This file is a short polemical essay in political economy. Rothbard’s scope is narrow but pointed: the reappointment of Alan Greenspan becomes an occasion to expose what he sees as the manufactured reverence surrounding Federal Reserve chairmen and, beneath it, the deeper fraud of fiat money and fractional-reserve banking.
Alan Greenspan has received his foreordained reappointment as chairman of the Fed, to the smug satisfaction and contentment of the entire financial Establishment.
Rothbard opens by ridiculing the ritual by which each Fed chairman is treated as indispensable. His first conceptual move is demystification: the aura around Greenspan is not earned by special genius, charisma, or technical uniqueness, but produced by the office itself. Paul Volcker had once been treated with the same awe, only to be forgotten after leaving power. The implication is that the public cult of central bankers is institutional theater.
No one seems to wonder at the mysterious process by which each succeeding Fed chairman instantly becomes universally revered and indispensable to the soundness of the dollar, to the banking and financial system, and to the prosperity of the economy.
The essay’s structure moves from satire to diagnosis. Rothbard first punctures the personalities of Volcker and Greenspan, then asks why any economy should supposedly depend on one monetary official. His answer is that the dependence itself reveals systemic weakness. Ordinary firms rely on consumers’ demonstrated satisfaction, not on mystique or official demands for “confidence.”
The health of Sony or Honda depends on the quality of their product, on the continuing satisfaction of their consumers.
This comparison lets Rothbard shift from political commentary to monetary theory. In a real market, confidence is earned by performance; in central banking, he argues, confidence is demanded because the underlying institution could not survive full scrutiny. The repeated invocation of public trust is therefore evidence against, not for, the banking system’s solidity.
On the market, confidence stems from tried and tested consumer satisfaction with the product.
Rothbard’s central thesis is that the Federal Reserve’s mystique conceals an insolvent fractional-reserve banking system. The language of majesty, expertise, and necessity operates as what he calls a confidence trick, deflecting attention from the fact that banks promise more redeemable money than they actually hold.
Mystery, appeals to confidence, lauding the alleged qualities of the head: all this amounts to a con-game.
The core conceptual move is to define the Fed not as a neutral stabilizer but as a government-enforced banking cartel. Open-market operations become the mechanism by which money is created without prior saving: the Fed buys government securities with newly created checkbook money, which then enters bank reserves and supports a larger expansion of deposits.
The mystery and the confidence trick of the Fed rests on its function: which is that of a banking cartel organized and enforced by the federal government in the form of the Fed.
Rothbard’s account of money creation is deliberately compressed and accusatory. He presents central-bank purchases as payment “out of thin air,” then links Fed reserves to multiple deposit expansion by commercial banks. His criticism is not merely that monetary policy may be inflationary, but that the system’s ordinary operation depends on a mismatch between bank liabilities and actual cash reserves.
With what does the Fed pay for those bonds? With nothing, simply with checking accounts created out of thin air.
The essay closes by briefly mapping interests inside the Federal Reserve. Rothbard suggests that regional Fed presidents from major banking centers tend to be more inflationary, while presidents from peripheral districts are more hawkish. This is not treated as an accident of temperament but as a clue to the cartel structure of American banking.
Surely, this constellation of forces is no coincidence.
The relevance of “The Mysterious Fed” lies in its concise expression of Rothbard’s Austrian critique of central banking: public reverence for monetary managers, in his view, is ideological cover for fiat expansion, cartelized banking, and fractional-reserve insolvency. Its argumentative force comes less from statistical demonstration than from inversion: what official discourse calls confidence, Rothbard reads as fragility; what it calls expert stewardship, he reads as institutionalized deception.
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