Reading “End The Fed” (chapter 3)

Chapter 3 of “End The Fed” is entitled, “My Intellectual Influences”.

Here, Congressman Paul highlights three experiences from his childhood that carried valuable economic lessons.  They are: coin collecting, selling milk, and hearing inflationary tales of a German grandmother.

Coin Collecting

A coffee can full of Indian head pennies sat in his home – his father was fascinated with them, and collected them. Ron would sort through the pennies, and was the only one who knew that a 1909-S penny resided in the can. He saved up his money and bought the can from his father – 985 pennies for $20. That 1909-S penny has outpaced inflation in its increase in value, one of the main reasons being because of its rarity. Only 309,000 of those were minted. Says Ron Paul, “It was years before I understood the relationship between the money supply and the value of our currency and the business cycle, but even back then I was impressed with the relationship of low mintage and value.

A 1909-S Indian Head penny.

Selling Milk

His father operated a small dairy – Ron and his siblings helped. When the fresh milk would arrive at the dairy for selling, his father would test for two things. First, he would check the flavor (in case the cow had wandered into a wild onion patch). Second, he would check for dilution. There was a “concern the milk might have been diluted by water. In time I realized the crime of dilution was identical to the crime of managing an elastic currency by the dilution principle.” In other words, adding a gallon of water to ten gallons of milk allows one to sell eleven gallons of “milk.” In reality, each gallon is less valuable – but, the vendor would attempt to sell it at the same price as undiluted milk. Essentially, they “created” milk out of thin air (or water). The Federal Reserve does this with the money supply. They print extra money for use as they see fit, and spend it at the price of the dollar before the money was printed – then the American citizens experience the devaluation of their dollar because of it.

Don't put water in the milk!

German Hyperinflation

A graph showing the devaluation of the currency in the Weimar Republic that resulted when the government tried to print money in order to pay for all the WWI reparations.

His grandmother was the daughter of German immigrants. Upon traveling to Germany to visit her extended family in the mid-1920s, Ron Paul speculates that she heard tales of the hyperinflation of the Weimar Republic, and returned to America with a wariness about the value of the dollar. She resisted selling their farm, claiming they should hold onto the land “in case the money goes bad.” This is the fear that results from an unstable monetary policy and a central bank like the Federal Reserve who continually destabilizes the dollar and economy.

A German medal commemorating the Weimar hyperinflation. It reads: "On 1st November, 1923 1 pound of bread cost 3 billion, 1 pound of meat: 36 billion, 1 glass of beer: 4 billion"

He goes on to list his intellectual influences: F. A. Hayek and Ludwig von Mises, both of the “Austrian” economic school of thought – advocates of free markets and the gold standard, and harsh critics of government’s interventions in the marketplace and the currency.

It was because of these experiences and these economists that Ron Paul gained an acute interest in economics. He ran for political office simply to gain a platform for talking about these issues, never suspecting that he would run – three separate times – for president because of the growing popularity of the economic and social ideals he had espoused.

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One Response to Reading “End The Fed” (chapter 3)

  1. friendmouse says:

    Ron Paul for President. That’s what I say!

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