The world lost a great champion of liberty with the passing of Allan Meltzer on May 8, 2017, at the age of 89. A longtime Professor of Political Economy at Carnegie Mellon University, Allan was a prodigious worker who wrote hundreds of articles and more than ten books, including his monumental A History of the Federal Reserve and more recently Why Capitalism? The latter provides a strong defense of limited government, the rule of law, private property, and free markets, which he saw as the surest means to increase the wealth of nations.
A Passion for Ideas and Policy
Allan had a passion for ideas and a desire to influence policy; he sought to make the world a better place by safeguarding economic and personal freedom. He became a major player in the marketplace for ideas--writing, teaching, advising policymakers, serving on editorial boards, cofounding the Shadow Open Market Committee and the Carnegie-Rochester Conference Series on Public Policy with his close colleague and lifelong friend Karl Brunner, acting as president of the Mont Pelerin Society founded by F. A. Hayek, serving on the Council of Economic Advisers, chairing the International Financial Institution Advisory Commission (also known as the "Meltzer Commission"), and participating in numerous conferences. (1) He continued working right up until his death.
A Giant in Monetary Economics
I first met Allan in the early 1980s, when he began to participate in Cato's Annual Monetary Conference. His paper "Monetary Reform in an Uncertain Environment" was delivered at the first conference, in January 1983, and published in the Cato Journal later that year; it was reprinted in The Search for Stable Money (University of Chicago Press, 1987), a book Anna J. Schwartz and I coedited.
In that article, Allan examined alternative monetary regimes and their implications for reducing risk and uncertainty. He sought a rules-based regime that would minimize uncertainty and best allow markets to flourish. He preferred, at die time, a quantity rule that would have the monetary base grow in line with the growth of real output adjusted for changes in the velocity of base money. Such a rule, he argued, would anchor expectations regarding the path of nominal income and achieve long-run price stability. However, the rule had to be credible and be supplemented with a fiscal mie that limited the taxing and spending powers of government. He did not want the Fed to finance government deficits or to allocate credit.
It is important to note that Allan was not opposed to private money. At the 1983 monetary conference, he argued:
Individuals or groups should be permitted to issue and use privately produced money or monies.... The objective of policy rules is to reduce the uncertainty that the community must bear, not to prevent voluntary risk taking [Meltzer 1983: 109].
Allan was open-minded and was willing to change his policy advice based on logic and evidence.
He continued to participate in Cato's Annual Monetary Conference for many years and contributed 15 articles to the Cato Journal (Table 1). Although he was often critical of Fed policy, he thought Paul Volcker was correct in ending double-digit inflation by slowing the growth of money and credit, and that Alan Greenspan was correct in following an implicit monetary rule to prevent wide fluctuations in nominili income during the "Great Moderation."
Meltzer, however, was highly critical of the Fed's unconventional monetary policy and wrote in the Spring/Summer 2012 Cato Journal:
Overresponse to short-run events and neglect of longer-term consequences of its actions is one of the main errors that the Federal Reserve makes repeatedly. The current recession offers many examples of actions that some characterize as bold and innovative. I regard many of these actions as inappropriate for an allegedly independent central bank because they...