The Biggest Legal Heist in History: What Central Banks REALLY Do to Your Money

What Do Central Banks Really Do in a Society?

Every single day, your money is losing value. Not because you spent it. Not because you made bad investments. But because a handful of unelected officials at a central bank decided to create MORE of it out of thin air.

That’s not conspiracy theory. That’s how the system actually works. And once you understand it, you’ll never look at your bank balance the same way again.

This blog post breaks down the REAL role of central banks in society not the sanitized textbook version and distills it into 5 profound insights most people never realize. The ideas explored here are inspired by a powerful speech from Hans-Hermann Hoppe, one of the most important Austrian School economists alive today, delivered at the Property and Freedom Society conference. His words cut through decades of economic propaganda with surgical precision.

Let’s get into it.

What Do Central Banks Actually Do?

Before we dive into the hidden truths, let’s get the basics right.

A central bank like the Federal Reserve (U.S.), the European Central Bank (ECB), the Bank of England, or the Reserve Bank of India is a government-backed institution that controls a nation’s currency, money supply, and interest rates. Its official mandate? Maintain “price stability” and support economic growth.

Sounds noble, right?

Here’s the catch. To fulfill that mandate, central banks have a superpower that NO other institution on Earth possesses: they can create money from nothing. When the Fed “prints money,” it doesn’t fire up a printing press and crank out bills. It digitally credits bank accounts. Boom. New money exists. The Bank of England itself confirmed in a landmark 2014 paper that the majority of money in the modern economy is created by commercial banks making loans not by the central bank directly but the central bank sets the entire framework and injects base money into the system through asset purchases and lending.

This power the ability to expand the money supply at will is the ROOT of everything that follows.

💡 INSIGHT #1: Central Banks Are the Second Tax Collector (And You Don’t Even Know It)

Here’s the first truth that most people COMPLETELY overlook:

Inflation is a hidden tax.

When the government needs money, it has two options. The obvious one: raise taxes. But that’s politically ugly. People notice. People protest. The second option? Have the central bank create new money.

As Hoppe puts it bluntly: “The second source of funding for the ruling elites, besides the money extorted from the public in the form of taxes, comes from the central banks.”

Milton Friedman, the Nobel Prize-winning economist, famously called inflation “taxation without legislation”. Think about that. No parliamentary debate. No vote. No democratic process. Just a quiet expansion of the money supply that eats away at the value of every rupee, dollar, and euro sitting in your bank account.

Here’s how it works in practice:

The central bank creates new money (through quantitative easing, bond purchases, or lending to commercial banks)
That new money enters the financial system
More money chasing the same goods and services = rising prices
Your salary stays roughly the same, but everything costs more
Your purchasing power has been silently CONFISCATED

Between 2008 and 2022, the world’s major central banks created trillions in new money. The Fed’s balance sheet alone exploded from under $1 trillion to nearly $9 trillion. The European Central Bank and Bank of England followed similar trajectories. All of this new money didn’t make society richer. It made prices higher.

The stat that should scare you: The U.S. dollar has lost over 96% of its purchasing power since the Federal Reserve was established in 1913. That’s not a typo. Ninety-six percent.

💡 INSIGHT #2: The Cantillon Effect – The Rich Get Richer BY DESIGN

This is the insight that changes EVERYTHING once you understand it. And yet, most economics textbooks don’t even mention it.

It’s called the Cantillon Effect, named after Richard Cantillon, an 18th-century Franco-Irish economist who first observed this phenomenon.

Here’s the core idea: When new money is created, it doesn’t reach everyone at the same time. The first people to receive the new money benefit enormously. The last people to receive it get crushed.

Hoppe articulates this with devastating clarity: “The earliest receiver of the newly created money, that is usually the ruling elites, are thereby made richer, and the later and latest receiver, that is the average citizen, are made poorer.”

How the Money Flows

When a central bank creates new money through quantitative easing (QE), it typically purchases government bonds and financial assets from large banks and financial institutions. Those institutions are FIRST in line. They get the new money at its full purchasing power before prices have adjusted upward.

What do they do with it? They invest. They buy stocks, real estate, and corporate bonds. Asset prices surge. The wealthy, who already own the majority of financial assets, see their portfolios skyrocket.

By the time this new money trickles down to the average worker through slightly higher wages or modest government programs, prices have ALREADY risen. The purchasing power of that money is diminished.

This is not an accident. This is a built-in feature of the system.

The Evidence Is Overwhelming

The Mises Institute has documented extensively that the rise in income inequality over the past 30 years “has to a significant extent been the product of monetary policies fueling a series of asset price bubbles”. Every time the market booms, the share of income going to those at the very top increases. When the boom goes bust, that share drops slightly only to come roaring back even higher with the next bubble.

Since 2000, as central banks ran out of conventional tools and began aggressively creating money during each crisis, the Cantillon Effect has favored investors and asset owners over workers and wage-earners in dramatic fashion. The Sovereign Wealth Fund Institute notes that “he who was close to the king and the wealthy” has always been the beneficiary of newly created currency and in the modern era, the “kings” are central bankers and the financial institutions they serve.

The painful truth: New money creation does not and CANNOT make society as a whole richer. It only redistributes existing wealth from the bottom to the top.

💡 INSIGHT #3: Central Banks CAUSE Boom-Bust Cycles (They Don’t Prevent Them)

This one is going to flip your understanding of economics on its head.

Most people believe that central banks exist to STABILIZE the economy. That their interest rate adjustments and monetary policy tools smooth out the rough edges of capitalism. That without them, we’d have constant chaos.

The Austrian Business Cycle Theory (ABCT), developed by Nobel laureate Friedrich Hayek and his mentor Ludwig von Mises, argues the exact opposite.

Here’s the mechanism:

The Boom Phase

The central bank lowers interest rates below their natural market level to “stimulate” the economy. This makes borrowing incredibly cheap. Businesses take on massive loans to fund ambitious, long-term projects. Consumers buy houses, cars, and goods on credit they couldn’t otherwise afford.

But here’s the critical problem: The low interest rates are artificial. They don’t reflect actual savings in the economy. They reflect newly created money injected by the central bank.

In a genuinely free market, interest rates are determined by the balance between how much people save and how much they want to borrow. Low rates naturally signal: “There are real savings available to fund new projects.” But when the central bank artificially suppresses rates, it sends a FALSE signal.

Businesses invest in projects that SEEM profitable at artificially low rates but are actually unsustainable. Austrian economists call this malinvestment.

The Bust Phase

Eventually, the central bank must raise rates to fight the inflation it created. Or the artificial credit boom simply runs out of steam. When that happens, reality catches up:

Unsustainable projects collapse
Businesses go bankrupt
Workers lose jobs
Asset prices plummet
Recession hits

This is the “bust” and it was CAUSED by the artificial boom that preceded it.

The Cato Institute confirmed this pattern played out “to perfection” during the 2003–2008 cycle. The Fed pushed the federal funds rate to a then-record low of 1% well below the natural rate of 3–4% fueling a massive credit boom that inevitably crashed.

The terrifying cycle: The central bank creates a boom → the boom goes bust → the central bank “rescues” the economy by creating MORE money and lowering rates FURTHER → this creates an even bigger boom → followed by an even bigger bust. Rinse and repeat.

Hoppe summarizes this devastating cycle in one line: “The central bank’s manipulation of interest rates is the cause of boom-bust cycles.”

💡 INSIGHT #4: Central Banks Enable Infinite Government Debt (And Wars)

This insight connects central banking to something far darker than just economics.

When a government wants to spend beyond its tax revenue on social programs, infrastructure, or military campaigns it borrows money by issuing government bonds. And who is the biggest buyer of those bonds? The central bank.

This creates a devastating feedback loop:

The government spends more than it collects in taxes
It issues bonds to cover the deficit
The central bank buys those bonds with newly created money
The government gets “free” money to spend as it pleases
The debt grows, shifted onto future taxpayers or inflated away

As Hoppe notes: “The central bank permits the accumulation of ever greater public debt that is shifted as a burden onto unknown future taxpayers or is simply inflated away.”

The War Machine Connection

This is where things get truly uncomfortable. Research published in International Organization by Paul Poast demonstrated that central banks have historically served as critical war-financing mechanisms. By being the sole direct purchaser of government debt, a central bank lowers the government’s borrowing costs particularly during wartime. This makes war CHEAPER for governments to wage.

Ludwig von Mises himself wrote in 1919: “One can say without exaggeration that inflation is an indispensable means of militarism. Without it, the repercussions of war on welfare become obvious much more quickly and penetratingly; war weariness would set in much earlier.”

During World War I, the Federal Reserve essentially created money to buy war bonds, massively expanding its balance sheet to fund the conflict. This pattern repeated in World War II, the Korean War, Vietnam, Iraq, Afghanistan every major conflict funded not just by taxes but by central-bank-enabled debt.

The three World Wars (including the “War on COVID-19,” as some economists frame it) all relied on the same fiscal-monetary playbook: tax, borrow, and print.

Hoppe’s conclusion is stark: “As a facilitator of public debt, the central banks are also the facilitators of wars.”

Without the ability to create unlimited money, governments would have to fund wars through direct taxation and citizens would feel the cost immediately. Democratic resistance to war would be far stronger. The central bank makes war financially painless for politicians (though devastating for the public whose savings are inflated away).

💡 INSIGHT #5: There IS an Alternative And It Worked Before

Here’s where we move from diagnosis to prescription. Because if the current system is so destructive, what’s the alternative?

Hoppe advocates for “a system of free competitive banking built on the foundation of a genuine commodity money such as gold and silver”. This isn’t a radical fantasy. It’s historically how banking worked for centuries and, according to Austrian economists, it worked BETTER.

What Free Banking Looks Like

In a free banking system:

No central bank exists. There is no monopoly issuer of currency
Commercial banks issue their own currencies backed by a commodity standard (such as gold or silver)
Market competition disciplines banks. A bank that issues too many notes beyond its gold reserves faces redemption demands from competing banks and from customers forcing it to stay honest
Interest rates are set by the market by the real balance between savings and borrowing not by unelected officials in a boardroom
Clearinghouse associations (privately owned by member banks) handle clearing, settlement, and enforcement of standards

As George Selgin and Lawrence White, leading free banking scholars, have demonstrated, historical free banking systems in Scotland (1716–1845), Canada, and other regions performed remarkably well with greater stability and fewer crises than systems with central banks.

Why It Would Work

A free banking system built on commodity money addresses EVERY problem outlined in this post:

Problem	Central Banking	Free Banking
Hidden inflation tax	Central bank creates money at will	Money supply tied to real commodity; can’t be inflated arbitrarily
Cantillon Effect (inequality)	First receivers benefit, last receivers lose	No artificial money creation means no redistribution toward elites
Boom-bust cycles	Artificial interest rates cause malinvestment	Market-set rates reflect real savings; no artificial booms
Unlimited public debt	Central bank buys government bonds endlessly	No monopoly buyer of debt; government borrowing faces real market discipline
War financing	Debt monetization makes war easy to fund	Without money printing, wars must be funded by direct taxation — increasing public resistance

The Hillsdale College Free Market Forum summarized the case powerfully: A free banking system “would lower inflation by eliminating its source in central bank monetary expansion” and “foster macroeconomic stability in both senses… not because anyone would set such a goal, but because the self-interested behavior of the individual banks would generate it”.

So What Can YOU Actually Do? Step-by-Step Actionable Guidance

Look abolishing central banks isn’t something you can do over the weekend. But there ARE powerful steps you can take RIGHT NOW to protect yourself and contribute to change.

Step 1: Educate Yourself Deeply

Knowledge is the first line of defense. Read these foundational works:

“What Has Government Done to Our Money?” by Murray Rothbard a short, accessible introduction to how money has been corrupted by government
“The Ethics of Money Production” by Jörg Guido Hülsmann a deeper dive into the moral implications of fiat currency
“Deflation and Liberty” by Jörg Guido Hülsmann understand why deflation isn’t the monster the mainstream claims it is
“Human Action” by Ludwig von Mises the foundational text of Austrian economics

Step 2: Protect Your Purchasing Power

Since the central bank is actively devaluing your cash savings, you need to own assets that HOLD or INCREASE value during inflationary periods:

Physical gold and silver – The original money, unchanged for 5,000 years. Central banks can’t print gold
Real estate – Tangible property that tends to appreciate with inflation
Productive assets – Businesses, farmland, or equity in companies that generate real goods and services
Bitcoin and sound crypto – While volatile, Bitcoin’s fixed supply of 21 million coins makes it a digital hedge against infinite money printing

Step 3: Reduce Your Dependence on the Fiat System

Minimize savings held purely in cash – Your bank balance is being eroded daily by inflation
Explore decentralized finance (DeFi) – Peer-to-peer lending and borrowing without central bank intermediaries
Use local and community banking where possible – As economist Richard Werner advocates, community banks that lend to local productive enterprises are vastly preferable to megabanks that speculate with central bank money

Step 4: Advocate for Sound Money Policies

Support politicians and movements that advocate for auditing central banks and exploring gold-backed or rules-based monetary systems
Share knowledge – Most people have NO IDEA how central banking works. Talk about the Cantillon Effect. Explain how money creation causes inequality. Share this blog post
Push for transparency – Demand that central bank decisions be subject to genuine democratic oversight, not conducted behind closed doors by unelected technocrats

Step 5: Build Parallel Systems

The ultimate solution is to make central banking irrelevant through alternatives:

Support free banking advocacy – Organizations like the Cato Institute, the Mises Institute, and AIER (American Institute for Economic Research) actively research and promote alternatives to central banking
Participate in the crypto economy – Every Bitcoin transaction is a small act of monetary freedom
Build community resilience – Local currencies, barter networks, and cooperative banking structures all reduce dependence on the centralized monetary system

Credit: The Inspiration Behind This Blog

The foundational ideas in this blog post are inspired by Hans-Hermann Hoppe, specifically his speech delivered at the Property and Freedom Society (PFS) conference. Hoppe is a German-born economist, professor at the University of Angers, Senior Fellow at the Mises Institute, and one of the most important living voices in the Austrian School of economics.

His work builds upon the intellectual tradition of:

Ludwig von Mises — Author of Human Action, the foundational work on Austrian economics
Friedrich Hayek — Nobel Prize laureate who developed the Austrian Business Cycle Theory
Murray Rothbard — Author of What Has Government Done to Our Money? and fierce critic of central banking
Richard Cantillon — The 18th-century economist who first described the redistributive effects of money creation, now known as the Cantillon Effect

Additional research sources include Jörg Guido Hülsmann’s work on the ethics of money production, George Selgin’s research on free banking at the Cato Institute, Paul Poast’s Cambridge research on central banks and war financing, and the extensive economic analysis published by the Mises Institute.

The Bottom Line

Central banking isn’t just an abstract economic concept. It’s a system that actively transfers wealth from ordinary people to political elites and their financial allies. It destroys savings through inflation, amplifies inequality through the Cantillon Effect, creates devastating boom-bust cycles through interest rate manipulation, enables unlimited government debt, and makes endless war financially possible.

This monstrosity must end. And the first step toward ending it is UNDERSTANDING it.

So here’s my question to you: Now that you know how the system really works, what are you going to do about it?

💬 Comment below and I’ll send you the community link to continue this conversation

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Source Inspiration: Hans-Hermann Hoppe, “Libertarianism and the Alt-Right” speech, Property and Freedom Society Conference (2017). Available at hanshoppe.com.

Further reading: Mises Institute (mises.org), Cato Institute Monetary Conference Proceedings, AIER Free Banking Research.

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