The Origins of U.S. Monetary Debauchery

One of the unsung heroes in American history was a prominent New York City lawyer named Frederick Barber Campbell. Campbell graduated from Harvard Law School in 1894 and was a partner in the law firm of Campbell and Whipp. Its offices were located at 20 Exchange Place, which was in the middle of the Wall Street area of the city.

Campbell also served as a director or representative for several British and Russian insurance companies. He lived in the prestigious Metropolitan Club, a private social club that was formed in 1891 by J.P. Morgan, the famous American financier and banker.

In October 1932, the 62-year-old Campbell walked into Chase National Bank with 13 bars of gold. In January 1933, he returned to the bank with 14 more bars of gold. His total deposit amounted to $135,000, which in today’s dollars equals to $3,058,595. The bank agreed to store Campbell’s gold and to return it to him on demand.

On September 16, 1933, Campbell returned to the bank and asked for his gold, pursuant to the storage contract into which he and the bank had entered. The bank refused to give Campbell his gold. It said the law required the bank to deliver his gold to the federal government.

On September 26, Campbell filed a lawsuit in U.S. District Court against the bank. The suit sought to compel the bank to deliver him his gold.

The feds indict Campbell

On September 27, after an 18-minute grand-jury session, federal prosecutors in New York City secured a criminal indictment against Campbell. The indictment charged him with the federal offense of having failed to register his gold with the federal government. Soon thereafter, the indictment was amended to include a second count charging Campbell with “hoarding” his gold.

Campbell was now facing a possible 20 years in jail, a $20,000 fine, and the confiscation of all his gold.

He was also facing the possibility of disbarment. He retained a former assistant U.S. attorney named Ernest W. Baldwin to represent him. Fighting against what he considered were the flagrantly unconstitutional actions of the federal government, Campbell defiantly declared, “If I have to go to jail, I don’t care.”

To his everlasting credit, Campbell fought the feds until the day he died on December 26, 1937. Then 70, he died of a heart attack while at the Metropolitan Club. Ironically, he had an earlier heart attack back on April 14, 1934, while arguing an appeal before the U.S. Circuit Court of Appeals in which he was seeking the return of his gold.

In the end, Campbell was never convicted of any federal criminal offenses, but he did end up losing his gold to the feds. It’s not clear to me whether they gave him any compensation for it, but my hunch is that they did not.

Campbell’s experience goes a long way toward describing what has happened to our nation. After all, when prominent, peaceful, law-abiding citizens are charged with federal felonies for doing something perfectly normal, such as owning gold, that’s when you know that there are some fundamental things wrong in our country.

To understand what happened to Frederick Barber Campbell and why, it would be helpful to engage in a broad examination of the history of U.S. monetary policy.

Limiting the powers of the federal government

After the colonies had declared their independence from England, they operated under a governmental structure called the Articles of Confederation. Under the Articles, the powers of the federal government were so weak that the federal government didn’t even have the power to tax. That was how our American ancestors wanted it. They considered the federal government to be the biggest threat to their freedom and well-being. They didn’t want it vested with too much power.

But there were problems with the Articles, such as trade wars between the states. Thus, when the delegates met in 1787 in the Constitutional Convention, it was with the purpose of simply modifying and improving the Articles of Confederation. Instead, they came out with a proposal for a different type of governmental system, one called a “limited-government republic.”

The American people were not enthused about this proposal. It called for a constitution that gave the federal government much more power than under the Articles, including the power to tax. Americans feared that this new federal government would end up destroying their rights, liberties, and well-being.

The proponents of the Constitution assured the citizenry that they had nothing to be concerned about. Unlike governments in other countries, this government would not be vested with general, inherent powers. Its powers would instead be limited to those few powers enumerated in the Constitution. If a power wasn’t enumerated, then it simply could not be exercised.

Knowing that federal officials would inevitably have the propensity to expand their powers beyond those enumerated in the Constitution, the document called for a judicial branch, whose job it would be to enforce constitutional restraints on the president and Congress.

Based on that assurance, the American people decided to accept the proposal, but only on one condition — that the Constitution be amended soon after ratification with a Bill of Rights, which actually should have been called a Bill of Prohibitions because it doesn’t actually give rights. Instead, it ensures that federal officials will not destroy rights that preexist government. The Bill of Rights, needless to say, further emphasized the mindset of our American ancestors that the greatest threat to their freedom and well-being lay not with some foreign threat but rather with their very own government.

Money and the Constitution

Central to the Constitution was the issue of money. The Framers understood that throughout history, public officials had looted and plundered their citizenry through inflationary debauchery. This was especially true after the printing press was invented. Political regimes now had the ability to print unlimited quantities of money to pay for their welfare and warfare.

The big problem, of course, is that when they did that, the purchasing power of everyone’s money decreased. But since that decrease in purchasing power was reflected by the ever-increasing prices of the things that money paid for, government officials could easily convince people that “inflation” was the fault of greedy sellers. Hardly anyone understood that it was the government that was behind the monetary debauchery.

In fact, the American people themselves had just recently experienced this phenomenon. During the Revolutionary War, the Continental Congress had printed vast amounts of paper money called Continentals. The amount of Continentals printed was so vast that a phrase became popular to describe anything that had little or no value — “Not worth a Continental.”

The Framers wanted to be certain that that didn’t happen again. Moreover, they knew that Americans would be unlikely to approve the Constitution if there wasn’t a guarantee of sound money included in it. The last thing Americans wanted was a federal government that wielded an omnipotent power to print the money to pay for its expenses.

The gold-coin/silver-coin standard 

The Framers settled on gold and silver coins as the official money of the United States. At the risk of belaboring the obvious, it is impossible to print up vast quantities of gold coins, like government could do with paper money.

Thus, the Constitution gave the federal government the power to “coin” money but not the power to “print” money. It was commonly understood that “coining” meant minting gold coins and silver coins from gold and silver bullion.

While the Constitution ushered into existence a federal government of limited powers, it was understood that the state governments would wield the traditional “police powers” of government that had been wielded by governments throughout history. These powers enabled the state governments to do pretty much whatever they wanted to do, with two exceptions: (1) A state constitution could limit the powers of that particular state government, and (2) If the U.S. Constitution expressly placed a restriction on state powers, then the states had to abide by it.

In fact, the Constitution did precisely that with respect to money. It prohibited the states from accepting anything but gold and silver coins as legal tender or official money.

The power to borrow

The Constitution gave the federal government the power to borrow money. Thus, U.S. officials could sell bills, notes, and bonds as a way to borrow money. Oftentimes, these debt instruments would circulate as part of economic transactions, in large part because of the ease in using them in economic exchanges. But everyone knew that they were not money but rather promises to pay money. Everyone understood that the money they promised to pay consisted of gold and silver coins. Thus, anyone could take any federal debt instrument that was, say, payable on demand, into a bank and receive gold or silver in exchange.

It is often said that the gold standard was a paper-money system “backed by gold.” Nothing could be further from the truth. For more than 125 years, there was no paper money in the United States. The only official money, pursuant to the Constitution, consisted of gold and silver coins.

No paper money

In fact, to ensure that the states could not issue paper money, the Constitution expressly prohibited them from issuing “bills of credit.” That was the term that was used at that time for paper money.

Recall also that the Constitution called into existence a federal government of limited powers. If a power wasn’t enumerated, it couldn’t be exercised. The Constitution did not give the federal government the power to emit “bills of credit” or paper money. It only gave the federal government the power to coin money.

Thus, for more than a century, gold and silver coins were the established official money of the American people. The result was the soundest monetary system in history. People didn’t have to worry about government printing too much paper money because there was no paper money. Sure, the government could borrow vast amounts of money by  printing up bills, notes, and bonds. But as long as people were free to own gold and silver, the government’s excess borrowing didn’t adversely affect them.

In fact, the gold standard itself operated as a constraint on federal borrowing. That was because if the government issued too many debt instruments, everyone could come demanding their gold and silver at once. If the government didn’t have the gold and silver to honor its commitments, it would be declared bankrupt, something that no U.S. administration would ever want.

Sound money and rising standards of living

America’s system of sound money was a major factor in the tremendous increase in the standard of living of the American people throughout the nineteenth century and into the early part of the twentieth century. People were able to save vast amounts of money, which then went into banks, which then loaned the money out to businesses, which used the money to buy tools and equipment, which made workers more productive, and which increased real wage rates, supplies of goods and services, and the overall standard of living.

Moreover, people were willing to lend their money to large businesses for long periods of time, which enabled businesses to greatly expand operations. For example, corporations were issuing 100-year bonds. People were willing to buy them because they were payable in gold. People knew that their investments would not be wiped out by the printing of paper money by some governmental printing press.

The income tax and the Federal Reserve

In 1913, there were two extremely important things that happened: (1) The federal income tax was adopted. For more than 100 years, Americans had been free to keep everything they earned, which was another important factor in
the tremendous increase in the standard of living of eighteenth-century and early nineteenth-century Americans; and (2) the Federal Reserve System was adopted.

By this time, the movement was afoot to convert the federal government to what is known today as a “welfare state.” It is a system in which the government is charged with the responsibility of taking care of the citizenry.

The proponents of this system knew that it would require ever-increasing federal expenditures to satisfy the ever-increasing number of people who would be eager to feed at the public trough. Later, the conversion of the federal government to a national-security state would also require ever-increasing amounts of money to finance America’s war machine.

It was obvious that the monetary system that the Constitution established was not going to accommodate the welfare state and, later, the warfare state. Something had to be done to rid America of its gold and silver coin standard and adopt a paper-money standard instead to ensure that the federal government would have the money to finance its ever-increasing welfare-warfare state.

The Great Depression

In the 1920s, the Federal Reserve began issuing large amounts of debt instruments. This gave rise to a false sense of economic prosperity throughout the decade. That’s partly why the decade was called “the Roaring ’20s.”

At the end of the decade, however, people began sensing that there was something amiss. Increasing numbers of them began showing up at banks and demanding payment in gold and silver. Knowing that they had overissued bills, notes, and bonds, the Federal Reserve panicked and began taking measures to contract the amount of its debt instruments. But in its monetary manipulation, it over-contracted, which is what caused the 1929 stock-market crash, which then led to the Great Depression.

Federal officials, however, were not about to acknowledge that the Federal Reserve had caused the Great Depression, especially given the extreme economic distress that had caused massive unemployment and bankruptcies, not to mention the large number of suicides of people who had lost their fortunes. Instead, government officials falsely blamed the Great Depression on the “failure of free enterprise.”

FDR’s confiscation of gold

Franklin Roosevelt became president on March 4, 1933. Relying on an old World War I law called the “Trading with the Enemy Act,” which FDR’s Congress modified with the “Emergency Banking Act,” FDR used the Great Depression as an excuse to convert America’s gold and silver monetary system to a paper-money system.

Keep in mind something important. The Constitution is the highest law of the land. It controls the actions of the federal government. Neither Congress nor the president has the legal authority to change the Constitution by law or by executive order. Amending the Constitution entails an arduous process that is described in the Constitution.

But that is precisely what FDR and his Congress did. After 125 years of a monetary system that was established by the Constitution, Roosevelt and Congress effectively amended the Constitution to end America’s founding monetary system and bring into existence a paper-money monetary system.

On April 5, 1933, Roosevelt issued one of the most shocking executive orders in U.S. history, one that could have easily been found in countries headed by totalitarian regimes. Executive Order 6102 ordered the American people to deliver their gold to the federal government within 30 days, in exchange for irredeemable paper instruments of indebtedness, which FDR would soon devalue in relation to the value of gold. Roosevelt’s action was dictatorial theft, pure and simple.

FDR’s decree is how federal prosecutors secured the criminal indictment of Frederick Barber Campbell. While owning gold had been an established part of American life for more than a century, it had now become a federal felony under Roosevelt. Obviously, Campbell didn’t accept FDR’s legalized theft of his gold lightly. To his everlasting credit, he fought FDR’s repugnant decree until the day he died.

Monetary deception and debauchery

Roosevelt justified his dictatorial action by claiming that the economic emergency of the Great Depression authorized him to seize everyone’s gold and to convert America to a paper-money standard. That argument was a sham. For one thing, the Constitution did not provide that emergencies gave rise to the exercise of extraordinary totalitarian powers.

Moreover, it had been the Federal Reserve’s monetary antics, not private gold ownership, that had given rise to the Great Depression.

Equally important, Roosevelt could have converted to a paper-money standard without seizing everyone’s gold. After all, today we live under FDR’s paper-money system and yet everyone is now free to own gold.

FDR’s actions ultimately gave rise to the welfare-warfare system of out-of-control federal spending, debt, and inflation under which we live today, a system that is heading our nation to a monetary and financial crackup. We could use a lot more Frederick Barber Campbells today.

This article was originally published in the April 2023 edition of Future of Freedom.

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