Abolishing the Federal Reserve

William Johnson


March 31st, 2014

Why ending the Fed could be one of the best decisions America ever makes.

It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning
– Henry Ford, American Industrialist.

On December 23rd 1913 the Federal Reserve Act, with the assistance of several US Senators and Wall Street bankers, was born. The American National legislative body – known as Congress – voted in the proposal to set up America’s first Central Banking system and granted legal authority to Federal Reserve Notes; the currency now known as the American Dollar. Perhaps back then this decision was in the nation’s best interests, but now the answer for the future is remarkably clear.

1929, 1937, 1945, 1948, 1957, 1960, 1969, 1980, 1986, 1990, 2000, 2007

To some these dates would just seem like years of the past. But what lies within them highlights an immense problem, the cause of which needs to be immediately addressed; in these years the world experienced downturns, recessions, depressions and sometimes a combination of all three. All because of the American Federal Reserve Bank.

In order to fully extract the essence of the Fed’s uselessness we must firstly look at what prompted the United States to travel down the path of creating a united central banking system. In the late 1790s American paper currency was introduced in replacement of trade items and coins, yet it was foolishly issued in such great quantities that it led to inflation in vast quantities (in fact, between the day the Federal Reserve was established and this very day inflation has increased by a staggering 2258%). People quickly lost faith in notes and began investing in ‘real’ assets such as gold. The financial crises of 1907 persuaded many Americans that the country needed some form of banking and currency reform that would provide a ready form of monetary supply and allow currency and credit to expand and contract. Alas, the Fed was created.

There is no doubt the passing of the Federal Reserve Act brought a wave of prosperity for the future and what this new modern banking system could provide to America in the aftermath of the great Civil War and at a time of great social and economic uncertainty. But alas, they were short lived. Of course, those who voted in the proposal could never foresee how damaging the Fed would be to an entire nation, but looking back we can see how beneficial replacing the Federal Reserve would be.

As Henry Ford pointed out, a sense of naivety has always existed surrounding the need and justification for implementing a Federal Reserve. The primary of which, of course, is the thought that the general public’s financial interests are held foremost in the actions of this institution. But this has proven to be false both in the Fed’s beginning and of contemporary times, a prime example of which lies in the Great Depression of 1929. Renowned economists Milton Friedman and Anna Schwartz highlighted, after analysing the Fed’s actions after the Wall Street crash, a contraction in the money supply to struggling banks and a refusal to bail them out. These institutions went bankrupt, diminishing millions citizens’ savings and transforming what began as a mild recession into a financial and social catastrophe.

Federal Reserve Chairman Ben Bernanke fully acknowledged his institution’s past damaging actions in a speech dedicated to Friedman on his ninetieth birthday (November 8, 2002), “You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again”.

But it did happen again. After the dot-com bubble of 2001 and the devastating attacks upon the World Trade Centre and Pentagon, the Fed immediately lowered interest rates to a historic 1% to boost consumer confidence and the American economy. But this lead to households and businesses taking on cheap debt and the creation of incredibly risky investments and the housing bubble, the collapse of which has gone down in history as the Global Financial Crises.

Another commonly misunderstood concept is that the Federal Reserve system is, in fact, a privately owned banking cartel, not a public institution, making it one of the biggest conflicts of interest in financial history. In its ‘constitutional’ beginning the Federal Reserve Act required all nationally chartered banks to become members of the Fed system and issued them with non-transferrable shares. These banks are therefore considered to be the owners of the Fed, not the government. But the issue with this is that these banks have received financial assistance even when it occurred outside the general public’s financial interests.

Let’s just examine this for a moment. In the midst of the Global Financial Crisis, billions of dollars’ worth of taxpayer money were used to bailout the very shareholders of the Fed; including Goldman Sachs, Bank of America and Bear Sterns. These firms voluntarily invested themselves with risky investments known as ‘credit default swaps’, with the tax revenue being used to clean up the Wall Street mess. The Fed immediately stepped in not for the general public. Yet the opposite scenario has also occurred. The fate of toxic debt-ridden bank Lehman Brothers had its fate left entirely in the hands of the Fed, who eventually let the forth-largest investment bank in America fail on the grounds of moral hazard.

So if the Fed were to be replaced how would this occur? And more importantly, how effective would it be?

The path to reshape the central banking system is one that is moderately fast and effective. Once the Federal Reserve Act of 1913 is revoked in Congress, the gold that is kept on deposit by the Federal Reserve would be transferred back to the American treasury.

There are a number of monetary systems that have been proposed by some of the world’s leading economists and financial experts that would solve nearly all of the current fiscal problems. The first of which was put forward by University of Chicago economist Henry Simons in An Essay on Banking Reform. He contended that reforming the monetary system would promote economic stability if there are stable rules for monetary policy. Pure fiat money should be issued by the government replacing the Central Bank and thus would not rely upon any committee, but rather exclusively on the free market. The author’s theory incorporates 100% reserve banking without the need for the gold standard (the system before the Fed). The following is an excerpt from his novel, “these banking proposals define means for eliminating the perverse elasticity of credit which obtains under a system of private, commercial banking and for restoring to the central government complete control over the quantity of effective money and its value.

The likelihood of the system being changed or indeed the Reserve Act being revoked is incredibly low, however without change a continual series of biased, catastrophic events with devastating repercussions will occur, just as we saw in 2008 and the many recessions of the past. Just as Henry Ford pointed out, the actions of the Fed would shock many people of whom it is meant to be protecting.

It is necessary, therefore, to continue to study the American Federal Reserve and monetary systems outlined by economists such as Henry Simons that could well be used to replace a failing financial system. The process will by no means be simple, yet is necessary for the financial security and continual prosperity of America and its citizens.

So the next time someone mentions December 23rd 1913, just remember the ineffective banking system and the lives of many it has impacted. When and only when this system is abolished, America can truly reshape into a nation its founders would be proud of.


The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

  • Owen Wakely

    Hi William. A very engaging and thought provoking article. Well done. Owen

Founding sponsors




Gold sponsors


Silver sponsors