In a mirror-image of a six-year-old quote-applicable to current events under the U.S. Capitol dome-we now know that members of the legislative branch, in deciding whether to audit the Fed, just voted against it before voting for it.
Most of us were not yet around when an earlier generation of legislators in the twin chambers adjacent to the capitol rotunda voted to create the Fed as a way of side-stepping their own constitutional duty of managing the American currency for value and stability.
In 1913, dissatisfied with private-sector banking's issuance of bank notes over a 124-year period with a dismal record of 12 percent in dollar-value shrinkage, the legislators installed a bureaucracy which has presided over (or orchestrated-you choose the correct verb) a 95 percent loss in purchasing power.
To this day, you won't find that historical performance record discussed in the mainstream news media, much less conceded by Fed leadership itself.
Critics of the dollar-value shrinkage have been ignored or silenced: in my own amateur economist readings, I've learned that ex-Wall Streeter Benjamin Graham in the 1930s and past Fed member Wayne Angell in the 1990s proposed commodity based currency-stabilization designs. Meanwhile, present U.S. Rep. Paul Ryan started making commodity basket suggestions during the 2000s. But the history of Fed fecklessness goes back to its pre-World War I birth, not just the Great Depression.
Nowhere is it better described than in a 2009 tome entitled "Lords of Finance" authored by Liaquat Ahamed.
In 564 pages, "Lords..." paints a century-long portrait of European and American financial leadership stippled with a document cascade of inept decisions, colleague deception, incorrect statistics, and raw politicking-a pattern preceding and paralleling, within the American Fed, the goings-on in the various European central banks.
Instead of relying on the "skilled" judgment of financial wizards to manage currency for constant value (the Fed now admits its goal is 2 percent annual inflation), the commodity dollar would be on automatic pilot so that its commodity purchasing power would remain constant, neither inflating nor deflating.
An old book, "Storage and Stability" is worth reading. Here's from a website about the book:
"When Benjamin Graham wrote Storage and Stability in 1937, the world was in the midst of the Great Depression. Written as a blueprint for economic recovery, the book was designed to spur both governments and the public to greater financial awareness. Based upon years of research and economic modeling, Graham's new theories focused on the inherent importance of supply and demand, production and consumption, and their inherent influences on value investing."
Well, that was in the 1930s. In the 1990s, Fed governor Wayne Angell hoisted a similar flag. Angell, now a Columbia professor, is no longer on the Fed. He has enjoyed similar political success in marginalizing even professional economists like Joseph Stiglitz, once a World Bank economist).
Here's a typical professional (Stiglitz) opinion:
"If we (World Bank) had seen a governance structure that corresponds to our Federal Reserve System, we would have been yelling and screaming and saying that country does not deserve any assistance, this is a corrupt governing structure". Stiuglitz's comments drew neither official recognition nor response.
And here's Martin Harris' opinion: Whether the Fed is internally corrupt or not-and that includes its documented history of tweaking monetary policy to please the in-power administration-matters less than whether it accomplishes its assigned mission, to regulate the value of the currency. It has failed at that mission. Could a commodity based dollar driven by mathematical formula, not professional judgment, perform any worse than 95-year/95 percent-devaluation failure? You decide. But probably it doesn't matter.
That's because gesture politics-the legislative branch's proposed kabuki-play enactment of Fed-audit-contemplates none of the following: 1.review of the Fed's 95-year performance history, 2. review of the Fed's policy-tweaking political-campaign-support pattern, 3. The Fed's role in enabling Fannie Mae and Freddie Mac to fund a trillion dollars worth (actually, worthless) of sub-prime mortgages, and 4. the academic argument for a more mathematical monetary policy, closer to the workings of a currency board regulating domestic currency to balance. Such a revision to present Fed authorization would replace skilled judgment (which has proven decidedly unskilled) with a more robotic formula.
You might call this a gold standard without the gold. But gesture politics will doubtless dominate, so the legislative branch's review will focus on-drum-roll, please-emergency lending rules.
More next week.
Martin Harris is a retired Vermont architect and an observer of all things strange and political.