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The myth of Stable Money

Now that Judy Shelton has been nominated by Trump to the Fed Reserve board it seems a revisit of the myth of Stable Money needs another smackdown.

One of the great mysteries of "radical right" economics is the view that money based on one arbitrary commodity is "stable".   In my view, money is a purely financial instrument.  It has zero real value (again the First Law of Thermodynamics).  Its value is only in its "moneyness".  Moneyness is a measure of liquidity and value in economic transactions.   Economic transactions occur across currency systems.

If "money" is the measure of real economic transactions how is it possible to think money has real stable value?   How can "money" ever be more than a claim on current and future real capital and output?

Shelton also seems fixated on the vast amount of excess reserves in the banking system and she believes that banks (as of recent years) have decided mostly to let the money sit in reserves at the Fed, earning interest on those reserves, rather than doing more lending to businesses and individuals.  I'm not sure if she believes banks can lend reserves to non-bank businesses and individuals (which we know isn't how it works), or if she just believes banks are happy to earn some risk-free money on their deposits in the Fed system rather than doing loans.  I have read none of Shelton's books and only a couple of her WSJ op-ed pieces, so I don't know much about the rest of her economic beliefs.  Having said that, I wouldn't be surprised if she clings to theories like the money multiplier and loanable funds models.

I obviously agree with both of you. Shelton seems badly informed on the topic. She's a pretty hardcore believer in the gold standard. It's strange, during the period of the classical gold standard (1879-1914) there were TEN recessions and FOUR financial panics. Lovers of the gold standard talk about how prices tended not to rise under gold standards - yes, that's in part because prices were too busy collapsing under economic duress.


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Greg Ip's WSJ column today ("Fed Pick Is Goldbug Who Bends to Fit Trump") is pretty good (especially for Ip).  The last paragraph in his column is excellent:  "The Fed could benefit from fresh, alternative thinking that is rigorously argued, grounded in evidence and free of political bias.  Based on her public comments, it isn't clear Ms. Shelton is the one to offer it."

I read Ip's WSJ column, but the damming with faint praise:

"The Fed could benefit from fresh, alternative thinking that is rigorously argued, grounded in evidence and free of political bias.  Based on her public comments, it isn't clear Ms. Shelton is the one to offer it."

is incredibly weak.  Shelton is the epitome of the intellectual corruption of the radical right.  She's a manufactured presence, following the Koch money when that was profitable, and now throwing all that policy out and jumping to the Trump camp, following the money.

The Gold Standard she yearns for is at the core a class/racial permanent bias.  Stable money to Shelton is essentially, at the macro operational level, enforcing a feudal structure.  It's not stable money, it's money controlled by the already wealthy.

I'm not defending Ip, but will say I think he was being diplomatic.  His column called out Shelton on some of her inconsistencies, bad predictions, and policy shifts.  Given that the WSJ editorial page writers have given Shelton a ringing endorsement, I'm glad Ip offered some criticism - even if a bit weak.  In general, the WSJ editorial pages have been weak on monetary policy for a long time.

The WSJ editorial pages have become complete irrational partisan hacks.  Shelton is a leading hack herself.   When at Hoover she basically echoed the Koch brothers line, including having an essentially open border (which is of course a requirement for a true Libertarian free market economic view, allowing one of the critical factors in a free market, labor, to be a free market) and blasting the Fed for loose monetary policy.


Setting aside the partisan aspects of the WSJ editorial pages, most of their Fed commentaries, including those from guest op-ed writers, consistently reveal their poor grasp of the operational realities of our monetary system.  George Melloan's two recent op-eds (including today's) are at least refreshing in that he points out that the monetary policy isn't very effective in steering the economy.