A Sensible Path to Monetary Sanity

Money seems to be the forbidden topic in American politics. The Federal Reserve was this entity that none of the politicians seemed to care about or even understand. For years, neither of the major political parties in America ever even talked about it in an in depth way, until the 2008 campaign season, when Ron Paul made it a main focus of his campaign.

One will hear many libertarians that supported Paul talking about “ending the Fed,” but as any sensible person knows, this cannot happen overnight. A bill that instantly ended the Fed’s involvement in monetary policy and put the United States on a hard money standard would cause major market turmoil, and the last thing any of us want is another economic downturn. Also, nobody knows how a modern economy would react to such sudden and radical changes.

Ron Paul popularized the phrase “end the Fed,” and even wrote a book entitled “End the Fed.” While this sounds good as rhetoric, how can this be done without sending markets into chaos?

A sensible approach to this would be to allow currency competition. Repeal the laws restricting the use of gold and silver as legal tender, and allow the market to decide which currency it wishes to use.

This introduction of a new type of currency would allow the market to slowly transition, if it wishes to, to the new currency and away from the Federal Reserve Note. This is a good first step in restoring value in the people’s currency.

Gold and silver are much less inflationary compared to the fiat Federal Reserve Note, thus they keep their purchasing power, or may even go up in purchasing power. Also, because they keep their purchasing power, you can store them away and save them for retirement. In today’s world, only a fool would store away Federal Reserve Notes for retirement, so this forces people into more risky financial markets. These reasons make them very attractive as an alternative currency to the Federal Reserve Note.

This solution would render the Fed useless because it would have no control over the money we use, essentially ending it. Private currency minting companies would take over as currency creators, and the market would determine interest rates.

Now, maybe the market does not shift to the new currency and sticks with the Federal Reserve Note. What then? Well, nothing. That’s why this is a common sense approach to the issue. No harm has been done by allowing for competition. The only change is that gold and silver go from taxable investments to currency.

For further reading on monetary matters, I recommend Murray Rothbard’s “What Has Government Done To Our Money.”

Note: The solution I am recommending above is not a return to the gold or silver standard with the US Dollar. In this solution, private metal currencies would be minted and used in transactions instead of the Federal Reserve Note.