The “Riefler-Keynes” Doctrine and Federal Reserve Policy in the Great Depression

Histories of the Federal Reserve have argued that up through the Great Depression it adhered to a “real bills” or “Riefler Burgess” conception of monetary policy, which caused it to focus on short-term borrowing as an indicator of the stance of monetary policy. This article argues that new institutionalist monetary theories had a substantial influence on the Federal Reserve from the beginning of the Depression and pushed the Federal Reserve to focus on reducing interest rates on long-term assets and encouraging bank investments in such assets. This article will show how these ideas caused the Federal Reserve to ignore other indicators of the tightness of monetary policy.