There is much confusion about whether the Federal Reserve System is a branch of the government or a private enterprise. That confusion has sparked a host of "crank" conspiracy literature.
The Board of Governors of the Federal Reserve System is composed of seven members, all appointed by the president with the aid and advice of the Senate. It is clearly a branch of the government.
[Friedman goes on to explain how the Fed's regional banks are nominally privately owned by banks in their respective districts, but that the Board of Governors has the final word on policy, not the regional Fed banks, which moreover have to turn their net profits over to the U.S. Treasury.]
In short, the system is in practice a branch of the government, despite the smoke screen of nominally private ownership of the district banks.
Wednesday, August 5, 2009
Milton Friedman on why the Fed is not private
James Pethokoukis asks if any economists support Ron Paul's Audit-the-Fed bill, and gets the usual vitriolic comments from Ron Paul supporters. Some of the commentors argue that Milton Friedman (conveniently not alive) would've supported it, and a recurrent theme of the Pauliacs is that the Fed is a "private" institution (which happens not to be true). It is true that Friedman was a critic of the Fed, and would've preferred it had never come into existence, but he had very little patience for anti-Fed crackpots and conspiracy theorists. Below is what Friedman wrote in a long footnote on p. 206 of his book Money Mischief: Episodes in Monetary History (which book I reviewed in Commentary years ago), on the supposed private nature of the Fed: