But we are off the topic. Let us return to those unworkable theories regarding monetary reform. Prominent in this category are the Monetarists and the Supply-Siders. The Monetarists, adhering to the theories of Milton Friedman, believe that money should continue to be be created by the Mandrake Mechanism of the Federal Reserve, but that the supply should be determined by a strict formula established by Congress, not the Fed. The Supply- siders, represented by Arthur Laffer and Charles Kadlec, believe in formulas also, but they have a different one. They want the 1. Q u o t e d by M.J. ' R e d ' Beckman,
2. Letter to H o l l e e Haswell, Curator at the L o w M e m o r i a l L i b r a r y , Columbia U n i v e r s i t y , October 13,1987.
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quantity of money to be determined by the current demand for gold. They are not talking about a true gold standard in which paper money is fully backed. By following what they call a
'gold-price rule,' they would simply observe the price of gold in the free market and then tinker with the dollar by expanding or contracting the money supply to keep its relative value, compared to gold, fairly constant.
These groups are alike in their underlying philosophy. Each has a different goal and a different formula, but they agree on method: manipulation of the money supply. They share the same conviction that the free market will not work without assistance; the same faith in the wisdom and integrity of politically-created formulas, bureaus, and agencies. The Fed remains unscathed throughout all these debates because it is the ultimate mechanism for intervention.
These people don't really want to change it. They just want their turn at running it.
Occasionally a truly original proposal appears that captures one's attention. Addressing a prestigious gathering of conservative monetary theorists in 1989, Jerry Jordan suggested that the monetary base could be expanded by holding a national lottery. The government would pay out more dollars in prize money than it received in ticket sales. The excess would represent the amount by which the monetary base would expand. Presumably, if they wanted to contract the money supply, they would pay out fewer dollars than taken in. It was an intriguing thought, but Mr. Jordan was quick to add: 'The problem, of course, is that there would not be any effective institutional restraint on the growth of the monetary base.' Indeed, that is the problem with
BALANCED-BUDGET AMENDMENT
A so-called balanced-budget amendment to the Constitution is not the answer either. In fact, it is an illusion and a fraud. Some of the biggest spenders in Congress are supporters. They know that it is popular with the voters but would not cramp their spending style in the least. If they were not permitted to spend more than they receive in taxes, they would have a perfect excuse for raising taxes. It would be a way of punishing the voters for placing limits 1. ' T h e F u t u r e o f Price Stability i n A Fiat M o n e y W o r l d , ' b y Jerry L. Jordan,
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on them. The voters, on the other hand, would collapse under the burden of higher taxes and demand that their Congressmen
circumvent the very amendment they previously supported. And that would be easy. Most versions of the balanced-budget amendment have an escape hatch built for just that purpose. Congress shall balance its budget
A serious amendment would have to tackle, not balancing the budget, but
Another flaw in most versions of the balanced-budget amendment is that it would not affect the off-budget expenditures called entitlements. They now represent 52% of all federal outlays and are growing by 12% each year. A strategy that ignores that back-breaking load is not worth even considering. Furthermore, even if Congress could be forced to stop deficit spending, the balanced-budget amendment would not solve the problem of inflation or paying off the national debt. The Federal Reserve can now inflate our money supply by using literally any debt in the world. It does not have to come from Congress. Unless we zero in on the Fed itself, we will just be playing political games with no chance of winning.
Every year, a few concerned Congressmen submit a bill to
investigate or audit the Federal Reserve System. They are to be commended for their effort, but the process has been an exercise in futility. Their bills receive little or no publicity and never get out of committee for a vote. Even if they did receive serious attention, however, they could actually be counterproductive.
On the surface, it would appear that there is nothing wrong with a Congressional investigation or an audit, but what is there to investigate? We must assume the Fed is doing exactly what it says and is in total compliance with the law. A few minor improprieties A REALISTIC SCENARIO
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probably would be discovered involving personal abuse of funds or insider profiteering, but that would be minor compared to the gigantic fraud that already is out in the open for all to see. The Federal Reserve is the world's largest and most successful scam.
Anyone who understands the nature of money can see that without a team of investigators and auditors.
The danger in a proposal to audit the Fed is that it would provide an excuse to delay serious action for several
