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Allan Meltzer's "History of the Federal Reserve, Volume Two"
Offers Thoughtful Look Back and Vision for the Future
Highlights include the institution's key players, successes, failures and responses
to global economic events from 1951 to 1986; epilogue addresses 2007-2009 financial crisis
PITTSBURGH—"Monetary policy has done what it can do to help the recovery ... [It] was easy to get into a pattern of activity where we think that, by just easing money or increasing expenditures or raising a deficit, we can achieve certain things."
So said Federal Reserve Chairman William McChesney Martin Jr. in 1962, advocating for tighter economic policy in the wake of recession. This seemingly familiar passage — one of thousands cited in "A History of the Federal Reserve, Volume 2" (University of Chicago Press, 2010) by world-renowned economist Allan H. Meltzer — serves as a reminder of how in-depth knowledge about the past can help inform key decisions affecting the future.
Meltzer serves as The Allan H. Meltzer University Professor of Political Economy at the Tepper School of Business at Carnegie Mellon University. He is widely considered the preeminent expert on the Federal Reserve System, and his first volume of this history, published in 2003, has been lauded as the landmark work on the U.S. central banking system.
Building on that volume, Meltzer chronicles the evolution of the Fed from the final years of Harry Truman's Presidency through Ronald Reagan's second term in office, and includes an epilogue on the recent global economic crisis. The book is divided into two parts:
- The first examines how the Keynesian revolution affected the Fed; the reorganization of the system; and the emergence of domestic inflation in the early 1960s.
- The second follows the bank's history from the rise of international inflation and the energy crisis during the Nixon and Carter years to the eventual decline of inflation during the 1980s.
Throughout the book, Meltzer assesses the Fed's responses to global economic events and argues that the Fed's independence too often was compromised by the active policymaking roles of Congress, the Treasury, different presidents and even White House staff, who frequently pressured the bank to take a short-term view of its responsibilities.
In the comprehensive epilogue, Meltzer offers solutions for how to improve the Federal Reserve in these uncertain times. He argues that as a regulator of last resort, the institution should focus more attention on incentives for reform, medium-term consequences and rule-like behavior for mitigating financial crises. Less attention should be paid, he contends, to command and control of the markets and the noise of quarterly data.
According to Meltzer, events covered in "Volume 2" offer lessons to help guide current and future policymakers. For example, he points to the inflationary era of the 1970s, when the Fed bowed to pressure concerning unemployment and resisted raising interest rates. The result: inflation and unemployment both rose. Meltzer worries that concerns about today's unemployment rates will bring about a similar outcome.
"Our history, successes and failures alike, must help inform our understanding of what policies yield the most promising economic environments, and when," Meltzer said. "This is more important than ever given the still-shaky economy, but sadly, we seem likely to repeat too many mistakes."
The multi-part "A History of the Federal Reserve, Volume 2" is available for purchase for $75.00 per book.