Many questions about the conduct of monetary policy are timeless: What should be the goals of policy? How should policy be carried out in the face of potentially conflicting objectives? How should the monetary authority be organized so as to maximize its performance? Should it be forced to follow legislated rules, or should policy makers be allowed a measure of discretion? Dissatisfaction with economic events – high inflation in the 1970s, a steep recession in the early 1980s, and financial instability throughout the 1980s – has maintained public focus on the institutions and regulations charged with managing the banking and monetary system.

This book examines the strategy and consistency of Federal Reserve (“Fed”) monetary policy from 1924 to 1933. While there is now general agreement that monetary policy was mishandled during the Great Depression, there is no consensus about the causes of Fed mistakes. Were institutional factors to blame? Did leadership and other organizational changes produce a change in Fed responsiveness to economic conditions? Or did the Fed maintain a consistent policy, which became inappropriate in the face of changed circumstances? Answers to these questions would help us to better understand the role of monetary policy in the Great Depression and thus suggest how the institutions and conduct of monetary policy could be designed to avoid similar mistakes in the future.

This book is a substantial revision of my doctoral dissertation, which was completed at the University of Illinois in 1987.