The 'Tight Money' Fight
COFFIN, TRIS
High Interest rates, which hurt small businessmen and farmers, come under attack by Congressional Democrats as well as independent Republicans The Tight Money' Fight Washington An outraged Zeus...
...he would not hesitate to spring a similar attack on the current Secretary if the public mood were right...
...Meanwhile, Senators Paul Douglas, an economic scholar of note, and Hubert Humphrey will seek to plug tax loopholes benefiting business interests...
...He has declared: "The Board is not adequate to do an effective job if the budgetary and fiscal policy of the Government run completely counter to it, because money and credit policy is only one of the important factors in the problem...
...This information alarmed the President, who immediately discussed it with Humphrey...
...The violence of the revolt against Humphrey can be understood only against the background of the immense power he has wielded in Washington...
...What are Humphrey's views...
...This was accomplished, it is said, by tax concessions in 1954, higher interest rates and higher prices...
...They complain that every fiscal and monetary move of the Administration has benefited the bankers...
...Too little could needlessly starve some activities...
...They complain that the cost of borrowing money is so high that they are scuttling expansion and research programs...
...Humphrey frankly does not think we can afford another war, and thus has been the most important force for peace in the Administration...
...Yet President Eisenhower sent Congress a record peacetime budget whose balance is questionable, and asked for a review of the Government's credit-control system...
...It appealed successfully to the President's fear of another depression...
...In making this "human judgment," the Federal Reserve has not gone far enough in tightening credit to satisfy the Treasury, with which it is in regular consultation, and has gone much too far for a host of critics...
...William McChesney Martin Jr., its chairman, believes the Board is only one battlement in the defense against inflation...
...Humphrey looks on Eisenhower as the only man with the popular stature to get away with effective budget cuts...
...The Joint Committee on the Economic Report, with Patman as chairman and O'Mahoney an articulate member, will not let up on this attack...
...This was a two-day hearing on monetary policy in early December before the Subcommittee on Economic Stabilization...
...No sooner had the second inaugural benches been dismantled than the Administration began smashing his temples...
...He would give assistance, instead, to the elderly, the handicapped, minority groups and large families...
...Senator Estes Kefauver, as chairman of the Senate Anti-Monopoly Committee, will try to make capital of the recent increase in the price of gasoline...
...The most outspoken critic is Congressman Patman, who has said: "I think one of the bad features of the Federal Reserve System is that the bankers have too much control...
...This is a part of Senator Douglas's broad program for realigning the economy...
...One part of the coalition consists of economists, including Hauge and the Council of Economic Advisers...
...Too much credit would intensify upward pressure on prices...
...At the same time, he has a respect for the large institutions of business and finance, and considers them the proper agencies for the distribution of income...
...Humphrey regards the Federal Reserve Board as too lax...
...He is going right ahead...
...Economists in the Administration, agreeing with Bell, see the 1955 boom as fed by consumer spending, in 1956 by capital expansion, and are afraid 1957 will see a sharp downturn late in the fall—unless Government spending, billions of it, is ready to pour into the economy...
...Douglas would cut business subsidies (such as those to commercial air lines) out of the Federal budget, and rc-focus welfare programs to assist the people in greatest need...
...He has depreciation...
...While the State Department was splicing together the Middle East doctrine with high-priced economic aid, Secretary Humphrey told the President's Advisory Committee on Foreign Aid that all such assistance should be in repayable loans...
...Bell told the Patman committee: "I am of the opinion that the [tight money] policy, if persisted in, will prove to be very deflationary, and if carried on far enough and long enough, I think it can halt any boom and bring you into a real depression...
...Offstage, meanwhile, several Congressional committees were aiming their big cannons at Secretary Humphrey...
...2. The Federal budget should be in balance, and the debt paid off at a rapid rate...
...This view has the additional support of Republican political strategists of the post-Taft school...
...What has happened in the present situation, it seems to me, is that overall tight money has not operated very effectively or very smoothly to do what is claimed for it—namely, to moderate this boom and to curb the excesses—because it does not seem to me that it has as yet had any material effect upon the heart and driving force of the boom, which is the capital-expansion program of corporations...
...And then he can go into the banks and say, 'Money is going to be tighter...
...that the Government must trim its budget, and industry increase production...
...I am going to tie up some funds for the next year or two.' " Senator Joseph O'Mahoney, a veteran economic reformer, tells the story of the Wyoming sheepherder who attended a meeting on predatory animals and said: "If you can keep the banks out of your flocks, you don't need to worry about the coyotes...
...His meetings with the Senate Finance Committee had all the appearance of a chairman of the board coming before hand-picked directors...
...In private, it has been reported, he has spoken with much heat about "this welfare nonsense...
...They believe the way to consolidate the GOP's inroads in the big cities is to increase welfare payments, and banish the idea that the Democrats are the "poor man's friend...
...The Republicans are anxious to keep the country off the recession rocks through the 1958 election, and then to have another look...
...He raised interest rates on Government bonds and influenced the Federal Reserve Board to jump the price of money...
...Congress and the Administration will both investigate "tight money.'' and George Humphrey will decide whether to chuck it all or make another try at winning back the President on the golf links...
...Guerrilla raids on the Humphrey doctrines began while the Republicans were still celebrating the victory for "peace and prosperity...
...The Democrats, who have never had the traditional Republican reverence for the "sound dollar," look upon "tight money" and a possible recession as a major issue in 1958...
...High Interest rates, which hurt small businessmen and farmers, come under attack by Congressional Democrats as well as independent Republicans The Tight Money' Fight Washington An outraged Zeus sits on Olympus watching the mortals worship strange gods...
...In the White House pressroom, he is called "the man who tells the President what to think...
...Humphrey did all this without a voice of open criticism...
...In other words, a great employer, such as his Pittsburgh Consolidation Coal Company, is a better judge of what is best for the work-ingman than John L. Lewis...
...He believes the Eisenhower Administration has re-allocated national income to the benefit of big business and financial interests...
...It has hit the fringes, such as the home builder and the municipalities...
...This would revive the old Truman Committee idea, with his successor, Senator Stuart Symington, asking the questions...
...The little man is hurt, the farmer is hurt, the home builder is hurt, and the big businessman is not hurt at all...
...Humphrey managed the Hanna industrial empire before entering the Cabinet, and remains a heavy investor in its coal, iron and steel companies...
...Douglas agrees, for example, with Alabama's Senator John Sparkman that the Administration's housing program is of almost exclusive benefit to upper-income families...
...Thus, it would seem that a record high budget will be approved...
...The Democrats are looking for villains, and if the Administration is willing to deliver George Humphrey bound and gagged, he is it...
...He and Lewis, nevertheless, get along very well...
...Its chairman, Representative Wright Patman of Texas, was the moving spirit behind the move a generation ago to impeach Humphrey's idol, Andrew Mellon...
...This was a victory for Gabriel Hauge, the President's economic adviser and one of the smart younger breed of GOP politicians...
...Finally, the anti-Humphrey coalition includes a number of major corporations with access to the President...
...For Secretary Humphrey has a great store of personal charm, and he wears the aura of a successful businessman better than anyone in the Cabinet...
...It does not seem to me that the overwhelming reliance upon quantitative credit control alone has proved to be a very successful device, and at the same time I think if we continue to rely upon that alone and to press it harder and harder the brake will grab and we are in trouble...
...Still another part of the Democratic attack is to find out how much profiteering, if any, there is in the price of military hardware...
...3. The extra burdens of Government—welfare (including veterans' benefits), billions for defense, and foreign aid—have gone on long enough, and should be drastically reduced...
...Congressional Democrats, with some exception, are lining up for a swat at "tight money," the high cost of living and Federal spending...
...Eisenhower was an aide to General Douglas MacAr-thur at the time and vividly remembers the ragged anger of the bonus marchers against Herbert Hoover...
...He is both the material and political heir of Mark Hanna, the Ohio industrialist who called the shots for the McKinley Administration...
...Humphrey's crown has been knocked askew by a coalition inside the Administration...
...He vetoed military intervention in Indo-China over the recommendation of Vice President Nixon, Secretary of State Dulles, and Admiral Radford, the Chairman of the Joint Chiefs of Staff...
...Although this vitally affects the whole American economy and our foreign policy, there were no outraged cries from the White House, Treasury or State Department...
...Humphrey believes, honestly and devoutly, in balanced budgets, "tight money" and a hard rein on Government spending...
...Nevertheless, the Congress as a whole is not in the mood for far-reaching reforms...
...Therefore, in an inflationary period, money must be kept from him by high interest rates...
...1. He believes that the individual should not spend beyond his income, and should put away a tidy sum for a rainy day...
...This is Secretary of the Treasury George Magoffin Humphrey, the power behind the throne of the first Eisenhower Administration...
...Caught in the middle in this fight is the Federal Reserve Board...
...We have to rely on human judgment...
...As it is now, you make it hard for everyone by raising interest rates...
...He has retained earnings, which is costless capital...
...He controlled defense and welfare spending and modestly boasts that he sliced a neat $10 billion off the armaments bill...
...Hauge has discreetly kept his views quiet, but he is a close personal friend and disciple of Elliott V. Bell, the Business Week publisher and former New York State Banking Commissioner under Thomas E. Dewey...
...He believes the modern American is a wild kid who should be disciplined—that he will gorge himself on cars, houses, TV sets, and anything else within reach as long as he has credit...
...His soothing amiability on a Georgia vacation convinced the President that he should run for a second term...
Vol. 40 • February 1957 • No. 6
