One of the quickest ways to assess a person’s worldview is to ask, “How do you feel about conspiracy theories?” Murray Rothbard considered the very term to be loaded, used to discredit what were often sober and factual analyses of why certain government policies were actually implemented. In a recent post, Austrian economist Steve Horwitz takes the completely opposite tack, telling his readers that there is no need to invoke “conspiracy” when discussing the Federal Reserve. I think Horwitz’s argument falls flat, however; I still think there was a conspiracy behind the Fed, and that it’s not enough to merely discuss the technical problems of monetary policy and its “unintended consequences.”

For our purposes, I can summarize the strength and weakness of Horwitz’s post with this single paragraph:

Like other legislation of that era, the Fed was a government intervention supported both by ideologically-motivated and well-meaning reformers and by the industry being regulated. Rather than being this as some sort of unique conspiracy to take control of the US monetary system, it was a story very similar to those found in the history of everything from railroad regulation, to meatpacking regulation, to the regulation of monopolies and trusts as historians from Gabriel Kolko onward have documented. Unique historical factors in the monetary system affected the particular form the Fed took, but its broad history places it squarely in the tradition of the Progressive Era. If the Fed is the product of some nefarious conspiracy, so is a whole bunch of other legislation passed around that time. [Bold added.]

The last sentence–which I have put in bold–will not placate those who suspect skullduggery, and it shouldn’t. It is an odd strawman that Horwitz sets up in this paragraph; I don’t know of anyone who says the Fed is “some sort of unique conspiracy.” Indeed, the very thing that supposedly discredits the stereotypical conspiracy theorist is that he thinks “they” are behind everything, and sees connections and patterns between major events throughout history. So it would hardly put to bed the notion that a conspiracy is behind the creation of the Fed, to note that similar forces would describe the passage of the 16th Amendment, the Food and Drug Administration, and so on. I mean, if an elite group of international aristocrats wanted to run the world, sure they would want to control the money, but they’d also want to be able to seize upstarts’ incomes and to control the food supply.

But even taking Horwitz on his own terms, we can say no, there is something qualitatively more sinister about the Fed, even on purely structural grounds. The Federal Reserve is an organization that regulates the banking sector. And yet, the Federal Reserve banks are literally owned by the commercial banks they oversee, and key personnel decisions for the Fed are made by these same subjects of their regulation. This isn’t a conspiracy theory; you can read about it at the Fed’s own website.

To appreciate just how diabolical this arrangement is, imagine if two-thirds of the managers of various branch offices of the FDA were quite openly picked by the major agricultural and pharmaceutical companies, which literally owned shares of stock in the FDA. That would be analogous to the naked corruption of the Federal Reserve System. To point this out isn’t to excuse the way the FDA (or EPA, DHS, etc.) are set up, it’s just to underscore how incredible the Fed is.

Horwitz is right when he points out that the problem with the Fed isn’t that it’s “private,” and Horwitz is also correct that the Fed is a very odd type of “private” entity where the “owners” can’t keep their surplus earnings (the Fed remits its profits to the Treasury) or sell their shares. But nonetheless, something is qualitatively more corrupt about the Fed than the typical government agency, putting the Fed in a category by itself.

I can remember being disappointed many years ago when I first read Murray Rothbard’s slender volume, The Case Against the Fed. At the time, as a young scholar I had wanted an abstract, timeless critique of the very nature of central banking. Yet what Rothbard gave was mostly a specific historical account to show that in practice this particular central bank–the Federal Reserve of the United States–was indeed the product of insidious insiders, and not at all the accidental outcome of well-meaning college professors.

But now that I’m older (and wiser, I hope!), I see why Rothbard wrote his book the way he did. Different people respond to different types of arguments, and I think the “man on the street” cares very much about the types of details that Horwitz considers irrelevant. To give a personal anecdote, since 2008 I have been touring the country, giving dozens of talks to the public about the dangers of Ben Bernanke’s (and now Janet Yellen’s) policies. It’s true that people are horrified when I show them charts like this (the “monetary base” as displayed at the Fed’s own website):

But I have to say that the single most infuriating thing to most audiences is when I tell them that the Fed began paying commercial banks in the fall of 2008 to not make loans to people. Even though, in the grand scheme, this policy of “paying interest on excess reserves” is probably not that big of a deal, it infuriates people to hear it because it proves that Henry Paulson, Ben Bernanke, Timothy Geithner, and all the other suits on TV were lying through their teeth: The bailouts had nothing to do with “keeping credit flowing to Main Street.”

Yes, the objective consequences of monetary policy are the same, and the Austrian theory of the business cycle is correct, whether or not the people in charge are nice guys or villains.

But it still helps to remind people that they are villains, for the record.