The Federal Reserve was created in 1913 with one purpose, one directive: protect the value of the U.S. dollar.  In other words, control inflation to prevent deflation of the buying power of the dollar.  The other directives, like sustaining full employment, are artificial and illusory.

Since the Federal Reserve’s creation, the value of the dollar (its buying power) has declined over 95%.  In other words, what cost $1 in 1913 costs $100 today.  That is severe devaluation in the buying power of the dollar.  Since most personal income is relatively fixed, the net savings retention, after paying many more dollars for each commodity, is diminished.  Inflation is a hidden and highly corrosive tax on the citizen.

Inflation is caused by the decline in buying power of the dollar.  The decline in each dollar’s value is caused by two situations.  First is weakness in the private economy — in other words, more regulatory interference.  Second is printing too many dollars.  The second item is strictly the purview of the FOMC, a subset of the Federal Reserve.  When the Fed began printing 8 trillion new dollars in 2008, called Q.E., it set us on the current path.

In fairness, the Fed is not the only guilty party in destroying the dollar’s value.  In the intervening 100 years, both legislators and presidents demanded more federal spending and thereby impelled the Fed to print more U.S. dollars to buy Treasury Bonds and thereby fund the profligate spending of our elected representatives.  Printing these dollar bills is highly inflationary.  In fact, excess dollars in circulation are the cause of inflation.

The free-market solution to improving the dollar’s value and reducing the corrosion of inflation is a 180-degree change in fiscal policy so that we restrict federal intervention in free and private markets.  That means fewer regulations and less taxation.

The next critical solution to reducing inflation and improving the buying power of our money is to reduce the supply of money in circulation.  But that means the Treasury Department will need to redeem its outstanding debt and retire its bonds when matured.  Most significantly, inflation reduction requires and mandates that Congress reduce federal spending.  The only two paths are either more taxation of the individual (including unrealized capital gains) or less federal spending — less confiscation of your tax dollars.  The first destroys our freedom; the latter promotes perpetual success in private business and jobs.

Throughout the ages and around the world, the free-market solution succeeds in creating the best of all worlds for the individual.  Freedom requires control of the entity that would enslave us.  That entity is almost always a government.  The Founders of our nation understood this and created the Declaration and Constitution to restrict our government, in order to protect the individual.

Jay Davidson is founder and CEO of a commercial bank.  He is a student of the Austrian School of Economics and a dedicated capitalist.  He believes there is a direct connection joining individual right and responsibility, our Constitution, capitalism, and the intent of our Creator.

Image: pasja1000 via Pixabay, Pixabay License.