MONETARY REFORM: THE ONLY CURE FOR THE HIDDEN TAX
by Phillip D. Collins
June 15, 2008
The old adage opines, “Only two things are certain in life: death and taxes.”
While the parameters governing death seem fairly well-defined, taxes are somewhat more ambiguous. Our system of taxation is labyrinthine and confusing, which is precisely the way that the welfare statist likes it. Americans are already busy enough dealing with the complexities of their daily lives and do not have the time to familiarize themselves with all of the vagaries of an increasingly socialistic tax system. Amid the cacophony of quotidian pressures, important details invariably elude public attention.
The inflation tax is one of the most significant cases in point. Haven’t heard of it? If so, don’t be too hard on yourself. Most Americans don’t even realize that an inflation tax exists.
You have the Federal Reserve to thank for this tax. Here is how it works. Whenever federal spending becomes exorbitant and directly taxing the American people is not an option, the federal government calls upon the Federal Reserve for help. In turn, the Federal Reserve creates money ex nihilo. That’s right. The Fed literally generates liquidity out of nothing.
It is a basic fact of economics that a good becomes less valuable when it is available in larger quantities. The same holds especially true for the dollar, which is essentially a fiat currency. After America was taken off the gold standard, the dollar ceased to be actual commodity money and was appropriated legitimacy as a currency only through the government’s “legal tender laws.” With no real commodity to support it, the dollar can be easily devalued.
As the Federal Reserve’s printing presses continue to run, the dollar becomes weaker and weaker. This truth is made painfully evident by the fact that Americans must pay more for goods and services. Herein lies the inflation tax and the Federal Reserve is the proverbial “taxman.”
The Federal Reserve is neither federal nor reserved. It is a private institution made up of unelected technocrats who are unaccountable to the American voter. And, don’t think that either presidential hopeful from the Republicans or Democrats will solve the problem. With the Fed in place, monetary policy has been divorced from fiscal policy. Until you change monetary policy, you change nothing.
Neither Barack Obama or John McCain have any intention of enacting monetary reforms. Instead, Obama is simply hoping to introduce an updated version of FDR’s socialistic New Deal. Moreover, Obama continues to support free trade, which has eviscerated America’s manufacturing sector and exported jobs overseas. Meanwhile, it is questionable as to whether or not McCain can even identify the problem. McCain’s economic illiteracy was made painfully apparent at a meeting with the Wall Street Journal editorial board, where he candidly confessed that he “doesn’t really understand economics.”
So, what is the solution? Well, a return to the gold standard might seem too radical to most economists today, although I would contend that radical measures are necessary to counter the Wiemar Republic-style hyperinflationary depression that is approaching. But, if returning to the gold standard is completely out of the question, what about legalizing competing forms of currency, including gold and silver? Certainly, competing currencies would weaken the Fed’s grip on America’s monetary system.
I am by no means the first person to recommend such a course of action. Other champions of monetary reform have been making the same recommendation since I was in grade school. Heck, none other than Alan Greenspan himself warned about the dangers of taking America off the gold standard. That was before he became the Fed chairman. Ah, the politics of compromise!
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By the way, a central banking system was the fifth plank of the Communist Manifesto. The creation of the Federal Reserve in 1913 fulfilled this plank, which should tell you a little something about where we are headed as a nation. But, of course, I am just “red-baiting.” And, we can keep telling ourselves that while we continue to finance a burgeoning federal government by paying the inflation tax.
© 2008 - Phillip D. Collins - All Rights Reserved