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Doctor MILLER. May I go on and finish this statement? I am analyzing this thing and trying to show what there is in it in the way of good and why I have, on the whole, reached the conclusion that we would better write into the Federal reserve act a publicity clause.

Now, I would say as a general proposition—and I am a man of years; I have had a great variety of human contacts, quite a variety of experience—that the rarest and the most difficult thing in the world to get is reasoned action. More frequently what is called " reasoned action " is action with the invention of reasons afterwards for public consumption, and it is precisely that sort of thing I have in mind when I say I am anxious to protect the Federal reserve from the invasion of the hired sophist, the man who is hired to dress up the action of the Federal Reserve Board or system for public consumption.

That constitutes a very real danger. Your sophist may be the man who, by reason of the fact that reasons have got to be given, will eventually capture the mind of the Federal Reserve Board, not with any intention on his part or because of any weakness on their part, but because the necessities of the situation are such that something has got to be said.

I repeat that it does not follow that a man's judgment is poor because he can not give reasons.

On the other hand Mr. STRONG. Doctor Doctor MILLER. DO not stop me from agreeing with you. I am just about to slide across the line into your territory.

Mr. STRONG. All right; come on over.

Doctor MILLER. On the other hand, I think what Mr. Strong has said, to the effect that there is a constant and a rather growing and insistent demand for information on the part of the public, on the part of the business public, and on the part of the banking public, that in some instances there is a feeling that the action of the Federal reserve system in important matter of credit policy has an arbitrary character about it, because the rationale of its action is not clear.

That I think could be said, and has been said, more particularly with respect to open-market operations, which are of a somewhat different character in their manifestation, from a change in the discount rate.

That is an overt act. When we raise or lower the rate we do it openly. Everybody can see it, even though we do not tell the reasons for it. But the open-market operation by comparison is subtle, it is invisible, and it may not be detected by many that anything

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a method of procedure that in the course of a few years will become more definitely recognized as such; that will, Mr. Strong, I venture to say, go so far beyond what you have in contemplation here in paragraph (h) that you yourself will accept it as, on the whole, a good solution of those problems in Federal reserve administration that you have so much at heart.

Mr. STEAGALL. If this law should pass and the Federal Reserve Board should find itself in difficulty in assigning reasons for any action taken, I want to suggest that they might apply to the gentlemen before the committee, with a reasonable hope of success.

Mr. STRONG. May I ask you one or two questions ? Just to return to plain, ordinary English language, do you think that the public is entitled to know why the Federal Reserve Board changed its policy with reference to the discount rate or open-market operations ?

Doctor MILLER. I do certainly as to the former. As to the latter, I might want to make a reservation.

Mr. STRONG. I do not just get you. Do you or do you not think that the members of the Federal Reserve Board have the intelligence to give the reasons that prompted them in their action ?

Doctor MILLER. I have tried to state what I conceive to be the difficulties.

Mr. STRONG. I see.

Doctor MILLER. What I think would eventually come about.

Mr. STRONG. I have proceeded upon the idea that we had members on the Federal Reserve Board that possessed that intelligence.

Doctor MILLER. It is not a question of whether they have or have not. You are asking for one of the most difficult things you can ask of any administrative body.

Mr. BEEDY. I do not think anything the doctor said reflects upon the intelligence of the present board.

Mr. STRONG. I wanted to get his opinion.

Doctor MILLER. I am giving you my opinion and my idea as to what ought to be done to bring this paragraph into satisfactory shape. I am trying to tell you that I am for publicity, but I want it to be real publicity. I do not want anything factious and sophistical

about it, and so I would revise it somewhat as follows:

When any position is taken by the Federal Reserve Board— There is no such entity as the Federal reserve system; that is

merely a convenient administrative phrase. Change it to read:

Whenever any position is taken by the Federal Reserve Board as to changes in discount rates— I want to reserve for further reflection whether or not I would include here open-market operations, and therefore you will kindly regard this as a tentative proposal—do I make myself clear?

Mr. BEEDY. Yes; but surely, from what you have just said, one would draw the conclusion that the prompt necessity was for publicity as to reasons in the open-market policy.

Doctor MILLER. I will come to that, and then recall an answer I made to a question the other day. I think where you are dealing with a piece of machinery which is a part of a whole, you can hardly deal with one part without knowledge of what you are going to do with

–  –  –

So I am inclined to think that if a body like the Federal Reserve Board acts on good reasons? which are stated it is likely to elicit the cooperation of the community or of sections of it in the accomplishment of its purposes; or, at any rate, if there is any interference with the successful development and accomplishment of its purposes it is in better position at least, I think, if it suspend the policy or is forced to change its policy.

I think that one of the difficulties the Federal reserve system is in at the present time—and there are evidences of restiveness right up here in the Capitol and in the press—is that a confusion of mind exists with reference to what is going on in the Federal reserve system, and has been during the last 8 or 10 months. Anyone who is a student of these matters, or who is enough interested in them to take the time to look up the public records of the Federal Reserve Board, can find the facts. Pretty much if not most of them, in one way or another or at one time or another, have or will come out, partly in the Federal Reserve Bulletin, which is the monthly organ of the Federal Reserve Board, partly in the board's annual report and partly in the occasional weekly statements or special statements that may for one reason or another be issued.

But I am of the opinion that that is not sufficient, from the very fact that there is so much guessing, so much questioning as to what all these recent changes have been about.

I had a visit yesterday afternoon from a New York banker who said, " Why is there so much mystery about gold movements ? " I said, " What mystery do you refer to? " " Well," he said, " we get figures of shipments, but there seems to be a great mystery regarding the earmarking of gold. Why not publish the earmarked gold just as you do the gold that actually leaves the country ? " Here is a man of great intelligence, occupying one of the foremost positions in the banking community of New York City, and he wants publicity with respect to that subject.

I told him I thought that if he followed the published documents of the Federal Reserve Bank of New York and of the Federal Reserve Board—to wit, its bulletin—he would find this out.

" Well," he said, " I find it out after the event. Why can not a statement be made at the time it takes place? " He said, " I happen to know of two considerable earmarkings made in New York in the last week." One of the particular items he referred to happened to be new to me. I t was a bit of last-minute information.

His opinion was that that ought to be known, and if it were known he thought we would get better cooperation, more intelligent cooperation, at any rate.

I am inclined to think that, with all the difficulties that the administration of a well-drawn publicity section would undoubtedly bring with it, on balance the benefits would considerably outweigh the disadvantages.

The CHAIRMAN. AS a matter of fact, prognosticators and economists who study the trends of the times are embarrassed now because of lack of information as to the elements entering into the situation to change the normal flow of events.

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Doctor MILLER. We are now doing a great deal under the authority we have assumed we have under the terms of the Federal reserve act as it is.

The CHAIRMAN. I S there any duplication of work that the board is doing, that is being done by the several banks ?

Doctor MILLER. I think it would be better to question the Director of Research on that matter. I would say some duplication, yes; but not of a wasteful kind. Sometimes questions of this kind can be profitably approached by two different groups of people, even though nominally the problem is the same. Their approach may be different and results also be different.

I would suggest that the section be amended to read as follows:

The Federal Reserve Board is directed to make and to continue investigations and studies of the following subjects.

I would cut out:

For the guidance of the system's policies, at least to the extent and in the manner prescribed in paragraphs 1, 2, 3, 4, and 5 of this section, and to such further extent as they may deem to be desirable.

I would then leave paragraph 1 of this section stand as it is.

I think I would be content with paragraph 2.

Paragraphs 3, 4, and 5, in my judgment, would better be omitted.

Mr. STRONG. Why?

Doctor MILLER. I do not think that they are particularly germane to the operation of the Federal reserve system, and I do not think that the subjects on the whole are such as can be very well handled by the kind of investigating organization the Federal reserve has or should set up. They are a little bit vague and far-reaching.

Mr. STRONG. DO you not think some investigation and study might very profitably be made of index numbers ?

Doctor MILLER. That will be done and is being done anyhow.

Mr. STRONG. But we are drawing a bill here directing the study Doctor MILLER (interposing). You want to draw your bill to accomplish something not now being accomplished, or to get a better accomplishment.

Mr. STRONG. But you do not always know just what you are working toward, you know. That is the reason I put it in the bill. It was suggested to me that no index number was perfect, of course, and at times a lot of information is necessary, and I yielded to the suggestion of including in this investigation a study of index numbers.

Doctor MILLER. Yes. As I have said, studies of this kind are constantly being made.

You have in your paragraph 5 one or two additional clauses which give, as it were, a purpose or slant to these price investigations. Let me read the paragraph.

Studies— Of existing or proposed index numbers of prices or other measures of the purchasing power of money, which are used or might be used, singly or in combination, by the Federal reserve system as a guide in executing its policies.

Mr. STRONG. Having laid down that this policy shall be toward the stabilization of the purchasing power of the dollar, then what can be attained in price-index numbers that would be helpful ?

–  –  –

ments in process that are going to create economic instability, if Federal reserve action can prevent their development.

Mr. STRONG. But I do not want to accommodate them if that is leading up toward inflation that will bring trouble later on.

Doctor MILLER. Yes; and by the same token, I think I myself would be inclined to say that if the Federal reserve system, by an error of judgment, by inadvertence or even negligence, if you please, did not quickly enough detect what was in process in credit and business development to chart its course correctly and in consequence a situation of the kind that we roughly call inflation developed, I would say it would then not be true accommodation if, when it woke up to the realities of the situation later, it suddenly tried to undo its error by pursuing a policy of violent restriction of credit. Accommodation, to my mind, means that credit policy must at all times and in all circumstances be adjusted to facts and conditions as they happen to be.

Mr. STRONG. That is what I want; that is this bill.

Doctor MILLER. Well, it is in the act now, I should say. It is, however, a matter that I recognize may be debatable. I referred to it only because I wanted to make clear why I was proposing certain omissions in your section 28 here with regard to investigations.

To my mind there is a great deal that can be done in the way of investigation that will in time enable us to know more than anybody knows at the present time as to just what is practicable and not practicable in the fields of, broadly speaking, central and reserve bank policy, in relation to prices, industry, employment, and so forth. We need to know a great deal more in my judgment than we do now before we can improve upon the present guiding principle contained in the Federal reserve act.

I would like to see retained in an amendment so much of a " direction" to make investigations as would justify the Federal reserve in expending the money necessary to provide an ample foundation.

Mr. STRONG. Just one suggestion in defense of paragraph (5) on page 4, and then I will not bother you with further questions or interruptions. If the policy of the stabilization of the purchasing power of money is to be the goal toward which the Federal reserve system is to be directed in the use of its powers, then the system of the measurement of the purchasing power of money is one of the questions to be studied.

Doctor MILLER. Certainly.

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