All of us who are interested in the century-long experience of central banking in the United States owe a great debt to Allan Meltzer. His several-years-long efforts gave us over 2,000 pages of careful documentation of decisionmaking in the Federal Reserve for the first 75 years (Meltzer 2003, 2010a, 2010b). The first score of years transformed a lender-of-last-resort, payments processor, and issuer of uniform national currency into a full-fledged central bank with discretionary authority to manage a fiat currency.
Even in the mid-1930s, then Senator Carter Glass declared that we did not have a central bank in the United States. However, legislation in 1933 and 1935 had institutionalized the Federal Open Market Committee (FOMC), which had previously been an informal coordinating committee.
In an interview several years before his death, Milton Friedman was asked about any regrets in his long career. He replied that he wished he had paid more attention early on to what Jim Buchanan had been saying about the behavior of politicians and bureaucrats (Friedman 2003). Any discussion about any institution of government can be fruitful only in the context of the public-choice elements of decisionmaking by individuals who occupy policymaking positions. For the past century, the economic theories of prominent personalities in the central bank’s policymaking bodies have been the dominant factors giving us the very mixed results we have witnessed.
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