If we must tolerate government control of currency, we should emulate Hans Luther’s fearless defiance of political pressure.

During the Q&A period after a lecture on monetary history, a student asked me, “Mr. Reed, do you think a central bank should be independent or should it be directly controlled by elected officials?”

To me, this was a choice between the devil and the deep blue sea. Which should I pick, Scylla or Charybdis? By whom would I rather be mugged — Scarface or Machine Gun Kelly? Given the awful track record of central banks, and the appealing alternative of free, private, competitive banks in a market economy, I thought the question was rather loaded, akin to asking a believer in the separation of church and state, “Which religion should we establish as the official one?” 

The conventional wisdom — frequently wrong — holds that central banks should be independent so they can work for the good of us all, and then we can live happily ever after. It rarely questions whether empowering any person or persons to control a nation’s money and credit supply and its banking practices is a good idea. I wanted to answer the student’s query with another query, something like “Should the supply of green beans be managed by politicians or by a committee of people the politicians appoint?” Thanks, but green beans seem to do just fine with neither. 

If forced to make a choice between the options the student offered, next time I might respond, “I don’t like having to choose between the lesser of two evils but if pressed to do so, I would grudgingly choose independence — if I knew that those running it would be like Hans Luther.” That’s not the answer I gave, because I didn’t know of Luther at the time.

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