Economist George Selgin affirms “that attempts to prevent price level movements from doing so themselves undermine the accuracy of price signals, diverting economic activity from its ‘nature’ course.[6] This intervention (see Figure 1 in The Federal Reserve has Failed and Inflation is Destructive) has caused immense wealth destruction in the past 100 years. Thomas Woods also notes “that artificially low interest rates created by the central bank’s injection of new money into credit markets deform the economy’s capital structure and interfere with the interest rate’s normal function of coordinating production across time. The artificially low rates, by artificially stimulating earlier or higher-order stages of production, create an unsustainable mismatch between future-oriented investment plans on the part of entrepreneurs and present-oriented consumption plans on the part of consumers.”[7]
Since the Federal Reserve’s birth, the U.S. has experienced a massive devaluation of the dollar and a very significant rise in the price of goods and services. This all happened during a period of enormous proliferation of goods and services, and huge productivity increases year-after-year, built upon the power and structural changes of the Industrial Revolution when the Shining City should have had massive price decreases, not increases, combined with prolific earning increases. While earnings of people have increased substantially, a large portion of that increased was negated by inflation — which, over the past century, should have never existed.
Fractional-Reserve banks, as with the current status of the U.S. dollar, also do not issue money titles; that is, a paper note for direct redemption for a commodity like gold, but essentially an “I owe you” (IOU).[8] Economist Jörg Hülsmann also rightly notes that “the growth of the welfare-warfare state would not have been possible without inflation.”[9]
Murray Rothbard writes that “Despite the Establishment propaganda… [the Central Bank of the Federal Reserve is] instead part of the problem. In fact, they are the problem. The American economy has suffered from chronic inflation, and from destructive booms and busts, because that inflation has been invariably generated by the Fed itself. That role, in fact, is the very purpose of its existence: to cartelize the private commercial banks, and help them inflate money and credit together, pumping in reserves to the banks, and bailing them out if they get into trouble.”[10]
As discussed, the exact opposite has happened. “Established economists and bankers proclaimed that the American economy was now in a marvelous New Era,” reveals Rothbard of their lies and deceit. The value of American currency has been ravaged over the past century. “[T]he only way,” writes Rothbard, “to do that [eliminate chronic inflation and boom and busts] is to abolish legalized counterfeiting: that is, to abolish the Federal Reserve System, and return to the gold standard.” [11]
[1] Christina D. Romer, Spring 1999, “Changes in Business Cycles: Evidence and Explanations,” Journal of Economic Perspectives, Vol. 13, No. 2, p. 34, Emphasis added.
[2] Christina D. Romer, Spring 1999, “Changes in Business Cycles: Evidence and Explanations,” Journal of Economic Perspectives, Vol. 13, No. 2, p. 35.
[3] Christina D. Romer, Spring 1999, “Changes in Business Cycles: Evidence and Explanations,” Journal of Economic Perspectives, Vol. 13, No. 2, p. 39.
[4] Christina D. Romer, Spring 1999, “Changes in Business Cycles: Evidence and Explanations,” Journal of Economic Perspectives, Vol. 13, No. 2, p. 40.
[5] Christina D. Romer, Spring 1999, “Changes in Business Cycles: Evidence and Explanations,” Journal of Economic Perspectives, Vol. 13, No. 2, p. 40.
[6] George Selgin, 1997, Less Than Zero: The Case for a Falling Price Level in a Growing Economy, “Hobart Paper 132,” (London, England: The Institute of Economic Affairs), p. 23.
[7] Thomas E. Wood Jr., 2008, “What Austrian Economics Can Teach Historians,” Quarterly Journal of Austrian Economics, Vol. 11, No. 3, p. 222. Emphasis added.
[8] For an in-depth review of the U.S. banking system see Jörg G. Hülsmann, Winter 2003, “Has Fractional-Reserve Banking Passed the Market Test?” The Independent Review, Vol. 3, pp. 399-422.
[9] Jörg Guido Hülsmann, 2008, Deflation & Liberty, (Auburn, AL: Ludwig von Mises Institute), p. 9.
[10] Murray N. Rothbard, 2007 (originally published in 1994), The Case Against the Fed, (Auburn, AL: Ludwig von Mises Institute), p. 145.
[11] Murray N. Rothbard, 2007 (originally published in 1994), The Case Against the Fed, (Auburn, AL: Ludwig von Mises Institute), p. 146.
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