MISSOURI WATCH: CAN WE GET SERIOUS FOR A MOMENT?

It's an anomaly that a presidential election campaign more sleep-inducing than Sominex had scarcely ended when political activists right and left began to open up deep and troubling issues. The tax code is under fire, as Congressman Dick Armey and others seek to replace the graduated income tax with almost anything else that comes to mind: flat tax, sales tax, who knows what? Campaign financing cannot be dodged. A balanced budget amendment is a perennial favorite, even by freshman members. Some important social programs need fixing.

Dare we suppose that following the aimless grousing of the last few years, Americans are giving serious thought to the principles of government?

If that be the case, then these words on monetary policy are most appropriate. Let's begin with the recent excellent talk by Alan Greenspan, chairman of the Federal Reserve Board, and a news item from The Wall Street Journal.

First, though, a note on perspective. Americans tend to think of government in terms of what they get from it and how they pay for it -- or perhaps inversely. Those are valid concerns, to be sure, but in some respects the most vital roles of government are different. Administration of justice has to come first. Next in rank are various facilitating services, not least of which is providing for a sound system of money.

Monetary policy invariably begins with the idea of a central bank -- its task and how much power it should be allowed to have. In the 19th century we had a First and a Second Bank of the United States. Both fell victim to political opposition. Only after wildcat state banking and protracted debates about bimetalism was a new kind of central bank established. It was the Federal Reserve Bank and System. The year was 1913.

Although the obligation of a central bank is broadly to provide for the money supply, during its first two decades the principal assignments of the Federal Reserve were to keep bankers honest and savers' savings safe, and to assure liquidity of the system to guard against the recurrence of panics like the one in 1907.

But quietude was not to last. As Greenspan noted in his December speech, the Great Depression of the 1930s changed the bankers' world "markedly." The banking system was drawn on to help relieve the depression. The Federal Reserve Board was vested with more power than before. For a while, "monetary policy was effectively subservient to the interests of the Treasury," but an Accord of 1951 set the system off in a more independent course.

Its critics claim the Board, in the name of "monetarism," has become too independent and has taken upon itself an ever broader role. In any case, monetary policy has since been looked at in terms not just of keeping banks afloat and money available, but the economy prosperous and price levels stable. That's a huge order.

Greenspan recognizes the political boundaries to the Fed's path. It has to be independent of political domination, even as it knows it is subject to public scrutiny. Its policies must be broadly acceptable to the American public.

Greenspan admits that old monetary models no longer work very well. M-1 and M-2 are no longer magic markers. New kinds of threats to stability show up for which the Fed is not prepared. The Fed chairman warned in December that "irrational exuberance has unduly escalated asset values." In other words, it's a wild bull market. His words sent stock values tumbling.

Insightful as his talk may have been, the chairman did not mention a responsible plan to tame wild bulls and he said nothing about the wave of bank mergers.

The Fed still regulates banking practices. A long term rule requires banks to keep their securities-trading activities under wraps. Now the Fed has said banks can double their securities business. Was this relaxed rule made for the benefit of the public or the banks?

The Federal Reserve Board exercises more than a little authority over the lives of all of us. Super-colossal banks resulting from mergers could end up doing the same. Forget small talk over minor issues in government, from fines for the Speaker to term limits to how many computers are needed to cross Bill's bridge. It's time to look at the really important issues that face us as a nation. Monetary policy is one of them.

~Jack Stapleton of Kennett is the editor of the Missouri News and Editorial Service.