Only a few people care whether central banking persists, and they’re the ones who profit from it. In some cases they profit enormously. The average Joe or Jill doesn’t know about central banks and doesn’t care to know. To the ones at the top of the political – economic heap, this is how they want it.
A central bank comes about through political favors — favors to big bankers and to politicians intent on buying votes and making war. Where you find a country with a central bank, you have laws establishing it. It requires political force to make them work. A central bank is not an agreement among bankers. It is an agreement backed by the monopoly force of government between bankers and politicians. They are not free market entities, though they usually posture as one.
Central banks are often described as inflation fighters. As monopoly producers of money, they are instead the sole source of inflation.
Central banks are said to be responsible for making capitalism work. By making honest price discovery impossible and raging war against savers, they are in fact anti-capitalistic. If you want to kill capitalism and replace it with cronyism and instability turn the market over to central bankers.
Almost every textbook that discusses the history of the U. S. central bank, the Federal Reserve, will say it came about as a solution to the various Panics of the 19th century and the Panic of 1907. What the textbooks don’t discuss is why the Panics came about: the common practice of fractional reserve banking. In simplest terms fractional reserve banking consists of a bank giving two people equal claim to the same monetary unit at the same time. This is standard operating procedure for banks. Except among Austrian economists, it is noncontroversial.
This post was published at GoldSeek on 12 July 2015.
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