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Growing Pains: Being Born after Panic and Experiencing Childhood in the Great Depression—December 1913–August 1935

  • David E. Lindsey
Part of the Palgrave Studies in American Economic History book series

Abstract

The Federal Reserve Act created a quasi-public entity that would establish an “elastic currency,” serve as the lender of last resort, mute the seasonal movements in interest rates, supervise member banks, manage the payments system, and encourage check clearing at par without charge.1 The law intended the new agency to foster much greater financial stability. This second chapter traces out the patterns of monetary policy during the first 22 years of the Fed’s existence.

Keywords

Interest Rate Monetary Policy Central Bank Federal Reserve Great Depression 
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Notes

  1. 1.
    The discussion of the founding and early years of the Federal Reserve System draws on Michael D. Bordo, “Review of A History of the Federal Reserve Volume 1 (2003) by Allan H. Meltzer,” Journal of Monetary Economics 53, no. 3, April 2006;Google Scholar
  2. Sayre Ellen Dykes and Michael A. Whitehouse, “The Establishment and Evolution of the Federal Reserve Board: 1913–23,” The Federal Reserve Bulletin, April 1989;Google Scholar
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  7. and Allan H. Meltzer, A History of the Federal Reserve: Volume 1, 1913–1951, The University of Chicago Press, 2003, pp. 65–135.Google Scholar
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    J. Alfred Broadus, “Central Banking—Then and Now,” Federal Reserve Bank of Richmond, Economic Quarterly 79, no. 2, Spring 1993, pp. 4–5.Google Scholar
  9. 3.
    Abbreviated minutes of the open market committee were maintained, but only for internal use. (Robert D. Auerbach, Deception and Abuse at the Fed: Henry B. Gonzales Battles Greenspan’s Bank, 2008, Amazonkindle, Location 2756.)Google Scholar
  10. 4.
    Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States: 1867–1960, A Study by the National Bureau of Economic Research, Princeton University Press, 1963, p. 240.Google Scholar
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    Christina D. Romer, “A Financial Crisis Needn’t Be a Noose,” New York Times, December 17, 2011.Google Scholar
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    Allan H. Meltzer, A History of the Federal Reserve: Volume 1: 1913–1951, The University of Chicago Press, 2003, p. 167.Google Scholar
  26. These measures by themselves warrant Barry Eichen-green’s earlier assessment, “The tightening of Federal Reserve policy in 1928–29 seems too modest to explain a drop in U.S. GNP between 1929 and 1930 at a rate twice as fast as typical for the first year of recession.” (Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression 1919–1939, Oxford University Press, 1995, p. 14.)Google Scholar
  27. 21.
    Treasury bill rates in real terms similarly ramped up, since on balance actual and predicted quarterly inflation both stayed near zero over this interval. (Allan H. Meltzer, A History of the Federal Reserve: Volume 1, 1913–1951, The University of Chicago Press, 2003, p. 258.)Google Scholar
  28. 22.
    On the gold standard’s constraint on monetary policy, see Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression 1919–1939, Oxford University Press, 1995, and, for a convincing contrary view, Charles W. Calomiris, “Volatile Times and Persistent Conceptual Errors: U.S. Monetary Policy 1914–1951,” Federal Reserve Bank of Atlanta and Rutgers University, a paper prepared for the Federal Reserve Bank of Atlanta Conference Commemorating the 100th anniversary of the Jekyll Island Conference, Jekyll Island, Georgia, November 5–6, 2010, pp. 29–35,Google Scholar
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  30. 23.
    Ben S. Bernanke, Essays on the Great Depression, Princeton University Press, 2000.Google Scholar
  31. 25.
    Allan H. Meltzer, A History of the Federal Reserve: Volume 1, 1913–1951, The University of Chicago Press, 2003, p. 388.Google Scholar
  32. 26.
    Stephen M. Davidoff, “The End of the Beginning for Financial Reform,” New York Times DealBook, May 21, 2010; “Not All on the Same Page,” The Economist, July 1, 2010.Google Scholar

Copyright information

© David E. Lindsey 2016

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  • David E. Lindsey

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