Should We End the Fed?
What would it mean to “End the Fed?” Free banking expert and professor Lawrence White begins his answer by explaining the functions of the central bank of the United States, also known as the Federal Reserve or just “the Fed.” As the hub of the nation’s monetary and banking systems, the Fed plays five main roles:
1. Coordinating fund transfers between banks
2. Issuing paper currency
3. Regulating commercial banks
4. Acting as “lender of last resort”
5. Controlling monetary policy
Given that the Fed currently carries out these critical tasks, can we really abolish it? Professor White thinks so. He names several flourishing economies have operated without a central bank. Hong Kong, for one, hums along central bank free.
What allows these economies to thrive without central bank regulation? Professor White examines a variety of private institutions including clearing house systems, banks, and financial companies that perform the tasks we assign to the Fed (and, according to White, outperform the Fed by a long shot).
Professor White concludes the Fed does more harm than good and recommends that we send it the way of the dinosaurs if we want to fend off future financial crises.
· What Modern Free Banks Might Look Like [Article]: A brief introduction to the potential aspects that a modern free bank would look like by Kurth Schuler.
· Federal Reserve System [Article]: Professor Richard H. Timberlake outlines a basic overview of the Federal Reserve System.
· Back to a Gold Standard? [Article Series]: A collection of 6 New York Times articles reacting to a 2010 article written by the World Bank President, Robert Zoellick, which discussed the gold standard in relation to future international currency regulation.
· Is the Gold Standard Still the Gold Standard Among Monetary Systems? [Scholarly Article]: Professor Lawrence White examines the implications of the gold standard while thinking about
A. Which roles of the Fed could be turned over to private institutions in a relatively straightforward way? Which would be more complicated?
B. How would the current officials of the Fed likely react to a proposal to return its functions to the private sector?
A. Is the argument for government to “do nothing” beyond maintaining the right monetary policy less relevant or more relevant than it was during the Great Depression?
B. Is it ever a good idea for taxpayer funds to be used to rescue money-losing business ventures? What about General Motors?
A. Why do you suppose that governments have typically monopolized the business of minting gold and silver coins?
B. Does the economy need a central bank in order to be on a gold standard?
C. In ranking the classical gold standard against fiat money standards, what else would you consider important in addition to which has lower inflation rates?
A. Would a free banking system, where each major bank can issue its own currency notes, result in confusion from varying exchange rates between your currency and your neighbor’s currency? Why or why not?
B. Would competition among banks in issuing currency notes be wasteful, given that the federal government can issue all the notes instead?
C. What evidence would you look for in order to evaluate whether one country’s historical free banking system worked better than another country’s less-free banking system?
Right-click the link below and select "Save Link" or "Save Target."