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We’re looking into Gold, The Real Bills Doctrine, and the Fed: Sources of Monetary Disorder (2019), by Thomas M. Humphrey and Richard Timberlake. September 10, 2023: Gold, The Real Bills Doctrine, and the Fed: Sources of Monetary Disorder (2019), by Thomas M. Humphrey and Richard Timberlake September 17, 2023: Gold, the Real Bills Doctrine, and the Fed #2: Let’s Review Normally, in good times, a bank might have some kind of problem. My own father worked for a Big Eight (later Big Six and then Big Four) accounting firm in Los Angeles in the 1980s. One of his clients was a small Savings and Loan whose customer base was largely Chinese immigrants. A rumor got out that this bank, Bank A, was in trouble. Not knowing about US banking regulations including deposit insurance, these Chinese immigrants rushed to Bank A to withdraw their deposits, and then transfer them to nearby neighborhood bank Bank B. In fact S&Ls did have long-term festering problems in those days, which began in the 1970s and were not finally resolved until the early 1990s. So, maybe this rumor had some truth to it. But, basically, Bank A was fine. It was solvent. Its assets (loans) were in good shape. The overall economy was fine. The president of Bank A contacted Bank B, where everyone was moving their funds to from Bank A. Bank B loaned the money back to Bank A. The money just went in a circle. Bank B was very happy to make interest income by lending to Bank A. Bank A was fine, and after a while, the bank panic dissipated. Nobody needed to borrow from the Federal Reserve. There was a “shortage of liquidity” at Bank A, and a “surplus of liquidity” at Bank B, which was resolved by Bank B

We’re looking into Gold, The Real Bills Doctrine, and the Fed: Sources of Monetary Disorder (2019), by Thomas M. Humphrey and Richard Timberlake. September 10, 2023: Gold, The Real Bills Doctrine, and the Fed: Sources of Monetary Disorder (2019), by Thomas M. Humphrey and Richard Timberlake Let’s review what the Federal Reserve actually did in that time. We will look at its complete balance sheet — something that Humphrey and Timberlake never do. January 26, 2014: The Federal Reserve in the 1930s #2: Interest RatesJanuary 19, 2014: The Federal Reserve in the 1930sDecember 23, 2012: The Federal Reserve in the 1920s 4: The Historical RecordDecember 16, 2012: The Federal Reserve in the 1920s 3: Balance Sheet and Base MoneyNovember 25, 2012: The Federal Reserve in the 1920s 2: Interest RatesNovember 18, 2012: The Federal Reserve in the 1920sJuly 22, 2012: The Composition of U.S. Currency 1941-1970July 15, 2012: The Composition of U.S. Currency 1880-1941 October 2, 2016: The Interwar Period, 1914-1944 (contains many links)August 25, 2017: The Interwar Period #2: It’s Not That Complicated (many more links) I also recommend that you read Chapter 6 of Gold: The Final Standard, which summarizes a lot of my investigations into the Interwar Period. Free .pdf of Gold: The Final Standard First of all, we can see that the Federal Reserve did not “contract” in 1929-1933. Its balance sheet, and base money, both expanded. There was a big expansion of banknotes in late 1931, in the banking panic that followed the British devaluation of September 1931. The British government bond was considered the “risk free asset” at the time, and it had a long history of reliability to justify that claim. When the British pound was devalued, the value of British government bonds — and all other pound-denominated debt — naturally plummeted by

Is this book for real? It smells to me like propaganda — an intentional confusion of historical events, and a load of bad theory, for the purpose of muddying the issue. Did the authors on the cover even write it? We will treat it here as if it is in earnest, but maybe we shouldn’t. The authors come from something like a conservative tradition in economics. Richard Timberlake‘s book Monetary Policy in the United States: An Intellectual and Institutional History (1993) is a reference on this topic, especially for the pre-Fed days. Thomas M. Humphrey wrote a number of interesting books, including The Monetary Approach to the Balance of Payments, Exchange Rates, and World Inflation (1982). He also worked for the Federal Reserve Bank of Richmond for some time, and was the author of a nice paper for the Richmond Fed, “Mercantilists and Classicals: Insights from Doctrinal History,” which I quoted in my first book. I used his “Mercantilists and Classicals” trope extensively in Gold: The Monetary Polaris. The book is published by the Cato Institute, which a friend of mine long ago called a “Monetarist Hangout.” At the time, I didn’t know what he was talking about. I’ve often thought that much of Monetarism is basically propaganda, and that some of its leading proponents, including Milton Friedman, did not really believe what they said, but were intentionally trying to confuse people. Monetarism is a floating-fiat currency doctrine of macroeconomic manipulation, completely contrary to the Stable Money classical ideals expressed by the gold standard. In other words, Monetarists are Mercantilists, not Classicals. From the cover, we learn that the authors thought there was “monetary disorder” in the 1930s, arising from the Federal Reserve. Many, many such claims have been made over the years — many different claims, since it seems

I wanted to spend a little more time with Classical Economic Theory and the Modern Economy (2020), by Steven Kates. This is really a worthwhile book, with many insights. July 9, 2023: Classical Economic Theory and the Modern Economy (2020), by Steven Kates Here I will simply reproduce one of the most compact and illuminating sections of the book, which highlights some of the errors of both the Keynesian and Marginal Revolution-era thinkers, and also gives a brief summary of the Classical view of recession and business cycles. This is informed by quite a lot of reading into many of the key Classical texts, up through the 1930s and 1940s. There are a couple interesting things here: I agree with the basic conclusions of the Classical thinkers, as represented here, which is that a “business cycle” or recession can be related to an imbalance between the things that are being offered in the market, and what people want. This can be exacerbated by a credit cycle, which is mentioned here also but which does not get much more commentary. These are phenomenon which can happen with an environment of good economic policy, and no policy changes — in other words, arising from the free enterprise process itself, without government influence. However, we can also see a rather big missing element — basically, government policy, for good or for ill. Good government policy tended to be assumed in the 19th century, because taxes were low and money was linked to gold. This “government policy” includes taxation, regulation, spending programs of various sorts, and of course also monetary factors. We see more commentary on monetary factors from the Austrian group, probably since Austria itself had a mildly floating currency in the late 19th century before returning to gold in 1896. Also, there

Lawrence White has been one of the very few academics I can name who has been a consistent advocate for the gold standard, as a monetary policy. There have been others who have done a pretty good job of historiography on the gold standard era, with Michael Bordo perhaps the best example. (There have also been quite a few whose historigraphical efforts are completely laughable, or corrupt.) There have been a few, mostly younger academics such as William Luther and Alexander Salter, who sometimes say some nice things about gold, but in the end tend toward NGDP Targeting or other solutions, which are completely contrary to the principle of a gold standard, which is this: This internal inconsistency of thought does not seem to bother them very much. I think it has something to do with how Millennials have been educated. White has written a number of papers over the years, of notable merit, so it is nice to see him collect some of his thoughts into a book, which is much more permanent than papers, and which other people can learn from. (He should collect his papers into book form as well, since books are easy to make these days.) This book is: Better Money: Gold, Fiat or Bitcoin? I was hoping for, and let’s say expecting, something like a basic primer on basic principles for a lay audience, that doesn’t know much about these topics. However, this is not the character of the book. Rather, it consists of a number of rather detailed investigations into specific topics, which have been items of discussion recently. This is also worthwhile. The first topic takes up the question of whether “money” can be defined basically out of thin air by government fiat. This is a response to various “Chartalist” arguments which

The League of Nations produced excellent international economic statistics for the 1920s and 1930s. They are available here: https://digital.nls.uk/league-of-nations/archive/190788539 Unfortunately, they only go back to about 1921. I was looking for stats that cover the prewar-wartime-postwar transition.

Classical Economic Theory and the Modern Economy (2020), by Steven Kates, kept coming up in the list of books that Amazon.com recommended to me, while I was searching for other books. Score one for the algorithms that run Amazon’s recommendations, because this oddball little book really is the sort of thing that I like, and which serves and important role today. The author is an Honorary Professor of Economics at RMIT University (since when are universities getting acronyms?) in Melbourne, Australia. The book begins with this paragraph: Writing this book was an odd experience, since the premise of everything found within the rest of this book is that just about the whole of modern economic theory is perniciously wrong, that other than here and there, such as in its opposition to rent controls, there is virtually nothing useful one can learn from a modern economics text in how to manage an economy. (p. 1) So …. tell me what you really think. But, that is also the kind of thing we write about around here, isn’t it? That’s why this website exists. The author was fully trained in the usual Keynesian or whatever they call it, “neoclassical” rubbish that you find in universities. Then, he had a real-world job for 24 years as the economist at the Confederation of Australian Industry, “which had the most profound effect on my intellectual destiny.” In other words, unlike most academics who just mumble dogma in ivory towers, Kates had to investigate and interact with the real world economy. He was being paid by businesses, to craft real-world proposals for business-friendly policy to the Australian government — not groveling for tenure by babbling dogma to other academics. This experience was so shocking, that the whole second chapter is entitled: “The purpose of this book