Making the Case for Ending the Government’s Central Bank

Published November 14, 2016

Review of Who Needs The Fed?: What Taylor Swift, Uber, and Robots Tell Us About Money, Credit, and Why We Should Abolish America’s Central Bank, by John Tamny (Encounter Books), 2016, 224 pages, ISBN-13: 978-1594038310; $15.18 on

Very few people fully understand the role of the Federal Reserve, an independent federal government agency created in 1913 to establish and administer a national central banking system in the United States.

Fortunately, an entertaining and informative new book by John Tamny uses relatable examples from everyday life to help illuminate how the government bank referred to as “the Fed” operates and why the government’s centralized banking and planning fail to meet the public’s wants and needs.

Simplifying Complex Concepts

Using examples and narratives involving popular culture icons and concepts, Who Needs The Fed?: What Taylor Swift, Uber, and Robots Tell Us About Money, Credit, and Why We Should Abolish America’s Central Bank explains the history of the Fed and illustrates basic macroeconomic concepts, such as assets and credit in a charming and easy-to-digest manner.

Tamny’s book details the creation of the Fed in 1913 as a panicked ward against wild economic swings. He also explores more fundamental questions. Easily understood anecdotes and examples throughout the book help readers grasp basic financial concepts such as credit and money and demonstrate how the Fed parasitizes the credit market just as a tick fattens itself with an animal’s blood and nutrients.

“Since the Fed has no credit to offer other than what it extracts from the real economy first, it can only shrink it insofar as it exerts its power to increase access to it,” Tamny writes. “For the Fed to ‘ease’ credit, it must by definition reduce the amount of credit offered by market-disciplined actors in the economy.”

Explaining Recessions in Hollywood

In explaining how economic recessions can benefit the economy, in contrast to the Fed’s goal of mitigating and regulating economic cycles, Tamny uses Rober Downey Jr.’s battle with drug addiction and return to Hollywood stardom to illustrate the positive effect of credit limitations during economic recessions.

During Downey’s battle with drug addiction, he was unable to find work in Hollywood; movie studios were unwilling to invest and hire him. This “recession” in Downey’s career reduced his access to career “credit.” The downturn in Downey’s personal economy prompted him to reorganize his life, resulting in a revival of his career when movie studios saw him as a good investment again.

“Never forget that credit is the resources created in the actual economy,” Tamny writes. “For that reason alone, wise minds should rejoice that ‘recessions’ shrink our ability to senselessly waste those resources. No amount of Fed ease would have made it possible for Downey to work. His personal ‘recession,’ whereby he fixed problems of his own making, is ultimately what freed up his access to credit. Credit had become so expensive for Downey so that it could be become cheap.”

Succinct Explanations

Tamny expertly explains the Fed’s mechanisms, using only paragraphs to do what other writers and economists have needed volumes of books to accomplish.

By manipulating the interest rates at which banks lend currency reserves to one another, and at which banks lend to producers, the Fed exerts ham-fisted control over the country’s currency and alters the costs of production and of consumer goods and services, Tamny writes.

“It is often forgotten that when the Fed (or any central bank, for that matter) presumes to dictate interest rates, it’s in no way controlling the cost of accessing dollars,” Tamny wrote. “Yet we intuitively know that money doesn’t just grow on trees, nor can it be dropped from the sky. More realistically, when the Fed raises or lowers interest rates, it is attempting to manipulate the cost of everything produced in the actual economy.”

‘Credit Is Not Money’

Tamny also clarifies the important differences between money and credit, which central banks tend to ignore. Credit, he writes, is a proxy for the ability to access resources, and no amount of government interference in the market can create resources out of nothing.

“Stated simply, credit is not money,” Tamny writes. “If it were, the ‘easy credit’ that many-who-should-know-better clamor for would once again be as simple as printing lots of money. In fact, credit is always and everywhere the actual resources—tractors, cars, computers, buildings, labor, and individual credibility—created in the real economy. We borrow ‘money,’ but we’re really borrowing resources. Credit equals resource access.”

Abstract Concepts Made Concrete

Weaving real-world stories involving recognizable pop-culture icons with solid economic reasoning, Tamny makes abstract concepts more concrete, helping readers understand the root problem is government interference and central planning.

Anyone seeking to understand the how and why of macroeconomics would be well-served by reading this book. After finishing Who Needs The Fed?, readers will better understand how decades of government meddling in credit markets has been holding back the American economic powerhouse. Tamny grants readers a deeper insight into the affairs of the Fed, an otherwise shadowy and poorly understood but immensely powerful government apparatus.