Henderson and Hummel, Back Again
by Jeffrey A. Tucker
The new issue of The Freeman came today, and I was disappointed to see that the issue headlines a piece I had hoped would slip into the background, namely a piece by two monetarists, David Henderson and Jeffrey Rogers Hummel, arguing that Greenspan "stands out as the most competent — arguably the only competent — helmsman of US monetary policy since creation of the Federal Reserve System."
As part of the proof, the authors run this chart:
Which stops at December 2008, instead of this one, which takes us to the present:
Using the money base as proof of the absence of the loose money is one way but it tells you little about what is happening in the real markets. It's a bit like assessing the activities of a bakery by looking in the cupboard rather than what comes out of the oven. The money base shows what banks might do but not what they actually did. Given how much emphasis our authors place on the money base, are they now predicting a German-style hyperinflation? And whose fault would that be?
So then our authors turn to the money aggregates, and claim that they actually fell. How? They are careful in selecting the series they choose to report, namely percent change from year to year from 2002 to 2006.
That's interesting but let's look at the actual aggregates while broadening our dates by one year in both directions.
We can see here that the picture changes rather dramatically. In particular, after 9-11, Greenspan embarked on a mass inflationary policy, one that he and the Bush administration crowed about to the world. It was their way of showing that the terrorists won't win, as if destroying our money constitutes retaliation for destroying a money center.
I'm not going into a detailed discussion here about this piece, but I would like to express disappointment that though this piece mentions George Selgin's criticism in passing, it doesn't actually cite it so that readers can see what he has to say.
Moreover, this issue runs an article by Robert Murphy but doesn't anywhere mention his detailed refutation of Henderson and Hummel.
Finally, I question the purpose in using this venue to exculpate Greenspan's Fed from blame in the boom-bust cycle. Is it really the time to provide a twisted rationale for the propitiation of central banking sins or is it the time to pin blame precisely where it belongs?
On the other hand, it is great to see The Freeman advertising Larry Reed's fantastic monograph on the Great Depression, which nails the Fed solidly.
This article first appeared on Mises.org.
March 11, 2009