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Photo credit: Kurtis Garbutt via Flickr (CC BY 2.0)

Good Monetary Policy Is Too Serious a Matter to Be Left to the Fed


US News and World Report‘s Andrew Soergel reports that “With White House in Sight, Trump, Clinton Plan Fed Renovations: No matter who wins the election, times are likely changing at America’s central bank.”

“The Fed” really is a synecdoche for monetary policy. Monetary policy used to be, off and on, a significant factor of presidential campaigns. In this election cycle, the monetary policy issue has only arisen occasionally and has not become a major issue of contention.

Pity. It really deserves to be front and center.

What is widely regarded as the most striking speech in presidential campaign history was William Jennings Bryan’s 1896 convention speech concluding:

If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.

Read the full speech here. It electrified the Democratic convention and propelled the young Bryan to the 1896 Democratic presidential nomination and two more. He lost all three times — including in 1896.

As economic historian Brian Domitrovic observed, at Forbes.com:

In 1896, Bryan opposed the gold standard because it had coincided with the 1-2% per year deflation that the country had been experiencing since the 1870s. Every point of deflation added a point of interest on debts, and farmers were prone to have lots of debt. The cost of their inputs bought with capital was always going up. If there were big dollar production outside the strictures of the gold standard, Bryan and the Populists reasoned, deflation would be erased and the farmers could breathe easy.

Come the creation of the Federal Reserve in 1913 – with five of the twelve Fed banks down the trunk of the prairie, from Minneapolis to Dallas – a big new federal institution was ready to throw money around. And that it did. From 1913 to 1919, the Fed doubled the dollar supply as the economy barely grew at all. Whatever Bryan was getting at in 1896, he wasn’t bold enough to say that the dollar float should be suddenly increased by 100%.

Dollars were showering the land, the cross of gold was history, and somehow farmers only got killed as never before. The doubling of the money supply increased the price level by a factor of two, halving the real income and assets of farmers, not to mention everyone else. Debt service was cheaper, but the things credit could buy cost twice as much. It is well-known even today in the Midwest that the 1920s were as desperate a decade as went the livelihoods of farmers as any, including the Great Depression years of the 1930s.

President McKinley went on to enact the Gold Standard Act of 1900. The economy thrived.

Hillary Clinton has taken the untenable position that the Fed is beyond reproach and an unfit subject on which to campaign. This is demonstrably wrong, both historically and substantively.

That said, no clear policy stance has been squarely placed before the voters by either candidate. As US News correctly reports:

Trump in his criticisms of the Fed tweeted in February that ‘it is so important to audit’ the central bank.

One tweet is very different than a crowd-wilding convention floor speech. Trump has not directly addressed how the Fed manages to continuously get it so wrong, or how to fix it. Nor did Trump present monetary policy as a significant factor in his “First 100 Days” agenda.

If Trump and his advisors are not inclined to implement the gold standard (which he has twice praised, tangentially) let his administration look to the 2016 GOP platform. It calls for a sensible mechanism to assess Fed policy: the Brady-Cornyn Centennial Monetary Commission, already passed by the House of Representatives.

That would be an excellent start.

US News also correctly reports that:

It’s a little more difficult to figure out what Clinton would do with the Fed should she win the presidency, as she and her campaign have scolded Trump for commenting on monetary policy and politicizing central banking functions that should theoretically operate outside of politics.

It goes on to report on Mrs. Clinton’s plans for more rigorous regulation of financial institutions. This, of course, casts no light at all on the crucial issue of monetary policy. Of course, President Clinton too would also be well advised to get the Centennial Monetary Commission enacted to provide a rigorous assessment and empirically-based guidance to the Fed respecting its future actions.

Whether one is for the gold standard or some form of “not-too-hot-not-too-cold-just-right” Goldilocks standard, America needs to nail the crucial issue: how much or how little liquidity should it be injecting into the financial markets? And how do we know?

That’s where the rubber meets the road.

To support equitable prosperity, the Fed’s policy needs to be based on market demand for liquidity and clear market signals, not on arcane macroeconomic modeling that has made the Fed’s economists the laughingstock of Washington and Wall Street.

To make America great again, as Donald Trump promises, and to restore America’s goodness, as is the stated goal of Hillary Clinton, it’s important that the next president throw his or her weight firmly behind the restoration of good, instead of wobbly, money. Preferably, as Jack Kemp used to call for, by “making the dollar as good as gold.”

Monetary policy belongs at the heart of presidential politics. It belongs at the fore of presidential priorities. Good monetary policy is a critical factor in job creation and upward mobility for workers.

Clemenceau observed that “War is too serious a matter to entrust to military men.”

Good monetary policy is too serious a matter to be left to the governors of the Federal Reserve System.

Ralph Benko, internationally published weekly columnist, co-author of The 21st Century Gold Standard, lead co-editor of the Gerald Malsbary translation from Latin to English of Copernicus’s Essay on Money, is American Principles Project’s Senior Advisor, Economics.

Ralph Benko

Ralph Benko is a monetary policy advocate and an internationally syndicated columnist.

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