A primer about the Fed.(THE LAST WORD)(United States. Federal Reserve Board)(Viewpoint essay)

The Federal Reserve's Federal Open Market Committee (FOMC) announced on December 11 its decision to lower interest rates by a quarter of a percentage point. Some financial analysts applauded; others complained that the cut was too small.

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The FOMC action showed, once again, that a very few powerful individuals, a mere 10 in this case, make incredibly important decisions affecting everyone who uses the American dollar. Such power was never contemplated by America's Founders, is not authorized in the U.S. Constitution, and ought to be canceled. But the Fed continues merrily along because so few Americans have any idea of what it is and how it works, or of the underlying falsehoods upon which it tests.

Falsehoods, yes! First of all, even though the Fed was created by an act of Congress and the chairman of the Fed is nominated by the president and confirmed by the Senate, it is a private, not a government entity. Since its inception in 1913, the Fed has presided over the multiplicity of booms and busts while becoming the absolute decider of the value of the nation's currency. Texas Congressman Wright Patman, the chairman of the House Banking Committee, summed up this extraordinary power in 1968: "In the United States today, we have in effect two governments.... We have the duly constituted government.... Then we have an independent, uncontrolled and uncoordinated government in the Federal Reserve, operating the money powers."

Among other falsehoods undergirding the Fed's existence, the chief is that money--a medium for exchange--has to be managed. Honest money bas always been a commodity accepted by all. Commodities don't have to be managed. History indicates that shells, cattle, tobacco, and salt were employed as money. But history also tells us that desirability, divisibility, transportability, durability, and relative scarcity are important characteristics of useful money. That being the case, mankind's wisdom settled on precious metals, gold being the most common choice, as the best commodity to use for money.

Because it is a commodity, the value of gold isn't managed. The marketplace makes that decision. It can safely be said that there bas never been honesty in the management of money in all history. Nor is there honesty in the Fed's management of the value of the U.S. dollar. Need something to back up that statement? When announcing their most recent cut in interest rates, the Fed's gurus stated that they took their action ...