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Federal Reserve and the Constitution

January 15, 2010 in Money by Greg | 1 comment

Congressman Ron Paul (R-Texas) wrote about the role of the Federal Reserve in relationship to the Constitution. After providing a brief U.S. history lesson of the debate over paper money, its attendant danger of inflation, and the role of a central bank in society, he wrote:

Federal Reserve global tentacles The lack of respect for the Constitution even in the nineteenth century set the stage for the Federal Reserve Act of 1913. Fear, misinformation, and ignorance allowed government to ram bad policies down the throat of the American people. This is not unlike giving the president authority to go to war and to bail out those least deserving help in an economic crisis. The rationalization that the state’s interest supersedes the interests and the rights of the people is embedded in the arguments as to why the American people had to go along with those who hate commodity money and love central banking.

The Fed was established as a result of the public and banking clamor for an elastic currency, and an elastic currency is nothing more than one that can be arbitrarily increased in volume at the discretion of the monetary managers. Sometimes they argue over who exactly will have the authority to do so, the central bank or Congress or private banks themselves. Increasing the supply of money and credit is the proper definition of inflation, meaning that when the demands were heard for an elastic currency, all they were looking for was a legal right to inflate the currency for the benefit of whatever special interests they were concerned for at the moment.

Noble intentions are always used to justify the inflation, but the real reasons are far more sinister. Those who get the control over the money are the beneficiaries, not the people as a whole.

Economist John Maynard Keynes, before he became the champion of inflation, wrote quite correctly of the grave danger of inflation. Like Greenspan, he changed his tune as the years moved on. Keynes stated in his book The Economic Consequences of the Peace:

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.1

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  1. John Maynard Keynes, The Economic Consequences of the Peace (New York: Harcourt, Brace, 1920), pp. 235-236.↩

American Welfare State

November 14, 2009 in Socialism by Greg | 28 comments

A couple weeks ago, I came across an article written about the effects of the American welfare state.1 Its provocative title immediately caught my attention since it seemed related to previous posts.2

Greetings from the Welfare State The article is a review of Edgar K. Browning’s Stealing from Each Other: How the Welfare State Robs Americans of Money and Spirit. Mr. Browning is a Research Fellow at the Independent Institute and Professor of Economics at Texas A&M University. His analysis of the welfare state is based on the economic concept of opportunity cost. First developed by John Stuart Mill, the economic opportunity cost is the value of the next best alternative foregone as the result of making a decision. Accordingly,

What do we give up by the choice to have the federal government engage in widespread income redistribution?

Browning’s answer is: a great deal of output. He estimates that U.S. GDP would be at least 25 percent larger if it weren’t for the host of programs and taxes constituting the welfare system. He regards it as a bad tradeoff and makes a powerful case for abolishing federal income transfers and adopting a “just say no” policy toward any suggestions for more of them in the future. (Browning is fine with states’ running whatever welfare programs they want; he respects the Constitution’s federalist plan.) “A non-redistributive federal government,” he writes, “would permit more of the productive potential of the American people to be realized.”

Based on this premise, the welfare system causes the economy to lose output in a number of socially destructive ways. Some of these include:

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  1. Leef, George C. “Robbery and the Welfare State”. 28 Oct 2009. The Future of Freedom Foundation. 14 Nov 2009.↩
  2. See for example, the many similarities between Leef’s article and the themes presented in the post on the Gadianton Robbers.↩

Great Depression and Current Recession Compared

October 9, 2009 in Economics by Greg | 1 comment

Earlier this week, Robert Higgs, Senior Fellow in Political Economy at The Independent Institute, spoke about the similarities and differences between the Great Depression and the current recession at the Economic Liberty lecture series. Although he finds considerable differences between the two events, he feels there are only a few similarities between the Great Depression and the current recession.

Below are my notes of his presentation.

http://www.vimeo.com/6966224

There are some similarities as well as differences.

The media and journalists have rushed to see these similarities.

I was shocked.

The Great Depression was so much more horrible, devastating, than the current recession.

They were using this talk to sell some type of policy to the people who look to the government for answers.

I don’t feel the two events are fully comparable.

People would be much happier living through today’s recession than during the Great Depression.

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Hyperinflation Video

October 1, 2009 in Money by Greg | 11 comments

Over the course of the last year, readers of this blog are aware that the United States has strayed away from the firm monetary policy1 as outlined in the U. S. Constitution.2

The following video is part one of a three part series about the history – as well as the causes and effects – of hyperinflation. Although it is somewhat partisan, the video provokes a discussion about the competing forces over control of U. S. monetary policy.

Since 1913, the same year the Federal Reserve Act was enacted3, the dollar,

. . . has lost 96% of its purchasing power due to inflation. A common misconception today is that prices for goods and services have been going up. The truth of the matter is that prices have remained nearly the same in precious metals terms; it is the value of the dollar that has declined. It simply takes more and more dollars to buy the same products, since the dollar’s value has become less and less. Gold and silver were scrapped as a “control” mechanism for our economy, and ever since, we have been circulating a “robust paper” in place of real money. This “robust paper” is now the world’s reserve currency in central banks. From 2002 – 2005, the U.S. dollar lost over 40% of its value to the Euro, and had similar losses to other major currencies of the world.”4

As the government continues its inflationary policies based on Keynesian economics5, China and other nations continue to push for replacing the dollar as the international reserve currency.6

YouTube Preview Image

How should the U.S. solve its insolvency problem? (Pun intended.)

Sources:

  1. Money.↩
  2. Gold and Silver Coin as Tender in Payment.↩
  3. Federal Reserve Act”. Wikipedia. 1 Oct 2009.↩
  4. “U.S. Dollar”. First National Bullion. 1 Oct 2009.↩
  5. Keynesian Economics and Savings.↩
  6. Dollar as Reserve Currency. See also, Goldstein, Matthew. “Q=A – Replacing the Dollar as the Reserve Currency”. 8 Jul 2009. Reuters. 1 Oct 2009.↩

End the Fed

September 16, 2009 in Money by Greg | 10 comments

The New American, the self-proclaimed “essential news source for freedom-loving Americans”, recently reviewed Congressman Ron Paul’s book End the Fed. According to the report,

We_Can_Do_ItThe . . . eleven-term congressman from Texas has spent a long political career promoting liberty and limited constitutional government as the American Founders understood them and exposing the mischief at the Federal Reserve. With the unexpected success of his presidential campaign and his recent best-selling manifesto on liberty, Dr. Paul’s uncompromising, consistent, and thoroughly principled stances on limited, constitutionally legitimate government are well known around the world. Now, thanks to End the Fed, his views on paper money, fractional-reserve banking, and the Federal Reserve and its manipulation of the money supply are summarized for a mass readership.1

In the book, Congressman Paul states:

Everyone should have an intense interest in what money is and how it’s manipulated by the few at the expense of the many. Money is crucial for survival. It is necessary for maintaining a free society. A healthy economy depends on it. Limiting political power is impossible without it. Sound money is essential for preventing unnecessary wars. Prosperity and peace in the long run are impossible without it. To understand money, one absolutely must understand what a central bank is all about.

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  1. Scaliger, Charles. “A Review of ‘End the Fed’ by Ron Paul”. 14 Sep 2009. New American. 14 Sep 2009.↩

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