Credit Policies of the Federal Reserve System

In the post-war period, and especially in the years just preceding the recession of 1929, increasing attention was given to the problem of effecting business and financial stability, and increasing confidence was expressed that the necessary agencies of stabilization were being developed. Among such agencies the Federal Reserve system was generally accorded a prominent place. Although the System was originally conceived chiefly as a means of preventing banking panics and of providing an elastic currency, it came in this post-war period to be looked to by a considerable number of people as an instrumentality for accomplishing business and price stability. The ability of the Federal Reserve system to determine or influence interest rates, to buy and sell government securities in the open market, and to deal in gold was frequently set forth as an influence which should go far toward mitigating or abolishing cycles of business boom and depression.

The Reserve system was still in its formative stages when the World War came upon us, and the war period was characterized by problems of an extreme and specialized character. But in the post-war period there has been considerable opportunity to test the ability of a central banking system in the United States to accomplish the ends of economic stabilization which were hoped for. In the present volume Mr. Hardy deals with the fundamental problems of central banking policy, namely, the purposes which an organized banking system should seek to accomplish, the efficiency of the means which such a system has at its command, and the tests by which it can gauge the success of its efforts. The rapid changes of national and international conditions since the war have stimulated the process of adapting the Reserve system’s machinery to the satisfaction of new needs and of old needs newly recognized. It is hoped that this analysis of post-war credit policies may contribute to a fairer appraisal of the services of the Reserve system as well as of the limitations within which it must necessarily function.

The committee from the staff of the Institute of Economics who served with the director in co-operating with the author in the preparation of this volume included Harold G. Moulton and Frieda Baird.

Edwin G. Nourse

Director

Institute of Economics

August 1932