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Reform (not end) The Fed

Josiah Stowe

The Federal Reserve stands as one of the most powerful institutions in the modern economic landscape. Originally conceived in 1913 to stabilize financial markets and serve as a "lender of last resort," it has since expanded far beyond this role, shaping interest rates, monetary supply, and fiscal policy in ways that often contradict biblical principles of justice and stewardship.


From a Christian Reconstructionist perspective, the Federal Reserve must be reformed, not abolished, so that it aligns with its proper and limited function. This article explores the biblical principles of money and lending, critiques the Federal Reserve’s current operations, and draws lessons from history, including the pivotal role of J.P. Morgan during the Panic of 1907, to outline a path forward.


The Biblical Framework for Money and Lending


Scripture establishes clear principles for economic systems. Money is to reflect real value (Leviticus 19:36), lending is to be conducted justly (Exodus 22:25), and central institutions are to operate within limited, clearly defined boundaries (Deuteronomy 17:16-20). A sound monetary system facilitates trade, promotes stability, and prevents theft through inflation or dishonest practices.


Gary North in Honest Money emphasizes the moral necessity of sound monetary systems:

"Inflation, as a result of fiat currency manipulation, is a form of theft. Just weights and measures in monetary policy are a divine command, not an economic option."

Lending, particularly in times of crisis, is a biblical concept (Deuteronomy 15:7-8, Exodus 22:25) This lender of last resort can serve a vital function in stabilizing communities during emergencies as a service, not for profit. Such a role must be executed within strict boundaries to prevent exploitation or undue dependency.


The Federal Reserve’s Original Role


The Federal Reserve was established as a response to financial panics, particularly the Panic of 1907. This crisis revealed the instability of a fragmented banking system and the absence of a coordinated response to liquidity crises. J.P. Morgan, the man, not the institution, stepped into this void, personally organizing private capital to stabilize the economy.


During the Panic of 1907, Morgan rallied bankers to pool resources and rescue failing institutions, effectively acting as a temporary central bank. He provided liquidity where it was needed most, demonstrating the critical role a lender of last resort can play in preserving financial order.


Morgan’s actions exemplify the proper function of a lender of last resort: intervening during acute crises without overstepping into broader economic manipulation.

As R.J. Rushdoony notes in Institutes of Biblical Law:

"Emergency measures must be temporary and targeted, addressing immediate needs without creating a perpetual state of dependence."

The Federal Reserve’s Current Overreach


The Federal Reserve today operates far beyond its original mandate. Instead of serving as a stabilizing force during financial crises, it has become a central planner of the economy. This overreach manifests in three key ways:


  1. Manipulating Interest Rates: By artificially lowering interest rates, the Federal Reserve distorts market signals, encouraging unsustainable borrowing and speculative investments. In their attempt to stabilize the market, this often leads to asset bubbles and more economic instability.

  2. Expanding the Money Supply: The Fed’s reliance on fiat currency allows for unchecked monetary expansion, leading to inflation that erodes the value of savings.

    As David Chilton warns in Productive Christians in an Age of Guilt-Manipulators:

"Inflation benefits those closest to the printing press—governments and large institutions—while penalizing the poor and middle class who see their purchasing power diminished."
  1. Encouraging Moral Hazard: By frequently bailing out failing institutions, the Federal Reserve creates moral hazard, incentivizing reckless behavior with the expectation of rescue. This undermines personal responsibility and market discipline. If the banks are too big to fail, they won’t fear failure and will overextend themselves even more than usual, paying themselves bonuses consisting of your tax dollars during bailouts.


Reclaiming the Proper Role of the Federal Reserve


To align the Federal Reserve with its proper function, several reforms are necessary. These reforms would limit its power, restore its focus on crisis management, and ensure accountability to the biblical principles of justice and stewardship.


  1. Restrict the Fed to Crisis Intervention: The Federal Reserve should serve only as a true lender of last resort, stepping in during liquidity crises to stabilize the economy. It must avoid manipulating monetary policy to achieve political or economic objectives. J.P. Morgan’s actions during the Panic of 1907 provide that model: targeted, temporary, and focused on maintaining systemic stability.

  2. End Routine Monetary Manipulation: The Fed should cease its ongoing interventions in interest rates and the money supply.

    As Gary North explains:

"Market-driven interest rates reflect the time preferences of individuals, allowing resources to be allocated efficiently. Artificial manipulation disrupts this balance, creating cycles of boom and bust."
  1. Increase Transparency and Accountability: The Federal Reserve operates with minimal oversight, making it vulnerable to corruption and misappropriation. Robust transparency measures and independent audits are essential to ensure that it operates within its proper limits.

  2. Promote Decentralized Alternatives: While the Federal Reserve retains its crisis management role, the broader economy should encourage decentralized financial systems. Local credit unions, private lenders, and free-market solutions can reduce dependency on centralized institutions. The USPS had no incentives to improve before FedEx and UPS, and while the Fed is technically privatized, it has a monopoly which needs to be broken.


Lessons from History


J.P. Morgan’s actions during the Panic of 1907 highlight an important lesson: economic stability does not require constant intervention. Instead, stability is achieved through targeted, temporary measures and reliance on private initiative and market forces.

As Rushdoony observed:

"Centralized control breeds dependency, while local and private initiatives foster responsibility and creativity."

Morgan’s leadership, grounded in accountability to his peers and limited by the scope of the crisis, stands in stark contrast to the expansive and often unaccountable power of the modern Federal Reserve.


A Reconstructionist Vision


Reforming the Federal Reserve is not merely an economic issue; it is a moral imperative. Money must reflect God’s justice, and institutions must operate within the boundaries set by His Law. By restricting the Federal Reserve to its proper role as a lender of last resort, we can restore stability, encourage responsibility, and honor the biblical principles of stewardship.


The goal is not always to eliminate central institutions but is often to reform them so that they serve God’s purposes rather than man’s ambitions.

As Gary North reminds us:

"True reform begins when we align our institutions with God’s law, acknowledging His sovereignty over every sphere of life."

Christians must advocate for these reforms, teaching both the church and society the principles of biblical economics, and then do the work to be placed in those positions of authority so we can actually implement them. By doing so, we can help build a financial system that reflects God’s justice, fosters economic freedom and human flourishing, and equips His people to exercise dominion in faithfulness to His Word. This will not be done so long as the Reformed community prefers thinking over doing, learning over applying, arguing over collaborating, and separatism over reformation. Do the work, and then reform the Fed.


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