We should take Ron Paul seriously. The Texas congressman had an impressive showing in the Iowa caucuses on Tuesday and his poll numbers elsewhere are resilient – he is running a strong third among Republicans nationally and is currently second in New Hampshire polling. He may well become the Republican candidate with populist momentum and energy in the weeks ahead. Mr. Paul also has a clearly articulated view on the American banking system, laid out forcefully in his 2009 book, “End the Fed.” This book and its bottom-line recommendation that the United States should return to the gold standard – and abolish the Federal Reserve System – tend to be dismissed out of hand by many. That’s a mistake, because Mr. Paul makes many sensible and well-informed points.
But there is a curious disconnect between his diagnosis and his proposed cure, and this disconnect tells us a great deal about why this version of populism from the right is unlikely to make much progress in its current form.
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Would abolishing the Fed really create a paradise for entrepreneurial banking start-ups, enabling them to challenge and overthrow the megabanks?
Or would it just concentrate even more power in the hands of the largest financial players? It is hard to find a moment of greater inequality of power than that of the Gilded Age of the late 1800s – with the gold standard and the associated credit system firmly working to the advantage of J.P. Morgan and his colleagues.
Mr. Paul insists that “in a competitive and free system, deposits would not be unsafe; any that were not paid back that were promised would fall under the laws of protection against fraud” (Page 27).
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Ending the Fed – even if that were possible or desirable – would not end the problem of too-big-to-fail banks. The only credible way to threaten not to bail them out is to insist that even the largest bank is not big enough to bring down the financial system.
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