I guess this is what passes for sound critique at Bloomberg. In reviewing End the Fed, James Pressley throws Ron Paul’s conclusion that we should abolish the Federal Reserve out the window. But, not based on a thorough refutation of his main points. No, he simply paraphrases three other writers. Well, I can quote three writers to back up Ron Paul as well. Where has that gotten us? Pretty much nowhere. So, let me dissect this “brilliant” piece of book reviewing by Mr. Pressley:
…thwarting a bid by the second Bank of the United States to extend its charter beyond 1836. The U.S. would go without a central bank until the Federal Reserve System was established in 1913.
Like many clever politicians, Paul has a knack for mixing sound observations with Utopian promises. Without the Fed, he says, we would enjoy “all the privileges of modern economic life without the downside of business cycles, bubbles, inflation, unsustainable trade imbalances and the explosive growth of the government that the Fed has fostered.”
Hold on, though. Wasn’t America’s Fed-less 19th-century history punctuated with recurring booms, busts and banking panics? Paul dismisses such talk.
This is an oft used argument that wilts at the slightest bit of research. The “booms, busts and banking panics” of the 19th century were very much a product of government involvement in the economy. And, sometimes they were produced directly by the Fed’s pre-cursor: the Bank of the United States. Just because the Fed didn’t appear until 1913 doesn’t mean that our economy was a free market utopia. On the contrary, there were just as many government shenanigans going on then as there are now. The difference is that the market couldn’t tolerate, mask or absorb those government tricks as well as it can when you have an all-powerful central bank like we have today. The Fed simply inflates all those problems away now. But that just kicks the can down the road. And the can gets bigger with each kick.
But, back to the matter at hand. He mentions that the second Bank of the United States was abolished in 1836, but he can’t be implying that because of that we were free from government control over money. Has he forgotten the “greenback” laws passed by Lincoln during the war years? What about all the railroad “speculation” that was fueled directly by the Congress? And, what about the issuance of millions in municipal bonds to pay for “internal improvement” projects in the various states preceeding the war? He can’t think that none of this had any impact on these pre-fed booms and busts can he? I guess so. But we’re going to set the record straight. I’m going to go one by one through the major busts and panics of the 19th century and show what really happened in each case.
We’ll start tommorrow with the panic of 1819.