Free Republic
Browse · Search
News/Activism
Topics · Post Article

Skip to comments.

100 Years Ago: Why Bankers Created the Fed
The Mises Daily ^ | 12/23/2013 | Christopher Westley

Posted on 12/23/2013 3:22:13 PM PST by BfloGuy

It is little wonder that early Democrats garnered such popular support and would demand Andrew Jackson end America’s experiment with central banking. Jackson called it “dangerous to the liberty of the American people because it represented a fantastic centralization of economic and political power under private control.”

It’s hard to believe that guy who said that is now on the $20 bill.

Jackson also warned that the Bank of the United States was “a vast electioneering engine” that could “control the Government and change its character.” These sentiments were echoed by Roger Taney, Jackson’s Treasury Secretary, who talked of the Bank's “corrupting influence” and ability to “influence elections.” (The Whigs would later get revenge on this future chief justice when Abraham Lincoln, in response to a written opinion with which he disagreed, issued his arrest warrant.)

But the courtship between the political classes and their cronies would continue in the decades following Lincoln’s assassination. Those politically well-connected groups that benefited from early central banking continued to benefit from government finance, especially off of “internal improvements,” which is the nineteenth-century term for pork. National banking would appear during the War Between the States, setting in place a banking system in which individual banks would be chartered by the federal government. The government itself would use regulations backed by a new armed U.S. Treasury police force to encourage the banks’ inflation and protect them from the market penalties that inflation would otherwise bring them, such as the loss of specie and the occurrence of bank runs.

The boom and bust cycle, explained by the Austrian School in such detail, became worse and worse in the period leading up to 1913. And with the rise of Progressive Era spending on war and welfare, and with the pressure on banks to inflate to finance this activity, the boom and bust cycles worsened even more. If there was one saving grace about this period it would be that banks were forced to internalize their losses. When banks faced runs on their currencies, private financiers would bail them out. But this arrangement didn’t last, so when the losses grew, those financiers would secretly organize to reintroduce central banking to America, thus engineering an urgent need for a new “lender of last resort.” The result was the Federal Reserve.

This was the implicit socialization of the banking industry in the United States. People called the Federal Reserve Act the Currency Bill, because it was to create a bureaucracy that would assume the currency-creating duties of member banks.

It was like the Patriot Act, in that both were centralizing bills that were written years in advance by people who were waiting for the appropriate political environment in which to introduce them. It was like our current health care bills, in which cartelized firms in private industry wrote chunks of the legislation behind closed doors long before they were introduced in Congress.

It was unnecessary. If banks were simply held to similar standards as other more efficient industries were held to — the rule of law at the very least — then far fewer fraudulent banks would ever come about. There were market institutions that would penalize those banks that over-issued currencies, brought about bank runs, and financial crises. As Mises would later write:

What is needed to prevent further credit expansion is to place the banking business under the general rules of commercial and civil laws compelling each individual and firm to fulfill all obligations in full compliance with the terms of contract.

The bill was passed fairly easily, in part because the Democrats had a larger majority in both Houses than they do today. There were significant differences that were resolved in conference, with one compromise resulting in the requirement that only 40 percent of the gold reserve back the new currency. So instead of a 1-to-1 relationship between gold and currency issued — a ratio that defined sound market banking since the time of Renaissance Italy — the new Federal Reserve notes would be inflated, by law, at a ratio of 1-to-2.5.

The bill that was first drawn up at Jekyll Island was signed by Woodrow Wilson in the Oval Office shortly after the Senate approved it. At one point during the signing ceremony, as he reached for a gold pen to finish signing the bill, he jokingly declared “I’m drawing on the gold reserve.”

Truer words were never spoken.

Central banks always result in feeding those forces that centralize and expand the nation-state. The Fed’s policies in the 1920s, so well documented by Rothbard, would provoke the Great Depression, which, in the end, wrenched political power from cities and state governments to the swampland in Washington. Today people take seriously the claim that there can be a viable federal solution to every problem thanks to the money printed up by the Fed, while each decade has seen a larger proportion of the population become dependent on its inflation.

And yet Andrew Jackson’s beliefs about the perniciousness of the Second Bank of the United States are just as applicable to the Federal Reserve today.

Here’s to hoping we’ll see Jackson’s hawkish nose and unkempt hair on a gold-backed, privately issued currency in the not–too-distant future.



TOPICS: Business/Economy; Constitution/Conservatism; Government; News/Current Events
KEYWORDS: andrewjackson; anniversary; dredscott; falseflagops; fed; federalreserve; fff; inflation; kkk; klan; randsconcerntrolls; rogertaney; sideshow
Navigation: use the links below to view more comments.
first 1-5051-100101-139 next last
There is no reason to have a government-sponsored central bank -- other than, of course, to enable the politicians to borrow at next-to-no interest.
1 posted on 12/23/2013 3:22:13 PM PST by BfloGuy
[ Post Reply | Private Reply | View Replies]

To: BfloGuy
The Whigs would later get revenge on this future chief justice when Abraham Lincoln, in response to a written opinion with which he disagreed, issued his arrest warrant.

I stopped reading right there. Why do you post this KKK idiocy on FR?

2 posted on 12/23/2013 3:28:37 PM PST by iowamark (I must study politics and war that my sons may have liberty to study mathematics and philosophy)
[ Post Reply | Private Reply | To 1 | View Replies]

To: BfloGuy
Robert Morris and the Bank of North America

The guy was a crook...

3 posted on 12/23/2013 3:28:46 PM PST by Sacajaweau
[ Post Reply | Private Reply | To 1 | View Replies]

To: BfloGuy
5 Myths debunked about the Federal Reserve

Don't fall for the conspiracy theories. The Federal Reserve is the only part of government that is actually doing what it's supposed to be doing.

4 posted on 12/23/2013 3:28:50 PM PST by DannyTN (A>)
[ Post Reply | Private Reply | To 1 | View Replies]

To: BfloGuy
For anyone that has heard of the book called None Dare Call it Conspiracy by Gary Allen, but who never read the book.
It can be found here in PDF form (1.4mb) download.
Simply look at the upper right of the screen and click on where you see View the Book Here "PDF".
Take note as to where it gets downloaded on your system.
Download Here.
5 posted on 12/23/2013 3:30:22 PM PST by Marine_Uncle (Galt level is not far away......)
[ Post Reply | Private Reply | To 1 | View Replies]

To: iowamark; BfloGuy
"I stopped reading right there. Why do you post this KKK idiocy on FR?"

I think they are either Ron Paul kooks who uses fear of the FED to build his kook base, or they are working for China or Soros.

6 posted on 12/23/2013 3:31:38 PM PST by DannyTN (A>)
[ Post Reply | Private Reply | To 2 | View Replies]

To: DannyTN

reduce the value of currency?


7 posted on 12/23/2013 3:32:03 PM PST by GeronL (Extra Large Cheesy Over-Stuffed Hobbit)
[ Post Reply | Private Reply | To 4 | View Replies]

To: BfloGuy

Von Mises, Rothbard, the associated organizations and schools, etc., also work(ed) for new world order.

NWO fallback plan if the current system is dumped is to have the public “insist” on “gold backing” for dollars.

The relative scarcity of gold means that the government would continue to borrow, and the financial elites’ gold business would also profit immensely.

Rio Tinto, etc., are all “bankster” companies. For example, Herbert Hoover worked for new world order and served on Rio Tinto’s board of directors.

The only way out of the grip of financial elites is for government to produce it’s own money, with no requirement for going to them to borrow or buy precious metals. In short, the government would not need international banking at all; that would end the influence.


8 posted on 12/23/2013 3:32:58 PM PST by PieterCasparzen (We have to fix things ourselves)
[ Post Reply | Private Reply | To 1 | View Replies]

To: DannyTN
What part of Article 1, Section 8 sets up the Federal Reserve?

/johnny

9 posted on 12/23/2013 3:33:25 PM PST by JRandomFreeper (Gone Galt)
[ Post Reply | Private Reply | To 4 | View Replies]

To: Marine_Uncle
Debunking the Federal Reserve Conspiracy Theories and Other Financial Myths
10 posted on 12/23/2013 3:34:04 PM PST by DannyTN (A>)
[ Post Reply | Private Reply | To 5 | View Replies]

To: DannyTN
The ten myths are no longer available at that web site.
The facts section. So what. Go into the many details that have been well established over the years, that happen to be addressed in books such as the one I mentioned.
11 posted on 12/23/2013 3:42:50 PM PST by Marine_Uncle (Galt level is not far away......)
[ Post Reply | Private Reply | To 10 | View Replies]

To: GeronL
"reduce the value of currency?"

They do that, but only to avoid deflationary depressions which were common under the gold standard. If you want to hoard large amounts of cash in your mattress, the Fed is bad. But for anyone else, and especially business, the year to year stability that the FED has brought to the dollar is great!

12 posted on 12/23/2013 3:42:56 PM PST by DannyTN (A>)
[ Post Reply | Private Reply | To 7 | View Replies]

To: GeronL
reduce the value of currency?

And they're doing a rip roaring job of it


13 posted on 12/23/2013 3:44:51 PM PST by khelus
[ Post Reply | Private Reply | To 7 | View Replies]

To: JRandomFreeper
"What part of Article 1, Section 8 sets up the Federal Reserve? /johnny"

What part of Article 1, Section 8 set up all the other Federal Laws? The Constitution gives Congress the power to pass law, as well as the power to coin money. Deal with it.

Title 12 US Code Chapter 3 - Federal Reserve System

14 posted on 12/23/2013 3:46:18 PM PST by DannyTN (A>)
[ Post Reply | Private Reply | To 9 | View Replies]

To: JRandomFreeper
"What part of Article 1, Section 8 sets up the Federal Reserve? /johnny"

What part of Article 1, Section 8 set up all the other Federal Laws? The Constitution gives Congress the power to pass law, as well as the power to coin money. Deal with it.

Title 12 US Code Chapter 3 - Federal Reserve System

15 posted on 12/23/2013 3:46:18 PM PST by DannyTN (A>)
[ Post Reply | Private Reply | To 9 | View Replies]

To: khelus

Scary only to people who hoard large amounts of cash in their mattress.

On the gold standard we had 20% year to year swings, but they averaged out on the side of deflation. Businesses were frequently run out of business because of the unstable money. But if you were hoarding cash, you did okay.


16 posted on 12/23/2013 3:47:41 PM PST by DannyTN (A>)
[ Post Reply | Private Reply | To 13 | View Replies]

To: khelus

Scary only to people who hoard large amounts of cash in their mattress.

On the gold standard we had 20% year to year swings, but they averaged out on the side of deflation. Businesses were frequently run out of business because of the unstable money. But if you were hoarding cash, you did okay.


17 posted on 12/23/2013 3:47:42 PM PST by DannyTN (A>)
[ Post Reply | Private Reply | To 13 | View Replies]

To: khelus

That is what they call “stability”


18 posted on 12/23/2013 3:48:25 PM PST by GeronL (Extra Large Cheesy Over-Stuffed Hobbit)
[ Post Reply | Private Reply | To 13 | View Replies]

To: DannyTN
Congress passes plenty of unconstitutional laws. Like Obamacare.

A conservative would want congress restrained to it's constitutional limits.

/johnny

19 posted on 12/23/2013 3:48:30 PM PST by JRandomFreeper (Gone Galt)
[ Post Reply | Private Reply | To 14 | View Replies]

To: DannyTN
Businesses were frequently run out of business because of the unstable money

Plenty of businesses are being run out of business today, especially small businesses, in case you missed 2008-2013.

/johnny

20 posted on 12/23/2013 3:50:28 PM PST by JRandomFreeper (Gone Galt)
[ Post Reply | Private Reply | To 17 | View Replies]

To: Marine_Uncle
Debunking Federal Reserve Conspiracy Theories
21 posted on 12/23/2013 3:51:17 PM PST by DannyTN (A>)
[ Post Reply | Private Reply | To 11 | View Replies]

To: JRandomFreeper

That’s because we lowered the import tariffs in the 1960’s and now the stores are full of Chinese made goods and our industries have been devastated. Unfortunately the Fed doesn’t control the tariffs. That’s the President and congress.


22 posted on 12/23/2013 3:52:25 PM PST by DannyTN (A>)
[ Post Reply | Private Reply | To 20 | View Replies]

To: JRandomFreeper

That’s because we lowered the import tariffs in the 1960’s and now the stores are full of Chinese made goods and our industries have been devastated. Unfortunately the Fed doesn’t control the tariffs. That’s the President and congress.


23 posted on 12/23/2013 3:52:25 PM PST by DannyTN (A>)
[ Post Reply | Private Reply | To 20 | View Replies]

To: BfloGuy
Jackson was an idiot. One of the worst, most tyrannical presidents ever and one of the "biggest government" presidents you'd ever see. His goal wasn't to end the BUS---it was to destroy all private banking. He was anticapitalist to the core. He had already told his SecTreas to prepare a plan to do away with all private bank notes (money).

Jackson was a political opportunist of the worst sort and a total demagogue. The BUS posed no threat to him or any common person. In fact, the economy had done very, very well under the BUS---largely because we had COMPETITIVE banking in which any bank could issue money and COMPETE with the "government" bank. Guess what? When you have competition with the private sector, things stay pretty efficient (and the BUS was 80% privately owned). Jackson feared the market.

I go into detail on all this in my first national book, "Banking in the American South from the Age of Jackson to Reconstruction." It's typical of the Mises people to try and make this about Jackson fighting "big government," but nothing could be further from the truth. Government grew, per capita, under Jackson just as it had under every other president.

I will give him a pass on the Panic of 1837---that wasn't his doing and had nothing to do with his "war" on the BUS, as many historians have proven. Rather, Mexican silver, which had helped create inflation in the early 1830s, abruptly ended causing a depression.

But a national bank is a fact of life because every nation needs access to quick money in case of emergency, especially war. And loans are better than taxes.

24 posted on 12/23/2013 3:53:46 PM PST by LS ('Castles made of sand, fall in the sea . . . eventually.' Hendrix)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Sacajaweau

Er, that “crook” single-handedly financed the American Revolution and ended up in the poorhouse because of it.


25 posted on 12/23/2013 3:54:25 PM PST by LS ('Castles made of sand, fall in the sea . . . eventually.' Hendrix)
[ Post Reply | Private Reply | To 3 | View Replies]

To: Sacajaweau

...signed into law by Woody KKK Wilson.


26 posted on 12/23/2013 3:57:32 PM PST by TurboZamboni ("PEACE ON EARTH TO MEN OF GOOD WILL".)
[ Post Reply | Private Reply | To 3 | View Replies]

To: BfloGuy

Bump for later


27 posted on 12/23/2013 3:58:44 PM PST by Lurkina.n.Learnin (This is not just stupid, we're talking Democrat stupid here.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: LS

He was into a lot of things. IIRC, there are actually pages missing from the Congressional record. More to Morris than normally written. I followed him around for years...a friend of money...a legal pirate...


28 posted on 12/23/2013 4:04:03 PM PST by Sacajaweau
[ Post Reply | Private Reply | To 25 | View Replies]

To: DannyTN

You’re kidding aren’t you?


29 posted on 12/23/2013 4:04:51 PM PST by plainshame
[ Post Reply | Private Reply | To 4 | View Replies]

To: DannyTN

Thanks.


30 posted on 12/23/2013 4:06:01 PM PST by Marine_Uncle (Galt level is not far away......)
[ Post Reply | Private Reply | To 21 | View Replies]

To: DannyTN

What money?Worthless paper backed by Santa Claus and his helpers?


31 posted on 12/23/2013 4:08:45 PM PST by plainshame
[ Post Reply | Private Reply | To 15 | View Replies]

To: GeronL
That is what they call “stability”

Real inflation (the cost of maintaining a set standard of living) since 1985 = blue line:


32 posted on 12/23/2013 4:09:25 PM PST by khelus
[ Post Reply | Private Reply | To 18 | View Replies]

To: khelus

Try an inflation graph from 1913 to 2012 and compare it from 1791 to 1912.People will be horrified!


33 posted on 12/23/2013 4:15:14 PM PST by plainshame
[ Post Reply | Private Reply | To 32 | View Replies]

To: PieterCasparzen

Interesting assessment. Out of curiosity co you have any links to read?


34 posted on 12/23/2013 4:16:14 PM PST by khelus
[ Post Reply | Private Reply | To 8 | View Replies]

To: Marine_Uncle
Most of these conspiracy books are nonsense. If anyone actually CARES about the history, I have explained it in several places, including "Banking in the American West from the Gold Rush to Deregulation," and in "A Patriot's History of the United States." The Fed originated NOT with the "big bankers" but with the thousands of small country bankers who had no "lender of last resort" if there was an irrational panic; and who had no means to expand or contract the money supply after the Civil War Bank and Currency Acts that essentially banned private money. Most of all, they wanted to LIMIT New York's power, so the Fed they set up had 11 district branches outside of NY (two in Missouri) and 9/12 in the west, midwest, or south.
35 posted on 12/23/2013 4:16:58 PM PST by LS ('Castles made of sand, fall in the sea . . . eventually.' Hendrix)
[ Post Reply | Private Reply | To 5 | View Replies]

To: DannyTN
Don't fall for the conspiracy theories. The Federal Reserve is the only part of government that is actually doing what it's supposed to be doing.

The funny thing is that you're right, but not in the way you think. lol Just like Obama's true purpose is to bring America down, the Fed's true purpose was for the financial elite to make slaves out of us. Stealing 3% per year from us and causing the boom-bust cycles they've done just that. And now they're going to take us to complete financial ruin to finish the job they started 100 years ago.

Rev 17:12 And the ten horns which thou sawest are ten kings, which have received no kingdom as yet; but receive power as kings one hour with the beast.

36 posted on 12/23/2013 4:18:15 PM PST by Partisan Gunslinger
[ Post Reply | Private Reply | To 4 | View Replies]

To: JRandomFreeper

Same part that set up the BUS, which Madison said was in fact appropriate. And since he wrote it, he would know.


37 posted on 12/23/2013 4:23:16 PM PST by LS ('Castles made of sand, fall in the sea . . . eventually.' Hendrix)
[ Post Reply | Private Reply | To 9 | View Replies]

To: LS

That’s why the US dollar has lost 96% of it’s purchasing power since 1913 via inflation.The fed does what bankers do and they rob the people blind and the government allows it because they profit also.


38 posted on 12/23/2013 4:24:56 PM PST by plainshame
[ Post Reply | Private Reply | To 35 | View Replies]

To: LS
Your statements may be accurate but they have little consequences past that short period in our history.
Things that took place during Wilson's era do.
39 posted on 12/23/2013 4:27:48 PM PST by Marine_Uncle (Galt level is not far away......)
[ Post Reply | Private Reply | To 35 | View Replies]

To: PieterCasparzen

Interesting assessment. Out of curiosity co you have any links to read?


40 posted on 12/23/2013 4:31:19 PM PST by khelus
[ Post Reply | Private Reply | To 8 | View Replies]

To: DannyTN
It was never the "gold standard" that kept the economy sound: it was allowing banks to print their own money, based on whatever they chose to use as backing (of course, all used gold and silver in the 1800s). But even then, with or without the BUS, there were panics and depressions. It's a part of the business cycle. One of them, the Panic of 1837, was actually CAUSED by silver inflows, which abruptly stopped in about 1832.

But you're right that whether gold/no gold, private money issue or fed there are regular business cycles. Schumpter talked about that.

41 posted on 12/23/2013 4:34:22 PM PST by LS ('Castles made of sand, fall in the sea . . . eventually.' Hendrix)
[ Post Reply | Private Reply | To 16 | View Replies]

To: Marine_Uncle
Quite the contrary, fundamentals are fundamentals. The quickest way to "fix" the Fed right now is not to abolish it, but to permit private note issue. Competition would instantly straighten it out. And as much as conservatives want to hate Wilson, the Fed was designed and drafted and outlined by small town bankers from 1910 to 1912 and developed by Taft. Wilson only signed the bill. We need to get out of the conspiracy mentality and look at real history.

Try Eugene White's book, "The Regulation and Reform of American Banking."

42 posted on 12/23/2013 4:36:47 PM PST by LS ('Castles made of sand, fall in the sea . . . eventually.' Hendrix)
[ Post Reply | Private Reply | To 39 | View Replies]

To: LS
I've never been a fan of the Federal Reserve, but the information you've posted here stands well against a lot of the anti-Fed hysteria that is common among conservative/libertarian types.

The "lender of last resort" item reflects what I've read and heard elsewhere from knowledgeable people.

43 posted on 12/23/2013 4:37:07 PM PST by Alberta's Child ("I've never seen such a conclave of minstrels in my life.")
[ Post Reply | Private Reply | To 35 | View Replies]

To: plainshame
Try an inflation graph from 1913 to 2012 and compare it from 1791 to 1912.People will be horrified!

yup pretty much a straight line until 1912.
44 posted on 12/23/2013 4:38:20 PM PST by khelus
[ Post Reply | Private Reply | To 33 | View Replies]

To: Alberta's Child

There is no “anti-fed hysteria.”

The fed is unconstitutional, not ‘federal’ in any way, and totally destructive of sanity and freedom, and dedicated to destroying the wealth of the people.


45 posted on 12/23/2013 4:39:28 PM PST by editor-surveyor (Freepers: Not as smart as I'd hoped they'd be)
[ Post Reply | Private Reply | To 43 | View Replies]

To: iowamark

Thanks for showing us exactly what you are!

Those that attack those that speak the truth are of their Father Satan.


46 posted on 12/23/2013 4:41:49 PM PST by editor-surveyor (Freepers: Not as smart as I'd hoped they'd be)
[ Post Reply | Private Reply | To 2 | View Replies]

To: plainshame
I don't see why the loss of purchasing power of the U.S. dollar between 1913 and 2013 is really a major concern unless you've been sitting with a pile of those dollars buried in a hole for the last hundred years.

As the dollar inflates in value, the value of most assets also rise to match it over time. Sure, there are distortions in prices related to advances in technology and changes in import/export markets, but that would present its own challenges even if there was no such thing as a Federal Reserve, or currency inflation.

47 posted on 12/23/2013 4:42:56 PM PST by Alberta's Child ("I've never seen such a conclave of minstrels in my life.")
[ Post Reply | Private Reply | To 38 | View Replies]

To: LS
I may take you up on White's book in due time. As far as abolishing the FRB. I never suggested that. Where to deep in the doo doo at this point for such matters to be able to fix anything.

48 posted on 12/23/2013 4:49:09 PM PST by Marine_Uncle (Galt level is not far away......)
[ Post Reply | Private Reply | To 42 | View Replies]

To: Alberta's Child

Wages have never kept up with inflation.Back in the 50’s and 60’s a man could support a family with his salary/salt money but today it takes 2 working parents to support a family because of inflation.The middle class in America is vanishing because of this.


49 posted on 12/23/2013 4:55:01 PM PST by plainshame
[ Post Reply | Private Reply | To 47 | View Replies]

To: BfloGuy
The Creature from Jekyl Island.

free download

50 posted on 12/23/2013 4:55:34 PM PST by smokingfrog ( sleep with one eye open (<o> ---)
[ Post Reply | Private Reply | To 1 | View Replies]


Navigation: use the links below to view more comments.
first 1-5051-100101-139 next last

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
News/Activism
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson