freepricesAuthor Jeremy Hammond reviews in the latest issue of Barron’s the Hunter Lewis book Free Prices Now, which offers an antidote to those who think the Federal Reserve makes good decisions to guide the American economy.

Just before the housing bubble burst, [Fed chairman Ben] Bernanke assured us that there was no housing bubble, only to declare immediately after that its “impact on the broader economy” seemed “likely to be contained.” A month into the Great Recession, Bernanke announced that the Fed “is not currently forecasting a recession.” This same economic “Wizard of Oz” then proceeded to do more of what caused the problems in the first place—via his policy of zero interest rates and quantitative easing—except on an even greater scale than before.

Interest rates, Lewis emphasizes, are particularly important prices in an economy, since they allocate scarce capital. Yet these are the very prices that the Federal Reserve manipulates by creating money out of thin air, mainly through the purchase of government debt. A consequence of the central bank’s price manipulation is the creation of artificial booms characterized by unsustainable “growth,” inevitably leading to bust: the housing bubble, for example, which Bernanke helped cause when as Fed governor he supported then-Chairman Alan Greenspan’s low-interest-rate policy.

The more recent “forced reduction of interest rates to the vanishing point,” argues Lewis, has not even succeeded according to the Keynesian standard of boosting demand. One reason: The policy has hammered the interest income of consumers, swamping the benefit of reducing the costs of borrowing. The enduring sway of John Maynard Keynes results in what Lewis calls “the progressive paradox”—the belief that we need ever-more government intervention, including more price fixing, in order to solve all of the problems created by previous government interventions.

“Unfortunately, printing money cannot create real wealth,” Lewis advises us. “Saving, sound investment, and hard work are all needed for that.” To unleash those factors, he says, we should abolish the Fed.