Last month, delegates to Maine’s state Republican convention junked the party’s proposed platform in favor of one promoted by tea-party activists. While a majority of its planks are unremarkable conservative proposals, the platform garnered some national attention for its more extreme elements, particularly a flat assertion that global warming is a myth and that its proponents should be investigated for illegal collusion.
But one troubling component of the platform that has mostly escaped notice is its position on the Federal Reserve. The platform supports an audit of the Fed, a mostly uncontroversial proposition that recently passed the Senate 96–0, “as the first step in Ending the Fed.” It is now the official position of the Maine Republican party that the United States should abolish its central bank.
There are real concerns about the Fed’s actions in the last two years, including a move into financial-asset markets far larger and more opaque than the one the Treasury Department has undertaken through TARP. The Fed has loaned out more than $2 trillion, and we don’t know to whom or on what terms. This is why the Fed should be audited and, if necessary, subjected to new restrictions on its activities. It does not follow, however, that we can do without a central bank or that we should return to the gold standard. Indeed, these moves would expose the United States to sharper business cycles and more frequent banking panics — all to solve an inflation problem that doesn’t exist.
For the first 130 years of American history, central-banking policy was a flashpoint in political debates. The period featured repeated establishments and disestablishments of central banks, a contest finally resolved with the creation of the Federal Reserve in 1913. In the ensuing 100 years, keeping the Fed has been largely uncontroversial. Since the early 1980s, its low inflation targets and its use of nonmetallic currency have been equally uncontroversial. No significant contingent within either political party has talked seriously about ending central banking for decades.
One outlier is Rep. Ron Paul (R., Texas), who has a bill before Congress to abolish the Fed — co-sponsored by none of his colleagues. How did his fringe position end up on a state Republican party’s platform? Three developments in the last two years have generated new enthusiasm for abolishing the Fed in certain Republican activist circles.