Money Cartel

Gary North explains that central banking is a cartel.

Monetary theory should therefore reflect the presuppositions, logic, and evidence that undergird general economic theory. Any attempt to segregate monetary theory from general economic theory is an admission of the failure of the general economic theory. This general theory is not general, because it does not apply to monetary theory.....

Nowhere in introductory economics textbooks do we find an analysis of central banking that is consistent with the chapter on economic cartels. No textbook in money and banking begins with an analysis of the banking system in terms of the economic analysis that applies to a cartel. Yet modern banking is unquestionably a cartel.

When money is controlled by a cartel that uses political power to keep out entrants into the industry, we can be sure that the members of this cartel are acting in their own economic self-interest. They are not acting on the basis of concern for the general public. They are not public-spirited individuals; they are self-interested individuals, just like everybody else.

Here is an example. When members of the school of economic thought called "public choice theory" analyze any government- protected cartel except central banking, they begin by showing how government protection of the cartel leads to higher prices, reduced productivity, and actions in opposition to the public interest. Yet when public choice economists write a chapter on central banking, they abandon their entire system of economic analysis. They speak of central bankers as public-spirited individuals who must be protected from interference by self- interested politicians, because banking is too important to be left to politicians. What banks need is legal independence, they say. What they need is immunity from democracy.

They seem completely oblivious to the fact that they are totally schizophrenic, analytically speaking. This goes on, decade after decade, yet other economists do not point to this inconsistency, precisely because they hold the same position.

I deal with this topic at Deposits and Loans and Mistrust and Banks.