Central Banking Equals Central Planning
Posted by Orrin Woodward on December 2, 2013
In my continuing research for my new book, I read a fascinating book on the history of free banking by Larry Sechrest. Mr. Sechrest describes how free banking between competitive banks can end the centralist planning cartel known as Federal Reserve System in America. Although the lessons of the failed centralist planners from Eastern European states are available for all to study, it appears these lessons were swept under the rug, especially when monetary policy is the topic of discussion.
Central Banks Control Money Suppy
Why is this? Simply put, the direct power over the money supply is the indirect power over the people. For in modern capitalistic societies, every member uses money to produce, trade, and consume. Thus, when the money supply is surrendered to the State and its cronies, so too is the financial liberty. Thomas Jefferson recognized this fact during the 1809 debates for the re-charter of the Bank Bill, “If the American people ever allow private banks to control issue of their currency, first by inflation, then by deflation, the banks and the corporations will grow up around them, will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
Strangely, Americans spends millions of dollars and endless hours to elect officials that can do little more than follow the counsel of the monetary central planners. Proverbs 22:7 states the politicians subservient condition, “Just as the rich rule the poor, so the borrower is servant to the lender.” Therefore, since one of the keys to great leadership is majoring on the majors, when one understands the Five Laws of Decline, he will quickly realize the power and control surrendered to the centralist planning cartel over the American monetary system is the major of major issues.
In order for this to change, the people must educate themselves on viable alternatives to the current oppressive system. Indeed, the famous political dictum – you cannot beat something with nothing – is why America has suffered through endless devaluations of its currency to where a 1913 dollar is now worth four cents. As I write this, three words come to mind – unbelievable, unconscionable, and unsustainable. Free banking is the free market alternative to central planning plunder. LIFE Leadership is on a mission to learn truth in an age of growing lies. Here is a portion of Kevin Dowd’s enlightening foreword to Mr. Sechrest impressive book.
Sincerely,
Free banking is—or at least ought to be—one of the key economic issues of our time. There is mounting evidence that the monetary instability created by the Federal Reserve—persistent and often erratic inflation, the unpredictable shifts of Federal Reserve monetary policy, and the gyrating interest rates that accompany both inflation and the monetary policy that creates it—have inflicted colossal damage on the U.S. economy and on the fabric of American society more generally. Furthermore, much as the United States has suffered, less fortunate countries have suffered far more. Most of us have watched in horror, for example, as Russia has come out of more than seventy years of Communist misery only to slide now into the abyss of hyperinflation. Unlike some disasters, monetary instability is entirely avoidable, but to avoid it, we need to make sure that the monetary system is built on the right foundations—foundations we are very far from having.
On top of these monetary problems, we also observe in the United States how ill-judged attempts to regulate the banking system and protect it from the (grossly exaggerated) danger of runs have spawned a massive apparatus of deposit insurance and regulatory control in the form of the FDIC, the now-bankrupt FSLIC, and a variety of other bureaucracies. These agencies were (ostensibly) set up to protect a banking system that, though weakened by legislative restrictions of various kinds and by misguided Federal Reserve policies in the 1930s, was still relatively strong, and yet they managed to convert that system into a chronic invalid made artificially dependent on the ultimately lethal drug of deposit insurance. In addition to gravely weakening the banking system and destroying much of it in the process, the deposit insurance system also accumulated staggering losses—losses of hundreds of billions of dollars and perhaps more—which it then passed back to the long-suffering federal taxpayer. Politicians and bureaucrats have responded with a series of largely cosmetic reforms that have accomplished virtually nothing and are nowhere near any realistic solution.
Once again, what we need are sound free-banking foundations. We do not have such foundations and are unlikely ever to get them if things continue as they are. Larry Sechrest’s book is therefore a timely contribution to a very important policy debate. It is sad indeed that our political and intellectual leaders have still to learn the most important and most obvious lesson to be drawn from the collapse of communism in the eastern bloc—that central planning does not, and cannot, work. To paraphrase Larry, amidst all the celebration that accompanied the demise of communism and with all that has been written about the problems of central planning, our leaders are still afflicted with the craving to practice it, and they cling to the illusion that though eastern bloc socialism might be dead, they still believe that all is well with central planning in the West. They know that central planning failed in the East, but they learned nothing from that failure, and nowhere is this illusion stronger and more cherished than in the sphere of money and banking.
One suspects that part of the reason the illusion is as strong as it is in this area is that even professional economists are by and large still afflicted with the central planning mentality. We do not talk of monetary central planning, of course—we talk of central banking or monetary policy—but the goals are the same even if we prefer to use a less sinister label to describe them. Central banking is central planning. Those of us who support free banking find it odd that despite all the failures of central planning—the failures of central planning in the eastern bloc, the failures of monetary central planning in the West, and other failures besides—so many economists still cling to it and refuse to consider free banking as a serious alternative.
30 Responses to “Central Banking Equals Central Planning”
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Lee Weishar said
Thanks Orrin,
That is such a good point; the fact that central banking is still central planning. I’m amazed at how many people come to see the problems of central planning – but can’t see banking in the same light.
Mary Mazur said
Orrin, i so appreciate you studying and bringing light to the root issues of Americas money challenges. Its all we’ve known our whole lives. Jefferson understands cuz he lived in a time before the federal reserve-and i believe he was warning us of its corruption. Time to wake and empower people to know we can stand up to the oppression and turn the tide!
David Fidler said
Great post. I am often saddened and frustrated at the ignorance of many to this simple but crucial point.
In the book “The Path to Tyranny: A History of Free Society’s Descent into Tyranny” by Michael E. Newton describes one of the key marks of a free society is “Freedom of Property.” As you indicate money is directly linked to property rights/ownership, thus a crucial part of maintaining or loosing our freedom as a whole.
Orrin Woodward said
David, you got it. Right to private property and the just protection of property is foundational for society. As John Locke taught on the inalienable rights of life, liberty, and estate (property). thanks, Orrin
george guzzardo said
Orrin, thank you for exposing the biggest fraud of our time. This message needs to be spread as far as possible only to test a free people’s resolve so one day our children won’t wake up into total slavery and say “that’s the way it always was.” Freedom will not be lost by an invasion but inch by inch. Keep up the good work. George
David Fidler said
Inch by inch and then all at once.
I have long since believed that no other country on earth could conquer the United States, no single country or combination of countries had the power to defeat the United States as long as we adhered to the founding principles and the teachings of God. The only way we can be defeated is though internal weaknesses and moving away from the founding principles and God’s will.
Chad Waters said
Hi Orrin!
This is truly scary of how many people don’t even realize what is happening with their own money and how it works. Thanks to the Life Leadership Business I am no longer one of them. Education is so important for so many reasons! Let’s all step it up and those looking to learn and help change everything one person at a time.
God Bless.
Dave Nelson said
Hello Orrin,
This post is interesting in that the Pope, who obviously doesn’t know what you know, nothaving read what you read, is coming out denouncing capitalism. It’s fun to read about all the people who take advantage of capitalism and all it provides, yet put it down and say there is something better. The people like Chavez who are for the poor as long as they can live like an elite, aka the plunderers. Doesn’t it seem like jobs are a ticket to the poor house as the taxes and cost of services and benefits and attempting to maintain even a simple lifestyle is staggering.
Orrin Woodward said
Sadly, what the Pope or anyone else who attacks Capitalism is not really Free Market capitalism, but crony capitalism which I attach just as much as they do. I LOVE free enterprise/markets, but when the State meddles in the free market, it no longer is free as certain people are coerced into actions they would not freely do to benefit the few at the many’s expense. This is why clear teaching and education is necessary to delineate the ethical system of free markets from the unethical system using its name in vain. 🙂 thanks, Orrin
Joseph Keller said
That was a great post, it’s so sad how little most of us know when it comes right down to it. Yet how much we expect without knowing or caring what the consequences would be. The knowledge I am gaining from your blogs is priceless it’s truly amazing what weakening the mind can do. With your continued leadership and quest for the truth you will awaken many more minds and help to awake many a nation for it truly can all start with one.
You’ve proven that already I look forward to your next posting.
Don Schultz, Team VIP Phalanx said
Thank you for the article. It once again highlights the need for “We the People” to become informed about our country and how it is supposed to operate and how it actually does through years of neglect and apathy.
The Founding Fathers knew that one assurance of this Republic continuing was a populace that was informed and involved. Some of the recommendations you and Oliver DeMille outlined in “LeaderShift” certainly would help to make that possible.
It is alarming to know that unelected people have garnered so much power and influence. There are then no checks and balances when that leadership gets off the tracks.
Louis Schwitzer said
I so enjoy reading your entries. I had lunch with an old friend and was able to talk intelligently about some of our country’s decline, due to having read this blog this morning in addition to having read things by you and Oliver DeMille. Great job, thank you for digging through the detritus of information to bring us the nuggets of truth. It’s making a difference in my life, and I’m using it to make a difference in the lives of others.
Orrin Woodward said
Great job Louis! 🙂
Kyle Starr said
Thanks Orrin for another great blog article, I really enjoy learning the truths about our economic system and especially our Banking system or lack there of. Only when we Free ourselves from enslavement of debt, credit, and “Freebies” will we prosper again. Can’t wait to read the book when you’re done and these little nuggets are both amazing and torturous because I believe the book is going to be even better so I’m being as patient as I can, but how soon? LOL God Bless!
CJ Calvert said
Thanks Orrin. The research for your forthcoming book is both substantive and sobering.
Olivier Jean-Baptiste said
Thanks you Orrin!
Gwendolyn Robinson said
I love all of your book, the best information ever! Thanks for adding to my knowledge and helping me to gain Power,Confidence,Love and Prosperity.
keith Sieracki said
what an important topic for all of us in the middle class to study and discuss! This is when the fish realizes he is swimming in contaminated water… Thanks Orrin!
Randy Robson said
Great article!
KellyJack Nelson said
It’s amazing how simply and concisely you put this article together. Thanks Orrin
Steve Meixner said
Keep it coming Orrin ! I Look forward to Reading your Leadership Blog everyday. It’s a great Eye Opener. Thanks for researching all this!
Steve
JohnYoder said
Thanks Orrin. It is so easy for us to get side tracked on the lesser issues that are swirling all around and to forget about our “core” issues. Keep up the battle!
Greg Streuly said
Good Afternoon!
I shared your article out to my Facebook page, as I do with many of your blog posts, but I got on response that I have no idea how to respond to. My first instinct is to not respond at all, but he makes some bold statements that I’m having trouble leaving alone.
Here is his response: “There are a few problems with this article. First, while it is true the Federal Reserve Bank, or Fed, is owned by private banks, that is just an accounting entry. To join the Fed system, a bank is required to but a certain amount of stock based on their size. They receive no voting rights with that stock, though. The board of directors and other key leaders are appointed by the President, with confirmation by Congress. Congress alone sets their salaries. Banks receive a dividend from the profits of the Fed, but no more or less than the rate set by Congress. Any profits earned above are returned to the Treasury Department. That makes the Fed much closer to a public institution than a private bank.
The Fed loans very little created money to member banks. Banks typically get overnight loans from other private banks. most created money is dispersed through quantitative easing. Money is not ever a debt to the Fed; that is a conspiracy theory.
The biggest incongruity is the fact that, after trying to claim the public Fed is a private bank, he claims that having the money supply controlled by private banks is bad, and that we should switch to a free banking system, which would actually turn the money supply over to private banks.
The worst lie told in this article is about the FDIC. It has never had any losses covered at taxpayer expense. The FDIC was originally capitalized by a government loan, but that loan has long since been paid back with interest. Since then, the FDIC has been entirely self-funded. It is FDIC regulations that keep it solvent. The FSLIC did not enforce the same strict regulations standards, and that lax attitude was a catalysts in the 1980’s S&L crises. That is why the FSLIC failed and the FDIC did not, even in the 2008 financial crises, which was much worse than the 80’s.
Lastly, it was dishonest of them to conflate Communist Central Planning with a government regulated monetary system. They are two very different systems.”
Orrin Woodward said
Greg, every objection raised is the standard Keynesian answer that continues to get us further in debt etc. The FSLIC is what is reference failed, the FDIC is just more centralist planning. The incongruity between a private bank centrally controlling all other banks with Fed intervention and free banks who compete is not an incongruity and needs no further comment. To say the centralized control of the money supply is not central planning indicated he disagrees with Ludwig Von Mises – only the best economist hands down of the 20th century who proved 60 years in advance that communist countries would fail through its inability to calculate anything based upon its lack of price system. In addition he was the first to point out how the boom bust cycle started and lastly he showed why the State should not be allowed in the banking system as a partner. Here is in part his answer. Please read Human Action for full answer. thanks, Orrin
But even if the 100 per cent reserve plan were to be adopted on the basis of the unadulterated gold standard, it would not entirely remove the drawbacks inherent in every kind of government interference with banking. What is needed to prevent any further credit expansion is to place the banking business under the general rules of commercial and civil laws compelling every individual and firm to fulfill all obligations in full compliance with the terms of the contract. If banks are preserved as privileged establishments subject to special legislative provisions, the tool remains that governments can use for fiscal purposes. Then every restriction imposed upon the issuance of fiduciary media depends upon the government’s and the parliament’s good intentions. They may limit the issuance for periods which are called normal. The restriction will be withdrawn whenever a government deems that an emergency justifies resorting to extraordinary measures.
Greg Streuly said
Thank you for your response! And WOW do I have a lot to learn!
Curtis F said
I’m the friend that Greg was quoting. I couldn’t help but notice that you didn’t actually answer any of my comments. You didn’t address the fact that a lack of proper regulation caused the FSLIC to fail. You continue to describe the Fed as a private bank after I clearly demonstrated it is a government agency. Your attempt to refute the difference between federal monetary policy and central planning by noting that I disagree with von Mises was a logic fallacy known as Argument from Authority.
http/en.wikipedia.org/wiki/Argument_from_authority
He was one of many Western economists to predict the fall of communism, so that doesn’t make him special, and, while he did have a theory about the boom/bust cycle, it was hardly definitive.
While I did cover a lot, let’s start with the Fed. Please show me how it is a private bank, despite all the evidence I provided showing it to be an agency under the full control of the federal government.
Orrin Woodward said
Curtis, I didn’t take the time to answer every objection because I am in the middle of writing a book on several of these topics so I felt I would answer these in the book. I appreciated your thoughts because it gave me a good feel for what I should answer. With that said, I posted a video on the next post from Michael Maloney that answers and shows the page where the Fed says it is a private company and receives a 6% tax free profit to the stockholders. Also, the same scenario occurred in Andrew Jackson’s day with the Second National Bank where the President himself said in his Veto message that the central bank was private and received dividends tax free. He went further and stated that many of the shares were owned by people who were not citizens of the USA. Central banking has a long history and I respect your right to support it if you so choose. My reading an analysis from William Gouge, de Soto, Rothbard, Salerno, and of course, Mises leads me to a different conclusion. thanks, Orrin
Hugo Howell said
When a central bank is “easing”, it triggers an increase in money supply by purchasing government securities on the open market thus increasing available funds for private banks to loan through fractional-reserve banking (the issue of new money through loans) and thus the amount of bank reserves and the monetary base rise. By purchasing government bonds (e.g., U.S. Treasury bills ), this bids up their prices, so that interest rates fall at the same time that the monetary base increases.
Kirk Birtles said
Orrin… Love this series of posts! The truth is sometimes painful to swallow, but is the only path to freedom. How would you define or explain ‘free-banking’ vs ‘Central-banking’ in a few sentences? Thanks for always leading from the front!! kb
Paul Brostowitz said
The Federal Reserve is the largest Ponzi scheme in the world. Thanks Orrin for your persistent focus on educating more Americans about the corruption in the central bank.