It is difficult because economic theory cannot explain everything and theory is constantly evolving as knowledge about people and institutions improves (that is to say, as new ideas emerge). But Meltzer's words remind us-or should remind us-that monetary policymaking is difficult. This is as it should be in a democracy, since central banks are not ex nihilo creations. Today, as in many periods in the past, the actions of central bankers in the United States, Europe, and elsewhere are under intense scrutiny. Most policy decisions and actions apply a framework based on prevailing beliefs. These and other episodes show that leadership was important at times. Allan Sproul led the Federal Reserve toward independence from the Treasury in 1950-51. In 1927 he lowered interest rates and expanded money to help Britain maintain the gold standard. ![]() Strong led the Federal Reserve to support Britain's return to the gold standard in 1924-25. Individuals matter most when they are able to lead others to act in ways that do not fit comfortably within the prevailing orthodoxy. He proposed selective credit controls to substitute for higher interest rates and slower growth. Later he believed that the Federal Reserve did not have the political support to use general monetary policy to prevent inflation after World War II. ![]() Marriner Eccles believed monetary policy could do nothing in the 1930s when short-term interest rates were low, so he did nothing to lift the economy from the depression. Benjamin Strong in the 1920s recognized the need to replace the gold standard rules and the commercial loan theory, on which the founders based the Federal Reserve Act. Individual leaders influenced decisions most effectively by introducing new or different ideas or new interpretations. The beliefs or theories that guided the Federal Reserve were mostly mainstream beliefs at the time they were held. Men and women interpret events using the theories or beliefs learned earlier. Much of this history is about their reasons and their reasoning-what it was and how it changed in response to events and new ideas. They acted as they did because of the beliefs they held about their responsibilities and about the way their actions affected the economy. They did not fail to stop the depression because they liked the outcome and wanted it to continue. They did not directly seek the outcomes that their decisions helped to bring about. The men who made these decisions were not chicane or evil. These decisions produced very different results: a steep postwar recession in 1920-21, a period of stability in the 1920s followed by the Great Depression of the 1930s and, much later, the Great Inflation of the 1970s. ![]() The chapters that follow allow the participants to explain their actions, and the reasons for them, in their own words. 7-8:Ī history of the Federal Reserve is a history of the decisions made and the ideas that prompted them. In his introduction to the first volume, former Fed Chairman Alan Greenspan wrote that Meltzer's work was both "stimulating and provocative." We can see Meltzer's penetrating analysis of Fed history and performance from this extended quote in Volume 1, 1913-1951, pp. To the public and many economists, Meltzer is perhaps best known for his magisterial two-volume work, A History of the Federal Reserve. He delivered the Homer Jones Memorial Lecture in 1991. He visited the Bank numerous times and participated in several economic policy conferences. Meltzer had a long-standing association with the Federal Reserve Bank of St. He carefully documented these episodes up until the mid-1980s. Meltzer, who recently passed away at the age of 89, was the Fed's most important economic historian. ![]() The Fed has been embroiled in many of the economic disruptions that have occurred since its founding in late 1913. The Federal Reserve System celebrated its 100th anniversary a few years ago.
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