Recovery of Stolen Checks Act

— 737 — Federal Reserve by ensuring that cash earns a positive (inflation-adjusted) rate of return, it can pre- vent households and businesses from holding inefficiently small money balances. Further benefits of free banking include dramatic reduction of economic cycles, an end to indirect financing of federal spending, removal of the “lender of last resort” permanent bailout function of central banks, and promotion of currency competition.26 This allows Americans many more ways to protect their savings. Because free banking implies that financial services and banking would be gov- erned by general business laws against, for example, fraud or misrepresentation, crony regulatory burdens that hurt customers would be dramatically eased, and innovation would be encouraged. Potential downsides of free banking stem from its greatest benefit: It has mas- sive political hurdles to clear. Economic theory predicts and economic history confirms that free banking is both stable and productive, but it is radically different from the system we have now. Transitioning to free banking would require polit- ical authorities, including Congress and the President, to coordinate on multiple reforms simultaneously. Getting any of them wrong could imbalance an otherwise functional system. Ironically, it is the very strength of a true free banking system that makes transitioning to one so difficult. Commodity-Backed Money. For most of U.S. history, the dollar was defined in terms of both gold and silver. The problem was that when the legal price differed from the market price, the artificially undervalued currency would disappear from circulation. There were times, for instance, when this mechanism put the U.S. on a de facto silver standard. However, as a result, inflation was limited. Given this track record, restoring a gold standard retains some appeal among monetary reformers who do not wish to go so far as abolishing the Federal Reserve. Both the 2012 and 2016 GOP platforms urged the establishment of a commis- sion to consider the feasibility of a return to the gold standard,27 and in October 2022, Representative Alexander Mooney (R–WV) introduced a bill to restore the gold standard.28 In economic effect, commodity-backing the dollar differs from free banking in that the government (via the Fed) maintains both regulatory and bailout functions. However, manipulation of money and credit is limited because new dollars are not costless to the federal government: They must be backed by some hard asset like gold. Compared to free banking, then, the benefits of commodity-backed money are reduced, but transition disruptions are also smaller. The process of commodity backing is very straightforward: Treasury could set the price of a dollar at today’s market price of $2,000 per ounce of gold. This means that each Federal Reserve note could be redeemed at the Federal Reserve and exchanged for 1/2000 ounce of gold—about $80, for example, for a gold coin the weight of a dime. Private bank liabilities would be redeemable upon their issuers. Banks could send those traded-in dollars to the Treasury for gold to replenish their — 738 — Mandate for Leadership: The Conservative Promise vaults. This creates a powerful self-policing mechanism: If the federal govern- ment creates dollars too quickly, more people will doubt the peg and turn in their gold to banks, which then will turn in their gold and drain the government’s gold. This forces governments to rein in spending and inflation lest their gold reserves become depleted. One concern raised against commodity backing is that there is not enough gold in the federal government for all the dollars in existence. This is solved by making sure that the initial peg on gold is correct. Also, in reality, a very small number of users trade for gold as long as they believe the government will stick to the price peg. The mere fact that people could exchange dollars for gold is what acts as the enforcer. After all, if one is confident that a dollar will still be worth 1/2000 ounce of gold in a year, it is much easier to walk about with paper dollars and use credit cards than it is to mail tiny $80 coins. People would redeem en masse only if they feared the government would not be able control itself, for which the only solution is for the government to control itself. Beyond full backing, alternate paths to gold backing might involve gold-con- vertible Treasury instruments29 or allowing a parallel gold standard to operate temporarily alongside the current fiat dollar.30 These could ease adoption while minimizing disruption, but they should be temporary so that we can quickly enjoy the benefits of gold’s ability to police government spending. In addition, Congress could simply allow individuals to use commodity-backed money without fully replacing the current system. Among downsides to a commodity standard, there is no guarantee that the gov- ernment will stick to the price peg. Also, allowing a commodity standard to operate along with a fiat dollar opens both up for a speculative attack. Another downside is that even under a commodity standard, the Federal Reserve can still influence the economy via interest rate or other interventions. Therefore, at best, a commodity standard is not a full solution to returning to free banking. We have good reasons to worry that central banks and the gold standard are fundamentally incompati- ble—as the disastrous experience of the Western nations on their “managed gold standards” between World War I and World War II showed. K-Percent Rule. Under this rule, proposed by Milton Friedman in 1960,31 the Federal Reserve would create money at a fixed rate—say 3 percent per year. By offering the inflation benefits of gold without the potential disruption to the finan- cial system, a K-Percent Rule could be a more politically viable alternative to gold. The principal flaw is that unlike commodities, a K-Percent Rule is not fixed by physical costs: It could change according to political pressures or random economic fluctuations. Importantly, financial innovation could destabilize the market’s demand for liquidity, as happened with changes in consumer credit pat- terns in the 1970s. When this happens, a given K-Percent Rule that previously delivered stability could become destabilizing. In addition, monetary policy when

— 737 — Federal Reserve by ensuring that cash earns a positive (inflation-adjusted) rate of return, it can pre- vent households and businesses from holding inefficiently small money balances. Further benefits of free banking include dramatic reduction of economic cycles, an end to indirect financing of federal spending, removal of the “lender of last resort” permanent bailout function of central banks, and promotion of currency competition.26 This allows Americans many more ways to protect their savings. Because free banking implies that financial services and banking would be gov- erned by general business laws against, for example, fraud or misrepresentation, crony regulatory burdens that hurt customers would be dramatically eased, and innovation would be encouraged. Potential downsides of free banking stem from its greatest benefit: It has mas- sive political hurdles to clear. Economic theory predicts and economic history confirms that free banking is both stable and productive, but it is radically different from the system we have now. Transitioning to free banking would require polit- ical authorities, including Congress and the President, to coordinate on multiple reforms simultaneously. Getting any of them wrong could imbalance an otherwise functional system. Ironically, it is the very strength of a true free banking system that makes transitioning to one so difficult. Commodity-Backed Money. For most of U.S. history, the dollar was defined in terms of both gold and silver. The problem was that when the legal price differed from the market price, the artificially undervalued currency would disappear from circulation. There were times, for instance, when this mechanism put the U.S. on a de facto silver standard. However, as a result, inflation was limited. Given this track record, restoring a gold standard retains some appeal among monetary reformers who do not wish to go so far as abolishing the Federal Reserve. Both the 2012 and 2016 GOP platforms urged the establishment of a commis- sion to consider the feasibility of a return to the gold standard,27 and in October 2022, Representative Alexander Mooney (R–WV) introduced a bill to restore the gold standard.28 In economic effect, commodity-backing the dollar differs from free banking in that the government (via the Fed) maintains both regulatory and bailout functions. However, manipulation of money and credit is limited because new dollars are not costless to the federal government: They must be backed by some hard asset like gold. Compared to free banking, then, the benefits of commodity-backed money are reduced, but transition disruptions are also smaller. The process of commodity backing is very straightforward: Treasury could set the price of a dollar at today’s market price of $2,000 per ounce of gold. This means that each Federal Reserve note could be redeemed at the Federal Reserve and exchanged for 1/2000 ounce of gold—about $80, for example, for a gold coin the weight of a dime. Private bank liabilities would be redeemable upon their issuers. Banks could send those traded-in dollars to the Treasury for gold to replenish their

— 842 — Mandate for Leadership: The Conservative Promise 19. Burton, “Improving Entrepreneurs’ Access to Capital: Vital for Economic Growth”; Campbell, “The Case for Federal Pre-Emption of State Blue Sky Laws.” 20. David R. Burton, “Why the SEC’s Consolidated Audit Trail Is a Bad Idea,” Heritage Foundation Commentary, December 5, 2019, https://www.heritage.org/monetary-policy/commentary/why-the-secs-consolidated- audit-trail-bad-idea; Hester M. Peirce, Commissioner, U.S. Securities and Exchange Commission, “Statement on the Order Granting Temporary Conditional Exemptive Relief from Certain Requirements of the National Market System Plan Governing the Consolidated Audit Trail,” July 8, 2022, https://www.sec.gov/news/ statement/peirce-statement-consolidated-audit-trail-070822 (accessed February 20, 2023). 21. Peirce, “It’s Not Just Scope 3: Remarks at the American Enterprise Institute”; Uyeda, “Remarks at the 2022 Cato Summit on Financial Regulation.” 22. David R. Burton, “How Dodd–Frank Mandated Disclosures Harm, Rather than Protect, Investors,” Heritage Foundation Issue Brief No. 4526, March 10, 2016, http://thf-reports.s3.amazonaws.com/2016/IB4526.pdf. 23. For a detailed discussion of SEC administration, see Burton, “Reforming the Securities and Exchange Commission.” 24. See, for example, Andrew N. Vollmer, “Accusers as Adjudicators in Agency Enforcement Proceedings,” University of Michigan Journal of Law Reform, Vol. 52, No. 1 (Fall 2018), pp. 103–155, https://repository.law. umich.edu/cgi/viewcontent.cgi?article=1602&context=mjlr (accessed February 20, 2023). 25. 7 U.S.C. § 1a(9), https://www.law.cornell.edu/uscode/text/7/1a (accessed February 20, 2023). 26. Or the CFTC can undertake a rulemaking. 27. 7 U.S.C. § 2(i), https://www.law.cornell.edu/uscode/text/7/2 (accessed February 20, 2023). 28. 7 U.S.C. § 7b–3, https://www.law.cornell.edu/uscode/text/7/7b-3 (accessed February 20, 2923). 29. Commodity Futures Trading Commission, “Cross-Border Application of the Registration Thresholds and Certain Requirements Applicable to Swap Dealers and Major Swap Participants,” Final Rule, Federal Register, Vol. 85, No. 178 (September 14, 2020), pp. 56924–57016, https://www.govinfo.gov/content/pkg/FR-2020-09- 14/pdf/2020-16489.pdf (accessed February 21, 2023). 30. Commodity Futures Trading Commission, “Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations,” Federal Register, Vol. 78, No. 144 (July 26, 2013), pp. 45292–45374, https:// www.cftc.gov/sites/default/files/idc/groups/public/@lrfederalregister/documents/file/2013-17958a.pdf (accessed February 21, 2023). 31. Commodity Futures Trading Commission, “Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants—Cross-Border Application of the Margin Requirements,” Final Rule, Federal Register, Vol. 81, No. 104 (May 31, 2016), pp. 34818–34854, https://www.govinfo.gov/content/pkg/FR-2016-05-31/ pdf/2016-12612.pdf (accessed February 21, 2023). 32. H.R. 4173, Dodd–Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, 111th Congress, July 21, 2010, Title X, https://www.congress.gov/111/plaws/publ203/PLAW-111publ203.pdf (accessed March 23, 2023). See also Consumer Financial Protection Bureau, “About Us,” https://www.consumerfinance.gov/about- us/ (accessed March 23, 2023). 33. See, for example, Paul Sperry, “Trump Is Finally Fixing This Economy-Killing Agency,” New York Post, December 2, 2017, https://nypost.com/2017/12/02/trump-is-finally-fixing-this-economy-killing-agency/ (accessed March 23, 2023). See also Jeb Hensarling “How We’ll Stop a Rogue Federal Agency,” The Wall Street Journal, February 8, 2017, https://www.wsj.com/articles/how-well-stop-a-rogue-federal- agency-1486597413 (accessed March 23, 2023), and H.R. 3389, CFPB Slush Fund Elimination Act of 2013, 113th Congress, introduced October 30, 2013, https://www.congress.gov/113/bills/hr3389/BILLS-113hr3389ih.pdf (accessed March 23, 2023). 34. Editorial, “CFPB Joins Justice in Shaking Down Banks for Democrat Activist Groups,” Investor’s Business Daily, June 17, 2015, https://www.investors.com/politics/editorials/cfpb-diverts-civil-penalty-funds-to-democrat- activist-groups/ (accessed March 23, 2023). 35. Table, “Budget by Program,” in Consumer Financial Protection Bureau, Annual Performance Plan and Report, and Budget Overview, February 2023, p. 15, https://files.consumerfinance.gov/f/documents/cfpb_ performance-plan-and-report_fy23.pdf (accessed March 23, 2023). 36. Table, “FTE by Program,” in ibid., p. 16.