I originally conceived of this talk, The Case for Abolishing the Central Bank, as an applied
update to my 1995 talk at the Heritage Foundation on Why Austrian Economics Matters. That's
because so many of the policy ideas suggested within the Austrian framework can be subsumed
under the need to abolish the central bank. The Austrian School has been battling the
and Central Bank, since 1913 and before. Right now, the writings of our tradition are more
prominent than ever before, thanks to our great predecessors, our faculty, our students,
our donors, our publishing programs, our electronic media, and the desperate search on the part
of people all over the world for an explanation of the current crisis and a way out. Never
Have the ideas of the Austrian tradition reached such heights as in recent weeks?
I'm pleased to report that the Mises Institute, after 26 years of preparation, was ready in
every way.
We have economists, historians, philosophers and many others working at the university
level all over the country and all over the world who have been trained in our programs.
They were ready to provide answers in a classroom setting and for the media.
Our academic journals have helped build the foundations as have our professional conferences.
Books such as Murray Rothbard's America's Great Depression and the Panic of 1819, Hayek's
Prices and Production, Mises's Causes of the Economic Crisis, among 300 other titles,
have been flying out of our warehouse. We've issued new books on this topic, including
Banking, De Soto's Money, Bank Credit and Economic Cycles, Hulsman's Ethics of Money
Production couldn't have come out at a better time, nor could our new edition of Rothbard's
Mystery of Banking. Our online bookstore has been the world's source for information for
scholars and citizens, just as our website has been the source for news, data and analysis,
with thousands of hours of video and audio that address the topic at hand. Our offices
I would say that we have all been taxed in a way as never before, but I think we should reserve that word for involuntary labor and not for work that we glory in.
And the world press has taken notice as never before. Today's events are similar to the crash of 1929 and the subsequent policies, but there is a difference this time.
The ideas of our tradition are in circulation.
The Mises Institute has been pushing these ideas since our founding in 1982.
As Ron Paul pointed out, our first conference in 1983 was on the gold standard.
A book on that topic soon followed. It's not been a fashionable topic.
We've endured many years of criticism and even attacks because we focus on the dangers of the Fed and fiat money.
Even as far back as the 1980s we've been editorializing against the federal priority of giving all living things a home to own.
There is an economic and moral difference between legitimate ownership that comes from deferred consumption
and premature ownership that is subsidized by the monetary system.
A report on all this not to say we told you so,
But rather to underscore the need to stick to principle, depart from the crowd, avoid
the fashion, and adhere to the truth no matter what.
This is what Mises taught us, and if he'd done nothing more than to be his era's most
tough-minded resistor to collectivism of all types, it would be enough to earn him an institute
founded in his name.
In some ways it's tragic that it takes a crisis on this scale to cause this level of
The focus on these ideas. We all wish that the drive for truth alone would turn attention
to them. But the scarcity of time dictates that people tend to learn on a need-to-know
basis. For that reason, Google Trends records a massive increase in searches for Austrian
economics, with the leading city for searches being, amazingly enough, Washington, D.C.,
but extending to areas all over the world. The Google news archives on searches for Mises
show more mentions in this year than any year since records have been kept. Of course the
Austrian School has much more to offer than a theory of the boom-buzz cycle. It has value
theory, property theory, price theory, a compelling logic for understanding the entire microeconomic
Foundation of the Science, a methodological case to make for deductive theory, production
and capital theory, a case for the origin and function of money, as well as a contribution
to trade theory, industrial organization and antitrust, a vast historiography that turns
the mainstream on its head, a huge and innovative critique of war and of interventionist and
socialist states, as well as a passion for liberty as the foundation of social development.
As I said earlier in my talk on Why Austrian Economics Matters, we are not merely talking
about a school that has contributed one or two ideas, but an entirely different way of
thinking about the meaning and application of economics and a wholly different conception
of the social order.
Had progress in economic thought not been interrupted by Keynesian theory and the rise
of positivism in the social sciences, we would today not be speaking of the Austrian School.
Misesian theory would be economics proper.
For this reason we can hope that if people get interested in the Austrian theory of the
business cycle, this will eventually turn to deeper study and intellectual transformation.
What starts as a narrow interest changes to a broad interest.
We know this happens often and it is the stuff of which intellectual revolutions are made.
For now what interests people is the Austrian account of the bust and the Austrian account
is the only compelling one in circulation. In fact, as compared with the past, parts
of the Misesian Rothbardian view of the cycle have fully entered the mainstream, with just
about everyone agreeing that the current bust originated in a bubble fueled by easy money.
That is a message that our forebears never entirely made the stick. In the 1930s, they
struggled for a hearing in ways that we do not. I'm almost in a shock to say it, but
These days, the idea that the Fed should be abolished is no longer greeted with cat calls.
No longer is the Fed seen as the savior of mankind.
Indeed, we can sum up the case for abolishing the central bank rather quickly.
Abolishing the Fed would put a huge break on the planning state.
Without the ability to expand the money supply at will, the federal government would become
about as threatening as a state or local government.
That is to say, the Federal Government would still be an intolerable imposition on life, liberty and property.
But we wouldn't be worrying about world hyperinflation, large-scale bubbles, trillion-dollar bailouts,
controls that reach into every nook and cranny of our lives, or a global empire that invades every country at will
and makes America the enemy of whole regions of the world.
That's only the beginning of what the abolition of the Fed would mean.
It would dramatically change the political culture of this country.
Bureaucracies would tumble, trade would stabilize, the investment risk calculus would accord
with the free market.
The left could no longer live out its pipe dreams of socialist utopia at our expense.
The right would have to give up its wacky notion of a world police state.
The power ambitions of whole sectors of society would be scaled back.
The state is always and everywhere a danger, even when it has no monopoly on money and
no printing press that can create money tickets at will. But a state with the ability to make
its own money is a grave and relentless threat to prosperity and freedom. It leaves the future
entirely at the discretion of the money managers. Every day we live under the threat the U.S.
could become the next Weimar Republic or even another Zimbabwe. All that stands between
Between us and that day is the wisdom and prudence of the Fed.
As we've seen in recent days, just how much those character traits matter when the crisis
hits.
We learn that nothing counts to these people but the short-term well-being of themselves
and their friends.
They will gladly give up our future for their immediate satisfaction.
We learn that Congress, with the sole and heroic exception of Ron Paul, is no help.
It too was bought off by newly printed money, just as if the local counterfeiter agreed
to cut the City Council in on the deal.
Many of us have wondered whether or not the government and its central bank were capable
of repeating such historic calamities as wage and price controls or total monetary destruction.
But now we see that there are no institutionalized limits on the level of depredations they're
But what is lacking today as versus the past is a theoretical rationale. Time was when
inflationists could rely on the promises of Keynesianism to turn stones into bread. Few
today believe that is possible. You can detect the absence of sound theory in the terms used
to debate the policy response. On one hand, everyone seems to agree that reckless lending
is the source of the problem. On the other hand, they are proposing more reckless lending
as the solution to the problem. It is, as Hayek said, proposing to cure a poisoning
with more poison. Does anyone today really believe that bailing
out the system is the answer? Perhaps a few weeks ago, there were still some policy makers
who believed that. But when the billions and the trillions have failed to do anything but
Prop Up Zombie Companies and becomes clear these bailouts will not have and cannot have
any positive macroeconomic effects. Now, government can pretend to be effective
in a host of ways. It can ban products for our own good. They can march around overseas
and claim to be killing bad guys. They can say they're protecting you from poverty at
both ends of life. But one thing the government cannot do and very obviously cannot do is
A government that wages war on the price system is a government itching to lose a fight. Stabilization
policy is a war on human volition. Think of the recent efforts to inflate the money supply.
The Fed is building up reserves as never before. They're making these available to banks at
unprecedented levels. Meanwhile, the banks are playing it safe and waiting to see what
is and what is not profitable. This is roughly what happened in the 1930s. The central bank
then tried to inflate through the credit markets, but ultimately it bumped up against the unwillingness
of people to undertake the risk. So it is today, at least now, the critical mechanism
that makes it possible for the Fed to do what it wants to do is missing. Short of actually
putting all of us in a FEMA camp and forcing us to borrow, lend and spend, there is little
What Will the Fed Can Do to Overcome This Parble? When you speak to people about this issue, it's best to use a simple analogy. Choose any good that you can think of. Let's say it's the price of milk that takes a sudden tumble and the milk producers are very upset. Government swears it will raise the price of milk and does so by fiat. Milk is declared to cost $6 a gallon. What will happen? Well, it will sit on shelves as consumers tend to move to substitutes.
and the stores themselves will have surpluses and might even demand compensation.
They certainly won't buy any more from the producers.
Then the producers will complain.
At this point, government can bail out the producers or buy the milk themselves.
Perhaps they will ultimately require everyone to buy milk and drink it.
But ultimately, short of turning all the citizens into tin soldiers,
there's nothing the government can do to change the underlying reality.
A war on prices is a war on human choice and ultimately a war on unchangeable aspects of reality.
To confront this truth is to come face to face with economic law.
Economic law is something that surrounds us constantly as a fact of life and a driving force of the material world.
To deny economic law is akin to denying gravity or the change of seasons.
But its principles remain abstract enough to require careful thought in order to discern
them and comprehend their meaning.
Bad times are good times for teaching economic ideas to people otherwise content to be blissfully
unaware.
More absurdly, the ignorant and the propagandist will continue to claim that the economic meltdown
is the result of laissez-faire or too little regulation or a lack of much needed nationalization
or Socialization. A small introduction to the reality of economic law can change everything.
But let's return now to the realities of the present situation. There is indeed a risk
of further meltdown depending on how far the government is willing to go in its war on
reality. On the other hand, there are ways to prevent calamity. We will soon hear reports
of much higher unemployment. There is an urgent need to cut unemployment taxes, to end the
the minimum wage, to end mandates on business, to repeal union privileges, to cut FICA, to scrap unemployment discrimination law, to restore a free market and labor. There's also a chance for dramatic monetary reform. A gold coin standard would of course be ideal. Absent that solution, a repeal on the restrictions on private money production and banking would be a huge and important step. We still have to disable the power of the central bank.
Money and Banking from an Austrian perspective. You understand nearly all of it if you absorb the following insight. Money is a commodity like any other commodity. It should be produced and managed under competitive market conditions, the same as shoes or eggs or computers. Banking, too, is a market service that should be managed by the market order with no government involvement and so subjected to the discipline of market
forces including the restrictions against fraud. Establishing a market system of money
and banking requires nothing other than having the government step entirely away. This might
seem unlikely, but so did the unraveling of the Soviet Union in 1989. Socialist ideology
was bankrupt in the same way that Russia was bankrupt. So it is in our time. Major players
in the banking system are bankrupt in the same way that stabilization policy is intellectually
Bankrupt. We cannot rule out the impact of intellectual bankruptcy on real
economic history. There's a certain poetic justice that alarm at central
banking would be the driving force behind the new interest in Austrian
ideas. Austrian economics was born with Carl Menger's reflections and
innovations on the nature and function of money. It matured under Mises's own
contributions and warnings about the dangers of central banking. Hayek joined
They joined Mises in the 1920s and 1930s to focus on the business cycle and the dangers of using the money and banking system as a stabilization tool.
This led to further reflections on macroeconomic principles.
Mises and Hayek lived in a world that had fallen for Keynesianism, so their advice was rejected on grounds that it was outmoded.
Today that belief is gone, and people are looking for new answers.
It is time that the world return to the one school of economic thought that predicted
this current crisis, explains its origins and source, and offers the only plausible
way out. It doesn't matter that some of their writings date back 90 or 100 years,
or in the case of our predecessors, up to 800 years. Economic science teaches timeless
truths, so money is an immutable need always and everywhere. I'm pleased to say that I'm
I am under no burden today to explain to you why Austrian economics matters. We know that it does.
We know that it is the one theoretical apparatus that fully accounts for the seeming chaos that surrounds us today.
But the Austrian School does more than merely explain why we find ourselves in the worst monetary meltdown in generations.
It shows the way out, providing an achievable vision of Mises's free and prosperous Commonwealth.
I'm also pleased to tell you that just as for the last 26 years, so for the next 26 years, you can always count on the Mises Institute to show the way.