Blue Mass Group

Reality-based commentary on politics.

Simon Johnson on central banking, the gold standard and more

By

New darling of the left Simon Johnson begins to address Ron Paulist concerns on central banking. Is this the debate we need to have?

if you go back to the original debate about the founding of the Federal Reserve, at that time we had relatively late compared to most countries; and we also had a relatively open debate; most countries sort of stumbled into modern central banks. Two views of the downside or the drawbacks of having a central bank: one was Nelson Aldrich, of the establishment, which said this will create moral hazard problems for government and that will lead to inflation. On the other side was the Peugeot Committee and Louis Brandeis, before he became a Supreme Court Justice, who said: Well, there’s also moral hazard this will create for the financial sector. Because the Wall Street barons, oligarchs, will be able to draw on this credit when they need it; and that will encourage them to take excessive risks. I have to say, looking back over 100 years, the experience of many countries or the experience of Europe today in the Eurozone, there are many instances like that of Greece who have proved Nelson Aldrich is right; but there are other instances, most spectacularly recently that of Ireland, that prove Louis Brandeis was also right…

Greenspan has an essay from I think late 1960s when he was something of an advocate of the gold standard, where he, I think, lays out–I’m not a gold standard enthusiast as he was then, but the point he makes there that when you have unconditional support available from the central bank and you use it, which you can do under a fiat money system more readily than you can under the gold standard–and this of course was Brandeis’s point in the original Federal Reserve debate–when you have that power, that is a form of what sometimes people call Statism. And you are putting power in the hands of the State. Now, I’m a very cynical person. I think everyone is out pursuing their own interests. I don’t think there are idealistic people running the State. I think there are a bunch of guys who have some friends and they are trying to help themselves and perhaps they think this is good for the economy.

http://www.econtalk.org/archives/2011/11/simon_johnson_o.html

Please share widely!
fb-share-icon
Tweet
0

Comments

  1. Many of us have been reading Simon Johnson since the start of the fiscal crisis.

    I have no idea what your point is, or why anything S.J. has said recently should cause some kind of soul searching among liberals or liberal economists.

    *

    Do you care to explain the non-appearance of the ghastly inflation that you and the “darlings of the right” have been predicting since early 2009?

    *

    I didn’t think so.

Archives