Wednesday, May 20, 2009

Elihu Root and the Federal Reserve

Senator Elihu Root (1845 – 1937) in his prescient understanding of central banking and easy credit:
“Little by little, business is enlarged with easy money. With the exhaustless reservoir of the Government of the United States furnishing easy money, the sales increase, the businesses enlarge, more new enterprises are started, the spirit of optimism pervades the community. . . . Bankers are not free from it. They are human. The members of the Federal Reserve board will not be free of it. They are human. . . . Everyone is making money. Everyone is growing rich. It goes up and up, the margin between costs and sales continually growing smaller as a result of the operation of inevitable laws, until finally someone whose judgment was bad, someone whose capacity for business was small, breaks; and as he falls he hits the next brick in the row, and then another, and then another, and down comes the whole structure.”
Who knows if he had heard of the Austrian Business Cycle Theory, but for someone speaking during the creation of the current US central bank, he had a clear vision of what would happen in 2008. This reference was made known to me by a good speech from Thomas Woods.

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