End the Fed

by Ron Paul

  Wealth can’t come from appreciating the value of a house in the boom phase of a business cycle. If one is a flipper and lucky enough to sell at the right time, he may become wealthier, but there is no increase in national wealth. But even this process does not create new wealth; it merely allows the seller to profit on a quick transaction. Some do manage to benefit from escalating prices, but when the boom ends, more suffer from the consequences of falling prices. Neither process can substitute for true savings. That requires living within one’s own means and not consuming one’s entire income. Our problems, of course, have been that we, as a nation, have consumed our earnings plus the borrowing required to satisfy our ravenous appetite for consumer goods.

  CHAPTER 11

  THE PHILOSOPHICAL CASE

  The moral argument against the Fed should be simple, and it would be, in a moral society. Once I pointed out that the two weakest arguments for any issue on the House floor are moral and constitutional. And that remains true today. If a society were truly moral, a written constitution would hardly be necessary. The moral principles that would guarantee sound money, and our not needing a central bank to manage it, are honesty, which would reject fraud, and keeping one’s word. Contracts should be protected, not undermined by the government.

  Looking at the money issue, it’s easy to conclude that those who orchestrate and benefit from inflating the currency are no better than the counterfeiters themselves. Yet the process has made it seem that the inflators are serving the public interest by merely managing the currency.

  Today we speak of the printing of money by the Federal Reserve. But it’s more complex than that. The grand scheme of counterfeiting now occurs with a computer, not a printing press. We allow the Federal Reserve to exert monopoly control over money and credit and interest rates. Law permits this highly secretive, private bank to create credit at will and distribute it as it sees fit.

  The chairman of the Federal Reserve can blatantly inject in a public hearing that he has no intention of revealing where the newly created credit goes and who benefits. When asked, he essentially answered, “It’s none of your business,” saying that it would be “counterproductive” to do so.

  The entire operation of the Fed is based on an immoral principle. Congress contributes to the immorality by permitting the process to continue without any true oversight. The immorality associated with money is as much about omission as commission.

  Members of Congress, when they knowingly endorse this system of fraud because of the benefits they receive, commit an immoral act. Financing spending in an irresponsible manner, through Fed action or future debt burdens, provides immediate political benefits to politicians.

  Congress, though, is a reflection of the people. If the problem was seen as a moral problem and the people were to demand morality in money from their representatives in government, the process would end. But the people endorse the system because they have requested and expect government to provide benefits that can’t be provided any other way. Transferring wealth is limited when taxes and borrowing are the only tools the politicians can use. Printing money is required. The cooperation of the people, the politicians, and the counterfeiters at the Fed is based on the immorality of fraud, deceit, and ignorance. As the fourteenth-century French bishop Nicole Oresme said, “I am of the opinion that the main and final cause why the prince pretends to the power of altering the coinage is the profit or gain which he can get from it; it would otherwise be vain to make so many and so great changes…. Besides, the amount of the prince’s profit is necessarily that of the community’s loss.” 1

  Depending on the many circumstances, the process lasts for varying lengths of time, but it always comes to an end. As all immoral acts do, it ends with much pain and suffering. The big problem is that many immoral acts, including the inflationary process of a central bank, can satisfy a lot of people for very long periods of time.

  When times are good and the benefits are being enjoyed, no one is much interested in breaking up the party or worrying about morality in money. The Fed encourages irresponsible accumulation of personal debt. People live beyond their means with the help of an expansionistic monetary policy. They trade in their futures for the present. They neglect the need to save in order to consume more and more. In this sense, the Fed is the ultimate promoter of consumerism and living for the present. This amounts to a terrible cultural distortion in which short-term thinking wins out over long-term planning.

  Yet the party always ends and the license taken to have short-term gratification brings grief and a period of payback. Family life is wrecked and marriages crumble. People are no longer free to move and change jobs. They are enslaved to their high credit card debt, the college loans, their car and home loans. None of these institutions and this type of personal fiduciary bondage was known before the Fed. It simply could not be part of a free society with sound money. We would be living within our means because that’s what our money and banking system would reward.

  Morality of money is related to morality in politics. Big government breeds corruption. If government has nothing to sell, bribery is useless. But even under today’s circumstances, if only men and women of character served as our elected and unelected officials, the bribers would be wasting their time. An easy buck is conveniently rationalized as “just doing business” while they argue that they’re serving their constituents’ interests by participating in the process.

  Trading votes for constituents’ benefits is routine. Being a “team player” is necessary to gain a plush committee assignment, and the committee assignment is the vehicle for raising money since one’s committee votes are even more valuable than the floor votes that come after the deal has been done. Participation in conferences to resolve the differences between the Senate and House versions is a real attention getter for those who contribute or buy influence in the process.

  Donations to campaigns, especially to committee chairs who don’t even have campaign races of any note, are the way business is done. It is a quick quid pro quo, a wink and a nod, and it’s all legal. Morality is never considered.

  In the presidential campaign, Barack Obama raised more than $750 million, breaking all records. This candidate was seen as a man of the people, caring for the poor, the disenfranchised. He is a man who once promised he would limit his spending by accepting public funds. By the end, Wall Street, the banks, the military-industrial complex, and the medical-industrial complex all got a piece of the action.

  Once it was known—very early on—that the media’s candidate was picked, the fix was in and the spigots were on. The downward spiral of the economy did nothing to slow the influence buying. As a matter of fact, the records in campaign funding were set because the government portion of the GDP is rapidly expanding and is expected to do so for years to come. There’s more “stuff” up for auction.

  With all the bailouts and nationalization going on, it’s more important than ever that one has access to those in power. The process builds on itself. Just as inflationary bubbles expand, political power structures pyramid on themselves as the role of government grows.

  To put it simply, the system is morally corrupt. Politicians should nevertheless resist the temptation to participate. Rationalizing that others do it—that’s the way the system works—is unacceptable. Sadly, avoiding discovery is the hallmark of a successful politician.

  Few understand or decry the immorality of the redistribution of wealth through government force. The fact that many merely desire to help the helpless and create an economically “fair and equitable” society should be irrelevant.

  When politicians pass out the benefits or threaten to with-hold them unless there is something given in return, it is commonplace for everyone to express outrage once the deed is known. But there’s less outrage over the fact that the goodies being passed out were stolen from productive members of society. The transfer of wealth, protected by law, is the much bigger scandal and is rarely addressed.

 
The great immorality is the system of government that condones transfer of wealth through force. It’s only considered immoral if one is caught passing out the loot. It’s relatively easy to see the transfer of wealth through the tax system from one group to another. But we have been conditioned that morality is on the side of the redistributionists who grab the moral high ground by arguing that they alone care for the unfortunate and are merely making the system fair. They argue that, without this system, economic suffering would be overwhelming and unfair. Of course, an understanding of how freedom provides for the needs of the greatest number of people totally refutes this notion.

  The process of monetary debasement, by inflating the money supply, redistributes wealth unfairly and dangerously from the middle class to the wealthy. It’s based on the principles of fraud and is equivalent to counterfeiting. Its goals are achieved through stealth and are difficult for the masses to recognize. Instead, the people are conditioned to believe that easy credit, monetizing debt, and affirmative action loans are reflective of good economic policy and are morally motivated.

  The tragedy is only recognized when the fraud of an immoral, unsustainable monetary inflation comes to an end. That is what we’re suffering from today.

  When arguing for sound money, the great concern I hear from the Keynesians is for the loss of the “benefits” of inflation; the people and the special interests argue that more of the same is needed. The principle of morality in money is no concern of theirs, and they don’t want to hear of it. Those who pretend to be sympathetic to markets and small government announce loudly that now is not the time for ideologues who are obsessed with free-market principles, sound money, and balanced budgets to have their way. Now, they claim, is the time for action to rescue the faltering economy.

  What they fail to recognize is that they who condemn ideology are themselves prisoners of a deeply flawed ideology.

  Pragmatism, urgency, benevolence, fairness, compromise, fear of the future, and the need for safety and security provide the moral cover for an authoritarian approach to rescuing and protecting the people. Those so inclined are not bashful in declaring that sacrificing some liberty to achieve these goals is morally justified and necessary.

  The promoters of central economic planning rarely consider that the flawed policies of interventionism were actually the cause of the crisis and won’t admit that more of the exact same thing will only dig the hole deeper. Some even see the chaos as an opportunity to expand their long-held belief that authoritarian government is the ideal. Out of fear of the future and lack of understanding how we got into the mess we’re in, others postpone their goals of promoting limited government and free markets for a later time.

  The seekers of bailouts condemn their opponents as stubborn and selfish ideologues. Of course, when those wanting the taxpayers’ bailouts were making profits, they were quite content to support the principle that the profits were theirs and they deserved to keep as much as possible as part of the free-market philosophy.

  It’s not a question of being an ideologue; it’s a question of which ideology one adheres to. It’s virtually impossible to be a supporter of no ideology. The ideologue label is used to make the morally principled ideology look confrontational and uncaring. This then makes it seem like the immoral philosophy, based on government force, is morally superior. It’s always couched in terms of caring for the underdog and not as a bailout of those who have unfairly been benefiting from an economic system artificially stimulated by an inflated currency that benefited certain industries’ CEO salaries and workers’ wages and benefits.

  Very simply, there can’t be a more immoral system of money than one based on a banking monopoly that can counterfeit money in secret with no oversight and protection of the people. The moral argument against the Fed should be enough for decently well-informed people to dispense with it posthaste.

  Even the Bible is clear that altering the quality of money is an immoral act. We are instructed to follow the rules of “just weights and measures.” “You shall do no injustice in judgment, in measurement of length, weight, or volume. You shall have just balances, just weights, a just ephah, and a just hin” (Leviticus 19:35–36). “Diverse weights are an abomination to the Lord, and a false balance is not good” (Proverbs 20:23). The general principle can be summed up as “You shall not steal” (Exodus 20:15). 2

  The Bible assumed that money was a precious metal and honest weight and measures were to be practiced. The words of Jesus even contain a germ of the Austrian theory of the business cycle, which addresses the problem of unsustainable investments. “For which one of you, when he wants to build a tower, does not first sit down and calculate the cost to see if he has enough to complete it? Otherwise, when he has laid a foundation and is not able to finish, all who observe it begin to ridicule him” (Luke 14:28–29).

  Although some claim love of money itself is the root of all evil, others say that it is dishonesty in money that has been a major source of evil throughout history.

  Ayn Rand’s defense of honest money meant the outright rejection of paper money. On the issue of “objective standards” for money, she was nearly biblical. Honest money to her was required for a prosperous society. In Francisco’s speech in Atlas Shrugged, she warned of the day when the paper money system would collapse. Rand stated that if you wanted to know when a “society vanishes… watch money.” Whenever “destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owner a counterfeit pile of papers.” Paper money to her was a “mortgage on wealth that does not exist.” 3

  No great religion advocates governmental fraud in money. All speak of fulfilling one’s promises and obligations and respecting other people’s persons and property. Central banks, and especially our Federal Reserve, deliberately run roughshod over this principle that has been endorsed for thousands of years by essentially all religious and ethical leaders. Yet the “love” of controlling the money by the powerful is indeed the root of great evil in the world.

  The lack of clarity on morality in politics, economics, and money invites and seduces many who claim to believe in, or once believed in, free markets to accept a partnership arrangement with government.

  I recall an early political race for Congress I had in a special election, in 1976, the first I actually had a chance to win. I was truly a neophyte and very naive. But time and circumstances placed me in a position such that the Houston business establishment actually thought I could win. This in itself was remarkable, because there were only three Republicans out of twenty-four in the entire Texas delegation at that time. The congressional seat, the Twenty-second District, had never been held by a Republican. Besides, it was in the immediate post-Watergate atmosphere, which made it even more difficult for Republicans.

  Since it was recognized I could possibly win, a meeting was arranged with the Houston business community. At that time, 70 percent of the district was in Harris County, where Houston is located, and a very small percentage was in Brazoria County, where I lived.

  One conversation I vividly recall was with George R. Brown, of Brown & Root, which eventually became KBR (Halliburton). He was a Democrat and a known political ally of LBJ’s. The two of them modernized politics with fund-raising and by supporting candidates they could control once they were elected to Congress. Brown’s support for me was twofold. He opposed the unions that my liberal state senator opponent, Bob Gammage, was identified with. Brown & Root had a large presence in the district. My credibility soared with him because I unexpectedly got into the runoff in the special election.

  The reception was cordial and some money was raised—no large amount. My short talk was in the defense of the free market and was as defined then as it is now. In the parting conversation with Mr. Brown, he strongly admonished me, “Remember, for the economic system to work, business and government must be partners.” His emphasis was on partnership. I cringed and q
uickly scooted out the door.

  After the election, which I won, my campaign manager urged another fund-raiser with the same city fathers. The announced purpose was to “pay off campaign debt” and to thank them for their support and to recognize their importance. Actually, there was no campaign debt, since even then my rules were firm—never end a campaign with debt. If you lose the election, the debt becomes yours, not the campaign’s. Once again Mr. Brown showed up and as we were leaving I heard him ask, “Well, what’s my share; what do I owe?” It sounded to me, and probably to him as well, that he had an investment in me and wanted to pay his fair share, like any good “capitalist.”

  Once I was in office and after my votes and positions became known, the message was clear, and I never heard from him again.

  The idea of business and government being partners is nothing new, and even when Mr. Brown said it, it didn’t sound sinister. I’m sure he thought it was a rather good system and rationalized that the enrichment of Brown & Root was incidental to the philosophy, not the purpose of the partnership. U.S. government contracts from around the world just happened, not because he and LBJ were bosom buddies.

  This attitude is pervasive. Over the years, I have heard many businesspeople praise big government, saying how city hall and business must work together. It’s a partnership that develops at all levels—city, state, federal, and international (UN, World Bank, IMF, and the multinational development banks). This is all done in the name of capitalism and financed by a corrupt and complacent Federal Reserve money machine. Home builders, highway contractors, bridge builders, and on and on, all support big government projects.