[Congressional Record (Bound Edition), Volume 148 (2002), Part 12]
[Extensions of Remarks]
[Pages 16523-16524]
[From the U.S. Government Publishing Office, www.gpo.gov]


                     ABOLISHING THE FEDERAL RESERVE

                                 ______
                                 

                             HON. RON PAUL

                                of texas

                    in the house of representatives

                      Tuesday, September 10, 2002

  Mr. PAUL. Mr. Speaker, I rise to introduce legislation to restore 
financial stability to America's economy by abolishing the Federal 
Reserve. I also ask unanimous consent to insert the attached article by 
Lew Rockwell, president of the Ludwig Von Mises Institute, which 
explains the benefits of abolishing the Fed and restoring the gold 
standard, into the Record.
  Since the creation of the Federal Reserve, middle and working-class 
Americans have been victimized by a boom-and-bust monetary policy. In 
addition, 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.
  From the Great Depression, to the stagflation of the seventies, to 
the burst of the dotcom bubble last year, every economic downturn 
suffered by the country over the last 80 years can be traced to Federal 
Reserve policy. The Fed has followed a consistent policy of flooding 
the economy with easy money, leading to a misallocation of resources 
and an artificial ``boom'' followed by a recession or depression when 
the Fed-created bubble bursts.
  With a stable currency, American exporters will no longer be held 
hostage to an erratic monetary policy. Stabilizing the currency will 
also give Americans new incentives to save as they will no longer have 
to fear inflation eroding their savings. Those members concerned about 
increasing America's exports or the low rate of savings should be 
enthusiastic supporters of this legislation.
  Though the Federal Reserve policy harms the average American, it 
benefits those in a position to take advantage of the cycles in 
monetary policy. The main beneficiaries are those who receive access to 
artificially inflated money and/or credit before the inflationary 
effects of the policy impact the entire economy. Federal Reserve 
policies also benefit big spending politicians who use the inflated 
currency created by the Fed to hide the true costs of the welfare-
warfare state. It is time for Congress to put the interests of the 
American people ahead of the special interests and their own appetite 
for big government.
  Abolishing the Federal Reserve will allow Congress to reassert its 
constitutional authority over monetary policy. The United States 
Constitution grants to Congress the authority to coin money and 
regulate the value of the currency. The Constitution does not give 
Congress the authority to delegate control over monetary policy to a 
central bank. Furthermore, the Constitution certainly does not empower 
the Federal Government to erode Americans' living standard via an 
inflationary monetary policy.

[[Page 16524]]

  In fact, Congress' constitutional mandate regarding monetary policy 
should only permit currency backed by stable commodities such as silver 
and gold to be used as legal tender. Therefore, abolishing the Federal 
Reserve and returning to a constitutional system will enable America to 
return to the type of monetary system envisioned by our Nation's 
founders: one where the value of money is consistent because it is tied 
to a commodity such as gold. Such a monetary system is the basis of a 
true free-market economy.
  In conclusion, Mr. Speaker, I urge my colleagues to stand up for 
working Americans by putting an end to the manipulation of the money 
supply which erodes Americans' standard of living, enlarges big 
government, and enriches well-connected elites, by cosponsoring my 
legislation to abolish the Federal Reserve.

                               Why Gold?

                    (By Llewellyn H. Rockwell, Jr.)

       As with all matters of investment, everything is clear in 
     hindsight. Had you bought gold mutual funds earlier this 
     year, they might have appreciated more than 100 percent. Gold 
     has risen $60 since March 2001 to the latest spot price of 
     $326.
       Why wasn't it obvious? The Fed has been inflating the 
     dollar as never before, driving interest rates down to 
     absurdly low levels, even as the federal government has been 
     pushing a mercantile trade policy, and New York City, the hub 
     of the world economy, continues to be threatened by 
     terrorism. The government is failing to prevent more 
     successful attacks by not backing down from foreign policy 
     disasters and by not allowing planes to arm themselves.
       These are all conditions that make gold particularly 
     attractive.
       Or perhaps it is not so obvious why this is true. It's been 
     three decades since the dollar's tie to gold was completely 
     severed, to the hosannas of mainstream economists. There is 
     no stash of gold held by the Fed or the Treasury that backs 
     our currency system. The government owns gold but not as a 
     monetary asset. It owns it the same way it owns national 
     parks and fighter planes. It's just another asset the 
     government keeps to itself.
       The dollar, and all our money, is nothing more and nothing 
     less than what it looks like: a cut piece of linen paper with 
     fancy printing on it. You can exchange it for other currency 
     at a fixed rate and for any good or service at a flexible 
     rate. But there is no established exchange rate between the 
     dollar and gold, either at home or internationally.
       The supply of money is not limited by the amount of gold. 
     Gold is just another good for which the dollar can be 
     exchanged, and in that sense is legally no different from a 
     gallon of milk, a tank of gas, or an hour of babysitting 
     services.
       Why, then, do people turn to gold in times like these? What 
     is gold used for? Yes, there are industrial uses and there 
     are consumer uses in jewelry and the like. But recessions and 
     inflations don't cause people to want to wear more jewelry or 
     stock up on industrial metal. The investor demand ultimately 
     reflects consumer demand for gold. But that still leaves us 
     with the question of why the consumer demand exists in the 
     first place. Why gold and not sugar or wheat or something 
     else?
       There is no getting away from it: investor markets have 
     memories of the days when gold was money. In fact, in the 
     whole history of civilization, gold has served as the basic 
     money of all people wherever it's been available. Other 
     precious metals have been valued and coined, but gold always 
     emerged on top in the great competition for what constitutes 
     the most valuable commodity of all.
       There is nothing intrinsic about gold that makes it money. 
     It has certain properties that lend itself to monetary use, 
     like portability, divisibility, scarcity, durability, and 
     uniformity. But these are just descriptors of certain 
     qualities of the metal, not explanations as to why it became 
     money. Gold became money for only one reason: because that's 
     what the markets chose.
       Why isn't gold money now? Because governments destroyed the 
     gold standard. Why? Because they regarded it as too 
     inflexible. To be sure, monetary inflexibility is the friend 
     of free markets. Without the ability to create money out of 
     nothing, governments tend to run tight financial ships. Banks 
     are more careful about the lending when they can't rely on a 
     lender of last resort with access to a money-creation machine 
     like the Fed.
       A fixed money stock means that overall prices are generally 
     more stable. The problems of inflation and business cycles 
     disappear entirely. Under the gold standard, in fact, 
     increased market productivity causes prices to generally 
     decline over time as the purchasing power of money increases.
       In 1967, Alan Greenspan once wrote an article called Gold 
     and Economic Freedom. He wrote that:
       ``An almost hysterical antagonism toward the gold standard 
     is one issue which unites statists of all persuasions. They 
     seem to sense--perhaps more clearly and subtly than many 
     consistent defenders of laissez-faire--that gold and economic 
     freedom are inseparable, that the gold standard is an 
     instrument of laissez-faire and that each implies and 
     requires the other. . . . This is the shabby secret of the 
     welfare statists' tirades against gold. Deficit spending is 
     simply a scheme for the confiscation of wealth. Gold stands 
     in the way of this insidious process. It stands as a 
     protector of property rights.''
       He was right. Gold and freedom go together. Gold money is 
     both the result of freedom and its leading protector. When 
     money is as good as gold, the government cannot manipulate 
     the supply for its own purposes. Just as the rule of law puts 
     limits on the despotic use of police power, a gold standard 
     puts extreme limits on the government's ability to spend, 
     borrow, and otherwise create crazy unworkable programs. It is 
     forced to raise its revenue through taxation, not inflation, 
     and generally keep its house in order.
       Without the gold standard, government is free to work with 
     the Fed to inflate the currency without limit. Even in our 
     own times, we've seen governments do that and thereby spread 
     mass misery.
       Now, all governments are stupid but not all are so stupid 
     as to pull stunts like this. Most of the time, governments 
     are pleased to inflate their currencies so long as they don't 
     have to pay the price in the form of mass bankruptcies, 
     falling exchange rates, and inflation.
       In the real world, of course, there is a lag time between 
     cause and effect. The Fed has been inflating the currency at 
     very high levels for longer than a year. The consequences of 
     this disastrous policy are showing up only recently in the 
     form of a falling dollar and higher gold prices. And so what 
     does the Fed do? It is pulling back now. For the first time 
     in nearly ten years, some measures of money (M2 and MZM) are 
     showing a falling money stock, which is likely to prompt a 
     second dip in the continuing recession.
       Greenspan now finds himself on the horns of a very serious 
     dilemma. If he continues to pull back on money, the economy 
     could tip into a serious recession. This is especially a 
     danger given rising protectionism, which mirrors the events 
     of the early 1930s. On the other hand, a continuation of the 
     loose policy he has pursued for a year endangers the value of 
     the dollar overseas.
       How much easier matters were when we didn't have to rely on 
     the wisdom of exalted monetary central planners like 
     Greenspan. Under the gold standard, the supply of money 
     regulated itself. The government kept within limits. Banks 
     were more cautious. Savings were high because credit was 
     tight and saving was rewarded. This approach to economics is 
     the foundation of a sustainable prosperity.
       We don't have that system now for the country or the world, 
     but individuals are showing their preferences once again. By 
     driving up the price of gold, prompting gold producers to 
     become profitable again, the people are expressing their lack 
     of confidence in their leaders. They have decided to protect 
     themselves and not trust the state. That is the hidden 
     message behind the new luster of gold.
       Is a gold standard feasible again? Of course. The dollar 
     could be redefined in terms of gold. Interest rates would 
     reflect the real supply and demand for credit. We could shut 
     down the Fed and we would never need to worry again what the 
     chairman of the Fed wanted. There was a time when Greenspan 
     was nostalgic for such a system. Investors of the world have 
     come to embrace this view even as Greenspan has completely 
     abandoned it.
       What keeps the gold standard from becoming a reality again 
     is the love of big government and war. If we ever fall in 
     love with freedom again, the gold standard will once more 
     become a hot issue in public debate.

     

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