THE MONEY MARKET AND MONETARY MANAGEMENT.

By Prof. G.Walter Woodworth (Tuck School). NewYork: Harper & Row Publishers, 1965496 pp. $9.00.

In the preface to The Money Market andMonetary Management the author states that he hopes he has produced a volume to meet two needs: (1) synthesis of the money market literature which is too general or too fragmentary on the one hand or too detailed or too technical on the other; and (2) integration of the money market and its institutions and functions with federa! monetary and fiscal policies which have become increasingly important in our complex economy.

This reviewer feels that Professor Woodworth has accomplished his purpose admirably with a book of very high quality based on a well conceived plan.

Part I is devoted to the money market. The author defines this market, centered in New York City, to include the purchase and sale of "near-money" liquid assets by the market's leading participants; the commercial banks; the Federal Reserve banks; the United States Treasury; and the dealers in U.S. securities. This approach enables the author to describe the interest rate structure and its significance; to discuss the forces of supply and demand which influence interest rates; and to bring into sharp focus the role of the Federal Reserve authorities in influencing the lending capacity of the commercial banking system, the components of the money market, and the interest rate structure.

With the basic foundation laid the author devotes a lucid chapter to each of the main components of the money market: Federal funds, U.S. Government Securities, commercial paper, banker's acceptances, U.S. government agency securities, banker's negotiable certificates of deposit, and finally those lesser components which he classifies as fringe elements. He then concludes Part I with a well written chapter on the term structure of interest rates where bond yields, bond prices, and yield curves, including the practical uses of the latter, are discussed.

Having educated the reader on matters essential to an understanding of monetary and fiscal management in our economic system, the author then unfolds Part II of his systematic study. First he presents the basic objectives of monetary and fiscal management within the context of significant evolutionary Federal legislation ranging from the Gold Act of 1900 to the Employment Act of 1946. Then, in successive chapters he discusses in the order of their historical development the general instruments of monetary controls - the reserve bank discount mechanism; the Reserve system open market operations; and manipulation of member bank legal reserve requirements. Next, he discusses objectively and critically the selective methods of credit control over which the Federal Reserve authorities have been or now are given responsibility, namely: stock market credit, consumer's durable goods financing, and real estate financing- areas known among the sophisticated as Regulations T, U, W, and X, of which only T and U now are applicable under existing law. He concludes the control area with a brief treatment of "jawbone persuasion" by the Federal Reserve through moral suasion and voluntary credit restraint programs.

World War II and its aftermath of continuing ideological confrontations and surging and resurging nationalism have brought the U.S. Treasury Department to the foreground in a very big way. The large Federal debt and the commitments of current Federal financing impose a heavy managerial burden on the Treasury. A thorough understanding of the responsibilities of management and skillful application of financial techniques are necessary to keep our economy growing, fully occupied, and in reasonable balance. Professor Woodworth devotes a solid chapter each to Federal fiscal management and Federal debt management and explains how each of these affect the money market, the monetary system, and the economy. He then provides a well conceived, carefully-developed chapter to emphasize the need for coordination of monetary, fiscal, and debt management policies in order to keep the business cycle under control so that our economy can develop fruitfully and significantly without erosion of the value of the dollar. Responsibility for coordination he places on the Congress, the Treasury, and the Federal Reserve, but he finds actual coordination to be deficient due to organizational defects and the failure of the Congress to delegate sufficient authority necessary to meet overall national economic objectives. In support of his position Professor Woodworth presents the main conclusions of the Commission on Money and Credit relating to coordination of policies. He also discusses other proposals briefly.

The final chapters of the book carry the reader through our experiences in monetary, fiscal, and debt management from 1914 through 1963. The author does not develop the chronology in detail nor is this necessary for his purposes. Nevertheless, he deals with the highlights adequately. And with understanding and equity he calls attention to vital decisions which were rightly or wrongly made.

The author provides a twenty-eight page Appendix for those readers who wish to understand or to review the mysteries of the expansion and contraction of the money supply under a fractional legal reserve system. He also supplies references to leading books and monographs at the end of many chapters.

In summary, Professor Woodworth has woven together his materials with the skill and perception of the scholar. His background, experience, and reflection provide a significant contribution to the literature in the field. His book deserves to be read widely, especially by bankers, government officials, and members of Congress.

Professor of Economics