The Political Inquirer

The Federal Reserve is the private central bank established by Congress in 1913. The Federal Reserve is often touted as the great savior of society—we’ve heard it called the “lender of last resort” or the “price stabilizer”, or perhaps the organ of the government that “controls inflation.” It is true that it is the heart of the government. Without the Fed, the government would not be able to control our personal lives. The central bank pretends to be our source of employment and the fuel behind the economic growth that will bring us modern technology and development.

In fact, the Federal Reserve does none of these things. The institution is rarely (if ever) mentioned in political science while economics textbooks treat it as something that has always existed and must continue to exist for the survival of the American people. What they forget is that prior to 1913, the American people thrived without the Federal Reserve. Is it wrong to look into the Federal Reserve, what it stands for, its real role in the economy, and even question its very existence? According to mainstream academia it is.

There was a time when there was no such thing as a central bank in these United States. The central bank was a creation that separated money from the marketplace—its ultimate goal was to have a state monopoly on money that is worth nothing more than the paper it is printed on. Banks would become protected from market failures and the central bank would guarantee the government’s debt—with more worthless paper.

The creation of the Federal Reserve let loose a rolling stone of boom-and-bust monetary policy on middle and working-class Americans. Most Americans have suffered greatly from a steadily eroding purchasing power because of the Federal Reserve’s monetary policies. This is called the “inflation tax”, a sort of “hidden” tax that causes the value of the American dollar to go down. This increases the cost of living and forces low and middle-income Americans to pay higher prices than they should. In fact, the market place is known for making items cheaper over time. Due to inflation not all items get cheaper—in fact, the cost of many things goes up. The dollar today is worth only three cents of the dollar in 1914. Devaluation of the dollar decreases the incentive to save and hurts not only current workers, but the elderly and their reliance on retirement funds. The money they saved in the 1950s and 1960s is not worth as much today as it was then—a hidden tax, the “inflation” tax!

The Great Depression, “Stagflation”, the “dot com” boom, and even today’s sub-prime housing problem is a direct result of the monetary policy created by the Fed over the last ninety years. The Federal Reserve floods the economy with “easy money” at artificially low interest rates, leading to bad investments by business people and a fake period of economic “growth”. The inevitable result is the “recession” that follows. People always talk about the economy having its ups and downs as if it were a normal part of the free market—but has anyone ever thought to wonder why all the businessmen fail and the market heads downhill at the exact same time? Monetary policy and the Federal Reserve are the prime suspects in this cause and effect game.

One might wonder why the government would allow the Fed to continue to exist if it is the cause of the economic problems and hurts the average American. The problem is it benefits those who are in a position to take advantage of the “business cycles”. The ones who benefit are those who receive access to the inflated money and credit before the inflationary effects of higher prices impact the entire economy. Federal Reserve policies also benefit the politicians who use the inflated currency created by the government who like to spend and spend and spend. This hides the true costs of big government. Congress can talk about cutting spending all they want, but small amounts here and there do not help to actually shrink the size of government. Congress should immediately put the interests of Americans ahead of the special interests of the banks and big businesses and politicians who want big government to benefit them at the expense of everyone else.

Abolishing the Fed will let Congress control the nation’s monetary policy once again. The Constitution only allows Congress the authority to coin money and to “regulate the value thereof”. Just a quick reading of the Constitution makes it obvious that Congress does not have the authority to delegate their control of monetary policy over to a central bank. Furthermore, the Constitution does not authorize the Federal Government the power to erode the average American’s standard of living by having an inflationary monetary policy.

Through history we will rarely ever see a fundamental question raised: should the Fed exist? It is the key to the entire big government problem that Americans of all types are against. Encroachment on our lives by the Federal Government is something all Americans object to. It is only made possible by the excessive debt and inflation-spending that the Federal Reserve makes available. If someone were to mention the case against the Fed, the critic would be shunned and considered someone that is “unrespectable”. Washington, D.C., is filled with people who will never entertain the thought that the Fed should be abolished. Instead, it is ignored or even praised as the savior of the American people.

Because of the central bank’s existence, people have forgotten that there was a time without the institution. Imagine for a moment that the government nationalized the bicycle industry, and after a while no one could remember that private enterprise was once the maker of bicycles. Anyone who thinks the government should get out of the bicycle industry is considered crazy. Money arose in the market place and only sometimes was administered directly by governments—the central bank was a creation of the 19th century and did not exist in the United States until the 20th.

The Federal Reserve has failed in its mission for decades. Our money has been destroyed and devalued, unjust wars have been funded with it, and it has been the catalyst to the enormous government that most Americans rightly object to. We cannot forget that it is the institution responsible for creation credit bubbles that lead to the boom and bust cycle of the economy. Are we supposed to believe that these things just happen? The Fed is always trying to “fix” the problem—it never admits that it alone was the party responsible for the economic downturns.

People who want to abolish the Fed want to restore liberty and return to a smaller, less intrusive government. The Fed has failed in its job to create “price stability”, it has failed to stop the devaluation of the dollar, and last but not least it has created enormous booms and busts during the past 80 years. Resources have been wasted during boom periods and people have suffered during the busts.  It is time to abolish the Federal Reserve and recognize that as long as it exists it is a hindrance to the American dream of freedom and prosperity.