Congratulations are in order for Congressman Ron Paul, whose long campaign for a full audit of the Federal Reserve has finally passed the House in what the Washington Times, in a dispatch linked on the Drudge Report, calls “a move that serves as a capstone” to the Texan’s career. The measure didn’t just pass the House. It was approved by a bi-partisan vote of 327 to 98, sending the bill to the Senate in which the majority leader, Harry Reid, supports an audit, at least in theory. Yet the Wall Street Journal reports that there are no plans, at least at the moment, to bring up the measure in the Senate.
The lesson of this saga is to redouble the drive for an audit. No one could imagine, when Dr. Paul began his quest for a decade ago, that the measure would pass the House with the kind of bi-partisan support it garnered today. A while back a kind of faux audit was passed, but it was so watered down that Dr. Paul was against it. The measure that passed today is a much tougher audit, one of the kind Dr. Paul has been seeking. The more the Democrats resist, more the need for an audit will come into focus, particularly at a time when more and more people are starting to come to grips with the possibility that errors of monetary policy are at the at the root of the Great Recession.
Chairman Bernanke has been digging himself in more and more against an audit. Were he the chief executive of a publicly held company, his shareholders would stand aghast at his recalcitrance and start asking why. Yet as recently as this week Mr. Bernanke told the Congress that an audit of the kind Congress is looking for — it could get into, among other things, the closed-door meetings at which Fed policy is made — risks a “nightmare scenario” that opens the Fed to meddling in monetary policy. “That will politicize the making of such policy, and I think it’s a bad way to go,” Reuters quoted the number two Democrat in the House, Steny Hoyer, as warning.
In fact, the politicization of the Fed has long since happened, and it was not the drive for transparency that did it. The politicization came with the era of fiat money, an era in which Congress stopped defining the dollar in terms of gold or any other specie. Congress threw up its hands and left matters to the Fed, interrupting only to require the Fed to work not only for stable prices but also for maximum employment. No less a figure than Secretary Geithner has been warning against politicizing the Fed, but, as these columns pointed out nearly two years ago in “How To Depoliticize the Fed,” the only proven way to take politics out of monetary policy is to restore a classical gold standard.
So we welcome the showdown that’s ahead. What is shaping up is a historic opportunity for the Congress to open up the question of the Fed, the whole question of the dollar, on the eve of the centenary of a central bank on whose watch the value of a dollar has collapsed to less than a 1,600th of an ounce of gold or less than a 77th of what it was when the Fed was created. The audit isn’t the only process through which Congress is starting to assert its monetary powers in the Constitution. Congressman Kevin Brady has a bill, the Sound Dollar Act, that would, among other things, repeal the misguided Humphrey Hawkins Act, which requires the Fed to conduct monetary policy with an eye to employment and return it to a goal of price stability. Congressman Paul himself is pressing the Free Competition in Currencies Act, which would end legal tender and permit the introduction of privately issued money. Auditing the Fed, though, is the right place to start, so the Congress and the voters can get a true picture of where we stand at the end of a century in which the Fed had its way.