Obituary: William McChesney Martin
Friday 21 August 1998
As chairman of the Federal Reserve Bank from 1951, when he was appointed by President Truman, until 1970, when he was replaced by President Nixon, he presided over, and materially helped to bring about, the longest period of economic expansion in American history, from 1961 to 1969, a golden age of low inflation and the fastest rising living standards.
A witty man, even if he did seriously consider training for the Presbyterian ministry (a Washington journalist once called him "the happy puritan") Martin famously quipped that the Federal Reserve's job "is to take away the punch bowl just when the party gets going". That was his way of explaining what economists call the "counter-cyclical" policy behind the Fed's influence on the American economy. The Fed tightens interest rates to slow the economy down if it is growing dangerously fast, risking excessive inflation, and relaxes them when economic stimulation is needed.
In order to achieve this kind of macro-economic control, however, Martin first needed to free the Fed from the control of the US Treasury, to which it had been subjected in the years of President Franklin D. Roosevelt's New Deal and the Second World War. The present Federal Reserve chairman, Alan Greenspan, praised Martin for setting "a masterful example of leadership" and "playing a key role in fostering an extraordinary period of growth and prosperity". He "moved the Federal Reserve from being an adjunct of the Treasury Department to the independent status that we know today".
Martin's career was typical of the old "white shoe" Anglo-Saxon Protestant establishment who controlled Wall Street until the 1960s. He was born into a wealthy St Louis family; his father actually helped President Woodrow Wilson and Senator Carter Glass of Virginia write the original Federal Reserve Act in 1913. He was educated at Yale, where he studied English and Latin and played good tennis; later in life he reached the second round of the US national tennis championships at Forest Hills. His wife for 56 years, Cynthia Davis, was the daughter of the donor of the Davis Cup.
He decided not to join the ministry, and instead began his career working for his father as a bank examiner in the St Louis branch of the Federal Reserve. However he remained a good enough Presbyterian that he did not drink, smoke, gamble or dance on the Sabbath. He soon moved to a local firm of stockbrokers, which swiftly made him a partner and sent him to New York to represent it on Wall Street. In 1938, with the market still in Depression doldrums, he was made the first paid president of the New York Stock Exchange at 31, and was naturally dubbed a "boy wonder" by Time magazine.
In 1941 he volunteered for the army, and not long afterwards found himself on the Military Allocations Board, with the rank of colonel. After the war he was made a director of the Export-Import flank by President Truman, and then its president. In 1949 he became Assistant Secretary of the Treasury for international affairs and the US representative on the board of the World Bank.
Then, two years later, after an astonishingly rapid rise in the financial world, he reached its apex. Thomas McCabe, chairman of the Federal Reserve, had resigned over a disagreement with the Treasury about interest rates, but recommended Martin as his successor.
Martin was first promoted by Truman, even though he admitted he did not go the whole way with the Roosevelt/Truman New Deal policies of government intervention. Thereafter he was reappointed by successive presidents who valued his caution and integrity. It was surprising enough that a Truman appointee should have survived under the Republican President Eisenhower, even more surprising that he should have stayed at the helm of the Fed under Kennedy. But Kennedy said he wanted "responsible men" to reassure the capital markets.
In the end, it was President Nixon who got rid of Martin because he wanted the job for his very conservative economic adviser, Dr Arthur Burns of Columbia University. Martin was given a magnificent send-off, with an opulent dinner and extravagant praise, neither of which impressed him. In retirement, Martin wrote a searching study of the securities industry. He also went on the board of a number of major corporations, such as IBM and American Express, as well becoming a director of the National Geographic Society.
Although he came from an established banking family, Bill Martin was critical of the old Wall Street, with its exclusive "gentlemen's club" atmosphere. One of his great achievements was to place the independence of the Federal Reserve beyond the reach of government interference. In 1965, as the Vietnam war released inflation in the American economy, Martin increased the discount rate, and there were calls for his resignation. President Johnson summoned him to his Texas ranch to put pressure on him to relax interest rates, but Martin refused.
His other great achievement was to professionalise the Fed, equipping it with economic expertise which markets and politicians alike would have to respect. In those two ways, he made possible the unchallenged authority of his two successors, Paul Volcker and Alan Greenspan.
William McChesney Martin, stockbroker, banker and public servant: born St Louis, Missouri 17 December 1906; President, New York Stock Exchange 1938-41; Assistant Secretary of the Treasury for international affairs 1949-51; Chairman, Federal Reserve Board 1951-70; married 1942 Cynthia Davis (one son, two daughters); died Washington DC 27 July 1998.
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