At The Washington Post, the Center on Budget and Policy Priorities’ Jared Bernstein argues that “the Federal Reserve can reduce inequality,” that by “using its interest-rate tools to keep the cost of borrowing down and signaling to the investor community that it is committed to keeping rates low, it can help to trigger job-creating activity.” While business writers such as William D. Cohan contend that Federal Reserve policies such as quantitative easing have actually “only widened the gulf between the haves and have-nots,” Bernstein insists that the United States’ central bank has an important role to play in targeting inequality. The relationship between the Federal Reserve and wealth inequality presents an important opportunity for left-wing individualists insofar as libertarian critiques of the Fed are typically regarded as coming from the right. As free market libertarians, however, we need not accept that narrative. Rather, we can attack the Federal Reserve System from a perspective that is both free market and left-wing, condemning the central bank as a class instrument designed to buttress rich, Wall Street interests. The Federal Reserve sits at the nucleus of a structurally corrupt system under which the major Wall Street banks are permitted to form an anticompetitive cartel, removed from the competitive market pressures that would actually protect consumers. Market anarchists have long understood the importance of the banking or money monopoly, some such as Benjamin Tucker arguing that this was indeed the most harmful of all monopolies — the one most crippling to working people. And the Federal Reserve System is arguably the most important component of a money monopoly that privileges moneylenders through a vast array of reserve requirements, legal tender laws, licensing and certification requirements, and thousands of other rules and regulations. Promoted as protecting consumers and creating a stable environment for competition, this network of privileges in fact protects the big banks.
Benjamin Tucker argued that if individuals were allowed to freely mobilize their own credit, to borrow, and to issue currencies outside of the State’s system, they could break the chains of bondage that held them in thrall to the capitalist system. With monopoly control of currency, credit, and banking in general, bankers could as a practical matter tax us for the privilege of living, making us substantively not much more than serfs paying tribute to titled overlords. Tucker and his fellow individualist anarchists therefore argued for the absolute most open competition and freest markets in money and banking. It was not the existence of competition that had subjected working people to the whims of monopoly, but its absence. “The Anarchists,” Tucker wrote, “are the extreme free traders; and they, to a man, favor free trade in money,—most of them, in fact, recognizing it as a necessary condition of free trade in products.” The panic of ‘08 demonstrated that the Federal Reserve does not exist to restrain and stabilize financial markets, but to capacitate exploitation by “Too Big to Fail” banks. Indeed, nothing could reveal less of a concern for economic inequality. When the federal government began deciding which banks it would save at the expense of taxpayers and consumers, some were more equal than others. It is the preservation of Wall Street privilege that truly concerns the Fed and the federal government.
The naive belief that the Federal Reserve System could reduce inequality rests on a profound ignorance of economics, politics, and history. Considered from a political perspective, the Federal Reserve System is a tool of elite interests, controlled at all times by a tiny but disproportionately powerful group of bankers no less subject to self interest or the influence of pressure groups than anyone else. To begin with, it is not at all clear that we should believe this small group behind the Fed to be more concerned about inequality than anyone else. What’s more, even assuming they are (for some reason) more concerned about inequality than the general population, it is even less clear that they could do anything about it without far-reaching unintended consequences. In any event, the Fed’s true economic purpose, contrary to statist misinformation, is and always was to concentrate power in an influential group of well-connected favorites, the Wall Street banks who stand to be bailed out at the next inevitable crisis. Given the Fed’s sordid history, such political and economic consequences are a matter of course. After all, it was organized financial interests that led the drive for a new national banking system, for an institution that would protect them from risk, with Progressive Era intellectuals gladly granting their stamp of approval.
Still, “increasing the supply of low-cost credit” sounds innocuous enough, and indeed individualist anarchists like Tucker predicted that such would be the outcome of allowing free banking. Other advocates of free banking (i.e., its right-libertarian advocates) have made contrastive predictions. Ultimately we can’t be certain of anyone’s predictions about genuine freedom of competition and exchange in banking, what it would look like, or its results. To believe that we could know beforehand what would happen is the most arrogant and ridiculous conceit, the kind that leads to coercive, centralized economic planning in the first place. Importantly, the State is unlike the market in any case. The State’s “supply of low-cost credit” is simply printed out of thin air, with nothing ceded or sacrificed. The free, mutual banking of anarchists like Tucker and William Batchelder Greene made land and all kinds of other property the basis for money, creating credit secured by that property just as a mortgage lien secures a home loan. As Greene wrote in Mutual Banking:
Ships and houses that are insured, machinery, in short, any thing that may be sold under the hammer, may be made the basis of mutual money. Mutual banking opens the way to no monopoly; for it simply elevates every species of property to the rank which has hitherto been exclusively occupied by gold and silver. It may be well (we think it will be necessary) to begin with real estate: we do not say it would be well to end there!
Unlike in the home loan examples of the present, however, such relationships in a freed market would be equitable, made between parties of relatively equal bargaining power. With competition between services, currencies and prices for credit (i.e., interest rates), and with no Federal Reserve System to guarantee bailouts, quantitative easing purchases, and the like, no financial institution could grow “Too Big to Fail.” Libertarian anarchists may disagree on the question of what exactly it is that defines money: Is specie money, or is credit/debt money? The author submits that we go forth and allow the voluntary exchanges and cooperative projects of free and independent people to decide that question. If it is individual choice that we really care about as anarchists and libertarians, then it seems counterproductive and even utterly strange that we ought to insist on, for example, gold or silver money.
In banking as in economics generally, the fundamental question asks which arrangement in is more likely to give us the results of fairness and stability that at least in theory we all desire. Is it a networked system in which decision making power is distributed and free agents compete without anyone benefiting from special privilege? Or is it a system in which competition is outlawed from the start and decision-making power is extremely concentrated in a very small group of politically appointed bankers, to whom still other bankers on Wall Street have privileged access? If we believe that laws are akin to magic, that politicians are omniscient in crafting them, and that bureaucrats are perfectly altruistic in their implementations of them, then perhaps we might consider the latter system. The fatal flaw in the narrative, though, is that the State has been the handmaid of the rich since its birth in conquest and plunder. As Albert Jay Nock taught, the State’s “primary intention is to enable the economic exploitation of one class by another.” Under capitalism, that exploitation is made possible by the State’s interventions to grant capitalists privileged access to the land and other shared natural resources, to the most remunerative professions, to ideas and technology (through absurd “intellectual property” laws), and to the distribution of money and credit, among many, many others. To believe that the State ought to intercede on behalf of the poor and working classes misunderstands both the State itself, as an actual historical phenomenon, and the capabilities and poor and working class people themselves. Well-meaning people on the mainstream, statist left must come to understand that workers and the less fortunate do not need the State’s help. We just need the State to stop intervening on behalf of the interests of capital. Tucker thought that we ought to start with banking, that this money most hobbled the self-directed activities of working people; perhaps he was right.