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Machinery for War: The Federal Reserve

How the US Federal Reserve has set a dangerous precedent in global war making.

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By Mason Mohon | USA

“Money is certainly too dangerous to leave to the fortuitous expediency of politicians.” – Friedrich Hayek, Choice in Currency p.16

The twentieth century is widely regarded as the century of total war, seeing as that the two biggest wars in human history occurred during it. At no other time in human history had war ever spanned the entire earth. Up to this point, it had stayed within the confines of one or two continents, and even that was rare. Of course, this was due to the fact that the age of exploration had already occurred (so the majority of the planet was inhabited), and technology was becoming more useful in warfare than it ever had before. Guns could kill more than ever before, and new weapons like tanks, planes, and eventually the atomic bomb were created.

Of course, this global attitude of total warfare has subsided, but the U.S. still keeps up a hegemonic presence, along with an astoundingly massive military budget. In the fiscal year of 2015, the military budget accounted for over half of all federal discretionary spending, totaling up to nearly 600 billion dollars. How are we able to afford all of this, and why aren’t we doing something else with this money?

Imagine a teenager with a credit card, lacking any responsibility and spending frivolously on his every desire. Even worse, the teenager’s parents cannot control him, and neither can his teachers, his priests, or even his local police officers. To add to this monstrosity, imagine he is armed to the teeth; guns, knives, tanks, you name it. This, in a loose sense, is what the federal government has turned into: an irresponsible group of old men who spend without care and wish to solve every issue by pointing a gun at it. This is the world we live in with the United States Federal Government, and its unhinged credit card is The Federal Reserve.

The birth of this irresponsible style of government coincided directly with the century of warfare, and it is no coincidence either. The Federal Reserve, on a very basic level, is a printing press for US dollars. No wonder we barely hesitated to jump into the world wars and have invaded countries left and right for the last 50 years. The Fed enables politicians to jump into war whenever they have the littlest desire to do so. As Ron Paul said on page 62 of End the Fed, with the advent of America’s central bank, “the fiscal limits on war were removed… governments could just print what they needed.”

The Federal Reserve (and central banking in general) allows the government to pay less attention to the diplomatic options at hand, and jump quickly to the option of war. The side effects of war are usually human casualties and the destruction of property, along with immense costs for the governments engaging in war, which causes problems in the economy because of all the money taxed from the population. A central bank seems to take away the economic limitation; after all, now the government can just print more money, right? Well, they can print more money, but this does not take away the economic limitations. Rather, it just pushes them off, hoping they can fix it later (if they even realize a problem is being created). Ludwig von Mises wrote the following in Nation, State, and Economy in 1919:

“One can say without exaggeration that inflation is an indispensable means of militarism. Without it, the repercussion of war on welfare become obvious much more quickly and penetratingly; war weariness would set in much earlier.”

Preceding the age of war and central banking, people assumed that governments would go to war sparingly, making sure to pursue diplomacy in the first place for fear of financial ruin. That is no longer the case, for the governments of Europe and the United States had the new weapon of central banking. They could jump in, seemingly blindfolded, and pursue war as the solution to everything. If John Maynard Keynes nailed one thing in his life, it was what he wrote in The Economic Consequences of Peace in 1919:

“By continuing the process of inflation, governments can confiscate, secretly and unobserved, an  important part of the wealth of their citizens.”

Inflation is what the federal government saw as the magic bullet for all of its wartime economic issues. When a central bank first prints money and hands it over to bureaucrats to spend, the money is still worth what it was pre-print, but that is because the money has not yet been infused into the economy. Once these bureaucrats spend, though, problems arise. They get a special privilege of spending newly printed money at its original price and they can buy whatever the military is needing, but when they begin to purchase, the inflation begins to set in, and everyone’s money is worth less.

The creation of a central bank hands immense power the federal government, which set a dangerous precedent, and when the United States entered the first world war in 1917, it brought the biggest experiment in central planning to its date along with it. Price controls, new taxes, nationalization of railroads, bonds, and an increasingly expanding debt was put into place. This was all deemed permissible (especially the debt) because at the time The Fed as seen as a lender of last resort. Even confined to the last resort role, though, it still provides a warfare safety net for the politicians in Washington.

The Federal Reserve, through its tactics of money printing and inflation, makes the federal government more dangerous than it should be. It is a teenager with an unhinged credit card armed to the teeth, using violence to solve every issue it faces, and that type of attitude is bad in any situation.

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  1. Very interesting article. Well written, and shows some of of the reasons our nation needs to change many policies especially in the area of spending.

    Reply

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