Speaking Truth To Monetary Power

Tyler Durden's picture

Submitted by Llewellyn Rockwell via the Ludwig von Mises Institute,

Until Ron Paul raised the issue at the national level in 2007, the Federal Reserve System had been treated with the kind of lazy indifference or acquiescence with which the public gradually comes to accept any institution of long standing. To be sure, most of the public still treats it that way. They have not lost sufficient confidence in the so-called experts, despite the debacle of 2008, to give the Fed a second (or even a first) look.

But a skeptical minority is growing sizable enough to influence the debate. Whether any major change to our monetary system will take place of course remains to be seen. What we can know for sure is that the kind of scrutiny of the Fed we have seen over the past several years is not going away. Monetary policy will forever take place against the backdrop of an articulate and expanding segment of the population that dissents from Fed policy not because it is too tight or too expansionary, but because it exists in the first place.

Is monetary policy inherently destabilizing? Yes and no. Discretionary monetary policy is certainly not destabilizing for institutions on the receiving end of the central bank’s largesse. But it is destabilizing for everyone else.

The general public has been led to believe that the economy is a giant number that goes up and down. It is thought to be the role of the monetary authority to push that number back up whenever it shows signs of falling. The only potential drawback to such a course of action, the public is told, is the risk of an increase in consumer prices, which is a chance our policymakers have traditionally been willing to take.

But the economy is not a giant number. It is a latticework of interlocking production processes that work in implicit cooperation with one another to produce the diverse array of goods we enjoy. This latticework comes together without the need for central direction. It is assembled with the aid of the price system to which the free market gives rise. Economic calculation, the profit-and-loss reckoning that a free price system makes possible for the entrepreneur, directs resources into their most value-productive uses, and constantly pushes the economy toward an outcome in which the ever-changing desires of consumers are satisfied in the most cost-effective way in terms of opportunities foregone.

“Monetary policy” introduces white noise and confusion into this spontaneous process, and distorts the pattern of resource allocation that would have occurred in its absence. Interest rates on the unhampered market coordinate production across time. When consumers want more of existing products right now, that’s what the market produces. When consumers prefer to save more of their income, the market accordingly gets to work on projects that will mature in the future, when consumers are once again prepared to spend.

Artificially low interest rates, brought about by the central bank, affect the profitability of different production projects differently. Projects that are farther removed in time from finished consumer goods are given artificial stimulus by this contrived lowering of interest rates. These projects, which seem profitable at the time they are begun, run into difficulties as the true saving and consumption preferences of the public are revealed and the real saving necessary to fund them does not materialize.

Thus the central bank’s intervention rearranges the structure of production into an unsustainable configuration. Entrepreneurs are misled into investing in projects that do not conform to the pattern of consumer demand. Projects are begun for which the complementary resources are not available in sufficient quantities. As it becomes clear that this apparent prosperity is built on sand, the monetary authority is tempted to increase the dose of monetary pumping and push interest rates still lower. Should they do so, they deform the economy even further, and increase the number of lines of production that can survive profitably only if the loose monetary policy continues.

This is what F.A. Hayek meant when he said of inflationary monetary policy that “its stimulus is due to the errors which it produces.” It stimulates activity, all right, but not the kind of activity consumers demand. The more artificial stimulus the Fed creates, the more artificial the economy itself becomes. Ever more production projects come to rely for their profitability not on whether they involve the employment of resources within the latticework of production in such a way as best to serve consumer preferences, but instead on whether the central bank continues to pump in cheap money. The more such interventions the Fed engages in, the larger the sector of the economy whose survival comes to depend on the continuation of those interventions, and the harder the system will crash when the central bank finally decides to scale back or discontinue its activities.

As Jim Grant observes, “My fear is that because interest rates are suppressed, therefore earnings are inflated. So when rates go up ... the hall of mirrors is shattered and we look at each other and see what actually is real rather than what the Fed wants us to believe.”

Meanwhile, the world’s central banks, and the financial journalists who enable them, act as if every right-thinking person knows that monetary central planning has been a tremendous success, and that only the grossly uninformed or the blindly ideological could dissent from this near-universal judgment.

David Stockman cleaned the clock of every bailout apologist in his indispensable 2013 book The Great Deformation, so I won’t expand on that here. I’ll say only that every one of the scare claims made in the media and by the political class has subsequently been exposed as a fraud. The alleged flight from money-market funds, the purported danger to Main Street banks of AIG’s credit-default swap problem, and the whole collection of phony claims of 2008 stand forever exposed as the pretexts for the expansion of government power that the most astute economists pegged them as at the time.

Meanwhile, what has the Fed’s record been like so far in the twenty-first century? Stockman writes:

If the monetary central planners have been trying to create jobs through the roundabout method of “wealth effects,” they ought to be profoundly embarrassed by their incompetence. The only thing that has happened on the job-creation front over the last decade is a massive expansion of the bedpan and diploma mill brigade; that is, employment in nursing homes, hospitals, home health agencies, and for-profit colleges. Indeed, the HES complex accounts for the totality of American job creation since the late 1990s.

Moreover, the number of breadwinner jobs did not increase at all between January 2000 and January 2007, remaining at 71.8 million. The booms in housing, the stock market, and household consumption had only this grim statistic to show for themselves. When we consider the entire 12-year period beginning in the year 2000, there has been a net gain of 18,000 jobs per month — one-eighth of the growth rate in the labor force.

In the wake of the crash, the Fed has continued to gin up the stock market. By September 2012 the S&P had increased by 115 percent over its lows during the bust. Of the 5.6 million breadwinner jobs lost during the correction, only 200,000 had been restored by then. And during the vaunted recovery, American households spent $30 billion less on food and groceries in the fall of 2012 than they did during the same period in 2007.

This is the record that the Fed’s allies are forced to defend.

And defend it they do. Although I am happy to say that more Austrian economists are in faculty positions around the country than ever before, the university system remains a notoriously uncongenial place for ideas that challenge existing orthodoxy. At the Mises Institute we supply instruction in economics, through online courses as well as in-person seminars and special events, outside the traditional university setting. We bring our case directly to the general public through short videos, articles, publications, and other media. We make an end run around the guardians of approved opinion.

Renaissance humanism and the Scientific Revolution, two major intellectual events in the history of the West, occurred largely outside the university system, which was dominated by conventional thinking and obeisance to traditional sources and authorities. Although the number of Austrian School economists working within the university system is on the rise, it is in the writing and speeches they produce outside the university where they are liable to have the greatest impact and reach the largest audience.

In the 1830s, William Leggett, the antislavery Jacksonian editorial writer in New York, proposed the lovely phrase “separation of money and state.” He was on to something. Ludwig von Mises once said that the history of money is the history of government efforts to destroy money, and Hayek observed that we have no reason to expect governments to give us good money. To the contrary, we have every reason to expect governments to exploit their positions as monopolists of the production of money in ways that increase their power and benefit favored constituencies.

We do not need “monetary policy” any more than we need a paintbrush policy, a baseball bat policy, or an automobile policy. We do not need a monopoly institution to create money for us. Money, like any good, is better produced on the market within the nexus of economic calculation. Money creation by government or its privileged central bank yields us business cycles, monetary debasement, and an increase in the power of government. It is desirable from neither an economic nor a libertarian standpoint. If we are going to utter monetary truths, this one is the most central and subversive of all.

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HedgeAccordingly's picture

  ‘Europe is stable now…the ECB has done a lot to createstability” http://hedge.ly/1pvYOQi

palmereldritch's picture

China's situation is so 2008...They need to bring Hank Paulson in to provide another one of his inspiring pep talks...

So What's picture

The "We" depends.
If it's the Jewish elite, the "We" depends very much on the "monetary policy" to dominate and control.

economics9698's picture

Lew does a great job explaining boom and bust cycles.

economics9698's picture

I would like to point out in economics the most radical exposure to the free market we got in college was Freidman. No 


Mises, Hayek, Rothbard, we simply were not exposed to anything questioning Y = C + I + G + NX.  It was discraceful. 

CrazyCooter's picture

Sorry if I sound like an ass ... but ... isn't pissing about market principles at this point sort of like pissing about water on Mars? Horse left the barn? Hello? Bueller?

How about how to make it as a working Joe (<cough>with market skills</cough>). Isn't that more useful than this endless academic masturbation about being right after everyone dies of old age? Congratz! OMG, UR SO SMRT!

Throw a bone to the working man, will you folks? If you spent your WHOLE life doing economics and you can't fill this gap ... what the fuck did you accomplish in the hour of need?




CrazyCooter's picture

Just felt like venting.

Thanks all for understanding.




economics9698's picture

lol.  I like hunting skills better than market skills.

sodbuster's picture

Ha! Different subject- this will probably be discussed here, later, but it looks as if the bulls are totally screwed!!!!           http://blogs.marketwatch.com/thetell/2014/05/27/dennis-gartman-calls-for-a-stock-market-correction-including-his-are-all-wrong/

J S Bach's picture

We only need a "policy" in the form of how our money is issued and WHO it is that does the issuing.  It needs to be debt free and issued at the same rate that the economy grows.  This would eliminate inflation and there would be no further need to manage anything.


Check out Jim Traficant's latest project: Project Freedom USA at http://www.projectfreedomusa.org/about-1.html.


He wants to eliminate the income tax, abolish the IRS & Fed and institute a 15% sales tax to pay for government services.

The part about monetary policy is the most intriguing to me.

The Wizard's picture


Most government churches teach that the conversation between the Pharisees and Christ in the passage below has to do with paying taxes. As He usually did, Christ was demuering to the Pharisees question. The Pharisees were trying to trap Christ in a discussion on tribute (taxes), Christ wanted to discuss the issue of money. He asked whose inscription is on the coin. Well, if its Caesar's render it back to him since it obviously must belong to him. Essentially, Christ was challenging the jurisdiction and the use of Caesar's “money”.

Mat 22:15 Then went the Pharisees, and took counsel how they might entangle him in his talk.

16 And they sent out unto him their disciples with the Herodians, saying, Master, we know that thou art true, and teachest the way of God in truth, neither carest thou for any man: for thou regardest not the person of men.

17 Tell us therefore, What thinkest thou? Is it lawful to give tribute unto Caesar, or not?

18 But Jesus perceived their wickedness, and said, Why tempt ye me, ye hypocrites?

19 Shew me the tribute money. And they brought unto him a penny. {penny: in value seven pence halfpenny}

20 And he saith unto them, Whose is this image and superscription?

21 They say unto him, Caesar's. Then saith he unto them, Render therefore unto Caesar the things which are Caesar's; and unto God the things that are God's.

22 When they had heard these words, they marvelled, and left him, and went their way.

Its the Vatican Stupid's picture

This article actually compelled me to log in (which I rarely do) just to give it 5 stars.

Lew Rockwell is The Motherfuckin' Man.

NidStyles's picture

The biggest reason I can not take Biblical scripture seriously is because most of it is written to sound like a Shakespeare play while being from an era when English did not even exist...

JLee2027's picture

During the panics of 1893/1907, Europe called the US primitive because the US had no central bank and JP Morgan organized and secured funding (Gold in 1893 and emergency funds in 1907) to bail banks out and stop the Panics. 

I do believe establishing the Federal Reserve in 1913 was the final ""solution"". Final all right, because when it collapses it will be the most colossal in history.

Ghordius's picture

During the panics of 1893/1907, the US Progressives said "hey, Europeans have national banks for this kind of problems and call us primitive for not having one"

1913 two things happened that would change the US in the most profound way, btw. one was the FED, the other was the direct vote of the US Senate

meanwhile, the same US Progressives had a very interesting reasoning for the Seventeenth_Amendment_to_the_United_States_Constitution

their point was... too much corruption in the state legislatures. by people we would call oligarchs, today. one of them bought regularly the whole state legislature

meanwhile, the FED today is not "just one of the cbs". it's the mighty global reserve currency provider

this article about central banking is typical for the Canadian Mises Club. in principle, I can agree. in practice, it fails to give any advice. be frank: is America going to forgo the immense power that the global reserve currency gives? the biggest credit card on the planet? no. this will go on until it doesn't work anymore

then, only then, an alternative can be discussed, or evolve spontanously. and probably it will not involve US "markets", not as long as they are so corrupted by manipulation, HFT, etc.

the Canadian Mises Club would be well adviced to note that China is setting up a "less corrupt" gold bullion market

and this is my point: the state and the markets can be corrupted. saying that markets are always superior... is dogmatic and blind to the very nature of both

free_lunch's picture








FED - ECB -BOE -BOJ - ...

The monetary system is globalising like anything else, the FED seems to be just another franchise, under BIS umbrella, operation in concert with the others.

In the monetary system there seem to be no nations, only franchises with a localized product range. But the expectation is that the product line will be narrowed down into one eventually.  "Free Trade" deals are steadily marginalizing so called "borders" and "nations". What the new product will be called and how it will be constructed is the big question for every outsider who wants to try to preserve his/her previousily aquired buying power into this new product.


I think we have past the point of no return a long time ago. It looks like governments can only work within the reallity that the BIS creates, not the other way around. If you like or dislike it, won't really matter much.

I think it is wise to already try to make the psychological shift to prepare for the new reality that looks unavoidable. By doing so you may have a slight advantage to the less informed. http://www.psychologytoday.com/blog/inside-out/201309/the-5-stages-griev...

Change is the only constant.
In history every generation has lived in different circumstances, so why did we think ours would be permanent?

But these are only the observations of a limited mind like mine. So no guaranties come with it. There is a bunch of information available, but you will have to filter and analyze it yourself to give it some meaning. Since we all have different talents, positions, experiences in life our conclusions can differ.

From the BIS website:

"The BIS extends short-term credits to central banks, usually on a collateralised basis. From time to time, the BIS also coordinates emergency short-term lending to countries in financial crisis. In these circumstances, the BIS advances funds on behalf of, and with the backing and guarantee of, a group of supporting central banks. "

For further information on how the BIS acts as a hub for central banks, please see:


Cathartes Aura's picture

some good observations. . .

In the monetary system there seem to be no nations, only franchises with a localized product range.

no nations, just Corporations, which evolved from "nationstates" as the "natural" next step in word play.

The monetary system is globalising like anything else, the FED seems to be just another franchise

on a long enough timeline. . . one can see the FED as the tool of the times, created to get "US" here.

you appear to be seeing where "here" is going to take "US" too, which always means a bit of letting go of fairy-tales we were all raised up to believe in,

Change is the only constant.
In history every generation has lived in different circumstances, so why did we think ours would be permanent?

awareness that Change is inevitable makes the fairy-tales that much more silly to cling to. . .


free_lunch's picture

Nice to read that you have also expanded your view to the level that matters.
Despite being awake, many people seem to focus on local level so much, that it prevents them from taking the helicopter view on reality.


Cathartes Aura's picture

as all the *awake* comedians have been tellin' us since forever,

expand your mind until the inter-connected-ness of All things is evident,

much hilarity shall ensue, Freedom in That.

"Th-th-th-That's All Folks!"

economics9698's picture

All banking runs are basically the same, you loan out money you do not have, someone with a bank note comes a calling.

1893 the US was threatening to reinstate silver, gold run.  Opps.

1907 Treasury Secretary Chase created US backed IOU’s out of his ass and banks tried to cash them in for gold.  Opps.

Nothing to do with central banking.  Fraud, misrepresentation, panic, or all the above.

LetThemEatRand's picture

Ron Paul has the disease nailed.  That's why I wrote him in.  He is clueless as to the cure, unfortunately.  And his son is a festering sore on a bag of cancer.  

Greenskeeper_Carl's picture

How is he clueless as to the cure? Just curious. Not gonna disagree with you about rand. I really want to like him since he is Ron Paul's son but I just can't quite do it.

Slave's picture

In LTER's world view, you must give the oligarchs more power in order for them to fix everything.

LetThemEatRand's picture

That would be Rand Paul's worldview, which is why I call him out.  Like many supporters of his dad, that's what he got out of Ron's wisdom that a powerful Federal government is an enemy of us all.  He missed the part about how the powerful federal government is run by oligarchs.

SgtShaftoe's picture

That remains to be seen.  Rand is still a question mark.  He's done some good things for humanity, and has supported things that have eroded the humanist agenda.  I genuinely don't know.  I have a theory that he may be doing what he can to slow or slowly reverse the thinking in a different way than his father, but we won't know until it's over if that is his true aim.  His father seems to say that Rand is fully on-board, but I don't know. 

LetThemEatRand's picture

It took me a long time (I'm in my late '40s) to figure out that when you have to explain a politician with "I have a theory," that you should not vote for him.  What's weird is that it wasn't obvious.

Cathartes Aura's picture

picking a politician appears to very similar to entering into a partner'd relationship. . .

lots of unknowns get swept under the carpet, or explained away with rationalisations, or have alternatives applied that are more to ones liking - in other words, the whole relationship is a desired object sought, and shoved into the box irrespective of any obvious truth.

and then the dis-illusionment and blaming gets to happen when the voter needs to distance self from the relationship - must be the OTHER persons fault, they lied, yada yada. . .

when in fact, it's inherent in the actual relating, that IS the game being played. . . on you.

and willingly voted for/ chosen.

LetThemEatRand's picture

Ron believes the answer is pure free markets.   Sounds great on paper.

Greenskeeper_Carl's picture

Well it beats the alternatives, and it sure as hell beats what we have now. And his way maximizes freedom. The oligarchy doesn't want free markets, they want a bloated govt that allows then as their underlings to keep passing through the revolving door between govt and private sector, allowing the same people to remain in control. This is why Ron Paul and his ideas get no support from such people, and why they all piled behind Obama and Romney. This is why none of them are libertarians. If the free market / Ron Paul type economy was going to have us living under the thumb of these people, then that would be what we had. But it isn't true. The present system allows this to happen. These people can't exist without govt force picking winners and losers. You know who loves high taxes and lots of regulations? Rich people. Large companies. Those who can afford an army of lobbyists to write in exemptions for them that the small guy could never do. Those who can ferret out little exemptions while the chumps actually pay their taxes.

LetThemEatRand's picture

The Mob bribes the government, too.

JLee2027's picture

No system is perfect. If you don't like free markets, I cannot imagine an alternative. Everytime the Government regulates, it screws things up. If you don't regulate, people actually have to take personal responsibility. Yes, somewhere there must be rules, maximum corporate size for example (monopolies). But they must be few and far between. 

hoist the bs flag's picture

to all above...newsflash: Ron and Rand are politicians.

Cathartes Aura's picture


but Ron is like the Dad you never had,

or your best friend, forever.

lakecity55's picture

The Largest Mob is the goobermint.

The most efficient, free market mob is cosa nostra.


sidiji's picture

hmm this was what they said during the great depression, gov stayed out of economic support...that didnt end so well

Slave's picture

LOL thanks for the alternate reality history lesson.

Max Cynical's picture

"Not gonna disagree with you about rand. I really want to like him since he is Ron Paul's son but I just can't quite do it."

Who exactly is this utopian politician you desire?

Took Red Pill's picture

I've come to realize no politician is going to fix this. We're given an illusion of choice. We have no choice. The system is rigged. Why even vote?

Cathartes Aura's picture


Who exactly is this utopian politician you desire?


anyone who will remove the burden of responsibility for ones own life. . .

a great Father Figure to look UP to, a Leader.

followers always look for leaders, and leaders always find their followers.

goneYonder's picture

If you're looking to cure the sickness, the medicine is in the three posts just above.

Dr. Destructo's picture

I'm not sure if that he's (Ron) is clueless or that he still clings to some vain hope in the system itself. There is no cure for our economy or country other that the plug to life support needs to be pulled and the body ought to be burned to prevent the spread of disease. The longer this continues the more the world will be destabilized.

Bro of the Sorrowful Figure's picture

i dont get the rand hate at all. ron paul tried for three fucking decades to wake people up by directly telling them the truth. it only worked for a very small percentage of the population. that's us. great, we're awake and we complain like a bunch of bitches all the time about the fed and the oligarchs and blah blah blah but we haven't done shit to change anything. rand saw that his father's approach didn't work. he took a different approach, choosing issues where he knew he could convert people and staying away from the very sensitive ones. take foreign policy: ron paul says we invited the 9/11 attack, gets booed in a room full of retarded conservatives who dont know shit. rand paul says it's ridiculous that we're sending bilions of dollars to the elite in countries that hate us. suddenly the same room full of retarded conservatives is saying "wow, i never thought of that" baby steps. i assume your standards with chicks are the same as your standards with politicians, and as a result you havent gotten laid in a long time and that's the reason for all the pent up hate.