... In the last 100 years, there has been unbridled recourse to fiat currency. This column draws heavily on a benchmark address by Lewis E. Lehrman on “The Federal Reserve and the Dollar” at the 31st Annual Monetary Conference at the Cato Institute, Washington DC.,US (November 14, 2013).
Lehrman quotes Keynes in “Indian Currency and Finance”, to say that whether a central bank holds its reserves in gold or in foreign exchange “is a matter of comparative indifference …India, in her Gold-Exchange Standard… far from being anomalous, is in the forefront of monetary progress …(heading towards) “the ideal currency of the future”. What glory for India!
... It is difficult to interpret [Jeb] Hensarling’s declaration to hold hearings on “the entirety of their hundred year history and what America has looked like since adopting a fiat currency” as anything but an intention to bring the Commission up for a vote. Hensarling promises to process vast amounts of information. The constraints on a committee hearing, and on a committee staff, cannot do such a huge topic justice. As Rep. Kevin Brady put it in his own remarks at Cato, a “brutally bipartisan” Commission — with Hensarling a Commissioner — is called for.
Publisher's Note: Originally released in June/July of 1991, this detailed report discusses Jacques Rueff's economic theories and applies them to modern economic events.
By John D. Mueller
The Problem with Keynes
Keynes begins his General Theorywith a refutation of Say’s Law precisely on the grounds that had bothered Mill. Keynes treats Say’s Law, not as a tendency toward equilibrium, but as claiming an identity between the total supply and total demand for goods. Keynes put it this way: “Say’s Law, that the aggregate demand price of output as a whole is equal to the aggregate supply price for all volumes of output, is equivalent to the proposition that there is no obstacle to full employment.” Keynes pointed to the Great Depression, with its deflationary excess of supply over demand, and rested his case.
"Double-entry bookkeeping developed in 14th century Italy, whence the precise, simplified ledger and balance sheet accounting basis for the development of a 'fractional' reserve banking system emerged. In such a banking system a new kind of 'abstract' fiduciary money developed – subject to transfer by checks. They came to be called book entry bank deposits, bank advances, credit money, or checking accounts, sight liabilities, or demand deposits. The banks held bullion or coin reserves against this new credit money. The precious metal reserves were equal to a prudent 'fraction' of the total bank note and deposit money circulation, hence the phrase 'fractional reserve banking system'."
The Federal Reserve tries to explain what it is doing, but it can’t quite explain it because the rules aren’t really clear. So Wall Street tries to anticipate what the Fed means in the absence of real rules. The Wall Street Journal’s Victoria McGrane has noted: “The Federal Reserve has...
We are pleased to announce the publication of– Money, Markets, and Government: The Next 30 Years.
The articles in Money, Markets, and Government were first presented at the Cato Institute’s 30th Annual Monetary Conference, held on November 15, 2012. The 2008-09 financial crisis and Great Recession have vastly increased the power...