Case Against the Fed
By Murray N. Rothbard
Ludwig von Mises Institute 2007
In The Decline
of the West, Oswald Spengler wrote, “With money-traffic
there appears between producer and consumer, as though between two
separate worlds, the third party, the middleman, whose thought
is dominated a priori by the business side of life. He elevates
mediation to a monopoly and thereafter to economic primacy, and
forces the other two to be ‘in form’ in his interest …
He who commands this mode of thinking is the master of money.”
And no, Spengler
was not referring to the Fed. But he very well could have been,
for the Fed certainly fits the definition of a monopolistic middleman,
who is the master of money. Which is the subject of Murray Rothbard’s
book – The
Case Against the Fed.
Like many books,
The Case Against the Fed starts out with an introduction.
But that’s where the similarity ends. For Rothbard’s introduction
is a real humdinger. He gets right to his thesis, which is that
the Fed is super-secretive, accountable to no one, has no budget,
and is subject to no audit. And whenever anyone broaches changing
this situation, the “standard reply of the Fed and its partisans
is that any such measures, however marginal, would encroach on the
Fed’s ‘independence from politics,’ which is invoked
as a kind of self-evident absolute.”
In other words,
only by means of absolute power and no accountability can the Fed
wage its holy war “against inflation.” According to the
Fed’s line of reasoning, the public is responsible for inflating
the money supply. Which means the Fed is all that stands between
the public and the temptation of inflation. In Rothbard’s opinion,
“this mythology is the very reverse of the truth.”
analysis and explanation of the real truth is wonderfully wrought.
“If,” says Rothbard, “chronic inflation is caused
by the continuing creation of new money, and if [the Central Banking
System] is the sole monopoly source and creator of all money, who
then is responsible for the blight of inflation?” The answer
of course is “the Fed itself.”
according to Rothbard, explains why the Fed requires secrecy. “If
the public knew what was going on,” it would know that the
Fed is “itself the heart and cause of the problem.”
blistering opening, Rothbard moves on to discuss how money and banking
developed. This discussion segues naturally into the ‘optimum
amount of money.’ And as Rothbard demonstrates, “any quantity
of money in society is ‘optimal.’” Increasing the
supply of money in a society is unnecessary and not beneficial.
Any increase that occurs is purely and simply inflation, which,
in Rothbard’s opinion, is tantamount to counterfeiting.
increases the money supply, which simultaneously pushes up the cost
of goods and services and decreases the buying power of money. The
other thing counterfeiting does – and this is an important
point – is put more money into the “hands of the counterfeiters.”
In other words, the people printing the counterfeit money get richer.
out that historically, there “have been two kinds of legalized
counterfeiting.” The first is government printed paper money.
The second is “fractional-reserve banking.” And Rothbard’s
explanation of fractional-reserve banking is one of the best around.
For it is simple and clear, eschewing technical jargon and convoluted