Renewing the Search for a Monetary Constitution: Reforming Government's Role in the Monetary System PDF
Preview Renewing the Search for a Monetary Constitution: Reforming Government's Role in the Monetary System
RENEWING THE SEARCH FORA MONETARY CONSTITUTION RENEWING THE SEARCH FORA MONETARY CONSTri,UriiON REFORMING ROLE IN GOVERNMENT~s THE MONETARY SYSTEM EDITED BY LAWRENCE H. WHITE, VIKTOR J. VA NBERG, AND EKKEHARD A. KOHLER Q\10 INSTITUTE WASHINGTON, D.C. Copyright © 2015 by the Cato Institute. All rights reserved. Library of Congress Cataloging-in-Publication Data Renewing the search for a monetary constitution/ edited by Lawrence H. White, Viktor J. Vanberg, Ekkehard A. Kohler. pages em Papers originally presented at an April2012 symposium held in Freiburg-im Breisgau, Germany. Includes bibliographical references and index. ISBN 978-1-939709-66-0 (hardback : alk. paper) 1. Monetary policy-Congresses. 2. Money-Congresses. 3. Banks and banking, Central-Congresses. I. White, Lawrence H. (Lawrence Henry) II. Vanberg, Viktor. III. Kohler, Ekkehard A. HG230.3.R46 2015 332.4'6-dc23 2014046061 ISBN: 978-1-939709-66-0 eBook ISBN: 978-1-939709-67-7 Cover design: Jon Meyers. Printed in the United States of America. CATO INSTITUTE 1000 Massachusetts Avenue, N.W. Washington, D.C. 20001 www.cato.org Contents INTRODUCTION Lawrence H. White vn 1. THE CoNTINUING SEARCH FOR A MoNETARY CoNSTITUTION Leland B. Yeager 1 2. STILL IN SEARCH oF A MoNETARY CoNSTITUTION Hugh Rockoff 23 3. THE VALUE OF MONEY AS A CONSTITUTIONALIZED PARAMETER James M. Buchanan 51 4. THE CONSTITUTIONALIZATION OF MoNEY: A CoNSTITUTIONAL EcoNOMICS PERSPECTIVE Ekkehard A. Kohler and Viktor f. Vanberg 59 5. MONETARY REGIMES, STABILITY, POLITICS, AND INFLATION IN HISTORY Peter Bernholz 105 6. INDEX FUTURES TARGETING AND MONETARY DISEQUILIBRIUM W. William Woolsey 127 7. RECENT IssuEs CoNcERNING MoNETARY Poucy REFORM Bennett T. McCallum 153 8. MoNETARY REFORM IN A WoRLD oF CENTRAL BANKS Gunther Schnabl 165 9. FREE BANKING IN HISTORY AND THEORY Lawrence H. White 187 v 10. CoNTEMPORARY PRIVATE MoNETARY SYSTEMS Kevin Dowd 213 11. CENTRAL BANKS: REFORM OR ABOLISH? Gerald P. O'Driscoll, Jr. 255 INDEX 279 Introduction Lawrence H. White First drafts of the papers collected here were originally presented at an April2012 symposium held in Freiburg-im-Breisgau, Germany, organized by the editors of this volume and conducted by the Liberty Fund, Inc.1 The symposium was timed to mark the 50th anniver sary of the 1962 publication of the important volume In Search of a Monetary Constitution, edited by Leland Yeager. Professor Yeager's volume was based on a fall1960 lecture series he had organized at the University of Virginia. Our authors had a similar mandate to the one Yeager described giving to his lecturers, namely that they were "encouraged to take the broadest possible view, without worry about political practicality or about possible accusations of extrem ism," as if advising people "engaged in shaping the basic character of a monetary system, in shaping a 'monetary constitution"' (Yeager 1962, 1). Here we offer revised versions of the symposium papers with the aim of revitalizing public discussion of constitutional mon etary reform. The contributors to the Yeager volume (all but one) took the then unfashionable position that an explicit "monetary constitution"- a set of enforced constraints on the creation of money by government would be useful. The position was unfashionable in the early 1960s because inflation was low and because most economists were opti mistic that a discretionary central bank armed with the prevailing Keynesian wisdom would tame the business cycle. As Hugh Rockoff notes in his chapter of the present volume, the 1962 volume's warnings about central-bank discretion nonetheless "proved remarkably presci ent because the Great Inflation was about to begin." We are especially pleased to include contributions from James M. Buchanan and Leland Yeager, respectively, a leading participant in and the organizer-editor of the 1960 Virginia lecture series and the vii RENEWING THE SEARCH FOR A MONETARY CONSTITUTION resulting 1962 volume. We dedicate the present volume jointly to the memory of Professor Buchanan, who passed away in January 2013, and to the prescient Professor Yeager. Like the participants in Yeager's volume, ours ask: What is the case and what are the options for constitutional reform of the monetary system? In the past 50 years, central banks have deliv ered neither reliably sound money (but instead chronic infla tion peaking in the Great Inflation of the late 1960s to early 1980s) nor smoother real growth (but instead a series of booms and busts leading to the Great Recession of 2007-2009, still lingering today in the United States and in Europe). As a result of this poor performance, many venerable ideas for monetary reform have been rediscovered and reenergized, including the cases for rules over time-inconsistent discretion, for a laissez faire or free-banking sys tem, for a gold or commodity-basket monetary standard, and for tar geting aggregate nominal spending. Noteworthy new reform ideas have been born, such as competing private irredeemable currencies, separation of the unit of account from the medium of exchange, and a prediction market to appropriately control the monetary base. Meanwhile new technologies for producing media of exchange and units of account have arrived in the marketplace, including redeem able community currencies, online-transferable "digital gold" accounts, and noncommodity cybercurrencies such as Bitcoin and its dozens of imitators. The time is ripe to rethink monetary regimes fundamentally rather than to continue confining ourselves to mar ginal tinkering with the instruction sets for status quo institutions. The remainder of this introduction does not try to closely summa rize the following chapters, which speak for themselves, but instead tries to introduce some of the fundamental issues they discuss. Two sets of basic questions immediately arise when thinking of monetary institutions in constitutional terms. First, do we want constitutional provisions that empower government to act in the monetary sphere? Or do we instead want only provisions that pro hibit government from interfering with money, much as the First Amendment to the U.S. Constitution bars Congress from abridg ing the free exercise of religion? Does anything special about money warrant a positive role for the state? For example, does money meet the technical criteria for a "public good"? Or do the general principles of property law (namely, following David Hume, the viii
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