The new banking bill is an interesting bit of legislation. The question of a central bank has for the past few years held many promises for some, while it has caused some of the most voluble and noisy criticism from others. One thing is certain: the problem is not simply one for the economist. The chief problem for the political scientist is how to insure the honesty, ability, and, above all, the impartiality of the members of the central board, which board will constitute an independent group responsible only to the President.
You will recall that Walter Lippmann in his admirably written and poorly delivered Godkin lectures of last year had much to say about the necessity for compensatory action on the part of an administration: when the people spend recklessly, the state must save; when the people become too thrifty, then the state must spend. As Mr. Lippmann stated in last Saturday's article, "the very essence of a tree central bank is that it must act contrary to the prevailing mood in politics and finance." What Mr. Lippmann failed to do in his lectures, it seems to me, was to offer a method for securing and insuring this compensatory action. True, he mentioned that the problem rested with an efficient, effective, and--above all -- independent civil service, but he neglected adequately to treat of the methods for securing such personnel.
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The same problem now comes to the fore with the question of a central bank. How shall we safeguard the Integrity of our central board? How can we Insure that they will have sufficient intestinal fortitude to withstand the criticism and abuse which will be hurled at them for putting on the "brakes" "when business is booming," to borrow again from the lips of Lippmann? As he himself, indicates, the problem cannot be solved simply by insuring the members of the central board an adequate salary. The writer of Today and the sage of Tomorrow observes that in large part this must depend "upon the capacity of the board itself to establish a tradition in which the respect and confidence of the nation will be the bulwarks of its independence." This is said at the conclusion of his article in the Herald-Tribune on Saturday.
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And this is where he really should begin. We remember all too well the refusal of Mr. Mellon to countenance the raising of the rediscount rates in 1928 and 1929. And yet if he had followed Mr. Warburg's advice, we can readily imagine the storm of abuse which would have poured in upon him. Indeed, the great political problem of the central bank board will be to find men who will serve for the sake of a moral reward fearlessly when men shall revile them and persecute them, and say all manner of evil against them; to find men who will, like our mothers, beat us because they love us.