Originally published May 5 2011
NY Times dishes out economic fallacies in its defense of the Federal Reserve
by J. D. Heyes
(NaturalNews) - In a recent piece singing the praises of the Federal Reserve and what its creation has meant for U.S. monetary policy for nearly a century, columnist Roger Lowenstein of The New York Times looks into the origins of this institution and the true impact it has had on our Republic.
In criticizing those like Rep. Ron Paul, R-Texas, who has called for the Fed to be disbanded and for the country to return to the gold standard - so our currency is actually based on something of value - Lowenstein lectures about who is controlling our money supply.
"We have, indeed, fiat money, convertible into foreign exchange and regulated, not always successfully, with the intent of maintaining (or not too quickly depreciating) the dollar's purchasing power," Mr. Lowenstein admits. "And if money is a unit of value, it is hard to conceive of a yardstick better than purchasing power. ... [I]n any monetary system, some authority must fix either the price of money or the supply (my emphasis)."
Mr. Lowenstein writes that the Fed was created "to be a banker to the nation's banks, controlling the money supply and, thus, the value of the currency." He goes on to ask, rhetorically, just who else could regulate the value of our money save a powerful central bank designed just for that role.
Let's examine that, and other, questions raised by the Times article.
For starters, it was never the founder's intent that a central bank be in charge of something as important as the nation's money supply and monetary policy. That power was vested in Congress. Per Article I, Section 8: "Congress shall have the power ... to coin money, regulate the value thereof..."
And what an awesome power that is to have. Consider thoughts on this by Murray N. Rothbard, once an economist and academic advisor for the libertarian Ludwig von Mises Institute: "The Federal Reserve System virtually controls the nation's monetary system, yet it 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."
That doesn't sound like Congress has much to say about it these days, does it?
There is also this. The Fed's actions have increasingly led to a lowering in value of our dollar, which means it takes more of them to buy things. That's Inflation 101, isn't it? Yet isn't one of the Fed's primary roles, according to Mr. Lowenstein, to raise our purchasing power and control inflation? So what gives? Why would an institute specifically established to keep our currency valuable and stable implement measures that would cause the opposite affect?
David Gordon, a book reviewer with the Ludwig von Mises Institute and a student of Austrian economics expert Murray N. Rothbard, explains it this way:
"An increase in the supply of money does not increase real wealth, since money is used only in exchange. ... If an increase in the supply of money does not increase real wealth, why have governments continually resorted to inflation? Rothbard's response involves another fundamental insight of Austrian economics.
Inflation does not affect everyone equally; quite the contrary, those who first obtain new money gain a great advantage, since they can purchase goods and services before most people become aware that the purchasing power of money has fallen.
Inflation is thus a form of counterfeiting. If Rothbard is correct, the entire basis of modern deposit banking, the fractional-reserve system, is a type of counterfeiting that must be abolished. Under present arrangements, 'the Fed has the well-nigh absolute power to determine the money supply if it so wishes.'"
Mr. Lowenestein waxes poetic about the Fed's role as the appropriate gatekeeper of the nation's money supply, as well as sole arbiter of its value. But such a system is capricious and arbitrary; without anything tangible, like gold and silver, in which to base the value of our money, it essentially is what the Fed says it is.
Who's benefitting from that? Wouldn't it have to be the Fed?
It sure isn't the average American, who has seen his wealth decline over the past decade as the dollar has waned.
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