Since the 1950s the New York Fed has become known as a producer of comic books for young readers, presumably to ease the pain of learning something about "the dismal science" — a derogatory term for economics.
Truly, the way economics is taught on any level it is closer to criminal than dismal.
To succeed in a society that still retains some respect for truth criminal theories need to be presented as respectable, ideally with the backing of “the best and the brightest” who are either not so bright or corrupt to the core. The NY Fed’s comic book The Story of the Federal Reserve System illustrates this cover-up approach.
While reading the 21-page booklet I was reminded of the expression, “Ask me no questions and I’ll tell you no lies.” The high school and undergraduate audience for which this is intended will not be dutifully unquestioning. If nothing else the last few years have raised suspicions among people who were paying attention. Bright young people with phones and computers pay attention.
Here is how the comic book opens:
“Way, way out, at the edge of the universe…. The planet Novus is experiencing its first economic crisis.
“After an unforeseen ice cream setback, a local business was unable to repay its loan…
“…which put stress on the bank that made the loan…
“…which led to a panic! Everyone on Novus ran to the bank to take their money out of the bank at the same time.”
Enter President Tilli, who says,
“If we take all the cash from our banks, the whole system will collapse.
“People will lose everything they have worked so hard for!”
Later, in a conference room:
“Instead, the citizens of Novus decided to come together and create a central bank to loan money to other banks—to act as a lender of last resort.”
As the story progresses representatives from Novus visit planet earth to study how the Fed works.They are told: that the Fed is actually decentralized across regions of the US; that it helps keep the economy running smoothly, and prices stable, by affecting the amount of money and credit that flows through the economy.Too much lending spurs higher prices, too little leads to falling prices.
The mysterious gold vault
Curiously, the comic book also mentions the gold vault buried deep under the New York Fed. It exists, no explanation as to why it exists.
Let’s hope it prompts young people reading this to frown. What’s up with that?
Why bury anything? Why gold?
Maybe the young reader will ask other questions.
The comic book says the Fed was created by Congress in 1913 and signed into law by President Wilson. By Congress? Why did Congress get involved? Why not set up a central bank the way other businesses are set up, without the aid of a special law?
The Fed was supposed to prevent all those “Panics” that happened in the 19th century. But have they? Financial problems are still around, possibly worse than ever.
Where does the Fed get the money to shore up banks that ran out of money? For that matter, what is money? Is it something the Fed creates?
It says too much lending will cause “overspending and rising prices” and cause inflation and possibly a crisis if the boom goes bust. Why are people at the Fed making this decision instead of the people doing the lending and borrowing?
And what exactly is inflation? Rising prices? Is inflation better understood as inflation of the money supply?
And why did the banks run out of money? If a bank is a safekeeping institution it would keep all its deposits for a service fee. How could it run out of money, unless it did something illegal, in which case it should be penalized?
If it’s an investment institution running out of money it’s the risk the investor (and the bank) takes. So why the big panic when this happens? The bank fails. So what? Other businesses fail all the time.
Perhaps the deeply buried gold vault will continue to haunt the young reader and prompt him to do other reading.
He will read that gold (and silver) coins were once money. What happened to change money from coins to paper bills issued by the Fed? And only the Fed? Gold is sometimes called a "barbarous relic." If it's a relic why bother to secure it?
He reads further that bankers complained about the lack of an “elastic currency” before the Fed came along. An elastic currency he learns is one that can be created at will — but not by anybody. If regular people try it they get arrested for counterfeiting.
What’s it called when the Fed does it? Oh, yes, it’s called monetary policy.
And if he stumbles across this quote:
If a domestic money consists of a commodity, a pure gold standard or cowrie bead standard, the principles of monetary policy are very simple. There aren’t any. The commodity money takes care of itself. — Milton Friedman
He might then wonder about the need for a central bank at all.
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George Ford Smith is a former mainframe and PC programmer and technology instructor, the author of eight books including a novel about a renegade Fed chairman (Flight of the Barbarous Relic), a filmmaker (Do Not Consent), and an advocate of stateless market government. He eagerly welcomes speaking engagements and can be reached at gfs543@icloud.com.
