Congress Studies Fiscal and Monetary Policies

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It is traditional in the United States, as in many other countries, that extensive banking troubles bring about a legislative re-examination of the organization and functions of the banking system. In fact, a major crisis is usually required to precipitate such an examination. The most recent crisis occurred at the top level of our banking system and brought it into conflict with a department of the Federal Government. Although the conflict had long been in the making, it came into the open in August, 1950. The Federal Reserve System felt that it could no longer forego the use of its principal weapon to control credit-open operations-in order to support the prices of government bonds at artificially low rates of interest. The Treasury insisted upon a stable market for its securities in the face of the great uncertainties created by the Korean war. The conflict deepened in intensity and the two agencies eventually reached a virtual deadlock. Finally, under considerable pressure from the President and the Congress, the two agencies reached an accord or modus vivendi early in March, 1951. Shortly afterward, Chairman O'Mahoney of the Joint Committee on the Economic Report appointed a five-man Subcommittee on General Credit Control and Debt Management, headed by Congressman Wright Patman, to investigate the whole problem and make recommendations for avoiding similar difficulties in the future. The Subcommittee organized a small staff;, headed by Dr. Henry C. Murphy, long a key man on the staff of the Treasury Department.2 Elaborate questionnaires were prepared covering theoretical aspects of fiscal, monetary, and credit policies and practical aspects of central and commercial banking, the for Government bonds, and many related matters. In fact, they were so broad in