also why radio and television network presidents are not appointed to the Federal Communications Commission even if their zeal for the public welfare, as they see it, is incontestable. The Open Market Committee, in this sense, is not free from private banker influence and bias. And it is naive for the regional bank presidents to protest, as they forcefully do at congressional hearings, that the public welfare is their only concern when they enter the committee room.
Here, then, is the “power revolution” at the Federal Reserve which destroyed the ingenious compromise of the original legislation. Control of the money supply, with its enormous economic consequences, has passed from a purely public group, composed only of public servants, to a mixed body with dubious qualifications to represent the public interest.
Who should be members of the Committee?
All the members of the Open Market Committee should be public members. There is absolutely no reason why they should not be. They should be selected on the basis of broad experience and judgment and appointed by the President of the United States to represent the general public interest. Indeed, to make the point clearer, the Open Market Committee should be abolished and its powers transferred to a perhaps enlarged Federal Reserve Board.
What function do the regional banks have as discounting becomes a negligible activity?
The truth is that the intended functions of the regional banks, except for check clearing, have dwindled to almost nothing. The discount window is hardly used, so the regional banks no longer provide the “elastic currency” for their regions in that fashion. Open market operations are the preserve of the New York bank which merely informs the other regional banks what it has done, in their name, to change total bank reserves.
The major purpose to which the regional banks now devote their energies is to be the eyes and ears-the economic intelligence units of the Open Market Committee in the country. This was brought out very clearly in the following testimony at hearings of a subcommittee of the U.S. House of Representatives Banking and Currency Committee:
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The CHAIRMAN (Mr. Patman). If you were indicating in the order of importance and I mean importance. The matter that takes up most of your time, and the time of your officials and employees. What is the most important duty that is performed by the Federal Reserve Bank of Cleveland?
Mr. HICKMAN (president of the Federal Reserve Bank of Cleveland). Well, the processing of information and the formulating of views having to do with economic conditions in the district, in the Nation, and the appropriate posture of monetary policy with respect to these conditions.
The CHAIRMAN. Where do you get that information from?
Mr. HICKMAN. From a variety of sources including businessmen and industrialists
in the district. And, of course, we also have an economic staff in our bank1
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Instead of a multiheaded central bank, the Federal Reserve has actually developed into a single central bank with 12 branches. And the brain center is the Open Market Committee.
What is the open market account?
The open market account of the Federal Reserve Bank of New York carries out the sales of bonds and bills for the Treasury. The manager of this account in its operations acts as an agent of the Treasury, of the Federal Open Market Committee, and of the central banks of several countries.
How does the Federal Reserve fix interest rates?
1. By its open market operations and by setting the required reserves of member banks, the Federal Reserve determines the total supply of money in the United States. The total money supply in turn determines the amount available for lending.
The amount of desired borrowing-- the demand schedule for money bears a close, though by no means hard and fast relationship to the level of business activity as measured by, say, the Gross National Product.
Broadly, what economists say is that as GNP grows the money supply must also grow if interest rates are not to rise. On the other hand, if our productive resources, population, and capital grow and the money supply is kept constant, a tight credit market will eventually develop with decreased availability and a higher price for money. In consequence, resources will be unemployed and the GNP will not attain its full potential.
2. Open market operations directly affect the level of interest rates on Government bonds. When the Federal Reserve buys, this increases demand for securities, thus raising security prices (lowering interest rates) ; when It sells, It increases supply, and lowers security prices.
3. The Federal Reserve influences expectations about interest rates. If the Federal Reserve follows a tight money policy, for example, people are led to believe that interest rates will be higher in the future than they now are. And they will act appropriately. Lenders will ask more for their money; borrowers will pay more-since both expect rates to rise shortly anyhow.
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1 “The Federal Reserve System After 50 Years.” Hearings before the Subcommittee on
Domestic Finance Committee on Banking and Currency, House of Representatives. 88th
Cong., 2d sess., vol. 1, p. 164.
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What is the “open market”?
The “open market” is a part of the financial markets which make up the money market of the United States located in New York City at the southern end of Manhattan Island. In these markets are traded corporate bonds, Government bonds, corporate stocks, commodity futures, warehouse receipts, and so on. Major borrowers and lenders from over the Nation exchange their funds there. Not the least of the operations on this market is that through which the U.S. Treasury borrows the money it needs by issuing Government bonds and Treasury bills.
How does the market work?
The 1935 amendment to the Federal Reserve Act provided that Government securities “may be bought and sold only in the open market.” For the most part this market consists of 21 primary bond dealers (in 1935 there were only 12). Since 1942, the Federal Reserve has had authority to purchase up to $5 billion of Government securities directly from the Treasury, but it has elected not to use this authority.
The actual operations are somewhat as follows: The Treasury determines each week how much money it will need during the following week and notifies the manager of the open market account. All interested parties, including the 21 dealers are notified and bids are made on Monday. On the following Tuesday the Treasury announces to whom the securities are sold. Generally speaking, the sale is to the highest bidders. The 21 primary bond dealers are in constant contact with each other and know long before Tuesday who got the bid.
Do the dealers serve a useful purpose today?
No. Mr. Marriner Eccles, former Chairman of the Board of Governors, described the arrangement as follows:
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The only effect the provision has In practice in this regard is to make it necessary for the Reserve banks to pay commissions to brokers. It also makes it impossible for the Reserve banks to accept short-term certificates of indebtedness from the Treasury in anticipation of tax receipts during quarterly financing and income-tax payment periods .. .. ... In view of these considerations I would be glad to see the provision taken out of the law (hearings before the Committee on Banking and Currency, 75th Cong., 3d sess., on H.R. 7230, p. 475).
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The practical effect of requiring all purchases to be made through the open market is to take money from the taxpayer and give it to these dealers. It forces the Government to pay a toll for borrowing money. It makes it impossible for one agency of the U.S. Government to buy U.S. Government securities from another without paying tribute to these 21 dealers, overwhelmingly located on “Wall Street.”
Who were the 21 tollgate dealers in 1962?
There are six “bank” dealers:
1 First National City Bank of New York.
2 Chemical Corn Exchange Bank, New York.
3 Morgan-Guaranty Trust Co., New York.
4 Bankers Trust of New York.
5 First National Bank of Chicago.
6 Continental Illinois Bank of Chicago.
In addition there are 15 “nonbank” dealers:
1 The Discount Corp.
2 C. F. Childs & Co.
3 The First Boston Co.
4 Aubrey G. Lanston & Co.
5 Bartow Leeds & Co.
6 C. J. Devine & Co.
7 Briggs Schaedle & Co., Inc.
8 W. E. Pollock & Co.
9 D. W. Rich.
10 Salomon Bros. & Hutzler.
11 New York Hanseatic Corp.
12 Charles E. Quincey & Co.
13 Second District Securities Co., Inc.
14 Blyth & Co., Inc.
15 Malon S. Andrus, Inc.
The “bank” dealers consist of departments in the bank, while the “nonbank” dealers receive all their income by operating a tollgate 011 the sale of Government securities.
Is the “open market” open or closed?
The “open market” is in reality a tightly closed market. Before 1952 there were only 12 “authorized” dealers and today there are only 21 dealers. These nine additional dealers were added as a result of congressional pressure on the Federal Reserve to stop dealing only with dealers who could meet such restrictive conditions in order to be “authorized.” But admittance into the “dealers’ club” is still highly exclusive.