Note: Tonight, November 11, at 8 PM New York time, I will attempt to “go live” on substack. This event will be for all subscribers, paid and unp

The Real Mission of the Fed - by Arnold Kling - In My Tribe

submited by

Style Pass

2024-11-12 15:00:09

Note: Tonight, November 11, at 8 PM New York time, I will attempt to “go live” on substack. This event will be for all subscribers, paid and unpaid. If I can figure out how to enable others to speak, it will last an hour. If I cannot, it will be shorter.

The Federal Reserve was created in 1913. Very shortly thereafter, the United States for the first time become involved in a European war, initially as a lender to the Allies, subsequently as a co-belligerent. Coincidence? Not entirely.

We are treated to such quaint myths about the purpose of a central bank. “It controls the money supply to steer the economy away from high inflation or high unemployment.” “It is the lender of last resort.”

The real purpose of a central bank is to enable the government to borrow money at a low interest rate. I learned this from Niall Ferguson’s The Cash Nexus. Reviewing this book years after I read it, I wrote,

I came away from the book thinking that all elements of financial policy are geared toward the goal of enabling the government to allocate credit to its preferred uses, especially its own spending.