Redressing The Power Balance
We also have the Declaration of Independence. The Americans, unhappy at being ruled by the British, overthrew them in the American Civil War. The population required a new set of rules that would define American culture from that moment forward. A new constitution was drawn up, reflecting this, with principles to draw on should conflicts arise again in the future.
Going to war is expensive. However, most of the population had, by then, learnt to trust the banks unquestioningly. Their options to choose alternatively had also gradually deteriorated by the establishment of central banks. A key one being the Federal Reserve in America – which finally consolidated many banks under one organisation. The legislation for this finally met the approval of a congress led by Woodrow Wilson in 1913 – curious timing.
To perpetuate the war, the central banks of Europe decided that it was justified to temporarily suspend the relationship of their currencies to gold to keep the war going. By doing this, governments realised additional funds to support the fight. In essence, all that it required was a simple accounting trick to create bonds secured by a promise of the government to allow this to happen. A manoeuvre that was, in truth, the beginning of the end for the gold standard.
If European leaders could use accounting tricks to fund a war, why couldn’t they be used to help the weak and suffering? By following through on these arguments, the welfare state was born. In Britain, Keynesianism facilitated the National Health Service and in America – the New Deal, as their respective governments decided to abandon returning to the gold standard in the early 1930s.
The Lord of the Keynesians
Watch my explanation of monetary history as applied to the well-known film – The Lord of the Rings.
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