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The Federal Reserve: Public Enemy Number One

The Federal Reserve: Public Enemy Number One

When currency was backed by gold, a central bank’s main function was to maintain the value of the issued currency in terms of gold.  For example, if a central bank created too much money against the gold reserves in the banking system, an increasing number of people would begin to exchange their currency for gold.  To combat this, a central bank would be forced to raise interest rates and decrease the money supply.  The higher interest rates would incentivize people to exchange gold for larger savings on deposit that earn interest.  Banking reserves – gold – would return to the banking system and the economy would return to balance.  The prime reason for insisting on defining currency in terms of a precious metal was to provide a self-correcting braking mechanism to the creation of money.  As expressed by the great Wilhelm Röpke:

If in the production of goods the most important pedal is the accelerator, in the production of money it is the brake.  To insure that this brake works automatically and independently of the whims of government and the pressure of parties and groups seeking “easy money” has been one of the main functions of the gold standard.  That the liberal should prefer the automatic brake of gold to the whims of government in its role of trustee of a managed currency is understandable.”[1]

The US dollar was backed by gold as recently as 1971.  Any central bank in the world could present the Federal Reserve $35 and receive 1-ounce of gold in exchange.  However, on August 15, 1971 – blaming it on the “gnomes of Zurich” – President Nixon “temporarily” broke the dollar’s last link with gold.  Nixon closed the “gold window” and reneged on the promise to exchange an ounce of gold for $35.  Since then, the system of credit in the US has been under the Fed’s complete control.

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Wilhelm Ropke: The Economist Who Stood Up To Hitler

Sometimes there are men of principle who live their values and not merely speak or write about them. People who stand up to political evil at their own risk, and then go on to say and do things that help to remake their country in the aftermath of war and destruction. One such individual was the German, free-market economist, Wilhelm Röpke.

Born on October 10, 1899, Wilhelm Röpke died half a century ago on February 12, 1966. It seems appropriate to mark the fifty-year passing of one of the great European economists and advocates of freedom during the last one hundreds years.

In the dark days immediately following the rise to power of Adolf Hitler and his Nazi movement in Germany in January 1933, Röpke refused to remain silent. He proceeded to deliver a public address in which warned his audience that Germany was in the grip of a “revolt against reason, freedom and humanity.”

Nazism as the Destruction of Decent Society

Nazism was the culmination of Germany’s sinking into ”illiberal barbarism, Röpke said, the elements of which were based on: (l) “servilism,” a “longing for state slavery,” with the state becoming the “subject of unparalleled idolatry”; (2) “irrationalism,” in which ”voices” in the air called for the German people to be guided by “blood,” “soil,” and a “storm of destructive and unruly emotions”; and (3) “brutalism,” in which “The beast of prey in man is extolled with unexampled cynicism, and with equal cynicism every immoral and brutal act is justified by the sanctity of the political end.” Röpke warned that, “a nation that yields to brutalism thereby excludes itself from the community of Western civilization.” He hoped Germany would step back from this abyss before its people had to learn their mistake in the fire of war.

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