The Federal Reserve: Reality Trumps Rhetoric

Robert Higgs (1987) has made of brilliant career of showing how the state makes good use of crises both real and perceived by centralizing and accumulating power to itself. The advent of the Federal Reserve is quintessential example of this phenomenon of political economy. The Panic of 1907 opened the door for the creation of a central bank, as various bankers, intellectuals, and politicians cited the Panic to make a case for the benefits of central banking. Beginning with the now modest claim that a central bank would make financial panics obsolete by ensuring an elastic currency, over the past 100 years, Fed rhetoric has escalated so that the masses are now assured that our central bank is absolutely indispensable for the smooth functioning of the entire social economy. In light of the history of Federal Reserve activity and its consequences, Fed rhetoric was wrong at every point. Rather than promoting stability, Federal Reserve monetary policy has resulted in economic destruction: massive price inflation, the consequential withering away of the dollar’s purchasing power, and the worst financial panics and depressions in the history of the United States.