David Warsh: Economic Principals » Blog Archive » Beckoning Frontiers:
TMyself, I spent my free time reading a book published in 1951, Beckoning Frontiers: Public and Personal Recollections, by Marriner Eccles... one of the most remarkable public servants of the twentieth century, on a par with George Catlett Marshall and Paul Volcker. Yet he would be all but unknown, except to students of banking history, but for the 50-page chapter on him in The Vital Few: The Entrepreneur and American Economic Progress, by the economic historian Jonathan Hughes.... When the Crash came, in 1929, Eccles began a search for remedies that led, among other places, to the underconsumptionist views of William Foster and Waddill Catchings, a middlebrow anticipation of Keynesian economics described in Road to Plenty in 1928, which Eccles supplemented with “naked eye” observations of his own.
In 1932 the tycoon startled the Utah Banker’s Association by proclaiming the gospel of compensatory finance:
The theory of hard work and thrift as a means of pulling us out of the depression is unsound economically. True hard work means more production but thrift and economy mean less consumption Now reconcile those two forces, will you?… There is only one agency… that can turn the cycle upward and that is the government. The government… must so regulate… the economic structure as to give men who are able, willing, and worthy to work the opportunity to work, and to guarantee to them sustenance for their families and protection against want and destitution....
In January 1934 he was summoned back to Washington, and this time Treasury Secretary Henry Morganthau asked him to write a report on money and banking. Ten months later President Roosevelt appointed him chairman of the Fed.... In drafting the Banking Act of 1935, with the aid of economist Lauchlin Currie (later hounded out of Washington as a Communist), Eccles insisted on three key changes: Ultimate decision-making power would shift to a Federal Open Market Committee, on which the governors would have a 7-6 majority; regional banks would be headed by presidents, chosen with the consent of the Board, instead of chairmen picked by their boards of directors; and the lending authority of the central bank should be broadened during a panic.