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Cato Policy Report, January/February 1998

Cato Conference:

Greenspan, Wriston Highlight Monetary Conference

Wriston: "Capital stays where it is well treated"

Alan Greenspan, chairman of the Federal Reserve Board, told the Cato Institute's 15th Annual Monetary Conference that "endeavoring to thwart technological advance and new knowledge and innovation through the erection of barriers to the spread of knowledge would, as history amply demonstrates, have large, often adverse, unintended consequences. We cannot turn back the clock of technology--and we should not try to do so."

Former Citicorp Chairman Walter Wriston discusses the mobility of capital in the global economy at Cato's Annual Monetary Conference.

On October 14th Greenspan and more than a dozen other speakers--including Anna J. Schwartz of the National Bureau of Economic Research; Jerry Jordan of the Federal Reserve Bank of Cleveland; Allan Meltzer of Carnegie Mellon University; Michael Prowse of the Financial Times; and Walter Wriston, former chairman of Citicorp--considered "Money and Capital Flows in a Global Economy."

Greenspan said that financial markets are far more efficient today than ever before thanks to changes in communications and information technology. He maintained that central bankers, instead of fearing such dynamic change, should embrace it and the unlimited opportunities that it offers. Wriston echoed that point, arguing that money goes only where it is treated well and that the self-regulating forces of the market will do more to ensure institutional stability than will government mandates.

Schwartz argued that financial crises can be avoided if countries pursue stable monetary and fiscal policies. However, should a national or regional disturbance occur, floating exchange rates will prevent the development of broad international crises.

Jordan reminded the crowd that the value of fiat money issued by central banks depends on the trust the public has in the stability of the currency. To produce such confidence, he said, "Central banks must do more than control the supply of base money. They must be sure that their nation's financial infrastructure is capable of issuing, redeeming, and moving fiat-based claims safely and reliably."

Allan Meltzer and three other panelists grappled with how to avoid problems similar to the Mexican peso crisis of 1995. Meltzer argued that, while the Mexican government is largely to blame for that crisis, other parties are culpable, too. "The U.S. Treasury and the Federal Reserve have been 'helping' Mexico since the 1930s. The IMF has been at it since the 1970s," reported Meltzer. "Successive Mexican governments have learned that if they face a crisis, one or all of these friends will lend them money to make the immediate crisis appear less onerous. Investors have learned that they get bailed out, so they continue to invest. I believe that goes a long way toward explaining why Mexican policy has been erratic and undisciplined at times."

In his paper "Prospects for Globalization," Michael Prowse maintained that the process of "Americanization"--a gradual dismantling of artificial barriers between national economies--is likely to continue. He predicted that that process will probably pressure countries with high public-sector spending and regulatory burdens to liberalize their policies. But he also warned that such an outcome is not ensured and that it is possible that "discontentment caused by the alleged evils of globalization (such as rising inequality and reduced pay for the unskilled) could provoke a statist backlash, involving the reintroduction of tariff barriers and the reimposition of capital controls."

Kevin Dowd of the University of Sheffield, coeditor of Money and the Nation State, made the case for the elimination of central banks and the introduction of a system of free banking.

More than 200 people attended the conference, held in the Cato Institute's F. A. Hayek Auditorium. In addition, 1,100 people watched the conference live on the World Wide Web. The Internet broadcast was one of the first of its kind.

This article originally appeared in the January/February 1998 edition of Cato Policy Report.