Tuesday, March 31, 2020

End the Fed need not resemble Animal Farm

Replacing the Federal Reserve system and fiat money with sound money and free markets will require a revolution.

Many of us who subscribe to the concepts of sound money and free markets (e.g. the Mises school of economics) have long discussed the prospect of ending the Federal Reserve, a technocratic system that fosters manipulated markets and enables massive debt monetization [1,2,3]. It is increasingly clear that this will require a revolution approaching the scale of the original American Revolution. Thomas Jefferson’s experience led him to succinctly comment in 1787: “I hold it that a little rebellion now and then is a good thing, and as necessary in the political world as storms in the physical.”

Revolutions invoke memories of major war. Rebellions often end up quelled, whereby the state of the system may only get worse.  

The whole debate over the Federal Reserve can be turned into Animal Farm. The Fed’s policies are loaded with Moral Hazard – policies that are highly regressive and promote the “some economic participants are more equal” flaw, an injustice to the many other economic participants. 

Many of us would rather see free markets and sound money over manipulated markets/financial repression and fiat money. This translates into a drastic reduction in the government that people have become dependent on. Humans need to put liberty first, and that involves letting go of government fiat and largesse. That doesn’t mean not having a rule of law and the process to enforce it, nor does it mean letting go of national security measures. These laws and measures can protect liberty, but care is needed since their structure can also reduce or remove liberty. Always a cost/benefit. 

I see plenty making the derisive argument “yes, it’s a flawed system, but what do we replace it with? It might be something worse, so let’s not try.” This is a defeatist argument – we need not succumb to the cynical world view of Orwell’s Animal Farm. I’m optimistic that we can replace the current system with a better one, free markets and sound money, liberty and opportunity, but not “equal” and “more equal” authoritarianism, which is what we have a good dose of today. 


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