Classic Ron Paul: Don't Trust the Fed

Thanks to Paul-Martin Foss of the indispensable Carl Menger Center for the Study of Money and Banking for finding this 1979 speech by Campaign for Liberty Chairman Ron Paul on the Federal Reserve.

While this speech was delivered thirty-six years ago,one could imagine Dr. Paul delivering it today. This is a tribute to Dr. Paul's consistency and a sad comment on the Federal Reserve's continued failure.

As Paul-Martin points out, since Dr. Paul delivered this speech the dollar has lost 70% of its purchasing power so it takes $3.28 to purchase what one dollar bought in 1979. Just think how much better our lives would have been over the past 35 years if Congress had listened to Dr. Paul in 1979!

Under Dr. Paul's leadership, Campaign for Liberty is working to take the first step toward changing our monetary policy by passing the Audit the Fed bill. Please support our efforts by contributing to our matching grant challenge.

Text of Dr. Paul's 1979 speech available here and below:

Congressman Ron Paul
Speech Before the US House of Representatives
March 15, 1979

Mr. Speaker, while I applaud the committee’s recognition of the fact that “reducing inflation will require persistent, measured, monetary and fiscal restraint,” I believe that the committee is still looking at the Federal Reserve through rose-colored glasses. Throughout its 65-year history, the Federal Reserve has pursued a policy of deliberate inflation and manipulation of the money supply, a policy which has caused numerous recessions, massive unemployment, double-digit price inflation, international exchange crises, and the largest and longest depression in our national history. The committee does note that the Federal Reserve had promised moderation and consistency in monetary policy before, but that it has been either “unwilling or unable” to keep its promise. I concur with the committee’s view of the importance and necessity of the Federal Reserve keeping its promises on monetary policy, but I am skeptical nonetheless. We need only look at the record of the Federal Reserve, which I have briefly recapitulated above, in order to understand my skepticism. The only permanent and practical solution to the problem of inflation — the only way to implement the Federal Reserve’s and this committee’s goal of persistent monetary restraint — is to decouple money and politics altogether, removing control over the money supply from any governmental or quasi-governmental institution. The deregulation of money, not simply a slowing in the growth of the money supply, must be our goal. The committee is looking in the right direction, but it has not yet seen the correct destination.

There seems to be a growing consensus among economists that the American people will suffer through another government-caused recession later this year or early next year. The committee takes note of this view and expresses its concern. What it does not seem to realize, however, is that the persistent policy of monetary inflation pursued by the Federal Reserve makes these recessions inevitable. The timing of the next recession may be a matter of guessing; the fact of the next recession is not. In view of this fact, it is not enough to express concern and then declare that the Federal Reserve’s monetary growth targets are appropriate. They are not. If we intend to pursue a genuine anti-inflationary policy, it is not appropriate to endorse a growth in the money supply. Nor is it appropriate for the committee to endorse even greater inflation should “measurements reveal that the Federal Reserve’s target ranges for the growth of the other monetary and credit aggregates are not being met.”

The committee is correct in demanding monetary restraint from the Federal Reserve; the problem is that it does not demand enough restraint and allows the Federal Reserve to exercise entirely too much discretion in its control of the money supply. This, of course, is not to argue for congressional control of the money supply, but it is to argue that discretionary and arbitrary control over the money supply by any governmental agency must be abolished. If any responsibility is granted to the government with respect to money, it should be to insure that the value of the money is maintained, not systematically destroyed through a policy of deliberate inflation. In medicine there is a term for diseases caused by physicians: iatrogenic. Inflation might correctly be called politico-genic, for it is caused by the politicians (including the officers of the Federal Reserve) who for 65 years have declared that they intend to cure inflation.

One hopes that the Federal Reserve abides by its promise to decrease the rate of monetary growth; it definitely should keep its word. But its past record is not encouraging, and the committee should consider legislation to curtail the Federal Reserve’s discretionary powers and to begin the process of depoliticizing money altogether. Fiat money, with which we have been forced to live, requires extensive control and management at all times, with the hope of not disrupting the functioning of the economy too greatly. As the failure of the money managers becomes more and more apparent, other programs will be declared “necessary” and “required” by those same managers: price and wage controls, rationing, import controls, capital market controls, and so on. All these programs will be imposed on the people at the sacrifice of personal freedom and the destruction of a market economy, should our present policies of monetary management continue. Sound, honest money needs no managers. The integrity of our leaders should ensure money of real value. If this were so, inflation would disappear and our economy could be put on the road to recovery.



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