(Week 4 - Thursday Aug. 21)
Many people have asked me – "What about Ron Paul?" Is he not talking in a fundamental way about the monetary issue you are saying is missing from the political discourse? Indeed he is, but his proposed answer to the monetary question would, in my view, only make the situation as bad, or worse.
Ron Paul is a congressman from Texas, and until very recently was a candidate for the Republican nomination for President. He is unique in that he is extremely knowledgeable and articulate about the monetary system, and has built much of his campaign around his proposal to repeal the Federal Reserve Act, and re-establish the monetary system on a different (in his view "constitutional") basis.
On a personal level, he impresses me as someone who is genuinely committed on the issue, and has the courage of his convictions. I find his informed outspokenness to be a breath of fresh air in the gaff-averse, talking-point-oriented modern political scene.
He is something of a throwback to an era when there were many learned and eloquent voices in the political arena who carried on a classic debate about what ought to be the basis for how this nation creates, issues and controls its money, and how it all relates to the ideals of the American Revolution. That debate has so completely disappeared from the scene that Paul comes off to many as an anachronism (one whose time has passed).
The notion that he is somehow passé is belied by extraordinary grassroots support he inspired during the campaign, especially from young people. He was beyond doubt a political phenomenon. Paul espouses many strongly held positions that together are characteristic of what is often described as a Libertarian worldview (he was in fact the 1988 Libertarian candidate for President).
He is adamantly pro-life, anti-gun-control, opposed to all but the most minimal involvement of the government in private matters, a foe of the Patriot Act, against the entanglement of the country in the affairs of other nations, and a staunch opponent of the War in Iraq. There are many analysts on the political scene who attribute Paul's surprising appeal to his unabashed and principled stance on these issues, and no doubt there is an element of truth to that. In my experience, though, the congressman has also touched a deep nerve in the American psyche about money. For this reason I heartily welcome his contribution to the political discourse.
That said, there is also an aspect of his program that I find highly problematic, and that has to do with the specific change in the monetary system he proposes. Stated succinctly, he feels that the true alternative to a currency based on "debt," (i.e. borrowed into circulation from a private banking system), is one in that is "backed by gold."
The debate over whether the currency of a nation should be based on gold, or the fiat of the sovereign (in the American case the sovereign being we the people through our government) is one that goes back to ancient times. This is obviously too big a story to tell in detail in this short article.
Suffice it to say that the question had a formative effect in the emergence, shaping and preservation of the American nation. For example, as the Civil War was breaking out President Lincoln was pressured to borrow the money to fight it from the banking system, reportedly at interest rates ranging from 24 to 36%. Lincoln wisely rejected that advice, and instead had the U.S. Treasury issue United States Notes, a currency that came to be known as the "greenbacks."
The policy was deemed so successful, and proved to be so popular, that the nation emerged from the war with a solid majority of the people favoring the greenback as the basis for the money supply. By many accounts this led to a great deal of intrigue by which the will of the people was allegedly subverted, and the nation was denied its preferred money due to the influence of bankers who advocated that the currency be based on gold ("hard money" they called it).
This so outraged the public that a host of "populist" parties emerged (some becoming very influential and scoring major electoral victories), plus major pro-greenback factions coalesced in both the Democratic and Republican parties. Indeed, in the half-century after the Civil War the dominant issue on the political scene by a wide margin was who was going to have control over the creation, issuance and regulation of money, and on what terms.
At the 1896 Democratic convention in Chicago a relatively unknown senator from Nebraska, William Jennings Bryan, gave what is widely recognized one of the most eloquent and impassioned orations in the annals of American history. Known now as the "Cross of Gold" speech, it ended with the words – "Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests and the toilers everywhere, we will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold."
The thunderous approval that arose from that hall catapulted Bryan from being an obscure "prairie populist," to the Presidential nominee of his party that year, and in two subsequent election cycles. Has Ron Paul forgotten this chapter of our history? I would love to hear his thoughts on the matter.
The complete set of columns from this series is posted at the following websites.