Over at the Financial Markets Center, they’re none too happy about the appointment of Randall Kroszner to the Fed:
As a self-identified Hayekian, Kroszner has spent his academic career advocating a purist brand of laissez-faire thinking that questions the need for central banks and conventional payment systems. In addition, his doctrinal framework presumptively favors the abolition of most public-purpose limits and controls on financial activity.
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For example, Dr. Kroszner has written extensively about the merits of “free banking” as practiced in Scotland during the 18th and 19th centuries, recommending that model of unregulated (and un-central banked) finance for emerging economies today. However, he has also critiqued the Scottish system’s [the subject of a now out-of-print book by Austrian economist Larry White -- RB]”deviations from laissez-faire” and expressed his preference for an even less restrained set of arrangements. Conceptualized under the rubric of a “new monetary economics,” the key features of this preferred system include eliminating currency usage, detaching the unit of account from the means of payment (and encouraging competition between different media of account and exchange), and replacing banks with checkable mutual funds.
At a philosophical level, these ideas reflect familiar neoclassical assumptions: markets and the private regulatory mechanisms they purportedly self-generate are always superior to publicsector rules, supervision and safety nets. Thus, Kroszner and like-minded scholars take it as given that credit rating agencies provide highly reliable discipline over financial firms and that deposit insurance serves as an inadvertent source of financial instability.
The linked interview in the first quote is an interview of Kroszner with the Richmond Fed, in which he states:
RF: Some proponents of “free banking” point to 18th and 19th century Scotland as a good example of what a laissez-faire banking system would look like. In your view, was Scotland, indeed, an example of free banking? There is some dispute about this among economic historians. Also, how well did that system perform?
Kroszner: Whether it was an example of free banking or not depends on how you define that term. But, relative to any system of banking we see today, it clearly was a much more free market, less interventionist system. I think, overall, it performed quite well. Indeed, from most people’s perspective it performed surprisingly well, because they cannot even envision a banking and financial market without regulation.
Continuing with FMWatch’s commentary, of more concern is Krozsner’s “contempt” for democratic values:
At a more visceral level, Kroszner’s writing demonstrates his abiding contempt for the public sphere in democratic societies and distaste for rules governing the enterprises that such societies help make possible through their legal systems and public goods. It also emphasizes an idealized conception of markets as not merely welfare-enhancing and stabilitypromoting but also intrinsically honest and competitive.
