Today is Murray Rothbard's ninety-fifth birthday. With the Federal Reserve and its apologists continuing to spread the myth that Audit the Fed would somehow compromise their precious "independence," I can think of no better way to celebrate Murray's birthday than by re-reading Murray's chapter on “The Myth of Fed Independence” from his classic The Case Against the Fed:
By far the most secret and least accountable operation of the federal government is not, as one might expect, the CIA, DIA, or some other super-secret intelligence agency. The CIA and other intelligence operations are under control of the Congress. They are accountable: a Congressional committee supervises these operations, controls their budgets, and is informed of their covert activities. It is true that the committee hearings and activities are closed to the public; but at least the people’s representatives in Congress insure some accountability for these secret agencies.
It is little known, however, that there is a federal agency that tops the others in secrecy by a country mile. The Federal Reserve System is accountable to no one; it has no budget; it is subject to no audit; and no Congressional committee knows of, or can truly supervise, its operations. The Federal Reserve, virtually in total control of the nation's vital monetary system, is accountable to nobody—and this strange situation, if acknowledged at all, is invariably trumpeted as a virtue.
After all, doesn’t a democracy depend upon the right of the people to know what is going on in the government for which they must vote? Wouldn’t knowledge and full disclosure strengthen the faith of the American public in their monetary authorities? Why should public knowledge “undermine market confidence”? Why does “market confidence” depend on assuring far less public scrutiny than is accorded keepers of military secrets that might benefit foreign enemies? What is going on here?
The standard reply of the Fed and its partisans is that any such measures, however marginal, would encroach on the Fed’s “independence from politics,” which is invoked as a kind of self-evident absolute. The monetary system is highly important, it is claimed, and therefore the Fed must enjoy absolute independence.
“Independent of politics” has a nice, neat ring to it, and has been a staple of proposals for bureaucratic intervention and power ever since the Progressive Era. Sweeping the streets; control of seaports; regulation of industry; providing social security; these and many other functions of government are held to be “too important” to be subject to the vagaries of political whims. But it is one thing to say that private, or market, activities should be free of government control, and “independent of politics” in that sense. But these are government agencies and operations we are talking about, and to say that government should be “independent of politics” conveys very different implications. For government, unlike private industry on the market, is not accountable either to stockholders or consumers. Government can only be accountable to the public and to its representatives in the legislature; and if government becomes “independent of politics” it can only mean that that sphere of government becomes an absolute self-perpetuating oligarchy, accountable to no one and never subject to the public’s ability to change its personnel or to “throw the rascals out.” If no person or group, whether stockholders or voters, can displace a ruling elite, then such an elite becomes more suitable for a dictatorship than for an allegedly democratic country. And yet it is curious how many self-proclaimed champions of “democracy,” whether domestic or global, rush to defend the alleged ideal of the total independence of the Federal Reserve.
In addition, a revealing little point is made by the New York Times, in noting the Fed’s reaction to the Gonzalez Bill: “The Fed is already working behind the scenes to organize battalions of bankers to howl about efforts to politicize the central bank” (New York Times, October 12, 1993). True enough. But why should these “battalions of bankers” be so eager and willing to mobilize in behalf of the Fed’s absolute control of the monetary and banking system? Why should bankers be so ready to defend a federal agency which controls and regulates them, and virtually determines the operations of the banking system? Shouldn’t private banks want to have some sort of check, some curb, upon their lord and master? Why should a regulated and controlled industry be so much in love with the unchecked power of their own federal controller?
Let us consider any other private industry. Wouldn’t it be just a tad suspicious if, say, the insurance industry demanded unchecked power for their state regulators, or the trucking industry total power for the ICC, or the drug companies were clamoring for total and secret power to the Food and Drug Administration? So shouldn’t we be very suspicious of the oddly cozy relationship between the banks and the Federal Reserve? What’s going on here? Our task in this volume is to open up the Fed to the scrutiny it is unfortunately not getting in the public arena.
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Tags: Murray Rothbard, Auidthe Fed