How the Government is Destroying Our Money (Explained)

Our current inflation woes have their roots in mistakes we made decades ago.

You don’t have to be particularly political to have noticed that something is wrong with the money in the US.

Millennials and Gen-Zers have been particularly jerked around by our economy for years. From 9/11 and the endless “War on Terror,” to the housing bubble burst, to the Great Recession, and now rampant inflation, many of us feel like we simply cannot catch a break in this system.

And make no mistake, that is a violation of something important. The promise of America was always “life, liberty, and the pursuit of happiness.” A lot of people get confused about this, so let’s break it down.

You’re not entitled to much. Despite what many on the Left say, there are few actual rights—certainly not those that entail other people’s labor or property. But what you do have are natural, inherent rights to live your life free of oppression. It is these rights our Constitution was supposed to protect.

Oppression can come in many forms, which is why this little phrase—life, liberty, and the pursuit of happiness—matters so much. You have a right to your life, to not be killed or harmed. You have a right to your liberty, to not have your freedoms taken away without due process. And you have a right to pursue your own happiness. Not to be happy. To pursue your own happiness—to work hard, to keep the proceeds of your labor, to make something for yourself, to build the life you want. That’s a significant right that historically many people have been denied.

When you think about the elements people need to pursue their own happiness, a few elements come to mind from a public policy perspective. You need a fair playing field, for the game of life to not be rigged against you. You need to be free of laws that create barriers to your ability to work, earn, and keep your money. And you need economic stability to plan ahead and know how to invest, where to direct your labor, and how to best meet your short and long-term needs.

But a brief examination of the United States today reveals plainly that none of those conditions for the pursuit of happiness are currently being met. Something sinister is being done to you by your government, and the promise of the pursuit of happiness is being violated because of it.

As we always say at BASEDPolitics though, before you can prescribe the right solutions to this problem, you have to understand the root causes—what created it. You really have to understand what the government has done to our money and financial system. 

So consider this your one-stop primer on the issues with our monetary system. Let’s dive in.

A Primer on Capitalism, the Constitution, and Currency

It’s important to remember that capitalism is an economic system. Governments can either support or intervene in capitalist economies through their policies. 

Our government is supposed to support capitalism, and politicians on both the Right and Left will claim that they do. But by and large, it is a rarity. Both Democrats and Republicans push policies that violate the free market system and the citizens doing business in it every day. And one big way they do that is through manipulation of our currency.

As a whole, the Constitution was an excellent first attempt at creating a new kind of government and political system. And, economically, the Founders did as much as they could with the knowledge they had at the time to provide Americans with a capitalist country.

But remember, capitalism was just getting going in 1776. The Wealth of Nations, considered the first comprehensive work on free markets, came out mere months before the Declaration of Independence. And perhaps because this system was so new, the Founders did not have the foresight to create a government that would truly uphold a capitalist economic system.

To that end, they included some fatal flaws in the document that I believe have frankly doomed us and that allowed the government to get its hands on our money in the first place.

Article I, Section 8 of the Constitution gives Congress the power to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.” And from our very inception, the federal government is therefore involved with printing our currency and determining its worth. 

A Quick History Lesson: Currency in Early-to-Mid American History

From 1775 to 1791, to finance the American Revolution, the Continental Congress printed the new nation’s first paper money. Known as “continentals,” the fiat money notes were issued in such quantity they led to inflation, which, though mild at first, rapidly accelerated as the war progressed. Eventually, people lost faith in the notes, and the phrase “Not worth a continental” came to mean “utterly worthless.”

Then, in 1791, Alexander Hamilton (who was US Treasury Secretary under George Washington) established the Bank of the United States to create a system of credit for the government. The bank is the first of several in the country to issue private currencies facilitating borrowing and lending.

For the record, this was a significant win on the part of Hamilton and the federalists who wanted a strong central government. Thomas Jefferson was afraid that a national bank would create a financial monopoly that might undermine state banks and adopt policies that favored financiers and merchants over debtors. Sounds about right, doesn’t it?

In 1834, the United States fixed the price of gold at $20.67 per ounce, where it remained until 1933. This is known as “the gold standard” and what it means is that, for most of US history, our currency was actually backed by something of value. Every dollar in circulation represented a set amount of gold, which had a determined value. That’s a good thing. You need that for a currency to be stable. 

1836 to 1865 is considered the “free-banking era”. State-chartered banks and unchartered “free banks” took hold during this period, issuing their own notes, redeemable in gold or specie. However, the train started coming off the track pretty quickly.

Under Abraham Lincoln in 1862, Congress passed the Legal Tender Act of 1862. Basically, the country was in a ton of debt from the Civil War and the government had to pay for it. This act allowed them to print “greenbacks,” paper money that was not backed by gold, which could be used to pay taxes or buy goods from a store.

They also passed the National Bank Act of 1863, providing for nationally chartered banks, whose circulating notes had to be backed by U.S. government securities. An amendment to the act required taxation on state bank notes but not national bank notes, effectively creating a uniform currency for the nation.

The next 50 years saw a lot of financial upheaval and instability. There were depressions, and JP Morgan had to bail out the federal government. Yeah, times were weird, and it led to growing calls for a central banking authority.

The Creation of the Federal Reserve

The Aldrich-Vreeland Act of 1908 provided for emergency currency issue during crises. It also established the National Monetary Commission to search for a long-term solution to the nation’s banking and financial problems.

And in 1913, they thought they found the answer. The Federal Reserve Act of 1913 is passed shortly thereafter, formally creating the financial system we live under to this day.

Though Congress can amend the Fed’s charter, the legislation gives this entity broad power to print money and gives a mandate that they “keep prices stable” and “maximize employment.”

The seven members of the Board of Governors are nominated by the president and approved by the Senate. Each governor serves a maximum of 14 years, and each governor’s appointment is staggered by two years to limit the power of the president. In addition, the law dictates that appointments be representative of all broad sectors of the US economy.

While the Fed is a political entity, and while Congress does maintain some authority over it, it is largely expected to operate “independent” of the political system and often works to maintain the appearance of political neutrality. More on that later.

How We Lost the Gold Standard

From 1914 to 1918, the gold standard officially broke down. 

This was during World War I, which at the time was the bloodiest and most expensive war of all time. (We hope by now you’re catching on to the fact that the money is closely tied to war in this country.)

US banks continued to operate normally thanks to the emergency currency issued under the Aldrich-Vreeland Act of 1908. But the greater impact in the United States came from the Reserve Banks’ ability to discount bankers’ acceptances. Through this mechanism, the United States aided the flow of trade goods to Europe, indirectly helping to finance the war until 1917, when the US officially declared war on Germany and financing our own war effort became paramount.

They briefly tried to reinstate the gold standard from 1925 to 1931 as the Gold Exchange Standard. But then of course comes the Great Depression—and all hell breaks lose.

From 1930 to 1933, nearly 10,000 banks failed, and by March 1933 that monster Franklin D. Roosevelt (FDR) declared a bank holiday (meaning they wouldn’t give people their money!), while government officials grappled with ways to remedy the nation’s economic woes. 

Many people blamed the Federal Reserve for failing to stem speculative lending that led to the crash, and some also argued that inadequate understanding of monetary economics kept the Fed from pursuing policies that could have lessened the depth of the Depression.

In reaction to the Great Depression, Congress passed the Banking Act of 1933, better known as the Glass-Steagall Act, calling for the separation of commercial and investment banking and requiring the use of government securities as collateral for Federal Reserve notes.

And then in 1934, FDR seized all the gold. No, like, really.

Signed by FDR in January 1934, the Gold Reserve Act transferred ownership of all monetary gold in the United States to the US Treasury and prohibited the Treasury and financial institutions from redeeming dollars for gold. (And some of y’all still don’t believe us when we try to tell you just how bad FDR was for this country…)

From our friend Jon Miltimore at FEE, “FDR’s order—Executive Order 6102—forbade ‘the hoarding of gold coin, gold bullion, and gold certificates within the continental United States.’ Not only would individuals not be able to redeem their paper notes for gold under the order, but private ownership of gold coins and bullion was made illegal. (This unpopular law was repealed in 1974.)” 

Just yikes.

Between 1946 and 1971, countries operated under the Bretton Woods system. Under this system, the US dollar became the world’s reserve currency, which foreign governments could redeem for gold, even though US citizens could not.

So while this is still pretty messed up, the dollar was at least still tied to gold during this time—even though you couldn’t actually redeem your dollars for it.

The US promised to redeem gold for other governments at an exchange rate of $35 per ounce. This meant the US couldn’t inflate the money supply without depleting its gold reserves. But then comes the Vietnam War. Remember what we told you about war. 

President Lyndon B. Johnson is in office at this point and he wants to escalate this thing, but he needs to pay for it. What to do when you’re just a little US president struggling to live within your means and you want to go bomb little brown kids overseas? You spend the money anyways.

Between the 1950s to 1971, the US depleted roughly 55% of its gold stock, with the majority of that depletion coming towards the end of the decade.

By 1971, Nixon is in office, the dollar is inflated, the gold is depleted, and he makes a critical decision. He officially “pauses” gold redemption, effectively ending the gold standard altogether.

What Happened in 1971?

There is a whole website called wtfhappenedin1971. And that website has spawned a movement of people, even getting recent shoutouts from the likes of Edward Snowden and Jack Dorsey.

Clearly, YOU know what happened in 1971, whereas the people approaching this website for the first time do not. But what you don’t know is what happened as a result, and that is the information this website presents first.

Income inequality took off. Wages, which had tracked closely with productivity and GDP growth for decades, began to lag productivity and economic growth (badly). Inflation soared, growing at a faster rate than at any period in the previous century. The income gap between black and white Americans, which had been closing rapidly since 1950, all but stopped closing. The list goes on.

Why did this happen?

When we left the gold standard in 1971, we became a fiat money system. A fiat system has three components: 

  1. The government (or its central bank) has a monopoly on money production.
  2. Money is created by way of bank credit expansion (i.e. out of thin air).
  3. Money has no inherent value, it is simply brightly colored paper (or digital bytes) that can be produced whenever those in power deem it politically expedient.

Basically, what that means, in the long run, is the government can “finance” whatever it wants even when we can’t afford it. That’s why the federal debt was $398 billion in 1971 and is now $30 trillion and rapidly counting. And it’s no wonder the “1 percent” now holds a record percentage of all wealth. 

In creating a fiat money system, we gave these people a blank check that is tied directly to our bank accounts.

Once you know these things you’ll understand how things like the Great Recession or our current skyrocketing inflation occur. These events, which have a drastic impact on all of our lives, do not occur by happenstance. They are a direct result of policy choices like stimulus spending and bailouts. 

Back to the Fed

Ending the gold standard was part one of the formula that messed up our money and set our currency on its current collision course. Part two is something we mentioned earlier in the article: the creation of the Federal Reserve.

There is no way to possibly distill all the problems with the Federal Reserve into one article, so we will summarize some of the larger issues with its existence and structure. 

But we do implore you to read Ron Paul’s book End the Fed. It’s been out since 2009, and this man is freakishly right about everything. In it, he does an excellent job of making a pretty complex financial institution easy to understand.

As Wikipedia summarizes, Paul argues in the book that the Federal Reserve was created to bail out banks when they got into trouble and he says that this is bad for competition in banking, as it strengthens the big banks.

More from Wikipedia:

“Paul argues that the Fed is both corrupt and unconstitutional. He states that the Federal Reserve System is inflating currency today at nearly a Weimar or Zimbabwe level, which Paul asserts is a practice that threatens to put the United States into an inflationary depression where the US dollar, which is the reserve currency of the world, would suffer severe devaluation. A major theme of the work is the idea of inflation as a hidden tax making warfare much easier to wage.”

Yeah… If you ever for a second think the number one client of the United States government is not the military-industrial complex, go back to square one and start the game over.

Paul goes on to explain that inflation diminishes the purchasing power of the masses, though they often do not even know it. This is how they keep you poor.

Inflation is a regressive tax, meaning it impacts poorer people more than it does others, creating a permanent underclass. No matter how many raises you get or how much you move up in your career, you will still be in the same spot you started in because of inflation.

The Fed’s main goal is to privatize profits and socialize losses. They are not working for you. They are working for the 1%. You can see proof of this during the pandemic. The Fed made the decision to print a massive amount of new dollars. Just how massive? Well, 80% of all dollars in circulation were printed during this time.

That means they infused the economy with a huge surplus of dollars, which is a recipe for inflation—when you have more dollars chasing fewer goods, you get higher prices. On top of that, they did this while the global supply chain had come to a halt and when people were spending less money going out.

And notice the inflation surge just so happens to be coinciding with a time when a significant number of our leaders are gunning for World War III with Russia?

What Do We Do About It?

So now you know how and why our money got so messed up in the US. And until we make some massive changes, the economic stressors we live under will continue.

These are the reasons ultimately that people lose their jobs or can’t hire workers, they determine the value of your savings account and investments. They dictate how much stuff you can buy with the money you earn.

As we speak right now, we are currently all getting poorer. Your salary is worth far less than it was last year. Your savings are being stolen from your bank account where they sit. The costs of basic services and needs, like rent and groceries, are becoming unobtainable for those living on the margins.

This is why libertarians call for an end to the Fed and a return to the gold standard. While yes, those things do feel impossibly out of reach in our current political climate, it’s worth pointing out that libertarians have a knack for getting our way in the long run. And that’s because we have the truth on our side, and eventually, others come around to it. 

When we stood for same-sex marriage in the 1970s people were still being arrested for who they loved. Now over 70% of the country supports it and it has been legal for almost a decade. When we first stood against endless wars our representatives were booed and it was said they hated military members. Now, we’ve ended the war in Afghanistan with overwhelming support, and Americans and military members are staunchly opposed to intervention in Russia.

We’re right about the money, too. The masses will realize it eventually.

But until we get there, many libertarians are prioritizing getting away from the US fiat currency as much as possible and exploring blockchain options like bitcoin.

We can also work to oppose government spending and anti-capitalist policies like corporate welfare, stimulus spending, and bailouts. We can stand against more wars and the military-industrial complex in general.

And, we can work to educate others about what is being done to them by their government.

Editor’s Note: This article originally neglected to attribute a passage from the Wikipedia page for End the Fed by Ron Paul. We regret the error.

WATCH: You Need to Know What the Government Did to Your Money

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Hannah Cox
Hannah Cox
Hannah Cox is a libertarian-conservative writer and co-founder of BASEDPolitics. She's also the host of the BASEDPolitics podcast and an experienced political activist.