June 19, 2009

Scholars from across the country and Europe joined conference co-chair Jepson Dean Sandra J. Peart on campus for the opening of the 10th annual Summer Institute for the Preservation of the History of Economics.

“The history of thought certainly deserves preservation,” said Thomas Humphrey, a presenter and a former researcher at The Federal Reserve Bank of Richmond. “It deserves to be restored to its place in conversation.” The need for a historical perspectives is particularly great today, as scholars are grappling to understand the current economic crisis--its causes and its solutions.

The opening day of the conference looked at “Financial Crises, Historically Considered” and included six presentations from five professors – Nobel laureate James Buchanan, Leland Yeager, Richard Timberlake, Kevin Hoover and Jessica Wang – and Humphrey. Full program

Buchanan, a distinguished professor emeritus from George Mason University and Virginia Tech, set the tone and pace by opening the discussion with with “Why Economists Have So Little to Say on the Crisis,” a summary of three new papers. The first of Buchanan’s papers touched on the root of the current economic troubles, citing a constitutional failure as the main source of trouble, not greedy people, American consumers or American fiscal policy. His second paper he titled, “Economists have no clothes.”

“Economists have been parading around, really very naked, walking around in space,” Buchanan said. “It’s time to recognize that.” With the establishment of macroeconomics as a field of study, economists have developed models and algorithms that make people think the numbers can be manipulated, he said. The solution is to look at the underlying system, and work to change the system. Buchanan’s best suggestion, which he wrote about in his third paper, “The Constitutionalization of Money,” is to detach money from politics by fixing the value of money through the law, rather than the market. Money should be attached to a specific commodity, such as gold (although not necessarily gold), he said.

The second of the morning’s presenters, Leland Yeager, a professor emeritus from Auburn University, gave his view of the crisis too. “The current monetary crisis should be looked at as an episode of discoordination,” he said. “In order to understand what’s going wrong, we’ve got to understand it when it’s right. We’ve got to know what’s being disrupted.”

Yeager attributed the economic troubles to the housing boom and collapse, faulty assessments of risk and perverse pay schemes. He called the system delicate, and likely to come apart because of its interdependency so that the success or failure of one company significantly affects many others.

He said of the recent boom and collapse of the housing market: “Things that cannot continue forever will at some point stop.” Too much spending has turned into what looks like too little spending, he said. Now, he said he is worried about what could be an extreme inflation once the market recovers from its current state.

The Federal Reserve and the concept of the leader-of-last resort was the final topic on the crisis. It was co-presented by Humphrey and Timberlake, a professor emeritus at the University of Georgia. Humphrey gave a summary of the policy’s history since its inception during Britain’s Napoleonic Wars. The lender-of-last-resort is often a country’s national bank--in the United States, the Federal Reserve. It acts with the intention to prevent economic collapse by lending money when institutions are experiencing financial difficulty. Timberlake discussed how the Federal Reserve had deviated from its role as the lender-of-last-resort.

During the morning question-and-answer section of their presentation, Timberlake said with regard to the regulation of money supply and value, that the ideas behind the Federal Reserve and the gold standard (all currency must be backed by gold) were incongruous. “If two men are going to ride one horse, one’s got to sit in the front,” he said.

During the afternoon session professors Hoover and Wang continued the discussion of the financial crisis with presentations titled, “Was Harrod Right?” and “From the Social Survey to the Securities Market: William O. Douglas, the Protective Committee Study and Economic Knowledge in New Deal America.”

The Summer Institute was sponsored in part by the The Jack Miller Center for Teaching America's Founding Principles and History, a nonprofit, nonsectarian, nonpartisan, educational organization, based outside Philadelphia.