The Fed: The Keeper of Monopoly

The New York Times reports this week on the results of the Federal Reserve’s latest “stress tests,” periodic assessments implemented after the 2008 financial crisis to gauge banks’ preparedness for “severe economic conditions.”

Concluding the third round of these tests, the Fed announced that “15 of the 19 largest financial firms had enough capital to withstand even a severe economic downturn.” For market anarchists, the notion of the Fed appraising the health of the most gargantuan Wall Street banks is amusing. Or at least it would be if it weren’t so unnerving.

The essential role of the Fed, both within the banking sector and the economy more generally, is to insulate an oligopoly status quo, a small cabal of banks able to claim unfair tolls on economic activity. This state of affairs is what nineteenth century anarchist Benjamin Tucker called the “money monopoly.”

That money monopoly saturates every defining aspect of the American capitalism passed off by its advocates as “free enterprise.” Legal tender laws enshrine otherwise worthless pieces of paper, arbitrarily proclaiming that they hold value and coercively excluding any alternative medium of exchange that might otherwise arise to serve the needs of a given community.

Byzantine regulations and licensing laws not only dictate how many banks there can be within a given area, they decide what “the right size” for a bank is. Arguably the most decisive and distortive intervention of all, however, is the primary means through which the state creates and maintains an unassailable cartel in the financial services industry, the Federal Reserve System.

In theory, central banks exist to impart a necessary flexibility to a country’s economic life, adjusting interest rates and ensuring liquidity in the event of dry spells. But the rationales offered in support of these government-chartered, though purportedly independent, banks are discernibly misaligned with the fruits that they bear in practical reality.

In the Federal Reserve System, Wall Street finds its most perfect weapon against competition and productive society. As the earliest recipients of the Fed’s counterfeit monies, printed whenever the corporate-political class finds it expedient, the largest, most powerful banks quite literally benefit at the expense of the public at large.

When printing vast sums of money into existence is no longer politically tenable, the Fed engages in a less obvious, yet no less harmful practice — purchasing federal government bonds in quantities so immense as to overwhelm the mind. The entrenched banks too consume titanic levels of government debt, financing the growth of the total state on the estimation that treasuries are a “safe” investment, as the government is unlikely to default.

Coupled with the cost barriers to market entry created through licensing certificates and regulations, the Fed enables the “too big to fail” banks to mimic it, themselves lending more than they have in reserve. In and of itself, the banks’ practice of issuing notes in excess of the amount safely deposited within their coffers is not necessary a problem. It becomes a problem, though, when the big banks are protected from the strains of genuine, open competition and given a privileged position in the saddle of the economic system.

“Rich people,” wrote anarchist Ezra Heywood, “have been the subjects of charity long enough. Money covers a multitude of sins in which too many take stock.” Judged by its actions and their repercussions, the Federal Reserve System can’t be taken seriously as a physician performing a routine exam on Wall Street.

The infirmity of American finance — its moral hazards and fundamental instabilities — are bound up with the Fed and with state coercion in general. True free markets, though yet unknown to the American economy, are the alternative, ready to rupture the oligopoly and actually serve the needs of consumers.

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