The Money Managers and the Boom

There is little or no dispute among economists about whether recent fiscal policy—particularly the 1964 tax c u t - stimulated the economy. Moreover, there is ample evidence that output and employment expanded in the months following the tax cut. A far more interesting subject, about which there is much more dispute, is the contribution of monetary policy to the expansion. Monetary policy in 1964-65 is often described as "neutral," "mildly contractive" or "less' easy" in popular discussion, or in public statements by economists. Fiscal policy is assigned the decisive role in stimulating the economy toward its present prosperous state. But this interpretation of monetary policy has no basis in fact. From September, 1962 to September, 1965 the Federal Reserve pumped almost $7 billion of bank reserves and currency into the economy, an expansion of more than 14 per cent in the measure of monetary policy that is called the monetary base. There are few peacetime periods in the history of the Federal Reserve System when the monetary base expanded as much and as long as it has in recent years. To put the same point in another way, there are few peacetime periods in which monetary policy has been as expansive as it has been recently.