probably would be made more promptly. The timeliness of policy decisions is often extremely important and the need for expediting such decisions is strongly stressed by those students of monetary policy who have come to feel that the chief shortcoming of reserve banking policy over the years has been that important decisions have frequently come too late. Against proposals to reduce the size of the Board, it has been maintained that the advantages of collective deliberation and judgment would be correspondingly lessened, that there is at least safety and perhaps greater wisdom in numbers, and that a reduction in the size of the Board would necessarily require reconsideration of the composition and possibly even the status of the Federal Open Market Committee. Moreover, it is believed that a smaller board would find it more difficult to operate effectively and promptly on some occasions because of necessary absences, from illnesses or other causes, and the resulting lack of a quorum. In addition to proposals that the membership of the Board be reduced to perhaps five or three, a more sweeping proposal has recently come forward. It is to the effect that the Board and the Federal Open Market Committee both be replaced by (a) a Governor and two deputy Governors, with the Governor having the deciding vote, and (b) certain advisory committees of which one would consist of the 12 Presidents of the Reserve Banks and with which conference would be required by law whenever any major change in policy were contemplated. This appears to be the nearest approach of any public proposal to what this question refers to as "replacing the Board by a single head." The principal argument advanced in favor of the proposal is that it would have the advantages of a Board even as small as three members, including timeliness in action, and would in addition have other advantages. The position and the responsibilities that it would carry would command a degree of consideration in the highest Government circles such as the position merits but has not always had. The position of Governor, because of its great importance and its virtual equivalence to Cabinet rank, would have a broader appeal to men of the highest ability. The single-governor proposal has not as yet been sufficiently discussed to bring out many of the considerations that deserve to count against it. It would be much more of a departure from past practice than the other proposals which have been mentioned; and it is likely that there would be a widespread difference of opinion as to whether it would be safe to entrust the powers of the Board and the Open Market Committee relating to the stability of the economy and the integrity of money to a single official. Decisions made by a single governor, even though backed by advisory committees, might not command so much public support as decisions arrived at after thorough consideration by a deliberative body. Federal Reserve duties often involve decisions which, while in the public interest, are unpopular with some powerful groups or at least temporarily so. In contrast to a "single governor," a board, making important and difficult policy decisions such as those which must be made by the Federal 92245-52-pt. 1-21 Reserve System, has the advantage of providing for the representation of different viewpoints and for full discussion of all phases of a problem before a decision is reached. The members of a board thus have the benefit of the restraining or supporting views of one another; a single governor would have to function without the benefit of such collective judgment and support. It might be that a single governor, even if counseled by the Reserve Bank presidents and other advisers, would distrust his own judgment if he thought it opposed by the Executive. In this case, the timeliness of decision would be retarded, not advanced, by the proposed innovation. It might also be that he would be or would be thought to be more likely to be swayed by partisan considerations or personal predilection than would a board which from its nature must frame its decisions in accordance with majority opinion. This reply has attempted to present, as requested by the question, "the advantages and disadvantages" of various proposals with respect to the Board of Governors, without undertaking a final judgment as to where the balance of considerations may lie. E. EARNINGS AND EXPENSES OF THE FEDERAL RESERVE SYSTEM 23. What have been the annual expenses of: (b) The 12 Federal Reserve Banks combined (which include assessments for expenses of the Board of Governors), for each year since the inauguration of the System? To the extent practicable, state expenses both inclusive and exclusive of reimbursable fiscal agency expenses. Relate these expenses in each year since 1919 to (i. e., express them as percentages of available figures): (a) Total expenses of all member banks, and (b) Gross national product of the United States. (The purpose of these comparisons is to "deflate" the expenses of the System by factors which roughly measure its work load and reflect changes in the price level.) The annual expenses of (a) the Board of Governors and (b) the 12 Federal Reserve Banks combined (which include assessments for expenses of the Board of Governors) are shown in the attached tables together with the suggested comparisons. In addition, averages of the above-mentioned expense figures, by 5-year periods, are shown in a summary which follows the detailed tables of annual expenses. The summary also shows percentage increases of the averages of total expenses of all member banks and of the gross national product for similar periods. TABLE III Annual expenses of Board of Governors of the Federal Reserve System, 1914–50 Ratio to Ratio to States 1 (percent) 1 Gross national product figures used are official Department of Commerce estimates for the period 1929-50; prior to 1929, there are no such official estimates and the data used are unofficial Department of Commerce estimates which are not strictly comparable with the later years and which are tied to the later series on the basis of the relation between the two figures for 1929. 2 Figures exclude building construction costs of $607 in 1934, $825,431 in 1935, $1,507,015 in 1936, $2,087,363 in 1937, and $106,973 in 1938. TABLE IV Annual expenses of the 12 Federal Reserve Banks combined, 1914-50 (Reserve Figures not available prior to 1919. Exclusive of building construction costs as indicated in footnote 2 to Table III, p. 305. ali 24. Are the expenses and other accounts of the Board of Governors or of the Federal Reserve Banks subject to any budgetary or audit control of any other agency of either Congress or the Executive Branch of the United States Government? If not, do you believe that they should be? Why, or why not? Describe budgetary and auditing procedures now in effect. Budgetary and audit control of Board of Governors and Federal Reserve Bank expenses and accounts As indicated in answers to other questions, the functions and responsibilities of the Board of Governors are such that Congress has provided that they be carried out with a maximum exercise of independent discretion and judgment. Accordingly, the expenses and other accounts of the Board and the Federal Reserve Banks are not subject to any budgetary or audit control of any other agency of the Government. If through some measure of control over its finances another agency of Government were empowered to restrict operations which the reserve banking system deemed essential for the discharge of its statutory duties, there obviously would result a substitution of judgment of such other agency of Government for that of the reserve banking system, with a consequent and growing loss of effectiveness on the part of that instrumentality.47 The most important element in the control of expenses is the policy determination of the purposes for which the funds of the Board and the Federal Reserve Banks will be spent. It is believed that existing budget and other procedures provide an effective basis upon which these determinations can be made. The expenses of the Board of Governors have never been subjected to budgetary control by any other agency of the Government and the expenses of the Federal Reserve Banks have been subject only to the supervision of the Board of Governors as the supervisory agency of the reserve banking system of the United States. This arrangement has resulted in the maintenance by the Board and the Federal Reserve Banks of competent staffs which have been selected on the basis of training and experience and without regard to other considerations. The operations of the Board and the Banks have been conducted on an efficient, businesslike basis, and policy decisions have not been influenced in any way by the possibility that the budget of the Board or the Banks would be reduced or otherwise restricted because of decisions which, while sound from a credit and monetary standpoint, might be unpopular. Prior to the amendment of Section 10 of the Federal Reserve Act by the Banking Act of 1933, the funds of the Board, which as then and now provided by law were derived from assessments on the Federal Reserve Banks, were considered as "public moneys" by reason of an opinion of the Attorney General. For that reason, such funds were carried on deposit with the Treasurer of the United States. These funds were under the control of the Board and were used by the Board's Disbursing Officer to defray the necessary expenses of the Board upon proper vouchers which had been administratively audited and approved by an officer designated by the Board. This Disbursing Officer prepared a quarterly Account Current which included details 47 It is relevant to note here that despite the fact that England and France have nationalized their central banks, neither has placed the expenses of these organizations under direct government control nor the officers or employees thereof under civil service. |