Sunday, August 28, 2011

Murray Rothbard was wrong

Other people who have known the man personally or read more of his stuff than I ever will have pointed out that much of his historical commentary is flawed or contains serious errors.  But one that I found in his Mystery of Banking is this line (emphasis mine):
"And, indeed, under the Monetary Control Act of 1980, the Fed now has unlimited power to buy any asset it wishes and up to any amount--whether it be corporate stocks, bonds, or foreign currency."  

I see no evidence supporting this.  Here is an outline of how the MCA altered the Fed's powers. Section 13, Subsection 3 of the Federal Reserve Act gives the Fed the power "in unusual and exigent circumstances" to expand credit various ways. The Fed used this in 2008 when it bought commercial paper, MBS, student loans, etc. but this has never been interpreted as giving the Fed the power to buy corporate stocks. A recent conversation with a Wall Street journalist confirmed this, she had recently interviewed someone on the Board of Governors (or a former Governor, not sure) who explicitly said the Fed did not have power to buy stock.  An error like this, spread through the internet as much of Rothbard's writings are widely read, gives people a different perception from reality as to what the role of the Fed is.

Rothbard wrote that in 1983, much closer to the time period than today.  But apparently he misremembered the details a bit and never let the record stand corrected.  Let the reader beware and reach his own conclusions as to his motives.

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