Gary North

Aug. 31, 2009

I began my article on "The FED on the Defensive" with these words:

I do not recall this in my lifetime. A majority in the House of Representatives has co-signed H.R. 1207, a bill introduced by Ron Paul to have the Federal Reserve System audited by an independent government agency, the Comptroller General's office.

A reader sent me a suggested correction.

So if my realization is typical, framing discussion of the current crisis in terms of the U.S.A. repeating its own history could greatly facilitate comprehension of the vast majority who still do not perceive the present crisis clearly and otherwise won't until long after it has buried them. Because it is common to hear comments like "we're in uncharted territory" and your "I do not recall in my lifetime". While undoubtedly true in a sense, the more important other truth is that the nation has traveled this territory repeatedly in the past 300 years but apparently does not recognize it: we repeatedly failed to learn from the past. Why not hammer on the point that this crisis is the old recurring problem? Nothing new here. We should know what we've got coming to us as we've been "corrected" in the past so many times for the same contest between avaricious motives and libertarian ideals.

The critic means well, but he does not understand the magnitude of what Ron Paul has accomplished.

To suggest that, once upon a time, meaning before 1913, there were criticisms of central banking is like saying that, once upon a time, before Keynes' General Theory, there were criticisms of government budget deficits. Quaint, but irrelevant.

In the 19th century -- a century of the international gold standard and free trade -- there were critics of central banking. The economists debated this issue in sophisticated treatises. That, of course, is what economists do: debate. What is remarkable in retrospect is the high level of sophistication of the debates in the popular press.

Central banking was a hot topic in the Jackson era, especially in the key year of 1832, when the faction in his party that soon became the Whigs made it a political issue by introducing the bill to recharter the Second Bank of the United States four years before the charter would automatically expire. They did this in an election year. They thought they would win in November. Instead, they lost big.

Jackson won the bank war in 1832. The central bankers and the academic Establishment have never forgiven him for this. His position on the Second Bank is universally excoriated in economic history textbooks and monographs. This story even gets into lower division history textbooks. Students who are told about central banks only twice in the textbooks are told that Jackson was a narrow-minded bigot on central banking. The only other reference to central banking in the textbooks is the story -- carefully sanitized -- of the establishment of the Federal Reserve System, a victory described, though never explained, as a triumph of the American people over the political control of money. It was, of course, a triumph of the big bank cartel over competitive banks that offered greater safety. The bankers feared bank runs on overleveraged banks, meaning large New York City banks.

As an historian by training, I can think of no cartelization of any industry that has been more successfully concealed by academia. This is by far the largest, richest, and most successful cartel in American history. Yet there is almost no criticism of the system and its enforcement tool, the Federal Reserve System. Whatever mild technical quibbles the academic community has had with the FED, the central issue of central banking is never even mentioned, let alone refuted. What is the central issue? That all central banking is a government-licensed enforcement arrangement of a well-organized, well-funded cartel. As with all cartels, it operates at the expense of competitors who would otherwise offer better opportunities to the public.

For almost a century, criticisms of this arrangement have been confined to fringe groups. The most articulate of these critics have been members of the Austrian School of economics, most notably Ludwig von Mises and Murray Rothbard. No school of academic opinion opposes central banking, other than the Austrians. The success of academia and the mainstream media in suppressing the story of central banking has been almost total. Anyone with first-hand knowledge of the battle to break through this blackout knows how little success critics have had. They have been almost completely marginalized.

This is true in every nation. Central banking is today universal, excluding Andorra, Monte Carlo, and Panama.

That a Congressman who is regarded by his peers as a highly principled eccentric could get a bill to audit the Federal Reserve accepted by a substantial majority in the House of Representatives is nothing short of sensational. He was the right man at the right time.

The timing was created by Alan Greenspan, whose policies created the bubbles, followed by Ben Bernanke, who had no clue that his stabilization of the monetary base in 2006 and 2007 would create a near-collapse of the banking system.

There was Ron Paul, running for President, saying that this would happen. He was dismissed as a crank. Then it happened in one 60-day period: early September to early November, 2008. He is now perceived as a kind of prophet.

He targeted the FED. Millions of people heard him. They had not previously heard of the FED, let alone its threat to the economy. Then the crisis came, before the election. He had seen it coming. No one else with a public presence had.

Ron Paul analyzed things accurately. He had warned about the Federal Reserve ever since his first term in 1976. He stuck to his guns for 32 years. Then . . . boom! The FED's policies blew up in plain sight . . . and plain sites.

The FED is on the defensive for the first time. Three men made this possible: Greenspan Bernanke, and Paul. Only Paul has profited from this.

He really did create a revolution in the literate public's perception of the Federal Reserve System. The FED will never get the anti-FED toothpaste back in the tube. Not with YouTube.

For a 42-minute video on the Federal Reserve System produced by the Ludwig von Mises Institute, click the PLAY button.