Monetary policy and central planning
Milton Friedman once debated Robert Mundell on exchange rates. Mundell advocated using monetary policy to fix the exchange rate, whereas Friedman suggested that this sort of price control was interfering with the free market, and thus a bad idea.
Friedman was probably right that fixed exchange rates are a bad idea, but his argument was flawed in two very important respects.
First, Mundell was advocating the targeting of nominal exchange rates. The real exchange rate (which is what matters) would still be set by the free market. That’s very different from things like rent controls and minimum wage laws, where the government controls the real price of a good or service.
Second, Friedman’s own preferred monetary policy involved fixing the growth rate of the money supply, which is every bit as interventionist as fixing the exchange rate. In fairness, Friedman only advocated fixing the nominal quantity of money; the real quantity would still be determined by the public.
Similarly, Keynesians favor targeting the nominal interest rate, but the real rate is still controlled by the public. Gold standard advocates favor defining the nominal price of gold, but the real price would still be determined by the public. I favor targeting NGDP, but real GDP would still be determined by the public.
Commenter Andrew recently suggested:
As long as we put the right Market Socialists in charge of centrally planning NGDP, we never have to pay any price for funding unprofitable investments out of money that hasn’t been voluntarily saved!
Perhaps Andrew is referring to Friedrich Hayek, who favored NGDP targeting. My response is that NGDP targeting is only “centrally planning NGDP” in the sense that targeting inflation is centrally planning the price level, or defining the dollar as 1/35 oz. of gold is centrally planning gold prices, or setting a limit of 22 million Bitcoin is centrally planning Bitcoin, or Tesla executives planning on producing 320,000 cars in Q4 is centrally planning Tesla output.
Whoever is in charge of X gets to decide how X is run. Whoever is in change of money gets to decide how money is run.
When people use the term “central planning” as a pejorative, they usually have in mind something completely different. They are thinking of a Soviet planning bureau telling all sort of other enterprises what sort of prices and output are appropriate. How many shoes should be produced by enterprise X, how much steel should be sold to tractor company Y by steel mill Z. Etc., etc.
In contrast, setting a monetary policy is merely setting a policy for the very thing that the institution is in charge of producing. Imagine visiting a monetary authority and asking them how they determine how much money they print, and hearing the response, “We don’t have any policy at all, we just produce money at random”. You’d probably view that as being pretty weird. Whatever policy a monetary authority has is a monetary policy, whether it involves setting an interest rate, a quantity of money, an exchange rate, a price of gold, or targeting the price of a NGDP futures contract. And that’s equally true of publicly and privately produced money.
Don’t waste time opposing “monetary policy”—there will always be monetary policy. Spend your time opposing bad monetary policies.
PS. That’s not to say that we shouldn’t worry at all about central planning. George Selgin recently pointed out that the nominee to head the Office of Comptroller of the Currency seems to favor replacing private bank accounts with government produced bank accounts. I don’t know if that’s exactly central planning, but it’s certainly more of an infringement on the free market than NGDP targeting.