One expert's thoughts on the Federal Reserve

As an "old--(late 70's)", real world economist, I have been struggling for
over 60 years with the concepts being discussed by this group, the PBI
Volunteers.

My professor and mentor at the University of Illinois, U-C, Donald Kemmerer,
(a real conservative who assumed my liberal inclination would disappear with
age), and I sparred about the obvious subversion of democracy involved in
the creation of the Federal Reserve. His father, a distinguished professor
of economics at Princeton University, and an expert on the role of gold as
money, was one of the economists whose intellectual input was available to
the conspirators at Jekyll Island. It was at the meetings at Jekyll Island
in the November of 1912 that the concept of the Federal Reserve System was
conjured up. Although I never grew to accept the anti-democratic nature of
the Fed, Kemmerer and I stayed friends until his death.

During that same period (1958-59) I was introduced to the writings of John
Maynard Keynes. One afternoon in the reference library at the University of
Illinois (UIUC), while reading in Keynes' "General Theory of Employment,
Interest and Money" I came to the awful realization that when the
politicians got hold of the ideas presented in this learned tract, they
would corrupt them and use them to excuse the profligate spending of money
without concern for whether or not a stimulation of the economy by the
government was a desirable thing. Perhaps the only restraining influence on
these people was the presence of gold as a bench mark on the value of
"paper" money.

Thirteen years later, after having studied for a Ph.D. in monetary and
financial economics at Cornell University, I had achieved a measure of
respect for understanding the vagaries of our economic system. I had just
become a vice-president of a "Wall Street" firm specializing in providing
investment and economic advice to institutional investors. It was September
of 1971 and Nixon had just taken the U.S. off the gold standard. I was in a
meeting with the first client I would address on behalf of that firm. I was
explaining to the staff of the client firm my thoughts about what the
outcome of the Nixon Administration's policy decision would be and what it
might mean for their investment policy decisions.

All of a sudden I had a flashback to that day in the library at the University of Illinois. I
described my awful realization of that day to my client's staff. I told them
that Keynes had given the politicians a license to steal. Now, Nixon had
given them the check book by which the restraints of the "Gold Standard"
became inoperative. Nixon and his crew could (and did)continue the wasteful
spending associated with the Vietnam War. They could spend at will. They had
laid the foundation for the fiscal and political crises which challenge us
today.

The moral of the story is this: neither the rich, the learned, the
politicians, nor the masses will enjoy peace and prosperity until an
agreement is reached among the classes, factions and regions of the country
resolving the question: How can the resources of the country best be
mobilized to provide for the "General Welfare" of the people of the country.

Discussions of Public Banking, the definitions of money, and how the
government's activities are to be financed will be important parts of that
debate. Also, the very difficult problem of the concentration of wealth,
along with the related question of the monopoly power of corporations must
be addressed.

As long as human beings are involved in this process the future is unlikely
to be any better than the past. I am not hopeful.

James P. Savage III; reprinted here without permission it is so excellent and timely