Allan H. Meltzer’s critically acclaimed history of the
Federal Reserve is the most ambitious, most intensive, and
most revealing investigation of the subject ever conducted.
Its first volume, published to widespread critical acclaim
in 2003, spanned the period from the institution’s founding
in 1913 to the restoration of its independence in 1951. This
two-part second volume of the history chronicles the
evolution and development of this institution from the
Treasury–Federal Reserve accord in 1951 to the mid-1980s,
when the great inflation ended. It reveals the inner
workings of the Fed during a period of rapid and extensive
change. An epilogue discusses the role of the Fed in
resolving our current economic crisis and the needed reforms
of the financial system.
In rich detail, drawing on the Federal Reserve’s own
documents, Meltzer traces the relation between its decisions
and economic and monetary theory, its experience as an
institution independent of politics, and its role in
tempering inflation. He explains, for example, how the
Federal Reserve’s independence was often compromised by the
active policy-making roles of Congress, the Treasury
Department, different presidents, and even White House
staff, who often pressured the bank to take a short-term
view of its responsibilities. With an eye on the present,
Meltzer also offers solutions for improving the Federal
Reserve, arguing that as a regulator of financial firms and
lender of last resort, it 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.
At a time when the United States finds itself in an
unprecedented financial crisis, Meltzer’s fascinating
history will be the source of record for scholars and policy
makers navigating an uncertain economic future.
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