Federal Reserve

Diagnosing "Fedophilia" Among the Economists: Why We Don't Need the Government to Have Money


"Free banking" advocate and economist George Selgin takes on what he calls "Fedophilia" in his profession: an undue love for and deference to the Federal Reserve.

The Fed's actual

record can hardly be said, after all, to supply grounds for complacency, much less for the belief that no other system could possibly do better. (Indeed that record, as Bill Lastrapes, Larry White and I have shown, even makes it difficult to claim that the Fed has improved upon the evidently flawed National Currency system it replaced.) Further, as the Fed is both a monopoly and a central planning agency, one would expect economists' general opposition to monopolies and to central planning, as informed by theirwelfare theorems and by the general collapse of socialism, to prejudice them against it. Yet instead of ganging up to look into market-based alternatives to the Fed, the profession for the most part has relegated such inquiries to its fringe.

Selgin explores some possible reasons for this, including a basic status quo bias based on the fact that the Fed directly subsidizes and distributes so much work by professional economists. Selgin also notes that a desire to distance themselves from various bad, inaccurate, conspiratorial with insufficient evidence, attacks on the Fed keeps economists who crave respectability from joining in.

But ultimately Selgin thinks supporters of free market money face the same failure of imagination that any kind of radical libertarian notion faces: when government has taken upon itself the power to do something and shaped reality by doing so, it requires an almost science fictional imagination to see how reality could be otherwise, even for economists who are supposed to at least roughly get the whole invisible hand/spontaneous order thing:

Regarding conventional beliefs concerning the need for government-run coin factories, which he (rightly) dismissed as so much poppycock, Herbert Spencer observed, "So much more does a realized fact influence us than an imagined one, that had the baking of bread been hitherto carried on by government agents, probably the supply of bread by private enterprise would scarcely be conceived possible, much less advantageous." Economists who haven't put any effort into imagining how non-central bank based monetary systems might work find it all too easy to simply suppose that they can't work, or at least that they can't work at all well.

….In classes in monetary economics…the presence of a central bank—a monetary central planner, that is—is assumed from the get-go, and no serious attention is given to the implications of "free trade in money and banking." Consequently, when most monetary economists talk about the virtues of this or that central bank, they're mostly talking through their hats, because they haven't a clue concerning what other institutions might be present, and what they might be up to, if the central bank wasn't there.

Since monetary systems not managed by central banks, including some very successful ones, have in fact existed, economists' inability to envision such systems is also evidence of their ignorance of economic history. That ignorance in turn, among younger economists at least, is a predictable consequence of the now-orthodox view that history can be safely boiled down to a bunch of correlation coefficients, so that they need only gather enough numbers and run enough regressions to discover everything worth knowing about the past….

Selgin then points out (as I pointed out here at Reason last month in a review of The Indispensable Milton Friedman) that former Fed lovers can learn better:

The good news is that Fedophilia is curable. Milton Friedman, for one, was a recovering Fedophile: later in his career he repudiated the mostly-conventional arguments he'd once put forward in defense of a currency monopoly. Friedman, of course, was a special case: a famous proponent of free markets, he had more reason than most economists do to view claims of market failure with skepticism, even if he'd once subscribed to them himself….

Selgin goes on to supply a reading list to help economist and layman alike learn some of the history that might help them understand that a government central bank isn't the only way to get a money supply, and you should read the whole thing.

I wrote for Reason in a feature back in November 2009 about the burgeoning Ron Paul-triggered anti-Fed movement

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  1. the burgeoning Ron Paul-triggered anti-Fed movement


  2. Fedophilia? I love it!

    1. I keep picturing Ben Bernake in a windowless van with FREE MONEY written on the side?

      1. Timmy seems to have more of the molester “look” to him, no?

        I wouldn’t trust him alone with my daughter, much less my economy.

    2. If Fedophilia is a new disease, Shrieking Idiot is Patient Zero.

      1. The fun thing about Shrike is that every limit that has been put on the FED he agrees with…but any more limits is bad.

        I have a feeling that the day after the FED is abolished is the day Shrike will think it was a good idea to eliminate the FED.

  3. The crucial caveat in the linked to Friedman/Schwartz paper:

    it is an open question whether government should continue as lender of last resort

    This is THE question.

  4. Release the SHRIKE!!!

  5. A medium of exchange not controlled by central planners?


    1. We all know money did not exist before the government invented it.

      1. Seriously. How can anyone doubt this?

  6. Why won’t libertarianism JUST DIE ALREADY.

    1. Space Tony has a sad because we won’t roll over for Top Men.

    2. Because at the heart of humanity is the yearning to be free.

      Plus, we just love pissing you collectivists off. It’s all we really have at this point, as you keep taking everything else away.

    3. And our other unrepentant Fedophile shows up. So when are you and Shriek forming the inaugural chapter of NABBLA?

    4. Is that it Tony? Have the H&R forums finally defeated you? You used to at least post relevant arguments, well thought out or otherwise. Now you’ve just gone full troll…

      1. They’re just all so overwhelmingly stupid and obsessed with nonsense. I’ll except you for your defense of basic rational thought in that shrill Nick Gillespie rant about the liberal media conspiracy.

        I suppose one can be defeated by this place, in the way humans can be defeated by zombies. But in terms of rational argument, libertarians have just gone completely off the rails. When they’re not parroting fatfaced radio GOP spokesmen, they’re perfectly happy cherry picking the inane pseudointellectual scribblings of third-rate academics and finding the entire truth of the universe in them.

        It’s just so exhausting.

        1. Shorter Tony: Libertarians refuse to comport with my way of thinking, therefore they are batshit crazy.

          1. Oh come on. As if that doesn’t work both ways.

          2. Libertarians refuse to comport their beliefs to the facts of the world they live in.

            1. BEYOND PROJECTION

            2. Yes, Tony, tell us again how the middle class thrived during the age of feudalism until the evil industrial revolution broke the back of the landlords!

              1. For me to tell you that again I’d have to have said it once.

                You tell me again how feudalism or the early Industrial Revolution or the Gilded Age were preferable to post-WWII America or modern-day Sweden.

                1. No one said they are. We have become wealthier since then due to the market, not government. We don’t even have to talk about the US. Let’s take Sweden as an example. Sweden was not always socialist. They had one of the freest economies in the world in the 1800’s and early 1900’s. They became one of the wealthiest countries in the world and THEN became socialist, not the other way around. They also have dialed down the socialism at various times in the last few decades because of the burden it places on the economy

        2. Socialist programs are going bankrupt all over the US and the world, but it’s libertarianism that is collapsing. Got it.

          1. That was the claim that set me off. Just pure self-gratifying fiction.

            1. Social Security, Medicare, and public pensions aren’t headed for bankruptcy? Greece, Italy, Spain, Portugal, etc. are actually in good economic shape? Or are they all suffering from too much libertarianism?

              1. Socialism has nothing to do with those countries’ poor economic shape. In fact it was runaway capitalism that caused the global downturn from which they are still suffering.

                You just know too many things that aren’t so.

  7. It’s just so exhausting.

    Poor thing. Go lie down on the fainting couch with a cool damp rag on your fevered brow.

  8. I was never much into the anti-Federal Reserve thing, in part because being on the gold standard in the 19th century didn’t seem to prevent various recessions and depressions, some quite severe. But this totally freaks me out: the major purchaser of US debt is now the Federal Reserve! What the fuck? Is that not some bizarre financial version of perpetual motion? Am I nuts to think that shows we are on the verge of an unimaginable economic catastrophe?

    1. No, that’s the recipie for hyper-inflation. Which would be good for me personally as none of my assets are dollar denominated, but all of my debts are. As long as wages follow inflation, I’ll be doing quite well.

    2. The recessions and depressions of the pre-Fed era were 1) in part significantly due to the natural fluctuations of an agricultural economy based on crop harvests, etc, which isn’t under the control of the monetary system, or to a large extent, humans at all and 2) generally happened the further we went away from the gold standard.

      1. And 3) overwhelmingly the inevitable results of failed government policies.

        Specifically railroad subsidization and the national bank acts.

  9. Marijuana legalization
    School privatization
    Flat tax
    Open borders

    What do all of those have in common? They’re more likely to happen than ending the Fed. I have no real problem with a central currency. Really, I think the Fed should be replaced with a very simple computer program that manages the money supply. The simpler, the better.

    1. Fiat currency is one of the reasons government has been able to grow as large as it has.

  10. What the fuck? Is that not some bizarre financial version of perpetual motion?

    In olden times, this was known as “monetizing the debt”.

    And was frowned upon, for reasons which will at some point become all too clear.

  11. Dude no way man, who comes up with all that stuff.


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