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ity able to determine the quantity of money in the United States and to affect international financial conditions throughout the world.
A Discretionary Monetary Authority
The establishment of the Federal Reserve System was the most notable change in United States monetary institutions since at least the Civil War National Banking Act. For the first time since the expiration of the charter of the Second Bank of the United States in 1836, it established a separate official body charged with explicit responsibility for monetary conditions, and supposedly clothed with adequate power to achieve monetary stability or, at least, to prevent pronounced instability. It is therefore instructive to compare experience as a whole before and after its establishmentsay, from just after the Civil War to 1914 and from 1914 to date, to take two periods of equal length.
The second period was clearly the more unstable economically, whether instability is measured by the fluctuations in the stock of money, in prices, or in output. Partly, the greater instability reflects the effect of two world wars during the second period; these would clearly have been a source of instability whatever our monetary system. But even if the war and immediate postwar years are omitted, and we consider only the peacetime years from, say, 1920 through 1939, and 1947 to date, the result is the same. The stock of money, prices, and output was decidedly more unstable after the establishment of the Reserve System than before. The most dramatic period of instability in output was of course the period between the two wars which includes the severe contractions of 192021, 192933, and 193738. No other twenty-year period in American history contains as many as three such severe contractions.
This crude comparison does not of course prove that the Federal Reserve System failed to contribute to monetary stability. Perhaps the problems that the System had to handle were more severe than those that impinged on the earlier monetary structure. Perhaps those problems would have produced an even greater degree of monetary instability under the earlier arrangements. But the crude comparison should at least give the reader

 
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