In Michael Mooreâ€™s new documentary, â€œCapitalism: A Love Story,â€ the left-wing filmmaker blames our countryâ€™s economic woes on greedy capitalists, saying, â€œcapitalism is evil, and you canâ€™t regulate evil.â€
Ron Paul, in his newest bestseller, believes differently.
â€œEnd the Fed,â€ Paulâ€™s manifesto on the Federal Reserve System (the United Statesâ€™ national bank), is a short, easy to understand read that cogently explains that the mess we are in is no fault of a free-market, capitalist-based system â€” itâ€™s due to a lack thereof.
â€œThe Federal Reserve should be abolished,â€ says Dr. Paul, â€œbecause it is immoral, unconstitutional, impractical, promotes bad economics and undermines liberty. Its destructive nature makes it a tool of tyrannical government.â€ (Tell us how you really feelâ€¦)
According to Paul, the Federal Reserve â€” indeed, all national banks â€” is the cause of the boom-bust (business) cycle and that it is not inherent in free-market economies.
In a free-market economy, interest rates act as the price of borrowing. When people save more than they consume, interest rates go down. When people consume more than they save, interest rates go up.
In this way, businesses can see if people want to spend in the present (in which case it would make no sense borrowing vast amounts of money to embark on investment projects) or if the citizenry want to spend in the future. Businesses decisions are made accordingly.
In an economic system in which interest rates are controlled by a central regulator (a national bank) the price of borrowing can be changed at the whim of whoever is in charge. This explains why interest rates have been as high as 20 percent and as low as less than one percent (where the interest rate currently lies).
In this type of economy, investors can be fooled by low interest rates, thinking that there are enormous pools of resources from which they can borrow from, when in fact they are insufficient to carry out their specified task. Losses ensue and panics/recessions/depressions happen.
This is a very convincing argument. How else do we explain how so many successful businesses can all of a sudden fail? That they just do is not a sufficient explanation.
The goals of the Fed are to stabilize the currency and prevent the economy from fluctuating from astronomical highs to devastating lows.
How have they done?
The purchasing power of one dollar in 1913 (when the Federal Reserve was created) has fallen to $0.05. Yes, thatâ€™s five cents. So, I feel pretty safe in saying that theyâ€™ve failed on the stabilizing of the currency front.
As for eradicating recessions, well, theyâ€™ve fallen short there too. According to the National Bureau of Economic Research, since the Fed was created, the United States has had 18 separate instances when the countryâ€™s economic output decreased.
What to do? While Dr. Paulâ€™s solution of ending the Fed may seem too radical for some, an interim step is a bill currently being considered in the House of Representatives that would audit the Federal Reserve, allowing Congress to find out which banks the Fed has lent money to and other information regarding monetary policy (it seems like such a common-sense idea that itâ€™s amazing that itâ€™s not already a law).
Mr. Moore thinks capitalism â€˜evilâ€™, but what he mistakenly calls capitalism is actually an economy that Karl Marx could find areas of agreement with.