As you ponder the initial question posited with the headline, bear in mind please that the Fed was established on Dec. 23, 1913 for one purpose, and one purpose only. It was established expressly to put an end to bank failures in this nation. All other duties that the Federal Reserve Bank now takes on are duties that it has awarded itself, with the exception of one. We’ll get to that one after the video. I would also like you to bear in mind that with its primary charge, the Federal Reserve System can only be viewed objectively as a complete and utter failure, as the number of bank failures increased dramatically after its establishment as compared with any period prior.
One of the additional duties taken on by the Fed has proven itself to be extremely dangerous to our national economy. It is a duty which according to our Constitution, belongs expressly to our Legislative Branch. That would be the management of our currency. Currency is a severely misunderstood thing. At one time in our Nation’s history, three states used tobacco as currency, while other states used gold, and some issued paper script. Some of our original 13 states used gold as a currency for its citizens, and issued paper certificates to pay debts owed to people in other states. Currency is nothing more than a medium of exchange which a populace accepts to facilitate payment for the transfer of goods and services in deference to barter. It allows economic growth, in that it facilitates trade amongst people who might not have the exact mix of goods and services desired by possible trading partners. That’s all a currency is.
Since the dawn of civilization however, along with a recognized value in societies having a form of currency, governments have figured out ways to use currency to rob the value of wealth directly from the citizenry without being terribly overt about it. Simply minting more currency for its own spending is one way of accomplishing this, quantitative easing is another. This method of stealth taxation is commonly referred to as fiat money.
On the exact opposite end of the massive scale of bad ideas is the tying of an economy to a tangible asset or commodity. The most common of these would be the Gold Standard. If you want to see a picture of what happens when an economy is hamstrung by a constipated system for capital allocation, just take a peek into the ancient date of 1929, pretty much anywhere in the world.
Yes, I agree that we should at least audit the Federal Reserve System, and possibly even end it entirely, as it has quite literally failed as miserably in its mission as any measure of failure could be eloquently stated. No, I do not believe that we should shackle our economy by placing ourselves back on a form of currency that by definition severely restricts capital, thereby limiting economic growth, even as our population may grow. Somewhere between these two idiotic ideas, a reasonable solution exists.
In reading the Federalist Papers, more specifically Federalist Number 10, I discovered that the problems with currency that we are facing today were indeed something that our founding fathers had in fact contended with. So I got to thinking, did they have the foresight to address these problems in the Constitution that they drafted and then ratified? As it turns out, the answer is yes.
From Article I, Section 8:
The Congress shall have power………To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;
To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;
The good news here is that this vital duty of the Legislative Branch was delegated by a Congressional act that was signed into law by a former President. It was not abrogated by Constitutional Amendment. So getting the damage undone is possible via the same means. The bad news is that it’s on nobody’s radar yet, which is something that can be remedied.
For those of you who are economic wonks, here’s a link to a Cato Institute Symposium on the Federal Reserve. It’s about 6 hours or so of panel discussions, all of it worth your while. Don’t watch it all at once, I’d hate to see anyone go crazy, or crazier than they may already be.
Cross Posted from Musings of a Mad Conservative.
Tags: Federal Reserve
