The Case Against the Fed

Mises Daily by Murray N. Rothbard | Posted on 6/5/2009

By far the most secret and least accountable operation of the federal government is not, as one might expect, the CIA, DIA, or some other super-secret intelligence agency. The CIA and other intelligence operations are under control of the Congress. They are accountable: a Congressional committee supervises these operations, controls their budgets, and is informed of their covert activities. It is true that the committee hearings and activities are closed to the public; but at least the people's representatives in Congress insure some accountability for these secret agencies.

It is little known, however, that there is a federal agency that tops the others in secrecy by a country mile. The Federal Reserve System is accountable to no one; it has no budget; it is subject to no audit; and no Congressional committee knows of, or can truly supervise, its operations. The Federal Reserve, virtually in total control of the nation's vital monetary system, is accountable to nobody — and this strange situation, if acknowledged at all, is invariably trumpeted as a virtue.

Thus, when the first Democratic president in over a decade was inaugurated in 1993, the maverick and venerable Democratic Chairman of the House Banking Committee, Texan Henry B. Gonzalez, optimistically introduced some of his favorite projects for opening up the Fed to public scrutiny. His proposals seemed mild; he did not call for full-fledged Congressional control of the Fed's budget. The Gonzalez bill required full independent audits of the Fed's operations; videotaping the meetings of the Fed's policy-making committee; and releasing detailed minutes of the policy meetings within a week, rather than the Fed being allowed, as it is now, to issue vague summaries of its decisions six weeks later. In addition, the presidents of the twelve regional Federal Reserve Banks would be chosen by the president of the United States rather than, as they are now, by the commercial banks of the respective regions.

It was to be expected that Fed Chairman Alan Greenspan would strongly resist any such proposals. After all, it is in the nature of bureaucrats to resist any encroachment on their unbridled power. Seemingly more surprising was the rejection of the Gonzalez plan by President Clinton, whose power, after all, would be enhanced by the measure. The Gonzalez reforms, the President declared, "run the risk of undermining market confidence in the Fed."

On the face of it, this presidential reaction, though traditional among chief executives, is rather puzzling. After all, doesn't a democracy depend upon the right of the people to know what is going on in the government for which they must vote? Wouldn't knowledge and full disclosure strengthen the faith of the American public in their monetary authorities? Why should public knowledge "undermine market confidence"? Why does "market confidence" depend on assuring far less public scrutiny than is accorded keepers of military secrets that might benefit foreign enemies? What is going on here? [more]