The problem with central banks
From an Austrian economics view, central banks like the Federal Reserve are not protectors of the economy. They are, in my view, the biggest scam going. They control money creation, cause constant inflation, and create boom-bust cycles that hurt regular people. Economists like Ludwig von Mises and Murray Rothbard showed that real money should be based on gold and silver to keep things honest and free.
Central banks let private banks create money out of thin air through something called fractional reserve banking. This is what many critics consider legal counterfeiting. When banks lend more money than they actually have, the total money supply grows faster than real savings. The result is inflation: prices go up over time, and your dollars buy less. Governments love this because they can print money to pay for big spending—wars, programs, bailouts—without raising taxes directly and making voters angry.
New money doesn’t spread evenly. It first goes to banks, big companies, and government friends. They get to spend it before prices rise. By the time it reaches regular workers and savers, everything costs more. This hidden transfer of wealth from the bottom to the top is called the Cantillon effect. It’s unfair and makes the rich richer.
Central banks also mess up interest rates. They push rates artificially low, which tricks businesses into starting projects they can’t really afford. This creates fake booms full of bad investments. When the bubble pops, we get recessions, layoffs, and wasted resources. Many major crashes in modern times—from the Great Depression to 2008—have been linked to easy-money policies from central banks.
Gold and silver are different. They became money naturally because people chose them: they’re scarce, last forever, can be divided, carried, and are the same everywhere. A gold standard limits how much money can exist to what can be mined. No central bank can just print more. This forces governments to live within their means and protects your savings from losing value. Silver works great for smaller everyday purchases.
When Nixon ended the gold standard in 1971, we got endless debt, wild price swings, and weaker money. Bringing back sound money—gold, silver, or even free banking with 100% reserves—would end the central bank monopoly. It would give us honest prices, real economic growth, and more personal freedom.
Real commodity money is, in this view, the only way to stop the cycle and restore long-term prosperity.
For informational purposes only. This column does not constitute investment advice. Special support provided by First National Bullion.
