The man who shaped the Federal Reserve
By Robert Gavin, Globe Staff | November 28, 2004
boston.com
BOOK REVIEW
At a time when the Federal Reserve chairman has rock star status, it's hard to imagine the world's greatest central bank as an obscure federal agency struggling for its independence.
That, however, was the state of the Fed in 1951, when President Harry Truman named William McChesney Martin Jr. as chairman. When Martin took the job, the Fed was little more than a poor cousin of the Treasury Department. It had been discredited for mishandling monetary policy before and after the 1929 crash, and saw its independence eroded after cooperating with the Roosevelt administration to finance World War II.
Over the next 19 years, Martin employed a combination of diplomacy, determination, and political skill to reassert the Fed's independence and establish the central bank as a driving force in economic policy.
He carried out changes that shaped the modern Fed and restored confidence that monetary policy could smooth out the peaks and valleys of the business cycle to promote stable, sustained growth.
Martin and his transformation of the Fed are the subjects of the biography, "Chairman of the Fed: William McChesney Martin Jr. and the Creation of the Modern Federal Reserve System," by Robert P. Bremner. Bremner tells Martin's story in a straightforward narrative, that, unfortunately, gets bogged down in eye-glazing passages on the mechanics of financial markets, the international currency system, and Fed operations.
By far, the best section follows Martin's battles with President Lyndon Johnson as the Fed struggled to manage a racing economy fueled by the administration's spending on the Vietnam War and Great Society programs.
Here, Bremner describes conditions that seem awfully familiar: a president pursues a war at the same time he significantly boosts domestic spending, and ends up with record deficits.
Martin, an old-fashioned banker who believed in balanced budgets, stable prices, and a strong dollar, pressed Johnson and Congress to raise taxes to cut the deficit and slow the economy. By the time they did, it was too late.
The chapters on the Johnson years make this book all the more disappointing. They're a reminder that this could have been a lively account of the great economic changes and debates of the 20th century, since Martin had a ringside seat to most of them.
His grandfather lost his business in one of the panics common in 19th and early 20th century; his father became the founding president of the St. Louis Federal Reserve Bank.
Martin worked in a stock brokerage when the market crashed in 1929; led the efforts to reform Wall Street as president of the New York Stock Exchange; and served in the Truman administration in the transition to a peacetime economy.
Unfortunately, big events and big ideas get lost in Bremner's treatment. The book presents a flat portrait of the man and his times. A fuller one still needs to be written.
Robert Gavin can be reached at rgavin@globe.com. |
