08/20/2001 Henry Calvert Simons *

Today’s strong gains put most indices firmly in the black for the week, as the Dow and S&P500 advanced 2%. The Morgan Stanley Cyclical, Morgan Stanley Consumer and Utility indices all gained 2%, while the Transports added 1%. The broader market also enjoyed gains, with the S&P400 Mid-Cap index advancing 2%, and the small cap Russell 2000 increasing 1%. Technology stocks rallied strongly, with the NASDAQ100 adding 4% this week, the Morgan Stanley High Tech index 5%, and the Semiconductors 7%. The NASDAQ Telecommunications index gained 2%, while The Street.com Internet index declined 1%. Biotech stocks had a big week, with the AMEX Biotechnology index surging 12%. Financial stocks were mixed, with the AMEX Securities Broker/Dealer index posting a 4% gain, while the S&P Bank index could only muster a fractional gain. The aggressive consumer finance stocks continue to come under selling pressure. And although bullion sank about $7 this week, the HUI Gold index dropped only about 1%.

A stock market recovery and strong housing data pressured fixed-income prices. For the week, 2-year Treasury yields jumped 9 basis points to 3.73%, 5-year yields added 6 basis points to 4.48%, and 10-year Treasury yields increased 8 basis points to 4.92%. Long-bond yields gained 3 basis points to 5.45%. Benchmark Fannie Mae Mortgage-back yields increased 5 basis points, as spreads narrowed 3 basis points. Agency yields generally added 3 basis points. The benchmark 10-year dollar swap spread was largely unchanged at 86. Currency markets were relatively quiet this week, with the dollar index mustering a small gain.

This week Bloomberg reported "Office Rents Had Biggest Drop in 9 years in 2nd Quarter. - Rents in the nation’s downtowns fell an average of 3.2 percent from the first quarter, when they fell 0.52 percent, according to San Francisco-based National Real Estate Index, a unit of CB Richard Ellis Services Inc… In the suburbs, rents fell 2.2 percent. The declines come after rents hit all-time highs in markets such as San Francisco, Boston and New York in 2000… The U.S. office vacancy rate rose to 10.8 percent, its highest point in four years. ‘This definitely would appear to be a change in the overall commercial real estate market,’ said Jack Doyle, property research manager. ‘This data puts a tangible face on the country’s economic slowdown.’ The decline is the biggest since downtown office rents fell 3.7 percent in the second quarter of 1992, said Doyle. Even so, rents are still up 2.3 percent over the past 12 months, he said. Office rents in California’s downtowns fell 6.2 percent, led by a 14 percent drop in San Francisco and an 8 percent decline in San Jose. In the state’s suburbs, rents dropped 7.1 percent. In the Northeast region, rents declined 2.1 percent in downtowns and 1.6 percent in the suburbs, according to the study."

July was a record month for Freddie Mac, as the company reported "new business volume" (total mortgage purchases) of $49.7 billion. Total outstanding Freddie mortgage-backed securities increased a record $25.2 billion (35% annualized growth rate) during the month, compared to total year-2000 growth of $73 billion. Freddie has made total purchases of $176 billion during the past four months. Combined with Fannie’s $220 billion, we see that these two mortgage behemoths have purchased $396 billion of mortgage paper since April (an astounding $99 billion per month!). During July, Freddie’s "total book of business" expanded at a 30.6% annualized rate to $1.075 trillion, with its own "retained" portfolio expanding at a 29% pace (to $454.5 billion) and total non-retained Freddie Mac mortgage-backed securities increasing at a rate of 32% (to $620 billion).

From the LA Times: "Rising home values, long taken for granted in affluent neighborhoods, finally have begun to improve fortunes in working-class cities across Southern California. Modest homes in lower-priced neighborhoods in Los Angeles drove overall median prices in July to a record high of $231,000 as home sales reached near-frenzied levels…In areas such as Bell, Paramount, Compton and Pomona, residential real estate values are shooting up 17% or more, while property values are diving in places such as Malibu and Bel-Air – a complete reversal of the trends over the last few years…the extraordinary activity in July far exceeded expectations and underscored how powerful consumer spending is in keeping the economy on track, especially in Southern California…County home values, as measured by the median prices, jumped 17% last month, according to (John Karevoll of ) DataQuick. That amounted to a gain of $33,000 from July last year, the most since DataQuick began recording changes in 1988. Even more stunning was the number of sales of new and existing home and condos, which totaled 10,825, or 20% more than a year ago. The median price climbed 15% (in Orange County) to a record $303,000 last month. It was the 50th month in a row that Orange County prices grew from the year-ago period."

The Mortgage Bankers Association reported another strong week of refinancing activity, as the index jumped 3% from the previous week and remains up 384% from year ago levels. Overall, the MBA mortgage application index is running 65% above last year at this time, with purchase volume about unchanged. Mortgage refi applications have jumped 47% from the early July lull, in what is now week 33 of an historic borrowing boom. Bernstein analyst Jonathan Gray increased his estimate of U.S. home mortgage originations to $1.74 trillion, a sharp increase from earlier estimates of $1.52 trillion. This estimate incorporates expectations for purchase originations of $902 billion and refis of $836 billion, which would put total originations 62% ($667 billion) above year ago levels. This analyst also increased his estimate of U.S. Mortgage Debt Growth through 2005 to a 9% annual pace. "Mortgage debt has grown at an 8.2% pace over the past 5 years, and at a 9.4% pace over the past three years."

Booming July new homes sales were reported at a stronger than expected rate of 950,000 units, up almost 8% from last year, 6% above July 1999, 8% above July 1998, 18% above July 1997, and 23% above July 1996. July sales were 86% above the recession level of July 1991. Year-to-date sales are up about 8%. The average (mean) new home price was $208,400.

The July/August issue of the Federal Reserve Bank of St. Louis REVIEW recently arrived at my doorstep. The issue was dedicated to "Monetary Policy in Theory and Practice - Proceedings of the Twenty-Fifth Annual Economic Policy Conference of the Federal Reserve Bank of St. Louis." This conference of "monetarists" was as interesting for what was discussed, as what wasn’t. There was no discussion of monetary disorder, or, curiously, even a mention of the recent historic period of money supply expansion. The conference was in honor of Darryl R. Francis, who served at the St. Louis Fed for many years, and as President from 1966 to his retirement in 1976. He was described by Jerry Jordan as a "maverick," defined as "an independent individual who refuses to conform with his group." He presided during a tumultuous period at the Federal Reserve, often dissenting from the consensus and challenging conventional doctrine. For this, we will join in saluting the work of Mr. Francis.

Eminent Stanford economist, and now Treasury Under Secretary for International Affairs, John B. Taylor presented a paper, "Expectations, Open Market Operations, and Changes in the Federal Funds Rate." I was stuck by one particular paragraph: "Another significant change made possible by computer technology is the ability of financial institutions to efficiently ‘sweep’ their consumer’s accounts from those with reserve requirements into those without reserve requirements. These sweeps have allowed required reserve balances to decline sharply from about $30 billion in 1990, to $15 billion in 1996, to only about $5 to 6 billion today." Interesting, but then why the continued focus on bank reserves? Instead of papers with the stated purpose of developing "a simple model of the federal funds market," I suggest a comprehensive study that describes and explains the circumstance of how broad money supply has surged $3.5 trillion since 1990 (85%) in the face of collapsing "required reserve balances." The overriding explanation is certainly not "sweep accounts" or technology improvements, but an historic expansion of non-bank (and non-traditional bank) money and credit creation.

Other presented papers included "Monetary Policy Analysis in Models Without Money," "Assessing Simple Policy Rules: A View from a Complete Macroeconomic Model," "Identifying the Liquidity Effect at the Daily Frequency," and "Measuring Systematic Monetary Policy." Reading carefully through these clearly well researched and written papers, I was left with the sense that the Federal Reserve System is so hopelessly blinded by contemporary doctrine and methodologies that it fails to recognize the key monetary issues of our day.

My interest was most aroused by Allan H. Meltzer’s paper, "Money and Monetary Policy: An Essay in Honor of Darryl Francis." "Federal Reserve history suggests that neglect of money growth is a major mistake. The Federal Reserve would have avoided mistakes such as the Great Depression and the Great Inflation if it had used money growth as an indicator of the thrust of monetary policy." Well, if it were only that simple. Yet, the paper did have an excellent discussion of the 1960’s inflation creep, "rising from 0.67% in 1961 to 1.9% in 1965. The quarterly average rate, however, reached 3.8% in fourth quarter 1965…CPI inflation reached 4.7% by late 1967 and more than 6% by early 1969…by 1971, monetary base growth reached an 8% annual rate. The Bretton Woods System ended…measured CPI inflation reached 7% before the oil shock and more than 11% shortly after."

I will at the same time take strong exception with his analysis of the Great Depression, and it is here where we today find the most relevant terrain for debate. "Everyone is familiar with the fact that mistaken Federal Reserve policies prolonged and deepened the Great Depression. Attention to money growth would have alerted the Open Market Policy Committee to the severity of deflationary policy. I believe it is now generally accepted that a recession would likely have occurred in 1929, but the Great Depression could have been avoided…Growth of credit and member bank borrowing were the main guides for policy. The Federal Reserve’s principal concerns were the rise in stock prices and the use of credit in the stock market."

While Dr. Meltzer’s view may now be conventional "wisdom," it is nonetheless unfortunate analysis. Acceptance of the validity of this doctrine today imbues the Greenspan Fed to not repeat a similar "error." Or if there is going to be an error, it behooves the Fed to error on the side of aggressive accommodation. Sure, in retrospect there were policy inadequacies during the 1930’s, but the analytical focus should have remained with the causes and forces behind the 1920’s Bubble. Sound historical analysis would have fostered superior theory and improved policy, and perhaps the consensus necessary to squelch the 1990’s Bubble before it got out of control.

From Meltzer’s paper: "For those brought up on the belief that the 1929 stock market was a wild speculative orgy, the data are surprising. The capitalization ratio rose most rapidly in 1926, with rising profit anticipations. The ratio then remained between 40 and 50 until the market break in 1929. These data suggest that the so-called speculative boom of 1927-29 was driven by rising profits and, most likely, by anticipations of further increases to come…Irving Fisher commented that the stock market ‘went up principally because of sound, justified expectations of earnings, and only partly because of unreasoning and unintelligent mania for buying.’ He credited increased profits to the application of science, technology, and new management methods. Annual rates of CPI inflation remained negative from July 1926 to May 1929…In this period of rapid economic growth, monetary policy was deflationary."

"The Federal Reserve gave no attention to the monetary base. Its records show, however, that the 1929 increase in output and fall in prices was known at the time. The U.S. economy had a spectacular performance in the first half of the year. Corporate earnings increased about 30% in the first nine months. ‘Large corporate earnings, together with the ability of corporations to float stocks at high [stock] prices…put them in possession of funds with which to complete contemplated expansion programs.’ The only negative influence reported at the time was a decline in residential structures. Industrial and commercial building was at a record level. Exports of manufactured goods increased 50% for the year, despite the recession in the last four months. These data suggest that, as Fisher said, the optimistic projections underlying the rise in stock prices had a factual base."

While I take no issue with the facts, the interpretation is wildly off the mark. It is simply difficult to comprehend that there would be today any debate as to the speculative nature of the late ’20s stock market Bubble, although it is a reminder that there will surely be great "revisionist" efforts to paint the technology Bubble in similar positive terms. Furthermore, monetary policy was definitely not "deflationary" during the late 1920s. Like today, there may be major divergences in relative prices, but this should not be interpreted as due to deflationary policies, but more symptomatic of underlying instability. Dr. Meltzer, Dr. Friedman and others fail to appreciate a key aspect of the late 1920’s: it was a period of extraordinary monetary disorder with related significant structural deviations impacting the U.S. and global economy. Would a stable global monetary environment fuel a 50% one-year increase in U.S. exports? Perhaps it was not apparent in the narrowest definitions of domestic money supply (as it is not today), but can monetary analysis ignore the explosion of corporate security issuance, both debt and equity (that "put them in possession of funds" for "expansion programs.")? And the 30% increase in profits in nine months; instead of justification for bubbling stock prices, wasn’t this actually evidence of underlying monetary dislocation? These types of monetary disturbances are particularly dangerous, with surging sector profits a most seductive inflationary manifestation.

Similar monetary processes have been very much in force during this cycle, with the extraordinary technology sector boom and resulting profit surge. Unfortunately, such earnings gains were largely the consequence of a massive and destabilizing flow of speculative finance throughout the sector. Not only have heady profits proved fleeting, they were in fact harbingers of the huge losses to be suffered with the unavoidable bursting of the speculative Bubble and termination of these unstable flows. It is today critical to appreciate that, despite all the ranting and raving, the policy error was not in anyway related to tightened monetary conditions, but to the previous negligent accommodation of truly historic credit and speculative excess. These are the unavoidable consequences of a bursting Bubble (like 1929), not monetary stringency. With this insight, the impotence of aggressive monetary accommodation is in no way surprising.

From Meltzer on the Great Depression: "The Federal Reserve ignored the monetary base and money. It focused its attention on the stock market, credit, interest rates, and member bank borrowing. Although aware that the price level had fallen and continued to fall, its concern was inflation, not deflation. The basis of this concern was the real bills doctrine. Under that doctrine, credit to hold real estate, government debt, and common stocks was ‘speculative’ credit. Such credit permitted wealth owners to hold assets but did not increase the production of goods. According to this doctrine, because credit increased more than output, prices had to rise. Real bills, unlike speculative credit, finance additions to output. Because stock market prices, member banks borrowing, and credit had increased, credit expansion had financed speculation; inflation must result."

In the aggregate, this is very questionable analysis. While I would suggest that today’s excesses are significantly greater, there is no escaping the fact that enormous and destabilizing leverage had developed throughout the securities markets during the 1920’s. And like today, this financial leveraging played a major role in fostering cumulative structural economic maladjustments and distortions. Great risk came not from consumer price inflation, but from investment distortions, and asset inflation and its deleterious effects. There was also the considerable fraud and such that always develops during periods of monetary laxity and speculative excess. In the 1920s (and 1990s) enormous quantities of securities were issued that were backed by little true economic value, while huge sums were lent to dubious schemes and uneconomic enterprises. Still, as long as exorbitant finance sustained spending and speculative excess, previous errors in investment, speculation and borrowing remained in hiding and unproblematic. The major transfers of wealth that occur during financial Bubbles do, however, become apparent when securities prices eventually collapse to their true worth. Yes, this process can also be postponed by continued aggressive monetary accommodation, but at the great cost of further accumulation of spurious securities, additional transfer of wealth, and more extreme and dangerous financial and economic maladjustments. The 1920’s were also a period of significant real estate inflation, with great speculative Bubbles developing in Florida and elsewhere. Once allowed to blossom, financial and economic Bubbles create a very complex dilemma for monetary authorities. As history has made perfectly clear, the Federal Reserve had very good reason to be concerned with rampant speculative and credit excess during the late 1920s, as they should be today.

It is not my desire to be an antagonist, but I am deeply troubled by the lack of sound analysis and sensible public discourse regarding the severe problems now facing the country. I am at times tempted to use the word "scandalous" to describe what passes for analysis on the airwaves these days. It is also frightening to contemplate the stakes of what has necessarily developed into an unrelenting confidence game. Talk of "tight" Federal Reserve policy and the Fed not doing enough is nonsense, and these rants that Greenspan is purposely not cutting rates sufficiently because he wants to punish the stock market are ridiculous. Unfortunately, we live in a period lacking of true "statesmen/women" that will deal with the public in an informed, honest, and straightforward manner. Instead, public utterances are invariably dictated by self-interest, political expediency, and/or ideology.

My effort to better understand the root of today’s analytical shortcomings too often leads directly to "revisionist" interpretations of the Great Depression. As such, this week I re-read Dr. Milton Friedman’s 1960 classic, A Program For Monetary Stability. The subject matter is certainly today most relevant. From Friedman: "The central problem is not to construct a highly sensitive instrument that can continuously offset instability introduced by other factors, but rather to prevent monetary arrangements from themselves becoming a primary source of instability. What we need is not a skilled monetary driver of the economic vehicle continuously turning the steering wheel to adjust to the unexpected irregularities of the route, but some means of keeping the monetary passenger who is in the back seat as ballast from occasionally leaning over and giving the steering wheel a jerk that threatens to send the car off the road." Friedman also states, "there has been no significant monetary disturbance not accompanied by a severe economic fluctuation." Bravo Dr. Friedman!

He does, however, quickly drift to a line of reasoning that we will not accept: "During the rest of the 1920’s (after the ‘20/21 post-war deflation), both the stock of money and economic activity were relatively stable. These years produced widespread confidence, both inside and outside the System, that the new monetary arrangements were producing a high degree of stability and could continue to do so. In terms of these years this judgment was largely justified. Yet in retrospect, it is clear that problems were arising even then. The gold sterilization policy of the 1920’s and the tight-money policy followed in the late 1920’s to counter the stock market boom kept prices in this country stable or declining…"

"Control over margin requirements was a consequence of the ill-fated attempt by the Reserve System in 1928 and 1929 to prevent ‘credit’ from being used in the stock market boom. The Reserve System resorted to ‘moral suasion’ or ‘direct pressure’…the only effect was to change the form, not the substance, of the credit transaction…In 1928 and 1929, the System’s concern with the stock market led it to follow a general credit policy that was too tight for general business and too easy to stop the stock market boom…So long as the System has its present range of discretion about policy, it should keep its eye fixed on general economic conditions and not be diverted by what happens in particular sectors except as indicators of general conditions. Personally, I see no justification for singling out credit extended to purchase or hold securities for special attention."

Friedman rails against "the tools of specific credit policy – eligibility requirements, margin requirements, control over consumer and real estate credit, and control over interest paid by member banks on deposits…their enactment presumably reflected the belief that the market apportions credit improperly…the System has long recognized that the kind of collateral on which it extends credit has essentially no connection with the ultimate use made of the credit. Hence, even if controlling the use of credit were desirable, which I believe it is not, eligibility requirements would be a poor device for doing so."

This may seem obnoxious, but reading Dr. Friedman I have never sensed that he has a keen appreciation for the power of speculative market forces, the dynamics of credit excess, or the true essence of money. As such, his analysis becomes strangely oblivious to the true nature of the 1920’s Bubble. And while in 1960 he addressed the "defects of [the] present banking system," I think he absolutely missed the main point. From Friedman: "Our present fractional reserve banking system has two major defects. First, it involves extensive governmental intervention into lending and investing activities that should preferably be left to the market. Second, decisions by holders of money about the form in which they want to hold money and by banks about the structure of their assets tend to affect the amount available to be held. This has often been referred to as the ‘inherent instability’ of a fractional reserve system."

Yet there is just no recognition that the financial sector creates money through the lending process, no appreciation for the nature of self-reinforcing credit excess, or the consequences of excessive monetary expansion available through fractional reserve banking as the source of "inherent instability." These analytical shortcomings are demonstrated clearly when he writes "the most extreme of these side effects – widespread liquidity crises involving runs on banks, banking panics, suspension of convertibility of deposits into currency, and, in the 1930-33 episode, drastic liquidation and ultimate collapse of the banking system – have now been rendered most unlikely by federal insurance of deposits." Apparently having mastered the tools to mitigate the bust, no reason to fret over the boom. Right here one can find the impetus for the precarious notion that it really doesn’t matter how much money is borrowed, speculated, or how it’s all spent (as long as deposits are insured and the Fed can create more money!). There is absolutely no appreciation for the financial fragility created through the overextension and misuse of credit, nor the associated structural maladjustments to the real economy. This is very deficient analysis indeed.

Dr. Friedman’s questionable interpretations, now accepted as fact, have become deeply ingrained in conventional economic doctrine. Nothing, however, has been accepted with such religious fervor as the following: "Finally, almost all the monetary disturbances have arisen either from inadequacies of governmental monetary policies or from controversy about them. Governmental intervention in monetary matters, far from providing the stable monetary framework for a free market that is its ultimate justification, has proved a potent source of instability." Here, regrettably, he breaks rank with his noted Chicago professor Henry Simons (1899-1946). From The New Palgrave Dictionary of Economics: "By 1960 a new-generation Chicago School had come into prominence. Typified by Milton Friedman and George Stigler, they had been profoundly influenced by Simons as students but were departing substantially from his policy positions."

Reading Dr. Simons, there is absolutely no question that he commanded a wonderful appreciation for the inherent instability of money and credit. Writing during the Depression, he began his classic 1936 article - "Rules Versus Authorities in Monetary Policy" - by stating that "the money problem stands out today as the great intellectual challenge to the liberal faith." Unlike economists today, his analysis was focused on the issues of "financial structure," the "dangers of pervasive, synchronous, cumulative maladjustments," the "structure of relative prices," and "catastrophic disturbances." I also have tremendous admiration for his view that while "production" is to be left to the marketplace, it is the government’s overriding responsibility to maintain stability. Monetary instability is anathema to the market pricing mechanism and the sound functioning of free markets.

From The New Palgrave Dictionary of Economics: "Simons’ central theme was stated in the title of his first writing to attract attention, a 1934 pamphlet: ‘A positive Program for Laissez Faire: Some Proposals for a Liberal Economic Policy.’ The conjunction of the words ‘positive’ and ‘laissez faire’ set him apart from both the conventional conservatives of his time and the conventional liberals (in the American sense of interventionists). Simons visualized a division of labour between the government and the markets. The market would determine what gets produced, how and for whom. The government would be responsible for maintaining overall stability, for keeping the market competitive and for avoiding extremes in the distribution of income. This system would preserve liberty by preventing concentration of power, and liberty is the primary virtue, followed closely by equality."

Dr. Simons was a great economist, intellectual, statesman, and superb writer. I will let his words speak for themselves.

"It is this danger of substituting authorities for rules which especially deserves attention among students of money. There are, of course, many special responsibilities which may wisely be delegated to administrative authorities with substantial discretionary power; health authorities, for example, cannot well be limited narrowly in their activities by legislative prescriptions. The expedient must be invoked sparingly, however, if democratic institutions are to be preserved; and it is utterly inappropriate in the money field. An enterprise system cannot function effectively in the face of extreme uncertainty as to the action of monetary authorities or, for that matter, as to monetary legislation. We must avoid a situation where every business venture becomes largely a speculation on the future of monetary policy. In the past, governments have grossly neglected their positive responsibility of controlling the currency; private initiative has been allowed too much freedom in determining the character of our financial structure and in directing changes in the quantity of money and money substitutes. On this point there is now little disagreement. In our search for solutions of this problem, however, we seem largely to have lost sight of the essential point, namely, that definite, stable, legislative rules of the game as to money are of paramount importance to the survival of a system based on freedom of enterprise."

"Coming on down the scale, the economy becomes exposed to catastrophic disturbances as soon as short-term borrowing develops on a large scale…Short-term obligations provide abundant money substitutes during booms, thus releasing money from cash reserves; and they precipitate hopeless efforts at liquidation during depressions. The shorter the period of money contracts, the more unstable the economy will be."

"Thus we move rapidly out of sight of ideal or even tolerable conditions if there develop special institutional arrangements for financing a large volume of investment commitments through intermediaries which obtain funds for lending by issuing demand and near-demand claims to the original lenders (depositors). If the state gives special status to banking corporations, if their obligations become the established medium of payment, and, what is perhaps more important, if these obligations come to be considered as good as (or, for convenience, better than) currency for use as reserves, then the banking system acquires in effect the prerogative of currency issue and places the government under the practical necessity of giving these private obligations virtually the status of public debts."

"What matters is the character of the financial structure which banking creates – and the fact that, in the very nature of the system, banks will flood the economy with money substitutes during booms and precipitate futile efforts at general liquidation afterward."

"In a free-enterprise system we obviously need highly definite and stable rules of the game, especially as to money. The monetary rules must be compatible with the reasonably smooth working of the system."



"The problem of industrial fluctuations cannot be solved, and should not be attacked, exclusively by monetary devices. The best monetary system, so to speak, would tolerate occasional disturbances without alleviation, accepting them as a reasonable cost of maintaining the best structure of relative prices and as a means for preventing a continued accumulation of basic maladjustments which could only issue politically in disruption of the system itself."

"A liberal program of monetary reform should seek to effect an increasingly sharp differentiation between money and private obligations and, especially, to minimize the opportunities for the creation of effective monetary substitutes (whether for use as circulating media or in hoards) by private corporations."

"Sound democracy must continuously reaffirm faith in its own processes. There must be implicit agreement to preserve the process of action through deliberative discussion and continued compromise. This means agreement to proceed slowly and to avoid radical, irreversible experiments. In this respect, democracy is inherently conservative … Democratic action, however, must never defy or impugn dissent…strong, organized opposition is of the essence of responsible government – and its most fragile element."

"A cardinal tenet of libertarians is that no one may be trusted with much power – no leader, no faction, no party, no ‘class,’ no majority, no government, no church, no corporation, no trade association, no labor union, no grange, no professional association, no university, no large organization of any kind. They must forever repeat with Lord Acton: ‘Power always corrupts’ – and not merely those who exercise it but those subject to it and the whole society."

While this Bulletin is again much too long, I do encourage readers to spend extra time with the above extractions from Dr. Simons’ writings (from Economic Policy for a Free Society, 1948). They are truly brilliant, powerful, and timeless insights with special pertinence to today’s extraordinary environment – worthy of careful consideration.