Should Congress give the Federal Reserve Board a "single, explicit mandate to stabilize prices," or let the Fed continue its "whimsical monetary tinkering"?
"The most important quality of monetary policy is that it be predictable, rather than a constant source of unnecessary uncertainty for businesses, consumers, and investors," says Alan Reynolds of the Hudson Institute. He argues that predictable monetary policy is "impossible if the Fed is given, or assigns to itself, numerous and variable tasks."
Reynolds points out that the autonomy of the Fed reflects the 20th-century "faith in central planning." Central bankers, he explains, are presumed to be experts in monetary policy and are thus empowered to decide "how much of which varieties of money we should have, how many yen a dollar should buy, or what interest rates we should pay as debtors or receive as creditors." These so-called experts are trusted not only to perform a job that may be beyond human capability, but also to "define and redefine what that job should be."
Central bankers, of course, are no more perfectible than the rest of us. Nevertheless, the Federal Reserve System presumes "the omniscience and incorruptibility of experts [who] receive no instructions at all from ordinary people or their elected representatives." From the beginning, says Reynolds, the system lacked "coherent mandates defining what central bankers were expected to accomplish." Consequently, there was "no accountability when central bankers deserved considerable responsibility for economic disasters."
Should the Federal Reserve be independent? Should there even be a Federal Reserve? "A plausible case can be made for central bank independence, in the sense of insulation from myopic political pressures," Reynolds concedes, but that does not mean "leaving central banks entirely adrift with no meaningful guidelines about how they are expected to serve the public and therefore no accountability for their failures. If monetary policy is to be conducted by a central bank, and the currency is not convertible into gold, the central bank should be accountable for maintaining the value of its product -- Federal Reserve notes -- and nothing else," says Reynolds. "The Fed needs a clear mandate, to avoid being distracted by dubious objectives such as fine-tuning the growth of the economy, the unemployment rate, or the stock market. Multiple targets," he explains, "can too easily become excuses for failure."
The U.S. Constitution, of course, gives Congress the power to coin money and regulate its value. Nothing is said about delegating responsibility to a third party; nor is mention made of paper currency. Individual states, moreover, are prohibited from making "anything but gold and silver coin a tender in payment of debts." Our current monetary system, needless to say, is a travesty of the one envisioned by our Founding Fathers. "The irredeemable paper money issued by the Federal Reserve System is fiat money," Cleon Skousen explained in his book The Making of America. "There is no authorization for this kind of money in the United States Constitution." Congress is responsible for debasing our currency, and it's up to Congress to give us honest money again.
