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chapter 3 The Econo-Rhetorical Presidency James Arnt Aune, Texas A&M University One of the most important moments in the history of the American presidency occurred in 1951, during what was perhaps Harry Truman’s most difficult year in office. I would guess that almost no one in this room is able to name the event; it is not discussed at all in David McCullough’s biography or in Truman’s own memoirs.1 The event is now referred to as the “Treasury-Federal Reserve Accord ,” a bureaucratic struggle that led to the functional independence of the Federal Reserve System in setting monetary policy.2 I will proceed in extremely inductive fashion, telling the story of this accord, followed by a brief discussion of Fed-presidential relations from Eisenhower to George W. Bush. In the final, theoretical section of the paper I discuss implications of my narrative for our understanding of the rhetorical presidency and of the problem of what Jürgen Habermas calls the “colonization of the lifeworld,” or the continuing displacement of political controversy by instrumental, economic forms of rationality. Truman and the Fed: Toward the 1951 Accord The story begins after World War II. Central banks throughout the West had lost credibility because of their failure to stop the Great Depression. Social The Econo-Rhetorical Presidency | 47 democratic governments in France and Great Britain nationalized central banks and mandated that the allocation of credit be consistent with national planning. The relationship of Congress and the president to the Federal Reserve in the United States, however, remained more or less undefined. The Fed, then as now, had two specifically assigned roles to play in the economy: (1) it sets the discount rate, the rate the Fed charges banks for overnight loans (at that time the only publicly announced change, which had a psychological impact on the markets and the economy); and (2) most important , however, the law gives the Fed power to trade in the bond market. The Federal Open Market Committee (FOMC) can ease credit by having its trading desk in New York buy U.S. Treasury bonds, thus making it easier for businesses or consumers to borrow money. Easing credit is the standard move in averting recession. If there are inflationary pressures, however, the FOMC can tighten credit by selling Treasury bonds, making it more difficult to borrow. The FOMC consists of twelve voting members: all seven Fed governors plus five of the twelve presidents from Fed district banks throughout the country. The president makes appointments to the board as a whole, and the Senate confirms them. Board members are appointed for a fourteen-year term, while the chairman is appointed for a four-year term.3 After World War II, banks went on something of a lending spree, unconcerned about reserve requirements. They simply funded their loans by selling from their massive stock of government paper, the price of which was maintained by the Fed. In 1951, the Fed attempted to rein in the banks with a Voluntary Credit Restraint Program, but it was unsuccessful. One amusing incident illustrates the lack of independence of the Fed at this point in American history. The state of West Virginia tried to float a bond issue to support a veterans’ bonus approved by voters in 1950, but it failed to get any bids from investment bankers. George Moore of Citibank, one of the members of the Voluntary Credit Restraint Program, recalls a meeting with Governor Oakley Patterson in which he asked the governor what he thought the veterans would do with the money. “About a third will spend it on women,” he said, “and a third will spend it on booze, and the rest I guess will just waste it.” West Virginia congressmen complained to Truman that the Fed was interfering with the sale of state and municipal paper, and Truman sent a memo to the Fed telling them to stop it.4 In the meantime, however, the Korean War was causing tremendous inflationary pressures: for the three-month period ending in February 1951, Consumer Price Index inflation was running an annualized rate of 21 percent.5 The Truman Administration wanted to continue funding the war the same way 48 | James A. Aune that World War II had been financed, keeping the rates for government issues artificially low. From 1917 to 1951, the Fed backed up every sale of Treasury paper and made sure that no bonds went unpurchased at the government’s asking price. Mariner Eccles, the Fed...


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