At the Cato Institute Monetary Policy Conference, Part 6


Lewis E. Lehrman
Chairman, The Lehrman Institute

Whither the Fed?  (DM: Wither the Fed? 😉 )

Monetizing debt often used to fund wars.

Keynes’ book on India — informal gold exchange standard in India.  Felt it would be a step toward a better currency in the future.  Rueff felt it would lead to greater instability.  Bretton Woods was much the same, and thus collapsed in 1971.  Rueff criticized it in advance.

Rueff restored convertibility after both wars.

The Fed cannot determine the total amount of money on its own. Keynes disagreed and thought it could be centrally planned.  Neoclassical economists still think they can do it, whether Keynesian, Chicago school, etc.  Velocity has dropped like a stone.

Don’t target interest rates, money supply, price levels — proposes targeting excess cash balances.  Rueff reformulated Say’s Law — supply creates it’s own demand.

Argues that a gold standard (not a gold exchange standard) is not costly.  Gold doesn’t manipulate us.  Competitive devaluations don’t add anything — they just create deferred inflation, and enable the government to run larger deficits.

Free trade without a gold standard will fail, in his opinion.  Speculation would be reduced.  Global rebalancing might ensue.

The Federal Reserve has not served us well, even with the good intentions of those who ran it.  We need Congress to revisit the Fed, and give us a better medium of exchange.

He says he will never give up, and neither should we.


Q1 — Don’t all gold standards fail?  All human institutions fail.  Don’t we want the least imperfect monetary standard?

Q2 — Article 1 section 10 — Gold and Silver should be the only currency? Constitutionally he thinks so.  Coinage Act of 1792.

Q3 — No inflation now?  There is asset inflation, and QE is pushing it.  QE benefits the rich and hurts the poor.