The Concise Guide To Economics
by Jim Cox
23. The Federal Reserve System
The Federal Reserve is the third central banking system in the U. S. The first two, called the First Bank of the United States and the Second Bank of the United States, were chartered for the periods of 1792 - 1812 and 1816 - 1836, respectively.
The bank panic of 1907 motivated the major banking interests to assure that such difficulties would not plague them in the future. In 1910 a group of such bankers, pretending to be on a duck hunting trip to Jekyll Island, Georgia, designed the future central bank. After supporting the banking bill they had designed, it was defeated in Congress by suspicious rural and midwestern Congressmen. So biding their time, they had the bill reintroduced--with a different title but now with their feigned opposition. In 1913, while many members of Congress were on Christmas break, the remaining "in's" passed the Federal Reserve Act and rushed it over for Woodrow Wilson's signature on December 23rd. Although the Fed was established by an act of Congress it is a privately owned--by banks in the twelve districts--organization which can be found in the white pages of your phone book.
The Federal Reserve System thus had its origin in underhanded dealings at the behest of the special interests of bankers. The point of the Fed was to authorize a central bank which could generate an elastic money supply in time of bankers's needs. In other words, it allows them to create money out of thin air without suffering the consequences of another panic or bank run. The Fed was thus created as a cartelizing agency for banks the same as the I.C.C. was for railroads, and the C.A.B. for airlines. In addition, the Fed is an outlet for the sale of government bonds--government debt--and thus facilitates the deficit financing of the federal government.
The Fed coordinates the inflationary practices of banks, keeping each from the pressures of note redemption which would otherwise keep their artificial money creation in check. Since the founding of the Fed in 1913 the value of the dollar has fallen by more than 90%! So much for the conventional wisdom alleging that the Fed leads the fight against inflation.
Creation of the Fed should be understood as an important step in a number of steps in the undermining of an honest money based on gold. Other steps in this process include the legal tender laws; the shift from Federal Reserve Notes redeemable in gold, to redeemability in gold or lawful money, to redeemability in lawful money only, to no redeemability at all; replacement of all bank notes with Federal Reserve Notes; abandonment of the gold standard domestically in 1933; and abandonment of the gold standard internationally in 1971. Since the Federal Reserve Notes in your wallet are not redeemable in gold or anything else, it must be asked: In what sense are they notes? A note is a promise to pay. The Fed promises to pay nothing more than another promise to pay!