A Monetary Lecture From Steve Forbes
Steve Forbes with some common sense about money:
Alas, the notion arose in the late 19th and early 20th centuries that if wise men could have “flexibility” in issuing money without the constraints of its being tied to the supply of gold, or even silver, they could rid us of financial panics, the business cycle and other human ailments! John Maynard Keynes and others thought that if the economy looked to be slowing you should just churn out more money, like putting more logs on a flickering fire, and do the opposite if things looked to be overheating. But manipulating the amount of money or the cost of it, à la the Fed’s fixing interest rates, gets in the way of prosperity. It does not facilitate prosperity but retards it. There is no way a handful of people–wise or unwise–in government and central banks can second-guess what markets made up of billions of people might need. We are living through a disaster that is the result of the latest Greenspan/Bernanke attempts to guide our economic destiny through central bank operations.
Imagine if the government decided to increase the number of minutes in an hour from 60 to 70. You can hear policymakers congratulating themselves: “People will work longer at the same pay. This will be a boon to productivity!” Or if Washington increased the number of inches in a foot from 12 to 15: “Home buyers will thus get more house for the same price and that will stimulate home buying!” Preposterous? It’s no more foolish than what we and other countries routinely do with our currencies.
It has been said repeatedly during the recent financial crisis and recession that capitalism has failed and we need to rethink our commitment to markets. I say rubbish. What has failed is not the market but attempts by the Fed to circumvent the workings of the market. What has failed – and failed miserably – is Keynesianism.