In this letter to the Wall Street Journal, I advocate free banking:
Amar Bhide understates the case for breaking up the Fed ("Let’s Break up the Fed," July 29). While it’s true that no bureaucracy can be trusted to handle all the many new responsibilities that the Fed has recently absorbed, Mr. Bhide errs in conceding that "In principle, an exceptionally talented theorist might capably run a Fed focused just on monetary policy. Setting the discount rate and regulating the money supply are centralized, top-down activities that do not require much administrative capacity."
Regulating the money supply is a centralized, top-down activity only because government has monopolized money-supply issue. Government bureaucrats with monopoly control over the supply of money can no more be expected to adjust that supply to optimally meet consumers’ nuanced and changing demands for money than could, say, government bureaucrats with monopoly control over the supply of bread be expected to adjust that supply to optimally meet consumers’ nuanced and changing demands for bread.
Only competitive, private note issue will end the system-wide distortions created by inevitably bad monetary policy determined by a government committee.
Donald J. Boudreaux