Acton Institute Powerblog

Justice demands ‘Just Money’

Widespread civil unrest, social media fueled hysteria, and political polarization have infected our public life. Vice President Joe Biden suggested on Monday that these problems have been fomented by his opponent. President Donald Trump likewise suggested that it is his political opponents, including Vice President Biden, who are responsible. Both answers are politically convenient for the candidates but fail to take into account the international nature of the revolt of the public against elites of all parties and cliques. Our current social tumult serves only as a political weapon for our political class, who seem disinterested in unraveling this mystery.

In the absence of serious inquiry from our real-but-unserious political class, perhaps we should turn for inspiration to the fictional-but-serious Sherlock Holmes. In Arthur Conan Doyle’s classic short story “The Adventure of Silver Blaze,” the private detective Holmes and Dr. Watson investigate a crime involving the disappearance of the race horse Silver Blaze and the murder of the horse’s trainer. From the very beginning of their investigation, the circumstances of the disappearance and the murder simply do not add up, causing Holmes to reject what seems to others to be the most obvious answers. The result of Holmes – circuitous investigation, the solution to the mystery – depends upon “the curious incident of the dog in the night-time”:

Gregory (Scotland Yard detective): Is there any other point to which you would wish to draw my attention?
Holmes: To the curious incident of the dog in the night-time.
Gregory: The dog did nothing in the night-time.
Holmes: That was the curious incident.

This is the hermeneutical key which unlocks the identity of both the thief and the killer. The dog made no noise, because both the thief and the killer were known to him. (I won’t spoil this brilliant mystery for you.) This story teaches us a similar lesson to that of economics: that which is unseen, or unheard, has even more to teach us than that which is seen or heard. I suspect that what is true in economics, as well as in detective fiction, may be equally true in politics.

There is a remarkable, emerging consensus among voters which our political elite has ignored: Trust in the Federal Reserve is eroding, according to data from the latest Axios-Ipsos Coronavirus Index. Dion Rabouin, writing for Axios, helpfully summarizes some of the findings:

Trust in the Fed is sinking across the political spectrum – a strong majority (62%) of Americans say they have little or no trust in the central bank, up from just over half (51%) in May. …

Distrust of the Fed defies age, race, gender, region, work status and even education level, as a majority of respondents across the board say they have “not very much” or “none at all” trust in the central bank.

The percentage of respondents who say they trust the Fed “a great deal” fell to 4%, compared to 21% who say they do not trust the Fed at all.

Sixty-two percent of Americans have little to no trust in their central bank. During a contentious election year, the political class is strangely silent – a proverbial dog that doesn’t bark. Economists have long argued that the Federal Reserve can fuel asset bubbles and speculation with easy credit. Finance professor Itay Goldstein of the Wharton School of the University of Pennsylvania has recently argued that this explains the mysterious disconnect between the strong performance of the stock market and the current weakness of the economy overall:

“What the Fed is doing right now is unprecedented,” he continued. The Fed has continued on the trajectory of low interest rates since mid-2019, but also pressed on with its “quantitative easing” approach to inject liquidity into the financial system, which it had used in the aftermath of the 2008-2009 financial crisis. “In recent months, it is not only doing the traditional quantitative easing of buying treasuries and mortgage-backed securities, but also continuing to buy other assets like corporate bonds, which is something that the Fed has not done before.”

Samuel Gregg has argued convincingly that “Just Money” is essential to the common good. Increasing public skepticism of the Federal Reserve is in fact a healthy development, according to the theologian Juan de Mariana:

Mariana’s point was that if a society, rather than only its rulers, begins to regard the manipulation of money as an antidote to contemporary economic challenges—regardless of the long-term effects—then a type of poison will start working its way through the body politic. The Spanish Jesuit’s world, in which metallic currencies and far more limited accountability prevailed, seems far removed from our own. Yet the basic logic remains: a citizenry that doesn’t care about the politicization of the money supply isn’t likely to be a citizenry inclined to look beyond its short-term self-interest.

The curious silence of our political class in the face of widespread public concern is disconcerting but the possibility of an emerging public consensus around “Just Money” offers hope. The easy money policy of the Federal Reserve may be behind some of our most pressing social problems, from increasing economic inequality to the rising prices in education, healthcare, and housing, despite – and in fact partially because of – increased consumer demand stimulated by debt-financed interventions. Our political class would be wise to heed the wisdom of Solomon and look for the root causes of our current strife: “When the righteous thrive, the people rejoice; when the wicked rule, the people groan” (Proverbs 29:2).

(Photo credit: Public domain.)

Dan Hugger

Dan Hugger is Librarian and Research Associate at the Acton Institute.