Mises Wire

Ending the Federal Reserve from the Bottom Up

[Editor’s Note: In 2010 at the Austrian Economics Research Conference at the Mises Institute, William Green presented a paper titled “Ending the Federal Reserve from the Bottom Up: Re-Introducing Competitive Currency by State Adherence to Article I, Section 10.” Today, Greene is best known as the “faithless elector” in the Electoral College who voted for Ron Paul in 2016. In this article, Green outlines how state governments can undermine the Federal reserve money monopoly by utilizing the already-existing state powers outlined in the US Constitution.]

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 (e.g., 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 “top‐down” attempts at the national level, this paper proposes an alternative approach to ending the Federal Reserve’s monopoly on money: the “Constitutional Tender Act,” a bill template 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.

This approach would have a greater likelihood of success 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.” Therefore, in contrast to “top‐down” attempts to “end the Fed,” a “bottom‐up” approach using “constitutional tender” laws will find greater success.

Over the course of time, whenever there have been attempts to end, or even to maintain greater oversight, of the Federal Reserve, those efforts have been strongly rebuffed. On June 10, 1932, for example, the former Chairman of the U.S. House Committee on Banking and Currency, Rep. Louis T. McFadden of Pennsylvania, gave an extended speech on the Federal Reserve System, calling it “one of the most corrupt institutions the world has ever known,” that “has impoverished and ruined the people of the United States; has bankrupted itself, and has practically bankrupted our Government.” He called again for “an audit of the Federal Reserve Board and the Federal reserve banks,” but was ridiculed and dismissed by Rep. James G. Strong of Kansas, who stated that McFadden must have some “violent form” of a “belly ache.”

In 1975, Rep. Wright Patman of Texas introduced a bill to have the General Accounting Office audit the Federal Reserve (HR 7590). While the bill had 22 co‐ sponsors and was reported out to the House from the Committee on Banking, Currency and Housing, it was then stuck in the Rules Committee, which would not allow the bill to come to the floor for a full vote. Patman, who was convinced that the bill “did not receive a fair and impartial hearing before the Rules Committee,” filed a discharge petition (H. Res. 746) to bring it to the floor; however, his resolution received no co‐sponsors, and the bill died in committee.

In July 1991, Rep. Henry Gonzalez of Texas, the Chairman of the House Banking Committee, asked the Federal Reserve Board to submit to a congressional audit of its discount‐window lending operations, but was refused; in 1993, he again voiced his support for legislation that would audit the Federal Reserve System (as well as make its Open Market Committee meetings televised and open to the public, as well as requiring the President to appoint its twelve bank governors instead of the bankers themselves). This time, not only did Federal Reserve Chairman Alan Greenspan resist him, but President Bill Clinton, who claimed that such a move would “run the risk of undermining market confidence in the Fed”, also rebuffed him. “There is a general feeling,” Clinton insisted, “that the system is functioning well and does not need an overhaul just now.”

The latest Congressman to challenge the authority and legality of the Federal Reserve is Rep. Ron Paul of Texas, the ranking minority party member of the House Monetary Policy Subcommittee. Rep. Paul has introduced H.R. 833, “to abolish the Board of Governors of the Federal Reserve System and the Federal reserve banks, [and] to repeal the Federal Reserve Act”; however, there have been no co‐sponsors as of March 2010. On the other hand, Rep. Paul also introduced H.R. 1207, the “Federal Reserve Transparency Act,” which would give greater auditing capabilities of the Federal Reserve to the Comptroller General; this bill now has 318 co‐ sponsors, or 73% of the Members of the House (its companion bill in the Senate, S. 604, has 33 total co‐sponsors — 1/3 of that body’s Members). So with nearly three‐fourths of the U.S. House supporting a bill, under normal circumstances the bill would be brought to the floor for a standalone vote by the full House; however, the Democratic leadership has kept the bill from being voted on, although they were unable to keep its supporters from attaching it as an amendment to a larger financial reform package (H.R. 4173) which passed in December 2009. Even with that success, there is a strong push to amend the bill by stripping out the “audit the Fed” language and instead expanding the Federal Reserve’s power over banks, lending and money.

Each of these different efforts over the last 80 years — whether by McFadden, Patman, Gonzalez, Paul, or others — have had two features in common: they have all been “top‐down” anti‐Fed efforts at the national level, and they have all been thwarted by concerted political opposition at that level. Accordingly, a new tactic is needed, which 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. That new tactic is the passage of the Constitutional Tender Act in individual States across the country.

[Read the full article, with footnotes and citations.]

Image Source: Federal Reserve
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