There’s less than two weeks of life left for the Fed’s M3 series, the broadest measure of money supply. On March 23, the central bank plans to end publishing the data. But if one Congressman has his way, M3 will live on. It’s an uphill battle, to be sure, but Ron Paul, a Republican who represents the 14th Congressional district of Texas, has sponsored legislation (H.R. 4892) to keep the data coming. (For the latest version of the legislation, visit Thomas at the Library of Congress and browse under Rep. Paul’s bills.)
M3 is arguably all the more relevant these days since its rate of growth has been roughly twice as high as M2, a narrower gauge of money supply. The Fed claims that there’s not a lot of difference between the two, although the numbers as reported suggest otherwise. (For previous CS posts on M3, see our February 28 article, with additional links for background information.)
Paul’s attempt to keep M3 alive and kicking may be quixotic, but he’s not giving up the fight, as becomes clear in an interview we conducted with the Congressman yesterday by phone. Here are some excerpts:
What’s the goal of your M3 bill?
My legislation would require that the Fed continue to report M3. It’s no more complicated than that.
So you think M3 is valuable as a measure of money supply?
I realize the shortcomings of some of these numbers, and M3 isn’t an answer to all the information that we would like. But it’s better than not having it. I think it does represent a reflection of Federal Reserve policy. For them to quit reporting it you have to ask, why?
Ok–we’ll bite. Why?
I don’t know exactly why, but the Fed gives answers. They claim that it costs too much money and they don’t use M3 any more. My argument to [Fed Chairman] Bernanke the other day was: some of us like M3, and Congress has a right to this type of information. There are still a few people in the country that think money supply’s important, and M3 is a reflection of money supply. I mentioned that there are a few economic schools of thought that are still concerned about M3, although some deny it has any value.
The most interesting thing was when he said it cost too much to collect [the data for compiling M3]. I kid the Fed about that, and say, I don’t why you should be concerned about it. If you need to spend money you just print it.
Somehow we can’t imagine the folks at the central bank laughing.
Well, the Fed makes a lot of money on interest, and of course it creates a lot of credit in order to buy Treasuries. So, I think the notion that it’s costly is preposterous. In fact, the Fed probably has most of the numbers right there anyway.
What’s the bigger picture here? What’s your thinking on what the impending demise of M3 suggests, if anything, in a broader context when it comes to the Fed?
I think back to what Mises talked about in Human Action: he writes that there’s always a deliberate attempt to deflect concern about the money supply so that the common person thinks that inflation is caused by other things.