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This paper investigates the six textbooks most commonly adopted in U.S. undergraduate money and banking courses for how they describe the influences that commercial banks and central banks have on macroeconomic stability. We examine seven topics: (1) the inherent stability of banks, bank runs, and panics; (2) The historical origins of central banks created before the Fed; (3) the fragility of U.S. banks during the National Banking Era and the origins of the Federal Reserve System; (4) U.S. bank panics during the Great Depression; (5) deposit insurance; (6) monetary policy and the Great Recession of 2008–2009 ; and (7) the performance of the U.S. economy before and after the Federal Reserve Act. For each of these topics we review the academic literature and compare this literature to the information presented in college textbooks. In each case we find the textbook presentations are incomplete in a way that systematically favors one view in the literature over another, making a government-cheerleading bias.
Podcast related to this article: Nicholas Curott on Bias in Money and Banking Textbooks (EJW Audio, March 2020).