Since its inception, the Federal Reserve’s monetary policies have led to a decline of over 95% in the purchasing power of the U.S. dollar. As a result, there have been several attempts to reduce or even eliminate the Federal Reserve’s powers.
Louis T. McFadden led efforts in the 1930s. Wright Patman pressed again in the 1970s. Henry Gonzalez got things moving in the 1990s. And, Ron Paul has led the charge for more than twenty years now. In nearly eighty years, though, none of these efforts have succeeded.
And, even with House passage of Ron Paul’s Audit the Fed bill earlier today, it’s highly unlikely that the imperial Senate would ever allow light to be shed on the actions of its financial backer. Resistance to these efforts is seriously entrenched.
But yet, a large number of people across the political spectrum want to know what goes on behind the Fed’s curtain. And with calls to audit the federal reserve reaching a fevered pitch, it’s a good time to ask the basic question – is this even a worthy effort?
Not to say that you should want a secret national bank, but rather – is this kind of activism the best place for you to put your energy…and hope? Will lobbying the Senate get Harry Reid to allow a vote? Will calling Mitch McConnell change anything? Will Barack Obama or Mitt Romney allow such a bill to pass without their veto?
I believe the answer to all these questions is a big, fat NO.
PULLING THE RUG OUT
On the other hand, in contrast to attempts to put a stop to the Fed at the national level, a paper that William Greene presented at the Mises Institute’s “Austrian Scholars Conference” proposes an alternative approach to ending the Federal Reserve’s monopoly on money. The “Constitutional Tender Act” is a bill template that can be introduced in every State legislature in the nation. Passage would return each of them to the Constitution’s “legal tender” provisions of Article I, Section 10:
“No State Shall…make any Thing but gold and silver Coin a Tender in Payment of Debts”
Such a tactic would achieve the desired goal of abolishing the Federal Reserve system by attacking it from the bottom up – pulling the rug out from under it by working to make its functions irrelevant at the State and local level.
Under the Constitutional Tender Act, the State would be required to use only gold and silver coins – or their equivalents, such as checks or electronic transfers – for payments of any debt owed by or to the State. This includes things like taxes, fees, contract payments, and the like.
All such payments would be required to be denominated in legal tender gold and silver U.S. coins, including Gold Eagles, Silver Eagles, and pre-1965 90% silver coins. The market would then require that all State-chartered banks – as well as any other bank acting as a depository for State funds – offer accounts denominated in those types of gold and silver coins, and to keep such accounts segregated from other types of accounts such as Federal Reserve Notes.
But that’s not all! Not only would the use of Federal Reserve Notes by the State be made illegal; the use of legal tender U.S. gold and silver coins would be encouraged amongst the general population too – by eliminating sanctions against its use.
HOW IT PLAYS OUT
Passage of the Constitutional Tender Act would introduce currency competition with Federal Reserve Notes by outlawing their use in transactions with the State. Ordinary people, being required to pay their State taxes in gold and silver coins, would find it necessary to conduct some transactions with metal – including the use of checks and debit cards based on bank accounts denominated in such coins
All businesses operating within the State, being required to pay their State sales taxes and license fees in gold and silver coins, would need to do the same. Most importantly, though, in order for businesses to acquire the amount of gold and silver needed, they find it necessary to offer their goods and services in “dual currency” denominations, where customers could choose to pay in Federal Reserve Notes or gold and silver coins.
This kind of “bottom up” approach to ending the Fed will have a greater likelihood of success than the “top-down” approaches we’ve seen over the years for two major reasons:
1. The top-down approach has been an utter failure. While it has succeeded greatly in an educational role, it has simply not worked tactically.
2. It’s decentralized. Political opposition won’t be as strong or well-funded on a state level. Strategies and tactics can be adapted much quicker. And, most importantly, success in one state can be a far greater educational tool – and a source of courage – for people of a neighboring state, than endless calls to a Congress which almost never does what’s right.
Greene tells us that use of sound money would drive further use. He writes:
“Over time, as residents of the State use both Federal Reserve Notes and silver and gold coins, the fact that the coins hold their value more than Federal Reserve Notes do will lead to a “reverse Gresham’s Law” effect, where good money (gold and silver coins) will drive out bad money (Federal Reserve Notes). As this happens, a cascade of events can begin to occur, including the flow of real wealth toward the State’s treasury, an influx of banking business from outside of the State – as people in other States carry out their desire to bank with sound money – and an eventual outcry against the use of Federal Reserve Notes for any transactions.”
Once things get to that point, Federal Reserve notes would become largely unwanted and irrelevant for ordinary people. Nullifying the Fed on a state by state level is what will get us there.
Without a single act of Congress, the Federal Reserve system can be brought to its knees.