Power & Market

Should sex or race play a role in hiring decisions at the Federal Reserve?

Consider the alleged problem in which the mainstream media, economists and Congress want your focus, courtesy of Reuters:

Currently, the Fed's board has only five members, all white and three of whom are men.

In 2022, one would think there’s something inherently wrong about this. The message being that if more women or persons of color were to helm America’s central bank, things would be better for the economy. The rationale behind the diversity push is not explained. The assumption is that a more (physically) diverse Fed is best.

How heavily diversity inclusion played into Biden’s nominations cannot be measured. He nominated three people; two being women, two African-American. If his nominations are confirmed:

Biden's picks would mean the seven-member Board of Governors would include four women, also a first.

Sharing his elation, Harvard economic professor Larry Katz said “it’s clearly a changing of the guard” and:

This is a "path-breaking new set of nominees who will bring important perspectives and representation to the board."

Meeting the candidates, there is former Fed Governor Sarah Bloom Raskin:

…who spent four years as a Fed governor before being tapped as a deputy Treasury secretary from 2014 to 2017, is expected to bring tougher oversight to bear on Wall Street…

Unlike Raskin, an already high ranking member of the system, the other two candidates are not. Lisa Cook is an economics professor from Michigan State and Philip Jefferson, a professor at Davidson College in North Carolina.

Cook has written extensively about the economic consequences of racial disparities and gender inequality, and growing up lived through the violence of school desegregation in the U.S. South. Jefferson has written extensively on wages, poverty and income distribution.

Whether by happenstance or grand design, the problem with emphasizing sex or race obscures the need to fill a board based on competencies.

If the Fed was composed of 4 women and 3 men, but they were schooled in the Neoclassical tradition, one could say they are diverse in appearance, but intellectually similar. This is problematic because without diversity of opinions or challenges to ideas, improvement to monetary policy cannot be expected. The belief that the Fed should manage the money supply and interest rates would continue to go unquestioned. The economic booms and busts this causes would continue indefinitely.

Contrast this to a homogenous board. A Fed composed of 7 women or men, or 7 whites or blacks, yet 3 were Austrian and 4 Neoclassical economists, would be an astounding difference. The public would be privy to one of the most splendid economic debates of all-time, even if only witnessed through interviews and meeting minutes. Nonetheless, there at least would exist the possibility that economic change could be realized from within.

Unfortunately, the importance of intellectual diversity garners little to no attention. The idea that even one person who possesses a basic understanding of the free market, liberty or freedom could ever be welcomed into the Board of Governors remains little more than an unattainable dream. Should the Federal Reserve have a 7 member board, hailing from 7 different races, yet none understand Austrian economics, then the next 100 years of monetary policy will look a lot like the last 100… or economic collapse will occur, whichever comes first.

Mention the term "legal tender" in polite company and most people will resemble a deer in the headlights. In simple terms legal tender is a kind of money a creditor cannot refuse in discharge of a debt due to him in the money issued by government. This is a legal designation for government-issued money—usually fiat money, nowadays—with special status. And although legal tender laws do not force consumers and merchants to use the “official” money, this money comes to be highly favored. Thus, here in America we buy and sell using dollars. In the United Kingdom, the British Pound is legal tender. In Japan, it is the Yen. You get the idea. It isn't impossible to use monies other than legal tender, but using something else is often more akin to private, off the books, barter. For example, perhaps I want to buy my neighbor's used lawn mower. I have some British Pounds left over from my last trip. My neighbor is planning a trip to the UK. He agrees to sell me his used lawn mower for some of my British Pounds. However, my neighbor would still legally have to pay his taxes in dollars and his credits would likely still demand dollars. So, dollars will be preferred for nearly all transactions.

Now, all this may sound perfectly reasonable, but legal tender laws present a huge opportunity for those who monopolize its production to manipulate the currency, primarily to allow for increased government spending. Governments suck resources out of the economy by bypassing the natural constraints of seeking a tax increase, always politically unpopular, or borrowing honestly in the bond market, which will drive up interest rates. Government by the people is thwarted, and the increase in the money supply causes vast harm to the economy.

Why Repeal Legal Tender Laws?

Naturally, advocates of eliminating legal tender laws have an obligation to convince the public that it's the right thing to do. Why would any nation, especially the US, want to use any medium of exchange other than the dollar? Simply put, debasing the dollar allows government to steal from the people. The government prints money out of thin air to balance its ever expanding budget. This leads to vast and dire economic consequences, such as higher prices, boom/bust credit cycles, and transfers of wealth from the early receivers of the new money to the later receivers of the new money. This is the Cantillon Effect, as described by Emile Woolf in his latest essay.

The Path to a Better Money

The next question that the public may ask is what would replace the dollar. The answer is that the dollar would not necessarily be replaced, but it would have to compete for the public's patronage in a free monetary market. It would have to compete not only with other national currencies but also with recently created media of exchange, such as bitcoin and other cryptocurrencies. In addition, we would expect that commodities such as gold and silver would regain some significant part of the market, especially since these commodities have been used as media of exchange for thousands of years until the recent experiments with fiat national currencies protected by legal tender laws.

Alasdair Macleod of Goldmoney.com has explained why crypto currencies are not suitable as alternative mediums of exchange, although the distributed ledger technology may have applications in a sound monetary regime. Rather, it is most probable that gold and silver would regain their prominence. There is a reason that the term "gold standard" is still used when describing something that is of the highest quality. There are many advantages to gold as a medium of exchange, but the most important are its universal acceptance by people of every walk of life all over the world, the fact that it cannot be counterfeited, and that it is rare. Gold specie itself could be exchanged by private individuals to satisfy major purchases, but for every day transactions the public would find it advantageous to rely upon a trusted third party to safe keep the gold and make it redeemable upon demand through any of the modern methods of money transfer, such as paper check, paper certificates, and digital means. Of course, the government itself could offer "gold dollars." After all, it claims to have over eight thousand tons of gold in its vaults. But government's track record for issuing more receipts for real money, gold and/or silver, than it has in its vaults probably would preclude it from gaining the public's acceptance. More likely, major banks would issue their own gold backed money. The banks could gain acceptance in the market because they would be subject to ordinary commercial law that describes a "bailment." A bailment is a transaction in which someone takes custody but not ownership of a good for the benefit of another. When we take a suit to the dry cleaners, we have entered a bailment agreement. The dry cleaning establishment does not own our suit. It takes temporary custody of it. Likewise when we check a coat at the theater or restaurant. If the dry cleaning establishment sells our suit or the restaurant gives our coat to another party, we can sue for damages and possibly bring criminal charges. Therefore, one's gold dollar account at a major bank must be legally redeemable in specie upon demand. If the bank does not have the gold, the customer can take it to court on a charge of fraud. Even the bank officials and owners could be charged with a crime. Try doing this with the government!

The Consequences

Just as a better mousetrap drives less effective ones out of the market, better money will drive out bad money. Privately issued money will gain more acceptance over time as the public learns that it can trust the issuers not to issue more receipts than specie held in reserve. Not so with government money. Once the public's trust has been lost, it will be impossible for government to regain it in the face of honest competition. It is most likely that bank issued fiduciary media (technically the real "money" is gold or silver in its vault) will be used first for transactions among banks, bond merchants, and large companies. But over time the public will learn that modern electronic money transfer methods are just as reliable for retail use. Then we can expect competition by the big banks to spread rather quickly. Eventually, government's fiat money will be abandoned for whatever one can get in, say, gold backed Goldmoney.comDollars, CitibankDollars, BankAmeriDollars, DeutscheMarks, BarclayPounds, or the like.

The Necessity of Financial Truth

With the government no longer able to print money to satisfy its profligate spending, the reckoning will have arrived. Let us not believe that a reckoning is avoidable. It is not. Nor should we wish it to be. To continue to print money in massive amounts, as the government does now, will lead to a financial and economic collapse. Would we want our doctor to tell us that all is well when his tests say otherwise? Would we want him to recalibrate his thermometer, blood pressure gauges, etc. so that they gave false indications in order that we could continue an unhealthy lifestyle right up to the point of collapse? Of course not. Yet this is a consequence of fiat money; i.e., the true state of the nation's financial and economic health is hidden. On the other hand, sound money reveals the true state of our financial affairs, both private and public, so that we do not unwittingly destroy capital and/or make promises that cannot be met. Furthermore, let us not give false promises that everyone will be spared real hardship in a return to sound money. Those who have relied upon the government to pay their bills will find that not all bills will be paid as in the past.

Real statesmanship will be required to cut government spending and explain the reasons to the public. The real villains will not be those who pull the world back from the financial and economic precipice but those who spent us into this mess in the first place--the Keynesian economists, the Modern Monetary Theorists, the Socialists, and especially the feckless politicians who swallowed the impossible siren songs of these charlatans and forced them on the public in order to buy votes by promising the moon. Let us have the courage to demand the truth, no matter how unpalatable it may be. Eliminating legal tender laws will set the wheels of monetary and economic reform in motion.

"If any State in the Union will declare that it prefers ‘separation’ over ‘union,’ "I have no hesitation in saying, 'let us separate.'" 1

~ Thomas Jefferson

In 1998, Russian Professor Igor Panarin, former KGB analyst, lecturer, and writer tied to Russia’s Foreign Ministry, predicted the economic and moral collapse of these United States, leading to eventual civil war and breakup by 2010. His predictions appeared in The Wall Street Journal and other publications. Of course, to this date, no such separation has come to pass. However, with the lingering 2020 election controversies (thousands of votes mysteriously appearing early on November 4^th, hundreds signing sworn affidavits attesting to election fraud and the near impossibility that any of these accusations will ever be examined, questionable voting machines, etc.), various assaults on individual rights, increased centralization of government power, Marxist indoctrination within the education system, and other factors, some in Texas and other States have openly talked about secession.

After considerable bloodshed, the Thirteen Original Colonies seceded from the British Empire. Post-Revolutionary War, Britain and these “United States” signed the 1783 Treaty of Paris, which stated: “His Britannic Majesty acknowledges the said United States, viz., New Hampshire, Massachusetts Bay, Rhode Island and Providence Plantations, Connecticut, New York, New Jersey, Pennsylvania, Delaware, Virginia, North Carolina, South Carolina, and Georgia, to be free, sovereign, and independent States.”2 Furthermore, “In 1781, the original thirteen States entered into a ‘Confederation’, and drew up ‘Articles’, one of which said: ‘Each State retains its sovereignty, freedom and independence, and every power, jurisdiction, and right which is not by this Confederation expressly delegated to the United States.’”3The States have never relinquished their sovereignty.

Events of the 1800s included:

• In 1803 the New England States threatened secession; the Louisiana Purchase was seen as a dilution of their power. Massachusetts Senator Thomas Pickering stated: “I rather anticipate a new Confederacy exempt from the corrupt influence of the aristocratic Democrats of the South…There will be a separation…”4
• Largely due to dissatisfaction with the War of 1812, the New England States considered secession in 1814 during the Hartford Convention. Secession sentiments ebbed after American victory was assured.
• The New England States mulled secession in 1845. “John Quincy Adams and fellow New Englanders so opposed the admission of Texas that they openly urged the withdrawal from the Union.”5 Again, they saw it as a dilution of power.
• Seven Southern States seceded in 1860-1861. (The remainder seceded after Lincoln’s call for 75,000 troops to invade sovereign States.) They protested the North’s perversion of the U.S. Constitution, e.g., usurpation of Southern rights, slavery disagreements, and the punitive protectionist tariffs that supported Northern industry. The late Charles Adams explained: “When Southerners realized what they were up against with respect to a high tariff and a new Congress and Republican administration, only two courses of action seemed open to them–secession from the Union and a low tariff for the Confederate states.”6

The American Colonies and Southern States both had valid reasons to secede. As members of a voluntary compact, the Southern States had the best case; whereas, the American Colonies were one part of a vast Empire. Virginia, New York, and Rhode Island entered the Union under the proviso they could withdraw if it was in their best interests. From the 1788 Virginia Convention, we have the following: “We the delegates of the people of Virginia, duly elected in pursuance of a recommendation of the General Assembly and now met in Convention, having fully and freely investigated and discussed the proceedings of the Federal convention and being prepared as well as the most mature deliberation hath enabled us to decide thereon, do in the name and in behalf of the People of Virginia declare and make known that the powers granted under the Constitution, being derived from the People of the United States, may be resumed by them whensoever the same shall be perverted to their injury and oppression, and that every power not granted thereby remains with them and at their will.”7 New York and Rhode Island mirrored Virginia’s language: ”their conventions ordained the root principles on which the right was founded: ‘That all power is naturally vested in, and consequently derived from the people’: and ‘That the powers of government may be reassumed by the people whensoever it shall become necessary to their happiness.’”8

Even Lincoln, the extreme nationalist, commented on January 12, 1848: “Any people, anywhere, being inclined and having the power, have the right to rise up and shake off the existing government, and form a new one that suits them better. This is a most valuable, a most sacred right, a right which we hope and believe is to liberate the world.”9

If Panarin’s predictions eventually come to fruition, we must all hope that it is accomplished peacefully. After all, there is nothing more American than secession. 

• 1. Earl Starbuck, “Was Secession Treason?” [Quoted from an 1816 letter to William H. Crawford], Abbeville Institute Blog, September 18, 2020, at: https://www.abbevilleinstitute.org/was-secession-treason/.
• 2. John S. Tilley, Facts the Historians Leave Out, Twenty-Second Printing (Nashville, Tennessee: Bill Coats, Ltd., 1991), 25-26.
• 3. Ibid., 25.
• 4. Ibid., 34.
• 5. Ibid.
• 6. Charles Adams, When in the Course of Human Events--Arguing the Case for Southern Secession, (Lanham, Maryland: Rowman & Littlefield Publishers, Inc., 2000), 81.
  [1] John Remington Graham, A Constitutional History of Secession, (Gretna, Louisiana: Pelican Publishing Company, 2002), 106.
• 7. John Remington Graham, A Constitutional History of Secession, (Gretna, Louisiana: Pelican Publishing Company, 2002), 106.
• 8. Ibid.
• 9. Tilley, 32.
   

2021 may have seen the greatest proliferation in American government command and control, with its corresponding constriction in liberty, in my lifetime. Power has become dramatically more centralized in the federal government--at the expense of individuals and their voluntary arrangements--with trillions of dollars of new programs and proposals (promoted as costless to Americans), expanded regulatory abuses, and breathtaking efforts at income redistribution nowhere authorized in the Constitution.

While the engorgement of our federal government already implemented or proposed is unprecedented, in part it follows much the same path as earlier episodes, such as FDR’s New Deal. That is why there is wisdom to be found from those who understood and opposed that accumulation of power into the hands of the government which took it out of individuals’ hands. Perhaps no one offers us more insight in this regard than Felix Morley, in his The Power in the People (1949).

Morley was a Rhodes Scholar, a Guggenheim Fellow, a Ph.D. from the Brookings Institution, a Pulitzer Prize winning editor of the Washington Post, President of Haverford College, and founder of Human Events, who has a journalism award named for him. James Person pointed out that he was “respected for his acumen and fairness by his peers across the political spectrum,” and reviewer Edith Hamilton termed The Power in the People “a remarkable book, nobly written and profoundly thought out.”

Morley’s key distinction there was between self-government and coercive government. As Leonard Liggio summarized it,

Morley based his distinction between Society and State on the origins of the words. Society is derived from the Latin socius, a companion. Society and association are rooted in the voluntarism of companionship…Morley continues on to the word State, which is rooted in involuntary or forced association. He sees the absence of free choice and free contract as the basis of the word status, from which state is derived.

When a new edition of The Power in the People was produced in 1972, 23 years after its first publication, it was reprinted without change. A dozen years later still, Sydney Mayers concluded, “Nor is any change required currently.” Consider how much the same is true today, at a time when self-government is certainly in rapid decline.

Self-government and voluntary cooperation are the keys to America’s success

This Republic is grounded on the belief that the individual can govern himself. ...

The founders…frequently asserted that the primary purpose of government is to secure private property. ...

The American Republic was specifically designed to safeguard individual enterprise against the state.

The Constitution of the United States sets specific limits to the power of government so that the latter may not repress the individual.

The dominant emphasis was on self-government rather than on imposed government; on the development of Society, not on the aggrandizement of the State.

The individual…fulfills himself through voluntary co-operation in a free society. This… implies an instinctive hostility to the State…with a…tendency to assume the direction of all social functions.

In America the individual, retaining sovereignty, intended to fulfill his destiny through a free Society, holding the State in leash.

Any system of government cherishing the individual…should not impede their voluntary adjustment.

What we had is not what we have now

A government designed to encourage people to govern themselves is increasingly distorted in order to subject them to remote administrative dictation.

Americans have…largely ceased to reflect upon the implications of the unconditional surrender of power to political government…wholly contrary to the principles of the Republic.

The survival of the Republic is not endangered by weakness in the central government, but by popular pressure for its aggrandizement.

The development of the State has been that of constant aggrandizement…at the expense of Society and of the individuals who create Society.

State, in short, subjects people; whereas Society associates them voluntarily.

A government established to secure the blessings of liberty has actually produced… tyranny…[with] government in the hands of men willing to exploit ignorance in order to further the centralization of power.

Man…is now exchanging membership in Society for servitude to the State.

The issue stands out clearly. Shall man be subject to the authoritarian State or shall he restrain State powers to the minimum necessary for an orderly Society?

What we need to remember

The American tradition is…completely opposed to authoritarian government...the ‘Safety and Happiness’ of the governed takes precedence over every governmental prerogative and…deference is not necessarily owing to those temporarily in a position of political command.

State power, no matter how well disguised by seductive words, is in the last analysis always coercive physical power…and by its nature works ceaselessly to enlarge that power.

The distinguishing characteristic of American civilization is the subordination of centralized power on behalf of individual liberty.

Only one form of government can nurture liberty, and that is personal self-government.

The American theory is that every man has within him the potential to make a significant contribution of some kind to human welfare. Therefore every minority…must be protected against the ever-possible tyranny of mass opinion.

Enlargement of the area of State authority…contracts the condition of economic freedom …this false god over every form of social organism is enormous and devastating.

Social strength can be diminished by a constant centralization and enlargement of governmental functions, the great majority of which are unproductive and…weaken the economic basis by the cumulative effects of regulation and taxation.

Social legislation is a sign of retrogression, not progress.

That the State should solve, by necessarily coercive methods, any problem that individuals are capable of solving voluntarily, is…the essence of tyranny.

To transfer power to the State…serves only to monopolize power in wholly irresponsible hands.

The one enduring political folly is to concentrate in the hands of ambitious men power that they do not have the restraint to exercise wisely.

The most that any government can do is set people “at liberty.” The State can stabilize the condition of freedom, and that is its sole excuse for being…[but] men must develop their liberty from within. It cannot be doled out by government agencies.

Over 7 decades ago, Felix Morley said that “American political principles are now being aggressively challenged by the philosophy of government planning.” That challenge is vastly greater today. According to Joseph Stromberg, “Felix Morley…understood the old republic, the constitution, peace, and free markets, as well as their opposites, empire, lawless rule, war and generalized statism.” That is the understanding Americans need to rediscover to defend our liberty. And reading The Power in the People brings with it what Sydney Mayers called “an unusual privilege, the rare experience of enjoying brilliant literary style whilst absorbing education thanks to the author’s keen mind and dexterous pen.”