Ambiguous term: "political"

Reader comment on: The Fed, The Chicken, and The Egg

Submitted by Harry Binswanger (United States), Dec 26, 2018 14:24

For maybe the first time, you and the times are both right. "Political" is an ambiguous term.

In one meaning, "political" refers to an unprincipled, short-range jostling for advantage by factions in an elective body (or even in business: "office politics"). In that sense, the Fed is independent and not political. It's above the fray, by design.

But in a second sense, "political" means: pertaining to governmental action, which is backed up by the coercive powers of the state. Then it's contrasted to non-governmental and voluntary. E.g., political power vs. economic power (the power to send in the agents of law enforcement vs. the power to produce goods and services and offer them for sale).

In the second sense, the Fed is completely political--it is an arm of the government and everything it does depends upon it having coercive powers that no private bank could possibly have. E.g., the power to force other banks to accept its debt issues; the power to force reserve standards on them; the power to force banks to submit to the Fed's bank examiners and to comply with thousands and thousands of regulations.

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