Book Review: Ron Paul’s End the Fed Condenses a Lifetime of Wisdom and Experience
May 15, 2014
(This item originally appeared at Forbes.com on May 15, 2014.)
Ron Paul is now retired from professional politics, leaving a need for at least one Congressperson who you feel isn’t fundamentally BS-ing you. Oddly, he found a lot of political support for his unfashionably libertarian plain-speaking. People apparently found it more appealing than the usual favors-for-votes propositions upon which most politicians base their careers. In the end, he basically had to fire himself, declining another run for office at age 77.
Much of his extraordinary term in office revolved around the topic of money, which itself is remarkable. As Paul recounts in his 2009 book End the Fed:
“I have for years sensed a total disinterest in monetary policy by members of Congress as well as members of the Financial Services Committee. … What the Fed and paper money have done for Congress is lead legislators to believe that there are no limits on what they can spend, on what they can propose, and what they can accomplish. They really do behave like college students on spring break who are using their parents’ credit cards with no limit. They don’t think about the money. they don’t think about who or what is paying the bills. The ability to do what they want is just taken for granted. They aren’t even interested in looking into the accounting books. But they would hit the roof if the card were ever declined.”
This attitude is reflected in statistics: with the advent of floating fiat currencies in 1971, not only the U.S. but most developed world governments started running deficits in peacetime for the first time. At some basic level, politicians figured that the “central bank would bail them out” with some kind of money-printing. It was all funny-money in the end. It took a while, but Paul says the era of reckoning is upon us now, and indeed the Fed and other central banks are quite busy today either propping up sovereign bond markets that freely-acting investors had abandoned (Europe), or rather forthrightly engaging in printing-press finance (U.S. and especially Japan).
Paul even traces this trend back to World War I, which followed soon after the introduction of the Federal Reserve in 1913 and similar central banks worldwide patterned on the Bank of England. The centralization and monopolization of currency issuance in the late 19th century allowed governments to finance the war at least in part via the printing press, with this process led by Britain, the U.S., Germany, France and others. Paul thinks that fact was one cause of World War I to begin with. Governments thought that, with the printing press on their side, they could attempt another round of Imperial land-grabs.
End the Fed is a personal account, with chapters on “My Intellectual Influences,” “The Gold Commission” (which Paul participated in during 1981-1982), “My Conversations with Greenspan,” and “My Conversations with Bernanke.” His daily exposure to the sausage-factory of Congressional policymaking has given him some insights that I think are particularly interesting.
Despite the difficulty of many of these topics, Paul found that popular support was high.
“[After a Republican primary debate in 2007,] I was able to speak to more than 4,000 students in the quad at Ann Arbor. …
When I mentioned monetary policy, the kids started cheering. Then a small group chanted, ‘End the Fed! End the Fed!’ The whole crowd took up the call. Many held up burning dollar bills, as if to say to the central bank, you have done enough damage to the American people, our future, and to the world: your time is up.”
People know. Even people aged 18-21. But, they need someone to put it into words.
I’ve talked about the need for a “shelf of books,” that are contemporary and correct, and which can serve as the conceptual foundation for whatever monetary system may eventually replace our present arrangements. No old books and no books that are so full of fallacy as to be unusable, no matter how well-meaning the authors may have been. People actually understand these things significantly better today than was the case in the 1960s and 1970s, although unfortunately that improvement has not been well documented in print.
One reason why we still have floating currencies today is that people just didn’t understand these things at all in the 1970s. You would think that after twenty years of extraordinary prosperity during the 1950s and 1960s with the Bretton Woods gold standard arrangement, and a decade of inflationary disaster in the 1970s with floating fiat currencies, that people in the U.S. might have been a little favorable toward the Classical (gold-based) monetary approach that the U.S. had pursued for the previous 182 years. Nope. Paul recounts his experience at the 1981 Congressional Gold Commission:
“Henry Reuss, chairman of the House Banking Committee, attended one meeting and left in a rage. He couldn’t stand one minute of serious consideration of the importance of gold.”
That was a typical response from other supposedly knowledgeable people at that time. The ignorance of that era is breathtaking — especially considering that the U.S.’s gold standard era had ended only ten years previous.
I’ve added End the Fed to my personal “shelf.” I might quibble with some of the details and historical interpretations — particularly regarding some of the nitty-gritty procedures of how to set up and run gold-based currencies, my personal area of focus — but that is not particularly important. End the Fed provides a big-picture view, of how rotten money leads to rottenness throughout government and society as a whole. And, it does so in an accessible way, from someone who has seen it happen first-hand over decades.
Paul argues that the present system may disintegrate before too long — indeed, he doesn’t expect much positive progress in monetary affairs until then. The understanding in this book helps insure that the next phase of the long evolution of humans and money won’t suffer from the failings of the post-1971 floating-currency system, or, for that matter, the flawed Bretton Woods gold standard arrangement that preceded it. The stupidity of Henry Reuss in 1981 would seem … as stupid as it actually was.
When the time again comes to discuss the topic of Classical and Mercantilist approaches to money (in practice, gold-based or floating fiat money), it would be nice if people at least understood what they are talking about.