Chapter 5
Central Banking in the Twenty-First Century
The Fed was created in 1913, along with dozens of other government regulatory agencies in a wave of populism spearheaded by President Woodrow Wilson. It was a time when the public was rebelling against wealthy captains of industry for becoming too rich. It was a time when the policies of regulation and control were institutionalized to replace the functions of the free market. It was a time very much like today. The fact that the free market had just produced an industrial revolution that led to the highest standard of living individuals and the world had ever known escaped the wisdom of the masses. To them the industrial revolution became unimportant compared to the more popular cries for social justice. In the end they would receive neither.
The Fed was created to protect individuals against the discipline and harshness of capitalism and the gold standard. It took the United States off the gold standard that had lasted since America’s inception. The industrial revolution was built upon the gold standard and the reliability of sound money. The Fed could instead create paper money at will. The Constitution explicitly states that only specie, which means commodities like gold and silver and nickel and copper, can be money. The Founding Fathers knew that the biggest enemy of sound money was government. They knew that inflation was a tool of government to steal from the masses. The new populist government violated the Constitution ...
