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That is why central banking should always be better referred to as monetary central planning.

It suffers from the same limits and short-comings as all forms of central planning, and with similar disastrous results.

I know I have quoted this passage before from Gustav Stolper's "This Age of Fables" (1942), but I believe it justifies being referred to again:

"Hardly ever do the advocates of free capitalism realize how utterly their ideal was
frustrated at the moment the state
assumed control of the monetary system.
. . .

"A 'free' capitalism with government
responsibility for money and credit has
lost its innocence. From that point on it is
no longer a matter of principle but one of
expediency how far one wishes or permits
government interference to go. Money
control is the supreme and most comprehensive of all governmental controls short
of expropriation."

It is possibly the worst and certainly one of the most dangerous last bastions of the social engineering mentality that virtually no one is ready to challenge (other, of course, than the small number of free banking advocates like those on the "Austrian Economist" list and a few other places.)

While there is plenty of blame to share and spread around, it is very difficult to imagine how the current economic crisis could have ever come about if not for the Federal Reserve's easy money and low interest rate policies during the present decade.

Thank you, Alan Greenspan and Ben Bernanke.

Richard Ebeling

Hmmmm. Of course we did have a whole bunch of financial crashes and crises and related recessions and depressions during the period of more-or-less free banking in the US in the US, although I know that Steve has all sorts of arguments about how that was not really free banking and so on (which may need repeating at this point).

I will show how far off I am from the main group here by asserting that Bernanke was very reasonable to believe in September 2008 that the world was in a very similar situation to where it was in May 1931. To the extent he was right, and I think he was, then he indeed saved the world in the most serious way, even if he made many mistakes (and I would agree he did, if not necessarily on what they were), or even if it were the case that having a proper free banking system in place would have kept the AIG unit in London from engaging in operations with 35-1 leverage ratios on multi-layered interntional CDS deals.

I know that Time says "for better or for worse." But look how they portray someone they (rightly) think was for the worse: Herr Hitler in 1939.,16641,19390102,00.html

They have him playing a "hymn of hate."

For Bernanke, he is the regal Defender of the System.

That's is my "pictures" analysis for the day (HT Robert Lucas!)

"Bernanke didn't *directly* kill anyone..."

I fixed that for you.

Umm, regarding the "Man of the Year" award by Time, it has never been "good person of the year" award, although lots of people regularly interpret as such. It is "who has had the most impact on world events during the year" award, or so they have always officially claimed. The award to Hitler in 1939 clearly fit that pattern, and whether one likes what Bernanke has done or not or thinks that he should have the power to do what he has or not, he clearly has been massively influential this year, even if the most important things he did were late last year.

Yes, Barkley, I said that in the very first sentence of my post - in italics even. I'm not necessarily arguing that he wasn't deserving, but that the very fact that he matters so much to BE deserving is a problem worthy of note.

What confused me the most was not the lauding of Ben Bernanke (that, I expected), but the "facts" presented on the Great Depression which are so completely off base. This line is a killer:

"The first thing any Depression scholar comes to understand is that nothing — not hyperinflation, megadeficits or irked Chinese creditors — is as bad as a full-on Depression."


Fair enough, as far as it goes.


Well, arguably what came out of the Great Depression was the coming to power of Adolf Hitler and the millions dead in WW II. Would you disagree with that? Can you name a hyperinflation (other than peripherally the one in Germany in 1923) or megadeficits, much less any unhappiness by any international creditor at any point in history that had a worse impact on the world, quite aside from debates over whether the lowered real incomes and high unemployment themselves in the GD were worse than any of these other phenomena?

Whoa, Barkley, let's not confuse correlation with causation. How did Fed confusion in 1931 lead to Hitler? Are you saying that if not for Bernanke's timely fixes, the world would now be facing WWIII? I think you are being a little dramatic.


It was the international financial crash that followed the failure of the Creditanstalt in May 1931 that turned a bad recession into the Great Depression with 15% unemployment by the end of 1931. I would call that causation, as do many others. Do you disagree with that? And would you disagree that the nearly 30% unemployment rate in Germany in early 1933 was not the predominant factor in Hitler coming to power?

Barkely Rosser,

Germany itself has suffered from hyperinflation in the early 1920s, and surely this experience shaped its financial programs of the late 1920s and early 1930s. And so, one could argue that the German hyperinflation also played a part in the rise of Hitler (Ludwig von Mises, in "Omnipotent Government", is the one that links the rise of Hitler with Germany's economic woes).

But, that was not the context of the line I copy and pasted. What the author of the article basically is saying is that, "Between depression and hyperinflation, the former is worse." This is clearly wrong. In a depression I may be hard pressed to pay for food, but any money I earn will at least hold value. In hyperinflation, regardless if I was well-off or poor prior to the beginning of rampant devaluation my savings will be invariable confiscated, and my livelihood is at risk because anything I earn will be worth almost nothing.

If "Audit the Fed" goes through, Ron Paul for Man of the Year 2010.

John, Barkley,

the Great Depression was not necessary for Hitler's rise to power, but clearly it was sufficient. hyperinflation equally destroys the rules of conduct characterizing prosperous societies. In history, deflation-driven depressions seem to be more devastating. The sample is too small, however. The good thing about capitalism is that it works, even if monetary policy is far from optimal (whatever that means). 'Unfortunately', this leaves us with little data on major disruption (other than those related to extra-economic forces).


The so-called "free banking" of the early 19th Century U.S. was nothing like what modern day free bankers advocate.

When he contacts Random, Random reveals that Eric has contacted him and revealed the full extent of his defenses, which are vast and powerful.

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