Very few people believe in the free market. This is true of virtually all academic economists. The proof that they do not believe in the free market is that they oppose the creation of a full gold coin standard. They say they believe in the free market in many areas of life, but they do not believe in the free market with respect to the monetary system. Yet, above all other areas of the economy that ought to be governed by the free market, the money system should be. Why is this? Because money is the central institution in a market economy. Control over money is the central form of economic control.
We have seen this with a vengeance with the passing of the banking reform bill of 2010. The great winner in the reform is the Federal Reserve System. It receives the authority over the banking system. It is not limited merely to control over the money supply; it now possesses the authority of direct regulation and intervention.
The central banks of the world have now become allocators of capital. They are making the decisions as to who gets what and on what terms. Central planning over money increasingly has become central planning over the entire economy. This is not a mistake. This is consistent with the original logic of central banking. It means government control over the money supply.
When you hear a self-designated free market economist defend the idea of central banking, meaning a government-licensed monopoly over the monetary base, you can be sure that this person does not believe in the free market. He does not believe in the logic of decentralized private property. He believes in central planning, and he sees the central bank as the agency of such planning.
The few academic economists who are willing to accept even a pseudo-gold standard do not believe the government should be out of the money business. They do not believe in the widespread use of gold coins by the general population. They believe in central banks, and they believe in government control over the banking system.
What I recommend is simple: the removal of all government authority possessed by the Federal Reserve System. There would be no further legal connection between the Federal Reserve System and the United States government.
What would the result be? Within a few years, the Federal Reserve System would go bankrupt. This has been the fate of the two previous central banks of the United States. They could not operate in a competitive environment. They could operate only by means of a grant of monopolistic power by the United States government. So, I am not at all worried about the operation of the Federal Reserve System without government supervision. Besides, there is no government supervision of the Federal Reserve System. There is supervision of the government by the Federal Reserve System. Congress does not control the FED: the FED controls Congress. This has been true since 1914, and it is not likely to change...
If we were to abolish the Federal Reserve System, and if the government would then transfer to American voters all of the gold presently said to be in the vaults of the Federal Reserve Bank of New York and Fort Knox, we would see the restoration of liberty. I can think of no other pair of laws that would transfer more authority to the voters the abolition of the Federal Reserve system and transfer of the gold in the form of tenth-ounce coins back to the voters. This is why this essay is hypothetical.
Who are the opponents of such a procedure? First, the Congress of the United States. Second, all the bureaucrats who work for the Federal government. Third, all of the decision-makers of the Federal Reserve System. Fourth, the vast majority of all commercial bankers. Fifth, the entire academic economics profession. This is why we are unlikely to see this pair of laws passed in our generation.