1.0... INTRODUCTION

(Continued)

1.2.5 - Murray N. Rothbard (always the Gold Standard Champion), in the summary of his "The Case Against the Fed" (ISBN: 0-945466-17X) states:
"There is only one way to eliminate chronic inflation, as well as the booms and busts brought by that system of inflationary credit: and that is to eliminate the counterfeiting that constitutes and creates that inflation. And the only way to do that is to abolish legalized counterfeiting: that is, to abolish the Federal Reserve System, and return to the gold standard, to a monetary system where a market-produced metal, such as gold, serves as the standard money, and not paper tickets printed by the Federal Reserve."
"It would be easy to return to gold and to abolish the Federal Reserve, and to do so at one stroke. All we need is the will. The Federal Reserve is officially a 'corporation,' and the way to abolish it is the way any corporation, certainly any inherently insolvent corporation such as the Fed is abolished. Any corporation is eliminated by liquidating its assets and parcelling (sic) them out PRO RATA to the corporation's creditors."

[Murray goes on to explain that, of the $421 billion in Federal Reserve assets as of April 6, 1994, about $17 billion could be immediately written off or canceled. The remaining $404 billion in Fed liabilities would have to be offset by its $11 billion in gold stock assets -- wildly undervalued at the arbitrary $42.22 an ounce -- revalued such that 260 million gold ounces will be able to pay off $404 billion in Fed liabilities, about $1,555 per ounce.]

Murray continues:
"Once this revaluation takes place, the Fed could and should be liquidated, and its gold stock parcelled (sic) out; the Federal Reserve Notes could be called in and exchanged for gold coins minted by the Treasury.
In the meanwhile, the banks' demand deposits at the Fed would be exchanged for gold bullion, which would then be located in the vaults of the banks, with the banks' deposits redeemable to its depositors in gold coin.
In short, at one stroke, the Federal Reserve would be abolished, and the United States and its banks would then be back on the gold standard, with 'dollars' redeemable in gold coin at $1555 an ounce. Every bank would then stand, once again as before the Civil War, on its own bottom."

"One great advantage of this plan is its simplicity, as well as the minimal change in banking and the money supply that it would require.
Even though the Fed would be abolished and the gold coin standard restored, there would, at this point, be no outlawry of fractional-reserve banking. The banks would, therefore, be left intact, but, with the Federal Reserve and its junior partner, federal deposit insurance, abolished, the banks would, at last, be on their own, each bank responsible for its own actions.
There would be no lender of last resort, no taxpayer bailout.
On the contrary, at the first sign of balking, at redemption of any of its deposits in gold, any bank would be forced to close its doors, immediately, and liquidate its assets on behalf of its depositors.
A gold-coin standard, coupled with instant liquidation for any bank that fails to meet its contractual obligations, would bring about a free banking system so 'hard' and sound, that any problem of inflationary credit or counterfeiting would be minimal.
It is perhaps a 'second-best' solution to the ideal of treating fractional-reserve bankers as embezzlers, but it would suffice at least as an excellent solution for the time being, that is, until people are ready to press on to full 100 percent banking."

-- Murray N. Rothbard 1994


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