By Josh Colver
A very big and essential part of free market economics is monetary policy which is handled by the Federal Reserve. The central bank of the United States, or other wise known as the Federal Reserve or the Fed, has been very destructive to the economy. The two primary roles of the Federal Reserve are first to control the money supply and, second, to adjust the interest rates. There are a few problems with this. The first is that no person, no matter how educated, could ever know how much money ought to be in the market. It’s the same line of thinking with the interest rates; they could never be set at the right rate because they would always be either too high or too low. When they are too low, it causes malinvestment and creates a false bubble of prosperity. When they are too high, no one invests in the economy, and it slows the economy. The only solution is to have the market determine it. Instead of having a central bank decide what the interest rate should be for everyone, individual banks would adjust it accordingly, and they wouldn’t have the political pressure to keep the rates artificially low. Another problem is the total lack of transparency in the Federal Reserve. The Federal Reserve has the power to increase the money supply as much as they want whenever they want. This is a huge problem. This money is usually used to bail out big banks and big businesses, or it goes to foreign banks. But the true evil lies underneath. Every time we increase the money supply the value of the dollar decreases and prices of goods and services increase consequently. This hurts poor people and seniors the most. A rich man won’t notice the slight uptick in prices for food and clothing, but poor people will and senior citizens who are living on a fixed income are hurt as well. When the currency is inflated, the cost of living goes up, and consequently, the fixed income that the seniors had will no longer serve them. This is a transfer of wealth from the poor and middle class to Wall Street. The Federal Reserve bailed out the banks on Wall Street by printing money or otherwise known as increasing the money supply. The result is higher prices and dollar bills that are practically worthless. The solution to these massive problems is to end the Federal Reserve. Obviously, this can’t be done overnight, but to transition to it, we would allow for an adjustment period.
Once the transition period is done, we should enact the Gold Standard, which requires that our dollars bills will have to be backed up in gold and that we are free to use whatever we like for currency. The reason our money needs to be backed up in gold is because that is what ensures that our money is good for anything. Without it being backed up, it is worthless pieces of paper. Back in the beginning days of banks and credit, people used gold and silver as currency to trade for goods and services. Eventually, people got sick of lugging around big bags of gold, so they left the gold with merchants who started banks. The merchants gave the people receipts for their gold; eventually, people began trading receipts as currency since they knew that the receipt was worth that amount in gold. Today in our country we have a Fiat Currency, which means that our paper money is backed up by nothing. This is a road to disaster that many great nations have embarked. Unless we are looking to crash our economy, we have to change policy and soon.