The first U.S. effort to specify macroeconomic goals came after World War II. The Great Depression of the 1930s had instilled in people a deep desire to prevent similar calamities in the future. That desire, coupled with the 1936 publication of John Maynard Keynes’s prescription for avoiding such problems through government policy (The General Theory of Employment, Interest and Money), led to the passage of the Employment Act of 1946, which declared that the federal government should “use all practical means . . . to promote maximum employment, production and purchasing power.” The act also created the Council of Economic Advisers (CEA) to advise the president on economic matters.
The Fed might be expected to be influenced by this specification of federal goals, but because it is an independent agency, it is not required to follow any particular path. Furthermore, the legislation does not suggest what should be done if the goals of achieving full employment and maximum purchasing power conflict.
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