End the Fed

by Ron Paul

  The fact is that not only has this come to pass with Bernanke, but a great deal more authority has been usurped by the Fed, while Congress says little about it. The Fed today has ominous powers that Congress barely understands. There is essentially no oversight, no audit, and no control. And the Fed is protected by the Federal Reserve Act. That’s why the Federal Reserve chairman has no obligation to answer questions that relate to Federal Open Market Committee meetings and actions taken in collusion with other central banks. Trillions of dollars can be created and injected into the economy with no obligation by the Fed to reveal who benefits. Lawsuits and freedom of information demands will not shake this information loose.

  Arrogant is a mild word to describe the attitude of those who control our monetary system. When Bernanke was pressed to reveal further information about where the trillions of dollars were going from the Fed, the answer was quite clear: “We think that’s counterproductive,” that is, to reveal this information. 3

  My first exposure to the Austrian school of economics was through reading The Road to Serfdom by F. A. Hayek in the early 1960s. Hayek, in the middle of the financial chaos following the breakdown of Bretton Woods, won the Nobel Prize in 1974 for his work on the economics of the business cycle. He is well known today for his work on competing currencies, developed in the market, along with the notion that a basket of currency may suffice as reserves. The basket of currency idea was something I never had a great affinity for, but I always accepted the idea that if it was developed by a nongovernment entity, no fraud involved, and it worked, so be it. It certainly would be superior to government fiat money.

  Many years after reading The Road to Serfdom, I had the pleasure of hearing Hayek lecture in Washington, around 1980. Following that meeting, we had a private dinner together and spent several hours visiting. This dinner, which I remember well, further solidified my interest and confidence in Austrian economics.

  Early on, I had heard Ludwig von Mises lecture at the University of Houston. This was probably in 1972, a year before his death. At that time I was extremely busy with my medical practice but saw a very small newspaper notice that Mises would be lecturing at the university on a weekday. I knew there was only one other physician in the town of Lake Jackson, Dr. Henry May, who would care about such an unusual event. I called him to see if he cared to travel the fifty miles to hear Mises. We rearranged our office schedules and made the trip.

  Mises, at the time, was elderly but sharp. His subject was socialism, and his lecture explained why socialism always fails due to the absence of a free market pricing structure for capital goods. He was on his last lecture tour of the United States, and Houston may well have been his last stop. (Mises died on October 10, 1973, at ninety-two years of age.)

  Not to our surprise, the university did not give him a prestigious reception. The lecture was held in a modest-sized classroom, but the place was overflowing. Popularizing Austrian economics at the time was in its very early stages, but it was obvious even then that there was a starvation for truth in economics. The early 1970s were truly hectic, and since gold prices were soaring and the dollar was dropping more and more, people were searching for solutions. Today, of course, the problems are so much worse and the need for answers even more urgent.

  To say the least, my trip to Houston to hear Mises in person was an inspiration. I suspect that when the definitive history of the twentieth century is written, Mises will be considered one of the greatest economists, if not the greatest, of the century. That recognition won’t come soon, because those in charge of the economic catastrophe are in total denial as to how they, who are now trying to rescue the system, caused all the problems we face. The universities are still cluttered, as is Washington, with Keynesians and socialists who refuse to give the slightest credibility to eliminating the central bank and instituting sound money. But this is changing, and fifty years from now, if we aren’t driven into some dark age by our refusal to reassert the principles of liberty, the Austrian economists, and in particular Mises, will receive their due respect.

  My interest in Austrian economics, and especially monetary policy, naturally directed my attention to the ongoing effort to legalize gold in America. Since Roosevelt’s edict on April 5, 1933, Americans were prohibited from owning gold. Only about three countries in the 1970s prohibited their citizens from owning gold, one being the Soviet Union.

  Roosevelt, by executive order (6102) in 1933, confiscated all gold held by private citizens, with a few minor exceptions such as numismatic coins, and levied severe penalties on those who disobeyed. The penalty was $10,000 and/or ten years in prison. In today’s money, that’s more like $400,000. It was a rather bold, arrogant move from which much harm has come.

  Today, as standard policy, Congress condones presidential executive orders, signing statements, judicial legislation, and agency regulations as all being permissible. Although it was a major event to confiscate gold, complaints were minimal. The crisis atmosphere and the need for the government to solve the economic crisis associated with the Depression squelched any complaints about the usurpation of power by FDR.

  Since our crisis today may well evolve into something greater than what we suffered in the 1930s, we can only imagine, in this post 9/11 atmosphere, how much authority will be wielded by the executive branch. The only question is, will the American people resist, and if so, when?

  At least the Roosevelt executive order was eventually reversed—not by a president who could have revoked the order, but finally by Congress responding to the pressure put on them by grassroots Americans. The system can work and did in January 1975, when Americans once again could own gold bullion coins.

  Much credit has to be given to the late Jim Blanchard for his National Committee to Legalize Gold, which published a newsletter strictly to lobby for gold legalization.

  Interestingly (and we were reminded of this during my presidential campaign), he had a biplane towing a banner over Nixon’s 1973 inauguration parade saying “Legalize Gold.” A freer America! Today that plane might be shot down. But it was President Ford who permitted once again ownership of gold. The authorities feared this move because the gold “price” is the ultimate test of value of a currency. Since the dumping of nearly 500 million ounces of gold in the 1960s didn’t prevent the run on the dollar, the international authorities were determined to punish those “speculators” who were “hoarding” gold.

  The gold price was bid up from $35 an ounce to $195 between 1971 and 1975, with the anticipation that the price would move even higher with American citizens coming into the market. Since the anticipated price increase was already discounted, traders were willing to sell, which they did, and gold went down precipitously from $195, and eventually to $102 by August 30, 1976. But it was more than just an adjustment by the traders. A concerted U.S. Treasury and IMF effort to knock the price down by dumping tons of gold onto the market served to put more pressure on the price decline. But obviously, it didn’t last, and gold resumed its upward movement.

  Even today, the government and central banks have an intense interest in not allowing the gold price to send a no-confidence signal to the world of just how weak the dollar is. Central banks in recent years have been selling constantly, and I’m strongly suspicious that the President’s Working Group on Financial Markets—the “Plunge Protection Team”—participates in the gold market as well to keep the price suppressed.

  As recently as November 2008, Bernanke admitted to me in a Financial Services Committee hearing that the only time gold is discussed with other central bankers is for the purpose of selling—never to consider its merit in serving as a reserve for a new currency agreement.

  Before gold became legal to own in 1975, many gold bugs were buying it. I purchased my first gold shortly after the breakdown of the Bretton Woods Agreement. The law was circumvented by buying numismatic coins (any coin dated 1947 or older was considered a numismatic coin). Mexico accommodated American citizens by minting the beautiful M
exican 50 peso, weighing 1.2 ounces, and placing the date 1947 on it. The coins I bought at that time for financial security I still have, and now they are getting close to being legitimate numismatic coins.

  Jim Blanchard almost single-handedly led the successful effort to legalize gold ownership. He held his first gold conference in 1974 in New Orleans and I attended this conference. A small crowd of a few hundred was expected, but a much larger crowd of more than 700 showed up.

  It was there I met Hans Sennholz, one of the speakers. Sennholz was one of only six individuals who received a PhD under Mises. I got to know Sennholz over the years, attending events in Grove City where he was the chairman of the Economics Department. He even came for a campaign event for me in 1974, which I recall was totally perplexing to my campaign manager, who was not exactly into gold and the Federal Reserve. When Sennholz was president of the Foundation for Economic Education (FEE) after retiring from Grove City College, he had me join the board, which prompted a few visits to FEE’s headquarters in Irvington-on-Hudson, New York.

  In 1974, I had met and came to respect highly Leonard Read, founder of FEE. He served a great purpose following World War II in keeping the freedom movement alive and encouraging many others to participate in this crucial endeavor. Leonard was much more interested in education than politics. Even so, once I was in Congress, he had me visit FEE on a couple of occasions. I’m sure he was pleased I was in Congress, but he understood, as I do, that education is the key to political change. I have no problem with those who say education is the most important thing, but eventually a theoretical philosophy has to be translated into political actions—and that’s exactly what the Founders did.

  Mises had something to say about this: “The flowering of human society depends on two factors; the intellectual power of outstanding men to conceive sound, social and economic theories and the ability of these or other men to make these ideologies palatable to the majority.” 4

  In my opinion, the political leaders must make the ideology acceptable to the people. Of course, the ideology of welfare and socialism is easier to sell since it’s based on the majority getting something for free. But when the people recognize that’s only a temporary situation they will become more open to the suggestion that freedom offers more, once the bankruptcy of statism is acknowledged. Such a condition is becoming more apparent every day.

  Making an ideology palatable to the majority means the people must come to realize that their best interests are served by its acceptance. In the case of freedom, the consensus of the people must be that self-reliance, free markets, private property, sound money, and enforceable contracts are indispensable to prosperity, peace, and happiness.

  Central economic planning and false promises must be rejected. Some, on principle, will always reject the temptation to use government power to enhance their own position; others will reject it when it’s clear that the prosperity promised, based on lies, fraud, and force, can only be temporarily provided. Transfer of wealth through government force is self-limited. The appearance of wealth by borrowing and inflation always leads to heartache and suffering. An opportunity has arrived for our “sound social and economic theories” to be made available and acceptable to the majority.

  Of all the Austrian economic greats of the twentieth century, I got to know Murray Rothbard the best. During my first tour of duty in Congress (1976–1984), while Lew Rock-well, founder of the Mises Institute, was serving as my chief of staff, we contacted Murray and invited him to Washington in 1979 for a visit. On his first trip, as he watched our office in action, I recall him saying he was amazed that a member of Congress actually made a determined effort to understand the details of each piece of legislation in the context of the Constitution. I recall his surprise when he found out I had read his essay “Gold and Fluctuating Fiat Exchange Rates.” From this early association, he and Lew Rockwell went on to participate in many projects, the most important one being the establishment of the Mises Institute.

  Murray was a good teacher, and I have frequently said that his book America’s Great Depression was a real eye-opener for me, as was his classic What Has Government Done to Our Money? 5 Having been raised in a Republican home, I was taught to believe Hoover’s failure was a result of noncooperation by the Democrats in Congress. Murray thoroughly rebutted that notion with his explanation of how Hoover and FDR endorsed the same flawed policies of economic intervention and both were responsible for prolonging the Depression, which was precipitated by the seriously flawed monetary policy of the Federal Reserve in the 1920s.

  If there’s one book that the Washington establishment should read now, it’s Rothbard’s book America’s Great Depression. 6 In this book, he demonstrates that it was the Fed that created the late-1920s boom that led to bust, and Hoover’s interventions that prolonged the Great Depression. (Murray, interestingly, was on my congressional staff during the time that the Gold Commission was meeting in 1981.)

  Murray, along with businessman Burt Blumert and Lew Rockwell, influenced my decision to run as the Libertarian candidate for President in 1988. That project, like all political projects, was filled with frustrations and shortcomings. Nevertheless, we all considered it a worthwhile effort in building the case for liberty. Obviously, the reception for the message in 1988 was subdued compared to the enthusiastic reception we got in the 2008 race. Conditions have greatly changed. But the Republican versus the Libertarian approach was also a factor, given monopoly control of the electoral process. Today, the field is much more fertile for our ideas. Many seeds have been planted over these past two decades, and the effort is now bearing fruit.

  Shortly before Murray died on January 7, 1995, I called him to tell him of my plans to run for Congress once again in the 1996 election. He was extremely excited and very encouraging. Unlike Leonard Read, Murray loved politics, Republican or Libertarian, or whatever he found of interest at any particular time. He got into the minutia of internecine activities that were beyond my interest. He always knew all the players and their perceived intentions and philosophical motivations. He played politics in the 1992 Republican primary in support of Pat Buchanan in a coalition of sorts, when Pat opposed the first war on Iraq and George H. W. Bush’s tax increases.

  One thing I am certain of—if Murray could have been with us during the presidential primary in 2008, he would have had a lot to say about it and fun saying it. He would have been very excited. His natural tendency to be optimistic would have been enhanced. He would have loved every minute of it. He would have pushed the “revolution,” especially since he contributed so much to preparing for it.

  I can just imagine how enthralled he would have been to see college kids burning Federal Reserve notes. He would have led the chant we heard at so many rallies: “End the Fed! End the Fed!”

  Even after the presidential campaign, the momentum has generated an interest in a serious movement to expose the Fed for the purposes of ending it, and Murray would be pleased. His intellectual effort would have been vindicated. Ideas were being translated into a serious effort to bring about a major political and economic change. His books, and especially his smaller booklets designed for broader distribution, on why the Fed must be ended and a 100 percent gold standard be required, have served us well. And they will continue to do so. His books What Has Government Done to Our Money? The Case for a 100 Percent Gold Dollar, and The Case Against the Fed 7 have been invaluable assets in educating the general public.

  Murray told a lot of stories about his time in the Ayn Rand “cult” and his association with Greenspan. Greenspan did acknowledge to me in private conversation his acquaintance with Murray. But think of the different outcomes. Both started as followers of Ayn Rand. Neither became an objectivist. Greenspan went the wrong way. Rothbard went the right way, always perfecting the truth regarding money and the Federal Reserve.

  Greenspan became a monetary tyrant who sowed the seeds of the greatest financial bubble in all of history.

  During this pe
riod of searching for the answers about money and Austrian economics, I also met Henry Hazlitt, who was a friend of Mises’s, a board member of FEE, and a close associate of Leonard Read’s. Like so many others looking for answers, I read his famous Economics in One Lesson. Mr. Hazlitt, shortly after the 1944 Bretton Woods Agreement was signed, predicted it would not work, and he lived well past the time to see its breakdown in 1971. Like many Austrian economists, he lived to an old age (ninety-eight); he died in 1993. All his books, of which there are many, are worth reading.

  Hazlitt was instrumental in securing a position at New York University for Mises. He had befriended Mises on his arrival to the United States after Mises escaped from Europe as World War II erupted. Although he was for years known as a journalist for Newsweek, the New York Times, and the Wall Street Journal, Hazlitt was in reality a philosopher and economist.

  His greatest compliment to me was after Leonard Read’s death in 1983; he called and asked if I might consider becoming president of FEE. Whether anyone else on the FEE board shared this thought, I don’t know, but it was something I never seriously considered, simply because I had chosen a different educational path.

  Another interesting tidbit of history was that Henry Hazlitt introduced Ayn Rand to all the free-market scholars in New York, which included his close friends Leonard Read and Mises.

  The period between the Depression and the end of Bretton Woods in 1971 was a time of much activity by many very smart, libertarian, and old right constitutionalists and noninterventionists. They lamented the destruction of the Republic, but their writings laid the foundation of the emerging freedom movement that became so energized during the Republican primary elections of 2008.