The unhappiness of Woodrow Wilson

[one...two...tree 2,762]

by Andrew Leonard, Salon

Did Woodrow Wilson bitterly regret his role in creating the Federal Reserve? Some readers of my post yesterday on Ron Paul and the Federal Reserve believe so. Two of them proffered an identical quote as evidence.

I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world -- no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.

On the hundreds of Web sites on which this quote appears, it is typically taken as proof of Wilson's remorse at handing over control of the nation's money supply to a cabal of Wall Street money men. A common framing: "Woodrow Wilson signed into effect the Federal Reserve Act on December 23, 1913. And said the following just six years later." Even the Wikipedia page for Woodrow Wilson includes the quote, as proof that "Historians generally agree that Wilson hated the Federal reserve, and it made him, by his own word, "a most unhappy man..."

Frequency of repetition doesn't make for reliable sourcing, however, and convincing documentary evidence that Wilson uttered such words, in reference to his role creating the Federal Reserve, is hard to come by. In fact, the available evidence suggests that the quote is an after-the-fact fabrication made by splicing together passages of different Wilson statements that have nothing at all to do with the Federal Reserve.

Two separate portions of the quote appear in The New Freedom: A Call for the Emancipation of the Generous Energies of a People," published in 1913. "The New Freedom" is a distillation of campaign speeches Wilson made while running for President in 1911.

On page 185 there is the following section:

A great industrial nation is controlled by its system of credit. Our system of credit is privately concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men who, even if their action be honest and intended for the public interest, are necessarily concentrated upon the great undertakings in which their own money is involved and who necessarily, by very reason of their own limitations, chill and check and destroy genuine economic freedom.

And on page 201:

We are at the parting of the ways. We have, not one or two or three, but many, established and formidable monopolies in the United States. We have, not one or two, but many, fields of endeavor into which it is difficult, if not impossible, for the independent man to enter. We have restricted credit, we have restricted opportunity, we have controlled development, and we have come to be one of the worst ruled, one of the most completely controlled and dominated, governments in the civilized world -- no longer a government by the opinion and the duress of small groups of dominant men.

Now, this is all good rabble-rousing stuff, but its relevance to the creation of the Federal Reserve is nonexistent. The speeches these quotes were adapted from were delivered before the Federal Reserve was created. And as for the melodramatic utterance: "I am a most unhappy man. I have unwittingly ruined my country," well, so far, the sourcing well is coming up dry.

Some may question whether such historical nitpicking is relevant to the current presidential campaign. They may do so as they please. But if you want to engage in conspiracy theory, it's a good idea to get your facts straight.

UPDATE: Via e-mail, John M. Cooper, a professor of history at the University of Wisconsin, and the author of several books on Woodrow Wilson, writes:

"I can tell you categorically that this is not a statement of regret for having created the Federal Reserve. Wilson never had any regrets for having done that. It was an accomplishment in which he took great pride."

― Andrew Leonard

http://www.salon.com/tech/htww/2007/12/21/...ederal_reserve/

[mRx 16]

That's interesting, Steven.

I know for me personally, it's not the existence of the Federal Reserve that's the problem.

Nor, as Friedman and the Monetarists believe, do I think that currency creation would be better controlled by the government, and not by the so-called quasi-private/public Federal Reserve.

Nor did money expansion begin in 1913 with the Fed--Washingon and his crew ran the printing presses making those worthless Continentals during the Revolutionary War. Lincoln and his gang of tyrants ruined American wealth with those ubiquitous and worthless greenbacks they printed out to fund their brutal war against peacefully seceeding States in the mid-1800's.

The Federal Reserve should be absolutely abolished and our money should return to be 100% specie backed. By specie, I mean something real.

[w¡n9Nµ7 §£@¥€r 123]

Then we'll have to wage wars of conquest designed to accumulate treasures stolen from foreign lands again, like in the good ol' days.

[one...two...tree 2,762]

Forgive my ignorance, but I fail to see why it is necessary to have the value of money tied to something that physically exists, when all it is, is a means for exchange. It's been around for thousands of years. I don't understand how it is inherently flawed.

[scandal 951]

I was not aware of Wilson's record on the Fed.

However I am currently reading a biography of FDR, and learned something I found rather shocking about Wilson as a result.

FDR was a young ambitious NY State Senator (i.e. serving in the NY State Assembly in Albany) when Wilson was elected in 1912. FDR managed to get himself a post as Assistant Secretary of the Navy in Wilson's Administration (at that time the Army and Navy were separate Cabinet level appointments, unlike today's Defense Secretary).

So FDR came to Washington in 1913 and served in the federal bureaucracy. When Wilson came to office that year, one of his first orders of business was to segregate, yes -SEGREGATE the federal government. Apparently there had been real headway during the decades of Reconstruction in hiring blacks into the government, and they served in posts both in Washington and around the country alongside white coworkers. Wilson brought that to an abrupt end.

I had always thought of Wilson as a New Jersey native. He had been President (I think?) at Princeton, and was NJ Governor when he ran for national election. However I had not realized that in fact he was raised devout Presbyterian in the South (I think it was North Carolina? I really should google it.. .doing this from memory). And he had deeply held views about "the proper place" of African Americans. Also politically he was trying to appease the strong conservative Democratic base from the southern states who urged him to "reform" the federal government. As a result this otherwise liberal, progressive, tolerant President who later went on to espouse the Wilson Doctrine and to make an effort at the Treaty of Paris to find a lasting world peace among the nations of the world -- that same Wilson in 1913 went on a crusade to throw every black civil servant in the government out of his job. Very sad stain on his legacy.

[mRx 16]

Then we'll have to wage wars of conquest designed to accumulate treasures stolen from foreign lands again, like in the good ol' days.

Why?

[w¡n9Nµ7 §£@¥€r 123]

Then we'll have to wage wars of conquest designed to accumulate treasures stolen from foreign lands again, like in the good ol' days.

Why?

To accumulate natural resources through superior military strength. The economic system you're suggesting was a huge incentive for colonialism.

[mRx 16]

Then we'll have to wage wars of conquest designed to accumulate treasures stolen from foreign lands again, like in the good ol' days.

Why?

To accumulate natural resources through superior military strength. The economic system you're suggesting was a huge incentive for colonialism.

It can't be much worse, considering that already occurs in our current economic system.

[scandal 951]

Forgive my ignorance, but I fail to see why it is necessary to have the value of money tied to something that physically exists, when all it is, is a means for exchange. It's been around for thousands of years. I don't understand how it is inherently flawed.

It needs to be tied to something Steve. Not gold in Fort Knox necessarily, but something that has investors' confidence. It's not literally just bits of paper (or bits in a computer database). It's really a reflection of the confidence in the economic output of the society that stands behind that currency. And confidence in the economic policies of the government that has the power of taxation on that economy. And confidence in the debt instruments denominated in that currency, and payable from those tax revenues.

It is literally a "con" game -- confidence game. Some think it's rigged (e.g. Matt). Most modern economists don't. Most modern economists believe that a physical specie backed currency is far too restrictive in promoting a government's policies of encouraging growth and employment. A currency based on confidence and the power to tax supports more progressive policies that allow an economy to grow at its natural potential.

Think of the economy as an engine, just a machine that can produce a certain amount of output (GDP). The government will syphon off a fraction of that GDP to reinvest back into public works and infrastructure in order to increase GDP output even further in years to come. And, it will float bonds to generate capital to be used today for projects that have a lifespan of years or decades, promising to use a portion of its tax revenues as the payment stream for those future interest payments on the bonds it's floating. It's that "promise" that gives the currency it's value. A bond investor that loses faith in the ability of the government to make future payment will either stop buying the bonds, or will demand a premium interest rate for holding them. An investor that fears the government is running inflationary policies and thus debasing the future purchasing power of the currency will also demand higher interest rates to protect his bond investments. The dollar bills in your pocket and your checking account are just mini stripped-down versions of the Treasury bonds traded by the "big boys". When they lose confidence, your money gets devalued. When they believe, your money retains its purchasing power.

In the end, the bond market is king. It is the most powerful force in deciding the fate of our currency.

[one...two...tree 2,762]

Awesome explanation there, Ron.

If the Fed Gov't actually had a surplus instead of borrowing, then what? I'm thinking that could devalue treasury bonds?

[scandal 951]

Awesome explanation there, Ron.

If the Fed Gov't actually had a surplus instead of borrowing, then what? I'm thinking that could devalue treasury bonds?

Well, if we run annual surpluses (as we did in the late 90s) under Clinton, the bond market generally would see that as positive, since it means we are operating "responsibly". The interesting issue (and it was raised back then) is not so much the running of annual surpluses, but what would happen if *gasp* those surpluses accumulated to wipe out the national debt itself???

In our entire history the US has never been without a National Debt. And since our currency and treasury market (and by extension corporate bond market) are all based upon there being a Debt, Greenspan and others seriously worried that we were retiring it too quickly and had no plans for what to do when it was all gone. Imagine that!

Sadly, this is not a problem we are facing in our immediate future

[mRx 16]

It needs to be tied to something Steve. Not gold in Fort Knox necessarily, but something that has investors' confidence. It's not literally just bits of paper (or bits in a computer database). It's really a reflection of the confidence in the economic output of the society that stands behind that currency. And confidence in the economic policies of the government that has the power of taxation on that economy. And confidence in the debt instruments denominated in that currency, and payable from those tax revenues.

It is literally a "con" game -- confidence game. Some think it's rigged (e.g. Matt). Most modern economists don't. Most modern economists believe that a physical specie backed currency is far too restrictive in promoting a government's policies of encouraging growth and employment. A currency based on confidence and the power to tax supports more progressive policies that allow an economy to grow at its natural potential.

I agree that a fiat currency must be backed by something. I disagree however that it's value be backed by some intangible euphemism like confidence. Our currency is backed by Legal Tender laws, making it a crime not to accept the paper as payment; not confidence.

You're absolutely right that governments loathe specie-backed currency. It forces them to acquire their revenue directly through their constituents via forced taxation. Wheras creating their currency out of thin air gives them the ability to collect their funds from us indirectly, by devaluing our currency. That way money creation is more of a hidden tax, as the unsuspecting populace won't know why they are unable to keep up with their rising costs. (Then we can falsely blame our rising prices on greedy capitalist swine, drunken Wall Street fatcats, ruthless private bankers, or the Muslims.)

Most mainstream pop-economists aren't worth the paper that their degree is printed on. It wasn't always that way though. Economists haven't always been in the politician's pocket. Early 20th Century economists actually understood economics, epistemology, and praxeology. They understood that economic activity was engaged in because it was a total-sum gain as everyone benefitted. Of course the thorny catalyst that led to the Establishment Economic theorum was John Maynard Keynes.

Think of the economy as an engine, just a machine that can produce a certain amount of output (GDP). The government will syphon off a fraction of that GDP to reinvest back into public works and infrastructure in order to increase GDP output even further in years to come. And, it will float bonds to generate capital to be used today for projects that have a lifespan of years or decades, promising to use a portion of its tax revenues as the payment stream for those future interest payments on the bonds it's floating. It's that "promise" that gives the currency it's value. A bond investor that loses faith in the ability of the government to make future payment will either stop buying the bonds, or will demand a premium interest rate for holding them. An investor that fears the government is running inflationary policies and thus debasing the future purchasing power of the currency will also demand higher interest rates to protect his bond investments. The dollar bills in your pocket and your checking account are just mini stripped-down versions of the Treasury bonds traded by the "big boys". When they lose confidence, your money gets devalued. When they believe, your money retains its purchasing power.

There's no reason that government needs to prime the engine, to create more output. Through innovation, specialization, and technological advances, as an aggregate, we do that absent of the government investing our money for us.

Markets are driven by profit. If the price of a particular demanded good or service is too high, entrepreneural suppliers will see this as profitability, and enter the market for this particular good, driving the price down. The opposite is true if prices are too low. Buyers will exhaust supply of the suppliers driving the price up. This equilibriumed market holds true regardless. It's an axiomatic principle.

Bearing that in mind, when a group of Nobel pop economists and economic policy makers sit down around a oak table in D.C. and discuss the economy, it's absurd to think that they are more infinite in their wisdom than the entire economy, or that they've realized an unexploited economic profit that the entrepreneurs haven't.

Nor is it necessary for government to coercively pull resources from us for a BIG project like infrastructure. The private economy can voluntarily and freely contribute (invest) in an infrastructure project, or any project that requires substantial capital investment--for we do everyday, and with much greater success than the government. You will always spend your own money more wisely than you would someone else's.

In the end, the bond market is king. It is the most powerful force in deciding the fate of our currency.

This is the next bubble to burst.

[mawilson 2,133]

[alienlovechild 75]

Then we'll have to wage wars of conquest designed to accumulate treasures stolen from foreign lands again, like in the good ol' days.

Why?

To accumulate natural resources through superior military strength. The economic system you're suggesting was a huge incentive for colonialism.

Colonial powers tend to spend more on the military and developing the colony enough to extract the material. It's much easier to just buy the natural resources and the Japanese and Germans figured that out after WWII. Later the Soviets got a clue, too.

[one...two...tree 2,762]

Hand me some.

Then we'll have to wage wars of conquest designed to accumulate treasures stolen from foreign lands again, like in the good ol' days.

Why?

To accumulate natural resources through superior military strength. The economic system you're suggesting was a huge incentive for colonialism.

Colonial powers tend to spend more on the military and developing the colony enough to extract the material. It's much easier to just buy the natural resources and the Japanese and Germans figured that out after WWII. Later the Soviets got a clue, too.

*cough* oil *cough*