The Libertarian movement’s extremism alienates a large portion of the population. “Conservatives” disapprove of the party’s social agenda and “liberals” disapprove of its economic agenda, although an increasing number of actual market-liberals and paramilitary approve of the party’s message. An unfortunate drawback of this sociopolitical drama is the antipathy that has been generated towards one of the party’s main talking points. If you were to chat up a die-hard Libertarian at the counter of your neighborhood diner, somewhere between “Hello” and “Ron Paul,” he’s sure to mention The Federal Reserve, and for good reason.
When Alexander Hamilton, that well-groomed, wealthy and dapper industrialist, proposed the establishment of The First Bank of The United States in 1790, Thomas Jefferson and James Madison dissented. “The incorporation of a bank, and the powers assumed by this bill, have not, in my opinion, been delegated to the United States, by the Constitution,” Jefferson said, yet despite the counsel of his Secretary of State, Washington authorized the bank’s construction. In 1811, the bank’s charter expired and The United States’ experimentation with central banking went on hiatus until the formation of The Second Bank of The United States eight years later, which was considered necessary in order for government to work in concert with industry and capital to guide public works. The bank’s detractors included such people as the entire State of Maryland, which passed a bill that authorized the taxation of the central bank’s notes, and Andrew Jackson, the 7th President of The United States, who compared The Second Bank of The United States to a “den of vipers” and allowed the bank’s charter to expire in 1836.
My interest in central banking and macroeconomics began after I watched an online video that showed Chris Savvinidis lambasting The Fed at The Occupy Wall Street protest. I showed the video to a friend and colleague, who told me in short order, “It’s bullshit.” I’m reticent to believe anything anyone tells me - even a friend - so I decided to research The Fed on my own, and what I found both arrested my attention and jarred my senses. The current iteration of The United States’ central bank was established when The Federal Reserve Act was signed into law on December 23, 1913 “to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.” Other purposes? That’s a rather broad definition of power and merits further inspection. What is The Fed and what does it do?
The Federal Reserve is a mostly private organization with some rather prestigious clients, which include every “too-big-to-fail” bank in the country and The United States government, a kind of middle-man between public and private and a means for distributing money. Before credit cards, The Fed bought the nation’s currency for the cost of the paper it was printed on, but today, The Mint can just wire it for free. Once in possession of United States currency, the central bank loans it to banks like Goldman Sachs or buys bonds, which is just another way of saying, “The Fed loans The United States government its own money.”In fact, 46 percent of the country’s debt (minus intragovernmental holdings) is owed to The Fed. The remainder is owed to oil exporters and foreign governments, the largest amount of which is owed to China, which owns 7.5 percent of United States debt (including intragovernmental holdings). It may startle some to learn that China owns so much U.S. debt, yet for every dollar that The United States owes China, China owes The United States 89 cents. So the majority of United States debt is actually owed to The Fed.
That means we’re printing our own money, giving it to ourselves (The Federal Reserve, which is an American Institution), then borrowing it from ourselves with interest. So if The U.S. is in debt, it’s in debt to itself. America’s debt is manufactured. Austerity - sequester - is manufactured. “Hold on a minute there, cowboy! I know the difference between the debt and deficit, and we need to fix the deficit!”
If the government absorbed the functions of The Federal Reserve and Congress resumed the duties that have been ascribed to it by The United States Constitution - namely, “to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures” - then government would be at liberty to spend however much it deemed necessary to perform the functions of government. There would be no debt, there would be no deficit, and the comparatively small amount owed to foreign nations would be manageable in comparison to our current financial obligations.
INFLATION, DEFLATION & THE NEW DEAL
“Wouldn’t government prove incapable of handling the intricacies of finance?”
In order to answer that question, we ought to first ask how The Fed “[establishes] a more effective supervision of banking in the United States.” The Fed’s role is multifold: to loan the government money, to serve as the lender of last resort and to stabilize prices, amongst others. So let’s break it down. The Fed’s primary method of control is the manipulation of interest rates: “the federal funds rate” and “the discount rate.” In an economic downturn, The Fed lowers interest rates on “too-big-to-fail” banks to encourage lending and borrowing. Employing their esteemed powers of discernment, The Federal Reserve chairman and its board of governors - whose resumes include long lists of accolades from the same banks to whom their loaning sovereign currency at unbelievably low interest rates - assume that the banks and their shareholders will manage these funds in a responsible, adult manner, by investing in entrepreneurial enterprise, industry and innovation. In reality, these funds are dumped into abstract parcels of subjective value interchangeably referred to as assets, securities or financial instruments, which include derivatives (futures, options and swaps), debt, and equity, all of which have contributed to the current economic crisis.
Provided that money circulates throughout the strata of society to facilitate commerce, provided that the money serves the economy in the places where it’s most needed, inflation (printing money, or generating it with ones and zeros, in greater quantities) could lift a country out of a depression, but that’s not how today’s economy works. 47 percent of Americans own zero wealth. In contrast, the wealthiest 25 percent of Americans own 93 percent of the nation’s wealth, which means that the remaining 28 percent own only 8 percent of the nation’s wealth. The share of national income going to the top 1 percent has doubled since 1980, from 10 to 20 percent. Income for the top .01 percent has quadrupled (a national precedent). In contrast, income for the bottom 90 percent of Americans increased by only 59 dollars on average in the last 45 years. Investment (banking and speculation) now comprises 24 percent of the industries represented by America’s top 400 wealthiest individuals, an increase of 15 percent from 1982. Manufacturing now comprises approximately 4 percent of the industries represented by America’s wealthiest, a decrease of about 12 percent from 1982.
The Fed can’t entirely be blamed for bank “deregulation” (regulation in favor of private and corporate interests) nor a lack of government oversight, but when it makes loans available at such an astonishingly low interest rate, it provides ample incentive for those dangerous banking practices to proliferate. The discount rate, the interest rate on loans from The Fed that are given to “too-big-to-fail” banks is .75 percent, and the federal funds rate - the rate at which The Fed has determined banks must loan money to each other - has hovered between .4 percent and .25 percent since the 2008 financial crisis. Compare the federal funds rate (.4 to .25 percent) to the interest rate The Fed charges The United States Government, which - depending on the type of loan that’s being purchased - ranges from .25 percent to 3.10 percent. Why the double-standard? When the United States’ politicians argue with such vitriol over the nation’s debt and deficit, one would think The Fed could cut the “government of the people” a little slack. Compare the federal funds rate to the national average mortgage rate, which - depending on the type of mortgage you buy - could be anywhere from 2.5 to 3.5 percent. In the midst of an economic crisis, one might expect the banks to cut the American people a little slack as well, especially since quantitative easing provides these venerable institutions with loads of free cash.
Few people may be aware of The Federal Reserve’s practice of quantitative easing, which goes by the monikers QE1, QE2, QE3, QE4, etc. Quantitative easing makes headlines for a few hours once a year, when The Federal Reserve chairman announces the central bank’s policies with carefully-constructed press releases veiled in obscurantism, and then the story is quickly buried by the mountain of gossip that mass media outlets like MSNBC, FOX and CNN unload on the American public, but what does it mean, “quantitative easing?” The Fed once bought dollar bills for the cost of the ink, paper and labor that were used to print them. Let’s say The Mint sold 500 dollars to The Fed for 10 bucks. That’s a 490 dollar profit. Since the advent of the information age, currency has been converted into ones and zeros, so The United States Treasury can now just wire the money to The Fed for free, which is a 100 percent profit. Using the same tools, The Fed now wires money to “too-big-to-fail” banks, then strikes out a chunk of the banks’ bad investments, and when it does, the practice is called “quantitative easing.” That increase in the money supply adds to inflation. Of course, there are adequate examples of the benefits of inflation and its potential to resuscitate an economy gasping for air. The most obvious example is FDR’s New Deal, and although The New Deal wasn’t entirely responsible for ending The Great Depression, it played a significant role in America’s reconstruction. In addition to regulating the banking industry to reduce fraud and abuse and empowering labor, The New Deal provided government with the means to employ a broad swath of the American public by way of The National Industrial Recovery Act (NIRA) and The Public Works Administration (PWA). Results were mixed. Yes, currency flooded the market to facilitate commerce, but it flowed directly into the hands of government-sanctioned cartels, and the activities of those cartels were facilitated by the policies of government-funded agencies like The AAA, which created large farming monopolies that displaced millions of small farmers.
Commentators steeped in monetarist dogma have alleged that deflationary policies before and after The 1929 stock market crash are to blame for The Great Depression. Allowing large, unwieldy banks to fail while raising the federal funds rate and discount rate causes economies to contract and collapse, they argue. Lauded “conservative” economic theorists like Milton Friedman have suggested that The Federal Reserve and the government in 1929 should have pursued policies similar to those in recent memory: lower the federal funds rate and discount rate to incentivize borrowing, and bail out what have been dubbed as “too-big-to-fail” banks. This leaves the American people with an ultimatum: allow the banks to fail and suffer the consequences, or allow “too-big-to-fail” banks to borrow unlimited funds and watch the stock market soar while your cities fall into ruin.
Despite the rise in manufacturing and decrease in unemployment that occurred as a result of The New Deal, Milton Friedman insisted that deflationary policies - specifically, an increase in the discount rate from 1.5 percent to 3.5 percent during FDR’s tenure as President - exacerbated the effects of The Great Depression. There could be no better example of blatant historical revisionism. FDR inflated the economy and did so without adding a dime to the debt or the deficit.
How did he do it?
The answer can be found in Section 220 of The National Industrial Recovery Act: "For the purposes of this Act, there is hereby authorized to be appropriated, out of any money in the Treasury not otherwise appropriated, the sum of $3,300,000,000." That's 3 billion, 3 hundred million dollars. Adjusted for inflation, today, that amount would equal 57,750,128,919.97 dollars - 57 trillion, 750 billion, 129 million dollars - or approximately four times The United State’s GDP, and FDR took it straight from The Mint. In other words, he bypassed The Fed. Read it: "Out of any money in the Treasury not otherwise appropriated." Although I don't agree with how FDR spent that money, it teaches us an important lesson: that's our money; not the bank's money.
Besides the fact that government was investing in infrastructure and American jobs on an unprecedented scale without adding to either the debt or deficit, why did The Fed increase interest rates? Why not incentivize borrowing, as Milton Friedman suggested? The socioeconomic climate that preceded the stock market crash of 1929 - which closely resembles today’s socioeconomic climate - may be partially to blame.
Then: The top .01 percent of American families in 1929 claimed an aggregate income equal to that of the bottom 42 percent.
Now: Ignoring the billions of dollars of shadow money stored in offshore bank accounts, the top 1 percent of Americans in 2011 reaped a quarter of the national income. For every seven dollars and twenty-five cents earned by a minimum wage worker, their CEO earned 5,000 dollars. In 2012, they claimed 50 percent of all income. In comparison, The Ivory Coast, Egypt, Tunisia, Pakistan and Ethiopia are more equal.
Then: Between 1920 and 1929, per capita disposable income for all Americans rose by 9 percent while the top 1 percent of income recipients enjoyed a 75 percent increase.
Now: Between 1979 and 2007, the average income for the top 1 percent grew by 275 percent. During the same time period, the middle 60 percent of Americans saw their incomes grow just under 40 percent, and the bottom quintile saw their incomes grow only by 18 percent.
Then: Nearly 80 percent of the nation’s families (some 21.5 million households) had no savings while 24,000 families at the top (the .01 percent) held 34 percent of all savings.
Now: In 2007, the top 1 percent owned only 5 percent of the nation’s private debt while the bottom 90 percent owned 73 percent of the nation’s private debt.
Then: The top .05 percent of Americans in 1929 owned 32.4 percent of all net wealth.
Now: 1 percent of Americans own 40 percent of the nation’s wealth while the bottom 50 percent of Americans own only .5 percent of total investments, although - realistically - since their debt exceeds their assets, they own zero percent of the nation's wealth.
The similarities between the 2008 “Recession” and The Great Depression don’t end there. The 1929 stock market crash was preceded by what is commonly referred to as “a modest recession” in 1927, an event that may have been precipitated by a drop in the discount rate to 3.5 percent (the same interest rate that Milton Friedman claimed had crippled the banks under FDR’s administration), although it’s unlikely that a drop in the discount rate contributed much to the rampant land speculation in Florida and California that preceded the 1927 recession. The top .01 percent of income earners held 34 percent of all savings in the country and were advising their brokers to leverage their investments - to borrow from their assets and buy securities (so they could borrow more money to buy more securities) - and their activities remained unchecked until the real estate bubble burst, prompting them to suffer a momentary bout of self-reflection. In the wake of this “modest recession,” investment trusts, insubstantial economic superstructures that trade abstract financial tools (contracts) like forwards, futures, options and debt (nothing of tangible value), dominated Wall Street, and they moved investments from land to securities and derivatives.
Inevitably, some of these stocks represented shares in actual companies, yet the number of companies was shrinking dramatically. Between 1919 and 1928, 1200 mergers resulted in the disappearance of over 6000 independent enterprises. 200 corporations controlled nearly half of all American industry. The 81 billion dollars in assets held by these corporations represented 49 percent of all corporate wealth and 22 percent of all national wealth. Meanwhile, the majority of Americans (80 percent), who held no savings, were unable to invest in the products they were manufacturing, so the banks issued credit. Between 1925 and 1929 the amount of installment credit outstanding in The United States doubled from 1.38 billion dollars to 3 billion dollars. So your average factory worker in the mid-20's was able to drive his Model-T to work, but when he returned home, his wife had to split a can of beans between their three children and make gravy with half a cup of flour and yesterday’s bacon grease.
The cause of The Great Depression is a matter of debate and will likely continue to be debated, but I don’t think The Federal Reserve’s deflationary policies played a significant role. Monetarists claim that an increase in the discount rate to 6 percent in 1928 lead to the stock market crash of 1929, but when there’s an increase in the money supply, The Federal Reserve’s default policy is to raise interest rates, and there was an obvious increase in the money supply. Investors on Wall Street were leveraging investments with abandon, Henry Ford’s Model-T was the hot commodity from Germany to Japan, The DOW Jones rose from 191 in early 1928 to 381 in September of 1929 (a 100 percent increase) and few banks were visiting The Fed’s discount window. Lastly, as I’ve already discussed, in FDR’s first 100 days, The National Industrial Recovery Act funneled an amount equal to 4 times the nation’s GDP into The United States economy. So there was no deflation. There was just government-controlled-inflation.
Yet the debate over the causes of The Great Depression rages on.
All this obsession over inflation and deflation amounts to nothing short of fallacy, a red herring. In the right hands, inflation and deflation are perfectly legitimate economic tools; not problems to be addressed. Inflation, an increase in the money supply, lowers the value of the dollar and increases prices. Deflation, a decrease in the money supply, increases the value of the dollar and lowers prices. Increased prices are only a problem if wages stagnate (if a disproportionate percentage of the population is deprived of their share of the total increase), and a lower dollar value lowers interest rates, encourages borrowing and attracts investment. Deflation, on the other hand, is a dream. Deflation - by its nature - leverages equality over profit. When the money supply decreases, the value of money increases, purchasing power increases, and the stock market is less inclined to gamble its money away. Deflation places responsibility and control squarely upon the shoulders of the worker.
Of course, there are circumstances in which a deflationary economy gives us cause for concern, but The United States hasn’t witnessed such a crisis in over one hundred years. The most obvious deflationary crisis occurs when employers, financiers and speculators are unwilling to abandon an economic model predicated upon their own constantly rising incomes. Lo and behold, the dollar has been in a state of constant inflation since The Federal Reserve was created.
When the money supply contracts and the price of the dollar rises (deflation), the only way corporate executives can continue to make constant profit is with massive lay-offs or a decrease in the minimum wage. If Congress and The President lowered the minimum wage, there would be mass unrest, and unless companies want to replace their qualified employees with unskilled workers, lay-offs would prove unprofitable. Even if companies were to replace their workforce with unskilled labor or demand that their employees work more hours, the unemployed would be able to earn more money working fewer hours and their increased purchasing power would provide them with greater access to resources. The unemployed could create their own economy, an economy in which monopolies would no longer be able to compete. That’s the last thing bankers, CEOs and the politicians who serve their interests want to see. This crisis - if you’re inclined to call it a “crisis” - is critical for only a select few wealthy individuals. Otherwise, it’s a godsend.
Of course, this leveraging of equality remains impossible because The Federal Reserve inhibits competition. When The Federal Reserve sets interest rates on behalf of “too-big-to-fail” banks, it’s engaging in price-fixing, which is illegal for everyone except “too-big-to-fail-banks,” which Eric Holder said are above the law. So if the money supply were to contract and prices were to drop, banks would be unable to compete by lowering their interest rates. In fact, The Federal Reserve has the power to raise interest rates in a deflationary economy, which would do nothing but add an undue burden upon home-owners, entrepreneurs and those who may need a loan in a time of economic duress. Even if The Federal Reserve were not price-fixing, it’s unlikely that “too-big-to-fail” banks or credit card companies would reduce their rates. They’ve been engaging in predatory lending for over a century and will continue to do so unless there’s public oversight (government intervention), and in a deflationary economy - when their profits are being threatened - they’re more likely to engage in these practices for simple want of power.
There are additional circumstances in which deflation becomes problematic. For the purpose of demonstration, let’s suppose the money supply contracted to such a dire extent that every worker earned only one dollar for one day of work. That’s Communism, and Communism in America would be a scary sight. We’d be reduced to a country of armed, disgruntled laborers walking around with bulges of loose change in our pants’ pockets.
DEBT & INEQUALITY
The most relevant and likely example of a deflationary crisis results as a consequence of usury, or debt, otherwise known as “credit.” The only way a country can sustain inequality when its currency is highly valued is by providing an unprecedented volume of credit, which is why The United Kingdom is the most indebted nation in the world today (we’re talking “private debt,” not “public debt”). The same rule applies in an inflationary economy. When wages remain stagnant while the money supply expands, money flows into the hands of the few while the majority treads water in an ocean of high prices and excessive debt. Americans now own almost 40 trillion dollars in private debt, or over two times the GDP. That means we would all have to work a little under three years without any income to pay it off. If you were to add public debt to the equation, which - including intragovernmental holdings - exceeds the national GDP by roughly 1 trillion dollars, then the total United States debt today equals a little under 57 trillion dollars, or almost four times the GDP.
Our ancestors were well aware of the consequences of debt. Numerous groups were excommunicated from the church, exiled from The Roman Empire and denounced by prophets for the negotiation of loans at interest. It was considered exploitative, unnatural and abusive. Aristotle called it “the most hated sort” of money-making, “for money was intended to be used in exchange, but not to increase at interest. This term ‘interest,’ . . . means the creation of money from money . . . Of all methods of acquiring wealth, this is the most unnatural.“ Thomas Edison, the cut-throat businessman and inventor, summed it up neatly in a New York Times article published on December 6th, 1921.
“If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good, makes the bill good, also. The difference between the bond and the bill is the bond lets money brokers collect twice the amount of the bond and an additional 20%, whereas the currency pays nobody but those who contribute directly in some useful way. It is absurd to say that our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay, but one promise fattens the usurers and the other helps the people.”
Economies suffer as a result of debt and inequality. That’s the bottom line. The stock market has little or nothing to do with it. The stock market is the biggest circle jerk in history. Yes, it measures profit, but it neglects to trace the origin and destination of those profits. When banks loan each other money - remember, today, those loans are issued at an extremely low interest rate - they loan 90 percent of every deposit, and so on. If those loans were being made to fund local commerce, this practice, which is referred to as fractional banking, could possibly help the economy, but like the money slushing around in the stock market, we’re unable to trace the origin or destination of those loans, and manipulation of the stock market is relatively easy provided you have access to the funds necessary for its execution. Jim Cramer did, and in a 2007 interview with TheStreet.com, an online boiler room he co-founded with Marty Peretz, the former Wall Street mogul confessed that hedge funds regularly engage in “pump and dump” and “short and distort” schemes, rumor mongering and price fixing. “Too-big-to-fail” banks, the engines that power the stock market, receive an annual 83 billion dollar subsidy from tax payers, an amount that’s nearly equal to the bank’s annual “profits.” That same subsidy amounts to 830 billion dollars over ten years, the exact amount targeted by across-the-board budget cuts, the domestic austerity measures referred to as “sequester.”
THE MEASUREMENT OF WEALTH
The fact that the stock market measures profit alone should appear as a bright red flag flapping in the wind upon the psychic landscape of any person who possesses a modicum of empathy, anyone who is even remotely aware of the fragility of life. If you think “wealth” equals “profit,” you’re in a sad state. Profit is the most inadequate measurement of wealth conceived by man. Why not measure wealth according to the number of suicides per year, the number of mental hospitals or libraries that are closing, the ratio of sole proprietorships to people, the number of unemployed, the number of homeless, the number of high school drop outs, the number of drug-related homicides, the number of burglaries, the number of inmates, the number of people who don’t vote or don’t believe their vote matters? If we reduced those figures to the smallest possible number tomorrow, we would be wealthier than we are today by a longshot (and if that isn’t self-evident, I don’t know what is).
The stock market is a sham. There is no wizard. There’s just a man behind a curtain, and The Fed is the curtain. Lender of last resort? That’s an understatement. How about “money-launderer.” The Federal Reserve is a banking cartel that has been loaned the key to The United States Mint, yet remains beholden to no man (not even The Commander-in-Chief), and it has written a blank check to those who would gladly squander America’s potential to amass a war chest of ones and zeros in offshore tax havens. Perhaps the most devastating consequence of the establishment of a central bank is that it makes a Pontius Pilate out of the every politician who operates at the Federal level.
ACCOUNTABILITY
“Don’t look at me,” The President says. “Talk to Congress.”
The 535 members of Congress join their voices in a unique display of bipartisanship.
“Don’t look at us. Talk to The Fed.”
Ben Bernanke (or whoever) is nowhere to be found. The months drag on. The central bank issues a press release. The talking heads on Fox, CNN and MSNBC - dim-witted actors (all of them) - bloviate on national television between clips of the chairman’s monotone, obscurantist verbiage. Analysts pour over his words like cryptologists and attempt to decipher what he’s saying. Every news personality is an expert yet they all hold wildly contentious points of view. They point fingers at the opposing party’s political leaders, at each other, or at their “competitors,” yet there remains one thing the mainstream media absolutely refuses to do: their job, to educate the public. In fact, the public is nowhere to be found on mainstream media outlets. When was the last time you remember seeing them interview someone on the street?
Allow me to simplify this for you: it’s the fault of your “representative.” It doesn’t matter whether he or she is a Republican or a Democrat. It’s the fault of lawmakers. Congress should’ve explained to the American public a long time ago how they abdicated their power “to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures” to a banking cartel. That information should be common knowledge. Instead, it has been relegated to the annals of urban myth, and since so many people allow some self-ascribed “apolitical” fact-checker that operates for commercial profit to conduct their research for them, the reality of what’s going on around us will likely continue to be discounted as urban myth in popular discourse.
THE GREAT MONEY DEBATE
So if The Federal Reserve does nothing but supply the lubricant for the great stock market circle jerk, why do Libertarians oppose it? It would seem that it accomplishes nothing but the fulfillment of their Randian wet dreams. Remember Chris Savvinidis, the Occupy Wall Street Protester who lambasted The Federal Reserve? His speech is moving - it moved me - and although his argument deserves merit, it’s founded upon two of neoliberalism’s principal deceits: the imputation that fiat money is “fake money” or “funny money” and that inflation is inherently dangerous.
Anything can serve as money. Cigarettes and soup packets are used as currency in prisons across the country and inflation is only dangerous if a disproportionate amount of supply fills the pockets of self-serving stockholders, investment bankers and corporate executives. That’s why unions fight tooth and nail for health benefits, cost-of-living adjustments and higher wages. If the minimum wage kept pace with the growth of the economy, it would be $21.75 today, and if The Economic Policy Institute is correct, 28% of workers in the U.S. will hold low-wage jobs in 2020. That means by 2020, over a quarter of American workers will be making about a third of what is required to satisfy basic living expenses. Given the proper restraints, inflation has the potential to create jobs, repair infrastructure and foster investment in innovation, production and local commerce. This is exactly what happened when FDR bypassed The Federal Reserve, dipped his hand in The Treasury’s coffers and produced the sum of approximately 4 times the national GDP, a sum he invested in the men who built LaGuardia Airport, The Lincoln Tunnel, The Overseas Highway, The Triborough Bridge, Bay Bridge and Hoover Dam. That’s just a handful of the projects funded by The New Deal, which was made possible because for a brief moment in our nation’s history, FDR nationalized the money supply.
One might expect Libertarians to applaud FDR for flaunting The Federal Reserve, but you can bet your mother’s mortgage they’ll criticize him instead - for Glass–Steagall, The Wagner Act, Executive Order 6102, Social Security, The SEC, unemployment insurance, the maximum work week and the minimum wage - for running afoul of the revamped-neoclassical, postmodern (anti-philosophical) economic theories that stoke the flames of neoliberal sentiment today. If they knew how FDR funded The New Deal, conservative economists, Libertarians, The Tea Party and their corporate financiers would be religiously opposed to his methods. Nationalization of the money supply has no place in today’s “free-market” economic theories. In fact, nationalization of the money supply has no home in today’s socioeconomic and political discourse whatsoever.
None of this is new. This debate has been waged since before The Revolutionary War, from the moment British Parliament - under the behest of The Bank of England - passed The Currency Acts of 1751 and 1764, which prohibited the colonies from issuing their own fiat money (paper money), which was called “script.” Few people obeyed these laws (script was the backbone of the American economy), so Parliament passed The Stamp Act, which levied a tax on all legal documents, a tax that could only be paid with British coin. Any colonist who refused to pay or was denied the right to pay using his colony’s printed currency would be deprived of legal restitution. That’s why the colonists marched in the streets, joined their voices together and yelled, “No taxation without representation!” If they were allowed to pay the fee with their own fiat currency, they could acquire some measure of legal restitution without bankrupting themselves. The colonists wanted their money back. They wanted their economy back. That’s why we fought the war.
In 1790, sixteen years after The First Continental Congress, which called for the repeal of what members of that illustrious meeting deemed, “The Intolerable Acts,” which included The Currency Acts and The Stamp Act (amongst others), Hamilton called for the establishment of The First Bank of The United States. Jefferson and Madison dissented, and with good reason: their fledgling country had just fought a bitter war that was predicated upon the interests of England’s central bank, with an army that was funded by England’s central bank, to wrest away the shackles of a puppet Parliament that was in the pocket of the moneyed interests that controlled England’s central bank. Jefferson and Madison not only considered the proposed establishment of a central bank to be unconstitutional, they believed it would enable harmful speculative practices. 42 years later, in 1832, Andrew Jackson wrote a stinging indictment of The Second Bank of The United States and the scaffolding of legal precedents that allowed for its organization in a message sent to The Senate that explained his reasons for vetoing the bank’s re-charter.
“It is maintained by some that the bank is a means of executing the constitutional power ‘to coin money and regulate the value thereof.’ Congress have established a mint to coin money and passed laws to regulate the value thereof. The money so coined, with its value so regulated, and such foreign coins as Congress may adopt are the only currency known to the Constitution. But if they have other power to regulate the currency, it was conferred to be exercised by themselves, and not to be transferred to a corporation. If the bank be established for that purpose, with a charter unalterable without its consent, Congress have parted with their power for a term of years, during which the Constitution is a dead letter.”
Jackson went on to mention those who benefitted from the establishment of The Second Bank of The United States.
“It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes. Distinctions in society will always exist under every just government. Equality of talents, of education, or of wealth cannot be produced by human institutions. In the full enjoyment of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally entitled to protection by law; but when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of society - the farmers, mechanics, and laborers - who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their Government. There are no necessary evils in government. Its evils exist only in its abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing. In the act before me there seems to be a wide and unnecessary departure from these just principles.”
At one point, Jackson even seems to provide tacit support for the nationalization of the money supply.
“We may not pass an act prohibiting the States to tax the banking business carried on within their limits, but we may, as a means of executing our powers over other objects, place that business in the hands of our agents and then declare it exempt from State taxation in their hands.”
THE MONEY TRUST
Despite his attacks on the Second Bank of The United States, Andrew Jackson was no paragon of populism, having forcefully removed Native Americans from their sovereign land, which he later arranged to be sold for specie, metallic money, which lead to rampant unregulated deflation, hoarding, bank failures and land grabs by numerous moneyed gentlemen, including Jackson, who was a notorious land speculator, yet Jackson was also the only president in American history to pay off the national debt, and with his veto, America’s experiment in central banking went on hiatus until Woodrow Wilson signed The Federal Reserve Act in 1913, a contentious bill that cleaved a sharp divide in Congress and across the nation. The Act was five years in the making, a work-in-progress that began with The National Monetary Commission, an investigative committee spearheaded by Nelson W. Aldrich - wealthy investor, friend of J.P. Morgan, Senator of Rhode Island and leader of The Republican Party between 1881 and 1915 - who concluded (in his infinitesimal wisdom) that a central bank divorced from The United States government and composed of 15 regional districts should be given the power to print currency, lend it to member banks and act as fiscal agent of The United States. Aldrich’s proposal was met with significant resistance from Agrarian Democrats, who supported direct democratic reform, divorce from the gold-standard and an end to imperialistic American foreign policy. Perhaps the most outspoken of The Federal Reserve’s critics was the father of famous aviator Charles Lindbergh Jr., Representative Charles August Lindbergh Sr. of Minnesota, who called for a probe of Wall Street to determine whether a concentration of wealth under the direction of a handful of men sought to violate The Constitution of The United States. Lindbergh’s resolution met with approval and an investigation would later be made under the direction of Representative Arsene Pujo of Louisiana. Arsene had previously been a member of Aldrich’s National Monetary Commission, but left after further consideration to form what would come to be known as The Pujo Committee in The Spring of 1912. The report, which was aptly named, “The Report of the Committee Appointed Pursuant to House Resolutions 429 and 504 to Investigate the Concentration of Control of Money and Credit,” comprised 258 pages of analysis, notes, figures, forms, lists, graphs and interviews with squirming investment bankers. Their conclusion is startling.
“If, therefore, by a ‘money trust’ is meant, ‘An established and well-defined identity and community of interest between a few leaders of finance which has been created and is held together through stock holdings, interlocking directorates, and other forms of domination over banks, trust companies, railroads, public-service and industrial corporations, and which has resulted in a vast and growing concentration of control of money and credit in the hands of a comparatively few men,’ your committee, as before stated, has no hesitation in asserting as a result of its investigation up to this time that the condition just described exists in this country today.”
Among The Pujo committee’s prescriptions for reform were the incorporation and regulation of clearing houses, an emphasis on solvency over capital, the establishment of clearinghouses as lenders of last resort, revision of the examination process, which would include public oversight, government oversight over interest rates, regulation of the stock exchange, which included the “Power of Congress to deny use of mails and telegraph,” and just about every tool within reason that government could wield over the world of finance to force it to submit to the demands of industry and the will of the people. Far from deregulation, the committee’s majority advocated for increased transparency and government regulation, yet despite its recommendations, The Federal Reserve Act was signed into law on December 23rd, 1913 by a President who represented the dissenting party. Yes, The Democratic Party, although they objected to the formation of a central bank, voted in favor of The Federal Reserve Act under the direction of a President who ran on the following central plank.
“We oppose the so-called Aldrich Bill for the establishment of a central bank; and we believe our country will be largely free from panics, and consequent unemployment and business depression, by such a systematic revision of our banking laws as will render temporary relief in localities where such relief is needed, with protection from control or domination by what is known as the Money Trust.”
“Banks exist for the accommodation of the public and not for the control of business. All legislation on the subject of banking and currency should have for its purpose the securing of these accommodations on terms of absolute security to the public and of complete protection from the misuse of the power that wealth gives to those who possess it.”
Woodrow Wilson ran on this platform, a platform that explicitly stated, “We oppose . . . the establishment of a central bank.” So, what happened? Did he experience a sudden change of heart? Did The Republicans and Democrats come to an equitable compromise?
It’s hard to tell.
Shortly after The Pujo Committee submitted its report, under the direction of Representative Carter Glass of Virginia, yet another committee was formed, a bipartisan committee that attempted to address the rift that divided the country. In addition to citing the aforementioned plank in The Democratic Party platform, it stated, “That this plank constitutes a direct claim upon the party, challenging its immediate attention, is the attention of The Banking and Currency Committee. The claim is the more urgent because there has been a most lamentable failure to face the banking situation fairly in past legislation.” It then continued to criticize The Aldrich-Vreeland Act, or The National Monetary Commission, which made the original proposal for a central bank.
“Without going further into the detailed analysis of the Aldrich bill, it may be stated that the committee objects to the plan fundamentally on the following points: 1) Its entire lack of adequate governmental or public control of the banking mechanism it sets up; 2) Its tendency to throw voting control into the hands of the larger banks of the system; 3) The lack of adequate provision for protecting the interests of small banks and the tendency to make the proposed institution to subserve the interest of large institutions only; 4) The intricate system by which the reserve institution it created was prevented from doing any business that might compete with that of existing banks; 5) The extreme danger of inflation of currency inherent in the scheme; 6) The clumsiness of the whole mechanism provided by the measure; 7) The insincerity of the bond-refunding plan provided for by it, there being a barefaced pretense that this system was to cost the Government nothing; 8)The dangerous monopolistic practices of the bill.”
Acknowledgment of The Democratic Party’s position and the subsequent criticisms leveled upon The Aldrich-Vreeland Act were - at best - palliatives placed within the body of the report to supplicate members of The Democratic Party, because The Banking and Currency Committee’s inevitable counsel directed Congress to establish an entity that so closely resembled the central bank described in The Aldrich-Vreeland Act, it’s a matter of wasted breath to list their differences. Did The Democrats simply not read The Federal Reserve Act? Did they not compare the language in it to the language in the report written by The National Monetary Commission? Were they incompetent, did they change their minds, did they just not care anymore?
Like I said, it’s hard to tell.
What we do know is that Lindbergh continued the fight. Less than four years later, on February 17th, 1917, the representative from Minnesota introduced articles of impeachment against five members of The Federal Reserve Board, including Paul M. Warburg, who was mentioned in The Pujo Committee report as a member of Kuhn, Loeb & Co., a company listed - in addition to others - under the heading, “Review of Evidence on Concentration of Control, ETC.” In his articles of impeachment, Lindbergh remonstrates Warburg, J.P. Morgan, the other four members of The Reserve Board for whom Lindbergh believed impeachment was deserved and the companies with which these gentleman had been affiliated, saying that they “did conspire with each other to devise a means through social, political, and other ways of strategy and by general chicanery, to deceive the people of The United States, the Congress, and the President of The United States for the purpose and with the object to secure an act of Congress providing for a new monetary and banking system, to have in it a provision for a managing board vested with unusual and extraordinary powers . . . and instead of administering the act to meet with the spirit and comply with its terms, to induce and secure such board to enter into the conspiracy aforesaid, to administer the act for the special benefit and advantage of all of the said conspirators hereinbefore named, and their associates, and contrary to the letter, intent and purpose of the act itself and in contravention of the Constitution and law.” Lindbergh then went on to describe how J.P. Morgan and his cohorts - through insidious means - organized a massive astroturf campaign called “The Citizens League,” and manipulated a wide variety of media to propagate support for banking reform and to suppress any journalistic inquiry that “would give any information as to the existence of said conspiracy.” Lindbergh ended his exposition by simply stating “That The Federal Reserve Act is void and unconstitutional.”
Before his death in 1924, Lindbergh wrote a book on The Fed, his last contribution to America’s ongoing monetary debate, titled, “The Economic Pinch,” a manual for democratic reform, one of the foremost example of American progressivism in the last one hundred years. (Curiously, the copyright for “The Economic Pinch” is in the possession of The Noontide Press, which was founded by Willis Carto, a historical revisionist who advanced Nazi ideals under the guise of Jeffersonian populism, and the book - a 250-page paperback - is made available by the press for the exorbitant price of $68.70 on Amazon.) Remember, Lindbergh isn’t alone in his accusations. Andrew Jackson, Thomas Jefferson and James Madison (amongst others) shared his sentiments. In fact, these men were so convinced, so resolute in their convictions, they dedicated their lives to restore balance to the nation’s political and monetary policies.
DEBT & DEFICIT
Today, in the midst of an economic crisis that so closely resembles The Great Depression, an economic crisis of such gravity that it would amount to nothing short of insult if one were to refer to it as a “recession,” the nation’s monetary policy is a subject of regular debate. America’s ruling factions, Republican and Democrat, would have us believe that the deficit is of paramount concern, a pivot upon which the economy hinges, a problem that needs to be resolved in order to address the disastrous consequences of public debt, yet neither media nor politicians have revealed to the public that the nation’s cumulative private debt is now approximately 250 to 275 percent of the nation’s GDP, nor have they revealed to the public that the retainer of our public debt is not China, England, nor Brazil, but rather, it’s The Federal Reserve that owns the public debt, or - more accurately - the shareholders of The Federal Reserve own the public debt: the “too-big-to-fail banks” that have received not one, but two bailouts paid for by tax-paying citizens, who are currently subsidizing the banks’ disastrous expenditures. If “every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners,” then we can eliminate 89 cents for every dollar of foreign claims, or 89 percent, which means The Federal Reserve and its shareholders own almost 36 percent of the nation’s debt. Including intragovernmental holdings, money the government owes itself, 67 percent of U.S. debt would be dissolved if the currency were a public utility instead of a commodity owned by The Federal Reserve.
Why is the government of the people, for the people, by the people borrowing its own money from an alien entity that would never have been created if it were not for the largesse of the people? Why is The United States government cowed by a financial ratings agency owned by that alien entity’s shareholders, which are the same “too-big-to-fail” banks that added 3 trillion dollars to the deficit because the American people were forced to pay for their incompetency? Why is The United States government enacting across-the-board budget cuts for a ratings agency that grossly overrated toxic collateral debt obligations and mortgage-backed securities prior to the 2008 subprime mortgage crisis, conditions that are directly responsible for what was the inevitable bursting of the mortgage-credit bubble? Why is The United States government threatening Social Security, Medicare and Medicaid for an agency that has intimidated sovereign nations and used its power as a monopoly to unfairly extract large sums of money from the continent of Europe for its own personal gain?
The public debt is a fraud. The deficit is a fraud.
The Federal Reserve is a private institution composed of “the larger banks of the system,” that lacks “adequate governmental or public control” and engages in “dangerous monopolistic practices,” the establishment of which was based upon a “barefaced pretense that [the] system [would cost] the government nothing,” yet the men who wrote those words went ahead and built it anyway, and as they predicted, the U.S. currency has been inflating at a dramatic rate ever since the creation of The Federal Reserve, and while prices rise, wages stagnate (or drop), products depreciate in quality, mom & pop shops are replaced by large chains and private debt stirs quietly, like the first breaths of a hurricane. Every function of The Federal Reserve can be - and should be - performed by government. If it were so, 72 percent of the public debt would be eliminated and there would be no deficit. If the markets required money to facilitate commerce, The Treasury would make it readily available, and if inflation created hardship, the Treasury would collect what it had previously disbursed.
If Congress were to dissolve The Federal Reserve, our lawmakers would once again perform the duties that were ascribed to them by the founders under the direction of The United States Constitution, “to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.” Our lawmakers would again be held accountable for the state of our economy, and if they injected capital into the accounts of a handful of speculators at zero interest, like The Fed, then allowed those same speculators to loan a percentage of our deposits to each other multiple times, like The Fed, instead of bitching at the bar and blubbering over our beer about the shadowy world of finance that has blighted our cities, our neighborhoods and our family, we, the American people, would know exactly who to blame. We would know exactly where to point the finger. Government accountability is precisely what neoliberals want to prevent. If Libertarians petition to dissolve The Federal Reserve, it’s not because they want Congress “to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.” This precept, which was established by the founders, is anathema to Libertarian dogma. In lieu of The Federal Reserve, Libertarians would establish a gold reserve controlled by private enterprise - banks that are entirely divorced from public oversight - which would administer notes redeemable in gold, and Libertarianism isn’t alone in its advocacy of a gold-standard. Marx was also fond of the idea, which is curious because gold is a commodity, which one might assume Communism would proscribe.
A CRITIQUE OF THE GOLD STANDARD
The popular opinion amongst adherents of the gold-standard today is that it’s a kind of panacea for our current economic woes. Let’s assume one bar of gold equals 100 dollars. If your government keeps 10 bars of gold in reserve, that gives you 1000 dollars to facilitate commerce and fund national programs. Gold is a finite resource. So what do you do if your government overhead exceeds your reserves in gold by 4000 dollars? Your first option is to inflate, and when an economy inflates, the currency depreciates. If The United States were to transition to the gold standard today, our economy would experience an unprecedented degree of inflation. The reason Nixon took us off the gold standard in the first place is because our overhead already exceeded the country’s reserves in gold. If The United States were to transition to the gold standard today, the American people would be placed in a peculiar position: we’d be working on assembly lines 12 hours a day, fabricating I-phones for rich Chinese children, biding our time until we could afford to buy a black-market firearm to blow our brains out.
The second option would be to enact austerity, or sequester, which is what's going on today, and if that policy is allowed to continue, it’ll destroy the country. How can government function, how can government provide for the safety and well-being of its citizens without effectively utilizing the one tool humankind has designed to replace the barter system? If government doesn’t provide for your roads, your bridges and education, then private enterprise will, and if you’re in favor of that policy, then you’ve willingly forfeited your country to the rule of an alien enterprise.
“Well, what if we switched from a fixed-rate gold standard to commodity-backed gold market?”
Then the value of your currency would fluctuate according to the dramatic boom & bust cycles of every artificial market, and anyone who’s vaguely aware of the causes and consequences of the 2008 subprime mortgage crisis - or any depression or recession - should know better.
DISINFORMATION
The resurgence in the gold-standard’s popularity is no coincidence. These ideas are largely the byproduct of a large, ongoing astroturf campaign spearheaded by The John Birch Society, a non-profit organization founded by Robert Welch Jr., a paranoid candy-maker who proliferated conspiracies that ran the gamut from Communist fear-mongering to Spartan-Illuminati-Freemason fiction dipped in Satan-worship. Amongst Welch’s cohorts were the following men: oil-refinery mogul Fred Koch, father of Charles and David Koch, who have used their inheritance to fund a multitude of political non-profits including - but not limited to - Americans for Prosperity and Freedom Works, which are responsible for the advent of the astroturf Tea Party movement, and the Libertarian think tank, The Cato Institute; Robert Waring Stoddard, a wealthy industrialist who founded The National Association of Manufacturers, a union-busting non-profit that lobbies congressmen to enact right-to-work laws; Revilo P. Oliver, who is perhaps best known for having written a specious article asserting that Lee Harvey Oswald was part of a Communist Conspiracy to overthrow The United States, and who was a founding member of The National Alliance, America’s preeminent neo-nazi political action committee; and G. Edward Griffin, The John Birch Society’s foremost scholar, who founded the Libertarian non-profit, Freedom Force International, and who wrote what is widely lauded as The Libertarian Bible, “The Creature from Jekyll Island,” a tome of disinformation that purports to discuss The Federal Reserve yet dedicates the majority of its pages to - wait for it - more conspiracy theories, conspiracy theories that conflate capitalism with socialism (of all things) and goes on at length about a secret plot by a few wealthy “socialists” (talk about a contradiction in terms) to establish a New World Order.
HISTORIC REVISIONISM
Although G. Edward Griffin mentions Lindbergh, the money trust and The Pujo Committee in his magnum opus, “The Creature from Jekyll Island,” he never once mentions The Progressive Democratic Party plank, which stated that “banks exist for the accommodation of the public and not for the control of business,” nor the recommendations of The Pujo Committee, which advocated for strict government oversight of banking and the stock market, which included the “power of Congress to deny use of mails and telegraph,” nor does Griffin mention that Lindbergh’s continued attacks upon The Federal Reserve, the money trust and income inequality resulted in the passage of The Sixteenth Amendment, which established the legal precedent for the graduated income tax. Perhaps most importantly, Griffin never mentions A.C. Townley and The Non-Partisan League, a grass-roots political organization that won the majority of seats and the executive in North Dakota’s 1916 election, nor does he mention that Lindbergh was The NLP’s Minnesota gubernatorial candidate in 1918, or that Lindbergh called the upper class “parasites” and advocated for policies more ambitious than a minimum wage or taxes upon the rich in his primer, “The Economic Pinch.” The fledgling party - however short-lived - succeeded in establishing the only public bank in The United States, which exists to this day: The Bank of North Dakota.
The Bank of North Dakota has been instrumental in helping the state of North Dakota to weather the storm of America’s recent economic depression, a depression that is the direct result of deregulation (regulation in favor of private and corporate interests), debt and income inequality. When the rest of the country suffered at the hands of those who would benefit from our losses, who offshore jobs and profits to cut expenses and dodge taxes, North Dakota continued to invest in local commerce. That’s a precedent that should neither be overlooked nor underestimated. Contrary to what Libertarians and neoliberals would lead you believe, those who opposed The Federal Reserve were libeled as “socialists” and “communists,” and if The Non-Partisan League were active today, they’d be ignored by corporate media (FOX, CNN and MSNBC) and slandered. They’d be maligned as “hippies,” “losers” or “union thugs” by their political opponents, descriptions that serve only to distract from the character and history of those who endeavored to realize a just and equitable society: Americans, god-fearing Christians and local farmers that readily identified the forces that were working to deprive them of their livelihoods and well-being. They opposed The Federal Reserve and more importantly, they opposed the hegemony of America’s dual-party system: The Democrat-Republican marketing wing of Big Finance that seeks to preserve and expand existing power structures at the expense of the people, equality, justice, liberty and fraternity.
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