 Our guest this week is Paul Martin Foss, who's one of the top anti-fed voices operating inside the Beltway. He was a longtime banking committee staffer for Congressman Ron Paul and a former colleague of mine, and now he heads the Karl Manger Center for the Study of Money and Banking in Arlington, Virginia. Paul Martin and I have a great conversation about Ron Paul's years fighting the Fed, about how and why Manger still matters, and why the Beltway types are wrong when they want to tinker with rather than end the Fed. Stay tuned. Paul Martin Foss, thanks so much for joining us. How are you today? I'm doing very well. Thanks. How are you? I notice that the name of the center is for the study of money and banking, not monetary policy. Right. And I love this because so many otherwise free market types will accept this loaded term. They would object to the terminology of housing policy or energy policy, et cetera. Paul Martin, what is about money that causes such a breakdown and rational thought that people even think we need a government policy for it in the first place? Well, I think part of it is because people have been, I mean, for the past 100 years or 150 years in this country, government has had such a monopoly on the issuance of money that people just don't give it a second thought. They don't understand the history of how in this country the market used to provide money in the early colonial era and then the early part of the United States after the Constitution was first ratified and enacted, we didn't have the United States Mint operating for several years. We had freely competing currencies, the Spanish pieces of eight, coins from Britain, Germany, France, et cetera, all circulating at private mint. I mean, it was a great monetary smorgasbord, but the government has gradually taken over and monopolized the issuance of money. And so for the past 100 years, the public in general and the economics profession particularly has just kind of taken it as a given that oh, a sovereign nation has the right to monopolize the issue of money. Is the focus of your center more narrowly on money and banking or is it more broadly on the Austrian school in general? It's basically going to be focused mostly on money and banking. Calling at the Karl Manger Center, we wanted to make people realize and be aware that we are coming from an Austrian perspective. But Manger's insights into money, he had his little pamphlet on the origins of money. He was involved in the Austro-Hungarian monetary reform and particularly his insight on the origins of money that had become about as a market institution, not the original created by government. It was originally something that was created by the market to facilitate the trade among people. Those kind of insights are what we want people to realize. So we're basically focusing on the monetary aspects and banking aspects of Austrian economics and trying to educate the American people on those issues. Paul Martin, his Manger underappreciated, even among Austrians, his name is not as well known obviously as some of his younger cohorts. Right. He's very much underappreciated. I think that partially it was a function of his career. I think he really stopped writing after about the, I want to say 1905 or something like that. I don't think he was in good health the last decades of his life. And then his archives went mostly to Tokyo. So there's just not a lot of access to his original material. And he has been eclipsed, obviously Mises was a big name here in the United States. So he and Rothbard influenced obviously a lot of the American Austrians. Hayek was a professor at LSE during the 1930s. And so he influenced a lot of folks in Europe and on the continent. So Manger just kind of had the misfortune of being the founder. Obviously, one of the three most important economists behind the marginal revolution. But because he published in German, as opposed to the others, was forgotten by history. Of course, the marginal revolution, he makes this enormous contribution. Roughly or almost exactly the same time as Walrus and Jevons, as you mentioned, it almost seemed like this hurt his legacy. It obscured him because there were other names or perhaps bigger names coming up with the same thing at the same time. That definitely is true. And I mean, when people, when you start to read Manger's principles and you start to read more about Manger's economic thought, you start to realize just how much of what he wrote, it was taken up in the mainstream economics. And most mainstream economists wouldn't even recognize that it's what they learned in Econ 101. They had no idea that it originally came from Manger's ideas. Well, explain for us what the marginal revolution meant for classical economics at the time and how it affects our modern understanding of how goods and services derive value. It did finally get around a labor theory of value, the water diamond paradox that people were always trying to solve. Unfortunately, you still find a lot of people who subscribe to a labor theory of value outside of the economics profession. You know, it's unfortunate that those ideas haven't gotten a greater hold outside of economics. I'm not really sure how necessarily to continue teaching people. They haven't learned them already. I guess part of it is they just have to be willing to learn those ideas. Well, maybe we need to go back and read Manger's principles of economics, which you mentioned earlier. Where do you think this book ranks among the great Austrian books? Obviously, there's several translations and it's not the easiest read, but most translations aren't. The principle of economics is one of the things that was assigned in my economics courses when I studied economics. And like you said, the translations, because it's originally written in German and then translated, it is a little difficult to get into. I think it's definitely one of the most important works, but I wouldn't necessarily find it as the first work. I'd find something like economics in one lesson from Henry Haslitt at kind of the introductory work and then maybe have principles of economics falling on from there. Once somebody reads something that's a little easier to understand, it's written in layman's terms like Haslitt, then to kind of segue into Manger. Because he does, in some of his terminology, at least in translation that I've read, it's not terminology that's used in the economics profession that might come across as archaic or strange. But once somebody has kind of a little bit of foundation, then Manger becomes a lot easier to read. If we look at the thread between individuals, Manger, obviously a huge influence on Mises himself. And then fast forward with many, many, many years to the 1970s. Mises is at that point, an old man dies a couple of years later, but he influences a young medical doctor at a conference in Houston, Texas. Ron Paul goes to see Lydon Mises speak on socialism at the time. Of course, you were an integral part of Ron Paul's efforts to bring an understanding of the Federal Reserve to average Americans. So looking back now, give us some of your thoughts on Ron's revolution since 2008 as it pertains to the Fed. It's amazing. I mean, and he's always said to that when he went to college campuses and you could get 5,000 students chanting and the Fed and burning their Federal Reserve notes, it's a message that kind of resonates with people. The Fed, obviously, since the financial crisis has taken on a much more activist role in essentially centrally planning the economy. I mean, they decide, well, we want stock prices to go up or housing prices to go up, and they have these determined aims and they adjust their monetary policy accordingly. I think a lot of people are starting to realize, you know, there was the report that came out the other day from Swiss Rea saying that savers have been cost $470 billion due to the Fed's monetary policy. You have people who are pensioners on fixed incomes to see their cost of living rising, even though the official inflation rate is still fairly low, they still see food prices and cost of living continues to increase. And that all has its roots in the Fed's monetary policy. So I think he really, he was the right person at the right time, really struck a chord. And one of the things I'd like to do is continue my work in Ron's office to educate people about the reserve and what it does. Well, of course, Ron deserves tremendous acclaim for what he's done. And I think a lot of intelligent laypeople really appreciate him bringing this issue to them. But does Ron get the credit he deserves among Beltway types for this? In other words, he took this wonkish back burner issue, even among economists, and he turned it into a political football. And I'm not certain that he always gets the credit he deserves for this. No, he definitely doesn't get the credit inside the Beltway. What he did essentially is he moved the goalposts before he came along, before he really made the Federal Reserve the issue that it was. You couldn't mention ending the Fed in D.C. and be taken serious. Even today, I mean, there are still some people who will look at you with scants, you know, if you say you want to end the Fed. But the idea has taken a lot more seriously today because of Ron, because of his movement. But you know, the Beltway types are still going to try to pander to power. They're going to talk about monetary policy rules and, oh, can we have a better or more efficient monetary policy than what we have right now? But the movers and shakers at the upper echelons are very much set in their ways. I've got a little bit of hope for some of the younger people that maybe, and who knows, in 20 or 30 years, you know, maybe we'll have some folks who are, you know, have a little bit of a founder outlook on the Fed. You really had a front row seat over the years when Ron served on the banking committee and house and also later when he finally got the subcommittee chairmanship that he deserved on monetary policy. So tell me, what are some of your memories that stand out from Dr. Paul's questioning of Bernanke in the banking committee over the years? One was when he asked Bernanke, do you do your own grocery shopping? And Bernanke said, yes, yes, I do. And he said, well, then you obviously should know that prices are rising and a lot higher than the CPI is. So that was one great comment. And there was another one where he held up a one ounce silver round, I think it was, and talked about how back in the 1950s, this used to buy so much and now it buys hardly anything, basically the dollar value. And I think he did that during the campaign, too, where he held up a silver diamond that he used to buy a gallon of gasoline back in the 1950s. Now a diamond won't buy that anymore. So, you know, talking about the evaluation of the dollar and of the Fed's purview. Well, it was great theater, though, wasn't it? Yeah, yeah, it was. The image you bring up or Bernanke doing is grocery shopping. I'm just going to go out on a limb and say that Mr. Bernanke's neighborhood features a whole foods rather than a piggly wiggly or a Kroger. It's also interesting how the GOP has tried to co-op the anti-fed sentiment that Ron created. Of course, they want to tinker with the Fed, not end it. Can you talk a little bit about this phenomenon of them using Ron for political gain? In my opinion, it really kind of came to a head when Audit the Fed, they brought it up for a vote in 2012, and they gave us no advance warning whatsoever. I remember it was an email that said, here's going to be voting on July. And I had just initially ignored it because I figured I was a bunch of crap legislation. And then I saw, wait a minute, Audit the Fed's up there. They gave us no advance warning. And it was basically, I thought it was a very cynical ploy to try to get Ron supporters on the side of the GOP for the upcoming Republican Convention. That's why they waited until July right before an election. They knew, even if it passes the House, there's no way it's going to get through the Senate. No way it's going to become law. It was a very cynical move, in my opinion. They did the same thing last year, you know, waited until just before the election. I wouldn't be surprised if they're going to do the same thing this time around in 2016. If Rand Paul ends up getting a little bit of traction, if they'll try to use Audit the Fed as a political football again. They are trying to take this idea because they realized, hmm, Ron had something going and he was able to raise a lot of funds and he was able to get a lot of popular support by talking about the Federal Reserve. So they think, well, if we can just take a little bit of that language and sprinkle it in here and there, then maybe we can get that kind of same support. And obviously it's not going to work, but it is very definite cynical political ploy. When you mentioned Audit the Fed, tell us what, in your view, a real or true audit of the Fed would look like as opposed to what we get, which is the Fed presenting its balance sheet at the end of the year as a fate accompli. I think what a real audit would show us is where exactly all this money is going. I mean, they've got two trillion dollars of Treasury securities, a trillion and a half of mortgage-backed securities, a real audit would show a lot sooner than what we're able to find out right now. Who's getting that money? I mean, who are they buying this from? When is it occurring? I mean, you hear the rumors of the primary dealers by the treasuries at the Treasury auction and immediately sell them to the Fed. Those are the kind of things we'd like to find out because it's basically backdoor monetization of the debt. So those types of things, you know, who's getting bailed out? I remember there was a very small partial audit back in, I think as a result of that frank, and then there was some of the data that we got from the New York Fed FOIA lawsuit that they lost, where they had to disclose some of this transactional data. And then that's when we found out the two wives of J.P. Morgan executives had formed a financial services company and got a few hundred million from the Fed through a bailout facility to help start their business. So it's those types of crony operations that an audit would shed some light on. That's why the Fed doesn't want an audit. Perhaps in the early 2000s, when Ron was in office, we used to talk about wanting more information on the interest rate setting function, the de facto interest rate setting function of the Fed. You know, now, Paul Martin, we've got the situation where since 2008, the monetary base has been expanded considerably. So you've got all these Fed bank member banks sitting there with huge reserves on their balance sheets, not lending them out, but availing themselves of the quarter percent interest that the Fed itself will pay them. So Bernaki and Janet Yellen have both talked about the limits of monetary policy that I guess the popular term is pushing on a string. If we now reach the point where the Fed's ability to affect interest rates is being diminished because banks have tons of reserves and rather than lend it out and apparently what they see is still an uneasy economy, they'd rather content themselves with this small amount of interest from the Fed. I think we may very well be reaching that point. I'm not sure if we're quite there in the U.S., but you see what's happening in Japan with Abenomics, where they're doing their own quantitative easing and it's not really having any effect. Europe, the ECB has dropped some of their overnight rates to negative territory in the hopes that it would force banks to lend and the banks set up. Nope, we're going to keep holding these huge amounts of reserves. I think we're rapidly reaching that point here in the States. It'll be interesting to see what happens over the summer. I don't think the Fed is going to raise interest rates in June. I think September is very earliest, but they may very well end up deciding to continue keeping them low for quite a long time. But like you said, we're very rapidly reaching the point where it's not really going to have much of an effect. We've had so much quantitative easing already, the marginal effect of any additional easing, unless you're talking trillions and trillions and trillions of dollars of additional easing, which of course would just completely ruin the economy. Paul Martin, as we wrap this up, I'd like to get a few of your thoughts about tactics. As you know, so many professional and academic economists are effectively bought and paid for by the Fed. So I'm curious as to whether you see the goal of the Manger Center and organizations like the Mises Institute as trying to appeal to and influence academics and the economics mainstream, or do you see our goal more as one of doing an end run around the economics profession to reach ordinary people? I think you can do both. My goal obviously is not to affect the economic profession or to try to affect academics. I saw what happened when all of the Fed first got some traction back in 2009, where because we were going to the American people who were then contacting the congressman saying cosponsor all of the Fed, I had staffers come to me saying, make the phone call stop, we'll sign on, we'll cosponsor it, we'll vote for it, just make the phone call stop. So if you get enough people who are educated, who understand the issues, who then start to put some pressure on their congressman or who start to talk to other people, talk to their friends and family, you can have kind of a snowballing effect. And that's what the goal of the Manger Center is to educate people. And those people then can go out and start talking about those issues to other people because you never know when that one person is going to affect a whole bunch of other people. I mean, when I studied economics, my professor probably didn't realize it. One day I would end up working for Ron Paul and doing Federal Reserve and monetary policies, issues for Ron Paul and the stuff that I helped Dr. Paul with, obviously, affected a lot of other people in the United States. So that's an example of just one person who, through some accident, you never know when it's going to happen. I mean, it's very easy, it was very easy to get discouraged and say, well, is anything we're doing actually helping anything? Is anybody reading what we're writing? Is anybody taking this to heart? Sometimes you get a little bit of feedback where people say, I loved this column or I love this article or I love this speech that Dr. Paul gave, you begin to realize these things do have an effect. You just have to reach the grassroots and kind of get that critical mass of people going and understanding these issues. Paul Martin Faust, thanks so much for a fascinating interview. Ladies and gentlemen, Paul Martin's organization is called the Carl Manger Center for the Study of Money and Banking. You can Google it. Paul Martin does a great feed about the latest money and banking news that you should subscribe to if you're interested in these issues. Twitter is Manger Center, twitter.com slash Manger Center, M-E-N-G-E-R Center. Thanks again for your time. And ladies and gentlemen, have a great weekend.