Here is my piece on this Ron Paul idea in the Christian Science Monitor:
Since it was introduced in February, Representative Ron Paul’s “Audit the Fed” bill (H.R. 1207) has gained 282 congressional cosponsors. If adopted, the bill would allow the Government Accountability Office to review, not only the Federal Reserve’s balance sheet, but its recent monetary policy deliberations and transactions.
Fed Chairman Ben Bernanke opposes the plan, saying it would undermine the Fed’s hallowed independence.
But Mr. Paul, a noted libertarian who ran for president last year, also wants to keep the Fed out of Congress’s clutches – by scrapping it altogether. That’s the goal of his follow-up Federal Reserve Board Abolition Act (H.R. 833). Although that measure has yet to gain a single cosponsor, it has plenty of grass-roots support, and Paul hopes that members of Congress will jump on the bandwagon once their eyes are opened by a no-holds-barred audit.
Wacky stuff? Well, if not having a ghost of a chance is enough to make a bill bonkers, Paul’s measure probably qualifies. But that doesn’t mean you’ve got to be crazy to believe that the US economy would be better off without the Fed. MORE
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“Yet the Fed was also capable of failing to supply enough money to avert crises.”
As if creating new money averts crises? We’ve very recently seeing how that works out.
Or did you just mean to show that the inflationary policies did not work on their own terms?
I am a strong supporter of abolishing the Federal Reserve, however, it seems like this is very unlikely to happen in the near future, if ever.
While i know very little about judging the probability of a bill getting passed, it seems like Ron Paul’s “Audit the Fed” bill has a fair if not good chance actually becoming reality.
My Question to anyone who thinks they have an adequate answer (Mr. Selgin?) is how exactly is the passing of Dr. Paul’s “Audit the Fed” bill going to help end the Fed’s destruction of the American economy?
Is the idea that this audit will unravel the truth about the Fed’s catastrophic monetary policy and its deficient balance sheet, which would then create a public perception of the Fed’s incompetence that would then lead to its end?
What exactly is the Government Accountability Office? is it simply another government ran organization?
Even upon passing of the bill, how are we gauranteed to get honest information from this bill? especially when getting honest information from the government happens very infrequently, and seems to be happening less and less.
If we are not gauranteed honest information, wouldn’t false information designed to improve the reputation of the Fed actually enhance the public perception that the Fed is a good thing? making the outcome of the “Audit the Fed” bill the exact opposite of what was intended?
I understand that my economic ignorance may be at the source of these questions, so please be kind in your responses
Ryan
Any light shed will help the situation. Certainly, congress is no more trustworthy than the Fed, however turning one gang of thieves on to another is a pretty good strategy, especially when the one (congress) feels its authority is being usurped.
Of the two, the Fed is the bigger problem, so turn all the wolves loose on them and it can only help.
Not an economic answer, but a political one. And politically, this will only see the light of day if/when the current Fed efforts end in catastrophe within the next 6-12 months. I call it 50/50. I think the citizens will revolt and congress will have to take strong action.
This is an interesting article. These comparative monetary system debates seem to have a lot of details to keep track of, in history, government and economics. Won’t happen soon, but if I wanted to learn more about free banking and monetary history I’d probably read Selgin’s books and articles. I’d also read Lawrence White.
Unfortunately, good things rarely happen in Washington. I don’t expect the Fed to be abolished anytime soon if ever.
@danny
Any light shed will help the situation. Certainly, congress is no more trustworthy than the Fed, however turning one gang of thieves on to another is a pretty good strategy, especially when the one (congress) feels its authority is being usurped.
I’m not opposed to the bill, but I also think there is a chance it backfires and Congress simply uses it as pretense to further meddle with monetary policy. Not that the Fed Reserve has done a good job in this regard, but in some ways it’s even more frightening to think that the critters in Congress could have a direct role in setting the federal funds rate, etc. Obviously, Fed decisions have always been politicized but give Congress an inch and…I don’t know.
“I’m all for this, but it won’t work because…”
“This is great and true and everything, but Washington will never…”
Yeah, it’s statements like those that remind me of Tokyo Rose — but where’s the music to soothe my conquered soul?
If Ron Paul had thought about the politically “realistic” rather than just being dogmatic and sticking to principle, he would never have had the success he has had these past two years.
It’s high time we ignore the pragmatists from the libertarian movement.
The modern state and the central bank are inextricably linked. Our rulers derive far too much wealth and power from their control of the money supply to ever give it up willingly. The Federal Reserve will end when the United States ends.
Given the way things are going lately, that may happen sooner rather than later.
Chuck makes a good point. Without the US dollar, there is no way the federal government can maintain sovereignty over the 50 states. The individual states would no longer look to the federal government for money, since it would be in the form of useless US dollars. And states would start collecting taxes in other currencies.
And if competing currencies ever gain a foothold in the US, the federal government will not have the means to collect taxes, which are denominated in US dollars.
I suppose that the federal government would have to resort to very drastic means to collect taxes beyond simply taking US dollars from people. They would have to resort to confiscating property, capital controls (i.e. export/import haircuts), etc. The people in the states, of course, would definitely riot/rebel as they would be facing the choice of starving (do to US dollar breaking down) or breaking away from the Union.
Well, given that the DoD is virtually assured of an “F” grade every year for its audit, along with almost every other federal government department, I don’t think a failing grade alone will mobilize the American people.
Then again, the FED is creating a lot more money than the DoD spends annually. And it is going directly to the favored big banks, which are quite unpopular right now.
@Shedplant, you must realize Dr. Selgin believes that credit creation by banks can serve a beneficial purpose. As people save currency, banks can create credit to offset this. Credit creation and real savings remain in balance, thus failing to create malinvestment. I disagree not with this theory, but the practicality of the methodology. But if done as described by Dr. Selgin, it would indeed increase economy, both in a recession and in periods of growth.
bob,
Oh, I didn’t know he thought that. It doesn’t seem to make any sense, at least the way you outlined it, but I may investigate what he’s talking about.
I am not firmly committed for or against any of the various monetary arrangements. I can’t say I advocate ending the Fed.
I don’t think that supporting an abrupt transition from the Fed to a free banking or gold standard arrangement is alone enough to make one qualify as nut jobby.
There might be cases where somebody with this position defends it in a way that is complete screaming nuttiness. This might be especially true for those whose case against on the Fed depends crucially on the existence of a conspiracy for which there is no evidence. Just based on this column, it sounds like Selgin would defend it more on economic and historical, non conspiratorial grounds.
I’ve heard about the upcoming book “End the Fed”. I suspect that it, along with “The Revolution: A Manifesto” is written by Tom Woods. If it turned out Ron Paul hasn’t even read the book yet, I wouldn’t be surprised. “End the Fed” by “Ron Paul” will probably get a lot of readers, and hopefully it’s a good book that will lead to an improvement in the quality of anti-Fed arguments among non-academics. I’ve read a couple of Tom Woods books, and they were interesting and well written.
Ending the Fed might be one of those ideas where it never looks like a great short run idea, but can still look like a good long run idea. People who think in the long run, and are very confident that the alternative they support will be better than the Fed, should support the transition as early as possible, just to get it over with and get the long term benefits started.
George,
Just wanted to let you know that I’m in the middle of your book titled, “The Theory of Free Banking: Money Supply under Competitive Note Issue”. It’s great so far! Very satisfying, fills the holes left by my still recent undergraduate degree in economics at a major state university!
I come to today, not as a beaten down man, not as a poor lost soul, nor as a scared lamb willing to give up my fleece for the safety of a false shepherd, to protect me from the wilderness.
I come to you today as a Man, as a Washingtonian, a Citizen Of The United States, and as a Patriot, proud to be an American.
I see the rats as they run and play. They infest every dark place in my once great Nation. I see the blackness of a great plague, and a Sickle harvesting Fodder.
My fellow Washingtonians, my fellow Citizens of The “Sovereign†States Of America. I too seek great change for our Nation. We have strayed from the path our Forefathers with great deliberance, set before us. “The Change We Need†is to get back on the path, Retrace the Steps of our Forefathers… down the path of Liberty to where You Stand Today… then… with great deliberance choose your heading.
We need to reclaim what it truly means to be an American, we need to reclaim our greatness. Many of us still feel the Greatness in Our Nation. To be a free Man in a Sovereign State, a Proud State, allied to the Great Proud States of America… Bound together not out fear, or coercion… Brotherly love, Patriotism, and a Passion for Liberty forged US together with the blessings of God Himself… but fear it’s slipping away, and our children may never realize what it truly means to be a Proud Free American in a Truly Great Land. Or worse, you have been seduced by socialism as your only salvation.
Socialists, Domestic Enemies, have been plotting to overthrow our Nation from the inside. Some chosen to represent you have failed to lead, corrupt for money and power sat idly while others spun a complex web of doubt, fear, and subterfuge for all too many years now.
This fear has been purposely perpetrated upon you, in the attempt to convince you to give up your freedom, your sovereignty, for their illusion of safety from their illusion of fear. They do this so you can be fleeced without putting up a fight. They have tried to trick you into thinking we are beaten down. Fore many years now some have created this oppressing web of confusion to distract you. They offer you salvation from that which they have perpetrated upon you, in exchange for your Liberty and taxes.
“Anyone who would give up Freedom for safety doesn’t deserve either.â€
Our Great Nation is not on the edge of oblivion. Our Great Nation is on the edge of every great new discovery. Never underestimate Our ability to overcome great adversities. We, despite what some would have you believe, are stronger than we have ever been. We are still number one in GDP, with over 15 trillion… American dollars… The next biggest three, Japan, China, and Germany, combined do not equal our GDP. Foreign interest and domestic enemies have been feasting on our Nations wealth far to long. We produce more wealth than any nation on Earth, two times that of number 2, and were broke?! Our bank account is negative?! Our leaders say they can’t run the business of governance without a deficit?! They say they need to borrow money, from some of the very nations exploiting our markets, to run our country?! Never paying them back so they can milk our nations wealth!?!! This is not leadership… this is calculated thefts, treasons, and Orwellian dreams. In older days not that long ago, we would have people’s heads on pikes… and chopping blocks.
Ineffective Big Government Bureaucracies serve only their masters. Our federal bureaucracies and the programs they run have become so encumbered, inept, and corrupt that it can no longer sustain its own weight, and our governments answer to hold back the water is to use more water. While our leaders spend more and more of Our money on more and more of their bungled pork filled federal policies, bureaucracies, and “programsâ€, we loose more and more of our Liberty our Freedom our Money, and instead of the safety they told us we needed we get another shackle of Socialism.
The secretive rogue private organization that has no accountability to anyone, operating in complete Autonomy, known as the Federal Reserve, needs to be abolished. The Federal Reserve has failed criminally to carry out the duties and responsibilities the American people entrusted to them. The Federal Reserve has succeeded criminally to carry out the agendas of the Global Banking Elite, who tricked the United States into giving them the reigns of our economy and has milked it dry.
We do not want nor need more Federal Government, we need less, we need smarter Government. Sovereign States of America, rise up with one voice and demand your 10th Amendment Rights. The Federal Government has failed criminally to manage the wealth of our Nation. For all its failed over budgeted programs, it wants us to reward them with their monumentous task of Federalized health care. The Federal Government needs to let the States run their States and care for its citizens, Federal dollars should help fund State programs and infrastructure, not run them.
Fortunately we have a few good people in the House of Representatives, they need your voice to remind Washington, “The Will of the People†and the Sovereignty of Every State in the Union. In a Loud and Proud voice, the Heart of America doesn’t beat in Washington DC, it Beats in the Hartland’s of America, and in you and me.
—————————————————————————————————————————
We the People of the United States, in Order to foster a more perfect Union,
Reestablish Justice, insure domestic Tranquility, provide for the common defence,
promote the general Welfare, and secure the Blessings of Liberty to ourselves
and our Posterity, do Command.
Article. I.
Section. 1. The House of Representatives shall not retake session till the Senate deems them ready.
Section. 2. The Senate will take their posts and discuss the formation of several special teams. These teams will be made of and put together by The Representatives. Each team will also have experts from several fields including but not limited to, economists, mathematicians, forensic accountants, and leaders of Capitalism.
Section. 3. These Special Teams will be commissioned with Dissecting our Federal Governments Finances. All debits and credits will be accounted fore, all creditors will provide upon request a detailed list of products or services rendered, excluding specific details of Privileged Military Information. They will report their findings and proposals, to the People not later than One Year from Today.
Section. 4. All foreign aid and all donations are suspended until congress reinstates it.
Section. 5. All Federal Spending, outside the stimulus plan, not vital to the day to day operations are suspended until Congress reinstates it.
Section. 6. All United States Military operations will not be impeded.
Article. II
Section. 1. The Dissolution of the Federal Reserve not later than one year from today.
Section. 2. A new Federal Banking system will be created. “The Banks of the United Statesâ€
Section. 3. Each State will have one State Bank, numbered in order of Joining the Union i.e.
Bank of Washington – 42nd Bank of the United States, and as many branches it deems necessary, ideally at least one in each district.
Section. 4. All Federal & State Taxes, Seigniorage, or Borrowing collected in each State will go to their State Bank. These moneys will be held and managed in 4 accounts each. All Federal and
Inter-State transfers will come or go through a United State Bank not a branch office. All account balances and transfers will be available to the people in Real Time through an internet web site.
Section. 5. All State Banks will render 100% the Face Value of Legal Tender to Gold or Platinum to any holder of Legal Tender from any State of the Union upon request. State Banks will be responsible for the creation of all Legal Tender that Bears Its Name, this responsibility may never be outsourced.
Section. 6. Each State Bank will have 2 Bank Commanders, decided by State Vote. They will serve 4 year terms staggered by 2years. They will meat regularly with The Governor, Senators, and Representatives of their State. Each branch will have a manager which will be the Representative from that District or by State vote. If more than one branch in a District there will be a District vote.
Section. 7. Each State Bank will have experts of Business and Trade throughout their State and the Union. They will hold up to Ten Seats on a board type structure, with the Commanders at the top like CEO’s. The Governor of each State will hire and fire Board Members.
Section. 8. The Federal Bank of America will be in Washington DC. This bank will be responsible for Government Investment, it will receive 5% of Federal Taxes from each State in the Union for 10 years or less if it becomes self reliant, 2% thereafter. All other Federal Funds transfers from the States on Congressional approved measures only.
Section. 9. State Banks will be responsible for Government Consumption, and the Transfer of Payments, Federal and State. They will also be Commissioned with operating as a True Bank with services available to the People. With Integrity and Accountability they will serve as a Bench Mark for Industry Standards.
Article. III.
Section. 1. Each State will operate an Insurance Company and will offer all lines of insurance. They will use their States name i.e. “Washington State Insurance Company.†These Insurance Companies will be independently owned and operated by each State, but will act together as a Corporation.
Section. 2. These State Insurance Companies will act as True Insurance Companies not driven by extreme levels of profit, but for the People they Serve. Individuals under this program will be pooled together as if from one company. All State Health Care Programs will operate through this Company. It will be the goal that all American Citizens will have access to Affordable Health Care. With Integrity and Accountability they will serve as a Bench Mark for Industry Standards.
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