This is the Cato Daily Podcast for Friday, January 25th, 2013.

I'm Caleb Brown. The Federal Reserve turns 100 this year, so how has it performed?

Not well, according to Cato Institute Vice President for this year, so how has it performed?

Not well, according to Cato Institute Vice President for Academic Affairs, Jim Dorn.

He argues the United States should begin preparing for the next crisis with a keen eye

toward getting away from Fiat Money.

The Federal Reserve was created in 1913 by the Federal Reserve Act in December

1913, so this year is a hundredth anniversary, they were really

searching for an alas, what they called an elastic currency.

The panic of 1907 was instrumental in bringing about congressional hearings and so forth to discuss change in the monetary regime. Of course we were on a gold standard

up to the, you know, the late 1800s and up to World War I. So they wanted to try to avoid these banking panics and provide a more

elastic currency. The Federal Reserve Act itself had nothing in it about price stability, nothing in it about

full employment, but it had things in it about the elastic currency and about

financial stability. So it was really aimed at financial stability.

We were still on a convertible currency

after the Central Bank was formed in 1913.

So why was there nothing about price stability in the Federal Reserve Act?

Well, because under the gold standard, prices were relatively stable, the price level

over a long period of time. You had inflation and mild deflation, but over, let's say, a hundred year year period the price level was about the same as it was a hundred years earlier

So you had a reversion effect because gold would flow into and out of countries depending upon balance of payment situations and so forth

and the price levels would follow appropriately.

So people knew that if you had inflation it wasn't going to last forever and likewise with deflation that prices

...