“How is the Fed’s performance in the present economy,” asks The Citizen Economists’ Poll. “They’re doing excellent,” say a sarcastic and/or deranged 5 percent of respondents. Twenty-one percent say they’re “doing okay,” and another 12 percent say “pretty good.” But the most popular answer is “horrible,” which leads polling with 30 percent, and the second-place answer is more radical yet: 25 percent of respondents say, “We should get rid of them.”
Support for abolishing the Federal Reserve System is mounting every day. Hundreds of anti-Fed protesters convened on the Federal Reserve Bank of Detroit, where they joined former Governor Jesse Ventura, The Creature of Jeckyll Island author G. Edward Griffin, and Libertarian Scotty Boman in calling for a return to the gold standard. Eleven thousand people broke into several impromptu chants of “End the Fed!” at Ron Paul’s Minneapolis counter-convention this past September, and Google searches for “Austrian Economics”—the school of economic thought most vociferous against fiat money and central banking—are have spiked dramatically in the past year. This all begs the question: Why are so many people suddenly interested in what has for years been considered a “boring” subject? Well, it wasn’t always viewed that way.
Monetary Policy: Once a Burning Issue
The presidential elections of 1896 and 1900 were almost entirely about monetary policy. The “conservatives,” for lack of a better term, were the “hard money” camp—they supported a strong gold standard. The “radicals” wanted a government-managed fiat-money system much like we have today—only they were naïve enough to believe it would be to the benefit of the working man, rather than a vehicle to serve the interests of the elite. And finally, there were the “moderates”—those who favored a middle-of-the-road position in which silver would be coined in addition to gold, thereby causing inflation which, believe it or not, the moderates and the radicals thought was a good thing.
All three of these constituencies existed primarily within the Democratic Party. The “conservatives” were in fact the classical-liberal wing, led by staunch gold man Grover Cleveland. The “radicals” were Midwestern farmers who had broken with the Dems in the previous election and formed the Populist Party, winning 5 percent of the electoral vote in 1892 and nearly costing Grover Cleveland the election. Stepping in to “unify” the party was William Jennings Bryan, a staunchly anti-gold populist but loyal Democrat who did not go as far as the Populist Party. Instead, he was a “silver fusionist.” Bryan won the Democratic nomination in 1896 and 1900, losing in the general election both times to William McKinely (who was nominally pro-gold), and changing the Democratic Party forever, for the worse.
Now think about how much has changed since the turn of the 20th century: disputes over monetary policy were the basis of a third-party presidential campaign that grabbed 8 percent of the vote and won five states, led to a civil war within the Democratic Party and the realignment of the two-party system, and were the major issue discussed in at least two consecutive presidential elections. The American people were engaged and educated, and didn’t fall for bogus platitudes about “change,” “mavericks,” “yes, we can,” and “country first,” etc.—they understood the real issues that affected their daily lives, and nothing could possibly be more critical than the money question.
Why The Monetary System is So Important
And why is that? Well, when the government has control of the monetary system, it can manipulate it for the benefit of some and to the detriment of others. Ultimately, this government manipulation is always to its own benefit and at the expense of the people.
For example, under a hard-money gold standard, paper dollars can only be created if there were real gold coins to back them. Thus, unless there is new gold, there can be no new money. Inflation—which is correctly defined as the expansion of the money supply—did occur under the gold standard as new gold was mined, but only very slowly. As a result, there was no “price inflation” whatsoever. That’s because the advances in technology and accumulated capital more than offset the rate of monetary expansion, and thus, consumer prices went down a little year after year.
But when the government claims for itself the right to print paper money out of thin air—notes that aren’t backed by gold—and uses its military might to force people to accept those notes, there is a recipe for exploitation.
Inflation = Theft
Think of it this way: Imagine there is $1 trillion in total world currency. Paper money itself, of course, is worthless—it’s what you can exchange the money for that’s important. So if the total money supply was $1 trillion, then all of the world’s wealth—all the factories, the natural resources, the finished goods, etc.—would be worth $1 trillion. Now what happens when the government creates $0.1 trillion new dollars? It doesn’t expand the supply of factories, resources, and goods—only the money that the values of those items are denominated in. All existing wealth would now be worth $1.1 trillion, since the total wealth would still be equal to the total money supply. Only now, the $1 bill in your pocket would be worth $1/$1.1 trillion instead of $1/$1 trillion—you’d have just been robbed of 10 percent of your purchasing power.
And that purchasing power doesn’t just disintegrate—it’s redistributed. First, it goes from you to the government, just like a (hidden) tax. And then it goes from the government to its favored industries. This is why corporations spend so much time and money lobbying Congress instead of developing more competitive products: it’s easier to bribe the government to give them your money than it is to convince you to part with it willingly in exchange for better products and services.
Clearly, the intelligence of the average American has fallen precipitously since the elections of 1896 and 1900. But the fact that people are beginning to wake up to the problems caused by the Federal Reserve System is a hopeful sign. The only question is: is it too late? Can the dollar be saved by the political action of the president and the Congress, or must we wait for the entire global financial system to completely melt down so we can start over? If you’re an optimist you can hope for the former, but as a realist, I think the latter is the better bet.