The Federal Reserve's Tight Monetary Policy During the 1973-75 Recession: A Survey of Possible Interpretations

Abstract

This paper uses a case study of the Federal Reserve's behavior during the 1973-75 recession to distinguish the radical political economic approach from the mainstream theories of monetary policy. Archival evidence is used to show that the mainstream theories fail to explain the Federal Reserve's behavior because of an implicit assumption that monetary policy is a technical means for stabilizing the economy at full employment with price stability. In contrast, the radical political economic approach is shown to account for the Federal Reserve's behavior as a political effort to redistribute income from labor to capital.