One of many subjects I didn't learn enough about during my journey through public school, is about that now front-page-news bureaucracy, the Federal Reserve System.
The FRS was relatively obscure years ago and we were duly taught its raison d'etre, which-in language from the Constitution's Article 1 Section 8-requires the Congress to "...Coin money, regulate the value thereof..." and so on-a task which the legislative branch.
Think about the continentals issued during the Revolution or the greenbacks issued during the Civil War. Both caused major inflation. The first were never redeemed and the second were redeemed (but in ways that were part of the reason for the 30-year-long period of post-Civil War deflation).
But those easy one-task days ended in 1978. Then, under Humphrey-Hawkins, Uncle Sam's workload was at least doubled: it now included, under "monetary policy", long-term growth as well as the original price stability also labeled "inflation control".
Humphrey-Hawkins has additional goals, not for the fed but for government: primarily "full employment", "increasing production", and "balanced trade" objectives.
You already know their "success" regarding the first (full employment), which has subsequently been construed to be a collateral fed task; or at the last (balanced trade), which in plain English means action by the legislative branch to prevent overseas balance-of-payments deficits. It just didn't happen.
Given its historical economics performance record, it's understandable that Congress wouldn't want to take another try at its constitutionally assigned job any time soon.
Those in the legislative branch could never agree on a Bank of the United States, but eventually issued temporary licenses for a first and then a second bank, both as private parties with a side ticket to do public business. Each license expired after 20 years.
Thus, from 1789 to 1913, private banks coined money (actually, issued paper bank notes as well as specie coinage); there were ups and downs in inflation and deflation, but the overall record was one of a 12 percent purchasing power decline during efforts to regulate the value of American money.
It took $1.12 in 1913 to buy what a dollar bought in 1789, according to the Economic History website. And then, under the notion that Progressive-only experts should run everything in 1913, Congress created a fed entity to do the job for them (and of course more skillfully than the private sector).
The Economic History website also reports on the dismal result: the decline in dollar value under Federal Reserve management in the 95 years from 1913 to 2008: 95 percent.
It took $22.40 to equal the earlier $1, so you might think that this double-95 is the cause of the present Congressional "Fed-angst"-after all, how would a manufacturer with a 95 percent deficient-product output rate fare in the marketplace?. This fact isn't even mentioned by one critic, Vermont's own self-admitted socialist U.S. Sen. Bernard Sanders nor by his unlikely fellow-critic, Texas libertarian U.S. Rep. Ron Paul (with whom the former declines to co-operate on actual bill language), unless you count a brief passage in Paul's 2009 book, titled "End the Fed".
I'd guess that every member of the legislative branch (with few glaring exceptions) is sufficiently intelligent and well-informed to know the branch's own historical aversion to doing its own currency-management job, and to know the sorry 95/95 record of their own creation, the Fed, in that respect, and thus I'd guess that the "Audit-the-Fed" gambit is gesture politics only, intended as street theatre with a slight risk that it might, if they lose control of the constituent activists, (think Vermont's recent legislative Shut Down Vermont-Yankee campaign) get out of rhetorical control and into dangerous reality.
Suppose that the unwanted actually happens: an audit is voted and hearings begin. Who, then, on the legislative side would speak of the Fed's own 95/95 record? Would the present Fed Chairman Ben Bernanke recite his typical stump-speech actually claiming successful Fed stabilization of the value of the dollar, transparency in governance, and aloofness from mere politics? Presumably, Bernanke would expect no legislator to rebut by reciting the Fed's $1 then equals $22.40 now record (which currency value decline has continued unabated on his 4-year watch, 8 percent, using Bureau of Labor Statistics data) or the notorious opacity of former Chairman Greenspan's public comments
The Fed chairman is a presidential appointee. Read a few pages from historian Thomas DiLorenzo's book "Hamilton's Curse" (pp.187 et seq.) for the history of the Fed's politically-motivated tweaking of monetary policy timed to the campaign cycle. Here's a quote from DiLorenzo: "Modern economic research has shown that the Fed has made numerous attempts to create a 'political business cycle', basically by using its powers over the money supply to pump up the economy with easy credit just before elections. The economist Robert Weintraub documented how Fed monetary policy shifted to fit the preferences of newly-elected Presidents in 1953, 1961, 1969, 1974, and 1977-all years in which the Presidency changed hands. The policy was based, in other words, not on what was best for the cause of economic growth and [currency] stability but on the Fed Chairman's desire to please his boss." Isn't the same super low-interest rate stimulus policy being played out now? And which legislator would have the gumption to say so?
Remember the Community Reinvestment Act? Since 1977 banks must lend to subprime borrowers , requiring government-supported enterprises Fannie Mae and Freddie Mac to purchase the worthless paperwork-now euphemistically labeled a more-than-$1-trillion Fed "asset".
The inevitable collapse started the current downturn, surely a third-rail topic for self-interested legislators. Some non-legislative branch folks want a return, from smart-expert currency management back to a dumb, mathematical gold standard. More about this topic next week.
P.S.: As I concluded my efforts on this week's column, I heard the news from Capitol Hill: the U.S. Senate formally declined to pursue its own Audit-the-Fed promise. Sometimes the actual event does confirm theoretical speculation.
P.P.S.: A few days later, I learned that the U.S. Senate approved a diluted audit measure. Why not ask your Vermont U.S. senator, "did you vote to audit the Fed?"
Ex-Vermont resident Martin Harris lives in soggy Tennessee.