The Monetary Commission Advances

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The New York Sun

The decision of Congressman Jeb Hensarling and the House Financial Services Committee to move the Centennial Monetary Commission Act to the floor marks an important moment in the dollar crisis. The measure would set up a commission to review the performance of the Federal Reserve as it begins its second century. The day before the committee acted — on a vote of 35 to 22 — the Web site was reckoning the chances of passage at zero percent. That will now begin an upward adjustment.

Which is terrific news. This newspaper was the first to endorse the Centennial Monetary Commission when it was offered by the then-chairman of the Joint Economic Committee, Kevin Brady of Texas. He foresaw the measure as a ruthlessly bipartisan undertaking to look at how the Fed has lived up to the hopes placed in it by the 63rd Congress. Has it led to stable prices? Protected the value of the dollar? Prevented panics? And what sort of rules should there be for the Fed in the age of fiat money?

Should there be a dual mandate that includes not only price stability but also maximizing employment? What about monetary rules and regimes, such as targeting of prices, or the inflation rate, or the level or rate of our national output, or other monetary policy rules, such as the Taylor rule? And what about the big one — the gold standard? All these are questions that would be laid to the Commission with the passage of the law that is now before the House.

These are not just academical questions. They will impact the lives of real people. They did not arise out of the blue merely to mark an anniversary. They arose in the context of the dollar crisis. It erupted in the first 15 years of the 21st century, when the value of the dollar plunged from a 265th of an ounce of gold to, at its nadir, a 1,900th of an ounce of gold. The fact that value has recently been flowing back into the dollar (it’s still at less than a thousandth of an ounce of gold) does nothing to undercut the logic of this review.

Particularly because of the Federal Reserve’s performance in the past decade. It met the recession of 2008 with a once unimaginable expansion of its balance sheet and with a vast program of quantitative easing. This brought onto the Fed’s books trillions of dollars of debts owed by the government that owns the Fed. The central bank has run a near-zero interest rate for years. Yet all this has delivered a recovery that is one of the slowest and weakest in history. No wonder Congress is preparing to make a strategic review.

What we like about this bill is that it lays this question where it belongs: the Congress of the United States. No central bank can be expected to examine its own performance. The universities did not create the Fed. The question of the Federal Reserve belongs in the body to which the Constitution grants the enumerated monetary powers. The Congress is the body that created the Fed, and it is the only body that can revise its mandates.

There are those who remember the last monetary commission, the United States Gold Commission, which was established by Congress in 1980. It was assigned to look at the role of gold in domestic and international monetary affairs. It was stacked with monetarists hostile to the idea of a gold standard, and its most memorable product was a dissent, issued by two members, Lewis Lehrman, a businessman and scholar, and Ron Paul, then a member of the House. They called for a return to the gold standard.

The bill that has gone to the floor of the House gives the Congress the opportunity to establish a commission that is much more balanced than the one established by the 96th Congress. And also one whose mandate is not so narrowly focused on only the gold question. It would give everyone a chance to be heard at a time when we are approaching the jubilee of fiat money. There is no logical reason for anyone to oppose this commission and great reason for Congress to pass what could prove to be a historic act.

The New York Sun

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