Here is his piece in full:
Why Do We Need a Central Bank?
One of the more interesting developments during the current recession is a small but growing drumbeat of criticism of the Federal Reserve System. No longer the exclusive province of the anti-Semitic, nationalist hard right, Fed criticism has become both serious scholarly business for a number of economists and historians as well as part of the Washington political dialogue thanks to Ron Paul's presidential campaign and two follow up bills to audit the Fed.
The historical myth is that the Fed was created because laissez-faire in banking produced the periodic panics and crises of the late 19th century. In fact, banking during that period was heavily regulated, particuarly with respect to the production of currency. The National Banking System regulations made it very expensive for banks to provide additional currency when the public demanded it, especially during harvest season. Small events in the economy could quickly turn into panics and recessions if the demand for currency jumped. Limits on interstate branching also prevented the banking system from integrating and reducing its exposure to risk. The problems of that era were ones created by existing government regulation, not laissez-faire.The Fed is better seen as a typical creature of the Progressive Era. Reformers' beliefs in the power of state-sponsored experts meshed with the self-interest of big bankers who saw a closer relationship with the federal government as a way to enhance their profits, with a central bank as an agreed-upon technocratic solution.
The unsurprising result has been more, not less, volatility in the macroeconomy than before the Fed's creation in 1913. We've had one Great Depression, several nasty recessions, decades worth of inflation, and billions wasted interpreting the latest from the Oracle of Greenspan or Bernanke. The late 19th century, even with its flaws, was a period of long-term monetary stability and had no recession that was even close to that of the 1930s.
The inflationary powers of the Fed have also enabled the federal government to run decades of deficits, which have funded American imperialism among other things. The anti-war crowd should consider more seriously the way central banks provide resources for imperialism. Increasing government control over banking has almost always been the result of the state's need for resources, particularly for wars.
With more economic historians rightly blaming the Fed for the Great Depression and many current observers rightly noting that its responsibility for the housing bubble and the current recession, it is not surprising that more people are wondering just why we need a central bank. The histories of countries with a strong degree of monetary freedom at various times demonstrate that a central bank is not necessary for a stable economy.
Pro-market arguments for the power of decentralized competition and market learning should be merging with left-wing skepticism about the desirability of the special privileges, and now bailouts, that the Fed gives to already powerful private bankers. Together, both sides can make for a powerful criticism of an institution that we would be better off without.
