Central banks are part of the state
In a few weeks time, if Ron Paul gets swept aside by the GOP's machine, it may seem like just an interesting historical footnote that a man came within 4,000 votes of winning a Republican primary who is in favour of abolishing America's central bank. But probably it won't.
Right now, on the other side of the world, Hungary's government is staging a standoff with the European Union about the constitutional role of its central bank. And conservatives everywhere are relooking at the role of central banks as they morph from lenders of last resort to effectively underwriting - some say controlling - fiscal policy.
This new preparedness to question the role of central banks comes alongside a renewed interest in pure-form Austrian economics, which we covered on Radio 4's Analysis programme a year ago.
Ron Paul himself buys the full monty of Austrian-school positions on money and central banking. He is against fractional reserve banking - ie the practice of banks lending more than their deposits; he's against the "fiat money" that is the result of this; he believes central banks and the size and weight of the state within the economy are the cause of economic crisis; that the Fed is unconstitutional and that the US should return to - or as he puts it, go forward to a modern version of - the Gold Standard.
The mainstream media tends to treat this as lunacy or extremism. But once it was different. When the Fed was first created, in 1913, its Wall Street progenitors had to meet in secret at the exclusive Jekyll Island Club in Georgia, for fear that the new institution would be characterised as a "bankers' cabal".
For 20 years after the Jekyll Island conference, none of the participants would admit it had taken place. Only by compromising on the form of the Fed - it was created as an alliance of formally autonomous regional central banks - could its supporters get the new law through congress - and so the Fed was born amid much of the same opprobrium Mr Paul and his supporters now heap on it.
In an earlier phase of capitalism, Britain and the earlier European commercial powers (the Dutch Republic, Sweden) created central banks either to lend money to the government or to stabilise the convertibility of trading currencies into gold.
These then morphed into "banks for bankers" - clearing houses which would mop up liquidity among the middle and upper classes and spread it through the private banking system (in the lobby of the Bank of England there is a nice painting of the English bourgeoisie queuing up at Threadneedle Street on Dividend Day by George Elgar Hicks).
When the Bank of England set up in 1678 there was a similar hue and cry in parliament to the one that greeted the Fed in 1913:
"Both Tories and Whigs broke into a fury at the scheme. The goldsmiths and pawnbrokers, says Macaulay, set up a howl of rage. The Tories declared that banks were republican institutions; the Whigs predicted ruin and despotism. The whole wealth of the nation would be in the hands of the 'Tonnage Bank,' and the Bank would be in the hands of the Sovereign. It was worse than the Star Chamber, worse than Oliver's 50,000 soldiers. The power of the purse would be transferred from the House of Commons to the Governor and Directors of the new Company." 'The Bank of England', Old and New London: Volume 1 (1878), pp. 453-473.
The good burghers of restoration England, then, understood what many modern politicians do not, or purport not to: a central bank is part of the state.
Yes, independent or no, governed by a cabal of financiers or a collection of fools, its function has grown way beyond simply raising money for the government or clearing debts between banks. A modern central bank issues the currency; it controls the amount of money in the economy; it lends to the government and to other banks; it sets interest rates; it regulates the banking system - even now in the UK regulating macroeconomic policy - manages the foreign exchange reserves of the government and "owns" something called monetary policy.
But it is not elected. Indeed the attempt to place Hungary's central bank under parliamentary control is what has caused the EU to threaten to withdraw economic aid.
Nor is it much accountable. The Bank of England likes to claim it is accountable to the Treasury Select Committee, because it has to appear there quarterly. But in fact it is accountable to the Chancellor, who has signed away most of his rights to hold it to account.
Now, in the crisis, central banks are becoming all this and more: by issuing paper money on a giant scale they are affecting the ability of governments to make tax and spend policies - Chancellor George Osborne's ability to do £147bn of fiscal tightening is based entirely on the assumption that Bank of England Governor Mervyn King will go on doing £400bn of monetary easing.
There have been three crucial stages in the evolution of modern central banks. The first - well documented in the excellent Lords of Finance by Liaquat Ahamed - was when World War I threatened to crash the national banking systems of the combatants.
It was here that the unelected, largely unknown and unaccountable nabobs of central banking actually began to fix the global monetary system in a series of ad hoc and highly irregular deals with each other. This continued through Versailles and on to the second big crisis - 1931 - when the gold standard began to fall apart.
As capitalism moved in a statist direction, it became politically controversial for these private-style cross border loans to be made, and in some countries central banks became, for the first time overtly, a tool of the executive - Hitler controlled the Deutsche Reichsbank directly after 1937 proclaiming it was transformed "from an internationally controlled bankers' enterprise to the institution of monetary issue for the German Reich" - (Speech 21 January 1939). (Obviously with the Nazis this critique of central bankers as cosmopolitan internationalists drew on their general anti-Semitic critique of international finance).
This overt statism was reversed after 1945, but you do emerge in the post-war boom years with a clearer understanding of the central bank as an arm of the state, albeit a relatively independent arm; and the culture emerges that the central bank has to meld its activities with the national interest of states within a global system, rather than - as was sometimes the case in the era of Montagu Norman et al - a private club representing the supposed "interests" of the finance system.
The Fed, of course, as the bank of the dominant power, gains great power over the global monetary system.
The third stage in the development of central banks came in 1971 when the US abandoned the Bretton Woods arrangement of fixed exchange rates against the dollar. From this moment you get true fiat currencies, the takeoff of financialised capitalism and the emergence of the central bank in each country as money creator on behalf of the state, and thus a major centre of political power.
Once you understand that the central bank is really part of the state in modern capitalism, and that the crisis has made it the most important and powerful part, that allows you to understand almost everything else.
Right now, central banks are engaged in a major operation to stave off the Euro sovereign debt crisis by extending global unlimited short term credit to Europe's banking system. They are also printing money to support demand; and to export the crisis - and inflation - to the developing world.
One of the frustrations of being a journalist faced with this is where do you even begin to hold such institutions to account - not just for their tactical actions, as with my famous spat with Mervyn King in February last year - but over their strategic role, in both regulation, macro-stability and enabling (ie backing) certain fiscal policies over other ones (as again with Sir Mervyn and the Coalition).
Also for their role in diplomacy: Wikileaks released a cable last year showing the Chinese requesting Tim Geithner to lean on the Federal Reserve to speed through the partial acquisition of Morgan Stanley.
Given the central bank acts often in secret, and through informal contacts in networks like the Trilateral Commission (see membership list here) and Bilderberg it's hard to subject them to scrutiny. And this is not a new problem.
In my extensive collection of obscure books, there is one called "The Old Lady Unveiled" by J.R. Jarvie (Wishart 1933). Purporting to be a critique of the Bank of England, it contains an exchange of letters between Jarvie and the-then Secretary of the Bank, Ronald Dale, in which Dale unceremoniously tells Jarvie to get lost for requesting a list of stockholders in the bank.
"The bibliography of the bank is meagre and leads to nowhere in particular," Jarvie observed.
It sometimes feels that way today: for while there is much statistical information published by the central banks, and while some are now even putting themselves up for ritual grillings by journalists, it's very hard to find a hard-edged discussion of the economic, political, diplomatic and strategic role of central banks within the current system. Politicians meanwhile often simply shrug their shoulders: "The bank's independent, what's it to do with me?" they ask.
At least after Ron Paul, and after the Hungarian debacle, there will be more sensible questions to ask, even if we don't always know the answers.