Working Papers

January 2018, No. 18-02

Allan Meltzer: How He Underestimated His Own Contribution to the Modern Concept of a Central Bank

Robert L. Hetzel

In his great work A History of the Federal Reserve System, vol. 1, Allan Meltzer contended that monetary policymakers in the Depression simply ignored the quantity theoretic prescriptions that would have prevented contractionary monetary policy. Practically, he was arguing that the Fed should have accepted the responsibilities for economic stabilization now taken for granted with the modern concept of a central bank. In reality, decades of monetarist criticism had to pass before the Fed accepted both responsibility for the behavior of the price level and economic stabilization. In effect, Meltzer’s contention about the self-evident truth of quantity theory ideas ignored the monumental task that lay ahead for the monetarists.

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