Hey, Megan did you happen to see Alan Greenspan Imply that We Can Abolish a Central Bank?

Megan McArdle has ridiculed the idea of an alternative monetary regime to our current central banking system on more than one occasion.   I have tried to suggest that the position is not so simple.  The most recent was to suggest that the argument for a gold standard should not be so easily dismissed.

Jeff Tucker recently linked to an interview with Alan Greenspan where he suggests that under current conditions central banks cannot follow policy that will effectively control long term interest rates, and that rather than a fiat currency system we could move to a currency board or a gold standard that would operate more effectively.

In the past I suggested that a "mind-date" between Megan and either George Selgin or Larry White might be in order, but perhaps Alan Greenspan would be more to her liking.  Greenspan's interview, however, reinforces my worst impression of him in terms of (a) his waffling in the name of pragmatism and (b) his lack of a strong theoretical commitment in economics.  How can someone who understands the points he raised, not argue for that during his reign as the Fed Chair?

I have never held such a high office --- nor do I aspire for it, nor have the talents to achieve it --- but I think that if I somehow was 'drafted' I would like to believe I'd follow the Mises line and "abdicate" or the Leonard Read line and "push the button".

Comments

[Lawrence H. White]

Greenspan was more straightforward when interviewed by Jon Stewart: "You didn’t need a central bank when we were on the gold standard, which was back in the nineteenth century. And all of the automatic things occurred because people would buy and sell gold, and the market would do what the Fed does now." More of that interview with my comments here:
http://divisionoflabour.com/archives/004047.php

[Ali]

How can the idea of (gradual?) abolition of the Fed and/or return to the gold standard be put forth in the mainstream without the "weirdness" with which the gold standard and other miss-conceptions regarding the Fed protecting the economy hurting the cause? When I talk to friends, the arguments that seem to come across most are (1) justice of the gold standard and absence of the Fed ("you pay only for what you desire or what you screw up, but you don't have to pay for other people's screw-ups" a la housing crisis), and (2) localization of any market failures. I am not an economist, do these sound like fair arguments to you? Could there be better arguments made for the layman?

[Grant]

Ali,

I believe it can be done by calling it "free banking" or "free market money", and not "the gold standard". Some simple statements in support of free banking might include:

1) The Fed should have to pay for its mistakes in creating the housing bubble. Since it is a government entity given a legislated monopoly, it is shielded from any blame.
2) If we had free banking, there would never have been a housing bubble because no currency could have had such low interest rates low and hope to compete against other currencies.
3) Why shouldn't people be able to use whatever they want as money?
4) Those with monopolies to create money inevitably abuse their power (e.g. Rome, Germany prior to WW2, the USA during and after every single major war).
5) The power to create bank notes was explicitly left out of the Constitution, because the framers of that document knew it would be abused.
6) Do we want the same people who gave us corn ethanol to give us money?

[Ali]

Grant,

Thanks a lot for the feedback.

[Bill Woolsey]

I have a tape of Greenspan stating that he favors a return to the gold standard in the early ninties. He was speaaking to the Senate Banking Committee.

I think it is clear, however, that he could have done more to push for monetary reform. I think he did next to nothing. Just stating his views when asked.