Confronting Monetary Policy Dilemmas: The Legacy of Homer Jones

Article excerpt

This article first appeared in the March 1987 issue of Review. Federal Reserve Bank of St. Louis Review, November/December 2013, 95(6), pp. 455-60.

It is an honor to deliver this first annual lecture in memory of Homer Jones. I first became acquainted with Homer when writing my thesis at the University of Chicago, and I found some of his writings to be particularly useful. When Homer later became Director of Research at the St. Louis Federal Reserve Bank, it was--like many things in life--not particularly momentous in itself, but the implications for monetaiy economics were certainly important. In his priceless style, Harry Johnson described Homer Jones as "... an oasis in the desert that Keynesian economics and concern with credit had made of the Federal Reserve System, [and] the last outpost of classical monetary civilization in a cancerous culture of barbarian bumptiousness." Only an academic, of course, could say something like that--and about an era that fortunately has long passed at the Federal Reserve.

Homer Jones should be remembered for many things, not the least of which is the many people whose intellectual development he shaped and whose professional lives he fostered. He was one of Milton Friedmans first teachers--not in economics, but in insurance and statistics. Milton credits him for providing the inspiration that sparked his initial interest in economics, as well as something more tangible--getting him a scholarship to attend the University of Chicago. And, of course, Homer had a strong influence on the professional lives of the many economists who worked for him in his years at the St. Louis Fed.

Homer had an intense respect for the market system; that permeated both his economic analysis and his views about economic policy. His basic policy prescriptions in macroeconomics reflected this free market orientation: a distrust of the efficacy of fine-tuning and a fundamental belief in the inherent stability of a free market economy. His reliance on the market approach to problems also extended to international issues, labor market issues, and regulatory policy. From my perspective, the extent to which such principles have become more generally accepted as a basis for public policy decisions is remarkable, not only in the United States, but in other countries as well. Both as an Undersecretary at Treasury and as CEA [Council of Economic Advisers] Chairman, I have been involved, along with officials from other governments, in policy discussions on issues ranging from agriculture to tax reform. In governments around the world, there is a greater recognition of the efficiency of the market system in pricing goods and allocating resources. While much progress can still be made toward improving public policy analysis and discussion, the movement toward greater reliance on market forces is one I applaud, as I am sure Homer would as well.

One particular area where we have made substantial progress by relying on market forces is in the deregulation of financial markets and institutions. Regulations on interest rates paid by financial institutions to their depositors have been eliminated. Restrictions on competition within classes of financial institutions and between different classes have been reduced. In this area, however, more needs to be accomplished, and I suspect that Homer would share my desire to see rapid progress on the administrations proposals for further financial market deregulation.

It was difficult to be around Homer without learning a great deal from him. He had a remarkable ability to focus on the practical issues and an impatience with intellectual pretense and academic irrelevancy. His technique was to put questions to you--always pertinent questions, frequently penetrating questions, sometimes relentless questions. In so doing, he forced you to understand and articulate what you knew, while discovering what you did not know. He had a truly unusual ability to stimulate you to search for the answers. …