Authored by George Ford Smith via Mises Institute,
It was the Morgans and Rockefellers of Wall Street who turned to government to cage their banking competition, especially the growing challenge from non-national banks in the South and West, and came up with a plan for a central bank. It was the big bankers who took the lead in creating a system that would protect them from the hazards of bank counterfeiting and make them a monopoly issuer of bank notes. After the Act became law, it was Morgan bankers who occupied the seats of power in the new system, particularly at the Fed's New York branch where Benjamin Strong - president of J. P. Morgan's Bankers Trust Company - ran the money machine from the Fed's inception in 1914 to his death in 1928.
The Fed became an indispensable instrument of profit and power. Beginning in 1914, it cut reserve requirements approximately in half, dropping the ratio from 21 percent to 11 percent, roughly doubling the money supply and permitting both financial aid to the Allies and eventual American entry into the European war. Under the impetus of the war, the Fed became the sole fiscal agent of the Treasury, securing the deposit of all Treasury funds at the Federal Reserve. The Morgans - exploiting its ties with England and its position of power at the New York Fed - became the sole purchasing agent in the US for war materials to be shipped to Britain and France. The Morgans also became the sole underwriter for British and French bonds floated in the US to pay for armaments and other goods the Allies wanted.
Government, meanwhile, used the war as an excuse to create what one economic historian has aptly called a "garrison economy." Among other things, government took over railroads and communications industries, seized hundreds of manufacturing plants, fixed prices, intervened in hundreds of labor disputes, raised taxes, and conscripted a million men for military service so they could join the bloodbath over there, in the European trenches. The Supreme Court - the alleged guardian of the Constitution, which itself is our alleged guardian against an aggressive government - ruled most of the war interventions constitutional, including the draft. Merely questioning the constitutionality of the draft could get you thrown in jail. Thus, the Federal Reserve - a government-protected, government-serving, elaborately-cloaked counterfeiting cartel - played a crucial role in converting a peaceful America into a bellicose, interventionist state.
All the belligerents in the war went off the gold standard and resorted to inflation - mass counterfeiting - to fund the carnage. Taxes were raised, but only so far. Governments that attempt to fund wars by raising taxes often find themselves facing a revolt on the home front. Wars require massive inflation, and the institution responsible for inflation is the government's central bank. Without government control of the monetary system through its central bank there would've been no war, or certainly not one nearly as long or destructive.
The war killed over 19 million people, counting both military and civilian deaths. How many of those deaths could have been prevented if the governments did not control the money supplies? If they had engaged in central bank "disarmament" instead of slaughtering one another?
Rather than pointing out the inflationary theft of resources that underlies all modern wars, many commentators were instead spellbound by the patriotic fervor and the wonderful command and control economy the war brought in its wake. No doubt it was a heady experience for the elites in command and very lucrative for a few others. In this connection I strongly urge you to read a short book written by two-time Medal of Honor recipient, Major General Smedley D. Butler, called War is a Racket. A racket, General Butler said, is something that is not what it seems to the majority of people. Only a small group of insiders knows what it is about. A racket is conducted for the benefit of the very few at the expense of the very many.
We hear voices calling for patriotism during war. But who exactly were the patriots during "the war to end all wars"? Was it J. P. Morgan, who repeatedly said, "Nobody could hate war more than I do" as he was amassing commissions totaling $30 million as a purchasing agent of war supplies for England and France? Was it Morgan's steel, shipbuilding, and powder enterprises that bought controlling interest in, and editorial control over, the country's 25 most influential newspapers?
Was it President Woodrow Wilson who had won reelection with the slogan "he kept us out of war" then five months later asked Congress to join a war that had already killed 5 million men? Was it Senator Robert La Follette of Wisconsin - who rose in the Senate to dissect Wilson's call for war point by point - arguing that Wilson and his advisors had been colluding with Britain for two years trying to find a pretext for American entry into the fray against England's enemies? Was it the senators who spoke after La Follette and for five hours hotly denounced him as "pro-German" and "anti-American"?
Was it the majority of Americans who, in spite of a well-orchestrated media campaign against Germany, still opposed joining the war? Was it the million men who were conscripted and sent overseas, over 100,000 of whom lost their lives? Was it the industrial firms back home - thousands of miles from the slaughter on the Western Front - whose income tax records showed huge profits during the war years? Was it the millions here who kept their mouths shut about the war because the Espionage Act of 1917 and its successor, the Sedition Act of 1918, hung a 20-year prison sentence over the heads of Wilson's critics?
Washington, Jefferson, Madison, and John Quincy Adams are generally considered patriotic, yet they counseled strongly against American entanglement in foreign affairs. "Commerce with all nations, alliance with none," were Jefferson's famous words. America "well knows that by once enlisting under other banners than her own, the fundamental maxims of her policies would insensibly change from liberty to force," John Quincy Adams warned his colleagues in a famous Fourth of July speech to Congress. "Of all the enemies of true liberty," James Madison wrote, "war is, perhaps, the most to be dreaded, because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes; and armies, and debts, and taxes are the known instruments for bringing the many under the domination of the few."
The Fed - and its partner in theft, the income tax - enabled politicians and their financial backers to ignore their warnings. Should we be surprised that many American war supporters made out like bandits? J. P. Morgan was one of those Americans who cleaned up handsomely from the war he professed to hate. As journalist H. L. Mencken noted a few years later, "The Government hospitals are now full of one-legged soldiers who gallantly protected [Morgan's] investments then, and the public schools are full of boys who will protect his investments tomorrow."
The man who unfortunately became the most influential inflationist of the twentieth century, John Maynard Keynes, the same man who condemned gold as a "barbarous relic," saw clearly how monetary fraud leads to a country's downfall. Writing shortly after World War I, he said, "There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." To "debauch" a currency you inflate it.
No government bent on amassing power, however, can do so while banknotes and deposits are still redeemable in gold. Gold, therefore, has to go, but it must be removed in a deceptive manner, so that people won't notice the theft.