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Every city in America has dozens of fast-food restaurants vying for our business. Which are successful? The ones that deliver on their promise to provide consistently good, quality food. Restaurants that do not, go out of business.
If government controlled the fast-food business the same way it controls the business of money and banking, every hamburger would be the size of a quarter — and all bun.
It is time that the American people ask their Federal Reserve officials: “Where’s the beef?” Where is the sound money that the government promised eighty years ago, when the Federal Reserve System was established? Consumers, producers, and investors deserve real money — money that will retain its value over time — not the government’s paper money that has continually lost its value over the past several decades and that the U.S. government, through legal-tender laws, forces us to use.
The Federal Reserve System is nothing more than socialized central planning in the monetary arena. In fact, Karl Marx and Frederick Engels wrote in The Communist Manifesto that one of the initial measures of the Communist Revolution would be “a centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.” And as Oscar B. Johannsen has written: “A socialized banking system is the precursor of socialism in all business.”
Is it any wonder that the Fed has failed to achieve a sound and stable monetary system?
After eighty years of failure, this Marxian relic — the Federal Reserve System — must now be torn down, like the Berlin Wall. Private enterprise and the free market, not government, should provide the money that people need to transact their business.
Money was not invented by government. The founder of the Austrian school of economic thought, Carl Menger, wrote in 1871: “Money is not the product of an agreement on the part of economizing men nor the product of legislative acts. No one invented it.” Over time, individuals simply learned to trade the less salable commodities for more marketable commodities. With the more salable commodity, individuals could more easily satisfy their economic intentions.
In different parts of the world, different commodities served as money: cattle, cocoa beans, tobacco leaves, salt, sugar, and ivory, to name only a few. In each case, these commodities developed as the most salable and recognizable in their particular areas.
As economies developed and trade expanded, the metals that came to be used as money “because of their ease of extraction and malleability were copper, silver, gold, and in some cases also lead.” Menger points out that, over time, “these three metals, being the most salable goods, became the exclusive means of exchange.”
Gold and silver survived for many years as money. And with no government interference, price inflation for generations was virtually nonexistent.
However, by the early 20th century, all governments were in the money business — printing paper notes that were usually unredeemable and forcing their citizens to accept them through legal-tender laws.
The result has been depreciating currencies and constantly rising prices. In the words of economist Hans Sennholz, the 20th century has truly been the “age of inflation” — an age that has devastated the middle class, as well as those people at the bottom of the economic ladder.
How does the Fed create money? It continually buys government securities from banks in the open market with, as economist Murray Rothbard has described, “nothing. Simply with checking accounts created out of thin air.” Then, for every one dollar of Fed checkbook money, the banks in the Federal Reserve System can create ten dollars more in demand deposits — again, out of thin air.
This pyramiding atop the Fed account is how more and more money is created. This money has benefited the federal government first and foremost — financing its wars, its largess, and its increasing bureaucracy.
The Fed’s function, Professor Rothbard has pointed out, is “that of a banking cartel organized and enforced by the federal government.” This banking cartel has served its master, the federal government, at the expense of the public. Average wage rates have only increased 277 percent since 1971, while the Fed has created 400 percent more money. Thus, two incomes are now needed to support a family, while only one was needed before.
How would a free-market monetary system work? Private money issuers would have the same incentive that producers of any other product have in a competitive market: To earn a profit, they must provide a good-quality product.
In the case of money, that means money that will hold its value and enjoy wide acceptability. Money producers that overproduce, causing their money to depreciate vis-à-vis other currencies and goods, will either stop inflating or go out of business, like any other producer that does not provide the market with what it wants.
Different goods have served as money throughout history. If left to the market, the future would be no different. A free market is always evolving to satisfy the consumer. Would it be gold, or platinum, or some other item? There is no way to predict the outcome of the market? What will matter is that the money chosen will be the result of the voluntary choices of consumers, producers and investors, and not the decision forced on people by government central planners.
The United States has given central banking an eighty-year trial. And the Federal Reserve has failed its mission. Government’s money monopoly must be revoked. As author Oscar B. Johannsen wrote in 1958: “It is no more a function of the state to regulate money and banking than it is a function of the state to regulate growing and marketing of onions.”
Sound money will only come through the free market — through the monetary choices of consumers, producers, and investors. As Nobel laureate Friedrich A. Hayek argued in 1977: “I am more convinced than ever that if we ever again are going to have sound money, it will not come from government; it will be issued by private enterprise.”
It is time to separate money and the state by repealing the Federal Reserve Act, abolishing the central bank, and removing government totally from the monetary scene.
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