For many years, for the past half a century or longer, it hasn't just been the Austrians
who have been critical of government intervention.
The University of Chicago became famous in the post-war era as the Chicago School and
Milton Friedman himself.
Most of you, maybe all of you, have heard of Milton Friedman, the young students in
the audience.
If you haven't, look him up and find out who Milton Friedman was, if you have any interest
in economics at all.
And he was a big critic and leader of the Chicago School, and they pretty much criticized
government intervention of all kinds, all kinds of regulatory policy, monetary policy,
as well as the Austrians.
But there was one thing about the Chicago School critics that always sounded kind of
funny to me, and that they would never really call for the abolition of a lot of institutions
like the Fed or antitrust, for example.
Milton was famous for most of his career as being an advocate of something called a monetary
rule.
He thought if the Fed could only allow the money supply to grow at, say, 4% forever,
that would be just keen and peachy.
That would be wonderful.
The Austrians never took that position because inflation is inflation.
It'll create the malinvestment problems that it always creates, even if it's only 4%.
But by the end of his life, Milton understood that this is kind of crazy, because it relies
on a sort of a benevolent despot to enforce the monetary rule.
And we don't have benevolent despots, we have politicians.
And so later in his life, he decided, you know, what have I been doing all these years?
He himself, you know, abandoned that idea.
But still, you didn't see many Chicago people advocating abolition of the Fed altogether
in return to sound money in a gold standard.
And so this whole area of banking, money and banking,
has been the most immune of all the areas of economics
to the critiques by the anti-interventionists,
not by the Austrians, but even by the people
who are known as being critics of government intervention,
like the Chicago School, have really been not nearly
as critical as you would think.
And so I thought I would put together a little survey
of some of the kinds of things that the mainstream says that I think are pretty easy to show are false.
And these are things that are taught primarily to college students, but also the general public.
And by mainstream, I don't mean just the academic world.
I'm going to start talking about the New York Fed, for example.
The Fed publishes a lot of things, a lot of publications.
A lot of these publications are used in classrooms.
A lot of them are the basis for what is written in textbooks
about such things as the founding of the Fed.
And I have here a Fed publication.
It's by the Federal Reserve Bank of New York.
It's entitled The Founding of the Fed.
And it's sort of, you read this, and I started thinking,
where have I heard this story before?
Oh, yeah, the Immaculate Conception.
That's where I heard about this before.
That's where I heard this same story.
It sounded familiar to me.
And so they start, you know, the Fed wasn't created until 1913,
Where they start at the very beginning of the founding of the first central bank, which
was called the Bank of the United States, 1791.
And here's one of the things that the New York Fed said, and even when I was a college
student I can remember being told the New York Fed is the most important of all the
Fed banks, and we're supposed to remember that.
They're saying this about the first central bank, the bank's charter ran for 20 years,
And when it expired, chaos quickly ensued, brought on by the lack of a central regulating
mechanism over banking and credit.
So what chaos didn't ensue, the War of 1812 ensued, is what ensued.
And so what happened was after the War of 1812, the Bank of the United States was resurrected.
It went back in business in 1817, and it quickly created the Panic of 1819.
That was the title of Murray Rothbard's doctoral dissertation at Columbia, which is also a
book and I think it's online at Mises.org.
And so there wasn't panic, but there was one man who I'm pretty sure was in a panic.
And Rothbard explains this.
So here's where the real panic was.
In his history of money and banking in the United States, Rothbard explains the political
impetus for bringing back the original central bank, the Bank of the United States.
The Second Bank of the United States was pushed through Congress, particularly by Secretary of the Treasury Alexander J. Dallas, a wealthy Philadelphia lawyer and close friend, counsel, and financial associate of Philadelphia merchant and banker Stephen Girard, reputedly one of the two wealthiest men in the country.
Gérard was the largest stockholder of the first Bank of the United States, and during
the War of 1812, Gérard became a very heavy investor in the war debt of the Federal Government.
As a way to unload his public debt, Gérard began to agitate for a new Bank of the United
States that would buy up the debt, and of course it did.
So I imagine Gérard was in a panic at the end of the War of 1812 when he thought no
one would buy all this debt that he had purchased.
And so what happened then, well here's what Rothbard writes that the Second Bank of the
United States, quote, launched a spectacular inflation of money and credit and it promptly
created the panic of 1819, the first real depression in American history.
For example, for the first time ever there was large scale unemployment in cities.
Rothbard mentions Philadelphia where there was employment in manufacturing of handicrafts
The US fell from 9,700 people in 1815 to only 2,100 in 1819.
That's quite a drop in employment in a single city.
And so even the first paragraph of this New York Fed publication on the founding of central banking
is totally dubious and really false.
Here's page two of this.
They go on.
This is a historical chronology.
They say, America's central banking was carried on...
Well, let me interject, interrupt myself.
They go on to talk about the second bank of the United States and how Andrew Jackson actually vetoed the rechartering of it in the 1830s.
So the second bank of the United States went out of business also.
So here we are after that, after the 1830s.
The New York Fed publication says,
America's central banking was then carried on by a myriad of state chartered banks with
no federal regulation.
The difficulties brought about by this lack of a central banking authority hurt the stability
of the American economy.
Bank notes issued by the individual banks varied widely in reliability.
Imagine that.
To its detriment, the American public had again, again opposed the idea of a central
bank, the stupid American public.
And the country's need for such an entity was more apparent than ever before.
And I'll think about this, when I've read this, I thought to myself, well, let's change
the words here.
Instead of bank or central bank, let's put grocery store and see how this sounds.
America's grocery store industry was carried on by a myriad of competing grocery stores
with no federal regulation.
The difficulties brought about by this lack of essential planning authority hurt the stability
of the American economy.
Grocery stores varied widely in reliability, that's supposed to be a bad thing.
To its detriment, the stupid American public had again opposed the idea of a centrally
planned grocery industry and the country's need for such an entity was more apparent
than ever before.
So competition is to be outlawed in money at all times.
We can't allow competition among bankers of all things, that would be a disaster.
And then sort of their pain to monopoly continues, and when they sing the praises of Lincoln's
National Currency Acts of 1863, which quote, sought to add clarity and security to the
banking system, and so that's why it's like the immaculate conception, every time the
government intervenes, it's clarity and security, whereas when there's competition, it's
It's unreliability and chaos and so forth.
These banks were now subject to stringent capital requirements and were required to
collateralize currency notes with what?
With gold?
No.
With holdings of United States government securities.
More oversight and a more robust currency in circulation was the result.
A more robust currency in circulation, yeah, the inflation of the Civil War, that's more
robust currency.
Another thing the Fed always does is every time it advocates a new type of intervention
and that intervention creates bad results, the answer is always, well, we don't have
enough power.
Ben Bernanke is not the first one to say this, that's the problem, there's not enough
power in the hands of the Fed.
Here's what the New York Fed said about this system, the Lincoln regime system, the national
National banking legislation of the 1860s proved inadequate because of the inability
of the banking system to expand or contract currency in circulation.
This led to wild gyrations in the economy.
So there was a nationalization of the money supply, a massive regulation of the banking
system by the federal government, and there's no mention here that there might be cause
and effect there.
The interpretation they give is that, well, the problem was that we don't have enough
Health Power, yes, we greatly expanded our power over money in the 1860s, but not enough.
So it's always the result. It's always what they're pleading for.
And then they go on to explain the creation of the actual Fed, which other people have
discussed here today. But here's the creepiest thing, they say, about the actual Fed being
created. A key event leading to America's financial reform was the election of Woodrow
Woodrow Wilson as president, so that's kind of scary.
We're kind of close to Halloween, so I thought I'd put that in.
That should say something to you if it took someone a creep like Woodrow Wilson to get
the Fed through.
That's one example of what I believe to be miseducation about the history of central
banking.
Anyway, just one little publication, and there are many like this.
Another thing I did is I wrote down some quotes about what some of the better-known economics
textbooks say about the creation of the Fed and the role of the Fed in the money supply.
And to add a little history here, the biggest selling economics textbook in the world by
far from 1948 until about the 1980s was the one by Paul Samuelson, Paul Samuelson's economics.
And then around that time, Samuelson took on a co-author named William Nordhaus.
And so it continued for many years to be published as Samuelson and Nordhaus.
And all during this time, even the competing textbooks were just clones of Samuelson's
book for the most part.
There were a few outliers, there were a few differences.
But for the most part, the big, big sellers that were used to teach hundreds of thousands
of College Students Every Year, or either the point of view of Paul Samuelson or people
who were sort of Paul Samuelson wannabes.
And here's one statement from the 16th edition, 1998, that happened to be in my university
library.
And this is what college students have always been taught.
The Federal Reserve's central goal is low and stable inflation.
Hold your laughter, please.
It also seeks to promote steady growth in national output, low unemployment, and orderly
financial markets.
Think of George Selgin's charts when I'm reading this stuff.
If aggregate demand is excessive and prices are bid up, the Federal Reserve Board may
reduce the growth of the money supply.
That puts the brakes on the economy and reduces price pressures.
And so the economists, mainstream economists, are always making these metaphors, the economy
is like an automobile.
If the economy is sluggish and business languishing, the Fed may consider increasing the money
supply.
That will usually give a boost to aggregate demand and bring down unemployment.
How's it working today?
They've been boosting a lot, haven't they?
Then another quote from Samuelson and Nordhaus, they say, above all, the Federal Reserve is
is an independent agency and the independent is in big black print.
The Fed listens politely but generally chooses the path that thinks best for the country.
And so there's this like godlike people up there who have no, you know, no personal interests
at all.
They listen politely to what the politicians say.
Even the politician named the president who gets to reappoint the chairman of the Fed,
but they'll tell him to get lost if they think he's saying something that they don't approve
of.
The Fed is ultimately concerned with preserving the integrity of our financial institutions
and combating inflation.
Think of that chart that George had up here, I think it was George had the chart of inflation
from 1787, 8% until 1913, and then, you know, the dollar devalued by, you know, down to
three cents of the original value of the dollar from 1913 to today.
And so, you know, as far as the integrity of financial institutions, I couldn't help
– it reminded me of one of my favorite Fed publications.
This one was by the Boston Fed, and this is an example of how the Fed preserves the integrity
of our financial institutions.
This was a publication that the Boston Fed printed up and sent out en masse to mortgage
lenders, not necessarily even the ones that were members of the Federal Reserve system,
just mortgage lenders everywhere, and it's called Closing the Gap, a Guide to Equal
Opportunity Lending, Mortgage Lending. You see there's a gap in lending for houses between
people who can afford a mortgage and people who cannot afford a mortgage. And we need
to close that gap, the Boston Fed is saying. It's online. Go online and just say, Boston
Fed Closing the Gap. You'll find this thing. And the Fed says to all these mortgage lenders,
They say these are just suggestions, just suggestions.
But then they say failure to comply with the Equal Credit Opportunity Act or Regulation
B can subject a financial institution to civil liability for actual impunitive damages in
individual or class actions.
So they say we're only suggesting this, but it's sort of a gun under the table suggestion,
isn't it?
They threaten massive class action lawsuits if you don't comply.
And so what did closing the gap recommend?
What are the recommendations?
Recommendation number one is ignore traditional measures of creditworthiness when it comes
to minority and low-income consumers.
So that's where the no-doc loans came from.
Don't even give us a pay stub.
Two, traditional ratios of mortgage payments to monthly income can also be ignored.
Don't worry about it.
We need to close the gap.
3. Lack of credit history should not be a factor either. Successful participation in credit counseling is an adequate substitute.
So if you have bad credit, you go to a Fed-appointed counselor, and that is supposed to be a substitute for a good credit rating, according to the Fed.
The fourth word of advice that the Fed gave to mortgage lenders was this,
if a subprime borrower has a property appraisal problem,
then the Fed or Fannie Mae could help to find another experienced appraiser.
I bought and sold quite a few houses in my time, and if I got an appraiser
and I didn't like the number he came up with and found another one,
I'm pretty sure I could get in pretty big trouble,
the Federal Reserve, fiat money, fractional reserve banking, Human Action, Man Economy and State, The Theory of Money and Credit
Another, all during this time that I mentioned that Paul Samuelson's book was so popular,
the second biggest seller during this era, maybe not the whole era, pretty much the 60s
and 70s, was a textbook, a really bad textbook by Campbell McConnell.
And I can remember one of my professors that I went to school with, they call it Virginia
Tech now because they have a decent football team, but it was mostly an engineering school
School, Virginia Polytechnic Institute, Virginia Tech, and the same guy who used Human Action
as a textbook in the class I was taking, and that's a memorable thing.
But anyway, just like Samuelson, this book sold and sold and sold, and McConnell sort
of went into semi-retirement and took on a co-author named Stanley Rue, so it's McConnell,
Rue rather, so it's been McConnell and Rue forever, 14th edition.
I'm going to quote the 14th edition.
In the early 20th century, Congress decided that centralization and public control were
essential for an efficient banking system.
Decentralized unregulated banking had fostered inconvenience and confusion of numerous bank
notes being used as currency.
No single entity was charged with creating and implementing a rationally consistent banking
policies.
And again, think of that, just change the word grocery to banking.
Many of these unregulated grocery stores have fostered inconvenience and confusion of numerous grocery stores to choose from, so there's a menu problem.
If you have competition, you're going to have competition. You're not going to have a monopoly by definition.
So they inform students that this is a bad thing, having a central planning authority is what we need.
Then one other quote that I picked from their book about the Fed,
The policies of the central banks follow are designed by the Board of Governors to promote the well-being of the economy as a whole.
It is therefore inconsistent with the profit motive.
How many of you think the bailout of Goldman Sachs is inconsistent with somebody making profits?
Anybody?
So I don't think too many people would think of that.
So that's the kind of stuff college students have been subjected to for many, many years.
A third example of the so-called mainstream miseducating, and I don't mean every single person who considers themselves mainstream and everything,
but these are some prominent examples I'm giving here from these textbooks.
The Wall Street Journal, that's a pretty, most of my friends call it the War Street Journal, or the Regime Street Journal, Wall Street Journal is what most people think of it as.
When the real estate bubble burst and we entered this depression that we're in, they featured an article by John Steele Gordon, who's a very well-known business historian and I've read a lot of his books, I think a lot of them are really good books on all kinds of topics.
He writes a lot, a lot of popular writing.
I even tried to get his book, one of his books, chosen as the one book that all freshmen at
my universities read.
Universities do this.
They pick one book.
But the feminists that were on the committee threw a fit, a screaming fit, because there
weren't enough women in his book on the history of entrepreneurship in there, even though
it was actual real history.
Today it would be different.
If it was entrepreneurship in America in the post-60s, there would be a lot of women in
there, but this was a history book.
But anyway, so I kind of like a lot of what Gordon does, but I was kind of taken aback
at this.
This is one of the first articles that the journal highlighted to explain the causes
of the crisis.
And here's the cause, John Steele Gordon.
He blames the current economic crisis on, quote, the baleful influence of Thomas Jefferson.
So it's Thomas Jefferson's fault that we had this crisis.
So where is he coming from?
He says, well, the purpose of the Fed is, quote, to guard the money supply, regulating
the economy thereby.
And of course, Jefferson was the opponent of Alexander Hamilton, the father of central
Central Banking in America, that's what the Fed itself calls him.
The Fed has, not the New York Fed, but the Fed-Fed has a publication called The History
of Central Banking in America, and they call Hamilton the founding father of Central Banking
in America.
And in this publication, they even say he even sounded like a modern-day Fed chairman.
Hamilton did.
And I've read all of Hamilton's famous reports on economics, and I've read a book on Hamilton,
Hamilton's Curse, and I would agree with that.
It's a lot of what he writes on economics topics is sort of idiotic, impossible to understand,
a jumble of sentences that aren't connected, it sounds just like Alan Greenspan, if you
read this stuff.
I used to tell my students that Greenspan reminded me of my old uncle who had dementia
before he passed away, and I'd go and visit him and he'd talk and talk and talk and it
This sounded just like Alan Greenspan testifying before Congress.
But Jefferson was the mortal enemy of central banking at the very beginning.
He and Hamilton both made the case for and against the bank to George Washington and
George Washington signed the legislation, but it was only because he cut a political
deal and the Federalists promised to move the boundary of Washington, D.C. to be adjacent
to Mount Vernon, George Washington's property in Virginia, if he would sign the bank bill,
which he did.
Okay, he was a politician after all.
You don't get to be the top general if you're not a politician.
And so what else does Gordon say about this?
So his basic point is that this whole tradition, this anti-central banking tradition, started
with Jefferson and plagues us today, plagues us to this day.
And then the real reason for the crisis is that the Fed is not powerful enough.
If only we could get rid of these Jeffersonians and, you know, they hide behind this weird-sounding
guy Ludwig von Mises now, they don't call themselves Jeffersonians anymore.
They might call themselves something else.
But if we didn't have these critics of the Fed, we wouldn't have had this depression,
is the argument in the article.
And on Jefferson, this is a standard line of these people.
He says he hated commerce, he hated banks, and may not have understood the concept of
central banking.
This is nonsense.
What Jefferson was opposed to was mercantilism.
He opposed Hamilton's plan of a bank run by politicians out of the nation's capital that
would spend money on corporate welfare and have protectionist tariffs.
That's what he opposed.
He didn't oppose banking per se.
He opposed the idea of a bank run by politicians and the policies of taxing farmers to subsidize
manufacturers.
That's what he opposed, not manufacturing in general.
Here's what Rothbard says about this.
He said, Jefferson was very precisely in favor of laissez-faire or free market capitalism.
And that was the real argument between Hamilton and Jefferson.
It wasn't really that Jefferson was against factories or industries per se.
What he was against was coerced development, that is, taxing the farmers through tariffs
and subsidies to build up industry artificially, which was essentially the Hamilton program
and also the John Steele Gordon program.
Jefferson was a very learned person.
He read Adam Smith.
He read Ricardo.
He was very familiar with laissez-faire classical economics, and so his economic program was
a very sophisticated application of classical economics to the American scene.
The classicists were also against tariffs, subsidies, and coerced economic development.
The Jeffersonian wing of the Founding Fathers was essentially free market laissez-faire capitalists.
This was from an essay that Murray Rothbard wrote entitled, A Future of Peace and Capitalism
and it's online at Mises.org.
And so Gordon gets it exactly wrong, in fact I was at Monticello just last week, some friends
of mine from the West Coast were here, they'd never been on the East Coast and I promised
and I would take them to Monticello if they ever made it because they were big Jefferson fans.
So we went there and you walk in the front door of those of you who have been to Monticello, Jefferson's home,
the first thing that's there is there's a bust of Turgot, the French finance minister,
and he was a precursor of the Austrian School. His name is on the wall at the Mises Institute,
the name of all the famous Austrians. He's one of them. And Jefferson learned a lot.
The Voltaire and Turgot are right there at the entranceway.
Those are the original marble busts of these two men that are there.
Hamilton, on the other hand, was an ignoramus on economics.
I don't know how he got this reputation. There's Jefferson studying Adam Smith
and David Ricardo and Turgot and the French physiocrats.
Who did Hamilton study? Well, he basically studied the pamphlets written by publicists
for the British mercantilism, basically. And in his
His reports, his famous report on manufacturers, he said such things as international competition
would make prices higher, protectionism would make prices lower.
He said, he advocated banning all imports altogether of things that we could make here
in the United States, so not allowing any competition from any other country for the
things that could be made here.
If we can't raise coffee here, well, let them import coffee.
But if we could make barrels, don't let anybody import barrels or woolen blankets or anything
like that.
So he was...
These are all the arguments of the old 18th century British mercantilists made that were
all debunked by Adam Smith in his famous book, The Wealth of Nations.
But these were Hamilton's arguments.
And so here's the Wall Street Journal in 2008 making the case that the cause of the crisis
is not enough power in the hands of the Fed and it's because of this legacy of Thomas
Thomas Jefferson and his anti-banking, his ignorant anti-banking ideas, but of course
the real ignoramus was Hamilton and people who championed his ideas to this day like
John Steele Gordon.
Another one of Gordon's claims, the Civil War ended monetary chaos when Congress passed
the National Bank Act.
Monetary chaos was ended.
Well, I have a, I brought a little, little quote here on that.
There's been a lot of scholarship on this.
There's just one article here that I'll mention.
So did it end monetary chaos?
That's what the Wall Street Journal readers are informed of by John Steele Gordon.
I'm going to cite an article by, these are three well-known monetary economists, Michael
Bordeaux, Peter Rappaport, and Anna Schwartz, and Anna Schwartz was Milton Friedman's co-author
in their famous Monetary History of the United States.
An article that was published in 1992 of theirs about this period, the post-Civil War era,
the National Banking Acts that John Steele Gordon claims ended monetary chaos.
They say this, the system was characterized by monetary and cyclical instability, poor
banking panics, frequent stock market crashes and other financial disturbances.
So that's not very stable, doesn't sound very stable to me really.
He concludes by saying that what we need is nationalize the financial markets by assuming
stock ownership.
The government should assume stock ownership in banks and appoint the U.S. Treasury Secretary
as essentially a financial dictator.
This he says will take the politics out of banking, I don't know how he gets that, have
a political dictator and that reminds me of, I didn't tell you all of my quotes from academics
but here's, I saved this for the end here because it was related, here's another textbook
that said something like this by Jeffrey Sachs and a co-author, Felipe Lanane I think is
is his last name, macroeconomics and the global economy, and Jeffrey Sachs is pretty popular,
the World Bank sent him all over Eastern and Central Europe to make sure they didn't move
too far in the direction of free markets after the collapse of communism, and so he became
quite the celebrity, but they say this in their book on macroeconomics, in the United
States the Federal Reserve is independent from the rest of the public sector, okay,
When the next sentence says, the Fed chairman is appointed by the president, so how can
you be independent of the public sector if the chairman is appointed by the president?
The final quote, I saved this the best for last, this is a textbook entitled Macroeconomics
by Andrew Abel and Ben Bernanke, and they say, one of Congress's primary motives in
and Establishing the Fed was the hope that a central bank would help eliminate the severe
financial crises that had periodically afflicted the United States before World War I.
Okay, well, that could be true.
They hoped it would eliminate these crises.
And then the second sentence I think is really funny, but maybe you have to be an economist
like me to think this is funny.
The next sentence is, ironically, the most severe financial crisis in U.S. history occurred
in 1930, barely a decade and a half after the creation of the Fed.
How ironic can you be?
So you have these two brilliant MIT-trained PhD economists who don't seem to see any potential
for a connection between the creation of the Fed and the panic that came just a few years
later.
And they're supposed to be experts in econometrics, too, you know, statistical investigation of
cause and effect and all that sort of thing.
But anyway, so I thought that was kind of funny.
They thought it was ironic that the Fed created a crisis, just like the Bank of the United
States created the Panic of 1819, there's a whole history of that.
And they just don't know history.
If you don't play in the same sandbox that people like George Selgin and I play in, you
don't know that like a lot of the economists that you hear about that teach at the universities,
they really don't know anything about this kind of history.
They go to graduate school and are taught a lot of technical stuff, and they read journal
articles, mostly very recent journal articles, and very, very few of them do things like
Murray Rothbard did, write books on the monetary history of the United States.
They only know the latest, you know, couple of years' worth of journal articles and things,
and so they might be totally in the dark.
Even a guy like Ben Bernanke might be totally in the dark about some of these easy-to-read
History there and it sure sounds like it if you read some of the textbooks. Let's
see, how's the time going here? One other thing I'd mention, all this talk about the
independent Fed. I've mentioned a few of these quotes about the Fed is
supposedly independent and if it's not it should be. Well that is not really true.
Another group of dissidents within the economics profession were some of my
Professor at VPI, James Buchanan and Gordon Tullock. They were the founders of what's
called the Public Choice School of Economics. It's basically the economic analysis of political
decision making. And some of this research spilled out into monetary economics over the
past 20, 25 years when some of the people in this field started writing articles in
the academic journals about the influence of politics on the Fed. You know, previously
This was unthinkable. The Fed is independent. You can't have politics in government when it comes to the money supply.
But just to give you an idea of what some of these people have said, there's one person who wasn't really a big shot in public choice,
but he was really an excellent economist, the late Robert Weintraub. In one of his publications,
He wrote how the Federal Reserve fundamentally shifted its monetary policy course in 1953,
1961, 1969, 1974, and 1977.
This is one of the first articles of this type that I know of, looking at sort of the
political influence of the Fed.
Now, why did the Fed make all these shifts from easy money to not so easy money, you
know, every time, every few years?
Well, here's the explanation.
Lyndon Eisenhower wanted slower money growth, the money supply then grew at 1.73% during
his administration, the slowest rate in a decade.
Then President Kennedy desired a somewhat faster money creation.
From January 61 to November 63, the money supply grew by 2.31%.
Lyndon Johnson required rapid money creation to finance his expansion of the Vietnam War
and the welfare state.
Money supply growth more than doubled.
These varying rates of monetary growth all occurred under the same Fed Chairman, William
McChesney Martin, and the story that is told here is that if you want to keep your job
and be reappointed as Fed Chairman, you do what the boss wants, and the boss will let
you know what he wants, the President.
He'll make speeches, he'll have his people, his appointees go out and make speeches about
whether the money is growing too fast or too slow, and you keep your ears open and you
Arthur Burns, the successor, was such a staunch supporter of Nixon that even though his staff informed him in the fall of 1972 that the money supply was forecast to grow by a robust 10.5% in the third quarter, Burns advocated even faster growth.
The growth rate and the money supply in 1972 was the fastest for any one year since the end of World War II and, of course, it helped Nixon get re-elected.
And then, of course, when Jerry Ford came in, he had his Whip Inflation Now program. People were wearing these buttons that said, win.
Just that should make Jerry Ford go down as the dumbest president in American history, I think. Just that button.
But that was the consequence of Nixon's re-election campaign, and in the literature of economics, this is called the political business cycle.
And most of the mainstream economists don't pay much attention to this, they poo-poo it, they say it hasn't been really proven.
Well, yeah, the government doesn't have the ability to perfectly centrally plan the economy to the extent that they can create zero unemployment a month before the election takes place, and then, you know, like that.
like that, but they try their best. They do try their best to inflate before the election
and it creates all kinds of economic problems for the rest of us. And so all this, and this
rarely makes it into the textbooks. Some of them have it, some of them do have it, but
those statements I read to you earlier make no hint of that. So you can very easily get
through a class in macroeconomics at a university or monetary theory and not have any knowledge
I'll tell you this, one of my students came into my American economic history class, undergraduate student, he had already taken, he was an economics major, and he had already taken a class in intermediate macroeconomic theory, which is really the heavy duty, intermediate level course that all majors take, and a course on monetary theory, and he comes into my class and he said, you know, I had no idea there were criticisms of the Fed. He said, I never heard this. He had had all these classes, and he was fascinated that there were actual criticisms.
The man says I have five minutes and so what I'm going to do to close here is I don't want you to be too disappointed that Lew Rockwell had to cancel and that's too bad and so I brought, I'm going to read you a few quotes from Lew on this topic of the Fed and how the mainstream miseducates and how the mainstream miseducates and how the mainstream miseducates and how the mainstream miseducates
What I have to say here is not so much miseducation per se, but they leave a lot out.
From the very beginning, central banks have had as one of their primary purposes the financing
of war, and you will rarely read anything at all about that, about the role of the central
banks financing war in the mainstream theory textbooks.
You'll read about it at the Mises Institute and things like that, but you pick up one
One of these macroeconomics or monetary theory books, and you'll, very little is mentioned
about that, but Lew has written about it very eloquently, and of course, the United States
probably could not have gotten into World War I had we not had the Fed, and the income
tax was created in the same year, by the way, in 1913, and here's what Lew says about it,
he says, when they were making the case for the Fed, no one pointed out, this is a quote,
No one pointed out that this institution would permit Americans to fund, without taxes,
the destruction of cities abroad and overthrow of governments at will.
No one said that the central bank would make it possible for the U.S. to be at large-scale
war in one of every four years for a century.
It was never pointed out that this institution would make it possible for the U.S. government
to establish a global empire that would make imperial Rome and Britain look benign by comparison.
World War I was never mentioned. It was always the chaos of competitive currency that was the problem.
The Fed is the institution that has been required to enter and fund all these wars.
World War I, all the major belligerents used central banking for World War I. It wasn't only just the Fed.
It was the Germans and it was the Russians. The Russians had their central bank. They
all abandoned, walked away from gold and adopted fiat money and centralized banking. And Ludwig
von Mises wrote this in 1919. He said, one can say without exaggeration that inflation
is an indispensable means of militarism. Without it, the repercussions of war on welfare become
from obvious, much more quickly and penetratingly, war-weariness was set in much earlier, and
of course that's certainly true if the government has to tell us today, now, okay, if we want
to maintain these wars in Iran, in Iraq rather, I'm getting ahead of myself, I'm reading
the weekly standard too much in Iraq, all the hopeful thinking in the weekly standard.
Iraq and Afghanistan, well given the cost of these wars, every working American will
will be assessed a new tax of $20,000 this year.
I bet there'd be an anti-war movement in America over that.
But if Ben Bernanke can just push a button
and print all that money and let the consequences befall us
next year, the year after, and so forth,
and then blame it all on capitalism,
well, that's a good scheme, isn't it?
And so this is what happened.
And the Russians, the Germans, by 1923,
the market had fallen to one trillionth of its 1914 value.
That's what they did with their hyperinflation to finance their participation in the war.
In Russia, they had the State Bank of the Russian Empire.
It was the Russian version of the Fed.
And it did the same thing.
It created tremendous, tremendous inflation.
So what Lew concludes in an article is that one of the things that's sort of overlooked
here is that central banking gave birth, I'll quote him, to the most evil political trends
in the History of the World, Communism, Socialism, Fascism, Nazism, and the Despotism of Economic
Planning in the Capitalist West, and you won't read that in these economics textbooks, but
I believe it's absolutely true that that is what has happened, and if you really want
to follow up on this, Joseph Salerno has an excellent article called War and the Money
Machine, and it's in the Mises Institute book on the cost of war, but it's also online,
So if you just go online and type in Joseph P. Salerno in War and the Money Machine, it's
a great exposition of war and inflation.
And so I think my time is about up.
Thank you all for supporting the Mises Institute.
Remember, we won't allow you to exit this room unless you do sign up so that we can
give you one of those books on the presidency, and I will sign them if you ask me to.
Thank you very much.