What is the purpose of central banking? Why did proponents of central banks seek to establish them, and what defects (if any) marred the systems they displaced? How have central banks performed historically? Have they fostered sound money, safe banking, and economic prosperity? If not, should central banks still exist? Such questions are rarely asked. Most people who write about the Fed presume central banking is a legitimate or necessary aspect of the economy and focus on how central banks now behave or might better behave in the future. The broadest fact that few people grasp about central banking is that it is essentially central planning applied to the realm of money and banking. Central banks, in their essential features and functions, operate as branches of government to facilitate government spending and growth of the state. As government grows and spends more, politicians seek to avoid the electoral consequences of raising taxes and try to rely more on borrowing and printing money, policies that central banks uniquely facilitate. Although proponents and practitioners of central banking may deny this thesis and insist that central banks exist to cure “market failures”—and although most economists today resist the idea that the primary aim of central banking is to enable government spending—an examination of historic and economic facts reveals the truth.
Posted on: Tue, 21 Oct 2014 08:25:09 +0000
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