The Asset Reserve Plan: An Appraisal

Abstract

The subject of monetary reform has long been an intriguing one for economists, and interest in this area tends to be stimulated by both inflationary and deflationary developments. It was only to be expected that the inflationary experiences following World War II would bring forth a significant increase in the volume of monetary reform literature. Postwar developments have encouraged the dusting-off and re-examination of some previously developed reform plans, and the formulation of other plans which are essentially new. One might hope that out of this continuing activity there will emerge an improved counter-cyclical, or at least counter-inflationary, monetary management scheme which will meet the triple test of being theoretically appealing, manageable in practice, and susceptible to Congressional approval. One of the older plans revived for discussion since the war is the commodityreserve proposal. This proposal was carefully explored in the period from 1937 to 1944, particularly by Benjamin Graham and by Frank D. Graham.2 More recently it has received the attention of Professor Friedman who has concluded that it is in some respects inferior to both the fiat standard and the gold standard, and that on balance it is probably superior to neither.3 To Professor Friedman's conclusion might be added the comment that even if this plan did appear to have much to offer from a theoretical point of view, it would not meet the other two tests suggested above. The practical problems incident to getting such a plan adopted, on the one hand, and to managing it successfully if adopted, on the other, would be sufficiently difficult to justify dropping it from further serious consideration.