In the United States we have, in effect, two governments ... We have the duly constituted Government ... Then we have an independent, uncontrolled and uncoordinated government in the Federal Reserve System, operating the money powers which are reserved to Congress by the Constitution.
I have never yet had anyone who could, through the use of logic and reason, justify the Federal Government borrowing the use of its own money. I believe the time will come when people will demand that this be changed. I believe the time will come in this country when they will actually blame you and me and everyone else connected with the Congress for sitting idly by and permitting such an idiotic system to continue.
The dollar represents a one dollar debt to the Federal Reserve System. The Federal Reserve Banks create money out of thin air to buy Government Bonds from the U.S. Treasury...and has created out of nothing a ... debt which the American people are obliged to pay with interest.
If the Federal Reserve pursues a policy which Congress or the President believes not to be in the public interest, there is nothing Congress can do to reverse the policy. Nor is there anything the people can do. Such bastions of unaccountable power are undemocratic. The Federal Reserve System must be reformed, so that it is answerable to the elected representatives of the people.
There are many reasons why the general public doesn't really understand our monetary system. In the first place, money is something that people tend to get emotional about. After all, money involves, and always has involved, something closely akin to faith-which probably explains why in many past societies the money system has been in the hands of a priesthood, the subject of magical rites, and the ceremonial services of the tribe's medicine man.
In a democracy the responsibility for the Government's economic policies, which so affect the economy, normally rests with the elected representative of the people: in our case, with the President and the Congress. If these two follow economic policies inimical to the general welfare, they are accountable to the people for their actions on election day. With Federal Reserve independence, however, a body of men exist who control one of the most powerful levers moving the economy and who are responsible to no one.
The Federal Reserve is the overlord of the money supply. If these two are not steering in the same direction, they can either neutralize each other or have the economy lurching in all directions. This is not a rational system for setting economic policy. It has given us trouble in the past, as the text will establish, and will inevitably in the future.
There have been times when the Federal Reserve has restricted the money supply and raised interest rates to gain an end, which had much better been left to another Government agency or the Congress to attain. The country could have had lower interest rates without sacrificing anything else.
The Open Market Committee, as presently established, is plainly not in the public interest. This committee must be operated by purely public servants, representatives of the people as a whole and not any single interest group. The Open Market Committee should be abolished, and its powers transferred to the Federal Reserve Board - the present public members of the committee, with reasonably short terms of office.
It may seem strange, but Congress has never developed a set of goals for guiding Federal Reserve policy. In founding the System, Congress spoke about the country's need for "an elastic currency." Since then, Congress has passed the Full Employment Act, declaring its general intention to promote "maximum employment, production, and purchasing power." But it has never directly counseled the Federal Reserve.
Bad as "independence" is, the main fault of the Federal Reserve System - an admirable system if conducted in the public interest - is that too much power and control rests in the hands of people whose private interests are directly affected by the Federal Reserves' actions.
Also, the Federal Advisory Committee should be enlarged and reorganized. Members should be chosen for the broadest possible representation of the public interest, their main qualification: ability.
