WEBVTT NOTE How Abolishing the Fed Would Change Everything (for the better) 1 00:00:00.000 --> 00:00:05.600 I originally conceived of this talk, The Case for Abolishing the Central Bank, as an applied 2 00:00:05.600 --> 00:00:12.440 update to my 1995 talk at the Heritage Foundation on Why Austrian Economics Matters. That's 3 00:00:12.440 --> 00:00:18.280 because so many of the policy ideas suggested within the Austrian framework can be subsumed 4 00:00:18.280 --> 00:00:23.400 under the need to abolish the central bank. The Austrian School has been battling the 5 00:00:23.400 --> 00:00:29.500 and Central Bank, since 1913 and before. Right now, the writings of our tradition are more 6 00:00:29.500 --> 00:00:35.800 prominent than ever before, thanks to our great predecessors, our faculty, our students, 7 00:00:35.800 --> 00:00:41.960 our donors, our publishing programs, our electronic media, and the desperate search on the part 8 00:00:41.960 --> 00:00:49.380 of people all over the world for an explanation of the current crisis and a way out. Never 9 00:00:49.380 --> 00:00:54.380 Have the ideas of the Austrian tradition reached such heights as in recent weeks? 10 00:00:54.380 --> 00:01:00.220 I'm pleased to report that the Mises Institute, after 26 years of preparation, was ready in 11 00:01:00.220 --> 00:01:01.920 every way. 12 00:01:01.920 --> 00:01:06.620 We have economists, historians, philosophers and many others working at the university 13 00:01:06.620 --> 00:01:12.420 level all over the country and all over the world who have been trained in our programs. 14 00:01:12.420 --> 00:01:18.060 They were ready to provide answers in a classroom setting and for the media. 15 00:01:18.060 --> 00:01:24.060 Our academic journals have helped build the foundations as have our professional conferences. 16 00:01:24.060 --> 00:01:29.940 Books such as Murray Rothbard's America's Great Depression and the Panic of 1819, Hayek's 17 00:01:29.940 --> 00:01:36.060 Prices and Production, Mises's Causes of the Economic Crisis, among 300 other titles, 18 00:01:36.060 --> 00:01:41.580 have been flying out of our warehouse. We've issued new books on this topic, including 19 00:01:41.580 --> 00:01:47.680 Banking, De Soto's Money, Bank Credit and Economic Cycles, Hulsman's Ethics of Money 20 00:01:47.680 --> 00:01:52.640 Production couldn't have come out at a better time, nor could our new edition of Rothbard's 21 00:01:52.640 --> 00:01:58.280 Mystery of Banking. Our online bookstore has been the world's source for information for 22 00:01:58.280 --> 00:02:04.520 scholars and citizens, just as our website has been the source for news, data and analysis, 23 00:02:04.520 --> 00:02:10.140 with thousands of hours of video and audio that address the topic at hand. Our offices 24 00:02:10.140 --> 00:02:22.140 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. 25 00:02:22.140 --> 00:02:34.140 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. 26 00:02:34.140 --> 00:02:38.140 The ideas of our tradition are in circulation. 27 00:02:38.140 --> 00:02:44.140 The Mises Institute has been pushing these ideas since our founding in 1982. 28 00:02:44.140 --> 00:02:49.140 As Ron Paul pointed out, our first conference in 1983 was on the gold standard. 29 00:02:49.140 --> 00:02:54.140 A book on that topic soon followed. It's not been a fashionable topic. 30 00:02:54.140 --> 00:03:01.140 We've endured many years of criticism and even attacks because we focus on the dangers of the Fed and fiat money. 31 00:03:01.140 --> 00:03:11.140 Even as far back as the 1980s we've been editorializing against the federal priority of giving all living things a home to own. 32 00:03:11.140 --> 00:03:18.140 There is an economic and moral difference between legitimate ownership that comes from deferred consumption 33 00:03:18.140 --> 00:03:23.140 and premature ownership that is subsidized by the monetary system. 34 00:03:23.140 --> 00:03:27.140 A report on all this not to say we told you so, 35 00:03:27.140 --> 00:03:33.140 But rather to underscore the need to stick to principle, depart from the crowd, avoid 36 00:03:33.140 --> 00:03:37.420 the fashion, and adhere to the truth no matter what. 37 00:03:37.420 --> 00:03:41.940 This is what Mises taught us, and if he'd done nothing more than to be his era's most 38 00:03:41.940 --> 00:03:48.380 tough-minded resistor to collectivism of all types, it would be enough to earn him an institute 39 00:03:48.380 --> 00:03:50.140 founded in his name. 40 00:03:50.140 --> 00:03:55.820 In some ways it's tragic that it takes a crisis on this scale to cause this level of 41 00:03:55.820 --> 00:04:01.820 The focus on these ideas. We all wish that the drive for truth alone would turn attention 42 00:04:01.820 --> 00:04:07.220 to them. But the scarcity of time dictates that people tend to learn on a need-to-know 43 00:04:07.220 --> 00:04:12.980 basis. For that reason, Google Trends records a massive increase in searches for Austrian 44 00:04:12.980 --> 00:04:20.980 economics, with the leading city for searches being, amazingly enough, Washington, D.C., 45 00:04:20.980 --> 00:04:27.060 but extending to areas all over the world. The Google news archives on searches for Mises 46 00:04:27.060 --> 00:04:32.780 show more mentions in this year than any year since records have been kept. Of course the 47 00:04:32.780 --> 00:04:38.940 Austrian School has much more to offer than a theory of the boom-buzz cycle. It has value 48 00:04:38.940 --> 00:04:45.420 theory, property theory, price theory, a compelling logic for understanding the entire microeconomic 49 00:04:45.420 --> 00:04:51.220 Foundation of the Science, a methodological case to make for deductive theory, production 50 00:04:51.220 --> 00:04:56.780 and capital theory, a case for the origin and function of money, as well as a contribution 51 00:04:56.780 --> 00:05:02.740 to trade theory, industrial organization and antitrust, a vast historiography that turns 52 00:05:02.740 --> 00:05:08.460 the mainstream on its head, a huge and innovative critique of war and of interventionist and 53 00:05:08.460 --> 00:05:15.100 socialist states, as well as a passion for liberty as the foundation of social development. 54 00:05:15.100 --> 00:05:20.300 As I said earlier in my talk on Why Austrian Economics Matters, we are not merely talking 55 00:05:20.300 --> 00:05:25.520 about a school that has contributed one or two ideas, but an entirely different way of 56 00:05:25.520 --> 00:05:30.560 thinking about the meaning and application of economics and a wholly different conception 57 00:05:30.560 --> 00:05:32.700 of the social order. 58 00:05:32.700 --> 00:05:37.060 Had progress in economic thought not been interrupted by Keynesian theory and the rise 59 00:05:37.060 --> 00:05:42.700 of positivism in the social sciences, we would today not be speaking of the Austrian School. 60 00:05:42.700 --> 00:05:46.860 Misesian theory would be economics proper. 61 00:05:46.860 --> 00:05:50.100 For this reason we can hope that if people get interested in the Austrian theory of the 62 00:05:50.100 --> 00:05:56.780 business cycle, this will eventually turn to deeper study and intellectual transformation. 63 00:05:56.780 --> 00:06:01.140 What starts as a narrow interest changes to a broad interest. 64 00:06:01.140 --> 00:06:07.340 We know this happens often and it is the stuff of which intellectual revolutions are made. 65 00:06:07.340 --> 00:06:12.300 For now what interests people is the Austrian account of the bust and the Austrian account 66 00:06:12.300 --> 00:06:16.980 is the only compelling one in circulation. In fact, as compared with the past, parts 67 00:06:16.980 --> 00:06:22.260 of the Misesian Rothbardian view of the cycle have fully entered the mainstream, with just 68 00:06:22.260 --> 00:06:28.660 about everyone agreeing that the current bust originated in a bubble fueled by easy money. 69 00:06:28.660 --> 00:06:35.060 That is a message that our forebears never entirely made the stick. In the 1930s, they 70 00:06:35.060 --> 00:06:41.100 struggled for a hearing in ways that we do not. I'm almost in a shock to say it, but 71 00:06:41.100 --> 00:06:47.100 These days, the idea that the Fed should be abolished is no longer greeted with cat calls. 72 00:06:47.100 --> 00:06:51.260 No longer is the Fed seen as the savior of mankind. 73 00:06:51.260 --> 00:06:57.600 Indeed, we can sum up the case for abolishing the central bank rather quickly. 74 00:06:57.600 --> 00:07:01.900 Abolishing the Fed would put a huge break on the planning state. 75 00:07:01.900 --> 00:07:05.760 Without the ability to expand the money supply at will, the federal government would become 76 00:07:05.760 --> 00:07:09.260 about as threatening as a state or local government. 77 00:07:09.260 --> 00:07:16.260 That is to say, the Federal Government would still be an intolerable imposition on life, liberty and property. 78 00:07:16.260 --> 00:07:23.260 But we wouldn't be worrying about world hyperinflation, large-scale bubbles, trillion-dollar bailouts, 79 00:07:23.260 --> 00:07:30.260 controls that reach into every nook and cranny of our lives, or a global empire that invades every country at will 80 00:07:30.260 --> 00:07:34.260 and makes America the enemy of whole regions of the world. 81 00:07:34.260 --> 00:07:38.260 That's only the beginning of what the abolition of the Fed would mean. 82 00:07:38.260 --> 00:07:43.080 It would dramatically change the political culture of this country. 83 00:07:43.080 --> 00:07:49.040 Bureaucracies would tumble, trade would stabilize, the investment risk calculus would accord 84 00:07:49.040 --> 00:07:50.620 with the free market. 85 00:07:50.620 --> 00:07:56.440 The left could no longer live out its pipe dreams of socialist utopia at our expense. 86 00:07:56.440 --> 00:08:01.300 The right would have to give up its wacky notion of a world police state. 87 00:08:01.300 --> 00:08:07.260 The power ambitions of whole sectors of society would be scaled back. 88 00:08:07.260 --> 00:08:12.200 The state is always and everywhere a danger, even when it has no monopoly on money and 89 00:08:12.200 --> 00:08:18.120 no printing press that can create money tickets at will. But a state with the ability to make 90 00:08:18.120 --> 00:08:25.040 its own money is a grave and relentless threat to prosperity and freedom. It leaves the future 91 00:08:25.040 --> 00:08:31.140 entirely at the discretion of the money managers. Every day we live under the threat the U.S. 92 00:08:31.140 --> 00:08:36.780 could become the next Weimar Republic or even another Zimbabwe. All that stands between 93 00:08:36.780 --> 00:08:44.460 Between us and that day is the wisdom and prudence of the Fed. 94 00:08:44.460 --> 00:08:49.000 As we've seen in recent days, just how much those character traits matter when the crisis 95 00:08:49.000 --> 00:08:50.180 hits. 96 00:08:50.180 --> 00:08:54.740 We learn that nothing counts to these people but the short-term well-being of themselves 97 00:08:54.740 --> 00:08:56.460 and their friends. 98 00:08:56.460 --> 00:09:01.740 They will gladly give up our future for their immediate satisfaction. 99 00:09:01.740 --> 00:09:07.380 We learn that Congress, with the sole and heroic exception of Ron Paul, is no help. 100 00:09:07.380 --> 00:09:11.840 It too was bought off by newly printed money, just as if the local counterfeiter agreed 101 00:09:11.840 --> 00:09:15.540 to cut the City Council in on the deal. 102 00:09:15.540 --> 00:09:19.140 Many of us have wondered whether or not the government and its central bank were capable 103 00:09:19.140 --> 00:09:26.100 of repeating such historic calamities as wage and price controls or total monetary destruction. 104 00:09:26.100 --> 00:09:30.820 But now we see that there are no institutionalized limits on the level of depredations they're 105 00:09:30.820 --> 00:09:39.220 But what is lacking today as versus the past is a theoretical rationale. Time was when 106 00:09:39.220 --> 00:09:45.360 inflationists could rely on the promises of Keynesianism to turn stones into bread. Few 107 00:09:45.360 --> 00:09:52.080 today believe that is possible. You can detect the absence of sound theory in the terms used 108 00:09:52.080 --> 00:09:58.140 to debate the policy response. On one hand, everyone seems to agree that reckless lending 109 00:09:58.140 --> 00:10:03.300 is the source of the problem. On the other hand, they are proposing more reckless lending 110 00:10:03.300 --> 00:10:09.640 as the solution to the problem. It is, as Hayek said, proposing to cure a poisoning 111 00:10:09.640 --> 00:10:13.700 with more poison. Does anyone today really believe that bailing 112 00:10:13.700 --> 00:10:18.940 out the system is the answer? Perhaps a few weeks ago, there were still some policy makers 113 00:10:18.940 --> 00:10:23.740 who believed that. But when the billions and the trillions have failed to do anything but 114 00:10:23.740 --> 00:10:29.940 Prop Up Zombie Companies and becomes clear these bailouts will not have and cannot have 115 00:10:29.940 --> 00:10:36.300 any positive macroeconomic effects. Now, government can pretend to be effective 116 00:10:36.300 --> 00:10:42.200 in a host of ways. It can ban products for our own good. They can march around overseas 117 00:10:42.200 --> 00:10:46.900 and claim to be killing bad guys. They can say they're protecting you from poverty at 118 00:10:46.900 --> 00:10:53.060 both ends of life. But one thing the government cannot do and very obviously cannot do is 119 00:10:53.060 --> 00:11:06.380 A government that wages war on the price system is a government itching to lose a fight. Stabilization 120 00:11:06.380 --> 00:11:13.180 policy is a war on human volition. Think of the recent efforts to inflate the money supply. 121 00:11:13.180 --> 00:11:17.400 The Fed is building up reserves as never before. They're making these available to banks at 122 00:11:17.400 --> 00:11:22.060 unprecedented levels. Meanwhile, the banks are playing it safe and waiting to see what 123 00:11:22.060 --> 00:11:27.980 is and what is not profitable. This is roughly what happened in the 1930s. The central bank 124 00:11:27.980 --> 00:11:32.840 then tried to inflate through the credit markets, but ultimately it bumped up against the unwillingness 125 00:11:32.840 --> 00:11:39.880 of people to undertake the risk. So it is today, at least now, the critical mechanism 126 00:11:39.880 --> 00:11:45.300 that makes it possible for the Fed to do what it wants to do is missing. Short of actually 127 00:11:45.300 --> 00:11:51.140 putting all of us in a FEMA camp and forcing us to borrow, lend and spend, there is little 128 00:11:51.140 --> 00:12:21.140 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. 129 00:12:21.140 --> 00:12:26.140 and the stores themselves will have surpluses and might even demand compensation. 130 00:12:26.140 --> 00:12:28.140 They certainly won't buy any more from the producers. 131 00:12:28.140 --> 00:12:30.140 Then the producers will complain. 132 00:12:30.140 --> 00:12:35.140 At this point, government can bail out the producers or buy the milk themselves. 133 00:12:35.140 --> 00:12:39.140 Perhaps they will ultimately require everyone to buy milk and drink it. 134 00:12:39.140 --> 00:12:43.140 But ultimately, short of turning all the citizens into tin soldiers, 135 00:12:43.140 --> 00:12:47.140 there's nothing the government can do to change the underlying reality. 136 00:12:47.140 --> 00:12:55.140 A war on prices is a war on human choice and ultimately a war on unchangeable aspects of reality. 137 00:12:55.140 --> 00:13:00.140 To confront this truth is to come face to face with economic law. 138 00:13:00.140 --> 00:13:08.140 Economic law is something that surrounds us constantly as a fact of life and a driving force of the material world. 139 00:13:08.140 --> 00:13:14.140 To deny economic law is akin to denying gravity or the change of seasons. 140 00:13:14.140 --> 00:13:18.900 But its principles remain abstract enough to require careful thought in order to discern 141 00:13:18.900 --> 00:13:22.260 them and comprehend their meaning. 142 00:13:22.260 --> 00:13:29.180 Bad times are good times for teaching economic ideas to people otherwise content to be blissfully 143 00:13:29.180 --> 00:13:30.180 unaware. 144 00:13:30.180 --> 00:13:36.020 More absurdly, the ignorant and the propagandist will continue to claim that the economic meltdown 145 00:13:36.020 --> 00:13:42.540 is the result of laissez-faire or too little regulation or a lack of much needed nationalization 146 00:13:42.540 --> 00:13:48.540 or Socialization. A small introduction to the reality of economic law can change everything. 147 00:13:48.540 --> 00:13:54.060 But let's return now to the realities of the present situation. There is indeed a risk 148 00:13:54.060 --> 00:13:58.540 of further meltdown depending on how far the government is willing to go in its war on 149 00:13:58.540 --> 00:14:04.700 reality. On the other hand, there are ways to prevent calamity. We will soon hear reports 150 00:14:04.700 --> 00:14:10.300 of much higher unemployment. There is an urgent need to cut unemployment taxes, to end the 151 00:14:10.300 --> 00:14:40.300 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. 152 00:14:40.300 --> 00:15:10.300 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 153 00:15:10.300 --> 00:15:15.820 forces including the restrictions against fraud. Establishing a market system of money 154 00:15:15.820 --> 00:15:21.580 and banking requires nothing other than having the government step entirely away. This might 155 00:15:21.580 --> 00:15:28.580 seem unlikely, but so did the unraveling of the Soviet Union in 1989. Socialist ideology 156 00:15:28.580 --> 00:15:35.200 was bankrupt in the same way that Russia was bankrupt. So it is in our time. Major players 157 00:15:35.200 --> 00:15:40.020 in the banking system are bankrupt in the same way that stabilization policy is intellectually 158 00:15:40.020 --> 00:15:45.340 Bankrupt. We cannot rule out the impact of intellectual bankruptcy on real 159 00:15:45.340 --> 00:15:51.000 economic history. There's a certain poetic justice that alarm at central 160 00:15:51.000 --> 00:15:55.140 banking would be the driving force behind the new interest in Austrian 161 00:15:55.140 --> 00:15:59.700 ideas. Austrian economics was born with Carl Menger's reflections and 162 00:15:59.700 --> 00:16:04.820 innovations on the nature and function of money. It matured under Mises's own 163 00:16:04.820 --> 00:16:09.140 contributions and warnings about the dangers of central banking. Hayek joined 164 00:16:09.140 --> 00:16:18.140 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. 165 00:16:18.140 --> 00:16:23.140 This led to further reflections on macroeconomic principles. 166 00:16:23.140 --> 00:16:31.140 Mises and Hayek lived in a world that had fallen for Keynesianism, so their advice was rejected on grounds that it was outmoded. 167 00:16:31.140 --> 00:16:36.140 Today that belief is gone, and people are looking for new answers. 168 00:16:36.140 --> 00:16:41.080 It is time that the world return to the one school of economic thought that predicted 169 00:16:41.080 --> 00:16:46.460 this current crisis, explains its origins and source, and offers the only plausible 170 00:16:46.460 --> 00:16:53.100 way out. It doesn't matter that some of their writings date back 90 or 100 years, 171 00:16:53.100 --> 00:16:58.820 or in the case of our predecessors, up to 800 years. Economic science teaches timeless 172 00:16:58.820 --> 00:17:05.180 truths, so money is an immutable need always and everywhere. I'm pleased to say that I'm 173 00:17:05.180 --> 00:17:11.180 I am under no burden today to explain to you why Austrian economics matters. We know that it does. 174 00:17:11.180 --> 00:17:18.180 We know that it is the one theoretical apparatus that fully accounts for the seeming chaos that surrounds us today. 175 00:17:18.180 --> 00:17:26.180 But the Austrian School does more than merely explain why we find ourselves in the worst monetary meltdown in generations. 176 00:17:26.180 --> 00:17:34.180 It shows the way out, providing an achievable vision of Mises's free and prosperous Commonwealth. 177 00:17:34.180 --> 00:17:44.180 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.