Abstract
In December 1965, the US central bank, the Federal Reserve or “Fed,” unexpectedly raised the interest rate it charged on loans to banks by a half percentage point. President Lyndon Johnson was not pleased. “Those Marble Tower Boys!” was his derisive comment.1
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Notes
Robert E Bremner, Chairman of the Fed: William McChesney Martin Jr. and the Creation of the Modern American Financial System, Yale University Press, 2004, p. 1. President Johnson’s quotation is from his telephone call to Henry Fowler on December 5, 1965, in the tape library of the Lyndon B. Johnson Presidential Library, Austin, Texas.
Walter Bagehot, Lombard Street: A Description of the Money Market (1873), Greenbook Publications, LLC, 2010.
Also see Hugh Rockoff, “Walter Bagehot and the Theory of Central Banking,” in Forrest H. Capie and Geoffrey E. Wood, eds., The Lender of Last Resort, Routledge, 2007.
This last important point, with obvious implications for the contemporary “mark-to-market” controversy, is emphasized in Richard H. Timberlake, Monetary Policy in the United States: An Intellectual and Institutional History, The University of Chicago Press, 1978, 1993, p. 247.
Vera C. Smith, The Rationale of Central Banking and the Free Banking Alternative, Liberty Fund, 1990, p. 169.
Charles Goodhart, The Evolution of Central Banks, MIT Press, 1988. The first edition was issued in 1985 by the Suntory-Toyota International Center for Economics and Related Disciplines, The London School of Economics and Political Science.
Noam Chomsky, Reflections on Language, Pantheon, 1975, pp. 9–11;
quoted in Stephen Pinker, The Language Instinct: How the Mind Creates Language, Perennial Classics, 2000, pp. 9–10.
David E. Lindsey, A Modern History of FOMC Communication: 1975–2002, FOMC Secretariat, Board of Governors of the Federal Reserve System, June 24, 2003, p. 243. In August 2009 the FOMC Secretariat declassified the volume. In November 2012 the St. Louis Federal Reserve Bank made the document available on its FRASER document archive system at http://fraser.stlouisfed.org/docs/publications/books/20030624_lindsey_modhistfomc.pdf. It has been cited, for example, by Chairman Ben S. Bernanke in “A Century of Central Banking: Goals, Frameworks, and Accountability,” his remarks at the “The First 100 Years of the Federal Reserve: The Policy Record, Lessons Learned, and Prospects for the Future,” a conference sponsored by the National Bureau of Economic Research, Cambridge, Massachusetts, July 10, 2013. A revised version appeared in the Journal of Economic Perspectives 27, no. 4, Fall 2013.
For a more recent analysis of these issues, see Gary Gorton and Andrew Metrick, “The Federal Reserve and Panic Prevention: The Roles of Financial Regulation and Lender of Last Resort,” Journal of Economic Perspectives 27, no. 4, Fall 2013.
See as well David E. Lindsey and Henry C. Wallach, “Monetary Policy,” in John Eatwell, Murray Milgate, and Peter Newman, eds., The New Palgrave: A Dictionary of Economics, The Macmillan Press Limited, 1987.
Goodhart has continued to write about the history of central banking. See Forrest Capie, Charles Goodhart, and Norbert Schnadt, “The Development of Central Banking,” in Forrest Capie, Charles Goodhart, Stanley Fischer, and Norbert Schnadt, eds., The Future of Central Banking: The Tercentenary Symposium of the Bank of England, Cambridge University Press, 1994, reprinted 1997.
Also see C.A.E. Goodhart, “The Changing Role of Central Banks,” Bank for International Settlements, Working Papers, no. 326, November 2010.
Vera C. Smith, The Rationale of Central Banking and the Free Banking Alternative, Liberty Fund, 1990;
F.A. Hayek, Denationalization of Money—The Argument Refined: An Analysis of the Theory and Practice of Concurrent Currencies, 3rd ed., The Institute of Economic Analysis, 1990;
and Laurence H. White, Free Banking in Britain: Theory, Experience and Debate, 1800–1845, Cambridge University Press, 1984.
Ludwig von Mises, The Theory of Money and Credit, Yale University Press, 1953;
Murray Rothbard, What Has Government Done to Our Money? New Revised Edition, Rampart College Publication, 1974;
Ron Paul, End the Fed, 1st ebooked., Grand Central Publishing, 2009.
Milton Friedman, A Program for Monetary Stability, Fordham University Press, 1959.
Allan H. Meltzer, “Limits of Short-Run Stabilization Policy,” Economic Inquiry, 25, 1987,
and Bennett T. McCallum “Robustness Properties of a Rule for Monetary Policy,” Carnegie-Rochester Conference Series of Public Policy, 29, 1988.
An otherwise helpful speech about the trend toward more Federal Reserve transparency by then-Vice Chair Janet Yellen is marred by its neglect of the important role of the Fed’s initial felt need to protect itself against political pressure to impart excessive monetary stimulus. See Vice Chair Janet L. Yellen, “Revolution and Evolution in Central Bank Communications,” remarks at the Haas School of Business, University of California, Berkley, November 13, 2012.
For a survey of the literature, see Alan S. Blinder, Michael Ehrmann, Marcel Fratzscher, Jakob De Haan, and David-Jan Jansen, “Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence,” Journal of Economic Literature 46, no. 4, December 2008.
For Chairman Bernanke’s take on these issues, see Ben S. Bernanke, “Central Bank Independence, Transparency, and Accountability,” at the Institute for Monetary and Economic Studies International Conference, Bank of Japan, Tokyo, Japan, May 25, 2010. The views on these issues of Athanasios Orphanides, now professor of the Practice of Global Economics and Management at the MIT Sloan School of Management and former senior adviser, Division of Monetary Afairs, Federal Reserve Board, when he was governor of the Central Bank of Cyprus and member of the governing council of the European Central Bank, appear in two of his speeches: “Central Bank Independence,” October 21, 2008, and “Introductory Remarks on ‘The Role of Statistics in Central Bank Communication,’” October 20, 2010.
E.S. Browning, “Fed Faces Old Foe as Hazard Returns,” Wall Street Journal, August 29, 2011.
John Maynard Keynes, A Treatise on Money, Volume II, Macmillan, 1930; quoted in Athanasios Orphanides, “Drawing Lessons from Banking and Financial History for the Current Crisis,” welcoming address at the 2009 Annual Conference of the European Association for Banking and Financial History, May 15, 2009, p. 2.
John Maynard Keynes, The General Theory of Employment, Interest and Money, 1936;
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;
Allan H. Meltzer, A History of the Federal Reserve: Volume 1, 1913–1951, The University of Chicago Press, 2003.
See Michael D. Bordo, Owen F. Humpage, and Anna J. Schwartz, “U.S. Foreign Exchange-Market Intervention during the Volcker-Greenspan Era,” NBER Working Paper Series, Working Paper 16345, National Bureau of Economic Research, September 2010.
Frank James, “U.S. Is ‘Best Looking Horse in the Glue Factory’: Bowles,” It’s All Politics: Political News from NPR, December 1, 2010.
The discussion of silver draws on Richard H. Timberlake, Monetary Policy in the United States: An Intellectual and Institutional History, The University of Chicago Press, 1978, 1993, pp. 166–183.
Jeffrey A. Miron, “Financial Panics, the Seasonality of the Nominal Interest Rate, and the Founding of the Fed,” The American Economic Review, March 1986, p. 132.
Michael D. Bordo and David C. Wheelock, “The Promise and Performance of the Federal Reserve as Lender of Last Resort 1914–1933,” 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, p. 5, in Michael D. Bordo and William Roberds, eds., The Origins, History, and Future of the Federal Reserve: A Return to Jekyll Island, Cambridge University Press, 2013, pp. 63–64.
In a recent article Bernanke himself reviewed the salient features of the Federal Reserve’s history. See Chairman Ben S. Bernanke, “A Century of U.S. Central Banking: Goals, Frameworks, Accountability,” remarks at “The First 100 Years of the Federal Reserve: The Policy Record, Lessons Learned, and Prospects for the Future,” a conference sponsored by the National Bureau of Economic Research, Cambridge, Massachusetts, July 10, 2013. A revised version appeared in The Journal of Economic Perspectives 27, no. 4, Fall 2013.
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Lindsey, D.E. (2016). Introducing the Book. In: A Century of Monetary Policy at the Fed. Palgrave Studies in American Economic History. Palgrave Macmillan, New York. https://doi.org/10.1007/978-1-137-57859-4_1
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