Published by EH.NET (June 2006)

R.W. Hafer, The Federal Reserve System: An Encyclopedia. Westport, CT: Greenwood Press, 2005. xxxii + 451 pp. $95 (hardback), ISBN: 0-313-32839-0.

Reviewed for EH.NET by Daniel Giedeman, Department of Economics, Grand Valley State University.

In the preface to The Federal Reserve System: An Encyclopedia, R.W. Hafer states: “The purpose of the book is to provide an introduction to the Federal Reserve and related topics. … If successful, this will be the first, not the last, book that you’ll read on the subject of the Federal Reserve.” By this standard, the Encyclopedia is a solid accomplishment as it provides clear and accessible expositions on a wide variety of topics related to the Federal Reserve System. Hafer, currently the Chair of the Department of Economics and Finance at Southern Illinois University, Edwardsville, served for a decade as a Research Officer at the Federal Reserve Bank of St. Louis, a position that clearly prepared him well to author this volume.

In total, the Encyclopedia contains 280 entries on an array of subjects including bank legislation and regulation, the commercial banking system, the conduct and goals of monetary policy, financial market panics, macroeconomics, policy credibility, policy transmission mechanism and problems in banking. The volume also contains approximately forty biographical entries on various Fed chairmen, U.S. presidents and members of Congress, traditional academic economists and other persons of relevance. (Additionally, Appendix B of the volume gives a chronological list of every Federal Reserve Board Chair, Vice-Chair and Member of the Board of Governors.)

The average entry length is approximately 700 words, but the lengths of entries vary fairly widely (the entry for Nancy Hays Teeters, for example, is only 75 words long while Hafer discusses the Great Depression for more than 2700 words). The entries are generally concise, comprehensible and self-contained (a key benefit for Hafer’s general audience that allows readers to quickly learn about the topic in which they are interested without having to invest significant time reading background material). Almost all entries end with suggestions for further reading, the majority of which are books or articles published in the various Federal Reserve Banks’ reviews.

With regard to economic history, the Encyclopedia opens with a thirteen page introduction outlining the history of central banking in the United States from Alexander Hamilton to the September 11th terrorist attacks of 2001. This introduction, which nicely provides historical context for the Federal Reserve and the development of monetary policy, ends with a reference list of twenty-six suggested books for further reading. In addition to the focus on history in the introduction, Hafer has incorporated history throughout the Encyclopedia, helping his readers to learn not just what the Federal Reserve is today, but also to understand the historical experiences that have shaped the Fed over time. Readers who take the time to read the entire volume (or at least find their way to the appropriate entries) will find that it provides a nice history of thought concerning the development of monetary policy in the United States.

By my rough count, approximately one third of the entries in the Encyclopedia have at least some historical bent to them. While some entries, such as “First Bank of the United States,” “Panic of 1907” and “Banking Act of 1933,” are for obvious reasons almost entirely historical in nature, Hafer also often places potentially ahistorical entries into their historical context. The entry on “Investment Banks,” for example, includes a paragraph discussing investment banking activities in the 1920s prior to the passage of the Glass-Steagall Act, while almost half of the four page entry on “District Federal Reserve Banks” focuses on the process of determining in which cities district banks would be located. Many of the biographical entries are a nice source of historical content (for instance, the entry for Nelson Aldrich contains a discussion of “Silver Republicans”). The biographical entries are also useful for tracing the evolution of ideas related to the implementation of monetary policy.

Despite my overall favorable impressions of Hafer’s volume, I do have a few minor quibbles. When I teach my course in Money and Banking, a question that comes up almost every semester is “Who owns the Fed?” While this question is answered in Appendix A of the book, which provides the Federal Reserve Act itself, Hafer’s target audience would likely find useful a separate entry devoted specifically to the topic of ownership of reserve bank stock. I mention this, in part, because there is currently no lack of misinformation available to the public concerning the “secretive and powerful Federal Reserve Bank” (as the back cover of the Encyclopedia itself describes the Fed) and Hafer’s book could have worked better to counter false or misleading information. Another slight modification readers might have found useful would have been if Hafer had augmented Appendix C to not only list the Federal Reserve Regulations and give their purpose, but also to have given the dates of their enactment, modification, and repeal, if applicable.

In summary, Hafer has succeeded in creating a concise, coherent, eminently readable introduction to the Federal Reserve System. While I think the Encyclopedia would be of somewhat limited usefulness for economics researchers, it will undoubtedly prove helpful to students and interested laypersons. Instructors, particularly those teaching Money and Banking or Macroeconomics, will likely find the volume useful in their courses and I also expect that instructors teaching economic or financial history will find ways to utilize the book in their classes. College libraries should add the Encyclopedia to their collections. High-school and public libraries would also benefit their readers by putting a copy of the book on their shelves.

Daniel Giedeman’s publications include “Branch Banking Restrictions and Firm Finance Constraints in Early-Twentieth-Century America,” Journal of Economic History (2005).