The 100th Anniversary of the Federal Reserve Act – Why It Was Misguided

December 23rd, 1913 – a day that will live in infamy. I thought I would meander from my post series on crypto matters to highlight something equally important, if not orders of magnitude more significant in the grand scheme of history.

 

Exactly one century ago, the Federal Reserve Act of 1913 was signed into law. The result was the establishment of America’s longest running central bank – which is the sole issuer of whatever currency a given government wants to have it’s taxes paid in. Since money is half the equation in the vast majority of economic exchanges, this basically put a largely unaccountable institution in the position of manipulating a large portion of the American economy.

 

In case you’re wondering what this means in practice, take a look at the following video:

 

 

Every time new money is printed (almost out of thin air), the money causes the prices of various goods and services to rise as it begins to circulate throughout the economy. The “winners” in this situation are the first people to get the freshly printed cash, because prices don’t rise until after they have spent it. These rising prices are a natural result of supply and demand – more money in circulation chasing the same amount of goods means each dollar loses purchasing power.

 

Unfortunately these rising prices do come at a cost, as the video above explains. The people who lose out every time the Federal Reserve increases the money supply are the people who receive the new money last – which almost always means entry-level workers who are at the bottom of the new money supply chain. The prices of almost every major good and service has already risen long before the amount of spending money they have at their disposal rises as well.

 

To put it bluntly, increasing the supply of fiat currency in any national economy operates like a regressive tax. This tax is basically inflation that affects the poorest people in any given situation who happen to be the last ones to have their wages adjust for the new money in circulation. It gets even worse for those who don’t have any salary whatsoever; the loose change that comes their way only looses more purchasing power due to the rising prices of everything else.

 

 

 

We can easily break this destructive process down into just five steps:

 

1. Banks and the Fed increase the money supply. Those most politically-connected are first to receive new cash.

 

2. These well-connected people/groups spend this money. With more available, they have increased buying power.

 

3. As this money circulates, prices for everything rises to adjust for the increase in total dollars in the economy.

 

4. The savings and purchasing power of those at the bottom is eroded since each dollar loses purchasing power.

 

5. Consequently, the gap between the politically-connected rich and the disenfranchised poor grows with steps 1-4.

 

 

 

The process by which the Federal Reserve and the banking system we currently have actually increases the money supply is something that could occupy an entire post altogether. For now I just want to spend time focusing on the effects this process has. In a couple future posts, I will continue explaining case against central banking and what needs to be changed.

 

 

November 4th, 2013 – Sixth Anniversary of Going Market Anarchist

Update: Well, okay to be fair technically I’ve only been “Market Anarchist” for half a decade. But saying so kind of sort of ignores all the time I was in denial about what I really thought could “work.” And after all this time messing around with Python I refuse to count like a programmer unless I absolutely have to. If I had to pinpoint a day when I first began the transition at all, it would have to be in 2007, when I first came across the general case for abolishing the FDA. A year later when the 2008 Presidential election was called, I finally adopted the title “Anarcho-Capitalist.” To satisfy those who don’t like the origins of the later term, “Market Anarchist” should suffice.

 

 

I can sort of remember the day. The past several months prior to it I went from being nominally conservative to total minarchist Libertarian. All government ought to do is protect people from initiation of force at home and abroad. Yeah I was pretty outside the mainstream but nothing along the lines of wanting to scrap our political system altogether.

 

At the same time I was having some doubts. After spending some time on a now defunct social networking site called “Bureaucrash Social” I had been exposed to some ideas and arguments I never knew existed. Combine this with spending some time on the Mises Institute website, skimming through the daily articles, and it wasn’t long before I started to realize just how far the arguments against government could go.

 

My breaking point ultimately was on the night of the 2008 elections. Having switched from being supportive of McCain (please forgive me for that) to being fascinated by Bob Barr’s campaign (he too defected from conservative politics), I knew I was going to be pretty dissatisfied with the results whether Barack Obama or John McCain won the presidency.

 

As soon as the election was decided, a key element of the outcome finally dawned on me. My mother was in a relationship with someone at the time who noted that millions of people who probably weren’t too happy about the outcome would probably wake up sick the next day. Because just over 50% of the people who chose to vote outnumbered the rest, that was the outcome whether people liked it or not.

 

So what was this key element you ask? I knew to some degree that arguments could be made that law and order could be provided in the absence of government thanks to a short bit that David D. Friedman posted online from his most famous work. He had posted chapter 29 from his book on how the free market might provide police and courts. Combine this with the fact that I was convinced that non-interventionism was the way to go when it came to foreign policy, and that really didn’t leave much of anything for government to do. Consequently, this meant there was next to nothing that a president or elected congress could possibly serve any legislative purpose for.

 

Why waste so much time and effort on having half the country impose certain preferences on the other half if there was so little elected officials should even be allowed to do once elected? That was when a couple months of letting some arguments against anti-trust, intellectual property, government legal systems, and government provision of various public goods finally sunk in. I had yet to figure out precisely how on a functional level a society with no government was supposed to work, but I knew that the idea of supporting one with government kind of relied on some serious double-standards. If business is so evil, why should an institution that can force payment and restrict you from other providers of various services within it’s “legal territory” be any better?

 

No need to go into detail about how my views developed after that. In a nutshell, I started gathering notes for “State Exempt” about a year later in the winter of 2009. I thought I would have it done before summer of the following year because at the time I expected it to be only 150 pages or so. Boy was that a dead wrong estimate on my part…

 

So it’s taken way longer than I thought it would. Rather than a short primer, it will be a borderline treatise even though I never once published a book before in my whole life. I would probably get fired from any job that required me to estimate the amount of time I needed to get something extensive done – no question about it. Hell, at least I have the cover finished:

 

Way less gloomy than the earlier version.

Way less gloomy than the earlier version.

 

Procrastinators of the world unite! Better late than never ought to have merit if it means a better final product.

 

Happy Two-Year Site Anniversary

I can still remember that night. As I stayed up late scrolling through web page after web page, I finally made the decision to purchase the web domain where this blog now resides.

 

That same night, the 2010 midterm elections took place. Supposedly an electoral revolution that shared parallels with what occured in 1994 was taking place. Of course, I was pretty skeptical about the legitimacy of that – not because I was in disagreement about a need to reign in spending, but rather because past records of how GOP-led congress handles spending seems to suggest that they might not be so inclined to reduce spending after all.

 

Granted, I understand that this does not vindicate the Democratic party or the present administration from high spending either. I also understand that many of the figures used to understate government spending increases over the past few years rely on some flawed metrics – like using percentages instead of absolute dollars in measuring spending increases:

 

Bush Obama Spending Increase

Technically each percentage of increase in spending over the last few years represents a higher total dollar amount since it represents an increase on a larger budget to begin with, but the basic point remains: Big spending is characteristic of either major party.

 

Like the description on this site’s welcome page (yes – I have very mediocre html skills) states, I paid little attention to the elections. Instead, I finally got around to buying this website and beginning the process of constructing it. Despite my lack of web design skills, I think I have managed to make this into something worthwhile.

 

Which brings me to the actual purpose of this post. Now that I actually have more of a stable routine established, I plan on posting bi-weekly instead of just once a month or less. Perhaps even more often than that if I can, because after two years I feel like I have completely neglected this site, especially after taking time off from YouTube for such a long time.

 

So what can readers expect now? For one, I will be posting semi-drafts of material that will be featured in State Exempt (the actual book this site is based on). Since I started putting notes together for it nearly four years ago, much of my time has been spent on other things which of course include endless online debates that have subsided (for now). Secondly, I do plan on posting on other topics that come up from time to time.

 

These other topics include critiques of various news articles that really strike my attention as well as responses to common arguments I tend to see against Libertarianism in general. You can probably guess what the latter might entail if you have been entrenched in political discussions for a year or two as is. Finally I plan on posting various charts, images, and infographics that I find worthwhile to post as well as (sigh) YouTube videos.

 

Having said all that, here is how the draft material posting will take place. Instead of posting perfectionist attempts at writing excellent drafts, I will simply look at my notes, and hastily type a summary of the material in whatever manner comes to mind – hence the reason I refer to it as “semi-draft” material. Any more effort at professionalism in this process will likely mean that the material will not see the light of day. I really need something to work with to allow me to write the first professional draft. That draft will likely be significant paraphrasing based on reader input; the product of which will be edited once more for grammar.

 

From what I have so far, the book will be divided into five chapters, each of which will be divided into three sections, each section divided into two parts, and finally each part will cover five topics. There will also be some preface material, and a concluding section, among other things. Speaking of input, anyone who is genuinely interested in giving feedback can drop me an email:

 

 http://stateexempt.com/welcome.html