Monday, August 29, 2005

Sorting out

This morning's WSJ coverage of the Jackson Hole monetary policy confab cites Prinecton's Ricardo Reis and Alan Blinder, praising Alan Greenspan as "the greatest central banker who ever lived."

I have several times alluded to remarkable praise for Greenspan's monetary policies from, of all people, Milton Friedman. Part is the normal retirement well-wishing, part surely has merit. Historians will sort it out.

Historians are, of course, still sorting out the monetary history of the U.S., the causes of the Great Depression (I like the "Murphy's Law" explanation), and the 20th-century romance with top-down economic planning, part of Brink Lindsey's "Industrial Counterrevolution" (explained in his Against the Dead Hand).

If we are now emerging from the central planning optimism of the IC, then money managers' increasing sophistication is a part of this cycle. Richard Timberlake's "Gold Standard and the Real Bills Doctrine in U.S. Monetary Policy" (in the recent Econ Journal Watch) appears to be an important part of the sorting out. Economists' understanding of monetary policy and gold standards (real and imagined) helps us to better understand and learn from the monetary mistakes that have been made.

Consider this remark by the author: "A true gold standard provides an economy with a set of rules precsribing the conditions for the supply of common money. Once the rules are in place, the system works on the principles of a spontaneous order. Human design is limited to the framework for the standard, and must refrain from meddling with the ultimate product -- the quantities of both base and common money."

We live and learn.