Can We Have Both Liberty and a Federal Reserve?

I had a talk to my 15-year old daughter today. She is taking an online business class, and I noticed something in her economics textbook that I didn’t like. It was the definition of inflation: “The increase in the price of a commodity or service, or groups of commodities and services.” Since the class is at a Christian online school, I expected the teachers to have at least a conservative worldview, and define the concepts from a good old Christian conservative position. I asked her if her teacher believed that inflation was the same as “price increase.” She said yes, that’s what he was teaching them.

So we had to spend some time for her to understand that price increase is not necessarily inflation. When the price of of a seasonal fruit – grapefruits or watermelons, for example – goes down, this is not deflation. And when it goes up because they are out of season, this is not inflation. Inflation properly is defined as “an artificial increase in the money supply and the available credit leading to decrease of the currency’s value and therefore to general increase of all prices.”

My daughter is a smart girl – I know, I know, she must have gotten it from her mother – so she immediately asked the question: “If it is inevitable that the prices will rise with the inflation of the money supply, why do they keep printing more money?” Smart question.

Well, my reply was, do the prices rise right away? No, she said after some thinking, not before the new money reaches the market in the form of effective demand. Exactly. So whoever has the new money – and that means the government or the agents of the government or the favorites of the government (think Wall Street and the welfare recipients) – goes to the market and starts buying with the new money but at the old prices. The increased demand makes the sellers uneasy and give it some more time, they start raising their prices to accommodate to the new level of demand.

Now, tell me, I asked, who profits from this?

My daughter was quick: Whoever has the new money and buys at the old prices. Exactly.

It didn’t take her long to think of the next logical step: So if the government keeps printing money and keeps using them to buy commodities and services, or its favorites keep buying commodities and services, they will always be ahead of the market and always profit at the expense of everyone else who adjusts their prices later. I nodded. Then, she said, by constantly inflating the government always makes us get less for whatever we offer because we are always a step behind. This sounds like a hidden tax to me.

A smart daughter I have. Yes, I replied.

She continued: Then, inflation is an attack against liberty, since our Founding Fathers rose against taxes to defend their liberty.

I said, yes. And that is the history of the Federal Reserve. You know how much liberty we have been deprived of by looking at how much the dollar has been reduced in value for the last 98 years.

My 15-year-old daughter got it.

Millions of Republican voters don’t get it. They talk about “liberty,” they talk about America as it is supposed to be, they talk about the Founding Fathers, they talk about “conservatism” and “what it used to be in the past.” And very few understand that more taxes mean less liberty. Even fewer grasp the simple fact that inflation is a hidden tax. And only a portion among those are able to come to the logical conclusion that the Federal Reserve, the institution responsible for the demise of the US Dollar, is incompatible with our liberty. That it must go, and the control over the money supply must be taken out of the hands of politicians and bankers and returned back to the market. That our families, our property, and our churches are not protected unless our savings are protected. And our savings are not protected as long as politicians and central bankers can play with the value of the dollar by inflating it.

That the Republican debate is not revolving around this issue is a clear sign that America hasn’t awaken yet – not enough to deserve her liberty and be worthy of her Founding Fathers.