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61. Editor's Note

Author:
James A. Dorn
Publication Date:
07-2014
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The Federal Reserve Act was passed on December 23, 1913. It was designed to provide an elastic currency that would respond to the needs of trade. There was nothing in the Act about price stability, interest rates, or full employment. The expectation was that the United States would continue to define the dollar in terms of gold, and that the operation of the international gold standard would ensure long-run price stability.
Political Geography:
United States

62. A Limited Central Bank

Author:
Charles I. Plosser
Publication Date:
07-2014
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Douglass C. North, co-winner of the 1993 Nobel Prize in Economics, argued that institutions were deliberately devised to constrain interactions among parties—both public and private (North 1991). In the spirit of North's work, one theme of this article will be that the institutional structure of the central bank matters. The central bank's goals and objectives, its framework for implementing policy, and its governance structure all affect its performance.
Political Geography:
United States

63. A Century of Central Banking: What Have We Learned?

Author:
Jerry L. Jordan
Publication Date:
07-2014
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
All of us who are interested in the century-long experience of central banking in the United States owe a great debt to Allan Meltzer. His several-years-long efforts gave us over 2,000 pages of careful documentation of decisionmaking in the Federal Reserve for the first 75 years (Meltzer 2003, 2010a, 2010b). The first score of years transformed a lender-of-last-resort, payments processor, and issuer of uniform national currency into a full-fledged central bank with discretionary authority to manage a fiat currency.
Political Geography:
United States

64. Operation Twist-the-Truth: How the Federal Reserve Misrepresents Its History and Performance

Author:
George Selgin
Publication Date:
07-2014
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
For a private-sector firm, success can mean only one thing: that the firm has turned a profit. No such firm can hope to succeed, or even to survive, merely by declaring that it has been profitable. A government agency, on the other hand, can succeed in either of two ways. It can actually accomplish its mission. Or it can simply declare that it has done so, and get the public to believe it.
Topic:
Government
Political Geography:
United States

65. The Need for a Price Stability Mandate

Author:
Athanasios Orphanides
Publication Date:
07-2014
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The founding of the Federal Reserve was a good idea, but its performance during its first hundred years has been hampered by the lack of clarity of its mandate. At times its mandate was interpreted as requiring the pursuit of multiple targets resulting in the failure to safeguard price stability over time. This article reviews the evolution of the Federal Reserve's mandate and argues that Congress should clarify the primacy of price stability as the central bank's mandate to ensure that the Federal Reserve will better safeguard monetary stability going forward.
Political Geography:
United States

66. The Troubling Suppression of Competition from Alternative Monies: The Cases of the Liberty Dollar and E-gold

Author:
Lawrence H. White
Publication Date:
07-2014
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Proposals abound for reforming monetary policy by instituting a less-discretionary or nondiscretionary system ("rules") for a fiat-money- issuing central bank to follow. The Federal Reserve's Open Market Committee could be given a single mandate or more generally an explicit loss function to minimize (e.g., the Taylor Rule). The FOMC could be replaced by a computer that prescribes the monetary base as a function of observed macroeconomic variables (e.g., the McCallum Rule). The role of determining the fiat monetary base could be stripped from the FOMC and moved to a prediction market (as proposed by Scott Sumner or Kevin Dowd). Alternative proposals call for commodity money regimes. The dollar could be redefined in terms of gold or a broader commodity bundle, with redeemability for Federal Reserve liabilities being reinstated. Or all Federal Reserve liabilities could actually be redeemed and retired, en route to a fully privatized gold or commodity-bundle standard (White 2012). All of these approaches assume that there will continue to be a single monetary regime in the economy, so that the way to institute an alternative is to transform the dominant regime.
Topic:
Government
Political Geography:
United States

67. Clearing House Currency

Author:
Richard H. Timberlake, Jr.
Publication Date:
07-2014
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The Federal Reserve System is no longer just an unconstitutional monetary institution promoting a continuing inflation; it has also become, with quantitative easing, an unauthorized fiscal agent for the U.S. government. The fiat currency and equally fiat bank reserves it creates are much in contrast to the private currency and bank reserves that the commercial banks' clearing house associations provided in the latter half of the 19th century. It is that episode I review here.
Topic:
Civil War
Political Geography:
United States

68. Nominal GDP Targeting: A Simple Rule to Improve Fed Performance

Author:
Scott B. Sumner
Publication Date:
07-2014
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The history of central banking is a story of one failure after another. This record does not mean that our actual monetary regimes have been the worst of all possible regimes—far from it. But it does mean that we can improve policy by learning from experience. Every proposed reform is a response to a previous failure, an implicit display of lessons learned.
Political Geography:
Canada

69. Fed versus Market Regulation

Author:
Jeb Hensarling
Publication Date:
07-2014
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Before I get into the body of the remarks, I want to thank the Cato Institute for everything it stands for and everything it has meant to me. As I was walking in the foyer, I noticed a copy of the Cato Journal on a table there. I recall as an undergraduate student at Texas A University in the 1970s that I took $25 dollars—and I'm a guy who worked my way through college—of my hard-earned money to invest in the Cato Journal. That was money I could have invested in long necks at the Dixie Chicken, our local watering hole. Also, I would like to thank John Allison. If you have not read his book, The Financial Crisis and the Free Market Cure: Why Pure Capitalism Is the World Economy's Only Hope, I commend it to you. Finally, I would like to tell you that as chairman of the House Financial Services Committee, before I decide to move out on any particular issue, I certainly glean the scholarship of Cato in general and Mark Calabria in particular.
Political Geography:
America

70. Market Discipline Beats Regulatory Discipline

Author:
John A. Allison
Publication Date:
07-2014
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
I am going to talk from a different perspective because I am the only person who actually ran a bank that's been speaking today, and from that context I can tell you with absolute certainty that market discipline beats regulatory discipline. In fact, I will argue that regulatory discipline will always fail to reduce volatility and will slow economic growth. These observations are based on my understanding of public choice theory and particularly on 40 years of concrete experience in the banking business.
Political Geography:
United States