At the Occupy Wall Street demonstration, there is a small and vocal contingent that consistently stakes out the northeast corner of the park. They hold signs and distribute clever tokens advocating the elimination of the Federal Reserve Bank, a return to the gold standard, and the opening up of currency to a ‘free market.’ I’ve spoken with a couple of them, and they are articulate and intelligent. This recalls to my mind, once again, the quip by George Orwell that, Some ideas are so stupid only an intelligent person could believe them.
Okay, there are a lot of criticisms you can make of the Fed: from the right, that it is too easy on the money supply, ‘printing money’ to pay for wars and welfare, or to bolster employment; and from the left, that it is too tight with money, preferring to worry about inflation more than unemployment. These criticisms are about how the Fed does its job, not whether it should exist. For most of American history, the tight money guys, the economic elite and the bankers have had their way. They’re the ones who created the system, after all.
What is truly striking and bizarre about this group is that they see themselves as populists, seeking to free America from the tyranny of the banking cabal. They cry about how the Fed is “debasing the currency,” or “making our dollars worthless!” This, in a time when inflation is extremely low, interest rates are too, and many are worried about deflation! They see the common man as oppressed by the banking community, rightly so, and their solution? The gold standard! Have they not heard of William Jennings Bryan, the great 19th century populist, and his speech about how the Eastern money men “shall not crucify the American people on a cross of gold!” (He wanted a silver standard.)
As John K. Galbraith describes in his book Economics in Perspective, in the chapter called The Separate Personality of Money, during much of American History, the general population favored easy money. (True, so did absolute monarchs, who used it to fuel their wars once they learned how – John Law and the Mississippi Bubble being Exhibit A) They wanted paper money, they liked inflationary monetary policies – it made their debts less crushing! They, the Jacksonian Democrats, and Andrew Jackson attacked Biddle and the Hamiltonians for their planned National Bank because they knew it would end their free use of paper, and impose a gold standard. The West was settled with paper money. So why are these End the Fed folks carrying signs praising Andrew Jackson? They are against the Fed for totally different reasons!
One fellow I spoke with also was upset that the Fed has a monopoly on printing money. He’d like there to be ‘free money,’ another Jacksonian idea. This seems in rather stark contradiction to his desperate desire to keep inflation and debased currency at bay. After all, if a variety of currencies are available with which to pay one’s debts, wouldn’t the natural tendency be to use the worst currency available and keep the best for yourself? I believe this is Gresham’s Law. So, am I missing something, or are these people intellectually incoherent?