Monday, October 28, 2013

From Marriner Eccles to Janet Yellen

Marriner Eccles was born in 1890 in Logan, Utah. He attended Brigham Young College and served as a Latter-day Saint missionary to Scotland. His grandfather had been lured to the U.S. from Paisley, Scotland in 1863 by the Mormon’s Perpetual Emigration Fund.

Whatever doubts the Eccleses may have had about the Prophet Joseph and the golden plates were beside the point, Eccles later wrote. His father had made a fortune in the lumber and sugar-refining industries, and according to custom, took two wives. As the firstborn child of the second (or cadet wife), Marriner Eccles, at 22 years old, assumed control of two-sevenths of his father’s business empire when “the richest man in Utah” had died in 1912.

Over the next twenty years, Marriner Eccles built his family’s share into a substantially bigger fortune. With great skill and tenacity, he was able to reorganize and consolidate the assets of his father's industrial conglomerate and banking network. Eccles expanded the banking interests into a large western chain of banks called Eccles-Browning Affiliated Banks.

After the stock market crash in 1929, Eccles had begun a search for remedies that led to, among other places, underconsumptionist views. In economics, underconsumption theory says recessions and stagnation arise due to inadequate consumer demand relative to the amount produced.

This theory formed the basis for the development of Keynesian economics and the theory of aggregate demand after the 1930s. Eccles has been remembered for having even anticipated, and certainly then having supported, the theories of John Maynard Keynes relative to "inadequate aggregate spending" in the economy which appeared during his tenure. (Read: The Keynesian Ascendancy)

In 1932 Eccles 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.

Eccles's banking company withstood several bank runs during the Great Depression, and as a leading banker, Eccles became involved with the creation of the Emergency Banking Act of 1933 and the Federal Deposit Insurance Corporation.

After a brief stint at the Treasury Department, in 1934 Eccles was appointed by FDR as the Chairman of the Federal Reserve. Eccles was later reappointed and stayed on the board until 1951, when he resigned a few months after the 1951 Accord (The Accord was an agreement between the U.S. Department of the Treasury and the Federal Reserve that restored independence to the Fed. Eccles's defense of the Federal Reserve-Treasury accord in 1951 is sometimes seen as a reversal of his previous policy stances.)

The Federal Reserve

"Marriner S. Eccles" is the name on the Fed headquarters on Constitution Ave in Washington DC. As principal author of the Banking Act of 1935, he is considered the creator of the modern Federal Reserve. The Fed that Eccles inherited had been established by Congress in 1913 in response to the Panic of 1907, on a plan largely drawn up by financier J. P. Morgan, whose personal authority had been sufficient to restore confidence after 1907.

Eccles saw the Fed through World War II, through the passage of the Full Employment Act of 1946* and through the beginning of the Korean War.

* By 1940 depression was finally over. A remarkable burst of economic activity and full employment came during the war years (1941–45). Fears of a postwar depression were widespread, since the massive military spending was ending, the war plants were shutting down, and 12 million soldiers were coming home. Congress, fearful of a return to depression, sought to establish preemptive safeguards against economic downturn. The White House relied on Keynesian economic theory to develop its strategy. The theory, set forth by economist John Maynard Keynes and his disciples, contends that unemployment is caused by insufficient aggregate demand relative to the possible aggregate supply generated by full employment. Swings in aggregate demand create a phenomenon known as a business cycle that leads to irregular downsizing and hiring runs, causing fluctuations in unemployment. Keynes argued that the biggest contributor of these shifts in aggregate demand is investment.

Time Magazine - February 10, 1936
Marriner Eccles

For seventeen years Marriner Eccles lived at Washington’s Shoreham Hotel. In 1951, after Eccle’s last term at the Fed had expired, he returned home to Logan, Utah.

Eccles then returned to business, after a failed run for the Senate, in which voters were surprised to learn he was registered as a Republican. (It was a much different GOP back then.)

Eccles maintained a lively interest in foreign affairs as a director of the family construction company, Utah International. In 1966 Eccles wrote his memoir Beckoning Frontiers where he wrote:

"As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth to provide men with buying power. Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. The other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped." (Sound familiar?)

At a White House dinner in 1965, he confronted President Lyndon Johnson over his escalation of the war in Vietnam. Marriner Eccles lived long enough to see the last U.S. helicopter retreat from Saigon, not long after the Powell Memo and right about the time the middle-class began its long decent into decline (Marriner Eccles had died in 1977).

Marriner Eccles was a role later reprised by Willard “Mitt” Romney, who, as governor of Massachusetts, put a mandatory health insurance reform in place -- presumably as the model for a national plan. (Romney eventually buckled under Tea Party pressure and disavowed the aim.)

The Tea Party darling, Senator Rand Paul (R-Ky), has recently threatened to oppose Obama's nomination of Janet Yellen to chair the Fed, perhaps with a "hold" that could only be overcome by sixty votes.

As the notable economist, Dean Baker, has recently reminded us

"Alan Greenspan owes America an apology. The former Fed chair is promoting his new book. He should admit his role in the housing crisis, not insult our intelligence. Alan Greenspan will go down in history as the person most responsible for the enormous economic damage caused by the housing bubble and the subsequent collapse of the market. The United States is still down almost 9 million jobs from its trend path. We are losing close to $1 trillion a year in potential output, with cumulative losses to date approaching $5 trillion. These numbers correspond to millions of dreams ruined."

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