The Fed exists to inflate.

ITEM: The Dow Jones Newswire for March 17, headlined "February's Consumer Prices Show Tame Inflation," reported: "The growth of" U.S. consumer prices slowed last month as prices of energy and housing moderated, suggesting the global economic recovery isn't stoking inflation." The Consumer Price Index "rose 0.3% in February, slowing from a 0.5% increase in January...." These statistics "also validated the Federal Reserve's judgment that inflation will stay low this year, giving the central bank the freedom to keep interest rates low."

BETWEEN THE LINES: In this report, and far too many others, the difference between cause and effect is confused. Inflation, properly defined, is an increase in the supply of money and credit in the economy. Yet as the distinguished Austrian economist Ludwig von Mises once explained: "What many people ... call inflation or deflation is no longer the great increase or decline in the supply of money, but its inexorable consequences, the general tendency toward a rise or fall in commodity prices and wage rates."

Congressman Ron Paul (R-Texas), who sits on the domestic monetary policy subcommittee, observed not long ago that Alan Greenspan and other policymakers of the Fed have "more than doubled the M3 money supply in less than ten years." However, running more Federal Reserve notes off the printing presses does not make Americans richer--it dilutes purchasing power. Since the Fed was created, notes Lew Rockwell, the president of the Ludwig yon Mises Institute, "the dollar's value has plummeted to less than a penny."

Similarly, the fact that some prices might rise less during a particular period does not mean that politicians or the Fed's governors have "controlled" inflation. As Rep. Paul pointed out, even some Keynesian economists admit that the Consumer Price Index (CPI) "grossly understates true [price] inflation," with "the most glaring problem" being that "CPI excludes housing prices, instead of tracking rents." Prices of other goods and services, said Paul, "including medical care and energy, ... have increased substantially in the past decade. Commodity prices in particular have risen recently. In fact, broad indexes show commodities have risen 49% since last spring!"

This shell game has been going on for some time. As the late Murray Rothbard wrote in The Case Against the Fed, "The American economy has suffered from chronic inflation, and from destructive booms and busts, because that inflation has been invariably generated by the Fed itself. That role, in fact, is the very purpose of its existence: to cartelize the private commercial banks, and to help them inflate money and credit together, pumping in reserves to the banks, and bailing them out if they get into trouble."

The Fed likes to be portrayed as the all-knowing protector of the arcane economy--fighting inflation to save Americans from ignoble impulses. The truth is quite another matter.