Evidence abounds that the central bank concept is on its way out. The complete and obvious failure of central stabilization and monetary “stimulus” becomes more apparent every day. Stagnation, depression, and a decline in the standard of living in the industrialized nations are apparent to anyone with eyes to see. Both the Tea Party and Occupy movements contain within them anti-Federal Reserve and monetary elite sentiment. Videos describing economics have become YouTube sensations. The Keynes vs. Hayek rap battle videos, which portray these two economists arguing over whose economic theory best explains the boom-bust phenomenon, have garnered millions of views and have even been used in college classrooms. Texas Congressman Ron Paul even wrote a book specifically about the United States government’s central bank, called End the Fed, which climbed as high as six on the New York Times bestseller list.
The scholarship put forth by the Mises Institute as well as other individuals and organizations has forever changed the discussion of monetary policy and economics as it relates to the central bank. This is an indispensable step towards a private property society marked by sound money, non-aggression, and property rights.
Undoubtedly this is a positive development. Unfortunately, where one economic idea is discredited another ensnares those who have were never taught the ideas of Menger, Mises, or Rothbard. As the central bank tide continues to flow out, the Greenbacker tide threatens to rush ashore.
Greenbackism endorses a system in which the government has direct control over the money supply. The Greenbacker position is that fractional reserve banking is evil as is the private central bank. The true evil to Greenbackers is the interest charged by the central bank on the currency loaned to the government, as this immediately puts the government and thus the people in debt; since the interest is charged on money created out of nothing, the only way to pay off the interest is to continually create money to cover the outstanding debt.
Greenbackers are spot on with their analysis of fractional reserve banking as well as interest charged on loans of fiat money. Both of these practices are fraudulent and should be treated as such. In a free market this type of fraud would not be possible, unless of course certain individuals were willing to keep their deposits in a fractional reserve bank- though it is arguable that this would occur.
Incredibly however, Greenbackers come to the conclusion that if a cartel of private banks given monopoly control by the government is bad, then a direct monopoly by the government is just the thing that will cure our economic ills. The advantage of this system to a Greenbacker is that since the government can create money out of thin air interest free, then every special interest would enjoy the ability to institute their favorite pet projects. Of course, Greenbackers do not think this magic money creation would cause inflation nor would it trigger the boom-bust business cycle. The economic problems with this system are glaring, yet, Greenbackers do not see it. Why? There is a lack of economic knowledge to be sure, but more importantly a naiveté as to the nature of the State.
Greenbackers fall into the government vs. private industry trap. They are under the impression that the wise public servants in government are simply outmanned by the greed and corruption of the private central bank and its minions. As I wrote in another article on this subject, this seems to be an insurmountable error in Greenbacker ideology, namely that the central bank is a completely autonomous institution that has taken over the government, and if only we could abolish the central bank and give the power of money back to “the people”, our lives could return to normal.
Of course, a normal existence to a Greenbacker is one in which every individual is controlled by the wise rulers in government. The misconception of a “private” central bank is the crux of the problem. Once a Greenbacker realizes that the central bank has naught but what power the government gives it through legal tender laws and other protectionist measures, he has no choice but to admit that the government is the great enabler in the relationship between it and the central bank.
There is much to be excited about the modern movement against centralization of monetary power in the government and banking elite. This is arguably the greatest push against the central bank concept in history, aided by the internet, recent financial crises, organizations like the Mises Institute, and of course, Texas Congressman Ron Paul.
Nevertheless, we must be aware of monetary hegemony in different forms. Greenbackism is the foremost threat to monetary freedom as it is seen as the most “practical” alternative, since, to statists, the choice is either a government granted monopoly to a central bank, or direct monetary monopoly by the central government itself. Greenbackism is monetary socialism of the worst kind. As Mises said, we cannot ignore socialism- we must confront it and destroy its ideological underpinnings.