Posted on Tuesday, May 22nd, 2012
Written by Ralph J. Benko
‘Protecting the purchasing power of the dollar over time provides the strongest foundation for lasting economic growth and job creation.’ — Rep. Kevin Brady
In testimony before the House Domestic Monetary Policy Subcommittee hearing held Tuesday, May 8, 2012, Kevin Brady (R-TX), vice chairman of the Congressional Joint Economic Committee, observed (as broadcast live by C-SPAN and viewable here):
“As expected, critics have quickly charged that focusing on a sound dollar implies the Federal Reserve will ignore the employment needs of Americans. They are wrong. America can only maximize its real output with long-term price stability. Protecting the purchasing power of the dollar over time provides the strongest foundation for lasting economic growth and job creation.
“Others have reacted as if a single mandate is a shocking proposal–an affront to all that is right and good. But as we know, the United States won World War II, enjoyed three decades of prosperity, and put a man on the moon without a dual mandate. It is not a fundamental part of our constitutional fabric or carved in granite–it is a 1977 policy directive based on the discredited “Phillips Curve” that Congress can and should change to ensure the future prosperity of our nation.
A mandate for price stability gives the Federal Reserve the right goal. Moving away from a discretionary regime and back toward a rules-based regime will help ensure the Fed achieves price stability.”
In an accompanying paper, United States Monetary History in Brief, Part 3: The Federal Reserve–A Central Bank’s Growth Through Trial & Error, March 1, 2012, the Joint Economic Republican Staff comments (p.7): “The American experience is that economic freedom and prosperity are best served by monetary policy that is rules-based and non-interventionist.” From the appendix to Part 1: The First & Second Banks of the United States — Rise and Fall, February 28, 2012, the Republican Staff provides, in an Appendix, a useful “Discussion of Standards,” which describes the gold standard:
“Classical gold standard: There are two versions of a classical gold standard–gold coin standard and gold bullion standard. Under a gold coin standard, a country defines its unit of account in terms of a fixed weight of gold (i.e. mint price). The mint will freely coin gold at the mint price, gold coins are in circulation, and the central bank (or commercial banks in the absence of a central bank) will freely convert bank notes into gold coins at the mint price. Under a gold bullion standard, a country defines its unit of account in terms of a fixed weight of gold (i.e. par value). However, the mint will not freely coin gold and gold coins are not in wide circulation. Instead, the central bank will freely buy or sell gold in large quantities known as bullion, at par value. Exchange rates among the currencies of all countries operating under a classical gold standard are effectively fixed. A classical gold standard is largely self-regulating through domestic and international gold flows.”
History demonstrates that “the gold standard” “economic freedom and prosperity … best served by monetary policy that is rules-based and non-interventionist” is, in fact, the gold standard. And as the conversation concludes that rules-based monetary policy is superior to discretionary activism, and the discourse shifts to the question of “which rules” it is to be hoped that the authorities will encourage the submission of empirical data to help them guide their judgment in carrying forward the proposition that Mr. Brady has put forward: to “examine what monetary policy should be going forward.”
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