Billion-Dollar Decision

The gossips had been busy since January. At first the rumor was that William McChesney Martin, 60, wanted to retire when his current four-year term as Chairman of the Federal Reserve Board expires March 31. Shortly after that was denied, word got around that President Johnson did not intend to reappoint Martin. Last week a Pebble Beach, Calif., bankers' conference hummed with talk that the President had finally made up his mind. He had written Martin, so the story went, asking him to serve a fifth term as chairman.

As far as businessmen, bankers and most politicians on both sides of the Atlantic are concerned, that final version had better be correct. In 16 years on the job, Martin has grown to be a symbol of monetary integrity; he is inflation's most powerful Washington foe. His departure not only could shake the business confidence that Johnson covets for his Administration, but it might undermine faith in the dollar abroad-particularly among Europeans who can act on their misgivings by swapping dollars for U.S. gold. A high Canadian finance official echoed a common sentiment when he warned: "If Johnson doesn't reappoint Bill Martin, it will cost the U.S. one billion dollars in gold."

Salting the Wound. Whatever the President's decision, it is not difficult to understand his reluctance to keep Martin around. In 1965 and election year 1966, the Johnson Administration shied away from the higher taxes or lower expenditures that seemed necessary to arrest inflation. But if the Administration was reluctant, Martin was not. He not only read the danger signals but persuaded the Federal Reserve--over Johnson's personal and public protests--to raise the cost and cut the supply of money. Only last month he salted that wound by stating that "markets don't wait for Presidents."

When he testified last week before the House Banking Committee, the prestigious central-bank boss once more demonstrated his independence of the

Administration. If Congress should cut Johnson's budget by $5 billion, Martin suggested, he might even go so far as to withdraw his important support of the presidential request for a 6% surcharge on income taxes at midyear.

The Activists. Whatever Martin's fate, though, the style of the Federal Reserve Board's seven-man board of governors has already undergone radical change. Elm logs still crackle in the fireplaces inside the Federal Reserve Building on Washington's Constitution Avenue; lights go off and doors are locked at 5:30 p.m. The physical pace remains leisurely enough to allow Martin, long since recovered from the surgery that hospitalized him last year, to resume his habitual afternoon tennis game. But in contrast to the cloistered detachment of the governors of the '50s, today's board is remarkably activist.

The transformation can be traced largely to the board's four junior members--all economists, all appointed since 1961, all independent enough in word and deed to blur old liberal-conservative labels, flout traditions, flaunt new ideas. Dewey Daane, 48, a Harvard-trained former Treasury aide, likes to call himself a "neo-Keynesian swinger." His was the key vote in the board's 4-3 decision to raise the discount rate--the interest that the Fed charges member banks for borrowing--from 4% to its present 41% in December 1965. George Mitchell, 63, onetime director of finance for the State of Illinois, holds that the Fed may need a whole new set of monetary weapons to deal with tomorrow's checkless society, which will be managed by "a monetary cyclotron built from a network of computers."

Andrew Brimmer, 40, former Assistant Secretary of Commerce and the first Negro to sit as a governor of the Fed, packs his frequent speeches with unprecedented detail about the board's thinking. Sherman Maisel, 48, an easy-money housing expert who taught at the University of California, has startled most colleagues by faulting the Treasury (for selling gold for $35 per ounce), the Budget Bureau (for incomprehensible bookkeeping) and the Council of Economic Advisers (for bad liaison with the Fed).

If he chooses, the President will soon be able to add another monetary liberal to the Fed's changing lineup. Under an obscure civil service rule unearthed recently, Charles N. Shepardson, 71, the board's sturdiest conservative, must retire by May 1 unless Johnson overrides the regulation. With or without Chairman Martin, it would seem, the once staid Fed has become a temple of iconoclasts.

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