Time to End Monetary Central Planning
By Richard Ebeling - October 06, 2015

Editor's Note: Dr. Richard Ebeling's latest book, Monetary Central Planning and the State, published by the Future of Freedom Foundation, is now available. The 228-page digital book is available for Kindle for only $0.99!

There is no way to describe current Federal Reserve policy other than as monetary confusion and misdirection. In a nutshell, Janet Yellen and the other members of the Fed's Board of Governors have no idea what to do. Do they raise certain interest rates over which they have some direct influence? Do they keep them at their current rock bottom levels, as they have for the last six years?

On the one hand, government-measured unemployment levels have fallen from their high of over 10 percent at the depth of the recent recession to 5.1 percent in September 2015.

However, there is an alternative measure of unemployment also calculated by the U.S. Bureau of Labor Statistics. It includes not only those currently unemployed and looking for work during the previous four weeks, but also "discouraged workers" who have stopped looking for jobs who would be interested in working if they found suitable employment and those who are part-time workers who would prefer to be employed full-time. If these two additional groups are included, the U.S. unemployment rate is 10 percent, double the headline "official" level of unemployment the administration touts as a "positive" sign of the economy's recovery.

On the other hand, price inflation as measured by the Consumer Price Index seems to be barely rising. According to the Bureau of Labor Statistics, price inflation in August 2015 was .02 percent higher than 12 months earlier.

Again, however, when food and energy prices are subtracted out of the Consumer Price Index to leave what the government statisticians call "core" inflation, prices in August were 1.8 percent higher than a year ago. Certainly not a "galloping" inflation, but not the nearly zero price inflation rate the headline number suggests, particularly since food prices were up 1.6 percent over the year; the "drag" on measured price inflation was all due to a 15 percent decline in energy prices compared to 12 months earlier.

No Trade-Offs Between Employment and Inflation

If we look at that alternative unemployment rate of 10 percent in conjunction with the "core" price inflation rate of 1.8 percent, what we see is a moderate form of what in the 1970s was called "stagflation": high unemployment with rising price inflation.

The Federal Reserve could try to nudge up the key interest rates it most directly has influence over, especially the Federal Funds rate at which banks lend to each other overnight, but with the risk of threatening the investment and home mortgage borrowing that it has attempted to "stimulate" through near zero interest rates.

Or the Federal Reserve could continue to keep those interest rates low through a continuation of their moderated "quantitative easing" monetary policy, but with the risk that price inflation (however measured) may start to rise faster than it has, creating the danger of price inflation above their declared target level of two percent a year.

(It should be kept in mind that even the Federal Reserve's "modest" target rate of two percent annual price inflation would still result in a near 50 percent decrease in the value of every dollar in our pockets in around 20 years.)

Either way, the old Keynesian notion that you can lower unemployment by accepting a higher rate of price inflation, and vice versa, shows itself to be as illusionary as when it was first touted back in the 1960s as the mechanical macroeconomic policy trade-off between unemployment and price inflation known as the Phillips Curve.

The European Central Bank, by the way, is in its own dilemma. European Union-wide official unemployment continues to hover above 10 percent with a modest price deflation as most recently measured, in spite of that central bank's own version of "quantitative easing" of nearly $70 billion of new paper money-creation per month since the beginning of 2015.

The Fed Causes Booms and Busts

The only result of these years of monetary expansion and interest rate manipulation is economic instability and distortion. The financial market indices significantly gyrate up and down seemingly every day based on attempted nuanced readings of the latest public statements by any of the Federal Reserve governors concerning interest rate policy changes.

The house of cards constructed on years of artificially low or zero interest rates in terms of investments undertaken with trillions of dollars of cheap money, as well as home mortgages at manipulated interest costs, hang in the balance again as in previous boom-bust cycles.

Every time the booms turn into busts, the central bankers insist that they have had nothing to do with it. It has been due to "irrational exuberance" in financial markets, or huckster bankers who duped people into taking out loans they could not really afford, or international events beyond a national central bank's control, or just, well, "bad luck" with things happening in unpredictable ways even under the watchful eyes of the central bank "experts."

The fact is, the boom-bust cycles that have plagued modern industrial societies for well over a century, including the Great Depression of the 1930s and this most recent "Great Recession," as it has been dubbed, have not "just happened" or been the result of inherent and inescapable weaknesses in a market economy or capitalist financial markets.

The booms and busts of the business cycle are the result of the very central bank system that government policy-makers and central bankers insist they are there to either prevent or mitigate in its amplitude and duration.

As I explain in my new, recently released book, Monetary Central Planning and the State, published by the Future of Freedom Foundation, central banking suffers from the same political and economic shortcomings as all other forms of central planning.

Monetary Printing Press Plunder

First, placing the control of the monetary system in the hands of the government or a government-created agency such as the U.S. Federal Reserve System opens the door to the temptation of political abuse in many forms. On the one hand, the temptation exists to use the monetary printing press to create the money that covers the expenses of a government's deficit spending and provides the artificially low interest rates to manipulate the costs of funding the government's accumulated debt.

On the other hand, a central bank can also be used to "stimulate" employment and production in the service of politicians leading up to an election, to make it seem that those in political power have the magic wand to "create jobs" and better standards of living – what is sometimes referred to as the "political business cycle."

It also enables pandering to special interest groups wanting sources of below-market rates of interest for loans, as well as the banking institutions themselves that have access to the created credit supplied by the central bank with which they earn interest income that otherwise might not have been there.

Government full or near monopoly control of any resource, asset or institution (such as a central bank) historically has always brought in its wake plunder and privilege for some at others' expense that would not have been possible in a more open, competitive market setting.

Monetary Central Planning and the Business Cycle

However, even if those who oversee and manage central banks were as "pure" and benevolent as angels only wishing to do good for mankind with no ulterior self-interested motives or temptations, the monetary and banking system would still constantly run the risk of suffering from the same boom-bust cycles that we see in our world today.

That is because central banking is a form of central planning, and as such, manifests the same weaknesses and impossibilities as all centrally planned economic systems. Interest rates are market-generated prices that are meant to coordinate the decisions of savers with those of potential investors, by bringing the two sides of the loan market into balance.

Income-earners make a decision to spend a portion of their earned income on desired consumer goods and to save a portion of that income for planned and possible demands and uses in the future. The real resources that saved portion of their money incomes represents in terms of buying power in the market is transferred to interested and able borrowers; they use that saved portion of other people's money income to enter the market and demand and purchase resources, raw materials, capital goods (machines, tools, equipment) and labor services to undertake future-oriented and time-consuming investment projects of various types and lengths that will bring forth goods to be bought and sold in the future.

Interest rates, in other words, serve as the balancing rod to keep in coordinated order the use of scarce resources in society between the production of consumer goods closer to the present and the investments that will bring forth consumer goods further in the future. It is the balancing of resource uses and goods production across time.

Central Banker Hubris vs. Competitive Markets

There is no way to know what are the "correct" coordinating interest rates for different types of loans with differing periods of investment time in relation to people's decisions to consume and save parts of their income other than to allow free, competitive financial markets to discover through the interactions of supply and demand what the "equilibrium" or market-balancing interest rates should be.

This is, of course, no different than in the case of any other good or service that can be offered on the market. No central planner can replace the competitive market and its free pricing system for integrating and coordinating all the complex knowledge and circumstances of multitudes of millions of suppliers and demanders in an ever-changing world.

And, likewise, it is sheer arrogance and naïve hubris for central planners to believe that they do or ever can have the knowledge, wisdom and ability to correctly determine what the quantity of money should be in the economy, what money's value or purchase power should be over goods and services in the marketplace, or what interest rates would assure that coordinated balance between savings and investments.

Monetary Freedom and Private Competitive Banking

That is why it is time to rethink and challenge the presumption of a need for and superior outcome from the institution of central banking, whether in the United States or anywhere else in the world.

In the twentieth century a group of economists known as members of or sympathizers with the "Austrian School of Economics" challenged the reasoning and rationale behind central banking. Among these leading Austrian economists were Ludwig von Mises and F. A. Hayek.

Though Austrian economists have differed sometimes in their emphases and arguments about the practical workings of a private, competitive free banking system, there is one underlying premise shared by all of them: a completely market-based monetary and banking system would be far superior to historical and current institutional forms of central banking.

Money is, perhaps, the most central and essential economic good in the market, since it is the generally used medium of exchange to facilitate all transactions entered into by buyers and sellers. It makes smoother and more effective the exchange of goods and services throughout the economy.

Money and Banking Are Too Important to Leave to Central Banks

But precisely because of its central role and significance in a complex and ever-changing market economy the supply and control of money is too important to leave in the hands of politicians or their central bank appointees.

They are either too open to the temptations of short-run political purposes in their control of the monetary printing press or they suffer from what Hayek called a "pretense of knowledge" in presuming that they can ever know more or better than the cumulative knowledge of all the participants of the competitive market as manifested in the prices and interest rates that emerge through the interaction of supply and demand.

Historically, markets – which means all of us in our roles as consumers and productions – determined which commodities were most useful as media of exchange for different types and sizes of transactions. Money was not and need not be a creation or creature of the state, and has most often been commodities such as gold and silver.

Banking as the institutional procedure and process to facilitate and coordinate the decisions of savers and investors emerged out of the market discovery of profitable opportunities in providing intermediary services to minimize the costs of lenders and borrowers directly searching out trading partners for the exchanging of resources and goods across time.

Money Creation as a Tool of Plunder

Governments and their central bank creations usurped market-based monetary and banking systems to serve the plundering purposes of kings, princes, parliaments and special interest groups who all wanted to hold the magical hand of the monetary printing press.

Print up money (or its digital substitutes and surrogates in more modern times) and you can have access to all the hard work of others who have invested in manufacturing and bringing to market all the goods and services you desire without having to undertake the reciprocal effort and work to make and trade an actual good or service to earn the money so as to honestly buy what you want from them. Some are so impolite as to refer to such monetary mischief as "fraud" and "theft."

Added to this more "base" purpose of government monopolization of the monetary printing press, has been, over the last one hundred years, the arrogance and hubris of social engineers, bureaucratic elites of "experts" and "socially-oriented" policy-makers who presume to know how to micro-manage and macro-manage society better than leaving people to manage their own lives through peaceful interaction with others in the competitive marketplace.

Their century-long legacy in the arena of money and banking has been the booms and busts of the business cycle. The monetary social engineers have worn different hats at different times – calling themselves Keynesians, Monetarists, New Classical or Rational Expectations theorists, or Post- and New Keynesians – but they remain variations on the same conceptual and ideological theme: monetary central planners imposing their notions of desired market outcomes by co-opting the functioning of a real and functioning market-based competitive system of free banking using market-chosen media of exchange.

The time has come to end the tragic and disruptive reign of monetary central planning.

Dr. Richard Ebeling is the BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina. He was professor of economics at Northwood University in Midland, Michigan (2009-2014). He served as president of the Foundation for Economic Education (2003-2008) and held the Ludwig von Mises Chair in Economics at Hillsdale College in Hillsdale, Michigan (1988-2003). Richard Ebeling's latest book, Monetary Central Planning and the State, published by the Future of Freedom Foundation in eBook format, is now available from Amazon.

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  • Bill Ross

    Some are so impolite as to refer to such monetary mischief as “fraud” and “theft.”

    Well, whatever the label, counterfeiting symbols and forcing it to be the only medium of exchange forces the productive to trade REAL goods and services for nothing, as unproductive as it gets, with REAL, provable consequences:


    The only way the unproductive can win is to totally destroy the productive, followed, soon after by demise of they, who are, to remain impolite: parasites who die when the host does.

    • Marten

      It takes a wise “parasite” not to kill its host…They know who they are and place moneys above integrity as shown by the criminal Meda

      • Bill Ross

        parasites are not wise. If they become wise, they are no longer parasites, but symbiots, adding value so the host can tolerate them, such as all the bacteria in our stomachs, assisting digestion.

  • “The three largest domestic coal producers, Arch Coal, Peabody Energy and Alpha Natural Resources have a combined market value of about $400 million, down from about $40 billion in 2008” ~ WorkBoat, Sept 2015

    Our ruling monarch-monopolists have control over the PARROT PRESS, the PUPPET CONGRESS and NO BID war industries. With these assets they are able to leverage entire sectors of the economy for their VULTURE FEUDALISM ventures. The WEAPONIZED EPA branch of the Feral government declared WAR on coal using the worst ‘science’ since the world was flat. After asset stripping the capital value of these critical energy suppliers, the PLUNDERING PLUTOCRAT PIRATE Warren Buffet bought Peabody Energy. He can ship coal to China, which now burns 50% of the coal on the planet and is adding four new coal fired generation stations per week for the short term. Meanwhile this pirate will wait for the further bankruptcy ripple in the barge and mining equipment sector that are also being asset stripped.

    Do a search for “Kiehl-Trenberth Global Energy Balance Chart” and witness what is rote indoctrination by the Darth BIG Warmists and the Luke LITTLE Warmist climate alchemists. These charlatans claim that Earth receives 161 watts/square-meter of energy from the Sun, but 333 watts/square-meter from MAGIC GAS. For more on the FRAUD of the millennium see….

    “Greenhouse Gas Ptolemaic Model”

  • dave jr

    Impolite, Dr. Ebeling? How rude of me. It isn’t nice to point either.
    Confiscating gold in 1933 and silver in 1964 is not theft? Instituting a mandatory Social Security ponzi scheme is not fraud? Credit kiting the National debt to finance heavy domestic regulatory burdens and foreign nation building is justifiable? And outright illegal QE counterfeiting to temporarily disguise the effects of past crimes is forgivable? To only name a few, I’m not too concerned about hurting the Bugsy and Mugsy tag teams’ feelings.

    • Jim Johnson

      Pissed off. I get it. Cost me friends and gave me deaf ears and cold shoulders. Again, a review of history is in order, especially that of 1790’s France.

    • Gil G

      Nope. No. I don’t know, maybe. No.

      • dave jr

        It’s OK Gil. Don’t hurt yourself.

        • Gil G

          I didn’t. Heck it was easy to give concise answers to daft questions.

          • dave jr

            Atta boy.

          • Gil G

            Your welcome.

  • Jim Johnson

    My bet is those who allowed this, did so (in the main) with the best intentions. They had all lived through booms and busts. We now have history to rely on unwinding what went wrong and where. For those of us who grunted out a living, I pray that Dr. Ebeling and his Austrian economists can give us a way forward, assuming we can peaceably reset. Waiting for corporate media to point the way is a fool’s errand. Our communities are full of very savvy folks. Talk to them. Talk to your neighbors. I see a day when employment occurs off-planet. Imagine 8 billion people paying sales tax, and just maybe this can be addressed.

    • dave jr

      History is not kind to the concept of a peaceful reset. The natives do get restless and this is a huge concern. However, without pointing out the perps, and exposing their “best intentions” as fraud and theft, there may be no reset; rather, a slow descent into a global carbon credit based monetary hell. Don’t get me wrong. I am not “pissed” or wanting of violent overthrow. I want truth and an end to deceitful monetary practices aimed at economic conquest through hidden agendas. It would be a long hard climb out of a hole that ‘We the People’ willingly walked into, believing in the “best of intentions”.

      • Jim Johnson

        Glad to hear it. Someone pointed out Man’s default mode is War, and Peace is the rare exception. Also, endeavoring to reset a country, I believe, has no precedent. But then we have all these new tools, bragging we are ‘exceptional’. Tools and attitude are crucial to building anything substantial.

  • It rather disgusting to see discussions ramble on with much ado about nothing and missing the basic problems entirely. What else can one expect from a cover up society afraid or hostile to facing reality? Money has always been a fraud whether paper or worshipped metal but a very useful fraud as it is the life blood of the development of our modern society so we put up with the fraudulence. But it doesn’t have to be a fraud or at least can be created with equality and fairness in mind. Money is created out of “thin air” known as “fractional reserve banking” and then loaned out at interest. Thus most money if not all money in circulation is borrowed money earning compound interest. When all money is paid back, there is no money left to pay the interest . Then more money has to borrowed to pay the interest on, and on forever in debt. Is this not the problem? How can money be created with equality and fairness in mind? Since money is created out of nothing, all new created money should be deposited equally in every adults bank account for his use as he pleases. I say adults in order to avoid the temptation for creating larger families. That is only fair play. Some call this social credit.

    • dave jr

      First educate yourself on the difference between money and currency. Money conveys value, and currency conveys obligation. Today, there is no money in circulation, just currency.
      Second, there is nothing wrong with charging interest for waiting on a due obligation.
      Thirdly, it is criminal to force obligations onto others accounts.
      Lastly, your ‘solution’ of depositing directly and equally into every adults account falls prey to exactly what the monetary overlords could wish for. If only we were blind enough to accept this economic command and control over all plebian lives.
      Thank you, but NO thank you.

      • It would be helpful if dave jr would stick to the point I was making instead of his high and mighty analysis beyond my point. I did not say in any shape or form that all interest is a problem. Only interest on all money from “thin air” in circulation is a problem as previously explained. ‘How all new money from “thin air” going to every adult’s bank account equally is what money overlords could wish for is beyond me. Is every adult a money overlord? That would be great but contrary to the status quo. Looks to me like dave jr is stuck on some kind of personal agenda. Dave jr could first educate himself on better understanding of the English language in order to better relate more directly to my English language statements. Thanks and no thanks!

        • Bill Ross

          “going to every adult’s bank account equally is what money overlords could wish for is beyond me”

          make ’em dependent, enslave ’em, Machiavelli 101:


          cut out the middleman: government, which is why it ain’t gonna happen, at least until leviathan is slain

        • dave jr

          “Only interest on all money from “thin air” in circulation is a problem as previously explained.”
          Is it interest on money from thin air, or money from thin air that is the problem. I know your answer because you want money (actually currency) from thin air deposited directly into yours and everyone’s account. Do you really believe this wouldn’t debauch and make worthless the ‘money’ (currency – get it straight). I have had this debate of fictitious entities (government) supplying fictitious ‘air’ currency (money is real) more times than I care. I wouldn’t spend anymore time arguing with idiots, except you peaked my curiosity. I’d be very interested in knowing what my personal agenda is? This time, thank you!

  • Praetor

    Andrew Jackson: ” You are a den of vipers. I intended to rout you out and by eternal God, I will rout you out.” And, I killed the bank. Andrew Jackson understood the perils of monetary central planning and did something about it!!!

  • WPalmer

    The credit and debit card has done untold damage. Put $100 in your wallet and go to the gas station and then the supermarket, I’ll bet you cant get to the checkout without going to the ATM first.
    We dont see “money” any more, it is just numbers, and has been replaced with a plastic card.
    Andrew Jackson was right. ….and so were the banks……