(This item originally appeared at Forbes.com on November 15, 2024.)
President Wilson enacted the Federal Reserve Act in 1913. This allowed a consortium of private bankers to establish what amounted to a central bank monopoly currency issuer in the United States — although they took great pains to deny that was the goal. The Federal Reserve was never part of the government. It was the fourth attempt by private bankers to establish a monopoly currency issuer in the United States.
The third attempt was the Second Bank of the United States. It began in 1819 and became the dominant currency issuer in the US. In 1841, president Andrew Jackson led the effort to decharter the Second Bank. The incipient central bank was shut down, and the United States returned to its previous monetary arrangement, of hundreds of small currency issuers whose banknotes were redeemable in gold coin. This worked well enough; and in the years between 1841 and 1913, even despite a terrible Civil War, the United States became the wealthiest country in the world, with one of the world’s most reliable currencies.
President-Elect Donald Trump recently floated the idea of eliminating the Income Tax, perhaps in favor of a better alternative like a Value Added Tax. Before the Sixteenth Amendment was passed (by Wilson) in 1913, the United States had no income tax. It was actually banned by the Constitution. In 1895, the Supreme Court struck down the US’s first peacetime income tax, passed in 1894.
Recently, Trump also floated the idea of ending the Federal Reserve, even asking Mr. End The Fed himself, retired Congressman Ron Paul, to help advise on the issue. After more than a century of experience, can we now say that the “progressive” changes of the Wilson era were a mistake? I think we can.
Both the income tax and central bank were advocated by Karl Marx, as part of his plan for world communism.
The Federal Reserve Act of 1913 specifically mandated that Federal Reserve Notes (the paper currency we use today) would be redeemable in gold coin, and would keep a value equivalent to gold coin. This had been US policy since 1789. And in fact the Federal Reserve had a pretty good history of sticking with this mandate, until the floating currency era began in 1971. The one major flaw, the dollar devaluation of 1933, was entirely an act of executive privilege by the Roosevelt administration. Even into the 1990s, the Federal Reserve was headed by a longtime gold standard admirer, Alan Greenspan.
But the Federal Reserve today seems unreformable, rejecting even one person among its thousands of PhD-bearing busybodies that supports the old (and extremely successful) principle of a dollar based on gold. Trump appointee Judy Shelton was rejected by the Senate, with strong approval from the Federal Reserve.
So maybe it is time to get rid of the thing. How would we do that?
I actually have a whole chapter about that in my second book Gold: The Monetary Polaris, which is now available in free pdf. format. But, to summarize, we do more or less the same thing that Andrew Jackson did in 1841. Then, the United States returned to a system of many independent issuers of gold-based currency. In the 1850s, these took the form of banknotes. We can still do banknotes today, but I think it is much more popular to devise some kind of digital platform, such as already exists with Lode, Kinesis, Glint, or the United Precious Metals Association; or other crypto tokens including Tether Gold or Pax Gold. Even a big commercial bank, such as Bank of America, could easily set up “gold based checking accounts” denominated in grams of gold, and which have all the functions of regular dollar checking accounts. All of the infrastructure is already in place. These reportedly already exist in Russia.
We could even have both gold-based currencies, and the existing fiat dollar, alongside each other. This is known as a “parallel currency,” and it is already the common situation today in many countries, where there is a low-quality domestic fiat currency (such as the Mexican peso), which tends to steadily lose value, and some better-quality international currency (such as the dollar or euro), which is also used simultaneously.
This is an attractive option since it does not require some dramatic “day of transition.” We can just let people use whichever they like. In time, and especially if the US dollar itself becomes about as reliable as the Mexican peso, people will not only buy and sell with some gold-based alternative, but also borrow and lend in gold. Because, who wants to loan money when the value of money depreciates? (Ask a Mexican.)
In 2012, Ron Paul invited me to speak before the House Financial Services Committee, Subcommittee on Domestic Monetary Policy, which he chaired at the time. In 2012, crypto experiments were just getting started, and the tone of discussion had a greater focus on banknotes. Today, we’ve all become pretty familiar with app-based platforms.
Probably the easiest and best way to move toward these goals, is to remove all the obstacles to transacting in gold as a currency. Mostly these are in the form of taxes, such as capital gains taxes and sales taxes; but also includes other regulations, such as transaction reporting. Over 40 States have already enacted some form of “Sound Money legislation” which removes such obstacles. But the big goal is to remove these obstacles at the Federal level, as Representative Alex Mooney (R-WV) intends to do. In time, the Federal Reserve might simply become irrelevant, as nobody wants to use its funny money paper anymore.
Much of the rest of the world — the BRICS — is already in the process of making the Federal Reserve irrelevant, at least for them. They are “dedollarizing.” We too, in the United States, are getting a little tired of the “PhD Standard.” We can End the Fed.
It wouldn’t be the first time.
