The Federal Reserve as a Cartel

Gary North reports:

economic textbooks describe how special-interest business groups organize to pressure the government to intervene into market pricing, so that existing businesses are favored at the expense of those kept out by government-created barriers to entry. They show how this restricts the freedom of new producers to offer consumers better deals. It also restricts existing producers from offering discounts or other arrangements to consumers.

Free market economists generally argue that all cartels break down over time because "cheating" – in a non-pejorative sense – takes place. Consumers eventually persuade cartel members to cheat by offering consumers better deals. None of this analysis is applied to central banking. Yet it explains the push toward international central banking and currency unions. The cartel's member banks need ways to forestall cheating by each other.

Furthermore, textbooks explain the Federal Reserve System as an organization created by politicians and run by disinterested economists and commercial bankers whose goal is to serve the public interest. How does it do this? Through expert scientific economic analysis which the voters do not possess. Because the central bank is legally semi-independent from the government that created it, this hampers voters from influencing monetary policy through the Congress or the President.

As faithful defenders of democracy, the authors would affirm: "Military affairs are too important to be left to the generals." Yet they mentally affirm this position: "Monetary affairs are too important NOT to be left to central bankers." (They would do much the same with higher education, if they included a chapter on education, which they don’t.) They refuse to say this openly, because the blatant inconsistency of their position – generals vs. central bankers – would become evident, but this is the operating presupposition which undergirds every college-level economics textbook.

The Federal Reserve System is inconsistent with free market capitalism.