Ron Paul, a former Congressman, was a medical doctor; yet, his writings treated true economics in an ocean of falsehood. It is a miracle to have a non-economist write about the true economic science when this science has become totally corrupted by demagogues. It has become a science of government intervention and disorder.
Most disquieting, some Nobel Prize winners are staunch advocates of anti-market forces and preach total money destruction by the government. Practically, there is no university that teaches the true nature of money, banking, and markets as displayed in Ron Paul’s writings. You feel sorry for students who spend US$60,000 a year at elite universities and learn anti-market Stalinism.
For Ron Paul, money is a market commodity, like a car, produced at a real cost in labor and capital, and is exchanged against other real commodities. A bit of paper has zero-cost in labor and capital, it can never be money. It is so by state coercion. The state outlaws gold, which it cannot print, in favor of paper, which it can print with no limit. It has therefore no check on its spending and despotism.
For Ron Paul, paper is the money of war, noting that the United States, with unlimited paper money, has become the first warrior of the world, unhesitantly waging wars in every corner of the world.
Among Paul’s writings is his excellent book End the Fed (2009) where he held it as of utmost vital interest of the United States to end the Federal Reserve (Fed). He contended that the Fed has been destabilizing the US economy, inflicting recurrent catastrophes ever since it was created.
Did the United States need a central bank? For Ron Paul, the answer was positively no. The US economy was growing by leaps and bounds before 1914, making discoveries in communications, cars, radios, photography, airplanes, heavy machinery, with no central bank.
A central bank would be a fifth wheel in a coach. The US Treasury emitted notes against gold prior to 1913, and therefore had no need for a central bank for circulating money. It was vested-interest financial groups that forced the Fed on government for bailout purposes; under the guise that it was necessary for the US economy, this was a poisoned gift.
For Ron Paul, financial crises, an inherent feature of fractional banking, were brief and self-liquidating prior to 1913. A crisis on the scale of the Great Depression had never occurred and would never have occurred had it not been for the Fed. The stock index could not have gone up threefold from 1926 to 1929 without very low interest rates and unending liquidity from the Fed. It was the very design of the authors of the Fed to provide an infinitely elastic money supply, as much money as speculators and debtors wished to have.
Likewise, stock prices could never increase by 25% per year, as they did during 2009-2014, without the Fed’s money floods.
Speculative prices became interminably inflated by the Fed, allowing an amazing free real wealth to speculators. The Fed has turned the stock market into a true casino; it is no longer an investment vehicle.
For Ron Paul, the Fed should have ended promptly in 1929 with the stock crash. Confronted with a grandiose disaster, politicians of the time should have realized that nothing good would come out of the Fed, or more generally, from a central bank, a truth discovered long ago by France, which promptly abolished John Law’s bank in 1720 when stocks crashed dramatically, then by Thomas Jefferson (1811), Andrew Jackson (1832), Charles Holt Carroll (1850s), and Amasa Walker (1873).
In 1933, a group of economic professors at the University of Chicago elaborated the “Chicago Plan”, urging two-tier banking: (i) 100% reserve banking that strictly emits no money; and (ii) investment banking that strictly receives no deposits; it only buys and sells bonds and equities.
This Plan wanted to end central banking, establish a banking system fully immune to crises with no unemployment (except frictional), and end government inflation of the stock markets. The conviction of ending central banking was shared by Ludwig von Mises, Friedrich Hayek, Murray Rothbard, and Maurice Allais.
Yet, instead of abolishing the Fed, politicians confiscated all the gold of the citizens in 1934 and further empowered the Fed, adding to government despotism.