[In 1926] a group of bankers, among them . . . one with a world famous name were sitting at a table in a Washington hotel. One of them had raised the question whether the low discount rates of the system were not likely to encourage speculation. "Yes" replied the conspicuous figure referred to, "they will, but that can not be helped. It is the price we must pay for helping Europe."
H. Parker Willis1
Speculation plagued the Federal Reserve System throughout the 1920s, and the failure to agree upon a coherent policy, especially during the second half of the decade, contributed to the collapse of the securities market in 1929. Since that time a number of theories have been advanced about the causes of that collapse and claims have been made about how it could have been prevented. Herbert Hoover, for example, later claimed that he led the opposition to the board's easy money policies, which, he insisted, plunged the world into inflation, and led to the collapse of the stock market and the ensuing depression. Others insisted that if Benjamin Strong had not died in 1928 he would have reversed the easy money policy before it had gone too far and thus averted the financial collapse of 1929. This chapter attempts to assess the impact and significance of the policy incoherence and the validity of the claims that Hoover and others would later make regarding the coming of the depression.____________________