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It is a great pleasure to be part of this
celebration for the publication of this remarkable book,
volume I of Allan Meltzer's History of the Federal
Reserve. As Allan notes (in his preface), this
project has been nearly thirty years in the making. I
understand that the first draft of his analysis of the
failure of monetary policy during the 1930s (chapter 5)
dates back to 1966. After what has surely been the most
exhaustive examination to date of records of policy
discussions at the Board of Governors and the Federal
Reserve Bank of New York, Allan has provided what is, by
far, the most detailed analysis of Federal Reserve policy
through the Federal Reserve-Treasury Accord of 1951. The
outcome is certain to be recognized as an indispensable
input for monetary economists and economic historians
alike.
Volume I takes us through the evolution
of the Federal Reserve as an institution, from its birth
as a decentralized, partly private institution with
diffuse power to its later development into a central bank
with semi-autonomous banks that became part of a unified
system. The exposition highlights the importance of
structuring a system with appropriate incentives and
safeguards as a precondition for sound policymaking. But
it also focuses on elements that the Federal Reserve
System's founders perhaps could not have anticipated,
including the early internal power struggles and the
profoundly challenging economic and political events,
which contributed to policy errors. Over the years we have
become more knowledgeable about how the economic
environment evolves. But to our predecessors, much was
virgin policy territory. It is no wonder that many of
their initiatives went astray.
Allan successfully weaves into the story
the interaction of economic ideas with events and policy
decisions and highlights how the prevalence of
misperceptions and incorrect beliefs, perhaps induced by
academic theories of the day, contributed to policy
errors. One may not always agree with the conclusions
regarding specific episodes or their interpretation, but
any disagreement would not take away from one's
appreciation of the perceptive description of the
underlying events, debates and policy actions.
History teaches us that no matter how
well intentioned economic policies and decisions may be,
policymakers never can possess enough knowledge of the
complexities of the economy nor sufficiently foresee
changes in the economic environment to avoid error. But
history can and does provide examples that can help guide
policymakers away from repeating the worst mistakes of the
past. Indeed, only through an understanding of historical
precedents can we continue to improve our policies. In
this regard, one cannot be overly appreciative of Allan's
contributions in this and his other important works over
the years.
I would like to end my remarks on this
monumental thirty-year effort with but one request. Could
we put volume II on a track that's a tad faster?
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