According to a recent blog post on 538, “post Keynesian” is the phrase in economic research most indicative of “left-leaning” political views and “free banking” is the phrase most indicative of “right-leaning” views. (See also the paper on which the blog post is built.) The authors apparently don’t know how to distinguish between conservatives and libertarians, because to my knowledge, most researchers on free banking are libertarians. Be that as it may, I do not view the correlation between research topics and ideology as inherently dangerous. Researchers in many disciplines have personal motivations for their research related to ideology, personal circumstances, etc. Over time, a wider body of scholars acts as judges of whether the facts and ideas advanced by the small group seem to be correct. The danger lies in the wider body being close-minded, accepting or rejecting without judging carefully.
Kurt Schuler is an economist in the Office of International Affairs at the U.S. Treasury Department. In his spare time he edits Historical Financial Statistics (a free, noncommercial online data set) for the Center for Financial Stability. He has written a number of publications about the history of free banking and about other monetary systems. Because the Treasury Department discourages employees from commenting publicly on current policy issues within its purview, he refrains from discussing such issues here. His views represent no official Treasury Department position. As befits a bureaucrat, he has chosen to remain faceless, hence we have posted no photo of him.
The centenary of the opening of the Federal Reserve System was November 16, 1914. The Federal Reserve Act was passed in December 1913 but the organization took nearly a year to open. Here is the Federal Reserve page on the event. Since it was not previously mentioned on this blog, I am bringing it up now.
As you can tell from the date, the Fed did not open until after World War I began. The financial troubles in the United States connected with the outbreak of the war were handled by the private sector and the Treasury Department. William Silber, a professor at New York University, wrote a book several years ago on the episode, When Washington Shut Down Wall Street. Among the subjects he discusses is the closure of the New York Stock Exchange for several months. With the NYSE closed, an unofficial market sprang up in New Street, which ran along the back side of the NYSE building. The establishment press refused to publish stock price data from New Street trading, but Silber found one paper that did so, perhaps because its usual focus was on horse racing and entertainment, hence it was not beholden to Wall Street for stories or advertising revenue. The paper stopped publishing data some weeks before the shutdown period ended, though. Recently two students at Johns Hopkins University filled in the remaining data using a previously untapped source and wrote a paper about it. More generally, I think much work remains to be done about what steps governments and the private sector might take under a free banking system when some catastrophic event occurs. The absence of a central bank does not remove the need to take some steps similar to what a central bank might do, but one hopes such steps could be undertaken with more reliance on voluntary consent.
This year is also the 30th anniversary of the publication of Larry White’s Free Banking in Britain (link is to the second edition, 1995). I have a slight personal connection to the book, having prepared the index to the first edition along with George Selgin. Vera Smith’s Rationale of Central Banking and Hayek’s Choice in Currency (later expanded and retitled Denationalisation of Money) were earlier, but to my mind Larry’s book marks the real start of contemporary free banking theory because it combined theory, economic history, and history of thought in an appealing way. Larry showed that the Scottish free banking system had worked well, and that its workings were both contrary to what was usually taught about laissez faire in money and banking textbooks and consonant with what is taught about markets in microeconomics textbooks. Vera Smith’s fine book was unfortunately neglected when it first appeared (1936, the same year as Keynes’s General Theory of Interest, Employment and Money). What could have been an intellectual movement was stillborn. Larry’s book has borne ample fruit intellectually, if not all that he has wished for in terms of policy.
The Federal Reserve Bank of Richmond's Econ Focus interviewed Richard Timberlake earlier this year and somehow I missed it, (Here is George Selgin's post on Dick's book Constitutional Money and here is my appreciation of Dick on his 90th birthday, two years ago.) The first question and part of Dick's answer to it follow.
EF: Let’s start with a unifying theme of your work: Your support of a gold standard. Several great neoclassical monetary theorists — Marshall, Walras, Wicksell, Fisher, and Keynes — argued that a rules-based fiat money could outperform a gold standard. Why do you disagree?
Timberlake: Let me say first of all that I am not a “gold bug.” Nonetheless, the fact is that an operational gold standard works to promote a free society, and no other monetary policy seems able to do so.
The key word in your question is “could.” But the policymakers won’t allow it to. The reason they won’t is found in public choice economics, which argues that the policymakers, like all other human beings, have a stronger motive to further their own self-interest than to promote sound public policy — not only at the Fed, but everywhere.
And now for something much different. If, like me, you are interested in free banking as a subset of the wider phenomenon of voluntary exchange, you may derive some instruction from these anthropological works:
Keith Hart (London School of Economics and University of Pretoria) and Horacio Ortiz (Centre de sociologie de l’innovation, Paris), The anthropology of money and finance: from ethnography to world history (essay).
Charles J. Opitz, An Ethnographic Study of Traditional Money (a book that catalogs hundreds of different forms that money has taken; the result of the author's years of work collecting many of them).
Isaac Asimov wrote an essay on creativity in 1959 that was only published recently. His view is that “the person who is most likely to get new ideas is a person of good background in the field of interest and one who is unconventional in his habits. (To be a crackpot is not, however, enough in itself.)”
Monetary theory and policy have been fertile ground for crackpots (more commonly referred to as “monetary cranks”) from the beginning. Part of the attraction is that the field has some abstruse aspects. Another is that there is the appeal of seemingly getting something for nothing with the right policy, or, contrarily, the suspicion of being swindled by the powers that be.
Far be it from me to issue a blanket condemnation of monetary cranks, though. Some deserve the appellation “interesting fringe thinkers.” Though almost always wrong on the theory, sometimes they have been right on the policy when conventional opinion has been dead wrong! During deflations, schemes such as Silvio Gesell’s proposal for a currency that depreciates if not spent (which interested Keynes and Irving Fisher) offer workarounds for overly tight monetary policy and the consequent fall in velocity. During high inflations, pure gold or barter schemes offer workarounds for overly loose monetary policy.
(Scott Sumner has a recent post somewhat related to these ideas. On a point of personal privilege, though, he should know enough not to refer to Argentina’s monetary system of the 1990s as a currency board. Argentines called it the “convertibility” system. It was a quasi-currency board, with some but not all features of an orthodox currency board, and the distinction is important both in theory and in practice. Few people have looked at the evidence, but Scott should be one of them.)
Gene Epstein of Barron's is critical of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel awarded to Jean Tirole. His article "This Nobel is No Prize" quotes George Selgin. Here are a couple of paragraphs summarizing Epstein's view:
Say Adam Smith and others had never shed light on the gains that result when one nation freely exchanges goods and services with another. Without a compelling theory of the benefits of free trade, we would no doubt assume that tariffs, duties, and subsidies to domestic exporters were just a case of government doing its job. [...]
Happily, we do have a theory of free trade that mainstream economists honor, even if the theory is often honored in the breach. Unhappily, since the mainstream lacks a theory of free banking, Jean Tirole can be given a Nobel for useful formulations that include the optimal regulation of finance.
Leonard Liggio died earlier today in Washington, D.C. He was 81 years old. His kidneys had failed recently, which I infer put a strain on his body more generally.
When Leonard became interested in classical liberalism, there were so few other people interested in it in that he got to know them all. His far-flung web of friendships, boundless memory, and wide reading, especially in history and political philosophy, made him a key figure in establishing a community of like-minded thinkers that is now many thousands strong and spans the world. It has today no Mises, Hayek, Friedman, Rothbard, Rand, or Nozick. To some it will seem as though we have passed from an age of giants to an age of pygmies. My view is different. As a current of thought become broader, it is harder for any single thinker to have the influence that was possible when it was smaller. The work becomes more specialized. (This blog is an example.) For the current to remain a unified current, though, it needs people who can make connections from one part to another, and Leonard was supremely talented at doing so.
Leland B. Yeager turns 90 years old today. He has done notable work in monetary theory—most important for this blog, laissez faire monetary systems—international monetary economics, trade, ethics, and languages.
After high school he served in the U.S. Army during World War II, translating Japanese coded messages. He earned his A.B. from Oberlin College and his M.A. and Ph.D. in economics from Columbia University. Following a brief stint at the University of Maryland, he taught for nearly three decades at the University of Virginia, where he was part of the economics dream team that included James Buchanan, Ronald Coase, Gordon Tullock, and G. Warren Nutter. Yeager finished his career at Auburn University, where he was Ludwig von Mises Distinguished Professor of Economics. He is now an emeritus professor of that institution.
Prof. Yeager has many talents. One is for languages. He knows languages as diverse as Japanese, Norwegian, Russian, and Sanskrit, as well as the usual major Western European languages that American economists sometimes knew before academic economics became largely monolingual. Another of his talents is for writing. Deidre McCloskey has cited Yeager as one of the best living stylists of economics—a low bar, but one that Yeager clears with plenty of room. Still another, as will be evident from some of the testimonials below, is for teaching. As one who saw him in action wrote, “This stuff was dynamite. Students quickly realized that Yeager had it all and anyone with half a brain knew that they had a once in a lifetime chance to wrap up the whole damn subject—if they could just get every word he uttered written down.” (Remember, it was decades before the iPad and other digital recording devices.)
Prof. Yeager’s magnum opus is his book International Monetary Relations: Theory, History and Policy. It looks like a textbook, but is actually an exceptionally lucid treatise that wrapped up the whole damn subject for its time (1969, second edition in 1976). Although nearly 40 years old, the book remains unequaled for the skill with which it weaves together the strands of theory, history and policy. I am pleased to announce that the Center for Financial Stability is working to make it available electronically later in Prof. Yeager’s 90th year.
George Selgin collected the essays by Prof. Yeager likely to be of most interest to readers of this blog in The Fluttering Veil: Essays on Monetary Disequilibrium. Roger Koppl edited a festschrift called Money and Markets: Essays in Honor of Leland B. Yeager. It reprints the most delightful portrait I know of any economist, “The Yeager Mystique,” by his former students William Breit, Kenneth Elzinga, and Thomas D. Willett. For those who want to dig deeper, there is plenty more.
Appreciations of Prof. Yeager written especially for this blog follow below. Later I will post links above to appreciations elsewhere.
“I like to think,” Mark Blaug’s Who’s Who in Economics (1986) quotes Yeager as saying, almost reticently it seems, “that I have made contributions toward identifying money’s role in balance-of-payments disequilibrium and adjustment and reconciling the elasticities, absorption, and monetary approaches to the topic; grasping the implications of the fact that money serves as routine medium of exchange and lacks a market and a price of its own; more fully understanding our existing monetary system by contrasting it with a radically deregulated system [whose unit of account were defined physically but without a link to anything that could come into use as a medium of exchange and] in which media of exchange and payments services were provided by private enterprise; grasping the implications of the fact that money serves as routine medium of exchange and lacks a market and a price of its own and clarifying the nature of capital and interest and showing how their proper conceptualization dissolves the ‘Cambridge capital paradoxes’. ”
“I like to think….”? Would that we all had Yeager’s modesty. Just for the record, consider….
Apropos “identifying the role of money in balance-of-payments disequilibrium and adjustment and reconciling the elasticities, absorption, and monetary approaches to balance of payments adjustment”:
Paul Einzig, author of more than 50 books on foreign exchange, called Yeager’s International Monetary Relations: History and Theory “a book of outstanding importance…. [T]he best book on foreign exchange that has appeared since the war.”
Apropos “grasping the implications of the fact that money serves as routine medium of exchange and lacks a market and a price of its own”:
Richard Timberlake, eminent historian of U.S. monetary policy, called Yeager’s “Essential Properties of the Medium of Exchange” (Kyklos, February 1968) “one of the twentieth century’s ten most important articles on monetary theory.”
Apropos “contrasting our existing monetary system with a radically deregulated system [whose unit of account were defined physically but without a link to anything that could come into use as a medium of exchange and] in which media of exchange and payments services were provided by private enterprise”:
Milton Friedman called “A Laissez Faire Approach to Monetary Stability” (Journal of Money, Credit, and Banking, August 1983) “absolutely splendid.” (I hope that readers won’t consider my quoting Friedman’s remark self-serving. I know that thanks to my having a name beginning with “G” and to Yeager’s generosity, I have received as co-author of this particular article more than a fair share of credit.)
Apropos “clarifying the nature of capital and interest and showing how their proper conceptualization dissolves the ‘Cambridge capital paradoxes’”:
The editors of Economic Inquiry called Yeager’s “Toward Understanding Some Paradoxes in Capital Theory” (September 1976) their journal’s article of the year.
And then there is Yeager’s treatise on ethics (Ethics as Social Science, 2001); his collected writings on political economy (Is the Market a Test of Truth and Beauty? 2011); and his translation (1983) of a 1919 book (Ludwig von Mises, Nation, State and Economy) that, had it appeared in English originally, not in German, might well have taken a place alongside Keynes’s Economic Consequences of the Peace (1919).
I could go on, citing additional journal articles (many, on monetary theory, collected in George Selgin, ed., The Fluttering Veil: Essays on Monetary Disequilibrium, 1997) and books (e.g., with David Tuerck, Trade Policy and the Price System, 1976). Instead, I’ll conclude by mentioning a tribute whose very title shows the esteem in which Yeager is held by colleagues and students alike—“The Yeager Mystique: The Polymath as Teacher” (William Breit, Kenneth Elzinga, and Thomas Willett, Eastern Economic Journal, Spring 1996).
Robert Greenfield is Professor of Economics and Finance at Fairleigh Dickinson University
Next Page »