Freud and the Fed

“I’ve been saying for a long time that we aren’t having a rational argument over economic policy, that the inflationista position is driven by politics and psychology rather than anything the other side would recognize as analysis. But this really proves it beyond a shadow of a doubt; if you really want to understand what’s going on here, the Austrian you need to read isn’t Friedrich Hayek or Ludwig von Mises, it’s Sigmund Freud.”* * *So writes the Nobel laureate Paul Krugman in his Web log at the Times. He is reacting to our editorial, “The Female Dollar,” and to the Wall Street Journal’s more substantive debunking of the way gender has eclipsed monetary policy in the debate on the next chairman of the Federal Reserve. And, by George, if it doesn’t appear that Professor Krugman has stumbled onto something.For Freud grasped the psychological propensity of people to fix on gold, which is at the heart of the monetary debate. Some of Freud’s references are a bit scatological; at one point he traces the obsession with gold back to the trauma of toilet training. But elsewhere he makes reference to the monetary problem, referring to “the case of one who gives a beggar a gold piece in place of a copper or a silver coin.”Freud’s reference is under the heading “Erroneously Carried-Out Actions.” He characterizes the solution of such “mishandling” of coins as “simple” — “an act of sacrifice designed to mollify fate, to avert evil, and so on.” If so, what is one to make of tendering paper or dross where gold is owed? No doubt Freud would discover a desire not to mollify but to tempt fate and not to avert evil but to court it.So it’s not going to be easy for Professor Krugman to palm off the libel that advocates of sound money are simply crazy. For Freud had his own feel for the verities of the marketplace and the psychological dimension to the mystery of money, glimpsed in a reference he attributes to a report by another Austrian psychoanalyst, Otto Rank.It involves a fellow who, shortly before Christmas, goes to the Austro-Hungarian Bank to “obtain ten new silver crown-pieces destined for Christmas gifts.” He sees many people going in and out of the bank and thinks to himself he should be quick. “I shall put down the paper notes to be exchanged, and say, ‘Please give me gold.’”His mistake — he intended to ask for silver — awakens him from his fantasies, only to notice the approach of an acquaintance named Gold, who could help him in his career. Hence he imagined himself asking “the cashier for gold instead of the inferior silver.” The essay speculates that the fellow’s mind was “attuned to the material” and “guided my steps from the very beginning to buildings where gold and paper money were exchanged.”Dang the subconscious. Dang those Austrians. And add the Swiss psychoanalyst, Carl Jung. It turns out that Jung wrote a whole treatise on alchemy. He was nigh obsessed with the legend of turning lead into gold. We wouldn’t want to make too much of the point. But we wouldn’t want to make too little of it either. It’s not just members of the Tea — or Republican — parties who think in terms of specie.What would the psychiatrists say about Krugman’s denial? Or his characterization of Janet Yellen, in the headline of his blog post, as the “she-devil of Constitution Avenue”? No one else used — or suggested — that kind of language. Nor was it the Sun or the Wall Street Journal that brought gender into this debate in the first place. That was Mr. Krugman’s own newspaper, the Times.It did so Friday in a story on page A1, under the headline “In Tug of War Over New Fed Leader, Some Gender Undertones.” Mr. Krugman would have his readers believe that the Sun and the Journal have objections to a woman chairman the Fed. That’s because he dasn’t open up the question of the value of the dollar in the terms the framers of our constitutional system intended.The fact is that the founders of America would be appalled at the monetary system that obtains in America today. Every last one of them — including George Washington, James Madison, Thomas Jefferson, Alexander Hamilton. Chief Justice Marshall, who wrote, in McCullough v. Maryland, the Supreme Court’s famous opinion vouchsafing a central bank, he, too, would be appalled.So would the creators of the greenback and the founders of the Federal Reserve itself. One hundred years ago Congress established the Fed on the express condition that, as it was put by the Fed’s leading congressional supporter, Carter Glass, nothing in the bill should be construed as a repeal of the law “providing a gold parity for all forms of money.” We have our doubts about what Keynes himself would have made of a dollar valued at but a 1,300th of an ounce of gold.So forgive us if we react with a wry smile to Professor Krugman’s lament over the lack of “rational argument” in respect of economic policy. In our experience those who measure the value of dollar in the terms in which the Founders measured it are a rational and cheerful lot. What a contrast to Mr. Krugman. In all of newspaperdom there is no more strident, ad hominem, angry column than his. No wonder he’s thinking in terms of Freud.

Freud and the Fed

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