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THE PATMAN CRUSADE
By Seymour E. Harris, Littauer professor of political economy,
Harvard University (emeritus)
Congressman Patman’s “Primer on Money” is a reminder of the unique service which the Congressman has given the American people in the last 40 years.
No one has defended the interest of the people more vigorously, more persistently, and more courageously against those who have assumed the responsibility of determining how much money there is to be, at what price, and who is to get it.
In the primer one will find a thoughtful elementary discussion of monetary policy and the relation of monetary to other facets of policy. The primer also contains the Congressman’s views on the most controversial issues of the day.
Here, for example, one will find a view well defended and needing to be presented, that the Constitution gives to the Congress, and not to the Federal Reserve or the commercial banks, the power to create money and determine the value thereof. There is more than an implication that the Congress has surrendered its prerogatives too easily.
Patman also reminds us that President Wilson, when confronted with a demand that bankers join in the control of the monetary machinery, made the classic remark: “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?”
In view of President Wilson’s philosophy underlying the new System, it is a matter of concern to Congressman Patman that the’ major policy decisions are now made by an Open Market Committee, with 5 of its 12 members presidents of the Reserve banks, 6 of the 9 directors of each bank being elected by the commercial bankers. I strongly support his proposal that the presidents of the Reserve banks should not be members of the Open Market Committee. The present powers of the Open Market Committee and the membership structure are rightly a matter of concern to the Congressman. Too much power resides in those who are the beneficiaries of the policies.
In 1959, legislation was passed which put billions of dollars of additional reserves at the disposal of the banks. The Congressman reminds us that the impulse to the legislation came from the American Bankers Association. He also reminds us that each dollar of additional reserve yields $5 of additional business for the banks without cost to them: and that one important effect is more business for the banks and less for the Reserve banks, unfortunate because most of the profits of the latter go to the Treasury.
Perhaps on no issue is Congressman Patman more eloquent than on the claim of the Federal Reserve Board and its supporters to the privilege of independence.
He shows that (A) the Board has no inherent right to move independently of the Government; (B) that the costs of independence are great; (C) that the justification of isolation from popular pressure, a presumed reason for independence, can as well be applied to tax policy and to many other policy areas.
The Federal Reserve System operates all too often in favor of high money rates which are not justified. Not that Patman wants inflationary policies; but the Fed often seeks higher rates than are supportable by the needs of the
economy. And Patman can single out many periods when dear money contributed to excessive unemployment.
He is as aware of the relation of high money rates to inadequacy of investment as was Keynes in his famous “Treatise on Money.”
Hence I can only salute the Congressman from Texas. He keeps the finance men on their toes. If he sometimes exaggerates the evils and mistakes, it is only because, like all innovators, he recognizes that a little exaggeration is an ingredient for putting a new position over, and especially when the opponents are powerful, numerous, and well organized, and often do not distinguish the financial from the general interest.