Ron Paul’s Man at the Fed
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
The man Congressman Ron Paul would install as chairman of the Federal Reserve was, in a little noticed but remarkable moment, invited the other day to address the Federal Reserve Bank of New York. It seems the bank wants to hear from its distinguished critics. It picked, in Mr. Grant, not only the man that Dr. Paul wants to run the Fed but the man that Newt Gingrich wants to see installed, with Lewis Lehrman, as one of the chairmen of a reconstituted United States Gold Commission. We weren’t lucky enough to be at the Fed when Mr. Grant delivered his remarks, but we read them in in the latest number of his newsletter, the Interest Rate Observer.
Now, it also happens that the Fed has a less secure system for storing the gold in the vaults in its basement than Grant’s Interest Rate Observer has for guarding its intellectual property. So one dasn’t just reprint remarks from Grant’s; the full read is normally reserved for Mr. Grant’s subscribers. In this case, Grant’s has made the full text available to all on the Web under the headline “Piece of my mind,” which starts with a lament on the replacement of the gold standard with what Mr. Grant calls the “Ph.D. standard.” He calls the changes he seeks “re-reforms” and notes that “my program is very much in accord with that of the founders” of the Federal Reserve
Mr. Grant then suggested that the congressman who led a century ago in founding the central bank, Carter Glass, would “skewer” today’s Fed. “He had an abhorrence of paper money and government debt,” Mr. Grant reminded his audience. “He didn’t like Wall Street, either, and I’m going to guess that he wouldn’t much care for the Fed raising up stock prices under the theory of the ‘portfolio balance channel.’” This “enflamed” Glass during the congressional debate over the creation of the Fed system, Mr. Grant said. He noted that when Senator Root of New York maligned the anticipated Federal Reserve notes as “fiat” currency, Glass snorted angrily; he had no reason to doubt that the country would remain on the gold standard.
We rather like this resurrection, if that is the word, of Carter Glass (we attempted the stunt ourselves the other day), even as we prefer his Republican skeptics at the time. The virtue of dredging up Glass’s protestations lies in the reminder of how far the central bank has strayed from the plan — or promises — of its founders. Mr. Grant pressed this point in the context of the pending double jubilee of the Fed. The institution originally envisioned, Mr. Grant said, “would operate passively, through the discount window. It would not create credit but rather liquefy the existing stock of credit by turning good-quality commercial bills into cash — temporarily.”
“This it would do,” quoth Mr. Grant, “according to the demands of the seasons and the cycle. The Fed would respond to the community, not try to anticipate or lead it. It would not override the price mechanism — as today’s Fed seems to do at every available opportunity — but yield to it.” Mr. Grant reckons it would be easer to carry on that modest role were we once again on a classical gold standard. He said that were Ron Paul ever to become president, Mr. Grant would (from his new post at the Fed) invite in for lunch the Wall Street Journal’s Jon Hilsenrath and explain to him that the Fed is “now well over its deflation phobia and has put aside its Atlas complex.”
Then, Mr. Grant said, he would call the president of the New York Fed, William Dudley, and warn him that “we’re not exactly leading from the front in the regulatory drive to reduce the ratio of assets to equity at the big American financial institutions.” Then he would instruct the Fed’s research division “enough with ‘Bayesian Analysis of Stochastic Volatility Models with Levy Jumps’” and refer them instead to the work on a gold standard for the 21st century. Mr. Grant ended his remarks to the central bankers by quoting the editor of the Skibbereen, Ireland, Eagle,* who, in 1899, warned the Russ tsar: “The Skibbereen Eagle has its eye on you.”
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Whether any of this sank in at the Fed, one can but speculate. We cover the remarks at length because if such truth-telling fails to prosper at the Fed, it will be all the more important that it trickle up through the public discussion to the Congress. Mr. Grant himself is, despite Ron Paul’s vow to install him at the Fed, entirely his own man and but one particularly eloquent and knowledgeable figure among scores who are now working this problem. They are not, incidentally, all on the right. Congressional pressure for Ron Paul’s plan to audit the Fed has become bipartisan. And Carter Glass, in addition to the points above, is a reminder that there was a gold tradition among the Democrats, both before and after the road show known as William Jennings Bryan. Not a bad thing to remember as the value of the dollar edges back down toward a 1,700th of an ounce of gold and unemployment is stuck above 8%.
* One of its shareholders, Wikipedia reports, was Michael Collins himself.