[ExI] How slow is capitalism?

Rafal Smigrodzki rafal.smigrodzki at gmail.com
Sat Apr 30 03:13:36 UTC 2011

On Fri, Apr 29, 2011 at 4:42 AM, Jones Murphy <morphy at alumni.caltech.edu> wrote:
> If you think banking stability and control of the money supply is bad
> post-Fed, take a look at what happened pre-fed when random banks
> issued their own currencies. And contrast the general level of
> development in countries with central banks like the Fed, versus those
> with no central banks or ineffective ones where there is no currency
> and no regulation of financial institutions.

### I re-read http://mises.org/books/fed.pdf again today - you will
find historical analysis there flatly contradicting your account.
Banking stability and currency stability was better before the spread
of fractional reserve banking  and centralization of money supply in
the form of the Fed, and the same situation is invariably present in
all other countries that switched from naturally produced money to
fiat money. The alleged stabilizing and stimulating effects of the Fed
are a complete myth. Sure, there were bank rush panics before the Fed,
these are an invariable effect of fractional reserve, but as long as
banks are not uniform in their lending practices and some of them have
higher reserve rates, such panics are self-limited and they serve the
useful purpose of periodically cleansing the system of inefficient
lenders. It's only after the Fed was formed that large scale sustained
inflation started, and the boom-bust cycle became more pervasive,
involving larger fractions of the economy and with a longer time span.

BTW, I do not share Rothbard's complete condemnation of fractional
reserve - maybe immodestly I think my analysis goes deeper than his,
and I do recognize both the dangers and the benefits of it - but I
completely agree with him that centralization of banking and
government counterfeiting of money added on top of a natural
fractional reserve system is highly distortionary and largely
responsible for the modern malady of the "business cycle".

> The Fed has done a lot that I disagree with. But those bad things are
> very much a cumulative expression of the will of the American people
> over the last half century or so, which has been to concentrate wealth
> to an all time high degree, and crush upward mobility in response to
> liberal social changes which threatened to erode America's historical
> social hierarchy. This backlash is why an Ayn Rand disciple,
> Greenspan, ascended to head the Fed and proceeded to sit back and
> cheer as the US went from a typical Western wealth distribution to a
> typical South American one, and upward mobility which was one the
> greatest in the world is now worse than any in the West and dropping
> fast.

### This is complete baloney.

Still, the Fed does a lot of useful things, like its
> counterparts in the strongest and stabilest economies on earth. And
> you might want to ask yourself why even after what you perceive as 100
> yrs of Fed incompetence, the US dollar remains by far and away the
> currency of choice for well over 80% of international trade.

### The US is the last major power to succumb to the allure of money
counterfeiting. It's not difficult to be a giant among dwarves.


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