On March 14 of this year Gary North published “A letter to David Stockman” in which he identified Stockman’s popular website as providing the reasons and statistical evidence for why “Keynesian economic policies are going to blow up the world.” North goes on to say:
You are the lightning rod for all of the establishment economists and senior bureaucrats who are overseeing what is going to become the worst economic disaster of modern times. They don't like the criticism. They fully understand that, if what you're saying is true, they are going to get blamed in the media, the textbooks, and the cultural memory for a comprehensive disaster that they personally engineered, supervised, and took credit for when the going was good.
You are likely to become the John Maynard Keynes of this century. You will be remembered as the spokesman who called attention to the fact that the emperors have no clothes. Keynes served as the chief designer of the fabrics which have clothed the emperors ever since 1936.
North then suggests that Stockman write a short theoretical work on economic theory, in the spirit of Hazlitt’s Economics in One Lesson, which began with an analysis of Bastiat’s broken window fallacy. “Central bank policies will shatter a sufficient number of windows to attract the attention of the victims.”
Stockman’s magnum opus, The Great Deformation, while great for its countless historical insights and economic analysis, is a “fat book,” North says. Hazlitt wrote his little book for the discouraged troops fighting the Keynesian onslaught. Stockman should do the same for the free market soldiers who will need to provide answers when “the checks stop coming.”
A free-market primer for today’s libertarians
I think North has a great suggestion, David Stockman. You should write the book.
But I have a suggestion, too: If you do write the book, please reconsider the necessity of a central bank.
On March 20, 2014, concluding an interview with Mises Institute, you said:
I think the political realities of the situation make the most likely scenario one in which there will be some kind of real financial collapse and disorder that will require a total reconstruction of the system. It’s impossible to say how that will be done, and this may be the chance to go back to a gold standard or to a very sharply circumscribed remit for central banks.
Gold standards have always been under government control. That’s why they were abused, suspended, and ultimately abandoned in favor of a currency that central banks could inflate at will. Central banking has always required a close partnership with government. As Vera Smith pointed out decades ago, central banks are not free market entities. They always require government sponsorship.
What would prevent a “sharply circumscribed” Fed from growing to the monstrosity that exists today? Certainly not the politicians, who can always start another war and declare emergency measures that require an unshackled central bank. Certainly not the people who leave it up to the politicians to do the deciding for them.
If we are to establish a monetary system that serves the best interests of all market participants, we need currency competition. Let the best currency win.
With the Fed established as the monopoly supplier of the nation’s money, the door is open for corruption. As you state in your book,
In spite of the Fed’s design as a passive reactor to the needs of commerce, it got into the public debt business. The 1913 national debt of $1.2 billion “exploded to $260 billion by the end of the Second World War, and rather than 3 percent of GDP it was now 125 percent.” [p. 199]
Fractional reserve banking is the soft underbelly of central banking. In his monetary primer, What is Money?, North writes:
It is not surprising that central banks never get shut down or disestablished, not even after they create nightmare hyperinflations. The victims do not recognize the perpetrator: fractional reserve banking.
The complexity of fractional reserve banking is enormous. Its processes are deliberately shrouded in mystery. This is why the Federal Reserve resists an audit by an independent government agency — independent of the FED. . .
To reform central banking is to perpetuate it. To perpetuate it is to accept the fundamental premise of modern economics: money is different. Money is not governed by the same laws of supply and demand that govern the rest of the economy. Money requires experts to administer it. Private contracts are not sufficient. . . .
Members of Congress are confident that they can buy votes by spending newly created money. They are not confident that this could continue if the public could redeem digital money for gold. Congress buys votes with fiat money. It would find it far more expensive to buy votes with gold coins. What is true of Congress is true of every legislature on earth.
On the issue of central banking I stand with Ron Paul: Get rid of it, and let the market flourish for all participants.
Two weeks after writing his letter to you North published the preface of a book he has been busy writing, based on Hazlitt’s primer: Christian Economics in One Lesson. Whether he is now following his own suggestion, I can’t say, but I hope it doesn’t discourage you from writing your own text.
North has likened you to the Biblical David in his confrontation with Goliath (paywall) where the role of the giant is represented by Keynes. While there is a sense in which this is accurate, I believe it is also misleading. The Goliath you’re confronting is a sham, a purveyor of free lunches, a counterfeiter hiding behind obscurantist jargon. Your opponent has a glass jaw, and you make that abundantly clear in your Contra Corner columns.
But as North says, you can’t beat something with nothing, and I believe a positive, read-in-one-sitting work from you would be an invaluable resource when the next crisis hits.
Please consider it, Mr. Stockman.