America's Money Machine

202 PART III / DEBACLE OF AN IDEA
of government obligations. There should be no removal of checks on the
bank of issue against taking government obligations direct and not through
the market. It was the exercise of the very kind of power which led to the
currency and credit downfall in Germany and the ultimate destruction of the
Reichsbank. I recommend that government financing direct through the
central bank, except for unusual temporary advances, be prohibited in any
bil1. 12
Eccles' answer to this argument, which he stated in a speech at Scranton
on May 5 and when he was finally called to testify on May 10 was that
if the country did not approve the government's spending program, the
place to curtail that program was through the ballot and not through the
Federal Reserve System. So far as the German inflation was concerned,
he pointed out that ifthe German government was prepared to appropriate
money it -was equally prepared to change the Reichsbank law ifnecessary.
Glass managed to delay action on the bill by absenting himselffrom the
Senate until a crisis arose over theJuly 1 deadline by which bankers were
expecting relief under Title III. Presidential influence was again brought
to bear on July 2 and the bill eventually went to the President in August
and was signed August 23.
The bill, as enacted, contained most of what Eccles wanted, except the
dilution of the requirements of eligibility for rediscount. In the House,
where inflationary sentiment was rampant, a policy statement had been
written in redefining the functions ofthe Federal Reserve System, broadening
them to the point of giving it overall economic planning authority.
The statement, offered as a new subsection (0) of Section 11, read as
follows:
It shall be the duty of the Federal Reserve Board to exercise such powers
as it possesses in such manner as to promote conditions conducive to business
stability and to mitigate by its influence unstabilizing fluctuations in the
general level ofproduction, trade, prices, and employment, so far as may be
possible within the scope of monetary action and credit administration.
Representative Goldsborough offered a further amendment, that lost
only by a vote of 128 to 122, extending the Committee's language to
charge the Federal Reserve System with the duty of manipulating the
money system so as to restore the purchasing power of the dollar to the
1921-1929 level.
In the Senate the policy declaration was deleted. The Senate also
rejected the proposal, accepted by the House, repealing the requirement