Frontlines

MONETARY RADICALISM

The root of the inflation problem is the loose monetary policies of the governments and central banks of the world. This is hardly news to libertarians, but the number of "practical businessmen" who seem to believe otherwise is astounding. Organizations such as the Committee for Monetary Research & Education, Box 1630, Greenwich, CT 06830, are working quietly and effectively to transmit the awareness of the root cause of inflation among those who suffer from it and who might be able to ultimately pressure the governments of the world into a more rational set of policies.

The C.M.R.E. recently sponsored a conference at the University of Colorado, Nov. 11-12, on the subject of "Profits, Capital, and Reliable Money." In his welcoming remarks, Felix E. Wormser commented, "I am intrigued by the suggestion of a prominent banker in socialist Hungary that the socialist nations return to the use of gold and hard money, while the noncommunist world goes in the opposite direction….How startling it would be if the socialist nations or the powerful ones in the Middle East were to present the world with a monetary unit redeemable in gold. They are in a position to do so with profound impact on subduing the world's maddening inflation." Speakers at the conference included Robert Bleiberg, Art Laffer, Henry Hazlitt, Hans Sennholz, John Exter, Patrick Boarman, and many others. This was the 8th semiannual conference sponsored by the Committee. The next conference will be held March 18-20 in New York at Columbia University, Arden House.

The principal focus of the work of the C.M.R.E. is the analysis of inflationary public policy and of the institutional arrangements which would effectively prevent monetary irresponsibility. Henry Hazlitt in 1972 was effective in getting the legalization of gold ownership written into the Republican Platform. Senator Jesse Helms is currently making significant progress in lining up support for legislation to legalize gold clauses in contracts. The C.M.R.E. advocates tying national monetary units to fixed weights of gold, which would cause irresponsible governments to face bankruptcy in the style of New York City (which can't print its own monetary units). It is not clear whether this advocacy goes as far as Prof. Hayek's recent proposal to eliminate the compulsory use of governmental monetary units altogether, but this would be the logical next step in the process of establishing any genuine libertarian international gold standard.

POLICY RESEARCH AND ALTERNATIVES

The crankshaft of the engine of inflation is the Federal Open Market Committee, which is part of the Federal Reserve System and operates out of New York by buying and selling government bonds. When it buys a bond, it injects fresh, new money (Federal Reserve credit) into the banking system. The F.O.M.C., by speeding up or slowing down its purchases of government bonds, exerts the primary influence over the world's supply of U.S. dollars. Lest this powerful agency of economic policy run amok, as it has done in the past—e.g., 1929-1933, 1941-1952, and 1970-1974—a group of academic and business economists has formed the Shadow Open Market Committee, which meets every six months and makes proposals for monetary policy. Formed in September 1973 by Profs. Allan H. Meltzer of Carnegie-Mellon University and Karl Brunner of the University of Rochester, the S.O.M.C. closely monitors the activities of the F.O.M.C. The aim of the group is to establish visible alternatives to current policy when they perceive that policy to be in error, and thereby to counterbalance any tendency for policymakers to argue that their decisions are the only reasonable ones. This was what the Federal Reserve System did in 1929-1933 and the secrecy, as well as lousy statistics, contributed to the subsequent Keynesian policy of ignoring the quantity of money altogether and letting the printing press whirl. Other members of the S.O.M.C. include Beryl W. Sprinkel, Anna J. Schwartz, Thoms Mayer, Homer Jones, Wilsom Schmidt, Robert H. Rasche, and A. James Meigs.

Karl Brunner, furthermore, is head of the Center for Research in Government Policy and Business at the University of Rochester. The University of Rochester, under the chancellorship of W. Allen Wallis, has attracted a number of young libertarian academics.

The Center has published several books demonstrating the perverse consequences of regulation of markets. One study, published in 1975, "Government Credit Allocation—Where Do We Go From Here," demonstrated that the government's involvement in the home financing business has generally led to higher prices for housing, the opposite of the common belief and the supposed purpose of the mortgage subsidies. The lesson to be learned from this study in credit allocation is that the invisible hand usually wipes out and perverts direct policy intentions. The perennial attempts by government to subsidize everybody at the expense of everybody else leads to a decrease in living standards.

According to Brunner, "The Social Security System has lowered private savings. Consequently, there is less money for capital investment. Thus, we have a capital stock that is 55 percent lower than it would have been without Social Security and a GNP that is 15 percent less." Further, "Companies put their money into accounting and legal departments to cope with regulations, or into public relations efforts to counter them. All of this is nonproductive."

The Center is one of a growing number of academic institutes devoted to the study and empirical refutation of the myth of government goodness. What we may be seeing in this development is a revolution of monumental proportions; as the public sector grows in the society it becomes more and more obviously wasteful and inefficient—even in terms of its own goals. The call last September by Prime Minister Callaghan of Britain for a reduction in government spending—addressing a convention of the socialist Labour Party—is a stunning and welcome sign.

This column is concerned with an analysis of activities on the "frontlines" of the battle of political principles, and with news about people who are active in the struggle. We appreciate news and ideas from readers. Please send materials to Joe Cobb, Box 1776, Chicago, IL 60690 for consideration and use in FRONTLINES.