How to move to free banking

We live in a democracy that has turned into a worldwide empire which has been funded by the money creation magic of the Federal Reserve System since the early 20th century. This counterfeiting operation allows for the debasement of the public’s money at the whim of the politicians in charge. This system also allows for the USA to field men and material any place on the planet to fight against any foe, real or imagined. To end the wars, to end the continuing boom/bust cycle, to end the impoverishment of the people, and to regain a measure of freedom we must end the Fed. Entire books have been written on why we should end the Fed. Read some Murray Rothbard or Ron Paul to see arguments for the abolition of the Fed. Today I just want to speak to a political plan to end the Fed.

If we suddenly found ourselves living in a libertarian laissez-faire  world then our answer might be one thing, and if we found ourselves living in a market anarchy where the non-aggression axiom ruled then our answer might be another thing. But we live in an empire and I want to discuss how this empire might end the Fed without a major violent or non-violent revolution. If the people of the US came to realize that the Fed was hurting them in many ways and that the time had come to unwind the Fed and the cartelized banking system; we would need a method to do so. That seems impossible in some ways, but it has been discussed in many places by many economists.

First, there is the debased money system of today.

The essence of a gold standard is that the monetary unit (the “dollar,” “franc,” “mark,” etc.) is defined as a certain weight of gold. Under the gold standard, the dollar or franc is not a thing in itself, a mere name or the name of a paper ticket issued by the State or a central bank; it is the name of a unit of weight of gold. It is every bit as much a unit of weight as the more general “ounce,” “grain,” or “gram.” For a century before 1933, the “dollar” was defined as being equal to 23.22 grains of gold; since there are 480 grains to the ounce, this meant that the dollar was also defined as .048 gold ounces. Put another way, the gold ounce was defined as equal to $20.67.

The “dollar” today would have to be re-defined to mean a certain number of gold ounces. It would be far less than 23.22 grains of gold, but simple arithmetic would suffice to calculate whatever the number should be in this modern age. Since the democratic administration is printing money by the boatload today there is no reason to run the numbers. When we get serious then it would be require stopping the creation of new money out of thin air and then the calculations necessary to convert to a gold standard without destroying the present economy or causing any more pain than necessary could be performed.

The Federal Reserve System will need to be liquidated and so we will need to pay off its debts. This means buying back all dollars with some amount of gold or other commodity money. Gold makes the most sense since the USA has gold that was supposed to be backing the money in circulation in the first place. So, we can select a new definition of the “dollar” sufficient to pay off all Federal Reserve liabilities at 100 cents to the dollar. As stated above, this is a simple arithmetic calculation. It might be that we have to make the definition of a dollar such that it is equivalent to gold at $4,000 per once. If so, then so be it. With such a redefinition the entire Federal Reserve stock of gold could be minted by the Treasury into gold coins. These gold coins could replace the Federal Reserve Notes now in circulation. In transition the banks could hold Federal Reserve Notes knowing that they are convertible upon demand at the treasury for physical gold — after all it will take the treasury some time to mint all those coins. The US could issue Treasury Notes for the gold to replace the Federal Reserve Notes if that was more acceptable by the public. Under this plan the return of the gold standard, the abolition of the Federal Reserve, and the abolition of the FDIC would all be accomplished simultaneously to the betterment of the citizens of the USA.

But what about “fractional reserve banking” I can hear you ask. No bank would have any “FDIC Insurance” to back it and its ability to lend money that it does not have would be greatly curtailed by the people themselves who would choose “reputable” banks and institutions. Many other market forces come into play, but this essay is not the place to discuss them all. Suffice it to say that the end of the Fed would greatly improve the actions of the private banks since there would be no government bank just for bankers.

As Murray Rothbard once observed:

Inflation, credit expansion, business cycles, heavy government debt, and high taxes are not, as Establishment historians claim, inevitable attributes of capitalism or of “modernization.” On the contrary, these are profoundly anticapitalist and parasitic excrescences grafted onto the system by the interventionist State, which rewards its banker and insider clients with hidden special privileges at the expense of everyone else.

Crucial to free enterprise and capitalism is a system of firm rights of private property, with everyone secure in the property that he earns. Also crucial to capitalism is an ethic that encourages and rewards savings, thrift, hard work, and productive enterprise, and that discourages profligacy and cracks down sternly on any invasion of property rights. And yet, as we have seen, cheap money and credit expansion gnaw away at those rights and at those virtues. Inflation overturns and transvalues values by rewarding the spendthrift and the inside fixer and by making a mockery of the older “Victorian” virtues.

And end to the Fed would be a major step in the right direction of bringing the government under control. It would not solve everything of course, but this would be a major step toward liberty.