Treasury Fed Accord



Marriner Stoddard Eccles (1890-1977)

Chairman and Member of the Board of Governors (1934-1951)

Eccles's bank management won him recognition in the West, but he was unknown in the East. At the same time, his experience spurred him to develop an ideology pertaining to the steps and measures that he felt should be taken in order to end the Great Depression, and he became what was known as a fiscalist. He believed that the government needed to take an active role in reestablishing order in the economy. His views were aligned to those of John Maynard Keynes, though he claimed that he had reached the same conclusions as Keynes on his own and that he knew of Keynes's work only what he learned from reading a few abstracts.2 Fundamentally, Eccles believed that the economic system did not necessarily correct itself.

In February 1933, during a series of speeches he made in Utah, he caught the attention of Stuart Chase, a well-connected national publicist. Chase suggested to Eccles that he meet with Rex Tugwell, a man close to then President-elect Franklin Roosevelt. Upon meeting Eccles in February, Tugwell was intrigued by the banker's liberal philosophy.3 By November of that same year, Eccles found himself in Washington in a young administration with ideas similar to his own. He joined the Treasury as assistant secretary for monetary and credit affairs.

A few months later, however, a vacancy on the Board of Governors opened up, and the Roosevelt Administration offered Marriner Eccles the position. It was at this time that Eccles began to work to carry out his ideas regarding the structure of the Federal Reserve System. He practically made it a condition for his acceptance of the Board job offer that the structure of the Fed be changed. Subsequently, Eccles sponsored the Banking Act of 1935.4 It centralized control of the Federal Reserve within the Board of Governors, which had been previously called the Federal Reserve Board. Many in the Senate were upset by the Act because they were against the establishment of a centralized monetary authority. It also upset several in the banking industry, including some people within the Federal Reserve System itself. 5 Because of the changes installed by the Banking Act of 1935, the Federal Reserve Bank of New York and the Board of Governors in Washington D.C. would end up vying for control of the System's policy initiatives almost two decades later.

Another important change that Eccles imposed through the Banking Act was a change in membership of the Board of Governors. Previously, the Secretary of the Treasury and the Comptroller of the Currency had been allocated ex officio seats on the Board. Eccles pushed successfully to have those seats eliminated. The new structure that emerged was the same as that of the Board of Governors today. Although adamant about carrying out a fiscalist philosophy of government spending, the Roosevelt Administration was willing to go along with the changes requested by Eccles knowing that he was going to be Chairman of the Board.6 Because Eccles shared the administration's views regarding government's active role in the economy, Roosevelt did not fear that losing seats on the Board would lead to a loss of influence within the Fed.

Eccles endorsed deficit spending by the government as a way out of the depression. With U.S. entry into World War II becoming a certainty, the objectives of the economic policymakers within the government had to change. Eccles started to advocate a balanced budget, believing that the war would be better financed through tax increases coupled with price and wage controls. His goal was to suppress private consumption in order to avoid inflationary pressure.7 But Eccles did not succeed. Instead he found himself in an arrangement by which the Fed would support the Treasury in its placement of debt on the government securities market. Although Eccles would have preferred not to put the Fed in such a position, like the other governors he recognized that winning the war was a primary concern. Providing the government with cheap financing was the most effective way for the Fed to contribute towards that effort; therefore, he supported the measure.

For the next ten years, the Federal Reserve played a subordinate role in the economic affairs of the nation. It injected and retracted liquidity from the government securities market in support of the Treasury's predetermined peg. Once the war ended, however, from the Fed's perspective the priority switched from fundraising to restricting inflation. Between 1946 and 1948 tensions between Eccles and Harry Truman increased, for they opposed one another's views on policies. Harry Truman did not reappoint Eccles to the chairmanship when his term expired in 1948; traditionally someone in Eccles's circumstances would then resign from the Board, but he remained on the Board as a regular member. This was permitted because the term limit for membership is longer than the term limit for Chairman.8 Eccles supported the new Chairman, Thomas McCabe, as the Fed continued its struggle to release itself from the peg.

Although Eccles had been removed from the most powerful position at the Fed, he still played a significant role during the Accord. On January 31, 1951, Truman summoned all the members of the Federal Open Market Committee to the White House in an effort to convince them to change their views; however, the committee refused to publicly support the interest rate peg that was being imposed on the Fed. Nonetheless, after the meeting, Truman released a statement to the press saying that the committee in fact had made such an agreement. The press called Eccles to confirm the accuracy of the statement. Eccles had to make a decision, either to wait for the following Monday to rally a formal rebuttal by the committee or to deny the statement on behalf of the committee by himself. The former action would have allowed time for the public's acceptance of the false statement out of the White House, whereas the latter action was a risk to his own credibility. Eccles made a bold decision and immediately released the minutes of the meeting to the press even though they were considered to be confidential.9 The minutes showed that the committee had in fact made no agreement with the White House. The FOMC did not immediately praise or criticize Eccles's actions. It was not until years later that the significance of his action in saving the Fed's side of the struggle was truly appreciated.

Eccles proved to be an effective adversary to Harry Truman even though he was no longer Chairman. Soon after the Accord was in effect, Eccles resigned his membership, having seen his battle through to the end. He returned to Utah to continue his banking business, and he died in Salt Lake City on December 18, 1977.


1 William J. Barber. 1992. "Marriner Stoddard Eccles," in Biographical Dictionary of the Board of Governors of the Federal Reserve, ed. Bernard S. Katz, p. 83
2 Barber (1992, 82).
3 Barber (1992, 84).
4 Peter K. Pfabe, "Leaders & Success: FDR Fed Chief Marriner Eccles: He Developed Mortgage and Banking Systems of Today," Investors Business Daily. 20 December 1994.
5 For further details see Barber (1992) and Selected Papers of Allan Sproul, Lawrence S. Ritter, ed. (New York: Federal Reserve Bank of New York, 1980).
6 Richard H. Timberlake, "Tale of Another Chairman," Federal Reserve Bank of Minneapolis The Region (June 1999).
7 Barber (1992, 83).
8 Board governors are appointed to nonrenewable 14-year terms by the President and confirmed by the Senate. Once confirmed, a governor cannot be involuntarily removed from the Board. If a governor resigns, then a new governor can be appointed to complete the term, after which he or she can be reappointed to a full term by the President.
The Chairman is also a member of the Board of Governors; the Chairman's term as Chairman is 4 years long and can be renewed as long as he or she remains on the Board. The term of a Chairman coincides with the term of the President. See A Primer on the Fed by Alfred Broaddus (Richmond, VA: Federal Reserve Bank of Richmond, 1988) for further details.
9 See Selected Papers of Allan Sproul (1980) and Robert L. Hetzel and Ralph F. Leach, "The Treasury-Fed Accord: A New Narrative Account," Federal Reserve Bank of Richmond Economic Quarterly 87 (Winter 2001): 33-55.

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