The Redistributive Politics of Monetary Policy in the United States

Michael Wroblewski

Advisor: Peter J Boettke, Department of Economics and Lawrence H. White, Department of Economics

Committee Members: Christopher J. Coyne

Buchanan Hall, #D180
April 27, 2026, 12:00 PM to 02:00 PM

Abstract:

This dissertation explores the political and institutional foundations of monetary policy and its redistributive effects. Monetary policy is often described as a technocratic tool aimed at stabilizing inflation and output, but in practice it operates within a framework shaped by political incentives and institutional constraints. Each chapter contributes by examining the evolution of economic ideas about the Federal Reserve, how special interests lobby to shape the redistributive effects of monetary policy, and the institutional channels through which they influence policy outcomes.

The first chapter reconstructs Milton Friedman’s intellectual trajectory from the 1950s to the 1990s to show how his conception of monetary order evolved from designing optimal policy to one of designing constitutional and distributive constraint. In his early work, Friedman treated monetary instability as the result of analytical error and institutional inefficiency. He viewed policymakers as operating in the public interest yet constrained by limited knowledge and unstable discretionary instruments. Monetary rules functioned as pragmatic devices to improve policy performance within an otherwise shared-value political order. Friedman’s direct engagement with the Federal Reserve under Arthur Burns in the 1970s proved decisive in altering this view. Through repeated confrontations over the causes of inflation, Friedman came to believe that monetary instability persisted because central bankers systematically refused to accept responsibility for inflation. These interactions undermined his assumption of shared ends and revealed the role of political incentives and institutional self-interest in shaping central bank behavior. As a result, Friedman shifted towards interpreting monetary disorder through a public choice lens. In his later writings, Friedman reframed monetary history as a record of redistribution and special-interest capture, emphasizing that money’s neutrality depends on institutional constraints capable of binding both politicians and central bankers. The paper argues that Friedman’s later constitutional defense of monetary rules emerged from his sustained engagement with the Burns Federal Reserve, which exposed the limits of public-interest reasoning and redirected his analysis toward political incentives and institutional constraint.

The second chapter examines the conditions that sustain certain redistributive monetary policies. The central argument is that the durability of redistributive monetary policy depends on the relative political capacity of its beneficiaries versus its adversely affected groups. Beneficiaries must be able to form cohesive coalitions, maintain access to policymakers, and embed policies within institutional arrangements that raise the cost of reversal. Conversely, adversely affected groups must individually identify themselves as losers, organize collectively, and access institutional veto points to effectively challenge policy. The interaction of these forces determines whether redistributive interventions persist or become politically unsustainable. To operationalize this framework, the paper identifies key transmission channels of monetary redistribution and links them to political incentives. The analysis is applied to three episodes during the Great Depression: the Glass-Steagall Act of 1932, the Thomas Amendment of 1933, and the Silver Purchase Act of 1934. The findings show that policy durability is not determined by economic effects alone, but whether beneficiaries are not adversely affected by the unintended consequences of the policy and losers can identify themselves, organize, and gain access to institutional channels of change. By integrating redistribution with political organization, the paper offers a framework for understanding the persistence and contestation of monetary policy.

The third chapter argues that redistributive politics are not accidental byproducts of monetary policy but its enduring logic. Discretionary authority transforms monetary policy from a neutral instrument of stabilization into a political process of allocation. Drawing on Cantillon’s insight that new money alters relative prices and redistributes purchasing power toward early recipients, the paper shows that under central banking these effects become structural features of discretion. Linking the Fed’s institutional channels to Cantillon Effects, it demonstrates how access and influence to the Fed convert monetary discretion into predictable patterns of redistribution. It utilizes three historical cases — the Fed’s first purchases of agency debt in the 1970s, the Commercial Paper Crisis of 1970, and the Plaza Accord of 1985 — to illustrate how special interests repeatedly leveraged these institutional pathways to steer credit in their favor. The analysis reframes the rules–discretion debate as a question of political economy. Rules constrain the scope for monetary bargaining, while discretion embeds politics within the very structure of money creation.