Monetary Policy in the United States: An Intellectual and Institutional History.

• Author: Hammond, J. Daniel

The first half of this book is a reprinting with minor editing of Timberlake's 1978 book, The Origins of Central Banking in the United States. These chapters (1-9, 11-13, and 15-16) trace the development of the idea of central banking - that an authority should exercise control over the monetary and banking system to stabilize trade - in Congressional speeches and testimony and statements of policymakers from the 1790s up to the advent of the Federal Reserve. Though he gives limited attention to the ideas of economists, Timberlake's primary attention is to the ideas of people directly involved in public policy.

Timberlake's thesis is that "central banking was made, not born, and that it evolved as a pragmatic and opportunistic action when favorable circumstances set the stage." By this he means that there was no decision by authorities that the central banking function was necessary and no deliberate decision to charge an institution with carrying out the function. More often than not the institutions that came to perform central banking were initially proscribed from doing so. For example, in the 1790s arguments were made in favor of the First Bank of the United States as a national bank and as a fiscal agent of the Treasury, but not as a counter-cyclical regulator of the money supply. But in fact the First Bank became the first institution to perform central banking in the U.S. Even the Federal Reserve was designed so as not to give the appearance of being a central bank.

To this previously published history of the evolution of central banking ideas and practices up to the Federal Reserve, Timberlake has added chapters 10, on the origin and judicial sanction of greenback currency, and 14, on the central banking activities of private clearinghouse associations in the latter half of the nineteenth century. There are another eleven new chapters that bring the history through the Federal Reserve period to 1991. In the Federal Reserve era, when one would presume that the central banking function was well understood, Timberlake emphasizes the way political pressures prevented the Fed from carrying out the function effectively. The Fed continued through much of the period to serve the same function for which the First Bank of the United States was created, acting as a fiscal agent for the Treasury. Seigniorage rather than business cycle stability was the Fed's object.

Timberlake's benchmark for evaluating the Fed's performance is the nineteenth...