The Soundest Fiat Money Ever Issued

 

Signed into law by Woodrow Wilson with four gold pens on 23 December 1913, the President remarked that the controversial Federal Reserve “measure had suffered many narrow escapes” before reaching his desk.  Bernhard Thuersam

The Soundest Fiat Money Ever Issued

“On the floor of the Senate the [Federal Reserve] bill encountered heavy opposition.  Senator Elihu Root, of New York, led the attack.  His remarks were bitter and persistent.  Such was Root’s standing that his assaults attracted much attention. The vehement antagonism of Senator Root was based on the charge that inflation and “fiat” money were at the center of the proposed system.

“The American people,” he argued, “closed the case for and against inflation . . . when they sustained the vote of the inflation bill by President Grant in 1874.  Coming into power, the Democratic party undertakes to reserve the oft-repeated judgment of the people of the united States upon this question. We are setting our steps now in the pathway which through the protection of a paternal government brought the mighty power of Rome to its fall. And we are doing it here without a mandate from the people of the United States.”

Defenders of the bill admitted that it was true that the Federal Reserve note was not, strictly speaking, a “Government” note, but contended that it was quite obvious that it was not “fiat” money.  On the contrary, it was a sound bank note, secured by a forty percent gold reserve, a lien on the issuing bank and its stock, and by the Federal Government itself.  There was little or no need for the Government obligation, it was held, but for the sake of safety and William Jennings Bryan, it was there.

The Senate paid little attention to the admonition of Senator Root.  In fact, it actually enlarged the inflationary features of the bill.  [They] deplored the fact that a statesman of Senator Root’s international reputation should have seized upon a politician’s catch phrase and denounced as “fiat” money the soundest note ever issued.”

(Carter Glass, Unreconstructed Rebel, James E. Palmer, Jr., Institute of American Biography, 1938, pp. 100-102)