Shadow Open Market Committee

The Shadow Open Market Committee (SOMC) is an independent group of economists, first organized in 1973 by Professors Karl Brunner, from the University of Rochester, and Allan Meltzer, from Carnegie Mellon University, to provide a monetarist alternative to the views on monetary policy and its inflation effects then prevailing at the Federal Reserve and within the economics profession.

At that time, the Fed argued that rising and variable inflation since 1965 was largely attributable to non-monetary forces such as the power of labor unions and oil price shocks, and had little to do with rapid money growth. Based on the principles of monetarism developed earlier by Milton Friedman, the SOMC blamed the Great Inflation squarely on Federal Reserve policies that featured excessive money growth.

The SOMC's principal message that persistent inflation is always and everywhere a monetary phenomenon has been widely accepted by central bankers and economists. That framework still forms the basis for the Committee's comments on and criticisms of Federal Reserve policy actions and strategy. Over time, the SOMC has broadened its focus to include issues relating to policies on international trade, exchange rates, and taxes, as well as the regulation of the U.S. banking and financial systems.

The SOMC continues to meet twice per year and maintains an active website that includes an archive of the SOMC's position papers and "Core Beliefs" statement as well as papers of its members. Since 2009, the SOMC has operated in partnership with E21: Economic Policies for the 21st Century.

Allan Meltzer has described the circumstances that led him, together with Karl Brunner, to organize the Shadow Open Market Committee, and has also chronicled the SOMC’s early history.

When, in 1971, President Richard Nixon adopted wage and price controls in an attempt to reverse the acceleration of inflation, which by then had risen above 4 percent, Brunner and Meltzer wished to form a group of "like-minded economists" to argue against the effectiveness of wage and price controls as a tool for ending inflation and in favor of a gradual reduction in money growth as a preferred alternative. Together with William Wolman, Brunner and Meltzer chose the name "Shadow Open Market Committee," as a reference to both the Federal Open Market Committee, the Federal Reserve's monetary policy making arm, and the Shadow Cabinet as the group of ministers chosen from the opposition party within the U.K. Parliamentary system.

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