Untold Origins of the Federal Reserve
by Chris Campbell
“Progressive” is often a word we hear bandied about to describe very destructive things.
It’s “progressive,” for example, to believe taking responsibility for your individual thoughts, words and actions is a fool’s errand. When taken to its extreme, as it often is, many self-described progressives believe you are responsible for the actions, past and present, of your “group” — and such group, whether you like it or not, is decided for you without your input.
And based on what group you are in, you are more responsible for some things and less responsible for others.
So, says the uber-progressive, your individual actions don’t matter. The core of your being is morally relative. You are defined not by your peers, principles and actions — but by the things you can’t possibly choose. You are judged, rather, by those things outside of your control and those judgments are based on the whims of trendsetters, glitterati and pseudo-experts.
Filmmaker Neel Kolhatkar did a brilliant video about this strange paradigm called Modern Educayshun. Check it out if you haven’t seen it.
It’s also “progressive” to believe only elite academics or politicians — those people, as it happens, with the least skin in the game — are capable of saving the environment, the poor, the abused and the downtrodden from themselves. If only they had more money. If only they could go deeper and deeper and deeper into debt. If only the masses would just get on their knees like good little docile sheep and wisely accept their theories as unvarnished truth. If only they would get “educated.” (Another word that’s been corrupted beyond belief.)
If only. Then, we could make real progress. Which is why, naturally, the progressive movement is responsible for not just the centralized power structures we behold today — but also for the biggest “vampire squid” (hat tip to Matt Taibbi) of them all… the Federal Reserve.
To explain, we pull a chapter from Murray Rothbard’s enlightening book, The Origins of the Federal Reserve.
The Progressive Movement
Murray Rothbard, The Origins of the Federal Reserve
The Federal Reserve Act of December 23, 1913, was part and parcel of the wave of Progressive legislation, on local, state, and federal levels of government, that began about 1900. Progressivism was a bipartisan movement which, in the course of the first two decades of the twentieth century, transformed the American economy and society from one of roughly laissez-faire to one of centralized statism.
Until the 1960s, historians had established the myth that Progressivism was a virtual uprising of workers and farmers who, guided by a new generation of altruistic experts and intellectuals, surmounted fierce big business opposition in order to curb, regulate, and control what had been a system of accelerating monopoly in the late nineteenth century. A generation of research and scholarship, however, has now exploded that myth for all parts of the American polity, and it has become all too clear that the truth is the reverse of this well-worn fable.
In contrast, what actually happened was that business became increasingly competitive during the late nineteenth century, and that various big-business interests, led by the powerful financial house of J.P. Morgan and Company, had tried desperately to establish successful cartels on the free market.
The first wave of such cartels was in the first large-scale business, railroads, and in every case, the attempt to increase profits, by cutting sales with a quota system and thereby to raise prices or rates, collapsed quickly from internal competition within the cartel and from external competition by new competitors eager to undercut the cartel.
During the 1890s, in the new field of large-scale industrial corporations, big-business interests tried to establish high prices and reduced production via mergers, and again, in every case, the mergers collapsed from the winds of new competition.
In both sets of cartel attempts, J.P. Morgan and Company had taken the lead, and in both sets of cases, the market, hampered though it was by high protective tariff walls, managed to nullify these attempts at voluntary cartelization. It then became clear to these big-business interests that the only way to establish a cartelized economy, an economy that would ensure their continued economic dominance and high profits, would be to use the powers of government to establish and maintain cartels by coercion. In other words, to transform the economy from roughly laissez-faire to centralized and coordinated statism.
But how could the American people, steeped in a long tradition of fierce opposition to government imposed monopoly, go along with this program? How could the public’s consent to the New Order be engineered? Fortunately for the cartelists, a solution to this vexing problem lay at hand. Monopoly could be put over in the name of opposition to monopoly! In that way, using the rhetoric beloved by Americans, the form of the political economy could be maintained, while the content could be totally reversed.
Monopoly had always been defined, in the popular parlance and among economists, as “grants of exclusive privilege” by the government. It was now simply redefined as “big business” or business competitive practices, such as price-cutting, so that regulatory commissions, from the Interstate Commerce Commission to the Federal Trade Commission to state insurance commissions, were lobbied for and staffed by big-business men from the regulated industry, all done in the name of curbing “big business monopoly” on the free market. In that way, the regulatory commissions could subsidize, restrict, and cartelize in the name of “opposing monopoly,” as well as promoting the general welfare and national security. Once again, it was railroad monopoly that paved the way.
For this intellectual shell game, the cartelists needed the support of the nation’s intellectuals, the class of professional opinion molders in society. The Morgans needed a smoke screen of ideology, setting forth the rationale and the apologetics for the New Order. Again, fortunately for them, the intellectuals were ready and eager for the new alliance.
The enormous growth of intellectuals, academics, social scientists, technocrats, engineers, social workers, physicians, and occupational “guilds” of all types in the late nineteenth century led most of these groups to organize for a far greater share of the pie than they could possibly achieve on the free market. These intellectuals needed the State to license, restrict, and cartelize their occupations, so as to raise the incomes for the fortunate people already in these fields. In return for their serving as apologists for the new statism, the State was prepared to offer not only cartelized occupations, but also ever increasing and cushier jobs in the bureaucracy to plan and propagandize for the newly statized society. And the intellectuals were ready for it, having learned in graduate schools in Germany the glories of statism and organicist socialism, of a harmonious “middle way” between dog-eat-dog laissez-faire on the one hand and proletarian Marxism on the other.
Instead, big government, staffed by intellectuals and technocrats, steered by big business and aided by unions organizing a subservient labor force, would impose a cooperative commonwealth for the alleged benefit of all.
[Ed. note: As mentioned, this essay is the first chapter of Murray Rothbard’s The Origins of the Federal Reserve. Click here for the full book in PDF format, courtesy of the Mises Institute. Published under a Creative Commons license here.