ated to growth and stability. Dowd, by contrast, accepts Milton Friedman's contention that the role of central banking exacerbates macroeconomic problems, as opposed to assuring macroeconomic stability and growth. Consequently, Dowd argues strongly that central banks should be dissolved. While Dowd accepts the Friedman argument that central banks should be dissolved, he rejects the Friedman argument that banking should continue to be regulated. Friedman opposes the discretionary authority of central banks to act in the face of changing macroeconomic aggregates, preferring instead a system of automatic rules. Dowd, while agreeing that central banking should be abolished, sees no useful role for the regulation of banking activity through the use of automatic rules. Rather, he opposes all banking regulation.
Under a system of automatic rules, predetermined actions would be triggered by the occurrence of predetermined macroeconomic developments. There would be no pondering, guesses, or delays with automatic rules. As an example, an x rise in the rate of inflation over y period of time would trigger a z change in reserve requirements. The use of automatic rules contrasts with the development and implementation of actions by an independent monetary authority on an ad hoc basis. This latter approach is the type of monetary control practiced in the United States, although the Federal Reserve--the independent monetary authority--and others might question the characterization of their actions as ad hoc, as the monetary control actions of the agency are supposed to be a part of a long-range master plan.
Dowd thinks that mistakes made by the governors of the Federal Reserve in the United States and the Bank of England in the United Kingdom in the 1930s caused the Great Depression to be both more severe and longer than was necessary. Dowd, therefore, holds that central banking should be abolished, not...