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Monetary Hawks and Doves

Mises Daily: Monday, September 23, 2002 by

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If people are pro war, they are referred to as "hawks"; if they are pro peace, they are called "doves."

Interestingly, these monikers are also used to describe viewpoints on monetary policy, especially when it comes to members of the Federal Reserve Board's Open Market Committee. Monetary doves tend to follow an "easy money" policy, while hawks favor tighter monetary policy to prevent runaway inflation.

Who are these hawks and doves? As Murray Rothbard (Free Market, V9, N10, Oct. 1991) has observed:

"It is interesting that, of the rulers of the Fed, the only ones that seem to be worried about the inflationary nature of the system are those Fed regional bank presidents who hail from outside the major areas of bank cartels. The regional presidents are elected by the local bankers themselves, the nominal owners of the Fed. Thus, the Fed presidents from top cartel areas such as New York or Chicago, or the older financial elites from Philadelphia and Boston, tend to be pro-inflation 'doves,' whereas the relatively anti-inflation 'hawks' within the Fed come from the periphery outside the major cartel centers: e.g., those from Minneapolis, Richmond, Cleveland, Dallas, or St. Louis. Surely, this constellation of forces is no coincidence."

This same pattern dominates today. The chairman and vice chairman are both doves. Members from New York, Chicago, and Philadelphia, along with Boston and Atlanta, are all doves. The hawks hail from monetary backwaters like Kansas City, Cleveland, Richmond, St. Louis, and Minneapolis, where we get beef and beer for the table, cigarettes to smoke, and Post-its and Scotch tape for our offices.

Of course, there are always exceptions. Laurence Mayer (a possible successor to Greenspan) is a member of the Fed's Board of Governors who was appointed by Clinton, but he is widely considered to be a hawk. He had this to say on the eve of the beginning of the end of the stock market bubble:

"A final component of the strategy, in my view, should be that policy should tighten further--above and beyond what is presumed to be necessary to slow the economy to trend--to the extent that efforts to stabilize the output gap fall short. For example, let us assume that growth ultimately moves to trend but, in the interim, the continued above-trend growth increases the output gap still further. In response, policy should tighten incrementally, encouraging below trend-growth and hence unwinding the further increase in the output gap."

At the other end of the spectrum is Robert McTeer, president of the Dallas Fed, the most openly free-market, even somewhat Austrian, district Fed in the country. And yet McTeer, who regularly sings the praises of Frederic Bastiat, is a screaming inflationist. Dove doesn't quite get it. He believes the New Age propaganda that technology guarantees a high-growth, low-inflation economy as long as the Fed keeps pumping up the money supply. His only dissenting vote was against "tightening" in 1999 and his recent vote against keeping rates where they are. He wanted the Fed to reduce their rates below the current 1.75%!

Here is how McTeer describes his monetary views on his website:

"So what do putting gasoline in a diesel engine and shooting basketball on the wrong end of the court have to do with the economy and monetary policy? I'll tell you—I still have a fear of zigging when I should be zagging. It would be very bad to ease monetary policy just as inflation was about to pick up. It would also be bad to tighten monetary policy just as we're about to sink into a recession. Fortunately, most of the time the question is whether to zig or not to zig. When you are contemplating a zig, a zag is usually not even a consideration. It's the same with zags. To zag or not to zag. Don't even consider zigging. But every now and then something comes along to cloud the situation. Something that would make the consequences of a wrong move more serious, without clarifying what would [actually] be a wrong move."

By current standards, McTeer is so dovish that Wall Street's biggest inflationist, Larry Kudlow, has called on McTeer to be named the successor to Alan Greenspan--an alarming prospect, to be sure.

In point of fact, terms like "dove" and "hawk" have little substantive meaning when applied to the Fed. Mayer is labeled a thorough-going hawk on TheStreet.com's Fed Scorecard, despite the fact that he has yet to cast a dissenting vote on any of the Fed's easy-money policies that created the boom  in the first place! As Lew Rockwell noted (Free Market, V14, N5, May 96) at the beginning of the stock market bubble:

"We can't stop these trends by new and better appointments to the Fed. Differences among inflation 'hawks' and 'doves' are minute compared with the overriding institutional bias toward cheaper money, interest-rate manipulation, and brazen bailouts."

If Lawrence Mayer and Jerry Jordon, president of the Cleveland Fed, are complete hawks, what does that make me? What about Rothbard? In this proper light, terms like monetary hawk and dove actually become misleading. For while Murray Rothbard was an expert player of the board game Risk, in which players battle one another for global military dominance, he was a completely peaceful person, happy, friendly, and non-confrontational, except when it came to the battle of ideas.  

Thus, when you place these labels in their proper perspective, you realize that they are being used incorrectly.  A dove is peaceful and harmless, but inflation--of which a monetary dove is said to be more tolerant--is anything but peaceful and harmless. It is destructive and disruptive to the economy, and the inflationary philosophy leads to what Bastiat called "universal war."[1]

A monetary dove should therefore be someone who is entirely against inflation, paper money, fractional reserve banking, and the Fed. A dove at the Fed would recommend that the federal funds rate be allowed to float, that the discount window be closed, and the reserve requirements on checkable deposits be raised to 100 percent.

I hate to continue this attempt to reverse the metaphors, because hawks are such beautiful and useful birds, but here it goes:

The typical Fed manager and economic commentator would be considered some degree of a hawk, someone who favored war on the economy, insidious taxation, and redistribution of wealth from the lower and middle classes to the politically connected elites, as well as international war and class conflict. On a scale of 1 to 100, Kudlow and McTeer (who otherwise seem like nice guys) would be close to 100, with Greenspan close behind and most of the Fed somewhere in the 80s and 90s.

Let us hope that this latest inflationary fiasco convinces these hawks to give peace a chance.


Mark Thornton is a senior fellow of the Mises Institute. Send him MAIL. See his Mises.org Articles Archive and his scholarly pieces in the QJAE, the RAE, and the JLS.


[1] See my forthcoming article on Bastiat in the QJAE.