One Man in a Million

by George F. Smith
by George F. Smith
Recently by George F. Smith: Auditing the Fed Will Audit the State

In 1919 a book was written that contained a brief passage about how to bring any modern society to its knees without firing a shot.

There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

At no time in college did I come close to even hearing about that passage, let alone actually reading it. The book in which it appeared was not assigned, nor was the idea of "currency debauchery" discussed in any political science or economics class. From what I’ve read of the author it is by far the most profound thought he ever penned, and one of the most important ever written. If every high school student were required to imbibe this passage as a condition of graduation, the world would likely be facing a sunnier future.

Unfortunately for the world, the author became famous for raising currency debauchery to a political and economic ideal. The teachers of today’s students, in high school and elsewhere, were trained to accept that ideal, in some cases as a condition of graduation. Debauchery – inflation – is and has been standard operating procedure of every country that boasts a currency, with the inflating done slowly, at least in the West, so people won’t notice. The only exceptions occur when those mysterious recessions arrive that require heavier doses of inflation to prevent the price level from falling. God help us if our cost of living ever declined.

Ninety years after publication of that passage, another book has arrived calling for the abolition of the world’s most respected currency debaucher, the U.S. Federal Reserve. It’s author, Ron Paul, has spent the better part of his career trying to wipe the Fed and its toxic effects off the face of the earth. His new book, End the Fed, is, as the title indicates, a death threat to the central bank. Given Paul’s popularity among libertarian activists and his congressional support for blowing the lid off Fed secrecy, the book cannot be dismissed as fanciful.

Paul’s libertarian view of the Fed brought to mind the 1950 Damon Knight short story, "To Serve Man." In that tale, aliens pay a visit to earth and claim to be man’s benefactors, telling a special session of the U.N. that they want "to bring [them] the peace and plenty which we ourselves enjoy." Two U.N. translators steal one of the aliens’ books and manage to translate the first chapter, only to discover to their horror that it’s a cookbook.

As he has done countless times, Ron Paul has translated the Fed-speak of the central bankers and its many defenders and subjected it to the rigors of free market and moral analysis. And the results are no less frightening than the aliens’ culinary recipes for mankind.

Can the Fed be reformed?

The first chapter of Paul’s 210-page book brings the curious on board by explaining why we should care about killing "the beast," as he refers to the Fed on at least one occasion. Wouldn’t it be more reasonable to push for reform? Abolishing any government creature is virtually impossible, especially one nearly a century old that serves as a pillar of the leviathan state. Isn’t a leader who calls for its abolition setting himself up for defeat?

The answer is no, for at least two reasons. One, any reform of the Fed would be pointless. Reform would imply it could exist in some condition that would be beneficial to all Americans. As a banking cartel with the license to counterfeit, there is no version of the Fed consistent with the ideas on which our welfare depends: voluntary exchange and private property. Second, abolishing the Fed is absolutely necessary if we care about freedom and civilization, because the central bank and its printing press are destroying both.

Ending the Fed, Paul writes,

[W]ould bring an end to dollar depreciation. It would take away from the government the means to fund its endless wars. It would curb the government’s attacks on the civil liberties of Americans, stop its vast debt accumulation that will be paid by future generations, and arrest its massive expansions of the welfare state that has turned us into a nation of dependents. [pp. 6–7]

One of his core beliefs is that,

Bad economic policy can destroy a civilization – no policy is more dangerous than bad monetary policy. [p. 9]

He moves on to the Fed’s fictitious history of how it was conceived as a means of curbing those injurious panics and recessions of the 19^th century, and particularly the Panic of 1907. The solution to the problem of panics, said the bankers, was a more elastic currency, which is banker talk for money they could create when they wanted it. The banks also needed some institution to bail them out when they got in financial trouble. To accomplish their aims, the banking elite, together with key politicians, devised a plan for a central bank with a façade of decentralization. They called it the Federal Reserve, and it was passed into law by a depleted Congress two days before Christmas in 1913.

One Fed champion, the Comptroller of the Currency, issued a statement in 1914 that the Fed "supplies a circulating medium absolutely safe," and that all the previous panics would "seem to be mathematically impossible." He went on to say that "national-bank failures can hereafter be virtually eliminated." [p. 24] Drawing on data from the National Bureau of Economic Research, Paul shows that at least 18 "mathematically impossible" recessions have occurred since the Fed’s creation.

Later, he discusses the connection between central banking and government’s appetite for war, and how the Fed provided the bulk of the funding needed to send Americans overseas to fight in the European bloodbath of 1914–1918.

For the United States, [the "Great War"] meant the entrenchment of the imperial presidency and a globalized foreign policy mission. For Germany, it created the conditions of the great inflation, which led to Hitler . . . For Russia, it meant the beginning of Communism. [p. 66]

In a very real sense, we’re still fighting the "war to end all wars" that central banking made possible.

In a chapter called "The Current Mess," Paul discusses why the housing bubble burst and why the government’s response to it will only intensify the crisis. The suffering of housing and other sectors were "symptoms of a deeper problem: the Fed and its role in sustaining an unsustainable paper money system." [p. 124] Even Treasury secretary Timothy Geithner admitted to Charlie Rose that "easy credit" was one of "three types of broad errors of policy" that created the crisis, though as Paul’s partial transcript of their conversation reveals, Geithner didn’t name the Fed as the culprit.

The Fed created moral hazard by inducing "investors, savers, borrowers, and consumers to misjudge what was going on." Fed low interest rates created opportunities for quick profits, and competitive pressures made them virtually impossible to resist. But as Paul makes clear,

The problem isn’t with the choices made by central bankers, [such as low interest rates]. The problem is that they possess the power to make any choice at all. [p. 127]

The bursting of the housing bubble, he asserts, marks the end of a monetary era – the end of the fiat dollar reserve currency system. [p. 125]

Education is key

In his final chapters he makes the case for ending the Fed from four perspectives: philosophical, constitutional, economic, and libertarian. Simply stated, the Fed "is immoral, unconstitutional, impractical, promotes bad economics, and undermines liberty. Its destructive nature makes it a tool of tyrannical government."

Nothing good can come from the Federal Reserve. It is the biggest taxer of them all. Diluting the value of the dollar by increasing its supply is a vicious, sinister tax on the poor and middle class. [p. 141]

In the last chapter he shows us the way out: "unplug the machinery of the Fed." [p. 202]

In an ideal world, the Fed would be abolished forthwith and the money stock frozen in place. . . credit would be rooted in money saved, not money created. Congress would remove the Fed’s charter, and the president would stop appointing Fed governors." [p. 203]

Along with this, the government’s gold stock would be used to guarantee the convertibility of the dollar "at home and abroad," resurrecting the dollar’s role as the world’s preeminent hard-money currency.

But Paul doesn’t stop here. We should reconsider and ultimately reject "the entire idea of a government monopoly on money." We should repeal legal tender laws and let everyone who wants to get into the business of money production. "This would create a competitive market in which the best monies would emerge over time to compete directly with the federal government’s dollar." [p. 205]

This is the ideal world, but unfortunately not the real one. Paul does not expect a "graceful transition to sound money" for various reasons, including the powerful corporate welfare-warfare constituency that demands "financing well beyond what could be paid for through taxes or even borrowing." [p. 207]

Thus, as we work for reform, we should prepare for hyperinflation, poverty, depression, and quite possibly war, "as protectionist sentiments around the world grow." [p. 208] If there’s good news, it’s that most big government supporters are people of good faith who are misinformed. We must learn how liberty works ourselves then help educate those who do not understand. We should draw encouragement in knowing truth is on the side of liberty.

Even if you’re well-read in Ron Paul, End the Fed will provide an invigorating presentation of the problems of the central bank. Personally, I couldn’t put it down. It is an invaluable resource for any advocate of sound money and liberty.

September 5, 2009