Should the Federal Reserve Be Abolished?
What follows is my entry into the 2011 edition of the Foundation for Economic Education's Eugene S. Thorpe Writing Competition.
According to an e-mail I received on March 7, 2012
Regretfully, the judges have decided not to name a winner this year because none of the entries met their criteria for publication in The Freeman. Thanks for participating in this year's contest."
Although I am disappointed that the Foundation's judges decided that none of the entries met the criteria for publication in The Freeman magazine, I thought that my essay was worthy of sharing with you. I hope you enjoy it.
Should The Federal Reserve Be Abolished?
For a long time my automatic response to this question would be a heartfelt and resounding yes. Having read "I, Pencil" by Leonard Read, and works by Bastiat, Rothbard and others, I would have definitely replied in the affirmative without thinking further on the subject. But now, after a few years of experience, experimentation, and introspection I will do as is suggested by F. Paul Wilson. I will ask the next question.
By whom should the Federal Reserve be abolished?
Should the federal government of the United States of America abolish the Federal Reserve?
In the immortal words of Senator John McCain: I am not a Constitutional scholar. However, having previously taken a strong interest in political matters, I have read that document (purported to be the rules under which the U.S. Federal Government is to operate) on numerous occasions. I find that there is no power enumerated in the Constitution which allows for the creation of such an entity as The FED.
There are a few elected officials and fewer appointed ones at that level that agree with my thinking on this matter. If those agreeable individuals acting as agents of the state (in the generic) are able to persuade the vast majority of their colleagues currently opposed to even basic oversight of the FED, then certainly I will not oppose such a legislative measure.
What if the status quo remains indefinitely?
Many of the agents of the state at the federal level are opposed to ending the FED. It is likely that a few of those elected to the Congress think that they will have to come up with some new system to replace it. Many members of congress (supposedly representatives of the people) may have had a few courses in economics in college, but in totality, have thought very little about economic systems, and they fear the resulting chaos that they feel will surely result from their abolition of the central bank.
For the federal representative, embracing creative destruction is likely a cause of great uncertainty and anxiety. If I were a physician, I would prescribe copious amounts of benzodiazapines, because the uncertainty will only be getting worse. The FED creates uncertainty. The Federal Reserve has no oversight, is not subject to independent audits, and does not issue statements of fiscal condition, as all other banks are required to.
If the status quo reigns, and the federal government continues to maintain its support of the FED, then I'm okay with that. I'll just ask the next question: Should the several states abolish the Federal Reserve?
Most of those elected to states' legislatures probably do not think about the topic of abolishing the FED as it is not within their purview, but a few have. The Utah state legislature, most notably, has passed a bill allowing gold and silver coin to be accepted as payment within its geographical political delineation; provided that the coin has been created by the United States Mint. While far from a free market alternative to the Federal Reserve system, it is at least a legal alternative. Use of coin minted by the United States and sold directly to the people (and state's governments) would avoid the current money being loaned into circulation at interest. If the Utah model becomes widely adopted this will at a minimum provide some competition to the FED, lowering costs and increasing quality for the end users. This I would also certainly not oppose.
Many in the states' legislatures would be afraid of the same changes as those opposed to the end of domestic dollar hegemony at the federal level. They have some other things to fear as well should they step too far astray from Uncle Sam's plantation. First Uncle Sam would threaten to stop funding various programs in the state (Louisiana faced these kinds of threats when considering lowering the minimum age at which alcohol would be legally purchased and consumed).
Most legislators probably won't think beyond this point, but what the heck! Let us go on: What would happen if one (or several) of the various states continued to challenge the status quo by refusing to accept Federal Reserve Accounting Units Denominated? Well then, what is likely to happen is that the Attorney General, acting on orders from the President of the United States Government would have the Governor and supportive state legislators put in the slammer due to violations of federal legal tender laws. If that didn't stop the boycott on Federal Reserve Notes by the state government and general populace, that's when you'd be likely to see some sort of military conflict; but that is pure conjecture and very unlikely to occur in my estimation.
What's that? You want to ask the next question?
Okay then. Ask away.
What if it is not some sort of government that abolishes the Federal Reserve? What if it is individuals that abandon the use of the Federal Reserve Note and it's electronic equivalents?
Well, to my mind this is actually the best way to accomplish the oft chanted "End the FED." This is also the most likely to occur as the tsunamis of quantitative easing desroy the value of the fiat money.
Individuals are always free to set their own standards. For some this will be hard money, like Gold Money, Shire Silver, or American Open Currency Standard copper medallions. For others this will be some other sort of commodity, like seashells, wheat berries, or water molecules. Perhaps a more widely adopted standard could be a cryptography based currency like Bitcoin.
As for me, I aspire to the highest standards within my reach. After all, value is subjective. So if you can't find someone to trade with at your highest standard, hopefully you will heed the wise words of my brother, as he says: "When all else fails, lower your standards."