Dr. Ron Paul has published a new book this year, entitled “Pillars of Prosperity: Free Markets, Honest Money, Private Property”, which contains an extensive compilation of his thoughts on economics and presents an excellent opportunity for a special review of a book. This is the first installment of a longer review of the entire book, the full review of which will examine each individual part of the book and present a summary of the positions and arguments presented, which have sadly been underrepresented to most Americans. “Part 5 – Money and banking: gold versus Fiat “is discussed here.
This part of the book is by far the longest, taking up almost half of the total content at nearly 200 pages. As such, it would be unlikely to do a full review of such a long section, so only a brief overview of some of the topics discussed will be presented. It’s clear from the title that Ron Paul discusses his views on monetary policy, the banking system, and his preference for stable money backed by gold.
Many of the evils of big government are a direct result of our flawed monetary policy, according to Paul, which encourages the government and the people to spend more than they receive and live beyond their means. Since politicians in Washington cannot finance all social benefits through tax revenue and keep the American Empire scattered around the world, and they cannot borrow enough abroad to make up the deficit, inflating the money supply through of the Federal Reserve. the printer is trusted. Therefore, one of the main ways that Paul recommends reducing inflation, decreasing the size of government, and preventing unnecessary wars is to decouple money and politics by deregulating the value and supply of money, and ending the system of the Fed that manipulates interest rates and inflates the currency.
Inflation is not a free market problem. Only the government can drive prices up by diluting the money supply and printing more. When the government blames wealthy Arabs for rising fuel costs, unions, or greedy employers, it is shifting its focus to the symptoms. However, the real cause of inflation is in the government, as prices would generally fall in a free market economy. This problem, however, is not even recognized by politicians. When weaknesses appear in the economy, both the right and left sides of the corridor, instead of addressing the problem of government intervention, request that the Federal Reserve continue to inflate the money supply, at ever higher rates. Combined with the fractional reserve banking system, which allows a bank to lend much more money than it has on deposit, this system greatly degrades the value of the dollar.
Paul cautions that this system cannot last forever, although the United States has done remarkable work so far to keep the paper money system going. However, this is more a result of collusion between the world’s central banks and America’s military might, rather than a vote of confidence in the fiat currencies themselves. For decades, the government has been able to export its inflation by selling Treasury bills to foreign governments. Through this method, the banking system creates even more dollars that maintain the perception of wealth, despite the fact that Americans produce less and live far beyond their means.
But even if foreign central banks slow down their purchases of US debt, the Federal Reserve is there to intervene. The Fed will increase its own purchase of government debt to prop up the dollar. Central banks also have exchange rate arrangements whereby they can prop up or reduce the value of certain currencies of foreign countries, or try to lower the price of gold. Supporting the dollar by helping the Federal Reserve and buying Treasury bills ranks high on their priority list, due to the dollar’s status as the world’s reserve currency. However, keeping the price of gold low is even more important.
Concern about the price of gold and the manipulation of that price through the sale and lease of gold worries Paul. He claims that the Fed and other central banks have thrown gold onto the market to keep its market price artificially low. Banks do this because a high price of gold is a vote of “no confidence” in the paper system, leading to more people recognizing the real weaknesses of fiat money. This is an understanding that central banks would rather people did not have, as they would lose their ability to control countries’ wealth.
It is this manipulation of the currency that seems to worry Paul the most. Besides the fact that the Constitution did not give Congress the authority to create a central bank to print paper money, Congress goes even further. It ignores its responsibility, stated in the Constitution, to maintain a sound monetary system. First, the Federal Reserve is unaudited and only provides information to Congress on its own terms, even discontinuing the release of important economic figures. The Government Accountability Office is prohibited from auditing the Fed, due to its policy independence. However, Paul asserts that this independence is nothing more than a legal fiction, and Congress should not ignore its responsibility to provide constitutional money and a free market. The Fed promotes the opposite of both.
Another extra-governmental agency that Paul criticizes is the International Monetary Fund, for its gold sales and the fact that it is an international welfare agency financed by American taxpayers. Due to its nature as a foreign aid vehicle that provides money to Third World nations whose dictators steal money and whose people will never be able to repay the loans, Paul believes it should be under the control of Congress. Especially since the IMF has deposits of gold that it could sell but instead requests money from the US government, its independence and usefulness are highly questionable.
How did the dollar become the world’s reserve currency, giving the American government a license to print money, inflate the currency, provide welfare to individuals, foreign governments, and corporations, and maintain a world empire? Paul sees the beginnings of the system appearing in the early part of the 20th century with dollar diplomacy. After World War II, when the dollar became the basis of the international gold exchange standard, it became the world’s preferred reserve currency. When the United States defaulted on its gold payments in 1971, it succeeded in persuading Saudi Arabia and OPEC to price oil in dollars only. This contributed to promoting the hegemony of the dollar, since there was a worldwide demand for dollars to buy oil. In addition, foreign producing countries, wishing to sell their products in rich American markets, received dollars for their products, further diffusing the currency.
The overwhelming military might of the United States should not be overlooked either, according to the book. The system created an artificial demand for the dollar, which had been “as good as gold” until 1971, and was then backed by oil sales. But the real backer of the dollar is the military, which allows the United States to rule its empire without saving money or producing goods.
As mentioned above, this is just a brief overview of some of the topics Paul discusses in this section of the book. Some others worthy of mention include a lengthy defense of the gold standard that presents its arguments against the most common positions of opponents of the system, the impossibility of monopolies in a free market, the futility of the CPI and PPI indicators in measuring . the strength of the market and the amount of money that has been spent on welfare but has resulted in more homelessness than ever. Some of his interactions with Federal Reserve Chairman Alan Greenspan are also transcribed, clearly indicating the futility of asking a question of government bureaucrats, as they will only come across insensitive answers on technical points of difference, in rather than addressing the substance of the argument. However, the general concern with stable money and free markets, and the arguments against fiat currency, the fractional reserve banking system, permeates all of Dr. Paul’s selections in this part of the book and prepares the reader for the sections end.
