B. Macroeconomics Chapter 13 Keep the Penny, Toss the Fed: On the Criminals Who Killed This Once-Useful Coin

For some people, benighted souls, the passing of the copper-colored penny coin is long overdue. “Good riddance to bad rubbish,” they might say. After all, this bit of metal hardly buys anything, nowadays. Ubiquitous on the counters of shops around the country are cups holding pennies, there for the use of customers in order to help them make change. But a coin given away for free, these people might argue, can hardly be counted upon to conduct the nation’s business. To a great extent pennies just weigh down pockets and pocketbooks, and the sooner they are gone, the fewer tailor bills and pocketbook repair costs will be required.

There is no doubt that these people are correct. Using the penny to conduct today’s business is like a car with a rumble seat (don’t know what that is youngster? go look it up) or riding around in a horse and buggy. Strictly of antiquarian interest.

And yet, and yet …

’Twas not so long ago that the penny could pull its full financial weight. When I was a youngster in the 1940s, no one dared condescend to this coin. For a very few of them, one could purchase an ice cream cone, a comic book, a candy bar, or even a ticket to a matinee movie. Some restaurants featured menus from the early days of the turn of the last century (for those who have been Rip Van Winkling it for the last few years, I’m referring to 1899) when a penny was a robust coin indeed. A corporal’s guard of them would entitle someone to pretty much an entire meal.

What has happened? Why is it that the penny, to say nothing of the nickel, dime, quarter, 50 cent piece, and even, truth be told, the dollar (which will soon follow into oblivion), don’t seem to amount to very much in terms of purchasing power? In a word, it is all due to inflation. And who, in turn, is responsible for this reprehensible state of affairs? It is the government, specifically the Treasury Department and the Federal Reserve System (since 1913), which have together conspired against the public interest. They have done so in effect by creating more money, at a faster rate of increase than that enjoyed by the goods and services we create. Too much money chasing too few products yields higher prices, the opposite side of the coin (excuse the pun) of inflation.

There used to be a TV series featuring the “T” men. Every week they would walk down a set of stairs, and attempt to bring to justice the counterfeiters who were responsible for inflating the currency. Had there been better (well, more accurate writers) they would have turned around, marched back up those steps, and arrested their bosses.

For before the advent of statist money, when people were free to choose the means to intermediate their financial affairs, they had typically resorted to gold (sometimes silver). There has been no inflation at all in terms of gold. Centuries ago one could purchase an expensive suit of clothes for an ounce or two of this metal, and the same applies today.

The only reason governments horned in on this essentially free enterprise industry was to disguise their insatiable, greedy, and excessive demands for our money. They have only three ways of raising funds: taxes, borrowing, and inflating the currency. But they are widely and properly reviled when they resort to the first two to excess. The third alternative is embraced by them because the causes of inflation are so well hidden from the public that the blame for it can be readily placed on businessmen and workers.

Yes, the penny is now obsolete. But rather than getting rid of it, we should instead throw out those rascals in Washington who have so debased it. Then we should return to the gold standard (three decades ago the evil Nixon tore asunder our last ties to this system), and once again allow the penny to take its rightful place as the conductor of small scale — but important — commerce. Don’t throw out this coin! Toss out Alan Greenspan and his Fed instead.

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Published August 29, 2001.

Chapter 14

Private Enterprise and the Fed; What Should Be the Relationship?

Several years ago I attended a meeting of the Association of Private Enterprise Educators (APEE).[1] This group was initially started by a group of holders of free enterprise chairs at various universities (I suppose I now qualify under that rubric) but membership had been long before open to all those academics and other scholars who favor, and work for the promotion of, free enterprise and economic freedom. (This is my own description of that group, but I doubt that any member of it would object.)

Much to my surprise, and even dismay, the high point of the program, the plenary after dinner speech, was given by a member of the Dallas Fed, who described his organization as the “free-enterprise” Fed. I also learned that this organization was one of the major financial supporters of APEE, or at least of that particular meeting.

This gave me pause for thought, to say the least. At the conclusion of his speech, skunk at the garden party style, during the question and answer period, I got up on my hind legs and declaimed that this was more than passing curious. How is it possible to reconcile participation of the Fed, any Fed, in a group ostensibly devoted to laissez faire capitalism? Would not the money supply in an economically free country consist of something chosen by market participants, for example, gold, rather than of fiat currency imposed, from above, by government of all institutions, of which the Fed was part?

I also appended to my remarks a gratuitous, or, perhaps, not so gratuitous attack on Alan Greenspan, for having known these truths during his Randian days, for still claiming free enterprise credentials, and yet continuing to preside over the Fed. In response the speaker said that Greenspan could defend himself — a reasonable enough proposition, I suppose — followed by a litany of all the great free enterprise things done by the Dallas Fed — which I thought very much beside the point.

My queries were met by stunned silence from the crowd. There were no publicly made follow up supportive questions or comments from the audience. Only one person approached me afterward, with support for my position.

In the intervening years, I have had time to reflect upon this curious situation, and hence a few thoughts.

1. The “free enterprise” of APEE as constituted in the nineties did not extend so far as to include money, macroeconomics, business cycles, etc. APEE espoused a rather narrow conception of economic liberty. Were there many members of the group who included such issues in their vision of the free marketplace, they would likely either cutoff affiliations with the Fed or at the very least have speakers advocating free enterprise in this realm. It would be unlikely in the extreme that they would highlight a Fed speaker in this manner, with no opposition on the program.

2. Is it even compatible with libertarianism for APEE to accept funds from a tainted statist agency such as the Fed? Although this will be controversial within libertarian circles, I maintain that it is.

Let us consider this under two rubrics: deontology, or strict libertarian theory on the one hand, and what might be called libertarian utilitarianism (will an act promote liberty) on the other.

Under the latter category, better that these monies go to APEE which is a pretty good organization all things considered (apart from this one lacuna), than to conduct ordinary Fed business, that is, to further debauch the currency. On the other hand, publicly accepting money from this source sends out a mixed message to the citizenry. It implies that there is nothing incompatible between laissez faire capitalism and government involvement in the money supply.

What about pure libertarian principle? Is it illegitimate to ever accept, or even to seize government property, money, or wealth? Yes, certainly, it is. Ragnar Danneskjold, a fictional character in Ayn Rand’s Atlas Shrugged, did precisely this. Of course, this was only the first in a two-part act; the second of which was to return the, not stolen but rather liberated money, to its rightful owner, in this case Hank Reardon, representing for present purposes victimized taxpayers.

What about acquiring government property and not returning it to its rightful owner, either keeping it or destroying it? Yes, surely, this, too. Let us first consider keeping it, not returning it. Is such a person a thief, and therefore acting incompatibly with libertarian principles, per se? No. A robber is by definition someone who grabs property from the rightful owner.

The government in this scenario cannot possibly qualify in that regard. Rather, the position occupied by APEE in this scenario (or anyone who accepts a pay check from a statist entity such as a public university, or even from a private university which, in turn, accepts such largesse, or anyone who walks on a public street, or uses the post office) is not that of a thief, since he is by stipulation taking money or property from a wrongful owner.

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Published January 10, 2003.

[1] The criticisms of APEE mentioned below concern that organization solely as it functioned in 1996–1998, the only period of my experience with them. They are entirely irrelevant to the organization as it is now constituted.