No Compromise With the Fed!

by
Llewellyn H. Rockwell Jr.
My articles My booksMy videos
Follow on:

Some people argue like this: Although the Fed as it now exists is very bad, a nation needs a central bank to regulate its money supply, and the Fed is better than nothing. That being so, we should try to urge the Fed to adopt a non-expansionary monetary policy. In this view, calls to “End the Fed” are mistaken. I’m sure most of my readers already know what I’m about to say, but, just to be clear, that view is disastrously wrong. We do not need a central bank, and to argue in the way indicated is to betray the great Murray Rothbard and the great Dr. Ron Paul, whose slogan “End the Fed” has galvanized so many of us.

What we need is the classical gold standard, based on 100% reserve banking. There is no need for an expansion of the monetary system, even a gradual expansion. In fact, monetary expansion is inflationary and dangerous. As the leading Rothbardian authority on money, Professor Joseph Salerno, explains: “Under the classical gold standard, [which prevailed in the nineteenth century before World War I] if people in one nation demanded more money to carry out more transactions or because they were more uncertain of the future, they would export more goods and financial assets to the rest of the world, while importing less. As a result, additional gold would flow in through a surplus in the balance of payments increasing the nation’s money supply.

Sometimes, private banks tried to inflate the money supply by issuing additional bank notes and deposits, called ‘fiduciary media,’ promising to pay gold but unbacked by gold reserves. They lent these notes and deposits to either businesses or the government. However, as soon as the borrowers spent these additional fractional-reserve notes and deposits, domestic incomes and prices would begin to rise.

As a result, foreigners would reduce their purchases of the nation’s exports, and domestic residents would increase their spending on the relatively cheap foreign imports. Gold would flow out of the coffers of the nation’s banks to finance the resulting trade deficit, as the excess paper notes and checks were returned to their issuers for redemption in gold.

To check this outflow of gold reserves, which made their depositors very nervous, the banks would contract the supply of fiduciary media bringing about a monetary deflation and an ensuing depression.

Temporarily chastened by the experience, banks would refrain from again expanding credit for a while. If the Treasury tried to issue convertible notes only partially backed by gold, as it occasionally did, it too would face these consequences and be forced to restrain its note issue within narrow bounds.

Thus, governments and commercial banks under the gold standard did not have much influence over the money supply in the long run. The only sizable inflations that occurred during the 19th century did so during wartime when almost all belligerent nations would ‘go off the gold standard.’ They did so in order to conceal the staggering costs of war from their citizens by printing money rather than raising taxes to pay for it.”

This was the system in effect in the nineteenth century, and a full Rothbardian gold standard would be even better. This is because the earlier system did not ban issuing more bank notes than reserves available. The Rothbardian system bans this altogether.

But, you might object, doesn’t the Fed exist now? Don’t we have to get along as best we can with it, even if we hope for its ultimate abolition? The answer is that is a clear “no.” So long as it exists, the Fed finances the murderous welfare-warfare state of brain-dead “President” Joe Biden and “Cackling Kamala” Harris and their gang of neo-con controllers. Rothbard sets forward clearly what the appropriate attitude toward getting along with state institutions should be: “Hence, the libertarian goal, the victory of liberty, justifies the speediest possible means towards reaching the goal, but those means cannot be such as to contradict, and thereby undercut, the goal itself. We have already seen that gradualism-in-theory is such a contradictory means. Another contradictory means would be to commit aggression (e.g., murder or theft) against persons or just property in order to reach the libertarian goal of nonaggression. But this too would be a self-defeating and impermissible means to pursue. For the employment of such aggression would directly violate the goal of nonaggression itself.

If, then, the libertarian must call for immediate abolition of the State as an organized engine of aggression, and if gradualism in theory is contradictory to the overriding end (and therefore impermissible), what further strategic stance should a libertarian take in a world in which States continue all too starkly to exist?

Must the libertarian necessarily confine himself to advocating immediate abolition? Are transitional demands, steps toward liberty in practice, therefore illegitimate? Surely not, since realistically there would then be no hope of achieving the final goal. It is therefore incumbent upon the libertarian, eager to achieve his goal as rapidly as possible, to push the polity ever further in the direction of that goal. Clearly, such a course is difficult, for the danger always exists of losing sight of, or even undercutting, the ultimate goal of liberty. But such a course, given the state of the world in the past, present, and foreseeable future, is vital if the victory of liberty is ever to be achieved.

The transitional demands, then, must be framed while

1. always holding up the ultimate goal of liberty as the desired end of the transitional process; and
2. never taking steps, or using means, which explicitly or implicitly contradict that goal.”

Let’s do every we can to end the Fed now! On this, there can be no compromise.

Originally published at LewRockwell.com.