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Fed Independence

Here’s a letter to Marketplace:

Mr. David Brancaccio, Host
Marketplace Morning Report

Mr. Brancaccio:

One of your reporters – I missed her name – said this morning that a return to the gold standard would, by tying the value of the dollar to a certain quantity of gold, threaten the Federal Reserve’s independence.

Your reporter does not understand what is meant by Fed independence.

Fed independence refers not to the Fed being free from any and all constraints upon its discretion to manipulate the supply of money. Rather, it refers to the independence of this central bank from day-to-day politics, if not from the receipt from Congress of broad marching orders. Until 1971 these orders required the Fed to tie the dollar in some fashion to gold; and there’s no reason why Congress can’t do so again.

Love the gold standard or hate it – approve of it or disapprove of it – a return to the gold standard would strengthen the Fed’s independence by further shielding that agency from pressures to manipulate the money supply for political purposes.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

By this Marketplace reporter’s logic, the independence of the American judiciary is threatened by the requirement that court rulings not violate the U.S. Constitution.