 Ending
the Fed From the Bottom Up
An article by William Greene
Since its inception, the U.S. Federal
Reserve’s monetary policies have led to a decline of over 95% in the
purchasing power of the U.S. dollar. As a result, there have been several
attempts to curtail or eliminate the Federal Reserve’s powers (for
example, the efforts of Rep. Louis T. McFadden in the 1930s; the efforts
of Rep. Wright Patman in the 1970s; the efforts of Rep. Henry Gonzalez in
the 1990s; and the efforts of Rep. Ron Paul since the 1990s); however,
none have proven successful to date, due mainly to the constraints of
strong political opposition at the national level.
In contrast to these attempts at the
national level, a paper I recently presented at the Mises Institute’s
“Austrian Scholars Conference” proposes an alternative approach to ending
the Federal Reserve’s monopoly on money: the
“Constitutional Tender Act,”
a bill template (first introduced by Georgia State Rep. Bobby Franklin)
that can be introduced in every State legislature in the nation, returning
each of them to adherence to the U.S. Constitution’s “legal tender”
provisions of Article I, Section 10.
Such a new tactic could achieve the
desired goal of abolishing the Federal Reserve system by attacking it from
the “bottom up” – “pulling the rug out from under it,” by working to make
its functions irrelevant at the State and local level. Under this Act, the
State would be required to only use gold and silver coins (or their
equivalents, such as checks or electronic transfers) for payments of any
debt owed by or to the State (e.g., taxes, fees, contract payments, etc.).
All contracts, tax bills, etc. would be
required to be denominated in legal tender gold and silver U.S. coins,
including Gold Eagles, Silver Eagles, and pre-1965 90% silver coins. All
State-chartered banks, as well as any other bank that is a depository for
State funds, would be required to offer accounts denominated in those
types of gold and silver coins, and to keep such accounts segregated from
other types of accounts such as Federal Reserve Notes.
Upon going into effect, the
Constitutional Tender Act would introduce currency competition with
Federal Reserve Notes, by outlawing their use in transactions with the
State. Ordinary citizens of the State, being required to pay their State
taxes in gold and silver coins, would find it necessary to open bank
accounts in those denominations.
Businesses operating within the State,
being required to pay their State sales taxes and license fees in gold and
silver coins, would need to do the same; and in order to acquire such
coins, they would begin to offer their goods and services in “dual
currency” denominations, where customers could choose to pay in Federal
Reserve Notes (which would still be necessary to pay Federal fees and
taxes) or gold and silver coins (including checks and debit cards based on
bank accounts denominated in such coins). Customers, having found the need
to open such accounts in order to deal with the State, would be able to
engage in commerce using those accounts.
Over time, as residents of the State use
both Federal Reserve Notes and silver and gold coins, the fact that the
coins hold their value more than Federal Reserve Notes do will lead to a
“reverse Gresham’s Law” effect, where good money (gold and silver coins)
will drive out bad money (Federal Reserve Notes). As this happens, a
cascade of events can begin to occur, including the flow of real wealth
toward the State’s treasury, an influx of banking business from outside of
the State (as citizens residing in other States carry out their desire to
bank with sound money), and an eventual outcry against the use of Federal
Reserve Notes for any transactions.
At that point, the Federal Reserve system
will have become unwanted and irrelevant, and can be easily abolished by
the people’s elected Representatives in Washington, D.C.
I believe this “bottom up” approach to
ending the Fed would have a greater likelihood of success than a
“top-down” approach for a number of reasons. First, it is decentralized:
rather than facing concerted political opposition at a single Federal
level, it attacks the issue at the State level, where strategies and
tactics can be adapted to the types and amount of political opposition
they encounter.
Second, it is diffused: it can be
attempted in any number of States, which can cause the opposition to
spread its resources much more thinly than would be necessary at the
Federal level. Finally, it is legally sound: it relies on the U.S.
Constitution’s negative mandate in Article I, Section 10, that “No State
shall… make any Thing but gold and silver Coin a Tender in Payment of
Debts.”
 Under
this Act, not only would the use of FRNs by the State be made illegal; the
use of legal tender U.S. gold and silver coins would be encouraged amongst
the general population as well, along with any other currency that parties
mutually consent to using.
This will have three immediate effects:
the elimination of Federal Reserve Notes from State transactions; the
requirement of individuals and businesses to cease using FRNs in their
transactions with the State; and the introduction of competition in
currencies amongst the general population. With all three effects working
in tandem, the use of low-value pieces of paper issued by the Federal
Reserve will become irrelevant, and an emaciated Federal Reserve system
can be brought to a welcome, if inglorious, end.
You can download the full paper here:
http://www.tenthamendmentcenter.com/publications/
Bill Greene is a Professor of
Theology at Miami Christian University, teaches Social Sciences at the
Verity Institute.
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