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IDEOLOGY AND ETHICS SURVEY SAMPLE ARGUMENTS |
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| 28. |
Where should we locate "system risk" in the creation of money and credit? |
| (- 5) Decentralization (hard money) view: All considered, the 19th century system of decentralized "hard money" and regionally-restricted banking may have appeared stodgy and barbaric on the surface, but was in fact the most humane, robust, responsible and effective system in the long run. Although individual banks were allowed to fail, the failure rate never exceeded 1-2% a year, and most Americans successfully managed around this by diversifying where they stored their assets. While currency was tied to gold and kept out of the hands of politicians, there was no inflation. In fact, quite the opposite. By 1913 the average American could buy 50% more with his dollar than a hundred years earlier, despite a huge bout of government-sponsored inflation during the Civil War era. Even with so-called "tight money" the economy often grew about 5% a year. This system put a lot more responsibility on individual action and foresight, but had the major advantage of more likely punishing irresponsibility and incompetence where it originated at the local level. Today with a central bank system of bailouts, loan officers at the local level can engage in very risky and irresponsible behavior without facing consequences. Furthermore, the taxpayer usually ends up bailing out failure. Worse still, system risk accumulates at a central level where a blow out can undermine the economy nationwide, much like the way in which the quadrupling of money and credit from 1913 until the late 1920's culminated in a blow out that played a key role in bringing on the Great Depression. While Federal programs designed to protect orphan and widow depositors may appear good at first, over the long run they suffer from bureaucratic corruption and ineptitude and create more problems than they solve. Worse yet, government tends to create even more programs to "fix" the problems created by prior programs. Most academics who serve as advisors to government tend to stay within confines of conventional government wisdom, that is, serve as intellectual prostitutes. It will be a cold day in hell before you see any genuine self-policing. The Fed itself has never been audited, and since March 2006 no longer bothers to report money supply growth to Congress or the public. Thomas Jefferson and Andrew Jackson had it right when they claimed that the whole concept of a peacetime central bank is in itself self-serving and corrupt. |
. . . | (+5) Centralization (pro-central bank) view: Permitting bank failures created situations where orphans and widows were vulnerable to losing their savings. Certain classes of people require special protections by a compassionate, protective government and cannot be held responsible for their own lack of foresight, savings, or self-discipline even though they are legally adults. For this reason, we can justify deposit insurance and other bail-out programs even if they do in fact create moral hazard and increase riskier behavior at the loan origination level. In addition, by authorizing the creation of a privately-owned central bank in 1913, Congress gave itself much more freedom to create money independently of any ties to gold and silver reserves. This has given Congress, the President, and Jewish central bankers vastly more freedom to engage in deficit spending that supports myriad social programs as well as foreign wars fought for "democracy," anti-communism, anti-terrorism, Israel, oil, or whatever else they can think up next. They claim the need to finance social programs ostensibly designed to improve "equality" and wealth redistribution in American society far outweighs the risk that the process of paper money and debt creation can get out of control like the spending of drunken sailors. We can always trust that our elected government officials and central bankers would never do bad, self-serving things on purpose. We can always trust that this system is capable of adequate self-criticism and self-policing without massive outside scrutiny or citizen action to restrain it. The top guys are in a much better position to understand what is going on and fix things than you or I. Anarcho-libertarians who want to resurrect 19th century hard money must be kooks with their brains stuck in the past. We need "scientific" financial central management advised by the best minds our government-funded universities can produce. Last, but not least, we learned from the Great Depression that we simply can no longer trust a laissez faire free market to work on its own. We cannot afford to leave the money supply alone, nor allow the free market to set interest rates, nor let the free market correct economic distortions with its own recessions. Instead, we need central planners to keep "stimulating" the economy with steady money supply growth. We need for them to intervene in markets and to try to manage risk with complex financial instruments. |
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