A Barbarously Progressive Idea

Andrew Mack
Posted April 7, 2011

The Federal Reserve is a barbarous institution from the progressive era long past and is not compatible with a modern market economy. Last week a parade of regional Fed presidents spoke about the future of money creation and inflation. They all had widely differing opinions of how current and future monetary policy should be carried out. Some are “hawkish” and feel we must focus on inflation. Others are more “dovish” and think there is too much slack in the economy and inflation is not a concern. There are still others who see both sides of the issue and feel future policy should be played by ear. The markets reacted moment by moment as to how they interpreted the comments. However, what should be taken away from this whirlwind speaking tour is that they have no idea. The fact is that they are trying to accomplish something that can’t be done - control the economy. The Fed is obsolete; we do not want them and we do not need them.

The Federal Reserve act was passed in 1913, the same year the 16th and 17th amendments became law. Woodrow Wilson was president and we were at the height of progressive thought. The idea was that an elite group had the knowledge to engineer and direct the future for the betterment of society. The Federal Reserve existing today is premised on the same notion that a board of omnipotent intellectuals’ posses the market knowledge to set interest and prices. With Greenspan and Bernanke in charge for the last 30 years we have been on a de facto “Ph.D. Standard”. We have given these academics the reins over an economy that is infinitely complex. They are not elected and not accountable to the people. The problem is that our monetary system is to the average person a concept foreign and unknown.

The word barbarian evolved from the Greek word “barbaros”. It came from the fact that Greeks could not understand foreigners and when they spoke it sounded like “bar-bar”. Likewise the Fed is an institution that the people do not understand. Questions that should be simple to understand are completely opaque. How do they create money and set interest rates? How does it get distributed in the economy? How are they able to create $900 billion and purchase two-thirds of the government debt this year? How can they extend $3.3 trillion dollars of emergency lending to overseas institutions? It is not just “Greek” to people its barbaric.

This unclear institution must be relieved of its impossible task. The job of accurately setting interest rates and prices should be done by the contract makers. The coordination of exchange, risk, and money should be carried out by businesses and individuals. The buyers and sellers in an economy are fully capable of determining their terms of trade. With the current speed of technology, old information barriers are breaking down. The entrepreneurs and individuals are fully competent to come up with fresh ideas on money and banking. The notion of a command economy was shattered with the fall of the Soviet Empire and the “Great Chinese Famine”. The likes of the Fed are in a similar lineage of thought that is incongruent with freedom.

We must return money to where it began, among all the people that use it. The modern free market is where we must look for innovative answers to complex solutions. The Federal Reserve has existed beyond its useful life. It was once a grand concept that all of our social and economic problems could be handled by a select few with superior knowledge. But we must reject this argument in whole and reject this barbarous institution, a progressive idea whose time is done.

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Apr 4, 2011
Andrew Mack
email: andygmack@hotmail.com

I recently graduated from Montana State University with a BS in Finance. I am a research intern at the Cato Institute in the Tax, Budget and Monetary Policy Department. I also contribute to SoundMoneyProject.com- started by the Atlas Institute. Gold is the future of money, that’s it.

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