If you find money mysterious - and I think anyone who has thought hard about it must - then monetary history is a constant source of revelation. One strand which is retreating into history concerns the role of gold. I have a piece on ‘Gold as Monetary Arbiter’ in the Global Dispatches magazine - it’s a quick scamper through some monetary history which you might not be familiar with.
More broadly, over the last few months I have been trying to read through the entire accumulated transcripts of the FOMC from the post-war meetings where the Fed is trying to finance the Cold War, to the 1971 abandonment of the dollar gold standard, to the extraordinary practical, philosophical and academic debates which engulfed the FOMC during and after the Great Financial Crisis.
It is the history of highly intelligent, highly motivated and informed people constantly discovering their mistakes, and repeatedly finding that even the basis on which they made those mistake were themselves mistaken.
On one level, it is an on-going demonstration of Hayek’s contention that economic policy-making faces impossible information problems. On another level, it is a history of people grappling with the fundamental contradiction of any reserve currency: too little money inhibits its use as a medium of exchange, too much money erodes its use as a store of value. But more mundanely, it is confirmation that no theoretical economic policy, and no econometric approximations, survives contact with unfolding reality for long. Everyone is constantly doing their best, and only fitfully finding that their best is, for the time being, good enough.
It is easy, then, to run through the history pointing to the errors, to the hubris of FOMC efforts. But truly this would be dishonest. The general tenor of FOMC discussions throughout the decades is one not inviting hubris, but irony: earnest irony. Even during what from current perspectives were the FOMC’s finest hours, board members quite openly acknowledge that they aren’t entirely sure what they are doing. Indeed, some of the most dramatic policy decisions are ventured despite profound uncertainty about whether the outcome might be good, or disastrous.
The thread which connects all the attempts of FOMC’s personnel to determine policy is the tension between reacting to current circumstances whilst at the same time protecting the value of money. This tension is always present, and even when seeming financial emergencies command the FOMC’s urgent attention, the philosophical backlash arrives rapidly after the immediate emergency retreats. What are we doing? What have we done?
In a free-floating monetary world, the search for a standard, a lever from which to move the world, goes on. Quite possibly it always will.