in a small way, probably for the first time since the creation of
the Federal Reserve System, it has been injected into a presidential
In the first
Republican presidential candidates’ debate, Ron Paul, a Republican
member of the House from Texas, spoke
out in favor of the gold standard. Although Ron Paul’s formal
education is in medicine, he is qualified to discuss money and economics
as he has long studied the works of the great free market economist
Ludwig von Mises.
Mises is famous for his writings on money and for having exposed
the fallacy of a central authority controlling the money supply.
In 1982 Ron
Paul served on the U.S.
Gold Commission to evaluate the role of gold in our monetary
system. The Commission was Paul’s idea, and forming the Commission
fulfilled a promise made in the 1980 Republican platform. Although
the Commission was Paul’s idea, he could not select the Commission
members, and from day one he fought an uphill battle.
on the Gold Commission, Ron Paul coauthored The
Case for Gold with Lewis Lehrman, who also served on the
Commission. Lehrman became a National Humanities Medal recipient
the case for gold in a monetary system cannot be done without at
least some understanding of the concept of central banking and the
Federal Reserve System, which is our central bank, a fact not generally
known by most Americans.
When the Fed
came into existence, Americans were told that it would put an end
to “economic panics,” the scare term of late 19th century and early
20th century. In the 1930s, however, the Fed-caused Great Depression
made “economic panics” look like rainy days, and today the great
scare term is “depression.” (The best book on the Great Depression
and how the Fed caused it is America’s
Great Depression, by the late Murray Rothbard.)
is, of course, an extended and deep recession. According to Establishment
lore, the Fed has prevented numerous depressions since the 1930s,
giving us only recessions.
for a return to the gold standard to end business cycles, which
give us either credit-induced false booms (the last 15 years) or
recessions, Ron Paul has been called “anti-government.” One Ron
Paul critic said the neocons were much better than Paul, since at
least they wouldn’t try to scale back government.
are the architects of the Middle Eastern foreign policy that led
to the US invasion of Iraq. Neocons further promote, despite the
high costs in lives and money, a continued US military presence
in the Middle East. Such policies could not be sustained were it
not for our huge government and a massive military, both of which
are financed by our fiat monetary system.)
promise of scaling back government has long been a popular campaign
cry, primarily of Republicans but sometimes Democrats, it always
has been a false promise. Government continues to grow, even when
Republicans such as Ronald Reagan gain office. More recently, George
W. Bush railed against big government when campaigning and look
what we have now.
Reserve System and its ability to create money out of thin air facilitate
big government. If the Fed did not exist, the government would have
to raise funds either by increasing taxes (a politically unpopular
thing to do) or by borrowing in the marketplace, competing with
businesses and individuals also wanting to borrow. Additional borrowing
by the government, of course, increases interest rates and is detrimental
to the economy.
So, to finance
our welfare state, our wars, and a few good things such as highways,
the federal government hands the Fed little pieces of paper called
treasury bills and treasury bonds. The Fed, in turn, credits the
federal government’s checking account in amounts equal to the face
value of the bonds, and new money is created out of thin air.
process is a little more cumbersome than described, as the federal
government cannot, by law, borrow directly from the Fed, which means
that when the federal government does borrow it has to go through
Wall Street, which allows the major bond houses and banks to earn
billions of dollars by acting as middle men.
borrowing scheme is a gift to bankers, for there is no reason for
the federal government not to be able to borrow directly from the
Fed. Taking it a step further, there is no reason for the Fed when
it comes to the federal government borrowing money.
the Fed creating the new dollars (and collecting interest on money
that did not exist before the federal government needed to borrow),
the US Treasury could create the dollars, saving billions in interest.
(Not recommended, but at least it would cut Wall Street out of the
If the gold
standard becomes a major issue in this presidential campaign, the
American people can only benefit. Americans have little grasp of
the concept of money and the deleterious effects of central banks.
Americans would need to be much more knowledgeable about the Fed
before it could be eliminated.
most Americans put the Fed on a pedestal. An understanding of how
the Fed really works would cut the legs from under that pedestal.
Murray Rothbard’s The
Case Against the Fed is an excellent, short book about the
Americans wanting honest money need to become more knowledgeable
about money and the Fed, and they need to encourage a debate in
this presidential campaign about returning to the gold standard.
An excellent book on the gold standard is Murray Rothbard’s The
Case for a 100% Gold Dollar.
with every Republican presidential candidates’ debate, Congressman
Ron Paul gets the opportunity to wake up a few more Americans to
the dangers of fiat money and the Federal Reserve System. If the
Democrats had a candidate knowledgeable about money and economics,
then we could have a great increase in awareness of the unsound
financial structure that underlies our economy.
Haynes [send him mail] is a
gold dealer in Phoenix, Arizona, who once thought he was a conservative,
but now knows "after being introduced to LewRockwell.com"
that he was a libertarian all along.