This literature has produced many easy-to-understand insights about the essence of governmental bureaucratic behavior. For one thing, it is vastly different from decision-making in the marketplace. In the market, people voluntarily “vote” with their dollars to express their preferences. There is a market feedback mechanism whereby if one pleases his customers, he prospers; if one displeases his customers, he fails. In government, by contrast, we are basically told: You need this, this, this, this, and this, and if you do not pay for it, we will make you live like a dog in a cage for several years. That’s called being sentenced to prison for tax evasion. There is nothing voluntary about it.

As for the evaluation of government “services,” there never is any real evaluation based on the behavior of citizens; government bureaucrats and politicians tell us how wonderful their “services” are and then demonize us publicly if we dissent. Government today is so gargantuan that no human mind could possibly comprehend a smidgen of 1% of what government actually does. Consequently, most citizens are “rationally ignorant” of all but a few things their government is involved in.

Government bureaucracies use tax dollars to employ a large army of “intellectuals” and court historians to praise bigger and bigger government while castigating the free market and the civil society as “failures.” Anthony Fauci alone reportedly dispensed some $7 billion annually in research grants so that he could publicly boast, “I am science.” And that is just a single bureaucrat!

A government bureaucrat’s status and pay depend crucially on how many subordinates he or she has, which gives every ambitious bureaucrat an incentive to hire far more people than necessary to achieve any conceivable task. The first question posed to any bureaucrat seeking a higher-level job is, “How many people work under you?” Thus, bureaucratic bloat is rule no. 1 for every rule-following bureaucrat.

Speaking of rules, they are another hallmark of government bureaucracy. Since there are no profits (or losses) in an accounting sense in government, “success” as a bureaucratic “manager” is measured not by the bottom line but by how closely bureaucrats follow the rules dictated by their higher-ups. Breaking the rules can stymie or ruin a bureaucrat’s chances of promotion, so rules are rarely challenged or changed, oftentimes not for years or decades, no matter how foolish or dangerous they are. This is another stark difference from the marketplace, where stupid rules that harm the bottom line must be jettisoned—or else.

Another law of bureaucracy is that in government, failure is success. If welfare spending fails to reduce poverty, the welfare bureaucracy is given an even bigger budget. The reason bureaucrats give for their failures is always that the taxpayers are too selfish and stingy. When increased school spending correlates with declining test scores, the school bureaucracy gets more taxpayer dollars, not less—just the opposite of what happens in competitive markets. And on it goes.

Governments at all levels play the “Washington Monument syndrome” game. In 1969, when the National Park Service failed to get its budgetary wish list from Congress, the head of the Park Service closed down the Washington Monument, the most popular tourist attraction in Washington, DC. People from every state complained to their congressional representatives that their vacations to DC were ruined, forcing Congress to submit to the Park Service’s budget request. Since then, governments at all levels play the same game— always threatening to eliminate school buses, police departments, ambulances, garbage collection—whatever can succeed in bringing the voters or appropriation committee members to their senses and increasing taxes and spending.

Murray Rothbard greatly admired the writings of John C. Calhoun, especially his classic Disquisition on Government. In that 1851 book, Calhoun articulated what is known as libertarian class theory. It’s not the Marxist class theory of conflict between the capitalist and worker classes. The real conflict in any democracy, said Calhoun, was between taxpayers and “tax consumers,” the former paying more in taxes than they receive in government benefits, whereas the latter receive more in government benefits than they pay in taxes. At the top of the list of tax consumers are government bureaucrats. Then there are all the beneficiaries of the welfare-warfare state administered by the welfare and military bureaucracies, followed by hundreds of other governmental programs.

Calhoun predicted that when it came to enforcing constitutional limitations on government, the tax consumers would easily overwhelm the taxpayers with an avalanche of arguments as to why governmental powers should be more or less unlimited. That is why he favored a system where people organized in political communities at the state and local levels have some kind of nullification or veto power over what they perceive as unconstitutional spending. A written constitution would never be sufficient, Calhoun argued, and history proved him right a long time ago.

Murray Rothbard and the “Civil Service” Scam

In his 1995 essay “Bureaucracy and the Civil Service in the United States,” Murray Rothbard wrote that “no system has been more savagely derided by . . . Establishment do-gooders than . . . ‘the spoils system.’” He referred to the old system, whereby when a newly elected president was from a different party than the incumbent, most or all of the incumbent’s political appointees would be fired and replaced by people from the new president’s party. This “spoils system” prevailed until the early 1880s, when it was replaced by legislation that created the civil service system, where the best and brightest supposedly enter the government bureaucracy after taking entrance exams and are then given de facto lifetime tenure.

Rothbard—“Mr. Libertarian,” as Forbes magazine once dubbed him—also wrote that “no measure of government has been more destructive of liberty and minimal government than civil service reform.” Think about that one. The man who wrote a monumental history of the founding era, a history of money and banking in the United States, and hundreds of other articles, books, and monographs about the economics, politics, and philosophy of statism, said that civil service reform was more destructive of liberty than anything else government in America has ever done.

So-called civil service reform created a never-ending expansion of the government bureaucracy, Rothbard explained, along with hundreds of thousands of rules, regulations, and central planning dictates, which are bureaucracy’s lifeblood. Here’s how that happened: Assume there are say, 10,000 federal bureaucrats. A different party ascends to the White House and can no longer fire the bureaucracy and hire its own supporters. To counter the influence of the existing bureaucracy, it will want to hire more than 10,000 of its own bureaucrats, more than doubling the size of the bureaucracy. Then the next time that party is deposed, the opposition party will do the same, perhaps tripling or quadrupling the size of the bureaucracy from the original 10,000. And on and on, ad infinitum.

As dubious as the spoils system might sound, it was actually in keeping with the original American idea of officeholders and bureaucrats “serving” in government for a few years and then returning to civil society to live under the laws and rules that they promulgated while in government. Civil service “reform” essentially created lifetime tenure for bureaucrats, for it became almost impossible to fire them. The head of a government agency who wants to get rid of an employee will surely be sued by a government employees’ union that will make his life miserable for months or years of internal litigation. It is far easier to bribe the unwanted employee with a promotion and pay raise in a different agency at a different location, which is what is done quite frequently.

Gone are the good ole days, such as when President Andrew Jackson, one of Rothbard’s more highly regarded political figures, condemned the idea of a property right in a government job and fired 41% of the entire federal bureaucracy. Or when President John Tyler one-upped Jackson and fired 50% of the bureaucracy. This is but one reason why in his 2009 book Recarving Rushmore: Ranking the Presidents on Peace, Prosperity, and Liberty Ivan Eland rated Tyler as the best president in all of American history according to his criteria of how good a job presidents did in protecting rights to life, liberty, and property.

The Yankee Problem

Rothbard wrote of how the civil service reformers of the late nineteenth century were almost exclusively from New England and New York, were relatively highly educated, and were “shaped by the cultural and religious values of their neo- Puritan Yankee culture.” They wanted “good men” in government jobs, with the “good men” being themselves, wrote Rothbard. These were men who believed in “the inherent right of their sort to rule” over lesser citizens and believed in democracy, but only if guided by people like themselves.

Rothbard’s reference to the Yankee culture of the civil service reformers is almost identical to Clyde Wilson’s description of this particular cult in his 2016 book The Yankee Problem: An American Dilemma: “By Yankee, I do not mean everybody from north of the Potomac and Ohio. Lots of them have always been good folks. . . . I am using the term historically to designate that peculiar group of people descended from New Englanders, who can easily be recognized by their arrogance, hypocrisy, greed, lack of congeniality, and penchant for ordering other people around. . . . Hillary Rodham Clinton . . . is a museum-quality specimen of a Yankee—self righteous, ruthless, and selfaggrandizing. . . . The Yankee temperament, it should be noted, makes a neat fit with the Stalinism that was brought into the Deep North by later immigrants.” These are the people who believe that they should instruct you on virtually every aspect of your life with their bureaucratic edicts, demands, threats, and punishments.

The political crusade for civil service reform began in the early 1870s during the Grant administration. When President James Garfield was assassinated in 1881, the Republican Party used his death to make political hay, just as they had done with Lincoln’s assassination. The “civil service reformers” among them falsely blamed the assassination on “a disappointed officeseeker” who was refused a government job. Rothbard commented on this by saying, “The idea that murder by an office-seeker can only be combated by abolishing offices to be sought, [a.k.a. civil service reform] is even sillier than the comparable argument that the way to eliminate assault or murder is to outlaw guns.”

The big lie about the Garfield assassination worked. President Chester Arthur signed the Pendleton Act on January 16, 1883, as a desperate act to cement in place Republican bureaucrats who would oppose the popular Grover Cleveland, who was elected president in 1884. Thus, the deep state was created.

The end result of this, Rothbard wrote, was that “the ideals of ‘merit’ and a technocratic elite” were employed in the service of “big government, protectionism, inflationary bank credit, and imperialism and foreign war.” All achieved by our enemies, the bureaucracy.

Article posted with permission from Thomas DiLorenzo

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The book reminds me somewhat of The Governmental Habit by economic historian Jonathan Hughes (1977), who argued that government regulation has always been a feature of American government; it’s always been a matter of degree. So far, so good. Patrick Newman would not disagree. One failing of Hughes’s book was that he didn’t make enough of the fact that so much regulation wasn’t “public interest” regulation but was designed from the start to create government of political cronies, by political cronies, and for political cronies. Americanized British mercantilism, in other words, in repudiation of the American Revolution. It’s not so much that regulatory agencies have been “captured” by special interests after being established with the most angelic of intentions to pursue “the public interest,” the Chicago School view, but were always intended to be instruments of political plunder.

Hughes claimed that “failures of capitalism” have been the main cause of government regulation. He also praised central banking while denigrating the gold standard with very poor economic reasoning and false history. This is why Patrick Newman’s Cronyism is head and shoulders superior to The Governmental Habit (1977) and its updated version, The Governmental Habit Redux (1991). It is superior because of Newman’s reliance on Austrian economic theory, Rothbardian political philosophy, public choice insights, and a superior under-standing of American history, which he documents with hundreds of footnotes. It’s hard to beat that combination of intellectual tools when one’s goal is to cut through the fog of propaganda, misinformation, and superstition that is so carefully crafted by governmental actors and their private-sector cronies in their never-ending quest to make the public think that it is in its own best interest to allow themselves to be plundered by them. As Murray Rothbard ([1994] 2009, 131) once said, a “master politician” (a.k.a. almost all “Great Men”) is a “consummate manipulator, conniver, and liar.”

Newman describes how cronyism started with land grants and indentured servitude under colonial feudalism. Colonial America was a combination of British cronyism combined with a home-grown variety, writes Newman. It was a blessing for freedom that it was often so difficult for the British empire to enforce its mercantilist edicts, allowing for more-or-less complete economic freedom in parts of America.

Newman’s chapters on the path to American independence and the Revolutionary War are unique in that they are discussed in the context of his theses of the struggles between political cronyism and economic freedom. He does a superb job of explaining the momentous political battles between the libertarian Thomas Jefferson and his nemesis Alexander Hamilton, “the preeminent intellectual working on behalf of government power” who “sneered at Adam Smith’s reasoning” while praising the economic superstitions of mercantilist pamphleteers (39).

Conservative self-described constitutionalists will not be happy with Newman’s chapter on the adoption of the Constitution. It is such a hard-hitting criticism of the standard conservative immaculate conception view of the document that he will probably be personally attacked by the so-called Straussians (their modus operandi).

The Constitution was merely an attempt to re-establish the old British-style mercantilist order that was stunted by the Articles of Confederation, writes Newman. Alexander Hamilton was the preeminent crusader for revising the Articles of Confederation to create a bigger and virtually unlimited federal government. After promising to revise the Articles, they scrapped them completely instead and replaced them with a document that “laid the foundations for a corrupt American empire” (60). It created an electoral college that was remote from state legislatures; expanded presidential powers and created a large federal bureaucracy; a bicameral congress with virtually unlimited powers to tax, regulate, spend, and raise and support standing armies; a General Welfare clause that allowed for unlimited government; a “necessary and proper clause” that guaranteed no limits on government powers whatever; a “supremacy clause” that created even more centralized, dictatorial powers; a supreme court that would eventually put everyone’s liberty in the hands of five government lawyers with lifetime tenure and essentially destroy states’ rights; enshrined monetary mercantilism by allowing legal tender laws; and created a de facto codification of slavery, for starters. It was widely discussed at the time that the Constitution was a bloodless coup, writes Newman. You will not learn of this at a Claremont Institute or Hillsdale College seminar on The Federalist Papers and the Constitution.

Chapter 4 on “Prime Minister Hamilton” describes “the nation’s first decade of pure corruption” (83) as Hamilton struggled mightily to implement his “American System” of a large public debt owned by the wealthy elite that would tie them to government; corporate welfare for “internal improvements”; a national bank to dish out subsidized loans to cronies; protectionism; the use of land grants as a form of political patronage; and run-amok militarism in quest of empire.

Newman describes in great detail how Hamilton, as the political emissary of the Philadelphia/New York/New England big business elite, crafted all of these policies to benefit his benefactors, alarming Southerners like Jefferson that government was being used by Northern politicians to plunder the South, repudiating their own Constitution and laying the groundwork for Southern secession decades later. Even during Hamilton’s time there was a sharp North/South division on the votes for his “American System” which was in reality the British mercantilist system that Americans had fought a revolution to escape from, run by a new American class of political plunderers.

Newman also describes in detail the Jeffersonian revolution led by Jefferson himself, John Taylor, Albert Gallatin, and others. He discusses how the “High Federalists” from New England “worked to strengthen slavery” (124) by scuttling the Pennsylvania Abolition Society’s petition to Congress; passing a fugitive slave law; and defeating a House proposal to ban slavery in the Mississippi Territory. In eleven short years, writes Newman, the Hamiltonian Federalists managed to create standing armies, mercantilism “on a grand scale” (135), high taxes, and a repression of personal liberty with the Sedition Act that essentially outlawed criticism of the Adams administration. Thankfully, the Jeffersonian revolution (with the help of Aaron Burr) put an end to this Hamiltonian Federalist, statist tyranny—for a while.

Newman’s discussion of Jefferson’s presidency is a good illustration of the basic assumption of public choice economics that everyone basically behaves in his own best interest as he sees it, and that different institutions provide different incentives to achieve one’s goals. Accordingly, people tend to behave very differently in government as opposed to how they behave in private society. Even Adam Smith, the godfather of free-trade doctrine, became a tariff collector at a customs house after retiring from academic life and was in need of a source of income! (Shughart, Anderson, and Tollison, 1985).

Before becoming president, Jefferson authored some of the finest libertarian political rhetoric in history. This is what made him so famous and popular, and got him elected president. But as the old saying goes, politics is “the art of compromise,” a rather childish euphemism for the reality that to succeed in politics one must abandon one’s principles and make deals with the devil (or devils). Jefferson was no fool; he wanted to be viewed as a success as president and was compelled to play the inherently corrupt game of politics in order to do so. He did many good things as president, such as cutting and eliminating Hamiltonian taxes, selling all of the government’s stock in Hamilton’s Bank of the United States, and decreasing government spending.

But then the Louisiana Purchase “wrecked the Republican party” of Jefferson (153). In order to stay in power, the Jeffersonian Republicans bailed out land speculators and spent money on public works subsidies and on “various layers of privileges for merchants and manufacturers” (179). It only got worse from there.

Since war is the health of the state, the War of 1812 initiated a new round of rampant cronyism, especially by resurrecting the Bank of the United States to ostensibly monetize the war debt.

The next thirty years would be a replay of the previous thirty in terms of the struggle between cronyism and freedom. Newman details how Henry Clay picked up the statist, Hamiltonian mantle of “the American System,” which faced setback after setback, however, thanks to the remnants of Jeffersonianism.

The fatal flaw in the mostly libertarian Jacksonians, Newman writes, was that they used presidential power to achieve good ends like moving toward free trade, vetoing the recharter of the Second Bank of the United States, eliminating corporate welfare, paying down the national debt, and staying out of imperialistic wars. But the precedent of expanding presidential powers would be abused in the future to pursue not freedom-enhancing but cronyism-enhancing ends. In fact, many Jacksonians found such powers to be so tempting that they became corrupted themselves, which ended the Jacksonian revolution in a manner similar to how the Jeffersonian revolution had ended. That political power corrupts is the truest statement ever made by any historian or political theorist. In Cronyism, Patrick Newman does a great job of describing and documenting that truth in great detail and insight with regard to the first 240 years of American political history.

Article posted with permission from Thomas DiLorenzo

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The core belief of the “cultural” Marxists is that the old Marxism of class warfare between the capitalist class and the working class is not enough to persuade enough citizens to embrace communism.  It takes more than just factory workers who, by the way, only ever wanted better pay and working conditions and not to run the factories, as Marxist theorists argued.  As F.A. Hayek pointed out in “The Intellectuals and Socialism,” socialism has always been primarily promoted by “intellectuals” of various sorts and not by normal human beings.

The new “cultural” Marxism posits that there are two different classes in their class struggle theory:  the oppressor class and the oppressed class.  The major component of the oppressor class in America is essentially white heterosexual males of European heritage.  Everyone else is assumed to be oppressed by them.  Confederate soldiers in particular and the Confederacy in general are a key component of this New Communism.  Not only were they white males of European heritage, they supposedly fought to continue to oppress the slaves.  It does not matter to the cultural Marxists that Lincoln himself adamantly denied this, as did the 1861 War Aims Resolution of the U.S. Congress (the Crittendon-Johnson Resolution).  It was tariff collection that incited Lincoln to invoke the words “invasion” and “bloodshed” in his first inaugural address when addressing the topic of secession.  (There was no income tax at the time; tariff revenue composed more than 90 percent of federal tax revenue; and the average tariff rate had been more than doubled two days before Lincoln’s inauguration).

Hence the takedown of the Confederate Memorial at Arlington National Cemetery by Biden’s stable of cultural Marxist communist ideologues.  These are people who would never accept the idea of reconciliation of North and South, the whole idea of the Monument that was dedicated in 1914.  To them, accepting reconciliation with the South and southerners is to deny their own reason for being.  They are devoting their lives to politics and political activism in order to finally bring communism to America.

Ludwig von Mises would not be at all surprised by this.  In the latter chapters of his book Socialism Mises wrote extensively of “destructionism.”  Socialists of all varieties, he wrote, were first and foremost destructionists who sought to destroy the existing institutions of society that had evolved over time so that they could remake the world in their own communistic image.  The cultural Marxists, who first gained notoriety in the 1960s as celebrated Marxist university professors and “counter-culture” gurus, pinpointed in their writings and speeches the necessary destruction of the nuclear family, Christianity, the rule of law, constitutionalism and, of course, economic freedom or real capitalism.  These are the main reasons why Europeans never voluntarily accepted Communism, they argued: They enjoyed freedom, prosperity, and human normality too much.

Although it appears to be a minor event, it is a most welcomed event that the Daughters of Union Veterans have become, whether they know it or not, the new anti-communists by calling for the restoration of the beautiful Reconciliation Monument at Arlington National Cemetery.

Article posted with permission from Thomas DiLorenzo

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I read with great interest your July 21 comment at the Federal Reserve Capital Conference that: “What we need to do is examine the entire Federal Reserve institution and whether they have been successful. . . . All of these Ph.D.s over there, I don’t know what they do. . . . This is like Universal Basic Income for academic economists.”

Having been an academic Ph.D. economist for forty-one years, I believe I can offer a little insight into whether the Fed has been successful (it unequivocally has not), as well as what “All of these Ph.D.’s over there” do. There is a mountain of academic research that shows that the Fed has failed on all counts. It has not only failed, but has made the economy far more unstable and with more price inflation than there was before the Fed existed, for one thing.

As for what all those Fed economists do, well, their Job Number One is to obfuscate these failures with their writings and speeches and to do their best to censor Fed Critics. Furthermore, since every Fed economist is a government bureaucrat, they all do what all government bureaucrats do: They are relentless lobbyists for bigger budgets, more power, a bigger staff, and more pay and perquisites for Fed employees. They also focus much of their research on the left-wing political fads of the day, such as “climate change,” racism, gender, inequality, and other projects of the political Left.

As for perquisites, I understand that you are a bit critical of the Fed’s spending $2.5 billion on renovations to its headquarters building in Washington, DC. Not for a new building, but for renovations of their already palatial headquarters. To put this into perspective, the cost of building Trump Tower (in the early 1980s), adjusted for inflation, was about $921 million. That’s building, not renovating. And people wonder why the Fed has never acquiesced in being audited. There is a large literature in the economics subdiscipline of public choice about how government bureaucracies tend to be budget maximizers, for that it shows bureaucrats can personally benefit from the growth of government—bigger budgets mean more prospects for higher pay, promotions, larger staffs, and myriad perquisites such as multi-billion-dollar buildings to work in. The Fed would appear to be the Mother of All Budget-Maximizing Government Bureaucracies. (Note that “budget maximizing” is a synonym for “cost maximizing,” the opposite of what every successful private business strives to do).

Secretary Bessent, I recommend that you read a study by Lawrence H. White, William Lastrapes, and George Selgin “commemorating” the centennial of the Fed entitled “Has the Fed Been a Failure?” These authors surveyed 195 peer-reviewed academic publications about the Fed’s performance from an historical perspective. On the Fed’s obligation to control inflation, they concluded that the Fed “has allowed the purchasing power of the U.S. dollar . . . to fall dramatically. A consumer basket [of goods] selling for $100 in 1790 cost only slightly more, at $108, than its equivalent in 1913 (the year of the Fed’s founding). But thereafter the price soared, reaching $2,422 in 2008.”

The highest annual rates of price inflation since the Civil War occurred “under the Fed’s watch,” these authors point out, referring to the high inflation rates of 1973-1975 and 1978-1980. They also concluded that prices became less predictable after the Fed was created, making economic calculation more difficult. Such uncertainty tends to stifle business investment because many businesses delay their plans if they are unsure of what their costs are going to be.

They cite the research of President Obama’s chief economist, Professor Christina Romer of the University of California at Berkeley, which shows that the business cycle was more volatile after the Fed was created than it was in the previous decades after the Civil War. The Fed is also responsible for the never-ending economic crises caused by its own policies, such as the ones we saw in 1953, 1957, 1960, 1969, 1973,1980, 1981, 1990, 2001, 2008, and 2020. Not to mention causing a depression in 1920 shortly after it was created, and fueling the stock market crash of 1929 less than a decade later. The Fed’s response to these crashes caused by its explosive monetary growth is always even more explosive monetary growth that fuels the next crash down the road.

The Fed employs around 500 of those academic economists you alluded to, and they compose a large army of Fed apologists and propagandists whose job is to invent fanciful theories in defense of the Fed, and to ignore research that is critical of the Fed. In 2005, Professor Lawrence H. White published a peer-reviewed journal article that highlighted the dominance of Fed-related (and often paid) economists in the field of monetary economics. In addition to its 500 or so academic economists on the Fed payroll, the Fed invites hundreds more to its conferences. Professor White found that 74 percent of all academic articles on monetary policy published by American economists in the year of his study were either in Fed-published journals or co-authored by Fed economists. As Milton Friedman once said, “If you want to advance in the field of monetary research. . . you would be disinclined to criticize the major employer in the field.”

Today’s Fed is just another Washington, DC, government-funded appendage of the Democrat party for the most part. In an Independent Review article entitled “Political Affiliations of Federal Reserve Economists,” Professor Emre Kuvvet found that the Democrat-to-Republican ratio at the Fed’s Board of Governors is 48.5:1. The Democrat-to-Republican ratio of Fed Board of Governor economists “in leadership positions” is 45:1. The Fed’s district banks are just as biased. The Federal Reserve Bank of San Francisco has twelve Democrats and one Republican economist. The Dallas Fed has sixteen Democrats and two Republican economists. The Philadelphia Fed has thirty-nine Democrat and five Republican economists. It is little wonder that Professor Kuvvet reports that research published by the regional Fed banks has become dominated by the topics of “race, gender, climate change, and inequality.” All of this is done by an institution that doggedly claims to be independent of politics!

When Fed economists are not busy publishing papers about climate change and “gender issues,” they are defending the massive central planning machinery of the Fed that regulates virtually all financial transactions of any kind, Soviet style. You mentioned in your July 21 speech that just one regulatory change in the Community Reinvestment Act recently included 60,000 words.

Perhaps the best example of this Soviet-style, central planning mindset that is inherent in the Fed is its insistence that one man—the Fed chairman—should have such influence as he has on interest rates. Interest rates should be set by supply and demand of loanable funds, incorporating the rates of time preference of individuals, and not by a Wizard-of-Oz-type character whose pronouncements keep the entire financial world sitting on the edges of its seats for every utterance of The Great Oz.

We have abolished central banks three times in our history—the Bank of North America, the First Bank of the United States, and the Second Bank of the United States. Today’s central bank is infinitely more insidious than the first three, for it is armed with armies of regulators, central planners, and propagandists and is arguably the largest governmental central planning bureaucracy on the planet, three-and-a-half decades after central planning was finally and conclusively discredited—or so we thought—with the worldwide collapse of socialism in the late 1980s/early 1990s. Finally, you were right to include that the Fed’s large stable of academic economists is a good example of “Universal Basic Income for academic economists.”

Sincerely,

Dr. Thomas DiLorenzo, President, The Mises Institute

Article posted with permission from Thomas DiLorenzo

The post An Open Letter To Treasury Secretary Bessent appeared first on The Washington Standard.

A mostly forgotten independence movement is the 1850s secession movements in “the middle states” – New York, New Jersey, Pennsylvania, Delaware, and Maryland – where there was a widespread desire to secede from the Washington, D.C. empire.  (See William C. Wright, The Secession Movement in the Middle Atlantic States).  These states contained secessionists who wanted to join a Southern confederacy, form their own confederacy of states, and to just allow the South to secede in peace.  New Jersey had the largest secession movement, followed by New York City and New York state’s Hudson Valley.

The most popular position was to allow the Southern states to secede in peace, giving the lie to the refrain by “mainstream” historians that there was “unity” in the North regarding the invasion of the South in 1861.  Edward Everett, the vice presidential candidate of the Constitutional Union Party in 1860, said that “To expect to hold fifteen States in the Union by force is preposterous . . . too monstrous to be entertained for a moment.”

The majority of Maryland’s state assembly favored peaceful secession but in1861 the Lincoln regime imprisoned all of them, thereby prohibiting them from meeting to discuss the issue of peaceful secession.  At the time most Marylanders believed that forcing a state at gunpoint to remain in the union and governed by Washington, D.C. would destroy the founders’ concept of a voluntary union.

Fernando Wood, the mayor of New York City at the time, wanted the city to secede from the state and the U.S. and become a free trade zone.  (The Republican party, on the other hand, wanted to increase the average tariff rate from 15% to the 50% range).  The New York state legislature issued a resolution on January 31, 1861 condemning the use of force to force the Southern states to remain in the union.  Horatio Seymour, a former governor of New York, supported the creation of an independent “Central Confederacy” that would also secede from the Washington, D.C. empire.  New York Times editor Henry J. Raymond favored peaceful secession as did New York Tribune editor Horace Greeley.

Pennsylvania being a steel industry state, the Republican party there was strongly protectionist and pro-Lincoln, but the state Democratic party supported peaceful secession.  William C. Wright wrote that “The leadership of the [Pennsylvania] Democratic Party as well as most of its rank and file favored a policy of no coercion.”

New Jersey, “more than any of the other five Middle Atlantic states, said William C. Wright, supported the creation of a Central Confederacy” and its congressional delegation supported peaceful secession of the Southern states, as did a large majority of the state’s newspapers.

Delaware had strong support for a Central Confederacy as well, but Lincoln ordered the Federal army to occupy the state and, as with Maryland, prevent the state legislature from discussing the issue.  The “First State” was prevented from declaring the union to be voluntary under threat of bombardment by its own federal government.

What all of this shows is that: Secession was the very principle of the American Revolution; the New England Federalists, led by George Washington’s Secretary of State Timothy Pickering of Massachusetts,  understood this when they strategized over and plotted peaceful secession for thirteen years; at the outset of the War to Prevent Southern Independence everyone understood the union to be voluntary and not coerced, as with the twentieth century Soviet union.

Lincoln dreamed up a new and ahistorical view of the American Constitution and forced his view on the country at gunpoint.  His theory, as summarized by legal scholar James Ostrowski, is as follows:

1. No state may ever secede from the Union for any reason.
2. If any state attempts to secede, the federal government shall invade such a state with sufficient military force to suppress the secession.
3. The federal government may require all states to raise militias to be used to suppress the seceding state (or states).
4. After suppressing the secession, the federal government may rule by martial law until such time as the state accepts permanent federal supremacy.
5. After the secession is suppressed, the federal government may force the states to adopt new state constitutions imposed upon them by federal military authorities.
6. The president may, on his own authority and without consulting any other branch of government, suspend the Bill of Rights and the writ of Habeas Corpus.

If conservative self-proclaimed constitutionalists believe that all of this is constitutional, then they obviously possess a different constitutional document than you and I do.  Moreover, the reason why all of the above is essentially a forgotten part of American history is that it flatly contradicts the Official History concocted by the victors after the War to Prevent Southern Independence.

Article posted with permission from Thomas DiLorenzo

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In the political world, however, there are different meanings of “great” or “greatness.” When the Cold War ended a group of influential, well-funded, and politically-connected pundits and political activists led by Bill Kristol labeled themselves “National Greatness Conservatives (NGCs),” sounding much like today’s “Make America Great Again” movement.

The NGCs announced that with the end of the Cold War Big Government must be employed to “physically and spiritually unify the nation” according to David Brooks in a 1997 Weekly Standard article. Brooks, Kristol, and other NGCs called for “grand federal crusades” that would divert peoples’ attention away from living their private lives to such “crusades” as compulsory “national service” for America’s youth, reminiscent of the notorious Hitler Youth; a “mission to Mars”; building a tunnel in the Atlantic Ocean all the way to Europe; and the military invasion of other countries in the name of asserting “moral assertiveness abroad,” said Brooks. Since then we have seen that “assertiveness” in the wars in Iraq, Afghanistan, and elsewhere in the Middle East. Needless to say, all of this is all un-American statist hogwash to freedom-loving Americans who do not want their children conscripted by the state for any reason and who do not want their lives planned for them by the likes of scribblers in the now-defunct Weekly Standard tabloid.

Then there is the Trumpian definition of “national greatness” that is sometimes not all that different from the thoroughly discredited neocon NGCs. President Trump apparently believes that continuing to send bombs, fighter jets, and other military technology to the governments of Ukraine and Israel to kill more Russians and Palestinians (mostly women and children) will somehow make America “great” or greater. He has floated the idea of importing some 39 million self-described Canadian socialists and making them American citizens to help make America great again. It would indeed be great for his opposition party which would secure a dozen or so additional senate seats and guarantee that there would never be another Republican elected president.

Raising tariff taxes and giving additional tens or hundreds of billions of dollars in tariff tax revenue to the federal bureaucracy –courtesy of already grossly overtaxed American taxpayers — is also part of President Trump’s definition of American greatness although it flatly contradicts the stated purpose of his Department of Government Efficiency” in cutting back on bureaucratic power and influence. His “big, beautiful” pork barrel spending bill, gleefully supported by the Republican party, has been accurately described by Elon Musk as “a disgusting abomination.”

President Trump also seems to be adopting a Bill Clinton/Robert Reich style of “industrial policy” (a euphemism for fascistic central planning) that favors certain industries at the expense of others. A good example would be his recent attempt to impose 50 percent tariff taxes on imported steel. The steelworkers’ union is celebrating, and for the time being the stock prices of American steel manufacturers are rising, but what about American steel-using industries? The American automobile industry uses a lot of steel and aluminum and will be made less competitive and less profitable by the new tariff taxes on imported steel. Autoworkers’ jobs will be less secure so that steel workers and their employers can profit.

Then there’s the “deal” to allow Nippon Steel to essentially become a partner with and investor in U.S. Steel along with the federal government which gave itself a “golden share,” a pleasant-sounding phrase to describe the federal government’s veto power over ALL management decisions of the company in the name of “national security.” This is textbook economic fascism – allowing private enterprise to exist, but only if heavily regimented and controlled by the state.

On the other hand the Trump administration’s deregulation efforts, especially at the EPA, deporting illegal alien criminals, introducing border controls, ending Medicaid payments to illegal aliens, setting Robert F. Kennedy, Jr. loose on the public health bureaucracy, replacing race- and gender-based employment quotas with merit, reducing government funding of “higher” education (at least in a few universities) and cutting other kinds of taxes are all welcomed parts of the Trumpian national greatness agenda. President Trump is no Bill Kristol who, by the way, is one of the most rabid Trump haters in the land.

The Third Way

There is a third way to think of “greatness,” national or otherwise, and that is to make America – or any other country – free again. When politicians speak of “greatness” it inevitably means more great big things done to society by the state under its supervision. Freedom in the American tradition, on the other hand, means freedom to live one’s life in peace outside the control of politicians and bureaucrats as much as possible. Freedom from government allows all of us to pursue our own definitions of individual “greatness” as opposed to having it forcefully and coercively imposed on us by the state (and forced to pay for it under threat of imprisonment for tax evasion).

If government is to be our servant rather than our master, as everyone is taught in the government schools, then “greatness” should mean the greatest possible degree of personal freedom. That means the protection of property rights from regulatory and tax theft. Regulators essentially assume ownership over a part of everything they regulate, and no one in American truly owns a home as long as property taxation exists, for example.

Peace, not never-ending aggressive military conflicts and the intervention into foreign wars is what best allows the world to prosper under the international division of labor. War breeds isolationism, for no one wants to do business in a war zone. It is war that creates “isolationism,” not opposition to war, as the warfare statists claim.

Since God made everyone unequal in thousands of different ways, income inequality should be recognized as a natural human trait and not as an impediment to the latest version of communist Nirvana — or a reason to construct a massive, vote-buying welfare state. It should be understood that successful people who have become wealthy through hard work and entrepreneurship incentivize others to do the same, pursuing what used to be called “The American Dream.”

Radical governmental decentralization, including restoring the rights of secession and nullification that the American founders believed in and valued, is also a key ingredient of a free society. Socialist central planning was the worst idea in world history, yet Americans cling to it with the Fed centrally planning the entire monetary system, the Departments of Energy, Education, Agriculture centrally planning energy, education, and farming, and dozens of other federal planning bureaucracies, all of which should be abolished. And that’s just at the federal level of government.

All of this and much more will be discussed at the Mises Institute’s upcoming October 16-18, 2025 Supporters Summit in beautiful Delray Beach, Florida. Speakers will include Mises Institute scholars and a keynote address by the great James Bovard, author of many books including his latest, Last Rights: The Death of American Liberty. Our theme will be how to resurrect American liberty and we look forward to seeing you in Delay Beach in October!

Article posted with permission from Thomas DiLorenzo

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The U.S. government’s twenty-five year war of genocide (1865-1890) against the Plains Indians should be added to this list. General William Tecumseh Sherman was the commanding general of this “war” for the duration. (How ironic that his parents included an Indian name, Tecumseh, when they named him). “The Indians give a fair illustration of the fate of the negroes if they are released from control of the whites,” said Sherman as quoted by biographer Michael Fellman in Citizen Sherman. Sherman, wrote Fellman, called for “a racial cleansing of the land” by killing off as many Indians as possible. “All the Indians will have to be killed or be maintained as a species of paupers,” said Lincoln’s favorite general. Fellman notes that Sherman gave his subordinate, fellow Civil War “hero” General Phil Sheridan, “prior authorization to slaughter as many women and children as well as men” when attacking Indian villages. It would be too time consuming to distinguish between them, said Sherman.

When the Filipinos finally separated from the Spanish empire the U.S. government engulfed them into the American empire by killing at least 200,000 of them (as many as a million according to some historians) during the 1899 Philippine Insurrection. In his biography of Teddy Roosevelt entitled Bully Boy, Jim Powell wrote of how Roosevelt “justified” the mass murder of Filipinos by calling them “Chinese half breeds, savages, barbarians, a wild and ignorant people.” A “lower race,” in other words.

The conquest and subjugation of Hawaii occurred in the early 1890s when the U.S. government sent soldiers to Hawaii who literally held the Hawaiian king at bayonet point and forced him to sign a new constitution that disenfranchised all Asians as “an inferior race” and empowered wealthy American land owners like James Dole, who then founded the Dole Fruit Company. Hawaii was formally annexed in 1898. In a well-received 1895 speech in Boston, the eugenicist President Teddy Roosevelt bloviated that “I feel it was a crime against the white race that we did not annex Hawaii three years ago.”

This brief historical sketch brings us to how the American and Israeli militaries of today have adopted this nineteenth-century demonization and war of extermination against what they consider to be another “lesser race,” the Palestinians. A May 21, 2025 headline in the French publication Le Monde declares that “In Israel, rhetoric dehumanizing Palestinians and calls for eradicating Gaza have become commonplace.”

The dehumanization of Palestinians by “government ministers, lawmakers, military experts, and public figures,” writes journalist Luc Bronner in Le Monde, has been used “to justify the mass killing of Palestinians civilians, especially women and children, the destruction of entire cities, the concentration of more than two million people in conditions deemed unlivable by international organizations, incitement to forced emigration, and the blockade of food and humanitarian aid to the point of famine.” More than 53,000 Palestinians have been killed, “a majority of them women and children,” and “over 60% of buildings have been destroyed.”

All of this was supported by Yoav Gallant, the former Israeli defense minister, who called all Palestinians “human animals.” Israeli Finance Minister Bezalel Smotrich gushed that in a few months “Gaza will be totally destroyed.” Israeli Heritage Minister Amichai Eliyahu has been calling for the dropping of nuclear bombs on Gaza and destroying the remaining food sources there because all the Palestinians “need to starve.”

Nissim Vaturi, the charming president of the Knesset has called for a genocidal war that would “wipe Gaza off the face of the Earth.” Major General Giora Eiland also called Palestinians “human animals” and called for making Gaza “unlivable” while denouncing all the women of Gaza as “mothers, sisters, or wives of Hamas murderers.” A recent article in the Israeli newspaper Haaretz (May 20) wrote that “Starving Gazan babies aren’t a problem as long as there are no photos of them” that others around the world can see.

In short, the twenty-first century Holocaust that is occurring in Gaza has its roots in the ways of war of mid-to-late nineteenth-century American imperialism. It is being “justified” by a modern-day version of Teddy Roosevelt-style eugenicist “lower race” theory, with the implication that the promulgators of this theory must then think of themselves as some kind of master race.

Article posted with permission from Thomas DiLorenzo

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NPR’s lawsuit claims that President Trump’s executive order deprives the employees at NPR of freedom of speech, with the implicit assumption that only government subsidies allow them to have freedom of speech and that that freedom will be abolished if the subsidies are ended.  As the president of the private, nonprofit Mises Institute I can attest that it is indeed possible to speak freely and even criticize the government without a single red cent of taxpayers’ money.

NPR claims that depriving it of taxpayer-financed subsidies is unconstitutional when in fact it is the existence of NPR and PBS that is unconstitutional.  There is no mention of government-subsidized statist propaganda – or of any other kind of taxpayer-subsidized propaganda – in the delegated powers of the Constitution’s Article 1, Section 8.  The existence of “public” radio and television is consistent, however, with the sixth plank of the ten planks of The Communist Manifesto:  “Centralization of the means of communication . . . in the hands of the state.”  NPR, along with the Federal Communications Commission (FCC), do nothing if not centralizing more communication in the hands of the state.  During the FDR administration, the FCC essentially abolished criticism of FDR over the radio by denying or eliminating broadcasting licenses of his critics.  Other radio stations got the message and kept silent.

Government-funded statist propaganda is also immoral, tyrannical, and un-American for as Thomas Jefferson once said, “It is sinful and tyrannical to compel a man to contribute to ideas with which he disagrees.”  At least half of adult Americans disagree with NPR/PBS leftist propaganda.

Executive orders can indeed be tyrannical, but in this case, President Trump is doing what many of his predecessors did before it was established by the Civil War that five federal government lawyers with lifetime tenure (the majority of the supreme court) will have a monopoly on constitutional interpretation.  Before that time it was understood by everyone that the president, the Congress, and the people of the free and independent states had equal rights of constitutional interpretation.  When the supreme court “ruled” that the Bank of the United States, a precursor of the Fed, was constitutional, for example, President Andrew Jackson responded by essentially saying thank you for your opinion but my opinion as president is different and equally valid.  He then vetoed the recharter of the Bank of the United States which then went out of business.

President Trump probably is unaware that this is what he is doing despite having a portrait of Andrew Jackson in the White House.  His instincts are right in that there should be no role in a free society for government-funded state propaganda.  That was a hallmark of the Soviet Union and of all other oppressive, totalitarian regimes in history.

Article posted with permission from Thomas DiLorenzo

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It was the absence of income taxation and a hardly noticeable regulatory regime that were the most important policy issues related to post-Civil War growth, along with the existence of the gold standard (in various forms). International trade was a small fraction of the entire economy, so tariff taxes on imports could not possibly have been the One Cause of post-war prosperity, as Buchanan and now Payne argue. In addition, many of the tariff taxes were imposed on inputs used in the manufacturing process by American corporations, hindering economic growth. This period of protectionist tariff plunder was especially harmful to American farmers because a tax on imports eventually becomes a de facto tax on exports, and farmers exported huge amounts of their produce. This is because impoverishing America’s trading partners by blocking them from selling here results in the fact that they then have fewer dollars with which to buy American goods. At the time that was overwhelmingly American farm produce. Tariff taxes also reduced the disposable income of the American working class during that period, as all taxation does.

Furthermore, if what these two cheerleaders for the quintessentially anti-populist policy of protectionist plunder of average Americans were true, then there should have been hardly any economic growth at all from the end of World War II until today, when the average tariff rate declined for 78 years from about 11 percent to 2.5 percent last year as shown in this graph. That was before President Trump proposed an almost sixfold increase in the average tariff tax rate last week.

No one ever created prosperity by raising taxes and, as Ron Unz recently wrote, President Trump’s tariff tax increase proposal could well turn out to be the biggest one-time tax increase in world history.

Article posted with permission from Thomas DiLorenzo

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The banking elites who had long wanted to control money and credit succeeded when they created the Fed in 1913. They claimed it would benefit the little guy — but it was a scam. …

Most Americans have little or no idea what “the Fed” is or does, despite the fact that, ever since its creation in 1913, it has had monopolistic control over the money supply in the country and regulated virtually every type of financial transaction. When Tucker Carlson interviewed former Congressman Ron Paul on his podcast, he recalled how, when Paul was running for the Republican Party nomination and was giving a speech at Michigan State University, hundreds of students began spontaneously chanting “End the Fed!” Carlson said he was taken aback by this since he, as a professional journalist, was paid to know at least something about the Fed but did not. The Michigan State University students obviously did — they had been reading and listening to Paul’s speeches.

The pervasive lack of awareness of the Fed’s activities, as with so much else the government does, is what economists call “rational ignorance.” When it comes to educating ourselves, we spend most of our time and effort on our own education, jobs, family matters, paying the bills — our private lives. We spend very little time and effort learning about what the hundreds of government agencies of all types are doing. This is why the late Rush Limbaugh referred to most Americans as “low-information voters.”

Politicians have always understood this, which is why so many of them are habitual liars and deceivers. Indeed, when Alexander Hamilton made his case for creating a national bank run by politicians in his 1790 Report on a National Bank, his political nemesis, Thomas Jefferson, responded by saying that it was intentionally confusing, a subterfuge designed to fool the public into acquiescing to a vast, unconstitutional expansion of governmental powers. Jefferson was right on the money, as usual.

Forerunner: The First Bank of the United States, set up at the urging of Alexander Hamilton, was America’s first central bank — although, unlike the modern Federal Reserve, it did not have the power to print money or the authority to purchase government bonds. But it did set the precedent that the federal government should have its finger on the scale of finance by being involved in the banking business. (Public Domain)

Jefferson pointed out that the Constitutional Convention had discussed — and rejected — Hamilton’s proposal for a national bank, and that no such thing was included in the delegated powers (assigned by the states to the federal government) in Article I, Section 8 of the Constitution. In what may be the very first significant snub of the constitutional limits on government, George Washington signed legislation creating the first central bank, the Bank of the United States (BUS), in 1791. The BUS was 80-percent privately owned, with the government owning the other 20 percent. It was the first great monopolistic collusion scheme between business and government in America. The BUS promptly did what Jefferson and the Jeffersonians feared: It inflated the currency, causing 72-percent price inflation from 1791 to 1796, and continued to do so for the next 15 years. Consequently, its 20-year charter was not renewed by Congress.

The War of 1812 was used as an excuse to revive the BUS in 1816 as a means of helping to pay for the war debt, and the BUS quickly became known for its “mismanagement, speculation, and fraud,” wrote James J. Kilpatrick in The Sovereign States. Its monetary expansion created bubbles in the economy, and when they burst — as economic bubbles inevitably do — the result was the first great depression in America, known as the “Panic of 1819.” The revived BUS also extended cheap credit to politically favored borrowers, causing great corruption — so much so that President Andrew Jackson claimed that it “impaired the morals of our people, corrupted our statesmen, and threatened our liberty. It bought up members of Congress by the Dozen … subverted the electoral process, and sought to destroy republican institutions.” This last claim by Jackson referred to how the BUS had subsidized the campaigns of its favored political candidates.

President Jackson famously vetoed the renewal charter of the Second BUS in 1832, and it eventually went out of business and into the dustbin of history. In his veto message to Congress, Jackson said that the BUS was an example of how “the rich and powerful too often bend the acts of government to their selfish purposes.” Such institutions “make the rich richer and the potent more powerful…. The humble members of society … who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their government.”

It would take another eight decades or so before the banking industry’s cabal of corruption could get the government to create another central bank that would benefit the cabal at the expense of the rest of the population. That was the Federal Reserve System, or simply “the Fed.”

Inherent Corruption

To understand the essential nature of the Fed and central banking in America, it will be helpful to examine it in light of the government/business relationship, often referred to as “crony capitalism.” As the name suggests, crony capitalism is not real, free-market capitalism, but a system whereby government coercion is employed to benefit not the public in general, but politically connected businesses — usually against the public’s interests — by creating some type of monopoly and, subsequently, higher prices.

From the beginning of the Republic to the Civil War, the great economic debates in American politics were mostly about whether or not the United States should adopt elements of the British “mercantilist” system that the American Revolution was fought to secede from. This British system was given the name “The American System” by Alexander Hamilton. It was later championed by Henry Clay, and then by Abraham Lincoln, who considered Clay to be his political role model or, as he once put it, his “beau ideal of a statesman.”

The system involved what we today call tax-funded corporate welfare for politically connected businesses, tariffs to protect mostly Northern state manufacturers from foreign competition (and to “protect” consumers from lower prices), and a national bank — controlled by politicians even if it was partly privately owned. This was really the Hamiltonian/British system, not an American system, that was championed by Hamilton and his political descendants and opposed by Jefferson and the Jeffersonians for roughly the first 75 years of the American Republic. By the eve of the Civil War, almost none of it had been adopted, as the Jeffersonians had more or less prevailed. Things, however, were about to change.

With the Republican Party holding monopolistic control of the federal government during the war and for decades thereafter, all of the Hamiltonian system was put into place. The average tariff rate went from 15 percent to more than 50 percent, and remained there until the federal income tax was adopted in 1913. The floodgates of corporate welfare were opened with massive subsidies to railroad corporations to build transcontinental railroads. There was no central bank, but the Legal Tender Act of 1862 created the “greenback” dollar and taxed competing currencies out of existence. The National Currency Acts of 1863 and 1864 created a regime, if not an actual central bank, that had regulatory powers over banking. These regulatory powers were stepping stones to a central bank, albeit not the real thing.

The subsidies to the railroad corporations championed by the old general counsel of the Illinois Central Railroad, President Lincoln, led to massive mismanagement and corruption, as the Jeffersonians had always warned would happen. The fraud — known as the Crédit Mobilier scandal — was exposed during the administration of Ulysses Grant. The waste and corruption were so colossal that the politicians and corporations responsible for it learned a lesson: They must find more subversive ways for government to use its powers to create monopolistic profits for its political supporters and campaign financiers than simply writing them checks. So they turned to government regulation as the means of creating monopolies and monopoly profits (presumably in return for veiled kickbacks of all types, including campaign “contributions”).

They could not, of course, tell the public the truth — that their real objective was to disguise corporate welfare to their political benefactors. They needed to bamboozle the people with talk of how government regulation would supposedly be enforced to serve “the public interest.” This was pure Hamiltonianism, for Hamilton himself used “public interest,” “national interest,” and other such rhetoric to describe his quintessentially special-interest politics, such as corporate welfare and protectionist tariffs. Such policies would drive up the prices of certain products while enriching politically connected corporations at the expense of their hapless customers forced to pay higher prices for the same or shoddier products.

The very first federal regulatory agency was the Interstate Commerce Commission (ICC), created in 1887 — 26 years before the founding of the Fed. There was a railroad-building boom after the Civil War, and competition among railroad corporations was fierce, causing passenger rates to plummet year after year. The corporations complained bitterly of “cutthroat competition” and attempted to create price-fixing cartels, but they invariably failed because of cheating with secret rebates by members of the cartels, proving once again the old adage that there’s no honor among thieves.

Giving up on attempts at collusion to fix prices, the railroad corporations endorsed government regulation of their own businesses, obviously confident that they, not the vaunted public, would benefit most from the regulation. They were certainly right about that. The first commissioner of the ICC was one Thomas Cooley, a lawyer/lobbyist who, like Lincoln himself, had represented railroad corporations for many years. He lobbied Congress to give the ICC even more regulatory powers. One of the first things he did with those powers was to address the “problem” of long-haul rates being lower than short-haul rates, a sort of quantity discount offered by some railroads. Cooley’s “solution” to this non-problem was to outlaw the lower rates! That was always the policy of the ICC with regard to railroads: Always keep rates higher, never lower. Price fixing did not work when it depended on voluntary agreements among price-fixing conspirators, but it did work when the coercive powers of government could be employed to make it work.

When trucks began competing with railroads, trucking-industry lobbyists came to dominate the ICC and created a government-enforced price-fixing scheme for themselves as well. The ICC restricted the number of truckers who could be licensed, reducing the supply and thereby increasing the price of trucking; granted monopoly routes to certain trucking companies; and forced long-haul truckers to return from a trip empty, reducing the supply of trucking services even further and making trucking even more expensive.

The airline industry followed suit in the 1930s with the Civil Aeronautics Board (CAB), which severely restricted competition, directed routes, prohibited price cutting, and essentially made air travel too expensive for working-class Americans until the airline industry was deregulated and the CAB abolished in the late 1970s/early 1980s.

In the late 19th and early 20th centuries, there was vigorous competition in all the public-utility industries, including electric lights, telephone, water supply, natural gas, and others. As with the railroads, there were many attempts at private price fixing, but they all failed. Also as with the railroads, the public-utility industries then turned to government to enforce their monopolistic pricing practices. The technique was to have state or local governments decree that one company should be the monopoly supplier of utility services, and then share the monopolistic loot with state or local governments. One of the very first instances of this was in Maryland, where, in 1890, the Baltimore Gas Light Company contracted to pay the city of Baltimore $10,000 annually and three percent of all dividends declared in return for a government grant of monopoly, as described in The Gas Light Company of Baltimore by George T. Brown. City after city followed suit, all the while blaming the monopolies that they created on free-market competition by labeling them “natural monopolies.” Many other industries, including banking, jumped on the “natural monopoly” bandwagon and lobbied for government-mandated monopolies for themselves.

Hence, the political atmosphere of “progressivism” in which the Fed was founded in 1913 was one of myriad crooked conspiracies whereby businesses and governments colluded and conspired to create government-mandated monopolistic privileges for various businesses and industries. The industries then shared the monopolistic loot with the governments that had granted them their monopoly status and, of course, financially supported the politicians responsible for the whole scam in the first place.

Today there is much talk of the “capture theory of regulation,” made famous decades ago by University of Chicago economists and highlighted in Robert F. Kennedy, Jr.’s book The Real Anthony Fauci, which discusses how the pharmaceutical corporations have “captured” the public health bureaucracies in Washington, D.C., and elsewhere, especially the Food and Drug Administration and the Centers for Disease Control and Prevention. Historically speaking, however, these bureaucracies were seldom “captured.” Their very creation was often lobbied for in the first place by big businesses in various industries, so that there was nothing to “capture.” Hiding behind the rhetoric of the “public interest,” the regulatory bureaucracies were always intended to serve special interests, not the undefinable “public interest.” This is true of the Federal Reserve System as much as or more than any industry.

Not-so-immaculate Conception

In a free market, banks make money by charging a higher interest rate for the money they lend than the rate they pay on bank deposits. However, banks have always been tempted to lend far more money than they hold in deposits, or reserves — hence the term “fractional reserve banking.”

In the first half of the 19th century, when there were still competing currencies issued by various banks, banks with higher levels of reserves (often in the form of gold and silver) were seen as more trustworthy, and therefore their currencies were more widely used. Banks that lent, say, a hundred times the amount of their reserves experienced the opposite, and often went bankrupt. This is easy to understand: If for some reason such a bank’s customers started demanding their deposits back, that bank would quickly run out of money and go out of business. Competition “regulated” the banking system in the same way that it does all industries.

It was Lincoln who ended competition in banking by creating the “greenback” dollar as the monopoly currency while taxing the other currencies out of the market.

Dixie dough: The ten-dollar note, or “dix” (French for “ten”), issued by the Citizens’ Bank of Louisiana was considered very sound, and its popularity across the South was the origin of the word “Dixie.” (Photo: Public Domain)

For example, in the first part of the 19th century, farmers and merchants from “up river” on the Mississippi would sell their wares and agricultural products in New Orleans and be paid in a currency issued by the Citizens’ Bank of Louisiana that was called the “dix,” which is French for “ten.” They would return home boasting of having a “pocket full of Dixies,” and that is how the South became known as “The Land of Dixie.” The dix was issued by a bank with a very high percentage of reserves, and was therefore so reliable that it was routinely used in Minnesota and all over the Midwest. It could be exchanged for gold or silver all over the country.

As with the railroads, the public utilities, and other industries during the latter part of the 19th century, corporate executives in the banking industry began to oppose competition. According to them, it was too risky to essentially engage in legalized counterfeiting by lending out hundreds of times the amount of money they had in reserve, risking bank runs and bankruptcy. They and their lobbyists complained bitterly for decades that the money supply was too “inelastic” — meaning that competition among banks restricted their ability to profit from a legalized counterfeiting operation.

They employed a small army of academics and intellectuals to make the case for a banking system that would use the coercive powers of government to allow them to expand their loans far beyond what their reserves would allow for in a competitive system. They wanted what they called a “lender of last resort,” a euphemism for government-funded bailouts of their counterfeiting scheme. In other words, they wanted a government-enforced cartel for the banking industry just like the ones in the railroads, public utilities, and other industries. Having failed to cartelize the banking industry privately, they wanted to do what these other industries had done and use the government to be their cartel enforcer. The Mafia-style enforcer (minus all the broken kneecaps) would be the Federal Reserve System.

Economist Murray Rothbard explained the purpose of the Fed in his History of Money and Banking in the United States as follows: “The financial elites of this country … were responsible for putting through the Federal Reserve System, as a governmentally created and sanctioned cartel device to enable the nation’s banks to inflate the money supply in a coordinated fashion, without suffering quick retribution from depositors or noteholders demanding cash.”

In addition, the banking industry recruited myriad academics, especially economists, to dream up theories about why monopoly is better than competition in the banking business. “To achieve the Leviathan state,” Rothbard wrote, “interests seeking special privilege, and intellectuals offering scholarship and ideology, must work hand in hand.” This is as true today as it was in 1913. Economist Larry White of George Mason University published an article in a peer-reviewed economics journal (Economic Journal Watch, August 2005) in which he reported that 74 percent of all academic journal articles published in the field of monetary economics were authored or co-authored by Fed employees or published in Fed journals. Pro-Fed bias is so pervasive that the late Milton Friedman once remarked that if one wanted an academic career as a monetary economist (like Friedman), then it would be a good idea to not criticize the major employer in the field.

Legalized Counterfeiting

The Fed started out by serving as a “lender of last resort” and essentially bailing out unsuccessful bankers. Then, in 1933, a law was passed allowing it to engage in the monetization of government debt by purchasing government bonds. Consequently, the Fed literally counterfeits currency, which it then uses to purchase government bonds. This is the major way it injects billions of dollars into the banking system, creating price inflation and seemingly never-ending boom-and-bust cycles. The big New York investment banks have always been the primary dealers in these government-bond purchases, and have become extraordinarily wealthy and politically influential by doing so. That is why the U.S. treasury secretary is almost always a former CEO of Goldman Sachs or one of the other big New York investment banks. (They were given that name decades ago because they dealt mostly with lending to corporations to create or expand their businesses.)

Rather than encouraging banks to hold on to reserves sufficient to avoid bankruptcy through “bank runs” of depositors demanding their deposits, the Fed allows virtually unlimited lending. It does this through its “reserve ratio,” which is the percentage of a bank’s reserves that it must hold and not lend out. While this “requirement” has been as high as 10 percent, as of January 2025, the Fed’s required reserve requirement was 0.0 percent! The Fed website and sites such as Investopedia explain that the purpose of the reserve ratio is to assure the public that their banks have sufficient reserves so that they don’t have to worry about not being able to get their cash on demand. That, of course, is just more pro-Fed propaganda in light of the current reserve “requirement.”

The dollar has depreciated tremendously since the Fed’s founding in 1913, despite the fact that the Fed is supposed to be an inflation fighter. A typical market basket of consumer goods that cost $108 in 1913 would cost $2,422 today, thanks to decades of Fed-generated price inflation. The highest rates of price inflation in America’s history have occurred under the Fed’s watch.

The Fed claims that one of its jobs is to “stabilize” the business cycle to avoid dramatic inflationary “booms” and unemployment-increasing “busts.” But the academic research of University of California at Berkeley’s Professor Christina Romer — President Barack Obama’s chief economist — showed that the business cycle was less stable after the Fed was created than it was before.

Another key tool of the Fed in its ostensible quest to stabilize the U.S. economy is the manipulation of interest rates. There are essentially two ways to reduce interest rates: If people save more, the supply of loanable funds in the banking system will increase. According to the laws of supply and demand, this will cause a reduction in interest rates, inducing businesses to invest more because lower rates make investment projects or business expansions look more profitable. Or, the Fed can inject money into the banking system by simply counterfeiting it and purchasing government bonds from investment banks, or lowering the reserve ratio from 10 percent to 0.0 percent. In the former case, consumers increase their future purchasing power because they have saved more. In the latter case, they have not. This is what causes the bust — and all the unemployment, bankruptcies, and suffering that come with it. Businesses that have expanded or created new ventures eventually realize that the market for their goods or services is not as big as they thought, and many of them are unable to complete their investment projects.

The creation of boom-and-bust cycles is one thing the Fed has excelled at — along with massively depreciating the dollar — since its inception. The Fed was created in 1913. Its policies led to the Depression of 1920, in which the unemployment rate was higher than in the first year of the next decade’s Great Depression, caused by the Fed’s monetary inflation in the late 1920s. The Fed’s reckless monetary expansions have caused seemingly endless economic crises, including those in 1953, 1957, 1960, 1969, 1973, 1980, 1981, 1990, 2001, 2008, and 2020.

It’s not just bankers, Wall Street speculators, the real estate industry, and other related entities that profit from the Fed’s inflation and boom-and-bust policies. The State and all of its bureaucratic appendages benefit from the Fed’s legalized counterfeiting operation because the people are fooled into thinking they can get something for nothing, whether that “something” is subsidizing foreign wars that have nothing to do with defending America, an ever-expanding welfare state, free hotel rooms, welfare, smartphones, air transportation for illegal aliens, or anything else the government spends money on. As Adam Smith wrote in The Wealth of Nations, for example, if governments were constrained to finance their projects with taxes instead of printing money, there would be far fewer wars, and the wars that did exist would be of shorter duration. The same can be said of all other federal government programs. Without the Fed, the federal government would be far closer to focusing on its core constitutional functions instead of the anything-and-everything of today.

To save the American economy from national bankruptcy, the Fed must be abolished by repealing the Federal Reserve Act of 1913, thereby getting the nation’s money supply out of the hands of politicians, bureaucrats, and their academic propagandists and special-interest benefactors. Private property, private enterprise, and competition in currency must be restored so that all of America can become a modern-day version of the Land of Dixie, with competitive currencies backed by more than the promises of lifetime-tenured politicians (as most members of Congress are, essentially) and self-serving federal bureaucrats and their academic court historians.

Article posted with permission from Thomas DiLorenzo

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