Populists and the FED

[Clifford Poirot <cpoirot@xxxxxxxxxxx>]

I agree with you here. First and foremost, the FED was created long after
the death of the Populist movement. The last great hurrah for the populists
was Jennings Bryant's crusade of 1896. Jennings and the Populists wanted
free silver, not a Central Bank.

One could (at a stretch) make the argument that the progressive movement was
an heir of the Populists. In that sense, the creation of the FED fits in
fairly well with the overall goals of the Progressive movement. However, the
Progressive movement would have envisioned a far more democratically
structured FED. Instead, we got a FED that was structured undemocratically.
This lends some support to Kolko's thesis that the Progressive movement got
usurped and absorbed by capture of the very interest groups it was designed
to control.

-----Original Message-----
From: J. Barkley Rosser, Jr. [mailto:rosserjb@xxxxxxx]
Sent: Monday, May 07, 2001 5:11 PM
To: Henry C.K. Liu
Cc: Post Keynesian Thought
Subject: Re: ECB and world-wide recession


     "Populist supporters"?  Are you kidding?
     I don't know, maybe the populists supported
creation of the Fed.  I suppose that they did.  But,
they did not initiate its establishment.  It was always
from Day One a creature of the financial establishment
in New York.  After the "Rich Man's Panic" of 1907,
J.P. Morgan got tired of playing the role of a central
banker and had a committee of leading financial lights
appointed to determine what should be done to avoid
a repeat.  They came up with the Fed.  No populists on
that committee, although they may have succeeded in
suckering in the rubes.
Barkley Rosser
----- Original Message -----
From: "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Sunday, May 06, 2001 8:51 PM
Subject: Re: ECB and world-wide recession


> William:
>
> We have gone over this disagreement before and I have submitted several
long
> posts on the history of the Fed that outline how the banking interest
wrested
> control of the Fed from the populists farm interest.  So we will continue
to
> disagree.
>
> As for the ECB, it is a central bank without a government.  Nevertheless,
the
> German government really set the original rules on the euro which the ECB
is
> required by law to follow. Thus the ECB is not "independent" in the sense
that
> it is free to set policy to encourage inflation. The Bank of Japan is
getting
> some apparent separation from MITI and the Ministry of Finance, but
everyone in
> Japan knows that such cosmetic developments were really just to appease US
> pressure.
>
> Both Blinder and Rivlin may be competent economists, but that was not the
reason
> they were put on the Fed Broad.  The reason was their ideologies matched
those
> of the administrations nominating them.  Lindsey was nominated for the
same
> reason as Taylor is about to be.
>
> I was not thinking of Bush when I said: "The argument of expertise in a
> democracy ends at the staff level", but rather I was thinking of FDR,
Kennedy
> and Clinton.  Not Carter, who also had no expertise but thought he did.
>
> Anyone who labels the statement: "The core of the Federal Reserve's
political
> base is the commercial banks." as "nonsense" is beyond reason.  You might
as
> well call the Department of Energy a voice of environmental protection or
the
> Dept. of Commerce the voice of labor.   I remember you once challenged the
term
> "populist" as meaningless despite the fact that it is a well documented
movement
> in US history.
>
> You wrote: "Your lengthy discussion of Volcker and the volatile interest
rate of
> the 1980-1982 period was quite off the mark when you said the Fed engaged
in an
> "exercise in creative uncertainty to disrupt
> the financial markets about interest rate stability."
> Well. it so happened that that description came from Volcker himself in
his
> presentation to the Open Market Committee on the Fed's new monetarist
operating
> system, and it is not worded the way you misquoted my post which was: "an
> exercise in "creative uncertainty" to disrupt the financial markets'
complacency
> about interest rate stability."
>
> You said: "It is increasingly apparent that your extreme dislike of the
Fed and
> its role in monetary policy is getting in the way of a balanced
(rational?)
> view."
>
> I am not attacking the Fed for being ideologicl/biased.  I am merely
pointing
> out that by definition, it is not even intellectually independent in a
technical
> sense.
>
> You and I have different views on the Fed, you being apologetic and I
critical.
> I do not harbor "extreme dislike" of the Fed, though it must have sounded
that
> way to you when I pointed out that the Fed is not the institutions that
the
> original Populists supporters hoped it would be. Yet I am being critical
only on
> the inconsistency of the Fed in its own terms.  I have yet to air what I
really
> think about the whole notion of central banks and monetary systems for
fear that
> I be attacked again as a communist propagandist.  Americans have a right
to view
> communists as evil, but it is misleading to imply that communists (which I
may
> and may not be one, but its nobody's business if I am or not) are not
> intelligent or rational.
>
> I will bypass your description of Volcker's intention as being to break
the
> wage-price spiral, except to say that if that was what he was trying to
do, his
> judgment as an economist should be questioned, for even Nixon knew that
> wage-price spiral could not be broken by monetary measures, only
insitutionist
> measures, i.e. wage-price controls.  So much for expertise.
>
> And you went on to say: "For political cover, Volcker operated under the
> monetarist prescription of controlling the growth rate of the  money
supply."
> Some independence!
>
> As for Hoover and Mellon, the Federal Reserve was identified by many
historians
> as being centrally responsible for the 1929 crash (for letting it happen)
and
> its devastating aftermath (for failing to reverse the devastation
quickly).  By
> your own view, if the Fed were so politically independent, history would
have
> been different.  Ben Strong died in October 1928, but three months before
his
> death he warned colleagues in July that the banks were engaged in and
> encouraging speculation that would end in disaster. He wanted to tighten
credit
> and restrain speculative lending.  Yet Adolph Miller and others of the Fed
Board
> charged posthumously that Strong had personally engineered the major
easing of
> credit in the summer of 1927, which Strong did to help the central banks
of
> Europe. This generally unpublicized fact was political dynamic: the idea
that
> the Fed would secretly serve the needs of international banking at the
expense
> of domestic interest was beyond the tolerance of the US public even today,
let
> along in 1927, even though Strong argued that US assistance to Europe was
> fundamentally a matter of self interest.  As it happened, Strong was
technically
> flawed.  He was pushing on a credit string in Europe which was in a severe
> liquidity trap and the surplus money flowed instead to the US equity
markets,
> fueling the bubble that abruptly burst in October 1929.  After the crash,
the
> Fed without Strong, failed to flood the market with money, as some argued
that
> Strong would have done, allowing the money supply to shrink by one-third.
The
> decision not to ease was urged on the Fed by the Federal Advisory Council,
a
> commercial bank lobby which enjoyed legal status as official advisor in
secret
> sessions.  Its advice was to let nature take its course. Of course, we all
know
> that nature had nothing to do with the earlier easy credit that led to the
> crash.
>
> Henry C.K. Liu
>
>
>
>
> "William F. Hummel" wrote:
>
> > Henry Liu wrote:
> >
> > >James Cumes made a very important point, which has been debated in the
past
> > >on pkt.
> >
> > James Cumes has not clarified what he meant by the "government"
> > vis-a-vis setting monetary policy.  Let's let him express his own
> > views on this point.
> >
> > >The Fed is the only central bank that is "independent" the from
> > >executive branch of the government.
> >
> > This is simply untrue.  The central banks of most major economies
> > are more or less independent.  The ECB is far more independent
> > than the Fed, as was the BUBA before becoming a part of the ESCB.
> >
> > >Yet the Fed does operate with ideological biases.
> >
> > What's new?  Show us a government institution (including any
> > department of the executive branch) that operates without
> > reflecting the biases of its leaders.  I guess when you don't
> > agree with their decisions it's ideological, otherwise its
> > unbiased.
> >
> > >Its governors are not nominated on expertise merit but
> > >are nominated by the banking industry and politically appointed.
> >
> > Sweeping generalizations will usually get you in trouble.  Were
> > Blinder or Rivlin nominated by the banking industry?  Did they
> > lack expertise?
> >
> > >The argument of expertise in a democracy ends at the staff level.
> >
> > If true, then we are in trouble.  Maybe you were thinking of Bush
> > when you said this.
> >
> > >Decisions
> > >making in a true democracy reflects the will of the people, with expert
> > >staff advice to prevent counter productiveness.
> >
> > Thus implying the bureaucracy is infallible and "unbiased".
> > Where can we find such people?
> > >
> > >The administration, on the other hand, is popularly elected, as least
> > >supposed to be so.  Thus the President's cabinet, including the
Secretaries
> > >of commerce, Labor and treasury should really determine monetary
policy.
> >
> > Let's remember that the president appoints the Board of Governors
> > of the Fed as well as the cabinet heads.  Both groups are subject
> > to approval of the Senate.  Thus both groups reflect the will of
> > the people's elected representatives.  Your suggestion that the
> > President's cabinet should determine monetary policy would simply
> > shift the focus from economic to political.  I am convinced it
> > would also be a serious mistake.
> >
> > Cabinet officers are highly political.  There primary allegiance
> > is to the president.  They don't last if they stray from the
> > president's line.  Some have even been put in charge of the
> > president's re-election.  And remember Treasury Secretary
> > Mellon's advice to Herbert Hoover after the 1929 stock market
> > crash.
> >
> > There is no question the BOG has at times made a mess with its
> > monetary policy decisions.  But that is not sufficient reason to
> > turn monetary policy over to the politicians.  The selection of
> > highly qualified and principled candidates for the BOG is
> > responsibility of the politicians.  If they can't or don't do so,
> > why should we assume the situation would improve if the
> > politicians took direct control?  That smacks of the greener
> > pasture syndrome.
> >
> > It is important that the BOG be fairly well insulated from the
> > political fortunes of the elected officials.  For much the same
> > reason, Federal court officials should be fairly well insulated
> > from the political arena.  The fact that they both are is a real
> > strength of the US system.
> >
> > >The core of the Federal Reserve's political base is the commercial
> > >banks.
> >
> > This is nonsense.  If the seven members of the BOG, including the
> > chairman, have a political constituency, it is to those who
> > appoint and confirm them.  Ultimately it is to the Congress that
> > created the Fed and who the BOG must report to.  Yes, commercial
> > banks have the ear of the presidents of the Fed banks.  But those
> > presidents do not speak with one voice, nor are they the primary
> > policy makers of the Fed.
> >
> > Your lengthy discussion of Volcker and the volatile interest rate
> > of the 1980-1982 period was quite off the mark when you said the
> > Fed engaged in an "exercise in creative uncertainty to disrupt
> > the financial markets about interest rate stability."  It is
> > increasingly apparent that your extreme dislike of the Fed and
> > its role in monetary policy is getting in the way of a balanced
> > (rational?) view.
> >
> > Volcker's objective was to break the back of the wage-price
> > spiral that had been building throughout the 1970s.  That could
> > be done by with a big increase in interest rates alone.  It
> > didn't require high volatility in rates.  For political cover,
> > Volcker operated under the monetarist prescription of controlling
> > the growth rate of the  money supply.  Of course that was
> > impossible, and the volatility in the Fed funds rate was a
> > natural result.
> >
> > William F Hummel
>
>