http://hbdbooks.com/2009/10/what-powers-government-fiat-money/

How many politicians are capable of writing a book, nay, a paragraph that would be worth reading? Watching them on TV, they seem the most spineless, uninteresting group of people imaginable. It seems obvious why. In the same way diversity leads to a culture that appeals to the lowest common denominator, a popularity contest involving the general population favors the smallest men imaginable.



An exception is Ron Paul, a man who lives a life of ideas and action, as the Founding Fathers did. The congressman has spent a lifetime as a champion of liberty and his greatest enemy is the Federal Reserve. Fresh off his 2008 presidential campaign he wrote End the Fed.



Our Government the Thief



According to Paul, the best case against the Fed is simply that it’s immoral. When government prints a new dollar, the value of each one in circulation goes down. The government shouldn’t be allowed to print money for the same reason you or I aren’t allowed to counterfeit.



If that’s not enough for you, there is the constitutional argument. The Tenth Amendment to the Unites States Constitution says that whatever powers not explicitly granted to the Federal Government are left to the people or the states. There is nothing in the Constitution about centralized banking. And the states aren’t allowed to declare whatever they want as money either. Article 1, Section 10: “No state shall…make anything but gold and silver coin a tender in payment of debts.” The economic argument that centralized banking is needed to deal with the boom and bust cycle is like a tobacco company saying that their goal is to fight lung cancer. It’s the Fed which mandates artificially low interest rates and creates imagined wealth in the first place, leading to the bust phase. Unfortunately, Paul doesn’t explain this clearly enough and I think he may expect too much from the casual reader. The author proceeds as if it’s common knowledge what the Fed is and what it does, or even how money works. Had I not read Murray Rothbard’s The Case Against the Fed and What Has Government Done to Our Money? I would’ve been lost. Both books along with those of others by Mises Institute scholars are recommended under suggested reading.



Paul points out that he’s not obsessed with his gold; he’s happy to let the market decide what commodity to use as a medium of exchange. Let the government get out of the business completely. Gold, from Ancient Egypt to the twentieth century, has emerged as the preferred commodity due to its durability, intrinsic value, difficulty to counterfeit and divisibility.



The state has long understood how its power is threatened by gold. Paul recalls him and his aide Lew Rockwell in 1980 meeting Federal Reserve Chairman Paul Volcker for breakfast. When Volcker arrived, before acknowledging his two eating companions, he turned to his aide and asked, “What’s the price of gold?” The higher it is, the less faith there is in the currency system. It’s no wonder that Roosevelt confiscated all gold in 1933-1934 and the government for the next few decades would try to fix the price of the metal. Nixon in 1971 took the US completely off the gold standard. The commodity once again became legal to own in bullion form only later that decade thanks in large part to the Paul’s efforts in congress. When government isn’t being evil, it’s incompetent. A congressman on a committee dealing with financial matters once asked Paul whether the dollar was still backed up by gold.



Ronald Reagan once told the author, “Ron, no great nation that abandoned the gold standard has remained a great nation.” Gee, if only he was in a position to do something about it! More maddening is the case of former Federal Reserve Chairman Alan Greenspan (1987-2006). Paul remembers reading a 1966 article by him in Ayn Rand’s newsletter The Objectivist called “Gold and Economic Freedom.” Greenspan wrote,



In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold…



This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.



In 2004 Paul brought the article to Greenspan before a scheduled meeting and asked him to sign it. Paul asked whether Greenspan would like to put a disclaimer on it. “Astoundingly, he answered that he had just recently reread it and wouldn’t change a word of it.” Paul struggles to reconcile this with Greenspan’s tenure as head of the Federal Reserve. He concludes that the chairman was operating under the philosophy of pragmatism, detested by Greenspan’s old idol Ayn Rand. The author provides long transcripts of exchanges he had both with Greenspan and current Chariman Bernard Bernanke. The two men assured the congressman that the financial system was sound as Paul warned that our wealth was artificial and the day of reckoning would come.



The Federal Reserve and the Warfare State



The ability to print money gives the government unlimited power. If you tax the people too much they rebel. But if you declare your paper to be the only thing used as legal tender and allow yourself to print as much of it as you want, there’s no limit to what you can do. The effects of inflation are as real as any tax. It’s just that the people are slower to notice and connect their lower living standards to the actions of the government. The scariest power that the Federal Reserve gives government is that to wage war.



Under a regime of sound money government would have to pay for war, or anything else it did, by taxation. Since war is costly, heads of state tried to avoid it. If war did start, governments would try to settle as quickly as possible. With the ability to print money, the state could finance ambitious projects and scapegoat others when it wrecked the economy. As Paul puts it, “It is no coincidence that the century of total war coincided with the century of central banking.”



The US Federal Reserve was founded in 1913 and allowed America to enter World War I four years later. It has been estimated that only 21 percent of the war effort was funded through taxation. 56 percent of the spending came from Fed-backed borrowing and 23 percent of the money was created out of thin air. Without centralized banking there would’ve been no World War I, Treaty of Versailles, Russian Revolution, Nazism or World War II.



Lew Rockwell explained that centralized banking funded Russia’s efforts in the First World War. It “turned a relatively benign monarchy into a war machine. A country that had long been integrated into the worldwide division of labor and was under a gold standard became a killing machine.” The inflation led to massive unrest and eventually, Communism.



Today, the Federal Reserve funds the American empire as it has the wars in Iraq, Haiti, Korea, Vietnam, Afghanistan, Serbia, the Dominican Republic and Nicaragua, and bases on every continent but Antarctica. If the American people had to make the connection between the taxes they pay and bases in Kazakhstan or women’s rights workshops in Iraq the beast may be reigned in. This principle not only applies to wars, but everything else that the government spends its money on.



The Current Mess



Paul does not shy away from blaming affirmative action lending and the Community Reinvestment Act for the problems we face. Yet the easy borrowing standards problem is simply a subset of a larger one: a government with unlimited power to inconspicuously steal from the citizen so it can spend on everything from a human rights empire to wasteful education programs for the hopeless.



Without sound money, there is no protection of wealth and thus no freedom. The things that the bureaucrats can get away with are directly linked to there being no check on the state’s power. Ending the Fed should be the goal of anybody interested in restoring American freedom and prosperity. I would’ve never believed that a cause so obscured by the media and requiring some knowledge of economics to understand could gain popular support. But Paul recounts a telling experience he had at the University of Michigan while giving a campaign speech.



…it was a very friendly crowd, applauding my comments on government spending and on wars and on foreign policy. But when I mentioned monetary policy, the kids started cheering. Then a small group chanted, “End the Fed! End the Fed!” The whole crowd took up the call. Many held up burning dollar bills, as if to say to the central bank, you have done enough damage to the American people, our future, and to the world: your time is up.



People don’t understand monetary policy and therefore distrust those that make it. This is a healthy instinct and the public should be made to understand that their suspicion of the powerful is justified.



Ron Paul strikes me as a man almost too honest and sincere for this world, or at least this era. The fact that he can have influence says that there is still something good about our system and society. Whether he’s simply the relic of an old civilization in its last throes or the leader of a true revolution remains to be seen.