Henry Wallich

English

Research Papers in Economics

This PDF is a selection from an out-of-print volume from the National
Bureau of Economic Research
Volume Title: The State Of Monetary Economics
Volume Author/Editor: National Bureau Committee for Economic Research
Volume Publisher:
Volume URL: http://www.nber.org/books/conf75-2
Publication Date: 1975
Chapter Title: Don't Be Too Hard on the C.M.C.
Chapter Author: Henry Wallich
Chapter URL: http://www.nber.org/chapters/c6643
Chapter pages in book: (p. 135 - 136)T
HE Report of the Commission on Money
and Credit has come in for a certain
amount of criticism, not least at the hands of
Martin Bronfenbrenner.In my judgment,
much of this is undeserved, and some of it re-
flects a misunderstanding of the terms of refer-
ence of the Report. No doubt it is disappoint-
ing that the Commission spent more than a
million dollars without discovering a simple
receipe against cost-push inflation. No doubt
one might wish not to have read 282 pages
without coming across at least a few ideas not
already discussed in most competent textbooks.
But the C.M.C. Report is not the product of a
research group. It was intended to be, and it
is, the collective opinion of a group of leading
citizens, in an area in which all possessed prac-
tical experience, but few had theoretical prepa-
ration. was the kind of function exer-
cised habitually by policy-making officials in
large organizations. In short, their job was to
supply judgment, notoriginality, and that
they did.
It is indeed disappointing that the Commis-
sion made so little use of the vast amount of
research provided for them.But, after sam-
pling some of the research papers, at least one
reason becomes apparent. Much of this mate-
rial was too far removed from responsible policy
thinking to be readily absorbed. It would have
had to go through a long process of digestion by
the staff, or by the Commission itself in extra
sessionsIt might have been better if the Com-
mission had put in more time and the consult-
ants less. That would have meant an arrange-
ment more nearly like the Radcliffe Committee
—asmall group, very frequent meetings, a
report written by the members instead of by the
staff.Perhaps the experience may serve as a
guide to future efforts of this kind, if any.
Despite the unfavorable comparison with the
Radcliffe Committee in the matter of working
methods, comparison in terms of impact so far
need not be at all adverse. The Commission's
recommendations have received a remarkable
degree of support on the part of the Adminis-
tration. The principal fiscal policy recommen-
dation, related to tax flexibility, has been taken
over into the President's program with some
modifications.The Commission'sproposals
for reform of the public and private financial
system received 3 full pages out of 24.inthe
President's Economic Report.Whoever be-
lieves that such an impact is easy to achieve is
unacquainted with the pressures, on the part of
government agencies and others, to get ideas
and proposals into the President's Report.
It seems hopeless to try to comment on even
the small number of the research papers I have
been able to see so far. Instead, I would like
to address myself to a few points in the Report
itself which I think deserve particular criticism
or praise.In doing so I am aware that on
matters that have been widely discussed one
can do little more than register one's vote on
one side or the other.
Failure to come to grips with wage policy in
one sense or another strikes me as a significant
lacuna in the Report. This becomes particu-
larly obvious in the context of the policy de-
bate that has been going on in the early months
of. 1962, high points of which have been the
guidelines of the Council of Economic Advis-
ers and in the events in the steel industry. The
Commission's expression of opinion that meas-
ures to improve labor mobility will suffice is
bland, to say the least. Here is a case where
hope and compromise seem to have got the
better of realism.
In the area of the balance of payments, the
Commission deserves to be defended against the
charge that it expects the deficit to be cured
simply by the application of orthodox fiscal and
monetary measures. The Commission proposes
a considerable range of actions that would help
redress the deficit although it is not clear that
they would eliminate it. The Commission is at
fault, it would seem to me, in not making bal-
ance of payments equilibrium a goal of policy
coordinate with the three other major goals set
forth in the Report —growth,low unemploy-
ment, and reasonable price stability.In con-
trast to some other speakers, I believe a state-
ment of goals to have importance. While it
['35]
DON'T BE TOO HARD ON THE C.M.C
Henry C. Wallich, Yale University136 DON'TBE TOO HARD ON THE C.M.C.
addslittleanalytically,ithas considerable
"political" significance and helps clarify the
direction of the discussion. In the case of the
balance of payments, it seems clear that the
Commission's thinking was overtaken by events
as the balance of payments difficulty developed.
But it is to the Commission's credit that it did
not reach for any of the patent solutions now
available in the market, even though its dis-
cussion and recommendations sound a little
diffuse in consequence.
As a third major weakness I would rate the
inconclusivetreatmentoforganizationfor
policy making.In the area of the Federal
Reserve, the Commission's recommendation to
remove the Reserve Bank presidents from the
Open Market Committee is likely to leave deep
wounds if implemented, without really chang-
ing anything very much. The Commission has
come up with no evidence on the functioning of
the Open Market Committee to document the
need for major changes. The proposal that
enables the President to appoint his own Fed-
eral Reserve chairman, which leaves me per-
sonally somewhat uneasy, has meanwhile been
placed before the Congress by the President.
Here at any rate is another instance of a polit-
ically successful recommendation.
Proposalsforthe coordination ofpolicy
suffer, not from misguided incisiveness as in
the case of the Open Market Committee pro-
posal, but from lack of any real muscle. Presi-
dential committeescome and go and are
shuffled about by successive Presidents to suit
their working habits. Little is gained by pro-
posing slightly different combinations of bodies
unless the hard bone structure determined by
statute is modified. I happen to believe that no
statutory modification, which would presum-
ably involve power for the President to coordi-
nate TLeasury and Federal Reserve policy, is
needed. But I regret the Commission's tend-
ency to suggest nonstatutory rearrangements
when in fact it seems to have felt, as I do, that
statutory changes are not warranted.
It would not be fair to dwell at length on the
defects of the Report without providing a brief
list of what, to one reviewer at least, appear to
be the main strong points. The Commission
deserves high credit for having backed the pro-
posal for administrative tax flexibility in the
face of obvious Congressional distaste for it.
The Commission has vigorously supported dis-
cretionary monetary policy and has rebuffed
critics on both flanks, although one might have
wished for somewhat more factual underpin-
ning.It has largely endorsed the government
lending programs and in some instances has
proposed means of strengthening them.Fi-
nally, the Commission has boldly recommended
the removal of arbitrary limitations of various
sorts, some of them long raised to the status of
sacred cows, including the Federal Reserve 25
percent reserve requirement, the federal debt
ceiling, the interest rate ceiling administered
under regulation Q(whichit wants put on a
stand-by basis) and the 43/4percent interest
ceiling on Treasury bonds. Some of these cuts
might hurt a little, but they certainly would
make the economy function more like a market.
My principal admiration goes to the Com-
mission's recommendations on private financial
institutions. Agreement on proposals for broad-
er branch banking and increased competition
on more even terms among different financial
institutions, with greater functional and geo-
graphic mobility for financial resources, cannot
have come easily to this group. Their impor-
tance has been underscored by the attention
they have received in the President's Econom-
ic Report.

The State Of Monetary Economics

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