A few days ago in my posting on gold and ideology, I remarked that gold ideologists like to accuse central bankers of being central planners. I am not sure when this particular form of rhetorical character assassination got started, but it has become a commonplace of attacks on the Fed coming from the gold party. A Google search on “central banking” together with “central planning” generates 54,600 results. Here are some results from the first page.
Robert Blumen, “Will Central Bankers Become Central Planners?” Mises Daily July 31, 2006
Jeff Cooper, “The Fed: From Central Banking to Central Planning.” Minyanville.com December 8, 2010
Ajay Shah, “Central Banking, Not Central Planning,” Financial Express October 30, 2009
Richard Ebelling,”Monetary Central Planning and the State.” Freedom Daily November 1999.
Thomas Dilorenzo, “The Malicious Myth of the ‘Libertarian’ Fed,” Lewrockwell.com, May 8, 2009
Steve Stanek, “We Mocked Soviet Central Planning; Why Not Mock America’s Central Planning.” blog.heartland.org, April 29, 2011
Michael Brendan Dougherty, “Bernanke Reinvents Central Banking as Central Planning.” Thedailypaul.com, November 6, 2010
Richard M. Ebelling, “Ninety Years of Central Planning in the United States.” Freemanonline.com, July 7, 2011
Detlev Schlichter, “Nothing Solved.” ThePaperMoneyCollapse.com April 28, 2011.
Now I am hardly one who thinks that the Fed does not deserve to be criticized for many sins of commission and omission over the years. On the contrary, I believe that it bears a heavy responsibility for the Little Depression in which we have been mired for over three years. But, whatever its faults and mistakes, that hardly makes the Fed a central planning agency. And there is something disreputable about using a term like “central planning,” with its overtones of totalitarian domination and suppression of individual rights, as a rhetorical bludgeon with which to beat up a person or an institution with whom you have a policy disagreement.
When I remarked that Dr. Judy Shelton had indulged in this of ideological overkill in her recent paean to the gold standard, one commenter, R. H. Murphy, was kind enough to provide a link to a forthcoming paper by Jeffrey Hummel comparing the views of Milton Friedman and Ben Bernanke on the causes of the Great Depression and the appropriate role for monetary policy in general and in countering a severe economic downturn in particular. I don’t know Hummel’s work that well, so I was pleasantly surprised with what I read. I learned a lot from the paper, even though, at a theoretical level, it seems to me that Hummel dismisses Bernanke’s concerns about the breakdown of financial intermediation in a depression without sufficiently considering the potential consequences of such a breakdown. And I would also observe in passing that the paper mistakenly takes Friedman’s view of the causes of the Great Depression as being somehow definitive, when, in fact, Friedman’s explanation misses almost entirely the nature of the monetary disturbance that caused the Great Depression, attaching far too much attention to the bank failures that were just a symptom of a far larger monetary dysfunction rather than an independent cause of the monetary contraction.
But I bring up Hummel’s paper not to comment on Friedman’s explanation of the Great Depression, but because Hummel, in his concluding section, attempts to make the case that Bernanke has gone beyond the kind of central banking that Friedman considered appropriate. Defending the now much maligned Alan Greenspan, Hummel points out that Greenspan’s approach of flooding the market with liquidity during times of economic distress was not followed by Bernanke in 2008 when the economy was already in the early stages of a financial crisis and in a rapidly worsening recession. Instead, Bernanke was attempting to provide more sophisticated targeted assistance to the financial sectors experiencing acute distress while keeping the lid tight on overall monetary base. This is an extremely important observation and a damning criticism of Bernanke. But even if true, and I am pretty sure that it is, how does that make Bernanke a central planner? It may make him an interventionist, or even a dirigiste, but that does not make him a central planner.
If you go back to the classical discussions of central planning by Mises and Hayek, you will find that their key point about central planning was that the idea of a central plan is incoherent, because the informational requirements to formulate a central plan were beyond the capacity of an aspiring central planner to satisfy. In The Road to Serfdom Hayek extended the critique to explain why a serious attempt to implement central planning as an economic system would inevitably lead to a totalitarian political system. This position has been characterized over the years by Hayek’s critics (and, in their supreme cluelessness, by many of his self-styled supporters) as a claim that any intervention in the economy leads to totalitarianism, a mischaracterization that Hayek always resented and protested against. But those who call central banking a form of central planning are making exactly the same categorical error about the relationships between intervention, central planning, and totalitarianism to which Hayek took extreme personal offense.
I come not to support central banking, but to defend clear thinking.