One day when I was in high school, my father told me about the death of his father. In the 1920s, my grandfather, who lived in San Antonio, owned the second-largest insurance agency in Texas. He had extended a large amount of credit to his customers. One afternoon he came home, and my dad said that his face was “white as a sheet.” He told the family, “I have just sold the company.” Shortly after that, he died of a heart attack.
My grandfather had gone broke as a result of the Great Depression, which also undoubtedly brought on the heart attack. Of course, he wasn’t the only one. There were countless people who lost their life’s fortune. Many wealthy people who were now penniless ended their lives through suicide.
At the time people were told that the 1929 stock-market crash and the subsequent Great Depression were the result of the “failure of free enterprise.” It was a lie. The crash and the Depression were the result of the Federal Reserve System, the system of monetary central planning that progressives had brought into existence in 1913.
For more than a century, America had lived without a central bank. Its monetary system was based on gold coins and silver coins being the official money of the country. That gold-coin, silver-coin system was established by the Constitution, the official document that called the federal government into existence.
The Framers made clear that America’s monetary system would never be based on fiat or “paper” money. That’s why the Constitution gave the federal government only the power to “coin” money, not print money. It’s also why it expressly prohibited the state governments from making anything but gold and silver “legal tender” or official money.
The federal government was also given the power to borrow money. However, the gold standard effectively limited that power. If the government began issuing too many bills and notes promising to pay gold coins and silver coins, there was a danger that everyone would suddenly demand to be paid the gold coins and silver coins owed in such notes, which would render the federal government bankrupt.
The early part of the 20th century was when the progressive movement was striving to convert America’s free-market system to a welfare state system, which would necessarily entail massive amounts of government spending. As a step in that direction, in 1913 the progressives persuaded Americans to adopt both a national income tax and the Federal Reserve System.
The job of the Federal Reserve was to centrally manage the issuance of the federal government’s debt instruments. As with all experiments involving central planning, which is a socialist construct, the result was a disaster. In the 1920s, the Fed overextended the issuance of debt instruments, which posed a danger of a run on the federal government’s gold reserves. Panicking, the Federal Reserve over-contracted, which brought on the 1929 stock-market crash, which was followed by the Great Depression.
The last thing federal officials felt they could do is acknowledge that the Fed was the root cause of the crisis. After all, countless people, such as my grandfather, had lost their businesses and even their lives because of the crisis. There was economic devastation all across the land, with unemployment at unprecedented levels. Can you imagine what would have happened if they had told people the truth — that it was the federal government itself, operating thorough the Federal Reserve, that had caused the crisis? It is very possible that there would have been a violent revolution.
That was why they resorted to the “failure of free enterprise” lie. By doing that, there would be nothing that people could do. Equally important, people would be more willing to go along with President Franklin’s New Deal program, which was sold as a way to “save” free enterprise.
It was just another lie, however. In actuality, Roosevelt’s program was a combination of socialism and fascism, which in many ways closely resembled what Adolf Hitler and Benito Mussolini were doing in Germany and Italy as a way to deal with the Great Depression.
For example, there was Social Security, a socialist program whose concept had originated among socialists in Germany. There was the National Industrial Recovery Act, along with its propaganda campaign known as the “Blue Eagle,” that could easily have been adopted by Fascist Italy. There were public-works projects that closely resembled those in Nazi Germany.
Among the worst things that FDR did was destroy America’s monetary system by ordering people to turn in their gold coins to the federal government. The nationalization was no different from what Stalin and the communists were doing in the Soviet Union.
Roosevelt’s conversion to a fiat or paper-money standard, without even the semblance of a constitutional amendment, set the stage for massive, out-of-control federal spending, taxation, debt, and inflation that came with the advent of the welfare-warfare state. America’s new monetary system would come to be characterized by decades of debasement and debauchery, which especially adversely impacted the poor.
It is impossible to imagine how different America would be if the Federal Reserve, the income tax and the IRS, fiat money, and the welfare-warfare state had never come into existence. The upward trajectory of economic prosperity, sound money, voluntary charity, peace, harmony, and rising standards of living that had characterized the nation from its inception would have continued, all the way through today.
Moreover, countless people who lost their fortunes and their lives in the Great Depression, such as my grandfather, would have continued building and expanding success businesses. There is no doubt that America would be a much better place today.
The post The Federal Reserve Killed My Grandfather appeared first on The Future of Freedom Foundation.
The Future of Freedom Foundation was founded in 1989 by FFF president Jacob Hornberger with the aim of establishing an educational foundation that would advance an uncompromising case for libertarianism in the context of both foreign and domestic policy. The mission of The Future of Freedom Foundation is to advance freedom by providing an uncompromising moral and economic case for individual liberty, free markets, private property, and limited government. Visit https://www.fff.org