Thus far we’ve taken a look at Congressman Paul’s Foreign (Part 1) and Domestic policy positions (Part 2). Now we’ll explore the economy according to Ron Paul. Money, after all, is at the root of everything, and Paul’s largely libertarian positions on banking and currency are at the core of what defines his candidacy and differentiates him from others in both parties. Whether you agree with his proposals or not, Ron Paul has the distinction of being the candidate who’s actually done his homework on these issues. He knows how to answer the hard questions about the gold standard. His wonky answers on the economy in press accounts are often buried by more titillating fare, like quips about marijuana or Afghanistan.
Therefore, it’s important to understand just what it is he has in mind for the economy. In this article we’ll examine his views on the Federal Reserve Bank, Currency Standards, and Regulations. Remember, folks, these articles are overviews, not encyclopedic. If this interests you—and it should—you’ll want to do more research on your own. For most folks, regretfully, it’s as boring as watching grass grow.
Ron Paul’s message has been consistent since Day One: abolish the Federal Reserve, stop printing money and go back on a gold standard. It all sounds simple, but Paul knows it’s not. And if you read past the headlines and media sloganeering, his answers are nuanced in a way that demonstrates his understanding of the situation.
The False Prosperity of the Gold Standard
When you say the words “Gold Standard” most people assume that you are talking about U.S. Government currency backed by reserves of precious metals. In that reality paper money exists as a convenience, allowing consumers to make purchases without having to lug bars or coins of heavy metal around. Paul’s vision of returning to the gold standard involves a transition period to ease the economic shock such a transition would cause. After all, an immediate conversion from Federal Reserve currency (what we currently use) to a “pure” gold standard would immediately remove nine trillion of dollars from the economy. (Or raise the price of gold to $5k an ounce.) In recent years Ron Paul’s point of view has been modified somewhat to include a proposal that would peg currency value to a market basket mixture of commodities in place of simply gold.
The Paul point of view is driven by the fact that precious metals can not be completely devalued—a gold coin minted two thousand years ago still has value as a trading instrument—whereas paper currency only retains value as long as the entity that created it can maintain the illusion of its worth. Such currency is known as “fiat money”, meaning that its value rests solely on the government’s proclamation as to its value.
In the long term, the Congressman asserts that currency should be created by private industry and that trading in precious metals like gold and silver should be exempt from taxes, with the only proviso being that such currency and trading cannot be fraudulent.
Ultimately, this point of view is flawed due to the rapid evolution that is going on with the global economy. The Congressman’s position on sovereignty, i.e., “we can only solve our problems”, show the weakness in his policy. The problems of currency valuation are global in nature. Since many other economies have tied the value of their currency to the dollar, any act that affects the dollar may raise challenges for those nations.
One thing Paul is right about is that moving back to gold standard would have a strong limiting effect on the size and structure of the U.S. government. Programs like Social Security, for instance, would have to be phased out during any conversion period to a precious standard. Governments simply would not be able to afford it. In fact, government wouldn’t be able to afford much of anything. And that’s exactly the point. Why run for office declaring that you’re going to cut the services that many voters have come to expect when you can simply eliminate the financial basis for them? Why it’s even better than Proposition 13!
Globalization and the raw power of multinational entities (mostly corporations) are posing a challenge to the very existence of the Nation-State as we know it. I don’t pretend to have the answers here, but it seems to me that retreating into the shell of physically defined borders and proclaiming that the Constitution is carved in stone doesn’t seem like a very viable long-term strategy for any kind of prosperity.
The basic needs that a society has for any currency—domestic and international stability and a relative ease in being converted to goods—are the guides that we need to have in mind while viewing the issue of currency valuation standards going into the future. It’s also important to understand that a currency based on a “precious” value (whether it’s gold or a market basket) historically has a tendency towards devaluation, which means governments are inclined to dump “precious” standards in the face of economic challenges like war and recession. Ron Paul would have us believe that war will be gone should he be elected and that poverty can be reduced by the magical free hand of the market place. I think that’s a lot of wishful thinking.
The Federal Reserve Bank
“End the Fed” has become a popular slogan among occupistas around the country. Indeed, some commentators view this tendency as proof of the influence that Ron Paul’s followers have within the Occupy movement. Many of these folks, including Paul supporters have no idea of what the “Fed” is or does. All they know is that the Fed involves big money, big government and big banks, making it nice big target for people’s frustrations with the economy.
So let’s start out with what the Fed is: As the nation’s central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as “independent within the government.” Whoa. But wait! It gets better!
There are twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, which are organized much like private corporations. The Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.
Does all this make sense? Then we are forced to travel down conspiracy lane, because a big and powerful institution is ripe for theorists. If you work backwards on any of the claims from groups demanding the end of the Federal Reserve you will end up in a wonderland of paranoid fantasia: Judeo-Masonic conspiracies, the Bilderberg Group, the Council of Seven, the Rothschilds, the Illuminati… Wikipedia has a fascinating page on all these conspiracies, should you want to learn more. And if you’re traveling down the “right” side of this highway, as the Ron Paul folks certainly do, then you’ll find sources that prove these theories are always tied to various white supremacist and/or anti-Semitic groups.
My personal favorite among these is from Eustace Mullins, who tells of learning the secrets of the Fed from poet Ezra Pound,
In 1949, while I was visiting Ezra Pound who was a political prisoner at St. Elizabeth’s Hospital, Washington, D.C. (a Federal institution for the insane), Dr. Pound asked me if I had ever heard of the Federal Reserve System. I replied that I had not, as of the age of 25. He then showed me a ten dollar bill marked “Federal Reserve Note” and asked me if I would do some research at the Library of Congress on the Federal Reserve System which had issued this bill. Pound was unable to go to the Library himself, as he was being held without trial as a political prisoner by the United States government. After he was denied broadcasting time in the U.S., Dr. Pound broadcast from Italy in an effort to persuade people of the United States not to enter World War II.
Of course most Americans have forgotten that “political prisoner” Ezra Pound was Mussolini’s “Tokyo Rose” and an openly anti-Semitic fascist sympathizer. And it’s these key omissions that cloak the conspiracy theories of the right with a seeming aura of believability. Trust me, if you push a rabid Paul supporter for hard evidence of the Fed’s historical role, you’ll end up visiting Mullins’ work (if you’re lucky). One such argument that I had about the Fed with a Paul supporter turned out to be backed with quotes from “StormFront” a neo-nazi organization.
All of this is not to say that a case can’t be made for the Federal Reserve being an obvious collusion point for Big Government and Big Banks to the determent of those of us that live on the other side of the tracks from the 1%. Their records are mostly hidden from the public (Board meeting minutes are kept confidential for five years). And, although it’s hard to understand the meanings of all their moves during the 2008 financial meltdown, it is pretty clear that the welfare of ordinary people wasn’t at the top of their list.
So I’m willing to buy into the Federal Reserve as an instrumentality dedicated to making the rich richer and bureaucracies more odious. But spare me the conspiracy crap. Nobody cares except you and your buddies over at StormFront.
Ron Paul says the important thing to understand is that Federal Reserve created our economic problems. (Of course, we had a Fed during periods of high growth in the past, and the thing that really changed was how we regulate -or don’t- the financial sector, but no sense in trying to have that debate with Paul.) Paul promises that “he will lead the charge to end the dishonest, immoral, and unconstitutional Federal Reserve System, enabling America to take a giant step toward economic security, financial responsibility, and lasting prosperity.” We’re supposed to take it on faith that Congress won’t just turn around create an identical entity and call it something different like, say “Blackwater”.
Hi. I’m From the Government and I’m Here to Help…
Last, but not least, we must broach the slippery slope of Government Regulations. More lies get told in this genre than any other, save what people put up on those web dating sites about themselves. If you hear a story about how a little girl was forced to shoot her new puppy at close range with an uzi due to government regulations, trust me, it’s made up.
My personal favorite fable that I’ve come upon recently was actually from a Paul supporter who said something to the effect of saying that the Savings and Loan Crisis of the late 1980’s was caused by too much government regulation. As somebody who lost a business (in part—actually they seized my landlords assets, I just happened to be a poor schmuck in one of his properties) due to fallout from the S&L crisis, I think I remember that crisis well. I’ll let Wikipedia say it for me:
In 1979, the financial health of the thrift industry was again challenged by a return of high interest rates and inflation, sparked this time by a doubling of oil prices. Because the sudden nature of these changes threatened to cause hundreds of S&L failures, Congress finally acted on deregulating the thrift industry. It passed two laws, the Depository Institutions Deregulation and Monetary Control Act of 1980 and the Garn–St. Germain Depository Institutions Act of 1982. The deregulation not only allowed thrifts to offer a wider array of savings products, but also significantly expanded their lending authority. These changes were intended to allow S&Ls to “grow” out of their problems, and as such represented the first time that the government explicitly sought to increase S&L profits as opposed to promoting housing and homeownership. Other changes in thrift oversight included authorizing the use of more lenient accounting rules to report their financial condition, and the elimination of restrictions on the minimum numbers of S&L stockholders. Such policies, combined with an overall decline in regulatory oversight (known as forbearance), would later be cited as factors in the collapse of the thrift industry.
Show me a regulation that’s odious and not hiding behind some business or special interest group looking to cut corners and cheat the public and I’ll help you fight to get rid of it. But you’ll have to really prove your case, because it’s been my experience (all of it in the private sector, thank you) that most of these “stories” about regulations hurting businesses are made up. The really odious regulations that do exist out there are largely designed to protect large corporations and industries from new competition from smaller businesses. It’s my opinion that Ron Paul is no different than any other politician in this area—he’s playing on people’s fears and fantasies to get elected.
Finally, let me take one parting shot at the folks who’ve written in claiming that we’re part of the cabal that wants more government all the time. My impression is that Ron Paul is running on the premise that government is bad; that individuals can and should do a better job of addressing society’s problems. I say neither statement (gov’t is bad or that individuals are inherently better when free) is true. I’ll go further and say that I think the day of the “Nation-State” as we’ve come to know it is coming to an end in the not-so-distant future. Does this mean World government? I don’t think so. Given how complex and unpredictable humans are the only thing I’m know for sure is that it won’t be what either one of us thinks it will be.