William McChesney Martin Jr.

American business executive and federal government official William McChesney Martin, Jr. (born 1906) directed major financial institutions and had a prominent role in shaping national economic policy in the 1950s and 1960s.

William McChesney Martin Jr., the elder of two sons of Rebecca Woods Martin and William McChesney Martin, was born December 17, 1906, in St. Louis, Missouri. His father, a lawyer and banker, was chief executive officer of the St. Louis Federal Reserve Bank, one of 12 regional banks in the Federal Reserve System, from 1914 to 1941.

Bill Martin was influenced by his father and by his family's strict Presbyterian tenets. Discipline, study, and athletics were stressed. He was interested in economics and finance, but his father advised him to study liberal arts in college. After graduating from private and public schools in St. Louis, he attended Yale University and received a B.A. in English in 1928.

Martin first worked in the bank examination department of the St. Louis Federal Reserve Bank. In 1929 he joined A. G. Edwards & Sons, a brokerage and investment banking firm. In 1931 he became head of their statistical department while a part-time student at Benton College of Law. That year he became a partner and moved to New York City to operate the firm's membership on the floor of the New York Stock Exchange.

The Great Depression, however, had severely damaged the stock exchange's reputation. The Securities and Exchange Commission (SEC), established by Congress in 1934, was investigating its activities when Martin was elected by fellow brokers to the stock exchange's governing board in 1935. He served on several committees and worked for internal reforms.

Martin also studied economics at Columbia University and belonged to an association that met at the New School for Social Research. From 1932 to 1934 he was treasurer of The Economic Forum and associate editor of its quarterly publication of the same name.

The aims of this "civic organization" give insight to Martin's career. Members believed in "promoting sound improvements in our economic life," and agreed "the times demand the realization of economic theory in action, and the burden of this application rests on practical economists, the Men of the Marketplace."

In December 1937 Martin became secretary of the "Conway Committee," created by the stock exchange's governing board to advise on reorganization. Its report, written by Martin and issued in January 1938, contained recommendations designed to satisfy SEC Chairman William O. Douglas and to reassure the public. After the Whitney scandal surfaced in March 1938, the reform group assumed power and Martin was elected chairman of the new board of governors. In May he was elected president pro tem, and on July 1, 1938, he became the first salaried president of the New York Stock Exchange.

Only 31, Martin was called the "Boy Wonder of Wall Street." His reputation as a teetotaler, non-smoker, nongambler, and studious bachelor helped the stock exchange regain its prestige. Martin worked to end its private club atmosphere and to improve efficiency. He saw the stock exchange as a "national institution that exists to serve the needs of the American public."

He resigned in April 1941 after being drafted as a private into the U.S. Army. Martin served on the Munitions Assignments Board and the President's Soviet Protocol Committee. In October 1945 he was discharged as a full colonel and received the Legion of Merit.

President Truman appointed him chairman of the board of directors of the Export-Import Bank in November 1945, and from February 1946 to February 1949 Martin was its president and chairman. He next became assistant secretary of the treasury in charge of international finance, and in December 1949 he was also named United States executive director of the World Bank.

In early 1951 he mediated a serious policy dispute between the Federal Reserve System and the Treasury over "pegging" or supporting of prices of government securities sold by the Treasury. The "accord" of March 1951 freed the Federal Reserve from this policy and clearly established the agency as coequal with the Treasury in the area of their overlapping responsibilities. Martin's successful role provided his next opportunity.

In mid-March Truman appointed, and the U.S. Senate approved, Martin to complete the term of resigning Federal Reserve Board Chairman Thomas B. McCabe. He also became chairman, a four-year position. On April 2, 1951, Martin entered this position, which made him what many have called "the second most powerful man in America." Decisions by the seven-member board of governors and 12-member Federal Open Market Committee, both headed by the chairman, have a powerful impact on the economy and can cause heated controversy.

The Federal Reserve System, the central bank, controls the nation's supply of money and credit. The independent agency, created by Congress in December 1913, is responsible to but not funded by Congress. The Federal Reserve's objective, Martin stated in 1955, is "to contribute to sustainable economic growth and to maintenance of a stable value for the dollar."

Speeches delivered over almost 19 years and an unprecedented five presidential administrations reveal Martin's basic principles. In 1951 he said, "Our economic strength is founded on preserving the integrity of the dollar, symbolizing as it does the good faith and credit of our country." In 1968 he warned against the "wage-cost-price push" and about avoiding responsibilities to tax ourselves and cut expenditures. He said he would fight to keep the dollar from being devalued.

Martin, a Democrat, was not considered a doctrinaire economist, however. Overall, he pursued flexible, non-partisan policies and believed in a degree of accommodation while maintaining the Federal Reserve's independent status within government. His cooperation at congressional hearings, skill in conciliation and negotiation, thorough knowledge of central banking, and total integrity won him respect, even from such critics as Representative Wright Patman (Democrat) of Texas, a constant foe of "tight money."

Martin earned the confidence of presidents and financiers. Eisenhower, with Senate approval, renamed him chairman in 1955 and to a full four year term in 1956. He was again named chairman in 1959, 1963, and 1967. In December 1965, concerned over inflation from the booming economy and domestic and Vietnam War expenditures, Martin increased the discount (interest) rate and tightened the money supply against President Johnson's wishes. Despite their differences, Johnson reappointed him chairman because Martin was a symbol of sound public finance. His leadership reassured the financial community here and abroad.

Martin liked to use analogies to explain complex monetary policy. He often said, "Our purpose is to lean against the winds of deflation or inflation, whichever way they are blowing, but we do not make those winds," and "We are the people who take away the punch bowl just when the party is getting good."

When his term ended in January 1970, Martin left government service but continued working for improvements in economic life and reentered private business. "The Martin Report," a study commissioned by the New York Stock Exchange and issued in August 1971, recommended internal reforms and modernization.

On April 3, 1942, Martin married Cynthia Davis, the daughter of General Dwight F. Davis, who donated the Davis Cup in tennis. They had three children. Martin, who served on several corporate boards, received 23 honorary Doctor of Laws degrees and the new Federal Reserve Board building in Washington, D.C. is named for him.

Further Reading

Numerous primary and secondary sources document Martin's career, but his biography has yet to be written. He has been in Who's Who in America since 1938-1939; Noteworthy articles include Richard A. Smith, "Bill Martin: A Talent for Timing," Fortune (October 1955); "The Banker's Banker," TIME (September 10, 1956); and "Reserve Board Raises Bank Rate," New York Times (December 6, 1965); "Replacing a Monetary Legend," The Economist (October 25, 1969) gives an international viewpoint; Significant references to Martin are in Robert Sobel, N.Y.S.E. A History of The New York Stock Exchange 1935-1975 (1975); Herbert Stein, The Fiscal Revolution in America (1969); Martin Mayer, The Bankers (1974); Milton Friedman and Anna J. Schwartz, A Monetary History of the United States 1867-1960 (1963); and James L. Knipe, The Federal Reserve and the American Dollar. Problems and Policies 1946-1964 (1965). □

MARTIN, William McChesney, Jr.

(b. 17 December 1906 in St. Louis, Missouri; d. 27 July 1998 in Washington, D.C.), dedicated public servant best remembered for his leadership of the Federal Reserve Board during the 1950s and 1960s.

Martin was the elder of two sons of William McChesney Martin, an attorney and banker, chief executive officer of the St. Louis Federal Reserve Bank for twenty-seven years. His mother was Rebecca Woods. After a diverse early career that included prominent positions at the New York Stock Exchange, the Export-Import Bank, the U.S. Treasury Department, and the International Bank for Reconstruction and Development, Martin became chairman of the Federal Reserve System in April 1951, appointed by President Harry Truman. Serving as America's central banker for nineteen years, until his retirement in 1970, Martin shaped notions about the proper role and function of the Federal Reserve Board. In a famous speech in 1956, Martin declared that the agency's purpose was "to lean against the winds of deflation or inflation, whichever way they are blowing." During most of the inflationary 1960s, Martin interpreted this to mean that the Federal Reserve Board should adopt a tight monetary policy. Martin was flexible, however, easing policy during the economic crisis of 1967 and 1968 but tightening it again in 1969. Insisting that the Federal Reserve play a critical role in managing the nation's economy, and that the board of governors, not the reserve banks, have primary authority in wielding policy, Martin continued the work of his predecessor, Marriner S. Eccles.

In a way, Martin also built upon the legacy established by his father. William McChesney Martin, Sr., a well-respected banker, had helped draft the original Federal Reserve Act of 1913 upon the request of President Woodrow Wilson. After the passage of the act, the elder Martin became president of the Federal Reserve Bank in St. Louis. Martin followed in his father's footsteps. Upon graduating from Yale University with a B.A. in English and Latin, he briefly considered becoming a Presbyterian minister but entered the banking world instead. Martin first worked as a bank examiner in the Federal Reserve Bank of St. Louis and then became a stockbroker at a St. Louis brokerage firm, where he quickly became a partner. In the early 1930s Martin moved to New York City. After acquiring a seat on the New York Stock Exchange (NYSE), he became involved with Wall Street politics on the side of the Reformers, a group that battled against the reactionary Old Guard, led by the NYSE president Richard Whitney. The Reformers, who eventually gained control of the Exchange, strove to make the institution more open and responsive to the needs of the public. Among various other reforms, they enlarged the duties of the Exchange president and converted that position into a paid, full-time post. The first person to occupy this newly restructured job was Martin. Assuming the job in 1938 at the age of thirty-one, Martin became not only the Exchange's first paid president but also the youngest person ever to occupy this top post. He became known as the "boy wonder of Wall Street."

As president of the NYSE, Martin earned the nickname Mr. Chocolate for his sober, levelheaded leadership style (as well as his preference for hot chocolate). He served for only three years; in 1941, upon the entry of the United States into World War II, he stunned Wall Street by declining the opportunity to receive a military deferment and instead allowing himself to be drafted. He resigned the presidency in order to enlist as a private in the U.S. Army. After the war concluded, Martin served as president of the U.S. Export-Import Bank from 1945 to 1948. He then served as the assistant secretary of the Treasury from 1949 until his appointment to the Federal Reserve Board in 1951. Martin married Cynthia Davis in 1942; they had three children.

As Federal Reserve chairman, Martin solidified his reputation as a man of personal integrity and financial conservatism. As the U.S. economy expanded and the stock market boomed in the mid-1960s, Martin consistently warned of the dangers of excess speculation and high inflation. On 1 June 1965, in a particularly blunt address at Columbia University on commencement day, he warned that unless stricter restraints on money and credit were enacted, the economy was headed for disaster. He paralleled the reckless speculation of the current "go-go years" with the euphoria of the 1920s. In reaction to this disturbing speech, the stock market dropped significantly. Wall Streeters derided the downturn as the Martin Market. The depressed market conditions, however, did not last long; the bull period resumed by autumn, making it appear that the chairman's warnings were unsubstantiated. In the wake of his gloomy prediction that the sky was going to fall, Martin received a new nickname; no longer Mr. Chocolate, he was now William McChicken Little Martin. Eventually Martin was proved right; the market tumbled in the ensuing 1968 economic crisis.

For his blunt style and commitment to a restrictive monetary policy, Martin was often unpopular, especially with many politicians whose constituencies favored easy money and low interest rates—the opposite of Martin's prescription for the economy. Despite pressure to do otherwise, Presidents Dwight Eisenhower, John F. Kennedy, and Lyndon Baines Johnson all reappointed Martin to the chairmanship, respecting his prudence and financial wisdom. Their decisions to keep Martin as head of the Federal Reserve had many effects on the economy and consequently may have influenced the results of at least one presidential election.

In 1960 Richard M. Nixon, campaigning for president, unsuccessfully urged President Eisenhower not to reappoint Martin. Influenced by his economic adviser, Arthur Burns, Nixon worried that a recession would occur by the fall of 1960 unless the Federal Reserve reversed its restrictive monetary policy. Martin would never consent to such a change in course, and President Eisenhower refused to force the issue by appointing a new chairman who was more receptive to an easy-money policy. True to Nixon's fears, a recession ensued, and he narrowly lost the election to John F. Kennedy. When Nixon finally won the presidency in 1968, he immediately tried to shift Martin from head of the Federal Reserve to U.S. Treasury secretary, so that Nixon could appoint his friend Arthur Burns to the chairmanship position. Martin refused to leave the Federal Reserve before his term expired. As Dr. Andrew Brimmer, who served on the board of governors under Martin, contends, "By deciding to serve out the balance of his Federal Reserve term, Martin prevented the system from being politicized by a president for whom that was a major goal." Indeed, Martin was committed to keeping the Federal Reserve independent of political control.

Upon leaving the Federal Reserve in 1970, Martin reentered the private business world. He left behind a strong legacy, a vision of the Federal Reserve as an institution that should be nonpartisan, independent, and committed to a flexible monetary policy. He thus is referred to often as the father of the modern Federal Reserve Bank.

Biographical information on Martin can be found in Andrew F. Brimmer, "William McChesney Martin," Proceedings of the American Philosophical Society 44, no. 2 (June 2000). For information on the era, see William McChesney Martin, Jr., "Monetary Policy and International Payments," Journal of Finance (Mar. 1963): 1–10, and The Securities Markets: A Report, with Recommendations by William McChesney Martin, Jr. (1971); John Brooks, The Go-Go Years: The Drama and Crashing Finale of Wall Street's Bullish 60s (1973); and Donald F. Kettl, Leadership at the Fed (1986). See also James J. Needham, The Threat to Corporate Growth (1974). Obituaries are in the New York Times (29 July 1998), The Economist (8 Aug. 1998), and Time (10 Aug. 1998).

Janice Traflet