End The Fed… And Replace it With What?

Whenever the subject of eliminating the Federal Reserve is raised, there is an inevitable question posed: What would replace it? This question leads to one of the most common criticisms levelled against the “End the Fed” crowd: Eliminating the central bank and giving control of monetary policy to Congress would result a situation like Zimbabwe, where the national legislature printed insane quantities of worthless money. The Zimbabwean dollar was ultimately destroyed.

This argument is only valid if we assume that the government is allowed to issue fiat money. A government which can issue as much worthless currency as it likes, on a whim, is indeed the ‘nightmare scenario’.

On the other hand, if the money issued is sound money, directly exchangeable for a set value of a commodity (such as gold or silver), then the government can only issue currency equivalent to the amount of that commodity it holds. This is, in fact, the monetary system our Constitution created.

I think it’s safe to say that our government will never voluntarily return to a gold standard (or some other commodity standard). There is, however, another way to achieve this goal: Allow currencies to compete with the dollar.

I’ll use a hypothetical (my own) to illustrate the point:

Suppose a local hospital wants to create a way for local businesses- which are cash-strapped- to have health services coverage. The hospital (like most today) is also cash-strapped, and has difficulty paying salaries and purchasing supplies. Solution? An alternative currency, which I’ll call “HospitalBux”, which are redeemable for services at the local hospital.

The local grocer’s sales are down and he’s throwing away unsold product, and he has difficulty paying his employees because of the poor sales. The hospital needs to stock its kitchen with foodstuffs. So, the hospital offers to trade foodstuffs for HospitalBux with the grocer, who then pays his employees partially in dollars and partially in HospitalBux, since they have no health insurance (the grocer couldn’t afford to offer it). The local plumber, who is self-employed and has difficulty affording insurance, agrees to an exchange of plumbing services (as needed) for HospitalBux, offsetting another expense for the hospital and giving the plumber a way to save for health services when he eventually needs them.

HospitalBux can be accumulated and never lose value (unlike dollars) since they’re exchanged for services rather than money- an appendectomy, for instance, will always cost 200 HospitalBux; a person could accumulate quite alot of HospitalBux over a working lifetime, and be assured of meeting their medical needs in retirement. HospitalBux are also insured by a private insurance company, in the event the hospital goes out of business.

Other hospitals in the region set up similar HospitalBux arrangements, and these hospitals set up an exchange mechanism between themselves, allowing HospitalBux to be spent at a number of hospitals. This saves each individual hospital the expense of having to purchase and maintain equipment and hire specialists to cover every single medical need, since hospitals can now share both services supply and patient demand.

Other businesses in the area accept payment for goods and services in HospitalBux, either because they will save and use them themselves, or because other people accumulate and save them and will trade dollars for them.

As we can see, it’s actually a fairly straightforward proposition to set up a new currency. One can see the benefits of such a system; one can also see how such a currency could compete with the dollar, because it never loses value (in other words, there is no inflation).

Would “HospitalBux” be a viable currency? There’s no way to know, except to try it against other alternative currency models and see which functions best in the long run. As always, competition reveals which concepts work best and which fail.

There’s a problem we encounter, though: legal tender laws. Once a debt is accumulated, that debt can only be satisfied with legal tender. Taxes and government fees must be paid in legal tender, as well as wages and salaries of employees. This means that no other currency could genuinely compete with the dollar, since every business and every individual must have dollars, regardless of the faults of the dollar or the superiority of other currencies.

The subject of competition brings us to part of the explanation of why the United States Constitution mandates gold and silver: More than two thousand years of currency practices had shown that pure gold and silver coins, impressed with a government seal guaranteeing weight and purity, were the most viable form of money.

Even in 1789, competing currencies were a fact of life. Whiskey, for example, was more common than the dollar as a rural currency, which inspired the Whiskey Tax. Even at the turn of the 20th century (and after the passage of the first legal tender laws), competing currencies were still in use in some manner. One need only look at a Sears and Roebuck catalogue of that era (I have several in my collection) to see this: Paper, coin, bullion, and postage stamps were all accepted by Sears as payment.

As with anything else, competition can improve the dollar. If people prefer commodity-based money over a dollar which has no intrinsic value, and the federal government were barred from taking anti-competitive actions against other currencies (legal tender laws, for example), then the federal government would be left with only two options: Take actions to make the dollar more desirable, or let the dollar fail. On the other hand, if alternative currencies are a bad idea and the current management of the dollar is the best monetary policy, then competition would bear that out, too.

Ron Paul, the greatest champion of ending the Fed, favors currency competition to make the Fed irrelevant over ending the Fed immediately.

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Rich Mitchell

Rich Mitchell is the editor-in-chief of Conservative Daily News and the president of Bald Eagle Media, LLC. His posts may contain opinions that are his own and are not necessarily shared by Bald Eagle Media, CDN, staff or .. much of anyone else. Find him on twitter, facebook and

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One Comment

  1. I think that any idea other than to go back to the Gold Standard is going to work. And the reason why is how are people going to know what is in competition with the dollar today, which one is working, in other words which one is doing well, you are getting more product for your cow horns that are competeing with the dollar today, week, month, six month trial period, people wouldn’t know what to carry with them or how much. It would look like some science fiction movie where people are trying to pay for things they need with a car trunk full of all kinds to things that are either still accepted or not or just less of one and more of another. It would be chaos until something stood out above all the other crazy things, and possibly over a very long time people would have to put up with this maddness.

    No, it’s best that no matter what some believe would not be possible, the value of the dollar would have to return to the Gold Standard and then do away with the Federal Reserve. When Nixon did away with the Gold Standard and I got “Federal Reserve Notes” when I cashed my paycheck, I looked at these new “notes” and thought, “This crap isn’t worth the paper it’s printed on.” And I was right. As it turns out what it does IS allow the Congress to print as much as it wants for all kinds of crap not worth a damn, and then the government turns to us to pay the money back?? I don’t think anything that competes against the dollar will work because as you know our forefathers were smarter than anyone who has come along…ever since.

    What this sounds like is part barter, part paying for the balance in whatever the business wants to take in trade that can be considered “currency”. If the hospital wants payment for providing service then some kind of agreement in how the person getting the service is going to trade in return for the services. That is the barter system, but to finish paying for something in some other form when the person doesn’t have anything left to trade, what better method than to pay for it with a Gold Standard dollar of equal value much less than gold is worth now. The price of Gold is going to have to come way down from $2,000 an ounce because people couldn’t afford it. And what will have to be done is the value of gold is going to have to be set and not go up or down or it messes up the value of the dollar. Or the dollar is going to have to be pinned on something that doesn’t ever go up or down, not gold. Back the dollar on weeds because weeds are everywhere, are hard as hell to get rid of, and are always the same year after year. Of course a weed isn’t worth very much because it’s everywhere and anyone can grow weeds. Gold is much harder to obtain and the problem is making it stand still.

  2. First sentence is wrong. I meant to say that NO OTHER idea other than to go back to the gold standard is going to work.

  3. Hey, I’ve got an idea. Why don’t we just go into total isolation until we get all these problems solved. We get to keep all of our oil, we don’t send a drop to the ficticious “world economy”, we get to keep all of our food, we don’t send a seed outside of the country until everyone has enough to eat and the grocery stores are full, we don’t spend a dime on foreign aid since we are sending it to countries who hate our guts or are spending the money on dope, weapons of mass destruction, or in support of Islamic terrorism. That way we get to keep every penny we make and don’t need to tax the American people anymore. We can keep all trade inside the U.S. with American companies and the American people. Our companies can produce everything American’s need and not buy a single piece of plastic from outside the country. That way we can RE-start all the companies who left the country for greener pastures and no unions or Social Security. And we wouldn’t need unions since employment would be necessary for every man and woman(who wanted to work outside the home) think about that statement for a second, and everyone would know how much everything cost or would need to cost. No more super over bloated housing prices either. We’d be back to $.23 cents a gallon gasoline.

    We would immideately shut down the State Dept. because we wouldn’t have anything to do with anyone outside the U.S. for some years anyway. Put the U.S. Army on both borders and not let anyone in or out. Why go outside the U.S.? Don’t most of us know people who’ve lived here all their lives and have not been two hundred miles from the town they were born? I do. Have you ever been to the Grand Canyon? I haven’t. There are thousands of place I’d love to see and haven’t ever had the time or the money to go see, so why go to see somebody else’s country when I haven’t even seen all of my own??

    Can you think of any better reasons to close the country off to the rest of the world? What people are dieing to buy one of our cars, and that’s enough reason to do business outside of the country all the time? I doubt that very seriously! Then get rid of everyone who doesn’t belong here, like all the Communists, Marxists, Socialists, illegal Mexican’s, anyone who doesn’t believe America is environmentally safe, or who are causing man made global warming, PETA, and any and all animal rights organization members, and anyone else who couldn’t pass the patriot test. What is it? If I told you it would be easy to cheat, now wouldn’t it?

  4. Besides all that, there have been people in our government who have for a long time now wanted to shut down our immigration for like ten years so as to give who’ve come here time to assimilate. I say twenty-five, a generation. And not allow anyone into the country, or out. That way we don’t have to worry about bringing diseases into the States from some godless country who hate our tourists, but love our money. Screw that. Our people can’t take a chance going anywher for fear of being kidnapped by Islamists who’ll cut their heads off just to make a political statement. Screw that. And to top it off, I would want the U.N. shut down and every foreign thrown out of the country. They’re all spies anyway, or dope dealers, or terrorist bringing more terrorists into the country disguised as “aids”. Bull!!

    Getting everyone out of the country who doesn’t belong here would be the very best first thing to do that would begin to straighten out our problems. Get all the foreign bankers out, foreign investors, and that would throw a big wrench into the formation of the New World Order. The New World Order is for the sake of money and power, that’s all!! Nothing else, just power over our lives, and the American lifestyle. We want to preserve that by all means, above all other things. God and country. Just almost like America was before World War Two!! That’s where we want to be, in a America like it was before the big war. It was after that when all this greed began, greed and power was all there was to have after we beat the Nazi’s and the Japs. We believed we were invenceable and all powerful. And it’s that that we need to return.

  5. Who do you think is behind the devalueation of our dollar anyway? It’s the people who are behind the New World Order, the globalists, the people who are pushing the World Poverty Tax, those who are the leaders of the World Environmental Movement, everyone from PETA to your local Occupy Wall Street puke. People like Maurice Strong who would love to see the American dollar devalued, he and George Soros who love playing with the value of our dollar. People like all those who have shared in the downfall of Freddie/Fannie. All the big banks, foreign investors, international investors who deal with currencies like other people change socks. People who deal with building and destroying countries like other people change socks. Before all that sort of thing started back in the Clinton administration who passed laws making things like Freddie and Fannie possible, the Socialist Democrats who wanted more of what they already had far to much of, more money and power, are looking to capitalize on those in other countries who are looking to be on the super committee, and I mean the real super committee, the one that will be over controling whole nations of people in the New World Order are jockying for position so that their names will be at the top of the list when all the countries that are guilty of resisting have fallen, will be ready to take over.

    The only wild card in the bunch is Islam and the Muslim people. What are they who are running the world going to do with them?

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