The Federal Reserve and the Warfare/Welfare State

By Richard Hoste

The ability to print money gives the government unlimited power. If you tax the people too much they rebel. But if you declare your paper to be the only thing used as legal tender and allow yourself to print as much of it as you want, there’s no limit to what you can do. The effects of inflation are as real as any tax. It’s just that the people are slower to notice and connect their lower living standards to the actions of the government. The scariest power that the Federal Reserve gives government is that to wage war.

Under a regime of sound money government would have to pay for war, or anything else it did, by taxation. Since war is costly, heads of state tried to avoid it. If war did start, governments would try to settle as quickly as possible. With the ability to print money, the state could finance ambitious projects and scapegoat others when it wrecked the economy. As Paul puts it, “It is no coincidence that the century of total war coincided with the century of central banking.”