Why the Founders Rejected a Central Bank
The Latin term “fiat” roughly translates to “there shall be”. When we refer to fiat money, we are referring to money that exists because the government declares it into existence. It is not based on production or earnings, and not backed by any commodity. It is solely based on trusting the government.
Fiat money is exchanged in the economy as long as there is faith in the government that issues it.
Some are blaming the recent shakeup in the markets to “whining” or financial fear-mongering, which misses the whole point. History has shown that fiat money, or “faith-based currency” always fails, because when governments claim this power, they always behave irresponsibly.
When government has the ability to create and spend all the money it wants, priorities shift, and the concept of budgeting, as most Americans know it, loses all meaning. Hand a teenager a credit card, and tell him there is no limit and no accountability for what he spends, and the effect would be the same. You see, this problem is not unique to our government.
It is a predictable outcome based on human nature, and we’ve seen variations of what we are experiencing now happen over and over throughout history. I didn’t have a crystal ball or a fortune teller when I predicted this 3, 7, or even 30 years ago. Actions have logical consequences. The government becomes the reckless teenager with the credit card, and in the end, the taxpaying citizens get the bill. What happens after that is never pretty.
This is why our founding fathers considered, but decidedly rejected the creation of a national central bank. They understood that governments, even the best of governments, cannot control spending. Even the current administration, which promised strict fiscal responsibility, has had to increase the national debt limit by 65 percent to keep up with its spending sprees.
Every dollar created and spent by government makes the dollars in your pocket worth less and less. Eventually any currency controlled by government will be debased to worthlessness, and will wipe out the savings of the citizens who put faith in that currency.
Hard currencies, on the other hand, force governments to remain in check, strictly limited to the revenues they can raise from the country’s economic health. This is also an incentive for government to stay out of the way of productivity. The hyper-regulation in today’s economy demonstrates that this is no longer the case. What does it matter if the economy is crippled and the tax-base eroded, if government can create whatever dollars they need to keep the special interests happy?
We have been building economic castles on the sand, and the tide is coming in. The answer is not to bring in more sand, but to move to more solid foundation.
So yes, it is true that many are complaining about our economic trouble, but our economic trouble is not caused by their complaining. Many are being forced to wake up to the predictable troubles associated with faith-based currency. As more people notice the hardships, more will lose faith.
We are long overdue for a course correction and I can only hope that this awakening translates to a solid approach to currency reform.
Ron Paul is a republican member of congress from Texas.
(36 votes, average: 4.5 out of 5)
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Faith-based currencies also create the illusion of wealth, encouraging everyone to procreate beyond the ability of the world’s actual resources to support. This is why the world’s population has sextupled in the last 50 years.
In this article, Ron Paul argues there isn’t a check against the printing of new money by the government. This is the current case in Zimbabwe, where the inflation rate is somewhere between 1-2 million percent over the last year. However, the same experience has not occured in the US. US inflation rates have hovered in same range of 2%-4% for the past 60 years - save for a few years during the Depression, WWII, and the oil crisis of the late 1970’s. Empirical evidence suggests that “fiat currency” can be controlled by the government.
Ron Paul does mention that government spending has increased 65%. Many would agree that this spending is a major cause for alarm, however; it is not our central banking system that is the cause of this. Budgets are passed by Congress and the President, not by the Fed. Perhaps instead of attacking our currency, we should instead be looking for a path toward a more responsible national budget.
Truer words have never been spoken, Dr. Paul. We drastically need an economic shift in this country. I look forward to attending the events you have scheduled in September to show the major political parties we mean business when it comes to our ideals.
In late 2000, I purchased gold coins for less than two hundred fifty dollars fiat currency each. By the end of 2007 the same items sold for just under one thousand fiat currency dollars.
Was there a supply demand issue on these items? I think not. Just the horrendous increase in supply of the currency itself.
Using this example, the erosion of purchasing power is directly related to the money supply of Federal Reserve Notes. Think about the local price of bread, milk and fuels. Now think about the earnings of our labor. Fiat currency in circulation is the reason, in my opinion.
> This is why the world’s population has sextupled in the last 50 years. - Brianary
World Population in 1955: 2,755,823
World Population in 2005: 6,453,628
1955 Population sextupled: 16,534,938
Sextupled is grossly inaccurate, but you could say it’s been multiplied by 2.5x in the last 50 years and be roughly spot on.
Source: UN report 2004 data (http://www.un.org/esa/population/publications/sixbillion/sixbilpart1.pdf)
The rate of inflation as you believe it to be is “fed” to you, and is calculated differently than it was 10 years ago. Some statistics aren’t trustworthy.
thank you Dr Ron Paul
Nicholas, central banks (the fed) is the cause becuase it has the authority to print money, loan it to the government, and collect massive interest payments each year, untaxed and unaudited.
If there were strict controls over money, the government could not spend more than it has.
Right now, every american is paying through taxes and inflation (gas prices etc) because the fed prints money. you inflation figures are way off by the way…you are quoting the government statisics! real wealth is declining rapidly, and hidden by government statistics.
Brainary, that is completely false. According to sociological research, lower income people are much more likely to have more kids over their lifetime. The wealthier you are, the less likely you are to have children at all, and if you do, at lower numbers. This is most likely influenced by education level, access and awareness of birth control, and time spent on building a career. The world population explosion is not coming from wealthy countries.
Wen,
You wrote that “Right now, every american is paying through taxes and inflation (gas prices etc) because the fed prints money.” This isn’t true. The “because” should read, because the government has spent more money than it has available.
If a government needs money, there are several ways to get it. One is to print more money. Another is to borrow from private banks. Another is to borrow from other countries, borrow from organizations like the IMF or World Bank, etc, etc. All evidence points to the conclusion that our overspending was fueled by borrowing from other places, and not by printing more money.
The central banking system is not the problem. It is simply one of many means to an end. The real problem is overspending. If we truly want to solve the problem, we’ll support a fiscally responsible budget.
So how do we change the behavior in Congress? Each state would have to elect people that were of the same mindset as we are. What are the chances a state could fully populate their reps and senators with like minded people within their lifetime. Do you think if only a few were like minded that they could change the mob (congress)? No. More likely that they too would become corrupted. Now replicate the effort for the several States. The “correct way” to change the system would appear to be ineffectual. So how do we do it? Like we did it before? Via Revolution? All I see are descriptions of the problems and analysis of the symptoms. Its all fine to make people aware but what do you leave your children? Our brainwashed children. This machine was supposed to be left to our posterity. But the machine is beyond its creators means of control.
M. Harvey, no need to be so distraught. I think I can help…
First, there’s no need for everyone to be of a similar mindset for a change in the system to occur. Take a look at laws that warn about smoking dangers. When those past, a lot of Congressmen from tobacco-producing states objected. Strongly. Yet despite differences in mindsets, here we are: educated about the dangers of smoking!
Second, most of us are already of a similar mindset. I dare you to find a single Congressman who doesn’t support fiscal responsibility.
To achieve responsible government spending, we simply need to make fiscal responsibility a government priority. Tell your legislators that its an important issue. When they vote to increase spending in ways they shouldn’t, write a letter and tell them. And do it before posting a second comment (I’ve already written my Congressmen).
Good luck!
Dr. Paul’s headline “Why the Founders Rejected a Central Bank” is misleading. Alexander Hamilton, the primary author of the Federalist Papers, and George Washington’s Secretary of the Treasury, was a proponent of a central bank, and Washington, John Adams, and many other Federalists would have gone along with him. Also, the much-loved-by-the-Founders colonial scrip was in fact a fiat money that the Founders invented as a solution to the problems of the gold- and silver-backed monies of Europe.
If there is no need for everyone to be of a similar mindset then all republicans should have the same mindset as Mr. Paul. They don’t. In fact, most republicans tend to push Mr. Paul and his ideals into the attic and claim he is a bit off. Without people with the ideals in office this will not change.
We have been forced to extend the bounds of the constitution.
The tobacco subject is a bit out of the subject area. This was a legal challenge where a class of citizens were being affected by another class. There was a clear who harmed whom situation. Penalties were fines and mandatory warning labels. Well within the scope of the Federal courts.
You speak as if you are a Congressman. Since you state that “most of us are already of a similar mindset” and then daring me to find a single Congressman who doesn’t support fiscal responsibility. Its not quite about fiscal responsibility. The actions of the past obligate the current to continue to spend. So long as we are obligated to spend we might as well add spending for …
Are you ignorant of what actually happened to the USA during the civil war? Congress had to manipulate the bounds of the constitution in order to integrate all those people that the constitution did not apply to. Then pledged the US military to support and maintain their freedom forever. A new class of citizen was created and laws past to make questioning who is who illegal. The Democrats stand behind supporting that freedom and so they continue to support the social program spending and the Republicans support the concept that everyone is a business entity and must be treated in that light.
To paraphrase Lincoln: either we will be all free or all slaves. Given our propensity to enslave people we will all be slaves.
So here we are. All lowered to that point. Slaves to the employers. Only if you are smart enough to operate a business and enslave others will you shift positions.
Have you not read The Wealth of Nations? Its not gold, the wealth is the value of the labor of each individual. The implementation of the fed was a mean of creating an elastic money supply based upon the value of labor, and of course the means to finance WWI.
Civil rights. What are they? Do they apply to white people? Be brave and go look in the US Code under Public health and Welfare. Under civil rights.
(a) Statement of equal rights
All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens, and shall be subject to like punishment, pains, penalties, taxes, licenses, and exactions of every kind, and to no other.
white citizens !=All persons within the jurisdiction of the United States
if they were the same then there would be no need for civil rights.
we are still separated in reality but the laws are masking it.
Enough rambling.
Before you look at this and discount me as a white power right wing idiot, let me point out:
40 year old white man married to a jew with two adopted non white children.
I was a Republican I am now a Democrat. I fit neither category
If the system wasn’t so rigged to keep third parties down I would be libertarian.
So long as my kids have legislated rights and I have natural rights I will stay Democrat to make sure my kids and all others are supported.
After my 1 hour commute, I have a bit more to say.
During the civil war congress “opened a door” that allowed the non-white folk to be integrated into our world. This was the right and noble thing to do. Congress then pledged to never revisit this legislation or topic again. This effectively removed the door and frame and made it an archway never to be closed again. This was exploited over time and we are here now. The best be will ever be able to do is to polish the surface. The cracks still exist. The civil war did not end, we just decided to fight it politically.
Our country is bankrupt. It has been for a very long time. I don’t mean figuratively. The creditors cannot repossess the whole country. So they needed to control the money supply to extract the debt. Thats why gold was illegal to hold when the fed was instituted. One says we can buy our way out of the fed (it is a real option in the arrangement with them) but to do so requires real money. Fort Knox may hold gold but its not really ours. Its the creditors. Even it we has the gold to pay up with, it would be very expensive when the FRN is inflated and when the FRN is strong then there is no incentive to buy our way out.
So you see, we are a bit stuck.
The institution of the US is a slave to the fed.
And if you have not figured it out, the IRS is the Internal Revenue dept of the Fed.
You can force a people to use a specific currency unless you mandate that taxes be paid in the currency. This is a forced flow mechanism.
It would be nice if Mr. Paul would comment on the historical political aspects and either validate me or prove me wrong.
The idea of a political Revolution can only polish the surface but it wont change the underlying foundation.
Let me issue and control a nation’s money and I care not who writes the laws.
* Mayer Amschel Rothschild, 1790
http://en.wikiquote.org/wiki/Money
Oh and folks, I’m not trying to pick a fight or on-up any one. We are all here for the same reasons. The net is great for communicating but it lacks in conveying emotions. When one writes all this down, is looks like a bucket anger. But its really just pent up frustrations that cannot be expressed in the normal world. If you do, you are a nut case and discounted.
Previous note, that would be “one-up any one” not “on-up any one”
The ‘fed’ is about as federal as Federal Express. The fed is NOT a part of the government. It is a privately owned bank. Private. Not government.
Imagine that. Try to fathom how international bankers managed to put an institution in place that has the power to print all the money, and all the power to regulate all interest rates. Unbelievable but true.
So, every dollar that the fed prints is loaned to American banks at interest. This means that the American people are enslaved to the central banks because this system automatically creates a perpetual debt. Where does the money to pay down the debt come from? The fed of course, there is no other source. Therefore the money supply must increase to create the illusion that the debt can someday be paid down.
Everybody gets confused about gold and fiat money. Thinking that gold is ‘hard’ currency is foolish. Money is just an idea, a means of facilitating trade. There is nothing ‘real’ or ‘hard’ about money. It’s just an idea.
And it’s not government printing money that is the problem. The problems arise when any agency gains the power to print unlimited amounts of currency, at interest, creating our current world of ever increasing rates of inflation and debt.
The founders lived in a world where the government(s) of the colonies printed paper money and issued it with no debt attached. Further, they were allowed to create more money only when the economy dictated, not at their discretion. Inflation was tiny, and stayed that way for decade after decade. The money supply grew at the same rate as the value of the labor of the people and no more.
It was the threat of the coming of the Bank of England (another private central bank owned by foreign bankers) that started the war of independence.
If you don’t like to read (history) you can watch a movie at http://zeitgeistmovie.com/ . You might want to fast forward to the final third of the movie where they talk about money in America.
“I believe that banking institutions are more dangerous than standing armies… if the American people ever allow private banks to control the issue of currency… the banks and corporations that will grow up around them will deprive the people of their property until their children wake up homeless on the continent their fathers conquered.”
–Thomas Jefferson 1743-1826
Dr. Paul must have nerves of steel to speak out against the central bank/federal reserve board the way he does. Those guys are the most dangerous and powerful on earth.
God Bless him.