As we discussed last time, the Panic of 1907 set the stage for the creation of the Federal Reserve in 1913. The dominant narrative among many bankers was that a more elastic money supply was needed to shield their business ventures from the perils of liquidation.
Congressman Vreeland (one of the bill’s coauthors) had the following to say on the proposal:
“The bank I propose… is an ideal method of fighting monopoly. It could not possibly itself become a monopoly and it would prevent other banks combining into monopolies. With earnings limited to four and one half percent, there could not be monopoly.”
It is important to remember that anti trust legislation was center stage around this time. Popularized, in particular, by the likes of the “Progressive Bull Moose” Theodore Roosevelt with his Sherman Antitrust Act of 1890. This framing of a central bank in the United States being necessary to prevent banking monopolies was crucial to its public acceptance. The reality of how central bank policy affected change could not be further from these claims.
Firstly, we know with absolute certainty that the measly “four and a half percent” Vreeland spoke about would fly out the window at the earliest opportunity, but the real wealth concentrating monopolization of the federal reserve would come in the form of monetary and credit expansion.
Secondly, artificial protections from the liquidations of malinvestment is, in effect, a legal monopoly for all beneficiaries; shielding banks from the consequences of market forces which naturally direct capital allocation.
Cleverly, the Federal reserve was set to be a private institution, and unelected bureaucrats would reside over its policy making. This was a convenient loophole to skirt the unconstitutionality of monetary expansion. Frankly, this relationship is the opposite of anti trust as private government partnerships both create and sustain cartels via judicial and legislative capture.
The most important difference between the Federal Reserve and the national banks of the United States which had existed in years prior, was the Fed’s ability to create the official money of the US. Paper bank notes issued by the Fed became legal tender for both public and private debts. Notice the constitution didn’t specifically prohibit a private institution from issuing bills of credit and the government then deeming it legal tender, even though for all intents and purposes this was an deliberate obfuscation of the way the US constitution was written.
One should note, there is very little presence of “private institution” on these illegitimate bills of credit.
All of this was a carefully constructed facade to convince the public that the government was working to “break apart the money trust”. The public was thoroughly convinced that it was the centralization of financial power in wall street that caused the booms and busts created by government policy making. The Aldrich bill was the reform that promised to fix this problem for the American people (do any of these problems sound eerily familiar some 100 years later?).
As Griffin put it in his brilliant expose The Creature from Jekyll Island, A Second Look at the Federal Reserve:
“The public was, of course, outraged, and the pressure predictably mounted for Congress to do something. The monetary scientists were fully prepared to use this reaction to their own advantage. The strategy was simple: (1) set up a special congressional committee to investigate the money trust; (2) make sure the committee is staff by friends of the trust itself; and (3) conceal the full scope of the trust’s operation while revealing just enough to intensify the public clamor for reform. Once the political climate was hot enough, the the Aldrich bill could be put forward.”
Book of the Month:The Price of Tomorrow: Why Deflation is the Key to an Abundant Future
-“Even if we accept that we are prone to errors in judgment, how do we know when to dig deeper? When might our own views not be built on stable foundations? Fortunately, there are a number of ways. Avid readers and learners, especially those who study across various fields, will tell you that they read diverse topics so they can connect patterns across disciplines or industries. From this practice, they train their brain to recognize opportunity, seeing what worked in one place and applying it elsewhere. By doing so, these people force themselves to break out of the walls that could trap them and to remain open to possibility.”
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