This nation was founded on hard money. It says right in our Article I, Section 10 of the US Constitution that, “No State shall … make any Thing but gold and silver Coin a Tender in Payment of Debt.” We lived as a hard-money nation for well over a century; Americans would only accept gold or silver coin in payment of debt or bank notes that were redeemable in same. That’s not the world we live in today, and on that, most everyone can agree. As for how we got here, there are many different versions of history. This article is the first in a three part series that will examine the history of how this came about, including the various conspiracy theories surrounding it.
The pedestrian version of the story is that the American public wanted government oversight over the banking industry, so Congress convened a series of hearings — The Pujo Hearings — as they gathered the necessary information to act. Soon, the Federal Reserve Act was drafted. This provided for a large bureaucracy that included a Federal Reserve Bank in most major cities. Their purpose for having them spread across the nation was two-fold: first, to distribute the power of the Fed far and wide, ensuring each region adequate representation. Secondly, to provide a local Federal Reserve Bank for oversight of the regional banks, making sure they were responsibly conducting their business in a manner not endangering to their depositors. The Federal Reserve Act also empowered the Fed to be the “lender of last resort”; essentially, it was allowed to create money from nothing so that it may purchase US Treasury bonds from troubled banks. The Act was sold as a means of breaking up the power of the banking industry and returning it to those representing the people, to promote responsible banking, and make bank failures a thing of the past.
The first book I ever read on the Fed was G. Edward Griffin’s The Creature from Jekyll Island: A Second Look at the Federal Reserve