Sheldon Richman: Delete the Fed

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Sheldon Richman examines the Federal Reserve’s history and wonders whether we would be better off without a Central Bank (spoiler alter: WE WOULD). Campaign for Liberty is taking the first steps toward restoring a sane monetary policy by giving the American people the whole truth regarding the Federal Reserve by passing Ron Paul's Audit the Fed bill.

The fact is, we need the Federal Reserve like we need a hole in the head. Contrary to folklore, the Fed is not needed to stabilize the economy or to prevent unemployment. As the Fed heads into its second century, we ought to realize that its record is terrible. Even if we don’t count the interwar period (which some economists call the new Fed’s practice round), America’s central bank is a flop. Monetary economists George A. Selgin, William D. Lastrapes, and Lawrence H. White wrote in “Has the Fed Been a Failure?”:

Drawing on a wide range of recent empirical research, we find the following: (1) The Fed’s full history (1914 to present) has been characterized by more rather than fewer symptoms of monetary and macroeconomic instability than the decades leading to the Fed’s establishment. (2) While the Fed’s performance has undoubtedly improved since World War II, even its postwar performance has not clearly surpassed that of its undoubtedly flawed predecessor, the National Banking system, before World War I.

The authors support that generalization with details. On inflation: “Far from achieving long-run price stability, has allowed the purchasing power of the U.S. dollar, which was hardly different on the eve of the Fed‘s creation from what it had been at the time of the dollar’s establishment as the official U.S. monetary unit, to fall dramatically” — by 95 percent.