February 24, 2015

Yellen Against Central Banking

By In Blogs, C.Jay Engel

Yellen is sworn in to testify at her U.S. Senate Banking Committee confirmation hearing in WashingtonFed Chair Janet Yellen is, as nobody in the world is surprised to hear, strongly opposed to the “Audit the Fed” bill that is gaining momentum in Congress.  After all, the WSJ reports her saying, “Academic studies establish beyond a shadow of a doubt that independent central banks perform better.”  Better than what?  That’s the million trillion dollar question. Certainly not better than the performance of free markets in money and banking.

But of course, that is not what she is trying to compare things to. No, in the realm of statism and “academic studies” the dichotomy is always between government-plan A and government-plan B. Everything else is simply not worthy of consideration; it is not to be taken “seriously.”

Government-plan A is to have an independent central bank; and by independent it is meant, policy according to the dictates of the Central Bank and its banking partners.  Government-plan B is to have Congress make the centrally planned decisions on behalf of the whole economy.  In short, if there are two types of socialism, Government plan A is fascistic and Government plan B is communistic.  Who is to decide the policies for the centrally planned economy?  This is the so-called great debate.

Now, the Audit the Fed bill actually gives no money and banking policy power to Congress, much to Yellen’s misleading comments.  All it does, and it really is not enough at all toward ending the problematic central bank in the United States, is provide for an audit so that a Congressional committee can have some clue as to what in the world the Fed is doing, where it is sending its newly created money, and on what basis it is making its decisions.

Of course, all of this is a false-dichotomy that takes away from the real problem: central banking.  There should be no central bank that needs to either be “politicized” by Congress or remain independent.  Money and banking should exist on the market like every other good and service, subject to the will of the consumer and moved along by the interaction of supply and demand.

Written by C.Jay Engel

Editor and creator of The Reformed Libertarian. Living in Northern California with his wife, he writes on everything from politics to theology and from culture to economic theory. You can send an email to reformedlibertarian@gmail.com
  • Brian K. Jacobson

    There is an excellent documentary available on YouTube for anyone interested called “Money for Nothing: Inside the Federal Reserve” It is not pro-austrian but a discerning Austrian minded person can really benefit from it and see a lot of the connections between inflation and the business cycle and the relationship between central banks and war. It interviews almost solely chairs and ex-chairs of the fed and ex-governors of each bank. One of my favorite lines is from Paul Volker (head under Carter and Reagen) who says “These guys are mathematicians, they didn’t take in account human emotion and action.” Amazing. What a wondeful ad for praxeology from ex-chair of the federal reserve. He shows so clearly without even knowing it the folly of our obsession with empirical data, fanciful math, and the mysterious “multiplier.”