The Herculean Power Of Compounding Runs Roughshod Over The Fed

BusinessPolicyThe Herculean Power Of Compounding Runs Roughshod Over The FedByJohn Tamny,Contributor.Follow AuthorDec 14, 2025, 10:00am ESTFacade of the Marriner S Eccles building of the United States Federal Reserve, on a bright and sunny day in Washington, DC, United States, July 24, 2017. (Photo by Smith Collection/Gado/Getty Images)Getty Images“Speed is the name of the game.” That’s how venture capitalist Ben Braverman recently explained investing to the New York Times. He was describing the extraordinary efforts he’s made to match capital with artificial intelligence (AI) talent in Silicon Valley. He’s gone so far as the show up at gyms where investment prospects are known to exercise. Keep the above in mind as economists, politicians and pundits continue to watch the Fed, and how difficult the central bank will allegedly make it (or not) for businesses to attain capital. If we forget that what the Fed does with rates has nothing to do with the equity finance that informs investment in the U.S.’s most productive economic sectors as is, we can’t forget that the aim of those with title to capital isn’t to play “keep away.” More realistically, the genius of compounding and time requires capital sources to put the funds entrusted to them to work as credibly and quickly as possible. What’s not invested is not compounding. How the world actually works first calls into question Fed Chairman Jerome Powell’s oh-so-serious press conference last week after the FOMC’s allegedly consequential decision to reduce the Fed funds rate a quarter point. What the Fed does and what investors like Braverman do are wholly at odds with one another. Just as it’s unlikely that most entrepreneurs scan the tax code before taking big, substantially against-the-grain leaps, it’s also a safe bet that they don’t parse the words of central bankers in the fashion of a Kremlinologist. MORE FOR YOUCapital must be put to work, particularly when new commercial advances poised to rewrite how business is done reveal themselves. The Fed’s relevance to investors and those in search of investment recalls the Don Draper line in Mad Men, “I don’t think about you at all.” Which will hopefully drive a gradual and then total rethink not just about the Fed and its alleged economic impact in the present (much less detectable than economists wish it were), but also its role in the past. Think the Great Depression. It’s popular among libertarian thinkers to say that the Fed’s alleged “tightness” with so-called “money supply” was the biggest factor in the 1930s downturn. The theorizing in no ways measures up to reality, and not just because it’s passing strange how libertarians would so deeply believe that absent government “supplying” exchange media, commerce sputters. In truth, money and credit are always and everywhere effects of production. If there’s production there’s always money precisely because production is an expression of a desire to exchange. Money in circulation is a market phenomenon, not a central bank function. This is important with George Selgin’s new book, False Dawn, top of mind. By seemingly all accounts good, it errs in promoting the libertarian fiction that the Fed’s actions limited so-called “money supply” and credit. See Braverman to understand why. Where there’s economy-boosting advance, there’s always money. The more vibrant the activity, the more money there is. And in the “closed economy” that is the world economy, the money is coming from all over. Looking back nearly 100 years ago, the federal government most certainly laid all manner of wet blankets on economic activity as Selgin and others before him have argued, only for shrinkage in so-called “money supply” to logically and certainly reveal itself as the effect of the various government errors. The main thing now and in the 1930s is that a central bank could never limit the circulation of exchange media. Production is the only factor. That’s why dollars circulated less in the 1930s, and it’s why they’re abundant in Silicon Valley in the 2020s. Editorial StandardsReprints & Permissions