GUY RAZ, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Guy Raz.
Texas Congressman Ron Paul is probably the biggest critic of the Federal Reserve on Capitol Hill. He's called for a return to the gold standard, and he believes the central bank is too powerful. He even wrote a book called "End the Fed," which came out last year.
And early next month, Ron Paul will become the chairman of the House subcommittee that oversees the Fed and the valuation of the U.S. dollar. It's likely to be a rocky few years for Fed chairman Ben Bernanke. And Ron Paul, the subject of our cover story today, will explain why in a few moments.
But first, we called up NPR's Adam Davidson from the Planet Money team to ask this question: Why does the Fed exist at all?
ADAM DAVIDSON: I think the simplest way to put it is we don't trust politicians with the job of creating money. This is something that has been observed for thousands of years. You can see in ancient Greek times, in Roman times, Medieval kings.
If you're a leader and you have the power to mint coins or to print cash money, and you're facing a war or you're facing a starving population, it's extremely tempting, in fact, almost irresistible, it seems, to just print lots and lots and lots of money.
RAZ: Just keep going.
DAVIDSON: Just keep going. And what happens is you experience the world as if you have tremendous spending power for a period of time. But, you know, a year, two years later, you have massive, out-of-control inflation, that currency becomes worthless.
You know, it's something we see in Zimbabwe now. We've seen it in Brazil, Argentina, Israel in recent memory. And that out-of-control inflation, though, that's always often the future. And political rulers are often very shortsighted. They have a problem today. So, why am I going to worry about a problem two years from now?
So the core reason why you have a central bank, what we call the Federal Reserve Bank, is to take the job of creating money out of the hands of politicians, to make it politically independent.
The other main role of a Fed is being the borrower of last resort.
DAVIDSON: And it's just inherent in a banking system that, you know, basically you're making a gamble. You're saying banks are able to lend out deposits. And they do that based on mathematical formula that a certain number of people won't want their money back on any given day, so we can lend that money out for productive uses.
And the problem with that banking model is every bank is ultimately vulnerable to runs, to bank runs. And so any bank, even the most well-run, most prudent, could be destroyed on any given day if, you know, more than five or 10 or 15 percent of its depositors suddenly said I want my money today.
DAVIDSON: And so you have a Fed to lend money to them during those emergencies.
RAZ: That's NPR's Adam Davidson with Planet Money.
Adam, thanks so much.
DAVIDSON: Thank you, Guy.
RAZ: And as I mentioned earlier, Ron Paul's latest book, a New York Times bestseller, has a simple and catchy title. It's called "End the Fed." So when he becomes the sheriff who oversees the Federal Reserve, will it be his chance to do just that, to end it?
Representative RON PAUL (Republican, Texas): Well, in a partial sense but not directly.
In the Fed book, it concludes by saying that what I'm really asking for is competition, to get rid of the monopoly power of the Fed because they don't have legitimate power to do what they do, and the Constitution didn't justify it, and the Constitution mandates gold and silver as legal tender.
So what I want to do is legalize gold and silver, which is the proper monetary system, and compete with the Federal Reserve. And I believe the Fed will eventually end itself because they're working on a monetary system that is not viable.
The main thing I will do will be to continue the effort to at least get transparency of the Fed, to audit the Fed, to know what they've been doing.
RAZ: Ron Paul, I mean, if you do audit the Fed, if the Fed can be audited, doesn't that effectively turn, you know, what is supposed to be an independent branch of the government into a politicized one, you know, beholden to whichever party is in power at the time?
Rep. PAUL: Well, I think that's a misconception because I think you describe what has been accepted over the decades. But there's nothing that says that a secret body should have the right to create money at will and pass it out. And to say that oversight means it's politicized, it's very politicized already. It does respond to the powerful interests who are able to get the benefits at the expense of the few.
RAZ: You've called the Federal Reserve a cartel, saying that it has monopoly control over the U.S. dollar. You've proposed an idea that would allow other forms of currency to compete against the dollar in the U.S. Explain how it would work.
Rep. PAUL: Well, what I would do is repeal the legal tender laws. The legal tender laws has done exactly opposite of what the Constitution says. They said only gold and silver can be legal tender. If you use gold and silver, you can go to jail for it. Some have tried it, and they go to prison.
I want people to be able to compete and use, which is legal and constitutional, and that they could use a gold currency.
RAZ: You talk about the idea of a return of the gold standard. As you know, and I'm sure you'll acknowledge, very few mainstream economists back this idea. They argue that under that standard, the U.S. experienced these recurring cycles of inflation, which is something a whole generation of Americans have never experienced.
Rep. PAUL: That's my goal is to explain how that happened because you can't have inflation without somebody artificially creating money and credit out of thin air. And the real problem is that low interest rates distort the economy.
It tells the businessman that there's a lot of savings out there, and they believe, oh, a lot of savings, it's time for capital investment. Then they go and build too many houses and too many hotels and too many of this and that and shopping centers until the bubble gets so big that the bubble bursts.
So although there's not many establishment people talking about a true gold standard, they're already recognizing that they have to talk about it because Zoellick, the World Bank, has said, yeah, we need to talk about monetary reform. We'd better include gold. We have good history...
RAZ: He backtracked for - Just in his defense, he backtracked on that just slightly.
Rep. PAUL: Oh, I know, but he was speaking the truth inadvertently.
RAZ: Let me turn to another issue now, and that is your son, of course, the new senator from Kentucky. What do you make of the fact that your son will now work on the other side of the Capitol building from you?
Rep. PAUL: Oh, I think it's interesting, and it's gotten some interest as a special interest story, but I don't think it's, you know, a major event, you know?
RAZ: I mean, you're a father. I mean, I'm a father. You must be proud of him.
Rep. PAUL: Oh, certainly, you know? And he benefitted, and he, of course, he had the disadvantages. So he had to answer all the questions of what people see me as being negative. Of course, he had the advantage of a lot of people think of me as doing positive things, and that probably helped him raise money, but I really didn't get involved in his campaign.
I think the whole movement is a bigger story, you know, how many other people, I mean, the 60-some new Republicans and a bunch of new senators besides Rand. I mean, this is what's interesting to me. And the fact that the Federal Reserve is an issue, now that to me is big news.
RAZ: Some of your supporters are even hoping for a Ron Paul-Rand Paul ticket in 2012. Is that something you would even entertain?
Rep. PAUL: I haven't entertained it, but I don't think that is likely. And I think that probably was thrown out there to make an interesting story.
RAZ: Will you run for president in 2012?
Rep. PAUL: Well, it's possible, and I haven't ruled it out. So I'll probably be deciding at the beginning of the year. And people ask me if I think about it a lot, and I do because a lot of people ask me about it.
RAZ: I think you'd be the first to acknowledge that you're not necessarily the most naturally dynamic speaker. Yet your thoughts, your ideas, they resonate, they seem to resonate with millions of Americans. And whenever we have had you on this program, the comments section, you know, on our website lights up with hundreds of comments. What do you make of this kind of, you know, cult of Ron Paul that is around you that, you know, you never really seemed to work to encourage?
Rep. PAUL: No, and I sometimes am very surprised about it because I have been doing the same thing for a good many years. And I have frequently said I never really expected to get hardly any attention. And I always assumed that my role would be to try to set a record and say what I thought was right and how I took my oath of office seriously and how I understood sound economics. And maybe somebody would look at it.
So I was surprised in the last two years that people have gotten interested, and I think it is the views. I think ideas are the most important, and it's one of these things, ideas whose time has come.
RAZ: Ron Paul, you have sort of been speaking your ideas from the sidelines for so many years. Next month, you will become Mr. Chairman. You will be the chairman of a subcommittee. Effectively, you will be considered an establishment figure on Capitol Hill. I mean, are you comfortable with that? Does that sort of tie your hands a bit?
Rep. PAUL: Well, I don't think it'll tie my hands. I think it's a challenge. I don't consider it being uncomfortable because I hope I'm comfortable with defending what I believed in, whether I'm a chairman of a committee or not.
But I'm concerned about only one thing, that some of my supporters have very, very high expectation that within two days, I'm going to get rid of the Fed or something like that. And I'm a little bit more realistic about that, that I want to continue to do what I've been doing and hopefully contribute to some positive changes.
RAZ: One last question for you. There's a question I've always wanted to ask you, and I'm not picking on you personally. But, you know, you're a man who's always stood against the ideas of welfare and subsidies and so on, and many Americans, they don't realize this. But after serving just five years, each member of Congress is given a full pension for life, subsidized by the taxpayers. Why shouldn't members of Congress participate in the same 401(k) programs that the vast majority of us, American citizens, have to take part in?
Rep. PAUL: Well, I think they should, and that's why I don't take my pension fund. I've never contributed or participated in it, and I don't expect to get one penny from my pension fund.
RAZ: You would be eligible to get $85,000 a year, at least.
Rep. PAUL: Gee, you know what, I better not tell my wife about that.
(Soundbite of laughter)
RAZ: That's Texas Congressman Ron Paul. He is a Republican. Next month, he becomes chairman of the House subcommittee on domestic monetary policy, which oversees the Federal Reserve. He's also the author of a book called "End the Fed."
Ron Paul, thank you.
Rep. PAUL: Thank you.