Table Of ContentThe Case
Against the fed
Murray N. Rothbard
Ludwig von Mises Institute
INSTITUTE Auburn, Alabama 36849-5301
The Ludwig von Mises Institute
acknowledges with gratitude
the generosity of Mr. Doug Casey and
the Eugene B. Casey Foundation
and the Hon. Ron Paul and
CTAF, Inc.,
who made the publication
of this book possible.
Copyright © 1994 by Murray N. Rothbard
All rights reserved. Written permission must be se-
cured from the publisher to use or reproduce any part
of this book, except for brief quotations in critical re-
views or articles.
Published by the Ludwig von Mises Institute,
Auburn, Alabama 36849-5301.
Library of Congress Catalog Card Number: 94-073591
ISBN: 0-945466-17-X
Cover photo by David Hittle.
Contents
Introduction: Money and Politics 3
The Genesis of Money 12
What is the Optimum Quantity of Money? 18
Monetary Inflation and Counterfeiting 20
Legalized Counterfeiting 27
Loan Banking 29
Deposit Banking 33
Problems for the Fractional-Reserve Banker:
The Criminal Law 40
Problems for the Fractional-Reserve Banker: Insolvency... 45
Booms and Busts 54
Types of Warehouse Receipts 55
Enter the Central Bank 57
Easing the Limits on Bank Credit Expansion 62
The Central Bank Buys Assets 64
Origins of the Federal Reserve:
The Advent of the National Banking System 70
Origins of the Federal Reserve: Wall Street Discontent 79
Putting Cartelization Across: The Progressive Line 82
Putting a Central Bank Across:
Manipulating a Movement, 1897-1902 90
The Central Bank Movement Revives, 1906-1910 106
Culmination at Jekyll Island 114
The Fed at Last: Morgan-Controlled Inflation 118
The New Deal and the Displacement of the Morgans 129
Deposit "Insurance" 134
How the Fed Rules and Inflates 137
What Can Be Done? 145
Index 153
The Ludwig von Mises Institute • 1
Introduction:
Money and Politics
B
y far the most secret and least accountable operation
of the federal government is not, as one might ex-
pect, the CIA, DIA, or some other super-secret intel-
ligence agency. The CIA and other intelligence operations are
under control of the Congress. They are accountable: a Con-
gressional committee supervises these operations, controls
their budgets, and is informed of their covert activities. It is
true that the committee hearings and activities are closed to
the public; but at least the people's representatives in Con-
gress insure some accountability for these secret agencies.
It is little known, however, that there is a federal agency
that tops the others in secrecy by a country mile. The Federal
Reserve System is accountable to no one; it has no budget; it
is subject to no audit; and no Congressional committee
knows of, or can truly supervise, its operations. The Federal
Reserve, virtually in total control of the nation's vital mone-
tary system, is accountable to nobody—and this strange
situation, if acknowledged at all, is invariably trumpeted as
a virtue.
Thus, when the first Democratic president in over a
decade was inaugurated in 1993, the maverick and venerable
Democratic Chairman of the House Banking Committee,
Texan Henry B. Gonzalez, optimistically introduced some of
The Ludwig von Mises Institute • 3
The Case Against the Fed
his favorite projects for opening up the Fed to public scru-
tiny. His proposals seemed mild; he did not call for full-
fledged Congressional control of the Fed's budget. The
Gonzalez bill required full independent audits of the Fed's
operations; videotaping the meetings of the Fed's policy-
making committee; and releasing detailed minutes of the
policy meetings within a week, rather than the Fed being
allowed, as it is now, to issue vague summaries of its deci-
sions six weeks later. In addition, the presidents of the twelve
regional Federal Reserve Banks would be chosen by the
president of the United States rather than, as they are now,
by the commercial banks of the respective regions.
It was to be expected that Fed Chairman Alan Greenspan
would strongly resist any such proposals. After all, it is in the
nature of bureaucrats to resist any encroachment on their
unbridled power. Seemingly more surprising was the rejec-
tion of the Gonzalez plan by President Clinton, whose power,
after all, would be enhanced by the measure. The Gonzalez
reforms, the President declared, "run the risk of undermining
market confidence in the Fed."
On the face of it, this presidential reaction, though tradi-
tional among chief executives, is rather puzzling. After all,
doesn't a democracy depend upon the right of the people to
know what is going on in the government for which they must
vote? Wouldn't knowledge and full disclosure strengthen the
faith of the American public in their monetary authorities? Why
should public knowledge "undermine market confidence"?
Why does "market confidence" depend on assuring far less
public scrutiny than is accorded keepers of military secrets
that might benefit foreign enemies? What is going on here?
4 • The Ludwig von Mises Institute
Murray N. Rothbard
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. The monetary system is
highly important, it is claimed, and therefore the Fed must
enjoy absolute independence.
"Independent of politics" has a nice, neat ring to it, and
has been a staple of proposals for bureaucratic intervention
and power ever since the Progressive Era. Sweeping the
streets; control of seaports; regulation of industry; providing
social security; these and many other functions of govern-
ment are held to be "too important" to be subject to the
vagaries of political whims. But it is one thing to say that
private, or market, activities should be free of government
control, and "independent of politics" in that sense. But these
are government agencies and operations we are talking about,
and to say that government should be "independent of poli-
tics" conveys very different implications. For government,
unlike private industry on the market, is not accountable
either to stockholders or consumers. Government can only
be accountable to the public and to its representatives in the
legislature; and if government becomes "independent of
politics" it can only mean that that sphere of government
becomes an absolute self-perpetuating oligarchy, account-
able to no one and never subject to the public's ability to
change its personnel or to "throw the rascals out." If no
person or group, whether stockholders or voters, can dis-
place a ruling elite, then such an elite becomes more suitable
for a dictatorship than for an allegedly democratic country.
And yet it is curious how many self-proclaimed champions
The Ludwig von Mises Institute • 5
Description:ments and textbooks by countless economists. Even those economists until this fraudulent legend has been exposed and demol- ished. There is, however
