“Money is sound when it embodies the same virtues we all try to nurture in our children: honesty, trustworthiness, reliability.” Dr. Judy Shelton, A Guide To Sound Money, (2010) Atlas Economic Research Foundation
(October 2015) The Policy Foundation is celebrating its 20th anniversary as a market-based think tank this year. The Foundation, as part of the celebration, is hosting a Sound Money Conference to examine monetary policy in the 21st Century. The event is tailored to students and teachers, though everyone with an interest in monetary policy is welcome to attend.
The Conference will be held Thursday, November 19 at 4:45 p.m. at the MacArthur Museum of Arkansas Military History in Little Rock. The museum is located downtown within MacArthur Park at 503 E. 9th Street. The conference is free and open to the public. Please contact the Policy Foundation at (501) 537-0825 to make a reservation.
Unconventional Monetary Policies
The conference will feature a discussion of unconventional monetary policies including the Zero Interest Rate Policy (ZIRP) and Negative Interest Rate Policy (NIRP). ZIRP describes monetary policies that set nominal interest rates at or near zero. The Bank of Japan established ZIRP as a monetary regime in 1999, with the U.S. following in late 2008. NIRP describes policies that set nominal rates less than zero. A NIRP on bank deposits was established by the European Central Bank in 2014.
Dr. Judy Shelton on Sound Money
Dr. Judy Shelton has written widely on the topic of sound money. Her work includes two concepts that shall be used for purposes of discussion:
∙ “Sound money is honest money in that it accurately conveys price signals and reliably serves as a store of value.”
∙ “Sound money is trustworthy and reliable in that it functions as a meaningful unit of account so that market participants-consumers and producers, investors and entrepreneurs-can make informed decisions and rational plans.”
Sound Money and Pro-Growth Policies
Dr. Shelton notes that free markets need “accurate money. Money should convey price signals with clarity so that free markets can operate efficiently.” One function of money is to serve as a medium of exchange, allowing individuals “who are strangers to voluntarily carry out economic and financial transactions with each other.” Another function is to serve as a unit of account, i.e., a “reference point for evaluating everything that is brought to the marketplace.”
Several benefits of sound money are identified by Dr. Shelton in her book:
∙ Sound money provides a dependable store of value for citizens engaged in commerce;
∙ Sound money leads to clear price signals for economic calculation, a key to economic stability;
∙ Sound money encourages the virtue of thrift.
One of the last episodes of unsound money in the U.S. resulted in double-digit inflation and unemployment rates. Inflation finally peaked at 13.5 percent in 19801 and unemployment reached 10.8% in 19822 until pro-growth economic policies advanced by monetarist economists and President Ronald Reagan lowered both indicators. The link between sound money and pro-growth economic policies is oftentimes overlooked.
–Greg Kaza
1 Federal Reserve Bank of Minneapolis, Consumer Price Index, 1913-
2 U.S. Bureau of Labor Statistics,
