Central Bank Reform Will Not Restore Human Dignity

Article by Robert

The techno-industrial system relentlessly robs humans of their dignity by contradicting our natural drives in the spheres of life that have meaningful import. Activities where we have any modicum of freedom left amount to nothing more than life-force palliatives. Many don’t see the humiliation but feel it; some see it but are helpless; others are angry and grow resentful. This message is for all of you: the technological system is your ultimate opponent and there can be no compromises with it. Focusing on any one of the tech-hydra’s heads is an exhausting exercise in futility. With the system’s basis untouched, the elimination of things like capitalism, globalization, or income inequality will leave you a slave all the same. If you think you’ve found the meta-phenomenon that underpins these ills and you call it central banking, you need to consider that nothing short of a collapse of the banking industry and the technological system at large will restore human dignity. Central bank reform will bolster the techno-industrial system and leave us in the same existential battle for our humanity.

Many decry the overly centralized techniques employed by the central banks of the world to keep the life blood of the markets flowing. The boom-and-bust cycles that are symptomatic of a monopolistic control on banknote issuance, ever-present inflation as a hidden tax, the financialization of housing, or the perception that it all ultimately rests on the ill-gotten confidence of the people due to the fiat status of the notes will lead some to believe that it is the fundamental problem of humanity. After all, most people in industrial society are wage slaves seeking to accumulate enough of these banks' notes in order to live their hollow existence.[1] These institutions are becoming increasingly scrutinized due to the glaring issues with the banking sector. Adaptations to these difficulties are inevitable if the system is to thrive. Skeptics will prefer to usher in an alternative to centralization. However this manifests, whether the central banks remain in their seat of power but with modified practices or there emerges a collection of decentralized banks, the ultimate problem remains. The technological system will continue to expand its sphere of influence and necessarily curtail human freedom until our complete subjugation, or worse, no matter the banking practices.

Crudely summarizing, central banks issue new money to the system by acquiring assets such as precious metals, debt, or government bonds. This is only a small fraction of the new money issued. In reality most of the circulating supply of money is created by commercial banks through the practice of fractional reserve banking.[2] The commercial banks loan new money into existence, at interest, to help people purchase homes, cars, and day-to-day necessities in the case of credit cards. Traditionally, there is a limit to the amount of loans that can be made by commercial banks through monetary policy in the form of a reserve requirement. However, at least within the United States, the reserve requirement has been set to 0% as a measure to alleviate the systemic stress caused by the covid pandemic.[3] The stated goal of central banks is the maintenance of price stability and keeping inflation within an acceptable range. Their tools to this end are setting the federal funds rate, which dictates how expensive it is to acquire credit, and the buying/selling of assets on the open market to expand/contract, respectively, the money supply.

A major criticism of the central banking system is that they mishandle and worsen the inevitable financial crises that they themselves are responsible for.[4] The central banks in each respective country have no rivals to keep them honest, so to speak. This creates an environment where commercial banks can engage in excessively speculative behaviors that lead to boom-and-bust cycles which is a major source of instability for the system. Inflation, or the devaluation of the currency through money creation, is a source of concern for average people as they are making ends meet, planning for retirement or, God forbid, having some leisure time with friends. In recent times, housing prices have reached new heights, due to its financialization,[5] without a corresponding rise in wages.[6] All of this is underpinned by the fiat status of all major currencies, meaning that they are not redeemable for any commodity as they were in the not-too-distant past. These fiat currencies are backed not by gold but by the confidence of the public, and if the problems caused by the central banks are great enough to lose this confidence, the system will face a severe crisis.

If the central banks retain their control of the monetary system, either by retaining their monopoly on banknote issue[7] and/or by continuing to control commercial banks by monetary policy, we will see little change in the financial conditions that average people are in. A "moderate" crisis would be needed in order to usher in a new system.[8] Zimbabwe went through two periods of hyperinflation, forcing it to, first, adopt foreign currencies through dollarization[9] to keep their economy afloat before introducing another iteration of the Zimbabwe dollar. When their new currency also began its trajectory towards hyperinflation, they got the message that greater change was needed and introduced a central bank digital currency (CBDC), Zimbabwe Gold (ZiG), that is backed by a collection of assets, most notably gold. To the dismay of many critics of fiat currency, ZiG is not redeemable for gold, so the effective differences between the ZiG and other fiat currencies such as the US Dollar is that it is now a "digital token," whose implementation details are difficult to source. The short of CBDCs, however, are that they will be a form of programmable money that will offer central banks tighter regulation on the issuance of new money and even how it is spent.

If a more severe crisis causes many of the world banks to loosen their regulation on commercial banks and allow them to issue their own banknotes, we can arrive at a "free" banking system. Nothing precludes the techno-industrial system from decentralizing where and when it needs to. This banking system can perhaps exist alongside central banks, but with their role fundamentally changed to the point that we would hardly consider them an equivalent institution. This new banking system could allow actual competition between commercial banks. There is evidence that these forms of banks are more resilient against panics and crises that central bank run countries faced in even the same time periods.[10] With banks able to issue their own banknotes, rival banks regularly accumulate other banks' notes and redeem these IOUs for the underlying asset. Insolvent banks that engage in financially risky behavior would be allowed to fail in the absence of central banks injecting liquidity where it's "needed".[11] The result is a “healthy” system that has regular periods of inflation and deflation unlike the ones we are accustomed to under central banking systems. These periods of inflation and deflation historically tracked the positive and negative supply shocks of production rather than hazardous policy decisions of central banks.

In either type of system, central banking vs free banking, the technological system will maintain its dominance over humans and the natural world. The former may be forced into some transition due to the instabilities outlined. The latter, if implemented, can conceivably survive longer. The fact is that the continued expansion of the system is possible in both. Economic growth through commercial banks' lending and funding new ventures is not something exclusive to any of the banking systems described. The central banks have enough of a track record of facilitating the erosion of wild nature. The difference in the free system is that banks will not be guided in their lending but would respond more organically to the needs of the major players of the system. It may pose a greater danger to humanity since this system would be more efficient, freeing up resources that would have been spent on financial crisis management to then further erode human freedom and autonomy. Maybe the new system keeps inflation and deflation manageable, allows workers to see a commensurate rise in wages with respect to productivity, and even makes home ownership manageable once more. But what remains is a system that ceaselessly subjugates all elements of uncertainty, especially human nature, as it becomes possible. This newfound stability will become the platform on which new innovations with novel dangers to the biosphere can be manifested. If one's goal is increasing human freedom and dignity you must carry on looking for another solution because the system will carry on until you have none left all the while you keep falling for its neatest trick.[12]

The foregoing discussion about an alternative to central banking is simplified and its implementation is extremely speculative even if such systems have existed in the past. It is simply meant to highlight that the ultimate opponent of humanity and wild nature, the techno-industrial system, will continue to pose a grave threat to personal and small group freedom and the natural world no matter the form it takes. This is merely an example of why reform won't work, something discussed at length in Technological Slavery. If your worldview on banking has been reduced to the slogan: "End the Fed”, you owe it to yourself now to think about what that implies. Does it mean to tear down the central banks with no alternative? Or does it mean you want a more "fair," stable, and thus, more powerful system? The latter is untenable from an anti-tech standpoint. Enjoying our morsels of freedom while the tech behemoth devours the rest and seeks more is cowardly and suicidal.

 


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NOTES:

[1] See the discussion of “Surrogate Activities” in “Industrial Society and its Future

[2] Nevil, Scott. 2024. “Fractional Reserve Banking: What It Is and How It Works.” Investopedia. March 7, 2024. https://www.investopedia.com/terms/f/fractionalreservebanking.asp.

[3] Chen, James. 2023. “Reserve Requirements: Definition, History, and Example.” Investopedia. March 13, 2023. https://www.investopedia.com/terms/r/requiredreserves.asp.

[4] Maharrey, Mike. 2024. “The Fed’s Endless Boom-Bust Cycle.” Mises Institute. February 3, 2024. https://mises.org/mises-wire/feds-endless-boom-bust-cycle.

[5] “Financialization of housing: Special Rapporteur on the right to adequate housing.” n.d. United Nations. https://www.ohchr.org/en/special-procedures/sr-housing/financialization-housing.

[6] “WTF Happened in 1971?” n.d. WTF Happened in 1971? https://wtfhappenedin1971.com/. see the chart “How Long Does it Take to Save for a House?”

[7] Federal Reserve Bank of Richmond, Monthly Review, 1962, https://fraser.stlouisfed.org/files/docs/publications/frbrichreview/pages/65387_1960-1964.pdf.

[8] The hyperinflation of a currency normally ushers in a new financial paradigm. Team, Cfi. 2023. “Hyperinflation.” Corporate Finance Institute. December 7, 2023. https://corporatefinanceinstitute.com/resources/economics/hyperinflation/.

[9] Dollarization refers to currency substitution of the domestic currency of a country with that of the United States Dollar, usually in an attempt at stabilizing the economy  https://www.cato.org/sites/cato.org/files/serials/files/cato-journal/2011/5/cj31n2-9.pdf

[10] White, Lawrence H. 2015. “What You Should Know about Free Banking History.” Cato Institute. April 28, 2015. https://www.cato.org/blog/what-you-should-know-about-free-banking-history.

[11] European Central Bank. 2022. “What Is a Lender of Last Resort?” November 12, 2022. https://www.ecb.europa.eu/ecb-and-you/explainers/tell-me-more/html/what-is-a-lender-of-last-resort.en.html.

[12] Rebelling against one of the system’s superficial components while it improves itself to your perceived satisfaction is an unfortunate occurrence that results from the techno-industrial system coopting the rebellious impulses of the population. See the essay entitled “The System’s Neatest Trick” in Technological Slavery.


Copyright 2024 by Wilderness Front. All rights reserved.

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