Economist, Author Judy Shelton on Monetary Policy in America

Economist, Author Judy Shelton on Monetary Policy in America
February 21, 2011

Editor’s Note: Economist Judy Shelton, author of Money Meltdown and The Coming Soviet Crash, recently wrote A Guide to Sound Money as part of her work co-directing the Sound Money Project for the Atlas Economic Research Foundation (www.atlasnetwork.org). The guide was published with FreedomWorks, which is distributing 100,000 copies to its volunteer network.

The Guide explains what sound money is and its importance to individuals and the economy as a whole.

Matt Warner, director of U.S. programs at Atlas, interviewed Shelton for Finance, Insurance & Real Estate News. She discusses the main points the Guide makes about money and explains the morality of saving for the future.

MW: What was your goal in writing A Guide to Sound Money?

JS: My goal was to lay out some basic principles with regard to sound money—defining it, relating it to our nation's founding principles—to stimulate more public discussion on the appropriate role of monetary policy in a free-market economy.

MW: What is the number one thing a reader should take away from the Guide?

JS: The number one message is that citizens who believe in limited government and a free-market economy need to focus their attention on sound money and to reverse the pervasive influence of the Federal Reserve. As [the late Nobel Prize-winning economist Friedrich] Hayek noted, "All those who wish to stop the drift toward increasing government control should concentrate their efforts on monetary policy."

MW: Do you see the Federal Reserve as independent of tax and spend politics? 

JS: My chief concern is that the Federal Reserve has become too powerful, too controlling a factor in our economy. Moreover, the Fed is too quick to accommodate the fiscal irresponsibility of Congress and the White House.

MW: If government debt is one of the catalysts for money distortion, do you think limited government types have been right to spend so much time and attention on fiscal policy, or are they missing the bigger picture by not focusing on monetary policy?

JS: Fiscal conservatives are on the right track when they point to chronic deficit spending and note its damaging effects on the long-term outlook for our nation. But monetary "stimulus" is even more dangerous than fiscal stimulus packages—more stealthy in its effects on the economy, more insidious in its impact on entrepreneurial motivation. When investment assets are misdirected, when financial outcomes are distorted, it's hard to keep faith with the rewards of free enterprise.

MW: Many in Washington see recovery as coming through increasing consumer demand, but at the same time consumers seem to be a bit cautious as they prepare for an uncertain future. Is more personal saving a bad thing during a recovery, and is government monetary policy anti-saving these days?

JS: You would almost think it's an act of selfishness, rather than a virtue, to put aside money for savings. The truth is, capitalism works because people are willing to sacrifice consumption today for the sake of providing the financial "seed corn" that will ultimately yield a greater harvest in the future. When you undermine the morality of saving, you threaten the basic logic of investing for tomorrow's increased standard of living.

If the goal is to increase consumer demand, the Fed's near-zero interest rate policy is detrimental; it makes more sense to have market-based interest rates so that people who live off the interest income from savings have something to spend.

MW: In your view, are there examples of other monetary systems or aspects of other systems around the world that the United States could look to for reform ideas?

JS: The United States should be the global leader in monetary reform. Our own Constitution makes it clear that money powers granted to government should be limited. Unfortunately, the Fed has been permitted to incrementally expand its authority to such an extent that it now dominates global financial markets. We should look back to former monetary systems based on free-market interactions and automatic discipline—such as the gold standard—rather than become entangled with politically motivated schemes such as the compromised proposals put forward by the International Monetary Fund.

MW: Are you concerned about the impact of the value of the dollar on the international scene?

JS: When the dollar is cheapened through excessive issuance, the entire world is forced to contend with false price signals. It's bad enough that hot money chases quick yield rather than supplying reliable investment funding for worthy economic projects; what's worse is the message sent to innovative entrepreneurs that their endeavors will find no backers.

That's the real cost of dollar depreciation—the loss of monetary integrity.

MW: You have worked closely with many leaders in Washington. Are you optimistic they’re getting the message on sound money?

JS: They are getting the message—the ones who recognized early on that Americans are concerned that government has grown too large. I am optimistic that individuals such as [Republican Congressmen] Jim DeMint, Paul Ryan, and Mike Pence will champion the cause of sound money as part of a pro-growth economic agenda consistent with our nation's founding principles.

Matt Warner (matt.warner@atlasnetwork.org) is director of U.S. programs at Atlas Economic Research Foundation, a nonprofit organization that connects a global network of free-market organizations and individuals.

Internet Info

A Guide to Sound Money, by Judy Shelton: http://atlasnetwork.org/guidetosoundmoney/