USA Today, whose editors are economically naive and captive to many statist beliefs, recently opined that Ron Paul’s argument against the Federal Reserve is wrong.  In the letter below, Don Boudreaux tries to straighten them out.

Editor, USA Today

Dear Editor:

Dismissing Ron Paul's case against the Fed, you write "the Fed was created a 
century ago after the fifth banking crisis in just 34 years made clear that a 
rapidly industrializing nation couldn't get by with the kind of loosely knit 
banking system that it had when the economy was mostly agrarian" ("Ron Paul's 
19th century economic ideas," Jan. 11).

That's the potted history.  The actual history is far more favorable to Mr. 
Paul's case.

Nineteenth-century banks were hardly laissez-faire institutions.  Government 
saddled them with restrictions and requirements that kept the U.S. banking 
system artificially "loosely knit" and subject to unnecessary risks - for 
example, restrictions on branch banking, and requirements that banks hold 
poor-quality state and local bonds as collateral for their note-issues.

Nevertheless, even with this government meddling, the U.S. banking system 
performed better before the Fed's creation than it has since.  Economists George 
Selgin and William Lastrapes, along with my colleague Lawrence H. White, 
recently examined U.S. banking history and concluded that "The Fed's full 
history (1914 to present) has been characterized by more rather than fewer 
symptoms of monetary and macroeconomic instability than the decades leading to 
the Fed‘s establishment.  (2) While the Fed‘s performance has undoubtedly 
improved since World War II, even its postwar performance has not clearly 
surpassed that of its undoubtedly flawed predecessor, the National Banking 
system, before World War I."*

Sincerely,
Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA 22030