Could it be that, for all our fighting over taxes and spending, it’s our reliance on fiat money that is at the root of our long travail?
Gee, d’ya think?
From the WSJ:
As the Federal Reserve approaches its 100th anniversary in December, the focus of monetary reform centers on a bill called the Centennial Monetary Commission Act. Introduced this month in the House of Representatives by Chairman of the Joint Economic CommitteeKevin Brady, the bill would “establish a commission to examine the United States monetary policy, evaluate alternative monetary regimes, and recommend a course for monetary policy going forward.”
Mr. Brady’s bill is not the kind of direct attack on the Fed that has been launched by, say, Rep. Ron Paul, who has called for eliminating the central bank altogether. But the bill—noting that a National Monetary Commission, established after the panic of 1907, led to the Fed’s creation on Dec. 23, 1913—would set up a new commission at the start of the Fed’s second century.
The Centennial Monetary Commission would start with a formal review of the Fed’s performance across the decades, including how its policies have affected the economy in terms of “output, employment, prices and financial stability over time.” The commission would also evaluate a range of regimes, including, in the bill’s language, price-level targeting, inflation-rate targeting, nominal gross-domestic-product targeting, the use of monetary policy rules, and the gold standard.
Mr. Brady proposes a 14-member, bipartisan commission, led by the chairman and ranking minority member of the Joint Economic Committee. The commission would be tasked with making recommendations. The group’s composition would make it more balanced than President Reagan’s 1981 Gold Commission—an important body, but one stacked with partisans of fiat money, i.e., a currency backed by nothing other than government decree. That commission is remembered primarily for its dissent, written by Rep. Paul and another commission member, Lewis Lehrman, a businessman and scholar, calling for a restoration of gold-based money.
It was the collapse of the dollar in the 1970s that led to the establishment of the Gold Commission. The dollar’s value had plunged by 1980 to less than an 800th of an ounce of gold from a 35th of an ounce at the start of the previous decade.
The monetary crisis of the era abated in the 1980s under the combination of Chairman Paul Volcker’s tight money and President Reagan’s supply-side fiscal measures. Over time, value flowed back into the dollar, which had soared to a 265th of an ounce of gold on the day George W. Bush was sworn in as president in January 2001.
Yet by the time President Obama took the oath of office in January 2009, the wars in Afghanistan and Iraq and profligate spending by Congress had driven the value of the dollar down to less than a third of its worth when Mr. Bush was sworn in. Its value has been halved again under Mr. Obama, to less than a 1,600th of an ounce of gold.
Watching this from his perch at the Joint Economic Committee, Mr. Brady last year introduced the Sound Dollar Act. It would end the Federal Reserve’s dual, and often contradictory, mandate that requires it not only to stabilize prices but also to boost employment. The Fed would instead have a single mandate: long-term price stability. [Note: at least that’s something they could actually accomplish if they wanted.]
The Sound Dollar Act would not end the Federal Reserve but would make it more transparent and give presidents of the regional Federal Reserve banks permanent seats on the Open Market Committee. The act also would not set up a gold standard, but it would require the Fed to monitor the price of gold.
Mr. Brady has reintroduced his Sound Dollar Act this year. The Centennial Monetary Commission Act is a parallel and more strategic measure, proposed at a time when there are those who wonder whether Congress has been focusing on the wrong question.
Could it be that, for all our fighting over taxes and spending, it’s our reliance on fiat money that is at the root of our long travail? Rep. Paul forced this question into the Republican campaign during the 2012 primaries, and the establishment of a monetary commission became part of the GOP platform. Mitt Romney, however, failed to stand forcefully on the plank.
Mr. Brady, in any event, seems determined to approach the question on a bipartisan basis and to avoid letting it hang in the ether. His bill would start the commission working in June and give it a year to produce its report.
No doubt it would face a difficult hurdle in the Senate, and there are those who chafe at the idea of another commission, since commissions are so often a way of burying an idea. But a commission created in the Congress, tied to the centennial of the Federal Reserve, and structured in a bipartisan way, is a promising way forward.
This is particularly true when politicians seem to have forgotten that the power to coin money and regulate its value is enumerated in the Constitution itself and granted not to a central bank or the president but to Congress.
One thing is certain: The impetus to reform will not come from the Federal Reserve, which has fought an audit passed by the House last year with overwhelming bipartisan support. Congress clearly needs to step up and lead the way, and Mr. Brady is giving it the chance.