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I'd rather be on my boat.
Industry Role:
Join Date: May 2003
Location: Miami, FL
Posts: 9,748
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What connects all three of these Presidents is one thing – big ass wars, and specifically, war financing. If you think today’s deficits are bad, well, Abraham Lincoln financed the Civil War pretty much entirely by money printing and debt creation, taking America off the gold standard. He oversaw the founding of the nation’s first national financial regulator, the Office of the Comptroller of the Currency, which chartered national banks and forced them to hold government debt to back currency they issued. The dollar then became the national currency, and Lincoln didn’t even back those dollars by gold (and gold is written into the Constitution). This financing of the Civil War was upheld in a series of cases over the Legal Tender Act of 1862. Prior to Lincoln, it was these United States. Afterwards, it was the United States. Lincoln fought the Civil War and centralized authority in the Federal government to do it, freeing slaves and transforming America into one nation.
Libertarians claim that they dislike Lincoln because he centralized authority in the Federal government. Of course, there is a long reconstructed white supremacist strain that hates Lincoln because he was an explicitly anti-racist President, and they hate the centralized authority and financing power that freed the slaves and turned America increasingly into more racially equitable society. This strain can be exploited by the creditor class, who also disliked how slavery – which they saw as a property right rather than a labor and human rights issue – was destroyed by state power. History, of course, has a nasty way of mocking us about long-held fights we thought were over. The conflict between labor/human rights and property rights continues today. Or as Carl Fox said in the movie Wall Street, “The only difference between the Pyramids and the Empire State Building is the Egyptians didn’t allow unions.” Without even getting into globalization, prison labor legally makes body armor, as well as products for victoria’s Secret, Starbucks, and Microsoft. State centralized power can prioritize labor rights over property rights, and for this reason, creditors are wary of it.
On to Woodrow Wilson. Wilson signed the highly controversial Federal Reserve Act in 1913; originally, the Federal Reserve system was supposed to discount commercial and agricultural paper. Government bonds were not really considered part of the system’s mandate. But what happened the next year? Yes, World War I. And Wilson, who ran on the slogan “he kept us out of war” in 1916, started a long tradition of antiwar Democratic Presidents who took America to war (drawing the ire of among others Helen Keller, but garnering the support of union leader Sam Gompers who argued it was a “people’s war”). Wilson also implemented a wide variety of highly repressive authoritarian measures, including the Palmer Raids, the Espionage Act of 1917, and the use of modern PR techniques by government agencies. For good measure, Wilson was an unreconstructed white supremacist (even a bit out there for the time) and sent many antiwar opponents to jail. In the monetary arena, Wilson’s new Federal Reserve system began discounting government bonds. Like Lincoln, he had set up a tremendous war financing vehicle to centralize capital flows and therefore, political authority. In many ways, Wilson set up the rudiments of America’s police state, and did so arguably to help a transatlantic Anglo-American banking elite. Here, one can argue that libertarians are wary of centralized financing and political authority for liberal reasons – the ACLU was founded after the Palmer raids.
And finally, we come to Franklin Delano Roosevelt. Roosevelt’s Fed is a bit more complex, because he did centralize monetary authority using wartime emergency powers, but he did so in peacetime. FDR abrogated gold clause contracts, seized the domestic supply of gold, and devalued the currency. He constrained banks with aggressive regulation and seizures of insolvent banks, saving depositors with the Reconstruction Finance Corporation. He also used the RFC to set up much of what we know today as the Federal government, including early versions of disaster relief, small business lending, massive bridge and railroad building, the FHA, Fannie Mae, and state and local aid. Eventually, the government used this mechanism to finance college and housing for veterans with the GI Bill. Since veterans were much of the population right after World War II, effectively this was the first ever near-national safety net. FDR also fused the liberal and union establishments with the corporate world, creating the hybrid “military-industrial” complex that is with us to this day (see Alan Brinkley’s “End of Reform” for a good treatment of this process).
Later, this New Deal financing apparatus was used to finance the munitions industry and America’s role in World War II. At one point, the RFC owned eight war material producing subsidiaries, including the synthetic rubber industry. Importantly, FDR had the Fed working for him. The Fed kept interest rates pegged at an interest rate set by Treasury, and used reserve requirements to manage inflation. This led to a dramatic drop in inequality, and unemployment sank to 1% during World War II. In 1951, the Fed, buttressed by what Tom Ferguson calls “conservative Keynesian” corporate leaders, broke free of this arrangement, under the Treasury-Fed Accord, leading to the postwar monetary order. That accord is where the vaunted “Federal Reserve Independence” came from.
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