not been characterized by intellectual honesty and analytical consistency. Some years before his appointment as vice chairman of the Federal Reserve Board, the highly respected academic economist Alan Blinder, in comments on the Fed's goals in the early 1980s, found the FOMC to "place far more weight on low inflation, and far less weight on high employment, than the goals of the body politic . . . the Fed sets up smoke screens - just as its professed conversion to monetarism in 1979 was a smoke screen for pushing interest rates up." Blinder was pointing to the Fed's deliberate deceptions in public statements - "fondness for baloney", as he called it, that were a cover-up for "surreptitiously promoting unemployment" (Blinder, 1994). All in the name of fighting inflation! More recently, former Chairman Henry B. Gonzalez of the U.S. House Committee on Banking, Finance and Urban Affairs released a study detailing the Fed's concerted efforts to conceal from the public and Congress secret transcripts of its FOMC meetings. For seventeen years the Board concealed these secret transcripts, and in late 1993 deliberately planned to deceive and mislead the Congress in testimony before the House Banking Committee (U.S. House of Representatives, 1994). These troubling relations with Congress and the larger public reflect in large part the divergent slants on central bank independence as viewed from Capitol Hill and the Board of Governors. While these problems should be rather easily corrected, the Fed faces a far more intransigent problem. There is no adequate theory of inflation to guide the FOMC in designing and carrying out an effective anti-inflationary policy. Monetary policy is still approached from the theoretical perspective of the quantity theory of money, a nineteenth-century conception inappropriate as we enter an entirely different twenty-first-century system of institutions, using very different means of payment and financial instrumen...
