Monday, April 14, 2008

Bryanism Comes to the WSJ

By eroding the real value of debts, unanticipated inflation redistributes wealth from creditors to debtors (nominal interest rates incorporate expected inflation). In the late 19th century, the populists, led by William Jennings Bryan, argued for an inflationary policy - adding silver to the monetary base - to benefit indebted farmers. Arguably, the crushing deflation of the time provided a reasonable justification for faster money growth, as farmers faced fixed nominal debt payments while the price of their crops fell year after year.

The populists were opposed by conservative eastern moneyed interests who supported the gold standard behind the banner of "sound money." These days, we trust the Wall Street Journal opinion pages to represent conservative moneyed interests, so it was a bit of a surprise to read this:
The policy alternatives in the post-housing-bubble world are painfully unpleasant. In my view, the least bad option is for the Federal Reserve to print money to help stabilize housing prices and financial markets. Yes, use reflation to soften the pain for Main Street and Wall Street.
The writer is associated with the conservative American Enterprise Institute, no less. Hat tip: Mark Thoma.

Update (4/15): Sound money is restored to its rightful place: on today's WSJ opinion page, Martin Feldstein says "Enough With The Rate Cuts."

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