Politicized money
Posted on | April 7, 2009 | Comments Off by Aschwin de Wolf
Monetary policy is governed by the rule of men, rather than the rule of law. The results are what public choice theory would predict and monetary history has documented: booms, busts, and panics.
writes Gerald P. O’Driscoll Jr. in Money and the Present Crisis (PDF).
In the same issue of the Cato Journal about lessons from the financial crisis, Anna. J. Schwarz (PDF) identifies expansive monetary policy as one of the major causes of the financial meltdown. But in her collaboration with Milton Friedman A Monetary History of the United States, 1867-1960 the Fed was largely blamed for the Great Depression because it did not engage in expansive monetary policy. It appears that a Fed that is powerful enough to avoid catastrophe is also powerful enough to create catastrophe. The idea of a politically neutral Fed is becoming just as realistic as the idea of constitutional limited government but few economists advocate a complete separation of money and state.
Tags: Anna. J. Schwarz > Fed > Federal Reserve Bank > Financial Crisis > Milton Friedman
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