America doesn’t need a central bank like the Federal Reserve System and might be better off seeking other alternatives.

That was the assessment Monday night of Steve Horwitz, the Charles A. Dana Professor of Economics and department chairman at St. Lawrence University in Canton, N.Y. Horwitz spoke at Grise Hall Auditorium at Western Kentucky University as part of the BB&T Center for the Study of Capitalism lecture series.

“Debt isn’t the problem,” Horwitz said. “The problem is you have a monopoly-based system. Banks can’t lend what people don’t give them. The attempt to provide money through a monopoly doesn’t work.”

The Fed’s track record since its creation in 1913 isn’t good, he said. Recessions and depressions in the U.S. economy have been more frequent after its creation than before, when state-chartered banks controlled the money supply. But that format had issues, too. State-chartered banks couldn’t create branch banks and also couldn’t cross state lines.

The Fed is actually a system of 12 banks across America that has seen more centralized power in Washington, D.C., in recent years.

“Free banking – true competition in the creation of money would work better,” the professor said. Banks would want to perform more efficiently to maximum their profits – interest made on the money – and not see either inflation or deflation occur in the economy.

In the history of America, there has never been a free banking market – there have always been regulations, whether they came from the states or the federal government, Horwitz said. Currency produced by local banks actually financed the Civil War, then when Congress passed a 10 percent tax on state banks’ money, efforts shifted to a federal banking system and that helped pay off Civil War debt.

“There is a long history of central banks being created to raise money for government to pay for wars,” he said.

Like an old warship, though, the central bank moves slowly and takes a while to come into the wind.

“It takes time for central banks to recognize a problem, collect data, make a decision, implement that decision and see the effects of that decision,” he said. “By the time the policy becomes effective, it can be the exact wrong thing to do.”

If someone had said to him a decade ago that reform of the Fed would become a serious discussion in 2013, Horwitz wouldn’t have believed it. However, with recessions in 2007 and 2008 and other regulatory problems with the nation’s banking system, the discussion is on the front burner.

“We were talking about the Fed in macroeconomics class,” said Raymond Shears, 21, a WKU junior business major from London. “It was good to hear an opposite viewpoint on the Fed. I think we need to keep the Fed because of the economy.”


(3) comments


With all due respect Professor Horwitz, while I agree that we need currency competition, saying that debt is not the problem is itself wrong. The entire monetary system that the Fed is based upon is a debt-based monetary system. Money is issued by issuing debt, and such a system is a tremendously destructive system.

So while I'm glad Horwitz calls for ending the Fed, I'm very concerned that he is not calling for an end to elastic money, which is what the debt-based monetary system is all about.


Banks can’t lend what people don’t give them.
Jct: Evidently, the professor doesn't know that banks do not lend out their depositor's funds, they create new credits. Tha'ts the problem with the mort-gage death-gamble, everybody borrowed 10 but all owe 11 and someone's got to get knocked out of the debt-money game of musical chairs. "FED isn't working?" That's news?


Horwitz is absolutely correct. The Fed has been the cause of inflation that has reduced purchasing power by 64% ever generation (20 years) , during a working lifetime (45 years) by 84% and during a lifetime it confiscates 100%. If is the cause of gradual elimination of the middle class and of wealth transfer from the middle class to the 1% that now owns 54% of the U.S.

The Federal Reserve, the Fed, is a private, for profit, conglomeration of banks, including international banks that stem from the Rothschild empire. The word ‘Federal’ is misleading. It, along with the IRS, was established and signed into law in 1913, under president Wilson. Wilson later regretted this signing. It passed through congress after midnight right before Christmas while most of congress was absent due to Christmas. It was never ratified by the states. It’s one hundred year charter is up next year. This Governmental money system is what is known as a ‘Central Bank’. Central banks were disdained and often warned about by many of our founding fathers.The USA treasury writes bonds for, and asks the Fed to print up (out of thin air) and issue money which is then distributed to branch banks, who use fractional reserve lending with interest. This puts our country deeper in debt to those who buy these bonds (like China). The more money that is printed, the greater inflation. War spending being the greatest creator of debt inflation. A crash or hyper-inflation is inevitable. This is all manipulated/engineered by the global banksters to take over America. JFK was the last President that was taking steps to quit the central bank system and get our own government to issue its own currency. Quantitative Easing (QE3) has now begun, printing money at the rate of $40 billion per month which will cause the purchasing power of our dollar to become worth less and less (this means things get more expensive)
Another thing the common American should be aware of, is the District of Columbia Act of 1871. That is when our country became a corporation, no longer United States. It changed from These United States to THE UNITED STATES. The implications are huge and I don’t have the time to get into all of the ramifications, but basically, we are owned by a corporation.
Sovereignty of the individual American citizen and states of our union should be returned, as well as a return from maritime law to common law.

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