In the last few weeks I’ve been thinking about what to do with my site. It has undergone a lot of transformations over the years. My site is a reflection of me, and like I’ve changed and evolved from my young high school self, this site has developed too. To reflect my reading projects and enjoyment of writing as a way to process what I learn, I am going to start doing something new, what I’m calling, “book blogging.” Up till now I’ve tried to write about books only after I read them completely through. But now I am going to be blogging my way through books. This will look different for each book, but it will be a way to capture my thoughts in real-time versus waiting until I’m done. Having said all that, my first book will be a lot like a book review because I did indeed finish reading it, but only about an hour ago.
The Case Against the Fed by Murray Rothbard is on the list of required reading for Mises University. I’ve read it several times before, but I wanted to refresh my mind on the details. It is so much broader than the title suggests. Rather than being a tirade against the Federal Reserve alone, it is really an historical and theoretical demolishment of central banking.
The first few chapters deal with monetary theory, how a common medium of exchange develops, and addresses that ubiquitous question, “what is the optimum supply of money?” Rothbard also makes a brilliant and crucial distinction between loan banking and deposit banking. Confusion between the two very different roles of banks has led to much of the monetary mess we face today. He shows how fractional reserve banking came out of these different banking types and is an attempt to keep the facade of deposit banking while actually being a loan bank. He then goes on to deal with the implications and problems that are caused by fractional reserve banking and how this creates a perfect situation for the emergence of a central bank.
But this isn’t a pure theory book—his arguments are rooted in history and go much farther back than 1913. He traces the development of banking in England and the situation which brought about the Bank of England. Recognizing that America has always been strongly influenced by England, this serves as a good lead-up to the story of banking in the United States. Rothbard is never satisfied with the established story, he digs deep into American history to show who was behind the major financial changes since the American Revolution and demonstrates that a central bank has nothing to do with creating market stability and everything to do with guaranteeing that inflation will not collapse the economy. He traces the dark history of the Fed from the last 19th century through the passing of the Federal Reserve Act in 1913. But he goes on to show the internal struggle between the different elite bank families and how this impacted the country. For example, in the first few years of its existence, the Morgan family had maintained ultimate control of the Fed. But this was not to last, for, “The New Deal constituted a concerted bringing down and displacement of Morgan dominance, a coalition of opposition financial out-groups combined in the New Deal to topple it from power.” This coalition was formed by families and banks such as the Rockefellers, Lehman Brothers, Goldman Sachs, and the Kennedys.
The overall message of The Case Against the Fed is that, despite all the propaganda, the Fed essentially exists to prop up an unstable economic system based on pyramid inflation. In a free market, the fraud would be quickly discovered, but a central bank will artificially “save” the market from collapse through increased inflation (which caused the instability to begin with) and the cycle is perpetuated. The astute reader will quickly see how Rothbard’s explanation of our monetary system is seen in our current situation. Nothing has really changed since 1913. We have new words to describe our financial problems, but there is the same cause and the same ineffectual answer. Nothing will change until we recognize the true role the Federal Reserve plays in our recessions. It is no “savior” to the economy but rather the market’s greatest nemesis.