George Will’s superb column on the Fed’s over-expansive “dual mandate” ends with an apt warning from the late Nobel laureate economist F.A. Hayekthat any attempt to engineer economies – even via monetary policy – is evidence of a “fatal conceit” (“The trap of the Federal Reserve’s dual mandate,” Nov. 18). It’s unsurprising, therefore, that Hayek was among the first economists to call for removing government from the business of supplying and regulating money.
In 1976, Hayek published a pioneering monograph entitled Denationalisation of Money* in which he argued that not only can markets supply sound money, but that markets are likely to do so far more reliably than will any government or central bank.
Hayek’s work is the font of a fertile river of research on the history and theory of ‘free banking’ (whose chief contributors are my GMU colleague Lawrence White and my former GMU colleague George Selgin**). This research leaves no doubt that, had money been supplied privately from the start of the republic, U.S. economic growth would have been both steadier and steeper.
Donald J. Boudreaux
* F. A. Hayek, Denationalisation of Money (London: Institute of Economic Affairs, 1976). A substantially revised second edition was published in 1977.
** See, e.g., George A. Selgin and Lawrence H. White, “How Would the Invisible Hand Handle Money?” Journal of Economic Literature, Dec. 1994, Vol. 32, pp. 1718-1749.
Dr.Ambedkar said in 1924-25 (Statement of Evidence to the Royal Commission on Indian Currency):
- One of the evils of the Exchange Standard is that it is subject to management. Now a convertible system is also a managed system. Therefore by adopting the convertible system we do not get rid of the evil of management which is really the bane of the present system. Besides a managed currency is to be altogether avoided when the management is to be in the hands of the Government. When the management is by a bank there is less chance of mismanagement. For the penalty for imprudent issue, or mismanagement is visited by disaster directly upon the property of the issuer. But the chance of mismanagement is greater when it is issued by Government because the issue of government money is authorised and conducted by men who are never under any present responsibility for private loss in case of bad judgement or mismanagement.