Robert P. Bremner

On December 5, 1965, President Lyndon Johnson was pacing in the office at his ranch in Johnson City Texas while he waited for William McChesney Martin, Jr., the Chairman of the Federal Reserve Board, to visit for what Johnson called "a trip to the woodshed." Two days before, Martin had led the Fed's Board of Governors to an increase in the discount rate, the first in more than five years of uninterrupted economic growth. Through Henry "Joe" Fowler, his Treasury Secretary, and Gardner Ackley, his CEA chairman, Johnson had advised Martin to delay the rate increase, and his instructions had been rejected. Few people ignored Lyndon Johnson's instructions, and he was furious when he heard of the Fed's move. He had growled at Fowler over the telephone: "Those marble tower bouys. Joe you find a tough guy to head the Reserve. If Martin resigns, it won't wreck the country."

Their meeting was a classic confrontation. Johnson was a powerful and manipulative president who believed that a Fed tightening would jeopardize the economic expansion and the tax revenues he needed to finance the most important goals of his presidency, his war on poverty and the growing cost of the War in Vietnam. Martin was committed to defending the Fed's independence and dealing with the economic impact of administration economic policies that he considered irresponsible. When Martin walked into the office, Johnson immediately accused him of placing himself above the presidency and totally disregarding Johnson's wishes: "You went ahead and did something that I disapproved of...and can affect my entire term here." Martin later admitted that he was shaken, but determined to stick to his position and not to insult the President of the United States.

Please open the excerpt file for more of the introduction to "Chairman of the Fed."