The People’s Choice

By Doug French
  • Monday, October 21, 2002

The heroic Ron Paul, Republican congressman from Texas, has introduced legislation that would benefit Nevada and all America. If enacted, HR 5356 could put the United States back on the road to civilization, reversing the slippage into monetary barbarism that, invisible to most people, afflicts this country. Paul’s bill would abolish the nation’s central bank, the Federal Reserve, and return our monetary system to the gold standard — in other words, to the people.

Economist John Maynard Keynes once called gold “a barbarous relic.” But in fact gold is just the opposite: Without gold, a civilization cannot exist. When the world began, individuals had to be self-sufficient. Any trading that took place was by barter, and there was little utility in cooperating with neighbors. The prospects for a better life were only as good as one’s prowess at hunting or farming. But as barter was replaced by money, the division of labor became possible, increasing everyone’s standard of living. All kinds of commodities have served as money — tobacco leaves, shells, oxen, etc. — but historically, gold has always been the people’s choice.

Money made it possible for men and women to engage in the activities in which they excel. To eat they needn’t grow food or shoot game. They could make shoes or sew dresses or brew beer, and then trade the product of their labor for some marketable commodity (like gold) that they knew everyone else would accept. They could store their savings in the commodity, then trade it for food or whatever else they needed or desired.

It is this division of labor that created civilization. But today government control of the monetary system is eroding it. Governments have never liked monetary systems backed by gold. Why? Because gold cannot be created out of thin air. It must be pulled from the ground at great expense. When governments have wars to pay for, or congressmen want “pork” to spread around their districts, a gold standard requires that taxes be raised. But a central bank can create “money” out of nowhere to fund these boondoggles. As current Fed chairman Alan Greenspan wrote 36 years ago in his Randian days, “This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the ‘hidden’ confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”

Central bank inflation serves as a silent tax. The average citizen doesn’t realize that every day the value of the dollars he toils for are worth less and less, as the government prints more and more paper. As Representative Paul writes, “Since the creation of the Federal Reserve, most Americans have suffered a steadily eroding purchasing power because of the Federal Reserve’s inflationary policies. This represents a real, if hidden, tax imposed on the American people.”

In the 89 years prior to the Federal Reserve’s creation, the consumer price index increased less than two percent. In the 89 years since the creation of the Federal Reserve, the value of a 1913 dollar has dropped to a 1913 nickel and a half.

But inflation doesn’t damage everyone equally. Some groups benefit from inflation. As money is created, those who receive it first are better off. Those who receive the money last suffer the brunt of inflation’s wrath.

The Federal Reserve was not the first United States attempt at a central bank. The first two failed. Instead of seeing a central bank and its inflation as a given, as do most of today’s politicians, many of America’s early leaders were justifiably wary. Andrew Jackson, who successfully ended the Second Bank of the United States, described it as “a ‘monster,’ a ‘hydra-headed’ monster, a monster equipped with horns, hoofs, and tail, and so dangerous that it impaired the ‘morals of our people,’ corrupted ‘our statesmen,’ and threatened ‘our liberty.’” He believed that “such a fearsome beast must not roam the country at will, at least not while [I] sit in the White House. There was only one thing to do: kill the brute, and the sooner the better.”

Jackson had help in eradicating the central bank in 1833 and Ron Paul will need lots of help ridding the country of the monster called “the Fed.” Because of Nevada’s pre-eminence in gold mining and because of the Fed’s destructive role in American booms and busts, the Nevada congressional delegation should educate itself on the real role of gold and give Ron Paul a hand.

Doug French, executive vice president of a Southern Nevada bank, is a policy fellow with the Nevada Policy Research Institute.

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