Why do we have such a hard time imagining a world without a central bank? In the United States, the central bank was a 20th-century invention. No central bank of the current sort existed anywhere in the world before the 19th century. Somehow we got along just fine because the monetary system was self-managing. It was rooted in real commodities that provided the stable link to real economic activity. Banks were treated as regular enterprises that had profits and losses, and could succeed and fail. What guaranteed their stability, even with the evil of fractional reserves, was the competitive system.
All that came to an end, gradually, with the advent of the central bank. Money lost its connection to anything real beyond the linen paper on which it is printed. Banks became protected from failure. Most important, the central bank started to guarantee government debt. With what did it guarantee that debt? More linen paper, stuff which can be printed up without limit.
With this innovation, the fiscal restraint on the state came to an end. All the talk about congressional authorization of spending and the constitutional restraint on the state became white noise or a tissue of lies. The people got out of the habit of asking, "How precisely do you expect to pay for this?" We all just assume that there is some magic money machine out there that will achieve our every dream.
The lack of criticism of the Fed tells you all you need to know. It is the one sacrosanct institution because it is the most necessary institution to modern statecraft. Without it, we wouldn't fund both welfare and warfare. We wouldn't dream of a world empire and debate policy the way we debate art, as merely a matter of preference. There would be strict, physical limits on what the state could and could not do...
Deny the dictator the capacity to make all the money he needs at a whim, and his status shrinks dramatically.
The central bank is sacrosanct because its absence would force all sides to give up their fantasies of power. The Right would have to give up its crazed belief that it can do "heroic" things by seizing control of the state, things such as defend or overthrow any government in the world — or things such as make everyone in the country obey their own view of what constitutes the virtuous life.
The Left would have to surrender their vision of a state that uses coercion to achieve perfect equality, fairness, and distributive justice throughout the world.
This is why you hardly ever hear a fundamental question on the right of the Fed to exist. This is why the political culture frowns on anyone who attacks the heart of the state. This is why it is so "unrespectable" to mention the case against the Fed, and why serious critics are treated to a kind of shunning — and why, if you want to go places in Washington, you must never entertain the idea that the central bank ought to be abolished. Indeed, you should fête and publish the head of the Fed.
The central bank has failed in its overt mission for nearly 100 years. It has destroyed our money, funded unjust wars, given rise to a ghastly bureaucratic state, and pumped up more credit bubbles than we can count. And yet we are supposed to chalk up all of this to miscues and mistakes along the way, and then believe the head of the Fed when he promises to do better next time. What's more, the Fed has never actually accepted real responsibility for any of its misdeeds.
Just who is crazy here? If we really believed in authentic science — not the pseudoscience of public policy — we could conclude that this failed central bank has got to go. Its creation is not a footnote, but a main step in making possible all modern tyranny. Its abolition is a key to freedom itself.
Going for the Heart - Llewellyn H. Rockwell, Jr. - Mises Institute