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June 10, 2003

Is the Fed a Private Corporation?
by Nelson Hultberg

No one in the hard money community today disputes that the Federal Reserve is the source of many of our economic woes. Where disagreement arises is in defining the precise nature of the Fed and the source of its capacity to create the harm it does. Many who support gold money and free enterprise claim that the Federal Reserve is a "private entity" run by capitalist mega-financiers. This I believe to be mistaken.

I wrote in my recent article, "The Ark of Freedom," that the Federal Reserve is NOT a private banking system. It is a government-run fascist cartel. This is because all nationally chartered banks are forced by the government to join the cartel. Therefore they are not free. Greenspan and his board of governors are appointed by the President and approved by the Senate. The Federal Reserve Act of 1913 was passed by Congress, and it can be rescinded or altered at anytime by Congress. This is clearly government involvement in a massive way, which means the Fed is hardly a private corporation. Without Congress and the federal laws and special privileges that sustain the Fed, it disappears.

Moreover, as Harry Browne points out, the great bulk of the profits of the Reserve Banks are TURNED OVER TO THE FEDERAL TREASURY. Government is thus a full partner in the Federal Reserve System. And a business entity with the government as a partner is not private!

Courts Create a Fallacy
Much of the reasoning behind the mistaken notion that the Federal Reserve is a private corporation lies in court cases such as LEWIS vs. United States on June 24, 1982. In that case, the 9th Circuit Court ruled: "We conclude that the [Federal] Reserve Banks are not federal...but are independent, privately owned...corporations...without day to day direction from the federal government."

There are numerous cases like this where the courts have ruled that the Reserve Banks of the System are privately owned and controlled corporations. The mistake made here by those who support the notion of a "private Fed" is that because the courts declare something to be so, it somehow makes it so. This, of course, is a fallacy. Judges only interpret the law; they do not make the truth. Truth is something we discover through identification of the facts of reality and coherence with the laws of logic. Men do not form the truth; they find it through a process of synthesizing reason, experience and intuition.

What then are the facts of reality and the laws of logic in this case? They are what I outlined in my previous article,"Economic Fascism and Tax Slavery." A private entity in the marketplace is the opposite of a public entity. It is a free entity without involvement of any kind from government bureaucracy. It is an entity that is operating in a LAISSEZ-FAIRE environment. To the extent that government intervenes into and controls, regulates, or manipulates an entity's market policies, then that entity is no longer private or free. It becomes fascist to some degree or another. How much government involvement there is will determine how fascist the entity becomes.

I consider Exxon Corporation to be a quasi-fascist entity because of its integrated relationship with the government through regulations, controls, policy planning, and profit confiscation. Does Exxon, however, have its CEO and board of directors appointed and confirmed by the government? No, but the Fed does. Are the great bulk of Exxon's profits turned over to the federal Treasury? No, but the Fed's profits are. Can Exxon be voted out of existence tomorrow by Congress? No, but the Fed can. Private corporations do not have their operating officers appointed by government. They do not relinquish the great bulk of their profits to the U.S. Treasury. And they cannot be voted out of existence by Congress. Therefore despite what our courts maintain, the Fed is not a PRIVATE corporation; it is a government run cartel.

The fact that the courts DEFINE the Fed as "private" is the way that tyrannical ideologues pull the wool over the people's eyes. This is done to make the people think we are still a free, "private" enterprise country. This is how they smuggle us into authoritarianism -- by getting the intelligentsia of the country to buy into their REDEFINITION of words. The courts are run by fascist judges, and the schools are run by fascist professors -- all pretending that we are still a "free" enterprise system. In fact, many of them actually believe their own warped logic. It's the way they were taught, and they lack the intellectual rigor to investigate the fallacies of their assumptions. They ritualistically use the term "private" because it conveys the image of "free." But private in this instance is in name only. If a private entity does not have control over its operations, its profits, and its policies, then it is no longer private; it is public.

Who Controls Who?
So do the bankers control the government as some on the political right believe, or does the Federal Government control the bankers as others believe? One way to answer this question is to ask who can abolish who? Can the Federal Government abolish the Fed? Certainly. Anytime it wants to, Congress could eliminate the Fed by a majority vote of its members. But can the mega-bankers, with all their power to influence politicians, abolish the Federal Government? Hardly. In this respect of creation and abolition, the Federal Government is the power behind the evil of our financial system. At least it is theoretically. But in actual practice, I think it is more accurate to say that the evil comes from the combine of the two forces. Separately, neither the mega-bankers, nor the Federal Government would be able to wield the dangerous control over our lives that they gain in concert. It is only when they join forces to become "partners" that they gain the power to do the evil they do.

When the mega-banks of America were still largely free-market institutions operating under the gold standard during the 19th century, their capacity for dangerous power over our economy and individual lives was limited. Likewise with the Federal Government; when it was still a defined Constitutional body without the ability to print paper money, its capacity for dangerous power over our economy and individual lives was limited. But in 1913, these limitations were destroyed because the mega-banks and the Federal Government went into partnership. They formed the massive cartel of the Federal Reserve System. And in doing so, the Federal Government granted monopolistic powers to the mega-banks, which gave them the power to egregiously expand the money supply via credit creation. After elimination of the dollar's gold convertibility in 1933 and 1971, this became the power to create money indiscriminately.

What is important to understand, however, is that the mega-banks could never have achieved such a dangerous power grab without the complicity of the Federal Government. Once again, it was the Federal Reserve Act of 1913 that brought the Creature into being. It was Congress that voted to grant monopoly status to the mega-bankers, which gave them their dangerous credit creation power. Without their monopoly backed by the force of government legal tender laws, the mega-bankers do not have the capacity to expand the money supply inordinately and rob us of our wealth. Thus for all their reputed control over world events, the mega-bankers do not become dangerous until they JOIN FORCES WITH THE GOVERNMENT, which gives them the dangerous powers of monopoly and egregious credit creation. In their singularity, neither of these institutions (government or the banks) is capable of the corruption and the wholesale destruction of our wealth that they are capable of when they join together.

Reinforcing the Collectivist Mantra
Why it is so important to clarify this misconception of a "private Fed" is because the Fed is an evil institution. When we mistakenly define it as a private corporation, we then reinforce the collectivists' ideological mantra about free enterprise being evil. If the Fed is both a private corporation and evil, then the collectivists' claim that private corporations need to be pervasively controled by centralized government gains merit in the people's eyes.

The answer to the corruption of our banking system is to PRIVATIZE the banks, i.e, abolish the Fed entirely and restore the independence of all its member banks. But how can we privatize the Fed if it is already a private corporation? How can we privatize the ownership of gold if it is already privately owned?

But if we portray the Fed as it actually is (a government run cartel) then the solution to its evil becomes clear -- end its connection to the government, which would eliminate its monopoly status and its power to dangerously expand the money supply. Simply abolish the Reserve Banks and make the member banks independent institutions again. In other words, establish a free-market for banking and require banks to operate within it. Repeal the government's legal tender laws and let the marketplace decide what should be used for money. The banks would then have to offer quality gold money that the people desired, rather than corruptible paper money that a government cartel mandates. This would decentralize the financial power of our economy out among the thousands of individual banks throughout the country and strip the Federal Government of its dangerous control over our wealth and productivity. For an excellent analysis on abolishing the Fed, see Murray N. Rothbard's two monographs, "The Case Against the Fed" and "The Case for a 100 Percent Gold Dollar," along with his essay, "Taking Money Back." [ www.mises.org ]

Separate the State and the Banks
By portraying the Fed in its true light, as a fascist cartel rather than a private corporation, we can then arrive at the right solution to the financial corruption taking place in our society today -- which is to separate the financial power of society from the state power.

Separate the state and the banks just as we long ago separated the state and the churches. Independently, these three institutions will function properly; but let the coercive power of the state fuse with either the moral power of religion or the financial power of the banks -- and you are begging for a dictatorship.

If the reader will stop and think about why it was so necessary for men to separate the moral power of the church from the state centuries ago, then he will understand also why it is so vital to separate the financial power of banking from the state today.

When the church and the state formed alliances during the Middle Ages, the clergy gained the power to impose their dictates upon the populace by the physical force of the law. With separation of the state and the church, however, it then became necessary for the clergy to win their converts over voluntarily. If a church member didn't like a certain policy of his religion, he was free to walk away without any fear of reprisals from the coercive machinery of the clergy-state combine.

This same principle applies also to the banking world. When banks form alliances with the government, they then become capable of imposing their will (or paper money) upon the populace by the physical force of the law. With the separation of the state and the banks in a laissez-faire economy, however, all bankers must then win their customers over voluntarily with quality money and service, just as the clergy have had to win their converts over voluntarily with better ideas and service. Thus, it is not mega-banks that are evil. It is mega-banks forming alliances with the state that is evil.

No privatization solution to our present crisis can be brought about, though, as long as we persist in mistakenly terming the Fed as a "private corporation." The collectivists will always use such a fallacy to con the people into believing that private corporations are evil, therefore free businesses are evil, therefore free enterprise is evil, therefore FREEDOM IS EVIL. This is the message that the collectivists have been preaching for over 100 years -- that free enterprise leads to chaos, monopolies, exploitation, poverty, alienation, and war. Only by centralizing our government in Washington, they maintain, and eventually merging it with all other centralized governments of the world into a One World Government, can we develop a force effective enough to rid the world of such "capitalist spawned dangers."

Those on the political right, who preach that the Fed is a private corporation, play directly into the hands of those who hate capitalism and freedom. What else can one conclude about capitalism if the evil of the Fed is due to the fact that it is a "private corporation?" If capitalism has created such an evil power, then we need (as the collectivists are always eager to tell us) more government power in Washington to counteract it. We need more centralization, more regulation, more bureaucracy, more taxes. This is the sucker's game that the collectivists have been playing for decades. Demand more power for the central government to counteract evils that the power of the central government has brought into being in the first place. The Fed is a perfect example of this. Its egregious monopoly power that supposedly the government is going to "solve" for us is a result of government and its legislation. We don't need a government solution to this problem; we need a government withdrawl from causing it.

Confusion of the Reformers
There are several banking reform measures being proposed today that fall victim to this idea that government is the solution to the evils of our fascist Federal Reserve System. One such example is the National Economic Stabilization and Recovery Act (NESARA). It proposes quite a radical overhaul of the monetary system; but because the NESARA people mistakenly conceive of the Fed as being private, they assume that the answer to its abuse of money is to give the money creation power to Congress. This is jumping from the frying pan into the fire. Does anyone really believe that Congress will responsibly use such a power? They will do the same thing that the Fed has done for 90 years; they will corrupt the currency in order to create the illusion of prosperity, so as to get elected to office again and again. NESARA's proposal actually states that by giving Congress the power to create money, "the people" will be able to "create as much or as little currency as they need." You can bet your fanny that once Congress has the power to create money, the people and their representatives will make liberal use of it. They will "create as much as they need" all right. And since humans have a tendency toward endless "need" of money, they will ultimately succumb to the same pitfalls as Greenspan & Co. To read the NESARA proposal, check: [ http://nesara.org/bill/detailed_summary1.htm ]

Giving Congress the power to create money solves nothing because it doesn't get at the root of our banking problem, which is the banks' monopoly power over money creation brought about by the U.S. Treasury's power to print fiat currency. Giving that monopoly power to Congress will only transfer the corruption to another sector of the government. Again the error here is that too many reformers mistakenly assume that the Fed's power is private, thus it must be counterbalanced by public power, i.e., government, in order to preserve the monetary system's integrity. But the Fed's power is not private; it stems from its special fascistic relationship with the government. It is the combine of bankers and government that has destroyed money's integrity throughout history. Hoping that the voters in combine with government will somehow restore its integrity is just one more illusion.

Year after year, very astute intellectuals fall victim to this fallacy that government is our solution to the problems that government has caused. They never make the connection between monopoly and government, between inflation and government, between depressions and government, between the general ills of our society and government. They have been taught by their collectivist professors that chaos, poverty, monopolies, exploitation, and war stem from the private marketplace, that therefore private corporations are their enemy and public government their friend.

Sadly in their confusion on this issue, many advocates of freedom and Constitutional government on the political right, are adding fuel to this Marxist fire with their mistaken characterizations of the Federal Reserve as a monstrously evil PRIVATE corporation.

The mega-banks that make up the Federal Reserve System are dangerously evil, there is no doubt about that. But their evil does not spring from their "privateness," nor their "corporateness." Their evil springs from the mixture of their corporate goals with government coercion, from the fact that they are in bed with the biggest evil of all -- the federal Leviathan in Washington. Kick them out of that bed into the free-market and we solve the problem of mega-bank exploitation.

The Marxists are hard at work here muddying up the ideological waters by smearing the system of capitalism. We do not need to give them added ammunition, which is what we do when we claim that the Federal Reserve is a private corporation. When we lament that private mega-bankers control our government, that in fact they operate behind the curtain to pull all the strings, we are reinforcing the Marxist smear that free enterprise is a system of favoritism for business class interests, that it is exploitation of the people by private financiers. Class interest favoritism and exploitation are certainly rife throughout our system. But such corruptions are not the result of private corporations and capitalism; they are the result of government cartels and fascism.

No private bank in a free-market would possess the power that the government's mega-bank cartel possesses. So it is not correct to say that the mega-bankers are controlling government. We should be saying that they have joined forces with the government to help the government control us.

Likewise the churches of the Middle Ages did not control the governments of that era; they joined forces with the royal monarchies to help the kings control the people, which in return allowed the churches to gain in wealth and power themselves. The COMBINE of the two was what created the power of exploitation. The same holds true with modern government / banking combines.

Immense confusion reigns throughout our nation today as to what free enterprise is, what legitimate government entails, how monopolies form, what our rights are, etc. This confusion has been brought about because of grievous fallacies taught in the universities, which has given us legions of Mad Hatters who twist and corrupt the meaning of words to make them mean what they want them to mean. These Orwellians are misusing words to manipulate the masses into voting America into servitude. Their semantic manipulation is quite apparent in today's analysis of the Federal Reserve System. Our authorities in the courts and in the schools PRETEND that Federal Reserve banks are private corporations operating in a capitalist free-market, and most of the intelligentsia buy into it. This enables the authoritarians to bamboozle the people into thinking they are still free.

If we are to succeed in checking their dictatorial aggrandizement that is insidiously moving us toward a One World Government, then we must refuse to play the game by their perverted rules. We must quit lending credence to their pretense. This means we must quit portraying the dangers to our freedom as coming from "private" corporations and banks. The despotism growing amidst us stems from our government and our banks combining into a grotesque mutation that is neither private nor free. To win the battle against this despotism, we have to portray its reality properly to the people. We have to portray the truth. We have to be clear and rational. Freedom can prevail in no other way.

Nelson Hultberg
Americans for a Free Republic

Nelson Hultberg is a freelance writer in Dallas, Texas and the Executive Director of Americans for a Free Republic www .afr.org. His articles have appeared in such publications as The Dallas Morning News, Insight, The Freeman, Liberty, and The Social Critic, as well as numerous Internet sites. He is the author of Why We Must Abolish The Income Tax And The IRS (1997) and Breaking the Demopublican Monopoly(2004). He is presently finishing a book on political-economic philosophy entitled The Golden Mean: The Case for Libertarian Politics and Conservative Values.