The Socialism of the Federal Reserve
The Socialism of the Federal Reserve by for The Future of Freedom Foundation
The Federal Reserve is the federal entity charged with determining the quantity of money in the American economy. To boost the economy, it expands the money supply. If the economy gets too “overheated,” it slows the rate of increase.
In other words, the Fed is the government’s monetary central planner. It plans the monetary affairs of hundreds of millions of people through monetary manipulation.
Central planning is a core principle of socialism. Central planning rejects the concept of economic liberty and free markets, which rely on the absence of government interference. Instead, it relies on a board of government officials who make economic decisions for hundreds of thousands or millions of people in a top-down, command-and-control manner.
As anyone from Venezuela, Cuba, and North Korea can attest, socialist central planning always produces crises. That’s because the central planners can never attain the required knowledge to plan a complex market, especially one involving hundreds of millions of participants engaged in countless economic transactions. This is especially true given that people’s subjective valuations are constantly changing. There is no way that the planners can keep up with those changes in valuations.
That’s what produces the crises. Friedrich Hayek, the Nobel Prize winning libertarian economist, called it the “fatal conceit” of the planner, the mindset that convinces the planner that he has the requisite knowledge to plan a complex, ever-changing market.
For more than 100 years, the official money of the United States was gold coins and silver coins, as established by the Constitution. During most of that entire time, there was no Federal Reserve or central bank.
That gold-coin, silver-coin standard provided the soundest money in history. Along with a system based on no income taxation, no immigration controls, no welfare state, no warfare state, and very few economic regulations, America’s monetary system was a major factor in the tremendous increase in rise of the standard of living of the American people in the 19th and early 20th centuries.