Central Banking in America: One Hundred Years of Failure?

Next year will be the one hundredth anniversary of the US Federal Reserve Bank. Given the recent financial turmoil, growing public sentiment against the “Fed” (short for Federal Reserve) has re-initiated a debate about the merits of central banks.

After the fear about bank runs in the Panic of 1907, the US Congress established the Fed (1913) to regulate the quantity of money in the economy and to be “a lender of last resort.” The idea was to stabilize financial institutions, iron out business fluctuations, and maintain the purchasing power of money. Irving Fisher confidently declared that there would never be a depression again! Yet sixteen years later, America plummeted into the deepest and longest recession in history.

Austrian school economists have done significant work to show how artificial credit expansion by the central bank generated the Great Depression. But many advocates of central banking argue that, for one reason or another, it is unfair to use this era to judge the value of the Fed. This was a period of “practice.” Are these apologists for central banking correct?

What if, just for the sake of argument, we accept this handicap and exempt the Fed from culpability for the Great Depression? Should the overall performance of the Fed after WWII be admired and emulated by the world? or should it be viewed with shame and disappointment?

In the video below George Selgin, Professor of Economics at the University of Georgia, argues that the tenure of the Federal Reserve has been “A Century of Failure” and gives new evidence “Why It’s Time to Consider Replacing the Fed.”

Using the assumptions and standards of mainstream economics, Professor Selgin presents new research to compare the record before and after the introduction of the Fed and shows that the Fed has failed on its own terms.