According to a report I have before me, straight from the U.S. Senate, prominent Federal Reserve officials, including the presidents of the Federal Reserve Banks of New York and Philadelphia, have publicly endorsed legislation that would establish a bipartisan Monetary Commission authorized “to make a thorough study of the country’s entire banking and monetary set-up,” and to evaluate various alternative reforms, including a “return to the gold coin standard.” The proposed commission would be the first such undertaking since the Aldrich-Vreeland Act established the original National Monetary Commission in 1908.
Surprised? It gets better. The same Senate document includes a letter from the Fed’s Chairman, addressed to the Senate Banking Committee, indicating that the Board of Governors itself welcomes the proposed commission. Such a commission, the letter says, “would be desirable and could be expected to form the basis for conservative legislation in this field.”
Can it be? Have Fed officials had a sudden change of heart? Have they really decided to welcome the proposed “Centennial Monetary Commission” with open arms? Is it time to break out the Dom Pérignon, or have I just been daydreaming?
Neither, actually. Who said anything about the Centennial Monetary Commission? The Senate report to which I refer isn’t about that commission. It concerns neither S. 1786, the Centennial Monetary Commission bill just introduced in the Senate, nor its House companion, H.R. 2912. Instead, the report refers to S. 1559, calling for the establishment of a National Monetary Commission. That’s S. 1559, not of the 115th Congress, but of the 81st Congress – the one that sat from 1949 to 1951, when Harry Truman was president.
It turns out, you see, that the Centennial Monetary Commission legislation isn’t the first time that Congress has tried to launch a new monetary commission.
Things were, evidently, rather different in 1949 than they are now. Back then, the Fed was thoroughly under the Treasury’s thumb, where it had been throughout World War II. In particular, it found its powers of monetary control severely diminished by both the vast wartime increase in the Federal debt and by the Treasury’s insistence that it intervene to support the market for that debt. Fed officials hoped to reestablish the Fed’s powers of monetary control by having it acquire the ability to set reserve requirements for non-member banks. In short, Fed officials, including then Federal Reserve Chairman Thomas McCabe (who would later lose his job for standing up to the Treasury), favored a new Monetary Commission because they anticipated that such a commission would end up recommending reforms that would enhance the Fed’s then truncated powers.
S. 1559 ended up being killed by the Subcommittee on Monetary, Credit, and Fiscal Policies of the Joint Committee on the Economic Report. Interestingly, that body argued that the proposed, comprehensive study of the U.S. monetary system should instead “be made by a committee composed exclusively of Members of Congress rather than, as proposed in S. 1559, by a mixed commission composed of Members of Congress, members of the executive department, and members drawn from private life.” As it happens, the currently proposed Centennial Monetary Commission is to have 12 voting members, all of whom are to be members of Congress.
As for any possibility that the Centennial Monetary Commission bill might itself garner support from highly-placed Fed officials: fuhgeddaboudit. Those officials now have all the power they could possibly desire. Why should they look kindly upon legislation that’s far more likely to lessen that power than to enhance it?
Although the fact that the Fed welcomed a new National Monetary Commission in 1949 is no cause for celebration today, supporters of the new reform may still have reason to be cheered by the Fed’s earlier stance. After all, should Fed officials declare themselves against the new proposal, they can be reminded of their predecessors’ stance, and asked to explain why they should oppose the same sort of inquiry that those predecessors considered a jolly good idea. If they are good for nothing else, their answers should at least be good for a chuckle.