ABSTRACT
This chapter describes briefly the alternative theories of Federal Reserve behavior. The major differences between the theories are emphasized, additional information is included, and finally a synthesis is attempted in hopes of arriving at testable hypotheses about Federal Reserve behavior. The theory of Friedman and Schwartz is therefore that Federal Reserve policy changed after 1929 because the leadership of the Fed changed. In particular, after Strong's death, the leadership of the Fed passed to people who were far less capable of pursuing policies appropriate to economic and financial recovery because of a lack of understanding of the economic system. The method by which open market operations influenced interest rates was spelled out in what Wicker calls the Burgess-Strong doctrine. It is reasonable to believe that Federal Reserve policy prior to 1928 was influenced by the desire to achieve both domestic and international goals.
