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of goods or services that can be purchased per unit of currency. Even if someone had saved $25,000 in a savings account at the average interest rate yield of 1.3 percent over the same ninety-seven-year period, he would have $87,500 in the bank. He would still need an additional $339,000 to buy in 2010 what his $25,000 would have purchased in 1913. Thus, even by saving his $25,000 for ninety-seven years, he would have lost 83 percent of the money’s purchasing power at the end of the ninety-seven years.

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The Creature from Jekyll Island

Now that we can see the fractional reserve system’s propensity to cause bank runs, and the role of central banks in creating inflation, let us return to the foundation of the Fed. On November 22nd 1910, Senator Nelson W. Aldrich (R-Rhode Island), with five companions, set forth under assumed names in a privately chartered railroad car from Hoboken, New Jersey, to Jekyll Island, Georgia, allegedly on a duck-hunting expedition. The need to maintain secrecy was extremely important to the men who were aboard the train traveling to J. P. Morgan’s private retreat at the Jekyll Island Club. The full guest list would be later revealed as including Senator Aldrich (Rockefeller kinsman), Henry P. Davison (a J. P. Morgan partner), Paul Warburg (a Kuhn Loeb & Co. partner), Frank A. Vanderlip (a vice president of Rockefeller’s National City Bank of New York), Charles D. Norton (the president of Morgan’s First National Bank of New York), and Professor A. Piatt Andrew (head of the National Monetary Commission research staff), who had recently been made an assistant secretary of the treasury under President Taft, and who was a technician with a foot in both the Rockefeller and the Morgan camps.4

These powerful banking elites would devise the new central banking system and draft what is now known as the Aldrich Plan. However, the plan was defeated in 1912 after the Democrats took the White House and Congress. A later change in power revived it. After losing the Republican nomination to Taft, Teddy Roosevelt founded the United States’ Progressive Party, or the Bull Moose Party, in 1912. The Bull Moose Party and the Republican Party would split votes, which subsequently led to the election of Democratic candidate Woodrow Wilson, the perfect candidate for U.S. banking interests. The Aldrich Plan formed the substance of the Federal Reserve Act which, once Wilson took office, was passed in 1913. The Federal Reserve would cause the first Great Depression only sixteen years later.

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Professor Murray N. Rothbard described this system here:

The Fed was given a monopoly of the issue of all bank notes; national banks, as well as state banks, could now only issue deposits, and the deposits had to be redeemable in Federal Reserve Notes as well as, at least nominally, in gold. All national banks were “forced” to become members of the Federal Reserve System, a “coercion” they had long eagerly sought. This meant that national bank reserves had to be kept in the form of demand deposits, or checking accounts, at the Fed. The Fed was now in place as lender of last resort. With the prestige, power, and resources of the U.S. Treasury solidly behind it, it could inflate more consistently than the Wall Street banks under the national banking system. Above all, it could and did, inflate even during recessions, in order to bail out the banks. The Fed could now try to keep the economy from recessions that liquidated the unsound investments of the inflationary boom, and it could try to keep the inflation going indefinitely.5

Shortly after the Fed was established, the United States entered World War I, and abandoned the gold standard, thus enabling the Federal Reserve to print money to fund the war effort. One way the government generates money to fund its conquests is by issuing bonds. When the Federal Reserve starts to purchase the bonds, it sends a signal to all other investors. This signal that is sent is one that says come what may, this bond will always be paid off, either at the bond’s maturity date by the government,