Abolish Central Banks; Monopoly on Money Means a Never-Ending Cycle of Boom and Bust

The Washington Times (Washington, DC), October 25, 2011 | Go to article overview

Abolish Central Banks; Monopoly on Money Means a Never-Ending Cycle of Boom and Bust


Byline: Richard W. Rahn, SPECIAL TO THE WASHINGTON TIMES

Should the Federal Reserve be abolished as Rep. Ron Paul and others have demanded? The Republican presidential candidates have agreed that they would like to replace Ben S. Bernanke as chairman of the Fed, and many have been equally critical of former Fed Chairman Alan Greenspan. The view that both Mr. Bernanke and Mr. Greenspan have done poor jobs is also shared by many economists and financial writers. But, if not Mr. Bernanke, who? And if not the Fed, what?

One of the criticisms of the Fed and other central banks is that they were engaged in inflation targeting - such as a 2 percent inflation rate measured by the consumer price index - and thus, they ignored the price bubbles in the real estate and stock markets that were being fueled by too much money growth, which turned out to be a major source of the continuing financial crisis.

It is also clear to many of us that the current Fed policy of ultralow interest rates of less than 1 percent for banks and money-market funds, combined with high inflation rates of 3.9 percent for the past year, is a formula for a new disaster. If a saver can only obtain 1 percent or so on cash savings but inflation is running at almost 4 percent, then the saver is losing 3 percent of his money each year in an inflation tax. Interest rates below the rate of inflation undermine financial institutions, distort business capital-allocation decisions and will reduce future economic growth rates and job creation.

In sum, the Fed and the other major central banks are making those least able to protect themselves from inflation and job loss poorer, and sending all of the wrong price signals to business people, which, in turn, is negatively affecting the world economy.

I have some sympathy for the central bankers because they have been given an impossible job - namely, they are supposed to be smarter than markets and lean against the wind. But they aren't smarter and they don't know which way the wind is blowing. They also have been saddled with correcting a problem brought on by politicians of governments that are accumulating debt far faster than their respective economies are able to finance them. The central banks can get rid of the debt problem by inflating the currency (i.e., reducing its value by printing too much money) to the point where the debts are almost meaningless but, as we learned in the 1970s, inflation only serves to make almost everyone poorer.

The basic problem is that governments have insisted upon having a monopoly in money, an idea that has been supported by most economists. The Austrian school economists, most notably the late Nobel Laureate F.A. Hayek, were skeptics of this view. In 1976, Hayek wrote one of his classic books, Denationalization of Money, in which he argued that money is no different from other commodities and that it would be better supplied by competition between private issuers than by a government monopoly. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Abolish Central Banks; Monopoly on Money Means a Never-Ending Cycle of Boom and Bust
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.