Since the 1940s, the federal government has been charged with promoting economic stability through “maximum employment, production, and purchasing power.” But, over the latter half of the 20th century, the Fed increasingly prioritized stable prices over maximum employment. This shift was not natural, but rather the result of decades of work by neoliberal theorists and conservative policymakers to prioritize stable prices and markets for corporations and investors rather than tight labor markets that empower workers.
In 1937, the Federal Reserve argued explicitly that “price stability should not be the sole or principal objective of monetary policy.” Rather, it defined economic stability as “full employment of labor and of the productive capacity of the country as can be continuously sustained.” The Board of Governors believed that goal might, in some instances, mean accepting inflation as a price of, not threat to, stability.
In early 1945, as World War II and the wartime full-employment economy both came to a close, Congress began to debate a full employment bill that proposed all men had a right to a job, and that the government take responsibility for creating those jobs where the private sector failed. This commitment proved a sticking point for many in Congress who believed the private sector, not the federal government, should create jobs. As a compromise, the final version of the bill, the Employment Act of 1946, encouraged consumption to drive employment and vice versa. The idea of a “consumer” moved one step closer to being at the very center of the American government’s management of the economy.
Only a year after the Employment Act’s passage, in 1947, the Mont Pelerin Society met for the first time. The scholar-activists there seized on the idea of governing for the consumer as a means of pushing back against the New Deal state, which they argued had overly centered workers.
In place of a model of governance where the state helped maintain a balance between oppositional workers and corporations, these conservatives proposed a model of economic governance where consumers and corporations might be seen on the same side with a shared interest in a competitive market that kept prices low.
Interestingly, the focus on consumers continued not only through the 1950s but into the more liberal era of the Great Society. Under President Lyndon B. Johnson, efforts to foster equality centered expanded access to credit and markets. For example, the Higher Education Act of 1965 broadened access to college education through the creation of the first large-scale federal student loan program instead of through an expansion of the public university system. In another example, to address housing inequality, the Housing Act of 1968 created mortgage-backed securities that gave low-income buyers the ability to get credit to purchase homes.