You know that response we've been yakking about for the past month to someone who had promised to review one of our books and then backed out? Well, we sent it off this morning to our expert in moral philosophy to review and, when we hear back about how great it is, we'll fire it off to the non-reviewer. Who knows? The fact that it is 32,000 words long (longer than the original book . . .) might stun the non-reviewer to the point where the book might actually get reviewed. Or burned in effigy.
Anyway, that's not what we're posting on today. That's right. You're not in for a 32,000-word posting on esoteric subjects that you could care less about. We're not even sure that Blogger could handle something of that length, or if it would cause the program to go insane.
No, what you're getting today is a copy of one of the letters we sent to the Wall Street Journal . . . you know, gassing on about esoteric subjects that they could care less about, which adequately explains why these letters don't get published. Anyway, here it is:
In "Of Wealth and Incomes" (Wall Street Journal, 06/24/11, A12), you state, "The problem is that monetary policy is not a laser-guided missile. The Fed can create new dollars, but it can't determine where those dollars will flow," etc. Correction: the Federal Reserve cannot determine where those dollars will go — under prevailing "Currency Principle" assumptions.
The Federal Reserve was established in 1913 under the Banking Principle to "provide for the establishment of federal reserve banks, to furnish an elastic currency, [and] to afford means of rediscounting commercial paper." The "Banking Principle" is based on the "real bills doctrine," an application of "Say's Law of Markets."
The Federal Reserve has the power under § 13(2) to provide liquidity directly for financially feasible new capital investment by rediscounting eligible private sector paper. Dr. Harold Moulton, then president of the Brookings Institution, explained this in his alternative to New Deal monetary and fiscal policy, The Formation of Capital (1935). Louis Kelso and Mortimer Adler advocated broadened capital ownership financed by this method in The Capitalist Manifesto (1958) and The New Capitalists (1961).
From a Currency Principle perspective, the real bills doctrine is nonsense, and Say's Law is either rejected or redefined. Using a tool such as the Federal Reserve, designed to operate in accordance with one principle, to operate in conformity with an opposed principle explains much of the confusion we see today in both monetary and fiscal policy.