Ron Paul’s HR 1207 “Audit the Fed” bill, about which the House Financial Services Committee held a hearing last week, is being widely dismissed on the Right as a dangerous exercise in kookiness. Bruce Bartlett, the reformed Reagan-era supply-sider, says it is “abundantly clear that this is a crackpot idea.”

Whatever one thinks of the Fed’s policies in recent years–and there certainly are grounds for criticism–there is no reason whatsoever to believe that undermining its independence and putting the Congress in control of monetary policy–Ron Paul’s goal–would improve matters at all.

Or as Barry Ritholz, a longtime Fed critic, puts it,

If the Fed is Wall Street’s bitch, then Congress is the Street’s whore.

This seems like a good point. Yet Tom Woods, who spoke to the Senate committee on Friday, rebuked the argument that, under the terms of the legislation, Congress would be able to “influence or even dictate monetary policy” as a “red herring.”

The bill is not designed to empower politicians to increase
the money supply, choose interest-rate targets, or adopt any of the rest of the Fed’s
central planning apparatus, all of which is better left to the free market than to the Fed or
Congress. It seeks nothing more than to open the Fed’s books to public scrutiny.
Congress has a moral and legal obligation to oversee institutions it brings into existence.
The convoluted scenarios by which merely opening the books will lead to an inflationary
catastrophe at the hands of Congress are difficult to take seriously.
At the same time, as we hear this objection repeated time and again, we might
wonder just how independent the Fed really is, what with its chairman up for
reappointment by the president every four years. Have these critics never heard of the
political business cycle? Fed chairmen have been known to ingratiate themselves into the
president’s favor close to election time by means of loose monetary policy and the false
(and temporary) prosperity it brings about. Let us not insult Americans’ intelligence by
pretending this phenomenon does not exist.

Woods is surely right to say that the bill is not “designed to empower politicians to increase
the money supply, choose interest-rate targets, or adopt any of the rest of the Fed’s
central planning apparatus.” But design, or intention, is not always enough. It might in fact be helpful if the Bill’s supporters were to make Woods’ point more often and with greater clarity, and perhaps explain what steps can be taken to ensure that congressional auditing of the Fed does not mutate into congressional direction of monetary policy. Otherwise these “better the devil we don’t know” objections to HR1207 seem to make sense. Worse, if the bill somehow were to pass without a clear understanding of its limited intended function, we might indeed end up with a monetary system even more destructive than the current one. If that’s possible …