Congress had just passed the Underwood Tariff (reinstating the federal income tax following the passage of the 16th Amendment) and, miracle of miracles, the stock market began to slump. While the trade-off for passing the income tax was a reduction in tariff rates—this way, the tax’s proponents could claim pro-trade motivations—the powers-that-were wanted to inflate the currency to counter any adverse economic effects of the new tax. They thus began promoting the need for a currency bill that would consolidate many competing currencies into one that would be both subject to legal tender law and administered by a federal agency.
From the New York Times (“Hostile Action to Currency Now” June 12, 1913, p. 4):
From the time the tariff bill reached the Senate a month ago Republican Senators have been trying to obtain promises that a currency bill will not be pushed. Democrats have evinced in private an equal earnestness in their desires to go home as soon as the tariff bill is out of the way. The possibility of increasing the present financial uncertainty by threats of immediate tariff revision merely supplied another argument.
As a matter of fact, [President Wilson] has let it be known that he wishes prompt currency revision to supply easy money for what hardships might arise in the first months of reduced protection. The inference was openly drawn by Senator Tillman in discussing the letter he received from the President that the Republicans want to block currency revision for the simple purpose of giving full headway to any [financial] panic which might arise and which could be ascribed to the Democratic customs policy. The shortage of the money in New York, London, Berlin, and Paris, which, of course, cannot be attributed to the promise of reduced protection in the United States, would thus seem to be another argument for the prompt provision of an elastic currency.
We now know that Wilson would get his way and that, in fact, he surely knew legislation had already been drawn up in secret in Jekyll Island, Georgia, less than three years earlier by leaders from the public and private sectors who were waiting for such a political environment to introduce it. In November 2010, the Fed held a conference to commemorate this meeting, entitled “A Return to Jekyll Island.” The Fed’s return, however, occurred some nine months following the Mises Institute’s conference at Jekyll Island, entitled “The Birth and Death of the Fed.”
As a side note, according to the Bureau of Labor Statistics, the dollar has lost 6.27 percent of its value since the Fed’s November 2010 conference. Although this is a gross underestimation (see ShadowStats.com), it nonetheless proves that the Fed has remained true to its original purpose to inflate.
