Statement by Alan Greenspan, Chairman, Board of Governors of the Federal Reserve System, before the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, October 13, 1993

Federal Reserve Bulletin, December 1993 | Go to article overview

Statement by Alan Greenspan, Chairman, Board of Governors of the Federal Reserve System, before the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, October 13, 1993


I appreciate this opportunity to discuss the important issues raised by recent legislative initiatives to alter the structure of the Federal Reserve System. I will begin my remarks this morning by placing these issues in some historical perspective before commenting specifically on provisions that would change the status of Reserve Bank presidents, broaden the authority of the General Accounting Office (GAO) to audit the Federal Reserve, and mandate additional disclosure of monetary policy decisions and discussions.

The appropriate role of a central bank in a democratic society is an important and controversial issue. The performance of such an institution has profound implications for the nation's economy and the people's standard of living. Americans have pondered the question of the appropriate role and structure for the central bank at length, beginning with the debate over the First Bank of the United States, which George Washington signed into existence in 1791.

Echoing the earlier discussions surrounding the chartering of the First and Second Banks of the United States, extended debate and compromise preceded the establishment of the Federal Reserve System. Much of the focus of the debate was on the balance that should be struck between public and private authorities in governing the central bank.

In 1908, in response to the periodic financial crises that had plagued the country in the latter part of the nineteenth century and in the early years of the twentieth century, a National Monetary Commission, consisting entirely of members of the Congress, was established by legislation. Four years later, the commission, in submitting its report to the Congress, called for the creation of a National Reserve Association to provide stability to our financial system. Both the commission's plan and an alternative, proposed by President Woodrow Wilson, envisioned the central bank as containing public and private elements. President Wilson's plan won the approval of the Congress and established the Federal Reserve System as our nation's central bank. Over the intervening years, the Congress has initiated many reviews of the System's structure but with rare exceptions has chosen to leave the basic structure intact.

The major piece of legislation affecting the Federal Reserve's organization since its inception in 1913 was the Banking Act of 1935, which established the Federal Open Market Committee (FOMC) in its current form as the central decisionmaking body for monetary policy. When it was clear by the 1930s that the buying and selling of securities by the Federal Reserve was a crucial monetary policy instrument, there was again debate in the Congress over whether it should be carried out entirely by government appointees or whether the Reserve Bank presidents, who were not politically appointed, should share in that policymaking role. In the 1935 act, the Congress reaffirmed that the Reserve Bank presidents should have a substantive voice in policy. They were granted five of the twelve positions on the FOMC, while the seven members of the Board constituted the majority.

The wisdom of the Congress in setting up the structure of the System has stood the test of time. Federal District Court Judge Harold Greene, in commenting in 1986 on the constitutionality of the FOMC, noted, "The current system[,]... the product of an unusual degree of debate and reflection[,]... represents an exquisitely balanced approach to an extremely difficult problem."

The role of a central bank in a democratic society requires a very subtle balancing of priorities between the need for sound, farsighted monetary policy and the imperative of effective accountability by policymakers. Accountability and control by the electorate are vital; the nation cannot allow any instrument of government to operate unchecked. The central bank, just like other governmental institutions in a democracy, must ultimately be subject to the will of the people. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Statement by Alan Greenspan, Chairman, Board of Governors of the Federal Reserve System, before the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, October 13, 1993
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.