the gold standard. federal reserve notes were redeemable in gold on demand, and the fed was required to maintain a gold reserve equal to 40 percent of outstanding notes. however, contrary to the principles of an idealized gold standard, the federal reserve often took actions to prevent inflows and outflows of gold from being fully translated into changes in the domestic money supply. 8 this practice, together with the size of the u. s. economy, gave the federal reserve considerable autonomy in monetary policy and, in particular, allowed the fed to conduct policy according to the real bills doctrine without much hindrance. the policy framework of the fed ’ s early years has been much criticized in retrospect. although the gold standard did not appear to have greatly constrained u. s. monetary policy in the years after the fed ’ s founding, subsequent research has highlighted the extent to which the international gold standard served to destabilize the global economy in the late 1920s and early 1930s. 9 likewise, economic historians have pointed out that, under the real bills doctrine, the fed increased the money supply precisely at those times at which business activity and upward pressures on prices were strongest ; that is, monetary policy was procyclical. thus, the fed ’ s actions tended to increase rather than decrease the volatility in economic activity and prices. 10 during this early period, the new central bank did make an important addition to its menu of policy tools. initially, the fed ’ s main tools were the quantity of its lending through the discount see willis ( 1923, p. 1407 ), carlson and wheelock ( 2012 ), and bordo and wheelock ( 2013 ). bagehot ( 1897 ) is the source of the classic dictum that a panic should be addressed by the central bank, by lending freely at a penalty rate. the monetary control act of 1980 gave all depository institutions access to the discount window. the collateral acceptable to be pledged to the discount window has been expanded significantly over time ; in particular, various pieces of banking legislation in the early 1930s enabled the federal reserve to make advances to member banks so long as the loans were “ secured to the satisfaction ” of the federal reserve bank extending the loan. see humphrey ( 1982 ) for a discussion of the historical evolution of the real bills doctrine. this interpretation follows from the discussion in the tenth annual report of the federal reserve board ( board of governors, 1924 ). soon after the federal reserve was founded, its mission

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