Gene Epstein, economics writer of Barron’s (a paid subscription web site), continues his assault on the Fed and explains why it should be abolished. This week he responds to questions that he has received on his previous three articles. Here is a quoted passage from Epstein’s article in which he answer one question:
3. Weren’t these policy tools originally conceived to curb inflation and smooth business cycles — and if so, can’t they be made to work better?
No, monetary and fiscal policy were not conceived with the best intentions. Their creators were corrupt from the start.
Here’s monetary history in four sentences (including this one). In the beginning, there was gold, the principal medium of exchange that arose naturally in the free market, which government then appropriated to pay for its wars, taxation being a politically more difficult alternative. Then there were banks, which loved the idea of making loans with government-printed money, depositors being a less convenient alternative.
Then the economists, eager to serve the rich and the powerful — teaching and writing apparently being less attractive alternatives — spun elegant myths about the beneficent effects of this unholy conspiracy.
The history of fiscal policy is even simpler. In the beginning, politicians loved to spend money, but then in 1935, British economist John Maynard Keynes called it holy. In a confused and chaotic book titled The General Theory, Keynes called for government spending to be the new steering wheel of capitalism, especially since it is endowed with unusual powers, including the ability to the bring the economy out of recession.
Economists at that time were getting increasingly interested in Austrian business cycle theory, which actually explained why business cycles happened. But that was simply abandoned for the catnip of Keynesian economics.
Keynes made it clear early on the kind society for which his ideas were best suited. For the German edition of The General Theory, published in late ‘36, the author wrote a special introduction, which included the following: “...the theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than ...under conditions of free competition...”
Anyone willing to give my inflammatory view of history a chance can e-mail me for a reading list. [Epstein’s email address is gene.epstein@barrons.com]
