- In the House of Representatives, September 10, 2002
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- 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.
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- 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.
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- 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.
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- 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.
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- 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.
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- 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 the American standard of living via an inflationary monetary policy.
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- 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.
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- 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.
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- 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.
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- 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.
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- 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.
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- 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.
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- 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.
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- 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?
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- 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.
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- 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.
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- 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.
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- 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.
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- 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 ñ perhaps more clearly and subtly than many consistent
defenders of laissez-faire ñ 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."
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- 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.
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- 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.
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- 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.
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- 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.
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- 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.
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- 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.
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- 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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- Dr. Ron Paul is a Republican member of Congress from
Texas.
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