Honest Money Constitutional Amendment

[Foundation_Of_Liberty]

I would be utterly shocked if it was EVER redeemable in gold, even from the onset. It will only be said to be "backed by gold" to instill CON-fidence, with nobody--not government or individuals--ever having the ability to say, "OK, here's my bill, where's my gold?"

Spot on! Good point! CON-fidence, is the key word here! Any solution that involves a government forced monopoly, i.e. immoral use of violence, is a false one. Free Competition in Currencies is the ONLY TRUE SOLUTION here, because it is the only solution that does not violate the laws of JUSTICE.

A JUST society is a VOLUNTARY one. JUSTICE and Liberty are intrinsically linked. You cannot have Liberty without justice, and you cannot have JUSTICE without Liberty! They are the two sides of the same coin, which coin is Freedom, Peace and Prosperity.

[Foundation_Of_Liberty]

The Money and Banking Quiz

We are a sufficient number of generations into our virtual currency system, and the majority of people accept it without any question. It is inconceivable to most that it could contain a fatal flaw which might eventually lead to its demise – or our loss of personal liberty.

Our system of fractional reserve banking and fiat money is one of the greatest cons ever devised by man. It hides in plain sight by virtue of a deception that is just subtle enough to elude the grasp of almost all who encounter it. Sometimes such an idea cannot be fully communicated through simple explanation. Rather, it must be discovered by each individual in his own way.

The following is not so much a quiz, but possible questions that could be used to lead someone to their own discovery.

http://lewrockwell.com/spl4/money-and-banking-quiz.html

[Foundation_Of_Liberty]

When Money Dies | Daniel Sanchez

[Foundation_Of_Liberty]

12 Year Old Girl Tells The SHEEPLE the Truth about CORRUPT BANKERS







The only thing she is wrong about is the solution.

The solution is not to give the counterfeiting power into the hands of trustworthy politicians, but to outlaw legalized and monopolized counterfeiting all together, by legalizing Free Competition in Currencies as in this amendment.

Also, there is no such thing as "fair taxes," as there is no such thing as "fair robbery."

[Foundation_Of_Liberty]

[Foundation_Of_Liberty]

Ditching Before the Fiscal Cliff
by Peter Schiff



Read more: http://lewrockwell.com/schiff/schiff190.html

[Foundation_Of_Liberty]

Can We Live Without the Fed?
[Can we live without plunder?]

Don't make Tom Woods laugh.
by Thomas E. Woods, Jr.

Recently by Thomas E. Woods, Jr.: Why the Greenbackers Are Wrong



This was published on January 2, 2013, in Ron Paul’s Monetary Policy Anthology: Materials From the Chairmanship of the Subcommittee on Domestic Monetary Policy and Technology, US House of Representatives, 112^th Congress.

We have heard the objection a thousand times: why, before we had a Federal Reserve System the American economy endured a regular series of financial panics. Abolishing the Fed is an unthinkable, absurd suggestion, for without the wise custodianship of our central bankers we would be thrown back into a horrific financial maelstrom, deliverance from which should have made us grateful, not uppity.

The argument is superficially plausible, to be sure, but it is wrong in every particular. We heard it quite a bit in the financial press ever since the announcement that Congressman Ron Paul, a well-known opponent of the Fed, would chair the House Financial Services Subcommittee on Domestic Monetary Policy. Fed apologists were beside themselves – a man who rejects the cartoon version of the history of the Fed will hold such an influential position? He must be made into an object of derision and ridicule.

The conventional wisdom runs something like this: without a central bank or its lesser cousin, a national bank, we had frequent episodes of boom and bust, but since the creation of the Federal Reserve System the economy has been far more stable. People who believe in a free market in banking, as opposed to these cartel arrangements, are evidently so uninformed or so blinded by ideology that they have never heard or internalized this one-sentence encapsulation of 19th- and 20th-century monetary history.

Modern scholarship has not been kind to this thesis. Mainstream economists have begun to acknowledge that the alleged instability of the period before the Federal Reserve has been exaggerated, as the posited stability of the post-Fed period. Christina Romer, who chaired the Council of Economic Advisers under Barack Obama, finds that the numbers and dating used by the National Bureau of Economic Research (NBER, the largest economics research foundation in the U.S., founded in 1920) exaggerate both the number and the length of economic downturns prior to the creation of the Fed. In so doing, the NBER likewise overestimates the Fed’s contribution to economic stability. Recessions were in fact not more frequent in the pre-Fed than the post-Fed period.

Suppose we compare only the post-World War II period to the pre-Fed period, thereby excluding the Great Depression from the Fed’s record. In that case, we do find economic contractions to be somewhat more frequent in the period before the Fed, but as economist George Selgin explains, "They were also three months shorter on average, and no more severe." Thus recoveries were faster in the pre-Fed period, with the average time peak to bottom taking only 7.7 months as opposed to the 10.6 months of the post-World War II period. Extending our pre-Fed period to include 1796 to 1915, economist Joseph Davis finds no appreciable difference between the frequency and duration of recessions as compared to the period of the Fed.

But perhaps the Fed has helped to stabilize real output (the total amount of goods and services an economy produces in a given period of time, adjusted to remove the effects of inflation), thereby decreasing economic volatility. Not so. Some recent research finds the two periods (pre- and post-Fed) to be approximately equal in volatility, and some finds the post-Fed period in fact to be more volatile, once faulty data are corrected for. The ups and downs in output that did exist before the creation of the Fed were not attributable to the lack of a central bank. Output volatility before the Fed was caused almost entirely by supply shocks that tend to affect an agricultural society (harvest failures and such), while output volatility after the Fed is to a much greater extent the fault of the monetary system. (For citations on this point and for the previous paragraphs, see the paper by George Selgin, William D. Lastrapes, and Lawrence H. White, "Has the Fed Been a Failure?" available online.)

The 19th-century boom-bust cycles that are supposed to discredit the idea of a free market in money and banking are in fact consistently attributable to artificial credit expansion, a practice given artificial stimulus by means of the various government privileges granted to the banking industry. According to Richard Timberlake, a well-known economist and historian of American monetary and banking history, "As monetary histories confirm...most of the monetary turbulence – bank panics and suspensions in the nineteenth century – resulted from excessive issues of legal-tender paper money, and they were abated by the working gold standards of the times." It is the old story of the faults of interventionism being blamed on the free market.

Contemporaries by and large attributed the Panic of 1819, for example, to the inflationary and then rapidly contractionary policies of the Second Bank of the United States. As often happens when the country is flooded with money created out of thin air, speculation of all kinds grew intense, as eyewitness testimony abundantly records.

During the years when the U.S. had no central bank (the period from 1811, when the charter of the first Bank of the United States expired, and 1817), government had granted private banks the privilege of expanding credit while refusing to pay depositors demanding their funds. In other words, when people came to demand their money from the banks, the banks were allowed to tell them they didn’t have the money, and depositors would simply have to wait a couple years – and at the same time, the bank was allowed to continue in operation. By early 1817 the Madison administration finally required the banks to meet depositor demands, but at the same time chartered the Second Bank of the United States, which would itself be inflationary. The Bank subsequently presided over an inflationary boom, which came to grief in 1819.

The lesson of that sorry episode – namely, that the economy gets taken on a wild and unhealthy ride when the money supply is arbitrarily increased and then suddenly reduced – was so obvious that even the political class managed to figure it out. Numerous American statesmen were confirmed in their hard-money views by the Panic. Thomas Jefferson asked a friend in the Virginia legislature to introduce his "Plan for Reducing the Circulating Medium," which the Sage of Monticello had drawn up in response to the Panic. The plan sought to withdraw all paper money in excess of specie over a five-year period, then redeem the rest in specie and have precious-metal coins circulate exclusively from that moment on. Jefferson and John Adams were especially fond of Destutt de Tracy’s hard-money Treatise on the Will (1815), with Adams calling it the best book on economics ever written (its chapter on money, said Adams, defends "the sentiments that I have entertained all my lifetime") and Jefferson writing the preface to the English-language edition.

While the Panic of 1819 confirmed some political figures in the hard-money views they already held, it also converted others to that position. Condy Raguet had been an outspoken inflationist until 1819. After observing the distortions and instability caused by paper-money inflation, he promptly embraced hard money, and went on to write A Treatise on Currency and Banking (1839), one of the great money and banking treatises of the nineteenth century. Davy Crockett, future president William Henry Harrison, and John Quincy Adams (at least at that time) were likewise opposed to inflationist banks; in contrast to the inflationary Second Bank of the United States, Adams cited the hard-money Bank of Amsterdam as a model to emulate. Daniel Raymond, disciple of Alexander Hamilton and author of the first treatise on economics published in America (Thoughts on Political Economy, 1820), expressly broke with Hamilton in advocating a hard-money, 100 percent specie-backed currency.

Popular references to the Panic of 1837 today urge us to blame President Andrew Jackson for having dissolved the Second Bank of the United States. The most common argument is this: without a national bank to discipline the state banks, the state banks that received the federal deposits after the closure of the Second Bank went on an inflationary binge that culminated in the Panic of 1837 and another downturn in 1839. This standard diagnosis is partly Austrian, surprisingly, in that it blames artificial credit expansion for giving rise to unsustainable booms that end in busts. But the alleged solution to this problem, according to modern commentators, is a robust central bank with implicit regulatory powers over smaller institutions.

Senator William Wells, a hard-money Federalist from Delaware, had been unconvinced from the start that the best way to encourage sound practices among smaller unsound banks was to establish a giant unsound bank. "This bill," he said in 1816,

came out of the hands of the administration ostensibly for the purpose of curtailing the over-issue of Bank paper: and yet it came prepared to inflict on us the same evil, being itself nothing more than a simple paper making machine; and constituting, in this respect, a scheme of policy about as wise, in point of precaution, as the contrivance of one of Rabelais’s heroes, who hid himself in the water for fear of the rain. The disease, it is said, is the Banking fever of the States; and this is to be cured by giving them the Banking fever of the United States.

Another hard-money U.S. senator, New York’s Samuel Tilden, likewise wondered, "How could a large bank, constituted on essentially the same principles, be expected to regulate beneficially the lesser banks? Has enlarged power been found to be less liable to abuse than limited power? Has concentrated power been found less liable to abuse than distributed power?"

A much better solution recommended by hard-money advocates at the time is what became known as the "Independent Treasury," in which the federal deposits, instead of being distributed to privileged state banks and used as the basis for additional rounds of credit creation there, were retained by the Treasury and kept out of the banking system entirely. Hard-money supporters believed that the federal government was propping up (and lending artificial legitimacy to) an unsound system of fractional-reserve state banks by (1) distributing the federal deposits to them, (2) accepting their paper money in payment of taxes and (3) paying it back out again. As William Gouge put it,

If the operations of Government could be completely separated from those of the Banks, the system would be shorn of half its evils. If Government would neither deposit the public funds in the Banks, nor borrow money from the Banks; and if it would in no case either receive Bank notes or pay away Bank notes, the Banks would become mere commercial institutions, and their credit and their power be brought nearer to a level with those of private merchants.

Contemporary opponents of the Bank have sometimes been portrayed as antimarket, antiproperty populists. "Last time we had a central bank," wrote a critic of Congressman Paul in 2010, "its advocates were conservative, hard-money businessmen, and its opponents were subprime borrowers and lenders who convinced President Jackson the bank was holding back the nation." That is as wrong as wrong can be, as we’ll see in a moment. But our critic proceeds from this error to the false conclusion that supporters of the market economy then as now should be supporters of the central bank.

To be sure, opponents of the Second Bank of the United States were no monolith, and even today the central bank is criticized both by those who condemn its money creation as well as by those who criticize its alleged stinginess. On balance, though, the fight against the Second Bank was a free-market, hard-money campaign against a government-privileged paper-money producer. "The attack on the Bank," concluded Professor Jeff Hummel in his review of the literature, "wasa fully rational and highly enlightened step toward the achievement of a laissez-fairemetallic monetary system."

In fact, the most important monetary theorist of the entire period, William Gouge, was a champion of hard money who opposed the Bank; he considered these two positions logically coordinate, indeed inseparable. "Why should ingenuity exert itself in devising new modifications of paper Banking?" Gouge asked. "The economy which prefers fictitious money to real, is, at best, like that which prefers a leaky ship to a sound one." He assured Americans that "the sun would shine, the streams would flow, and the earth would yield her increase, if the Bank of the United States was not in existence." The conservative Bankers’ Magazine, upon Gouge’s death, said that his hard-money book A Short History of Paper Money and Banking was "a very able and clear exposition of the principles of banking and of the mistakes made by our American banking institutions."

Another important hard-money opponent of the national bank was William Leggett, the influential Jacksonian editorial writer in New York who memorably called for "separation of bank and state." Economist Larry White, who compiled many of Leggett’s most important writings, calls him "the intellectual leader of the laissez-faire wing of Jacksonian democracy." He denounced the Bank for its repeated expansions and contractions, and for the economic turmoil that such manipulation left in its wake.

The Panic of 1819 had likewise been due to such behavior on the part of the Bank, said Leggett during the 1830s. "For the two or three years preceding the extensive and heavy calamities of 1819, the United States Bank, instead of regulating the currency, poured out its issues at such a lavish rate that trade and speculation were excited in a preternatural manner." Leggett continues,

But not to dwell upon events the recollection of which time may have begun to efface from many minds, let us but cast a glance at the manner in which the United States Bank regulated the currency in 1830, when, in the short period of a twelve-month it extended its accommodations from forty to seventy millions of dollars. This enormous expansion, entirely uncalled for by any peculiar circumstance in the business condition of the country, was followed by the invariable consequences of an inflation of the currency. Goods and stocks rose, speculation was excited, a great number of extensive enterprises were undertaken, canals were laid out, rail-roads projected, and the whole business of the country was stimulated into unnatural and unsalutary activity.



As in later crises, banks were allowed to suspend specie payment (a fancy way of saying that the law permitted them to refuse to hand over their depositors’ money when their customers came looking for it) while permitting them to carry on their operations. The knowledge that government could be counted on to bail out the banks in this way created a lingering problem of moral hazard that would affect banks’ behavior in the future.
Leggett blamed artificial credit creation for the Panic of 1837:

What has been, what ever must be, the consequence of such a sudden and prodigious inflation of the currency? Business stimulated to the most unhealthy activity; a vast amount of over production in the mechanick arts; a vast amount of speculation in property of every kind and name, at fictitious values; and finally, a vast and terrifick crash, when the treacherous and unsubstantial basis crumbles beneath the stupendous fabrick of credit, and the structure falls to the ground, burying in its ruins thousands who exulted in the fancied security of their elevation. Men, now-a-days, go to bed deeming themselves rich, and wake in the morning to find themselves stripped of even the little they really had. They count, deluded creatures! on the continued liberality of the banks, whose persuasive entreaties seduced them into the slippery paths of speculation. But they have now to learn that the banks cannot help them if they would, and would not if they could. They were free enough to lend their aid when assistance was not needed; but now, when it is indispensable to carry out the projects which would not have been undertaken but for the temptations they held forth, no further resources can be supplied.

Toward the end of 1837, he added:

Any person who has soberly observed the course of events for the last three years must have foreseen the very state of things which now exists.... He will see that the banks...have been striving with all their might, each emulating the other, to force their issues into circulation and flood the land. He will see that they have used every art of cajolery and allurement to entice men to accept their proffered aid, that in this way they gradually excited a thirst for speculation which they sedulously stimulated until it increased to a delirious fever and men in the epidemic frenzy of the hour wildly rushed upon all sorts of desperate adventures. They dug canals where no commerce asked for the means of transportation, they opened roads where no travelers desired to penetrate and they built cities where there were none to inhabit.

The Panic of 1857 was the result of a five-year boom rooted in credit expansion. The most capital-intensive industries of that decade, railroad construction and mining companies, expanded the most during the boom. States had even backed railroad bonds, promising to make good on those bonds if the railroad companies did not.

President James Buchanan engaged in no vain effort to reflate the economy. He observed in his first annual message, "It is apparent that our existing misfortunes have proceeded solely from our extravagant and vicious system of paper currency and bank credits." The economy recovered within six months, even though the money supply fell, interest rates rose, government spending was not increased, and businesses and banks were not bailed out. But Buchanan cautioned Americans that "the periodical revulsions which have existed in our past history must continue to return at intervals so long as our present unbounded system of bank credits shall prevail."

Buchanan envisioned a federal bankruptcy law for banks that, instead of giving legal sanction to their suspension of specie payments (that is, their failure to honor their depositors’ demands for withdrawal), would in fact shut them down if they failed to make good on their promises. "The instinct of self-preservation might produce a wholesome restraint upon their banking business if they knew in advance that a suspension of specie payments would inevitably produce their civil death."

Until recently it was customary to refer to the 1870s as the period of the "Long Depression" in the United States. The modern consensus holds that there was no "Long Depression" after all. Even the New York Times recently observed:

Recent detailed reconstructions of nineteenth-century data by economic historians show that there was no 1870s depression: aside from a short recession in 1873, in fact, the decade saw possibly the fastest sustained growth in American history. Employment grew strongly, faster than the rate of immigration; consumption of food and other goods rose across the board. On a per capita basis, almost all output measures were up spectacularly. By the end of the decade, people were better housed, better clothed and lived on bigger farms. Department stores were popping up even in medium-sized cities. America was transforming into the world’s first mass consumer society.

Farmers, moreover, who panicked at falling prices for agricultural commodities, at first failed to note that other prices were falling still faster. The terms of trade for American farmers improved considerably during the 1870s.

As for historians, they seem to have been fooled by the statistics on consumer prices, which fell an average of 3.8 percent per year. And since the conventional wisdom holds that falling prices and depression are intimately linked – they are not – they concluded that this must have been a time of terrible depression. With the gold standard restored in 1879 after being abandoned during the Civil War, the 1880s were likewise a period of great prosperity, with real wages rising by 20 percent.

The post–Civil War panics in the United States were due in large part to the unit-banking regulations in many states that forbade branch banking of any sort. Confined to a single office, each bank was necessarily fragile and undiversified. Canada experienced none of these panics even though it did not establish a central bank, the establishment’s trusted panacea, until 1934. As Milton Friedman was fond of pointing out, when 9,000 banks failed in the U.S. during the Great Depression, not a single bank failure was taking place in Canada, where the banking system was not damaged by these regulations.

Moreover, as Charles Calomiris has noted, the bank failure rate during the pre-Fed panics was small, as were the losses depositors suffered. Depositor losses amounted to only 0.1 percent of GDP during the Panic of 1893, which was the worst of them all with respect to bank failures and depositor losses. By contrast, in just the past 30 years of the central-bank era, the world has seen 20 banking crises that led to depositor losses in excess of 10 percent of GDP. Half of those saw losses in excess of 20 percent of GDP.

Just from an empirical point of view, therefore, the case for the Fed is far weaker than its proponents admit or realize. Still, as in so many other areas, critics of the status quo are reflexively condemned as cranks, and alternatives are dismissed as unthinkable. But they are unthinkable only because we have allowed fashionable opinion to keep us from thinking them. We have been forced into a box that confines our choices to various forms of statism. The movement to end the Fed is an astonishing and most welcome first step toward clawing our way out.

January 4, 2013


Thomas E. Woods, Jr. [send him mail; visit his website], a senior fellow of the Ludwig von Mises Institute, is the creator of Tom Woods’s Liberty Classroom, a libertarian educational resource. He is the author of eleven books, including the New York Times bestsellers Meltdown (on the financial crisis; read Ron Paul’s foreword) and The Politically Incorrect Guide to American History, and most recently Nullification and Rollback.

Copyright © 2013 Thomas Woods

The Best of Thomas Woods

[Foundation_Of_Liberty]

The Myth of Fed Independence

by Murray N. Rothbard

Excerpted from The Case Against The Fed

By far the most secret and least accountable operation of the federal government is not, as one might expect, the CIA, DIA, or some other super-secret intelligence agency. The CIA and other intelligence operations are under control of the Congress. They are accountable: a Congressional committee supervises these operations, controls their budgets, and is informed of their covert activities. It is true that the committee hearings and activities are closed to the public; but at least the people’s representatives in Congress insure some accountability for these secret agencies.

It is little known, however, that there is a federal agency that tops the others in secrecy by a country mile. The Federal Reserve System is accountable to no one; it has no budget; it is subject to no audit; and no Congressional committee knows of, or can truly supervise, its operations. The Federal Reserve, virtually in total control of the nation's vital monetary system, is accountable to nobody – and this strange situation, if acknowledged at all, is invariably trumpeted as a virtue.

Thus, when the first Democratic president in over a decade was inaugurated in 1993, the maverick and venerable Democratic chairman of the House Banking Committee, Texan Henry B. Gonzalez, optimistically introduced some of his favorite projects for opening up the Fed to public scrutiny. His proposals seemed mild; he did not call for full-fledged Congressional control of the Fed’s budget. The Gonzalez Bill required full independent audits of the Fed’s operations; videotaping the meetings of the Fed’s policy-making committee; and releasing detailed minutes of the policy meetings within a week, rather than the Fed being allowed, as it is now, to issue vague summaries of its decisions six weeks later. In addition, the presidents of the twelve regional Federal Reserve Banks would be chosen by the president of the United States rather than, as they are now, by the commercial banks of the respective regions.

It was to be expected that Fed Chairman Alan Greenspan would strongly resist any such proposals. After all, it is in the nature of bureaucrats to resist any encroachment on their unbridled power. Seemingly more surprising was the rejection of the Gonzalez plan by President Clinton, whose power, after all, would be enhanced by the measure. The Gonzalez reforms, the President declared, “run the risk of undermining market confidence in the Fed.”

On the face of it, this presidential reaction, though traditional among chief executives, is rather puzzling. After all, doesn’t a democracy depend upon the right of the people to know what is going on in the government for which they must vote? Wouldn’t knowledge and full disclosure strengthen the faith of the American public in their monetary authorities? Why should public knowledge “undermine market confidence”? Why does “market confidence” depend on assuring far less public scrutiny than is accorded keepers of military secrets that might benefit foreign enemies? What is going on here?

The standard reply of the Fed and its partisans is that any such measures, however marginal, would encroach on the Fed’s “independence from politics,” which is invoked as a kind of self-evident absolute. The monetary system is highly important, it is claimed, and therefore the Fed must enjoy absolute independence.

“Independent of politics” has a nice, neat ring to it, and has been a staple of proposals for bureaucratic intervention and power ever since the Progressive Era. Sweeping the streets; control of seaports; regulation of industry; providing social security; these and many other functions of government are held to be “too important” to be subject to the vagaries of political whims. But it is one thing to say that private, or market, activities should be free of government control, and “independent of politics” in that sense. But these are government agencies and operations we are talking about, and to say that government should be “independent of politics” conveys very different implications. For government, unlike private industry on the market, is not accountable either to stockholders or consumers. Government can only be accountable to the public and to its representatives in the legislature; and if government becomes “independent of politics” it can only mean that that sphere of government becomes an absolute self-perpetuating oligarchy, accountable to no one and never subject to the public’s ability to change its personnel or to “throw the rascals out.” If no person or group, whether stockholders or voters, can displace a ruling elite, then such an elite becomes more suitable for a dictatorship than for an allegedly democratic country. And yet it is curious how many self-proclaimed champions of “democracy,” whether domestic or global, rush to defend the alleged ideal of the total independence of the Federal Reserve.

Representative Barney Frank (D., Mass.), a co-sponsor of the Gonzalez Bill, points out that “if you take the principles that people are talking about nowadays,” such as “reforming government and opening up government – the Fed violates it more than any other branch of government.” On what basis, then, should the vaunted “principle” of an independent Fed be maintained?

It is instructive to examine who the defenders of this alleged principle may be, and the tactics they are using. Presumably one political agency the Fed particularly wants to be independent from is the U.S. Treasury. And yet Frank Newman, President Clinton's Under Secretary of the Treasury for Domestic Finance, in rejecting the Gonzalez reform, states: “The Fed is independent and that’s one of the underlying concepts.” In addition, a revealing little point is made by the New York Times, in noting the Fed’s reaction to the Gonzalez Bill: “The Fed is already working behind the scenes to organize battalions of bankers to howl about efforts to politicize the central bank” (New York Times, October 12, 1993). True enough. But why should these “battalions of bankers” be so eager and willing to mobilize in behalf of the Fed’s absolute control of the monetary and banking system? Why should bankers be so ready to defend a federal agency which controls and regulates them, and virtually determines the operations of the banking system? Shouldn’t private banks want to have some sort of check, some curb, upon their lord and master? Why should a regulated and controlled industry be so much in love with the unchecked power of their own federal controller?

Let us consider any other private industry. Wouldn’t it be just a tad suspicious if, say, the insurance industry demanded unchecked power for their state regulators, or the trucking industry total power for the ICC, or the drug companies were clamoring for total and secret power to the Food and Drug Administration? So shouldn’t we be very suspicious of the oddly cozy relationship between the banks and the Federal Reserve? What’s going on here? Our task in this volume is to open up the Fed to the scrutiny it is unfortunately not getting in the public arena.

Absolute power and lack of accountability by the Fed are generally defended on one ground alone: that any change would weaken the Federal Reserve’s allegedly inflexible commitment to wage a seemingly permanent “fight against inflation.” This is the Johnny-one-note of the Fed’s defense of its unbridled power. The Gonzalez reforms, Fed officials warn, might be seen by financial markets “as weakening the Fed’s ability to fight inflation” (New York Times, October 8, 1993). In subsequent Congressional testimony, Chairman Alan Greenspan elaborated this point. Politicians, and presumably the public, are eternally tempted to expand the money supply and thereby aggravate (price) inflation. Thus to Greenspan:

The temptation is to step on the monetary accelerator or at least to avoid the monetary brake until after the next election. Giving in to such temptations is likely to impart an inflationary bias to the economy and could lead to instability, recession, and economic stagnation.

The Fed’s lack of accountability, Greenspan added, is a small price to pay to avoid “putting the conduct of monetary policy under the close influence of politicians subject to short-term election cycle pressure” (New York Times, October 14, 1993).

So there we have it. The public, in the mythology of the Fed and its supporters, is a great beast, continually subject to a lust for inflating the money supply and therefore for subjecting the economy to inflation and its dire consequences. Those dreaded all-too-frequent inconveniences called “elections” subject politicians to these temptations, especially in political institutions such as the House of Representatives who come before the public every two years and are therefore particularly responsive to the public will. The Federal Reserve, on the other hand, guided by monetary experts independent of the public’s lust for inflation, stands ready at all times to promote the long-run public interest by manning the battlements in an eternal fight against the Gorgon of inflation. The public, in short, is in desperate need of absolute control of money by the Federal Reserve to save it from itself and its short-term lusts and temptations. One monetary economist, who spent much of the 1920s and 1930s setting up Central Banks throughout the Third World, was commonly referred to as “the money doctor.” In our current therapeutic age, perhaps Greenspan and his confreres would like to be considered as monetary “therapists,” kindly but stern taskmasters whom we invest with total power to save us from ourselves.

But in this administering of therapy, where do the private bankers fit in? Very neatly, according to Federal Reserve officials. The Gonzalez proposal to have the president instead of regional bankers appoint regional Fed presidents would, in the eyes of those officials, “make it harder for the Fed to clamp down on inflation.” Why? Because, the “sure way” to “minimize inflation” is “to have private bankers appoint the regional bank presidents.” And why is this private banker role such a “sure way”? Because, according to the Fed officials, private bankers “are among the world’s fiercest inflation hawks” (New York Times, October 12, 1993).

The worldview of the Federal Reserve and its advocates is now complete. Not only are the public and politicians responsive to it eternally subject to the temptation to inflate; but it is important for the Fed to have a cozy partnership with private bankers. Private bankers, as “the world's fiercest inflation hawks,” can only bolster the Fed’s eternal devotion to battling against inflation.

There we have the ideology of the Fed as reflected in its own propaganda, as well as respected Establishment transmission belts such as the New York Times, and in pronouncements and textbooks by countless economists. Even those economists who would like to see more inflation accept and repeat the Fed’s image of its own role. And yet every aspect of this mythology is the very reverse of the truth. We cannot think straight about money, banking, or the Federal Reserve until this fraudulent legend has been exposed and demolished.

There is, however, one and only one aspect of the common legend that is indeed correct: that the overwhelmingly dominant cause of the virus of chronic price inflation is inflation, or expansion, of the supply of money. Just as an increase in the production or supply of cotton will cause that crop to be cheaper on the market; so will the creation of more money make its unit of money, each franc or dollar, cheaper and worth less in purchasing power of goods on the market.

But let us consider this agreed-upon fact in the light of the above myth about the Federal Reserve. We supposedly have the public clamoring for inflation while the Federal Reserve, flanked by its allies the nation’s bankers, resolutely sets its face against this short-sighted public clamor. But how is the public supposed to go about achieving this inflation? How can the public create, i.e., “print,” more money? It would be difficult to do so, since only one institution in the society is legally allowed to print money. Anyone who tries to print money is engaged in the high crime of “counterfeiting,” which the federal government takes very seriously indeed. Whereas the government may take a benign view of all other torts and crimes, including mugging, robbery, and murder, and it may worry about the “deprived youth” of the criminal and treat him tenderly, there is one group of criminals whom no government ever coddles: the counterfeiters. The counterfeiter is hunted down seriously and efficiently, and he is salted away for a very long time; for he is committing a crime that the government takes very seriously: he is interfering with the government’s revenue: specifically, the monopoly power to print money enjoyed by the Federal Reserve.

“Money,” in our economy, is pieces of paper issued by the Federal Reserve, on which are engraved the following: “This Note is Legal Tender for all Debts, Private, and Public.” This “Federal Reserve Note,” and nothing else, is money, and all vendors and creditors must accept these notes, like it or not.

So: if the chronic inflation undergone by Americans, and in almost every other country, is caused by the continuing creation of new money, and if in each country its governmental “Central Bank” (in the United States, the Federal Reserve) is the sole monopoly source and creator of all money, who then is responsible for the blight of inflation? Who except the very institution that is solely empowered to create money, that is, the Fed (and the Bank of England, and the Bank of Italy, and other central banks) itself?

In short: even before examining the problem in detail, we should already get a glimmer of the truth: that the drumfire of propaganda that the Fed is manning the ramparts against the menace of inflation brought about by others is nothing less than a deceptive shell game. The culprit solely responsible for inflation, the Federal Reserve, is continually engaged in raising a hue-and-cry about “inflation,” for which virtually everyone else in society seems to be responsible. What we are seeing is the old ploy by the robber who starts shouting “Stop, thief!” and runs down the street pointing ahead at others. We begin to see why it has always been important for the Fed, and for other Central Banks, to invest themselves with an aura of solemnity and mystery. For, as we shall see more fully, if the public knew what was going on, if it was able to rip open the curtain covering the inscrutable Wizard of Oz, it would soon discover that the Fed, far from being the indispensable solution to the problem of inflation, is itself the heart and cause of the problem. What we need is not a totally independent, all-powerful Fed; what we need is no Fed at all.

Murray N. Rothbard (1926–1995) was dean of the Austrian School, founder of modern libertarianism, and chief academic officer of the Mises Institute. He was also editor – with Lew Rockwell – of The Rothbard-Rockwell Report, and appointed Lew as his executor. See Murray's books.

Copyright © 2013 by the Ludwig von Mises Institute. Permission to reprint in whole or in part is hereby granted, provided full credit is given.

The Best of Murray Rothbard

[Foundation_Of_Liberty]

Gold & Silver Ep1: Mike Maloney -
Hidden Secrets of Money

[FreedomFanatic]

Yeah, just go back to gold or silver, or a dollar backed by one or the other or both (I voted yes.)