My last entry explored the popular conspiracy elements contained in G. Edward Griffin’s The Creature from Jekyll Island: A Second Look at the Federal Reserve In part two of this series, I’m going to be looking at the particular conspiracies that I have come to accept as part of the formation of the Federal Reserve.
The period of American history that is crucial to understanding the formation of the Federal Reserve is the last 1800s. Unfortunately, this is a period of American history where most Americans are completely ignorant. US history as it is taught in most schools pays scant attention to this period in history. The US History most of us learn in school spends most of its time discussing Colonial History, the Revolutionary War, the Civil War, and Cold War. No major wars occured during the late 1800s, so its just not considered worth spending much time on. If anything, the only time this period in history gets mentioned is by Democrats trying to remind us how bad this period of time was- back when the goverment’s role was small and bureaucrats and regulators had overrun the nation. This “Gilded Age of the Robber Barons” (as they term it) was surely a vicious time that we can’t afford to go back to.
I derided this attitude in a prior blog, “Who’s Afraid of the Big Bad Robber Barons?” The people who attack this period in history most, tend to be those who understand it the least. The Industrial Revolution was underway during this period and society was in upheaval.The United States was becoming a mammoth industrial power and the real wages of the working man increased dramatically; real wages for labor have only stagnated since, so let’s not be too hasty in our condemnation of this era of the Robber Barons. The foundations of the nation we would become today were all laid during that period. The United States stated to flirt with Imperialism and began to look to the Pacific as a region where it wanted to expand its footprint. Also, the Supreme Court decision that validated fiat paper money, Knox v. Lee, occured during this period.
Economically speaking, there is wide disagreement about how to characterize this era in American History. Recently, as part of a larger argument to invest in government bonds, Dr. Lacy Hunt characterized the 1870s as a deflationary depression. As Dr. Murray Rothbard arguments on page 154 of A History of Money and Banking in the United States: The Colonial Era to World War II:
Orthodox economic historians have long complained about the “great depression” that is supposed to have struck the United States in the panic of 1873 and lasted an unprecedented six years, until 1879. Much of this stagnation is supposed to have been caused by a monetary contraction leading to the resumption of specie payments in 1879. Yet what sort of “depression” is it which saw an extraordinary large expansion of industry, of railroads, of physical output, of net national product, or real per capita income?
…It should be clear, then, that the “great depression” of the 1870s is merely a myth- a myth brought about by misinterpretation of the fact that the prices in general fell sharply during the entire period. Indeed they feel from the end of the Civil War until 1879. Friedman and Schwartz estimated that prices in general fell from 1869 to 1879 by 3.8% per annum. Unfortunately, most historians and economists are conditioned to believe that steadily and sharply falling prices must result in depression…
For anyone seeking to understand this period, I’d recommend Rothbard’s excellent book as a place to start. It is by far the best resource for a concise history of this period. The other book I’d recommend is The Coming Battle: A Complete History of the National Banking Money Power in the United States which is a book with a curious history. It was supposed to be published in support of the Presidential Campaign of William Jennings Bryan for the race of 1900. It did not get published at the time, but has instead found an audience much later than anticipated because it contains a detailed history of how the national banks rose to power after the Civil War and corrupted politics.
Coming back to the topic of our blog now after this long detour into history. The specific beliefs I hold regarding the Federal Reserve are contained in the two books mentioned above and is not so much a conspiracy really as the inevitable consequence of turning so much money and power over to a select handful of people. Previous to the Civil War, bankers had lost a great deal of power in the United States. Andrew Jackson had ushered in a new political era when he fought and won the political battle to terminate the second charter of the Bank of the United States and institute an era of hard money instead of paper. The banking industry lost a great deal of its power under Jackson and subsequent Democratic administrations. The Civil War gave them the chance to get all of that power back again.
The Civil War presented the banking industry with an opportunity to do two things. First it was able to get laws passed by dealing with only the Republican Party as the seceeding Southern states were where the majority of Democrats hailed from. Secondly, the war created a great demand for money by the US Government. A demand that could be satisfied by the banking system, if only they were given more power. Senator John Sherman became the voice of the banking industry and, after a passionate speech on the floor of the Senate, was able to get the National Banking Act of 1863 passed. This act created a new kind of bank that was nationally recognized, unliked the state chartered one that were only previously able to exist.
This new national banking system had a vested interest in puchasing government debt, for US Goverment bonds counted as reserve deposits despite the fact that they were interest bearing loans made to the US Government. This nicely dovetailed when the government’s need at the time to sell bonds. This kind of incestous relationship between the banking system and the US Goverment is always seen to be in place and is the main motivator for governments chartering these kinds of banks from the start. The problem though, is that this kind of money and power can soon have a perverting relationship and the servants (the National Banking System) will soon become the master. In this case, we see it almost immediately.
The US Government was not able to sell enough bonds to finance the this war and kept asking for ever increasing quantities of greenbacks (irredeemable fiat money). The banking industry slyly got the US Government to add to their bill a stipulation that interest in debt be paid in gold coin alone. Thusly, the banking industry was able to start collecting the nation’s gold as greenbacks and national bank notes became the circulating currency.
After the war, the National Banking Industry grew into the dominant industry of Morgan and Rockefeller. In did so in no small part through coercion of the policians. It continually agitated for the demonitization of silver and moved the nation towards an entirely gold backed dollar. This was to the benefit of the banks as it made the bonds they were holding even more valuable. In addition, it made financial operations between the United States and Europe easier as the civilized world was moving towards an mono-metallic gold standard. Whenver it seemed that Congress would not play along with the plans of the national bank, they would restrict the money supply and cause a panic. This explains the extrodinarily high number of panics brought on during this otherwise prosperous peacetime expansion.
As the banking insdustry grew in power, it also grew in scope. The Rothschild family gained power in an international web of bankers that were able to influence politics in their direction. Yes, there was a meeting on Jekyll Island. Yes, the Federal Reserve was concieved entirely as a private enterprise to turn even more power over to the banking industry. Those pieces of the Griffin conspiracy are correct and where he makes his most compelling case. The “money trust” that the author of The Coming Battle rails against are the very same people that Griffin fingers at the Jekyll Island meeting. What is not correct, is the notion that their power has continued to grow since to the point where they are the nebulous “them” that is the secret force behind any major event.
In the next and final segment of this series, I’ll exam the history of what happened after the formation of the Federal Reserve. This is where the real heart of the issue lies. Sure, the Federal Reserve was founded by a conspiracy, but does that conspiracy continue to pervade every facet of our modern lives?