Friends, this post is a long one. So much happened between 1920 and 1940 to change our country from a democratically-elected Republic to a socialist, controlled economy that I can only scratch the surface here. If you have been following this series, you will recognize that the changes made under the New Deal were like an earthquake in terms of results despite the fact that they were done in a “soft” way, using economic uncertainty and the plight of the poor and unemployed as the publicly stated purpose. We now have the benefit of 80+ years of experience living under these changes. As you read, compare our current events with events then. I would love to hear your thoughts.
HISTORY, 1920 through 1929
The period between the two World Wars saw a social revolution and the continuing consolidation of Federal government power and reach in the United States. Those who had served in World War I had witnessed tremendously brutal combat and death – it was the last war fought primarily through hand-to-hand combat. The Washington Naval Conference – held in Washington, D.C. from late 1921 through early 1922 – resulted in the three major arms limitation treaties and several smaller ones that basically lasted through the decade. The young people, especially the recently empowered women, were ready to enjoy peacetime. The “Roaring Twenties” – also known as the Jazz Age – was a period of economic prosperity and tremendous cultural blossoming. Republican President Warren G. Harding “brought back normalcy” to the politics of the United States. He died in 1923 and was succeeded by his Vice President, Calvin Coolidge. This period saw the large-scale development and use of automobiles, telephones, movies, radio, and electrical appliances in the lives of millions in the Western world. Aviation soon became a business. Nations saw rapid industrial and economic growth, accelerated consumer demand, and introduced significant new trends in lifestyle and culture. Funded by the new industry of mass-market advertising driving consumer demand, the media focused on celebrities, especially sports heroes and movie stars; cities rooted for their home teams and filled the new palatial cinemas and gigantic sports stadiums. The United States became the world financial power.
A Republican Congress passed the Revenue Act of 1924 that cut federal tax rates and established the U.S. Board of Tax Appeals, which was later renamed the United States Tax Court in 1942. It included both a primary tax rate and a surtax rate on incomes over $10,000. President Calvin Coolidge signed the bill into law.
The Indian Citizenship Act of 1924 granted US citizenship to the indigenous peoples of the United States, called “Indians” in the Act. While the Fourteenth Amendment to the United States Constitution defines as citizens any persons born in the United States and subject to its jurisdiction, the amendment had previously been interpreted by the courts to not apply to Native peoples. The Act did assure continued special rights for these citizens (“Provided That the granting of such citizenship shall not in any manner impair or otherwise affect the right of any Indian to tribal or other property”). The act was proposed by Representative Homer P. Snyder (R) of New York, and signed into law by President Calvin Coolidge on June 2, 1924. It was enacted partially in recognition of the thousands of Native Americans who served in the armed forces during the First World War. Thus, the Revenue Act declared that there were no longer any “Indians, not taxed” to be not counted for purposes of United States Congressional apportionment.
Easy credit, boundless optimism about the current and future economic health of the country, buying on margin , and the ever-increasing value of the stock market led to the stock market crash of 1929, the worst single economic event in world history. This was followed by bank runs, suicides, and tremendous losses of business and wealth. Note that the underlying cause was the value of stocks and the ways in which individuals across a wide spectrum of economic means were attracted to invest. Over the next several years, consumer spending and investment dropped, causing steep declines in industrial output and employment as failing companies laid off workers.
Many Americans forced to buy on credit fell into debt, and the number of foreclosures and repossessions climbed steadily. The global adherence to the gold standard, which joined countries around the world in a fixed currency exchange, was blamed for the spread of economic woes from the United States to the rest of the world, especially Europe.
HISTORY, 1930 through 1935
Despite assurances from Republican President Herbert Hoover and other leaders that the crisis would run its course, matters continued to get worse. By 1930, 4 million Americans looking for work could not find it; that number had risen to 6 million by 1931.
Meanwhile, the country’s industrial production had dropped by half. Bread lines, soup kitchens and rising numbers of homeless people became more and more common in America’s towns and cities. Farmers couldn’t afford to harvest their crops and were forced to leave them rotting in the fields while people elsewhere starved. In 1930, severe droughts in the Southern Plains brought high winds and dust from Texas to Nebraska, killing people, livestock and crops. The “Dust Bowl” inspired a mass migration of people from farmland to cities in search of work.
In the fall of 1930, the first of four waves of banking panics began, as large numbers of investors lost confidence in the solvency of their banks and demanded deposits in cash, forcing banks to liquidate loans in order to supplement their insufficient cash reserves on hand.
Bank runs swept the United States again in the spring and fall of 1931 and the fall of 1932. In the face of this dire situation, Hoover’s administration tried supporting failing banks and other institutions with government loans. The idea was that the banks in turn would loan to businesses, which would be able to hire back their employees. Hoover, a Republican who had formerly served as U.S. Secretary of Commerce, believed that government should not directly intervene in the economy, and that it did not have the responsibility to create jobs or provide economic relief for its citizens. In the absence of the power of the Fed and its control of the value of money, this could have worked. But it did not.
In 1932, with the country mired in the depths of the Great Depression and some 15 million people (more than 20 percent of the U.S. population at the time) unemployed, Democrat Franklin D. Roosevelt (FDR) won an overwhelming victory in the Presidential election. The States proceeded to close local banks across the country to end the fourth wave of panic.
By early 1933, when the Great Depression (1929-1939) reached its lowest point, nearly half the country’s banks had failed. Prohibition was repealed by Congress in February and ratified by the States by December (the Twenty-First Amendment). It was clearly time for change. But the change that came was not what we might wish it had been. As soon as he took office, FDR declared a four-day bank holiday during which all banks would close so that Congress could pass reform legislation and reopen those banks determined to be sound.
An often-forgotten part of this bank shutdown was that he prohibited banks from exchanging fiat currency for gold and from exporting gold. Then, on April 5, 1933, he signed an Executive Order requiring that “all persons are required to deliver on or before May 1, 1933 all gold coin, gold bullion, and gold certificates now owned by them to a Federal Reserve Bank, branch or agency, or to any member bank of the Federal Reserve System.” GOLD CONFISCATION by private bankers to be able to increase the money supply! On June 5, 1933, the United States went off the gold standard when Congress enacted a joint resolution nullifying the right of creditors to demand payment in gold. The price of gold was then fixed at $20.67 an ounce. It was increased to $35 an ounce in 1934 (instant further expansion of the money supply – more on this below), where it stayed until 1971. In the intervening years, the Fed increasingly used a fractional gold standard/fiat currency.
During his first 100 days in office, FDR’s new administration passed legislation with the stated goal of stabilizing industrial and agricultural production, creating jobs, and stimulating recovery. In addition, FDR sought to “reform” the financial system, creating the Federal Deposit Insurance Corporation (FDIC) to protect depositors’ accounts and, in 1934, the Securities and Exchange Commission (SEC) to regulate the stock market and ostensibly to prevent abuses of the kind that led to the 1929 crash.
But wait, wasn’t the Federal Reserve System set up to do exactly what the FDIC was created to do after the Fed had refused to help? In fact, world famous economist Milton Friedman said exactly that: the Federal government had created the Great Depression by setting up a private banking system that was not responsive to creditor needs.
For a deeper analysis of this theory, click here. This article states: “One-third of U.S. banks went bankrupt. And many were eventually purchased at fire sale prices by large competitors, especially J.P. Morgan…Was there conflict of interest at the Fed? The globally influential Rothschild family of Europe (which helped to create the Fed) was alleged to be a financier of American banker J.P. Morgan.”
Other departments and programs created by FDR in 1933 were the National Recovery Administration (NRA) , the Agricultural Adjustment Administration (AAA), the Tennessee Valley Authority (TVA), the Federal Emergency Relief Administration (FERA), and the Civilian Conservation Corps (CCC). These were all part of what FDR called his “New Deal”, the creation of a huge new network of Federal agencies to further take power away from the States under the guise of recovery programs.
Do you see the continuing pattern of bank-induced panics followed by consolidation of power in the central government and central and major private banks? The central bankers ALWAYS MAKE MONEY when they control the money supply and its value. AND they do whatever is necessary to continue to foment wars.
Europe experienced its own Great Depression because of the connections among central banks and the prominence of the U.S. economic engine. Germany had been particularly crushed economically by World War I and was even further burdened in the devastating period from 1929 through 1933. It was against this background that Hitler came to power in 1933, promising recovery of both national pride and the economy. The Federal Reserve and the Bank of England financed the recovery of Germany and supported the rise of the Nazi movement and, it can be argued, the ultimate outbreak of World War II.
Congress passed the Gold Reserve Act of 1934 to put into law what FDR had started by Executive Order. This legislation gave the president what many considered unconstitutional power to call in all privately owned gold for deposit in the U.S. Treasury. It also gave him the power – by his fiat – to revalue the price of gold (devalue the dollar) by as much as 60 percent. Congress’s constitutional power to “regulate the value of money” was a power that could not be delegated to the Executive branch. Furthermore, “regulate” was not originally meant to permit a massive change in the monetary values of either gold or silver. Its sole purpose had been to provide a means for Congressional housekeeping control over the coinage system. Properly used, it had allowed Congress to make incremental changes in the legal tender value of either gold or silver so that both metals would stay in circulation. There were lawsuits by private citizens against this confiscation that reached the Supreme Court under the Fifth Amendment (seizure of property) – some saying that the Federal government had no authority to deny rights under “gold clauses” and some under the theory of unjust compensation – but they did not prevail. The former lost because compensation was given at current U.S. valuation and the latter lost because the Federal government has the right to regulate currency.
This was followed by the Bank Act of 1935, which basically rewrote the Federal Reserve Act of 1913. The 1913 Fed Banks, for example, were regionally autonomous; the Board in Washington was relatively powerless. Board members were treated and paid on a scale similar to government employees in the U.S. Treasury, while the presidents of the regional Fed Banks commanded salaries comparable to those of executives heading major corporations. The Bank Act of 1935 vested the Federal Open Market Committee (FOMC) with complete discretionary control to determine the stock of money in the United States. Regional Fed Bank presidents still had five of the 12 seats on the FOMC, but the Board was now a seven-man majority. From that time on, the FOMC has fashioned monetary policy by authorizing the purchase (or sale) of U.S. government securities in the open market, an operation that the Fed Bank of New York conducts week by week. When the FOMC buys the U.S. securities that the Treasury has previously sold to pay the government’s bills, it does so by creating money. This new money is either commercial bank reserves or Federal Reserve note currency. Clearly, if a 12-person board is determining the quantity of money that exists, the quantity of gold in the system has little or nothing to do with the money. Either a gold standard specifies the quantity of money in the economy or a central bank does; they cannot coexist.
Meanwhile, the consolidation of bureaucracy and power in the Federal government continued across an alphabet of new agencies and functions: the Securities and Exchange Commission mentioned above (1934); and the Social Security Act (SSA), the Works Progress Administration (WPA), and the National Labor Relations Act/Wagner Act (NLRA) (all in 1935). In the private sector, the union movement was gaining strength; the Congress of Industrial Organizations (CIO) split from the American Federal of Labor (AFL) in 1935 in response to the promise of “good faith bargaining” under the NLRA and to target unskilled workers who had not been represented in the past.
On the international front, Congress passed the first of several neutrality acts, meant to keep the United States out of foreign wars. This was ironic – and ultimately futile, to restate a point made earlier – since the actions of the Fed and the Bank of England in supporting the Nazis made United States involvement in the war inevitable.
HISTORY, 1936 through 1940
FDR was reelected in 1936 to a second 4-year term. On February 5, 1937 he announced his plan to “pack” the Supreme Court by taking it up to as many as 15 Justices. During the previous two years, the high court had struck down several key pieces of New Deal legislation on the grounds that the laws delegated an unconstitutional amount of authority to the executive branch and the federal government. Empowered by his landslide reelection in 1936, President Roosevelt issued a proposal in February 1937 to provide retirement at full pay for all members of the court over 70. If a justice refused to retire, an “assistant” with full voting rights was to be appointed, thus ensuring Roosevelt a liberal majority. Most Republicans and many Democrats in Congress opposed the so-called “court-packing” plan.
In April – before the bill came to a vote in Congress – two Supreme Court justices came over to the liberal side and, by a narrow majority, upheld as constitutional the National Labor Relations Act and the Social Security Act. The Social Security program was the crowning jewel of FDR’s New Deal and cemented federal control of all aspects of civil life for at least the next 85 years. The majority opinion of the Justices held – despite no basis for this in the Constitution and to the detriment of the power of the States envisioned there – that the national economy had grown to such a degree that federal regulation and control was now warranted. Roosevelt’s reorganization plan was thus unnecessary, and in July the Senate struck it down by a vote of 70 to 22. Soon after, Roosevelt had the opportunity to nominate his first Supreme Court justice. By 1942, all but two of the justices were his appointees.
1938 saw the establishment of the United States Housing Authority (the beginning of federally funded public housing) and the Fair Labor Standards Act (the beginning of federal regulation of wages and hours of work). This continued expansion of federal power might have gone on unabated were it not for the fact that elsewhere events were transpiring that led to the outbreak of World War II in 1939. The first peacetime draft began in the United States in 1940. War again.
TEXT AND COMMENTARY
Note: Article I, section 4, of the Constitution was modified by section 2 of this amendment. In addition, a portion of the 12th amendment was superseded by section 3.
The Twentieth Amendment set new start dates for Presidential and Congressional terms and a process for determining how the offices of President and Vice President wouldbe filled in various unique circumstances. The amendment reduced the Presidential transition and the “lame duck” period under which members of Congress and the President serve the remainder of their terms after an election. It established that Congressional terms would begin before Presidential terms and that the incoming Congress, rather than the outgoing one, would hold a contingent election in the event that the Electoral College deadlocked regarding either the Presidential or Vice Presidential elections. The amendment also established procedures in the case that a President-elect should die, not be chosen, or otherwise fail to qualify prior to the start of a new Presidential term.
The terms of the President and the Vice President shall end at noon on the 20th day of January, and the terms of Senators and Representatives at noon on the 3d day of January, of the years in which such terms would have ended if this article had not been ratified; and the terms of their successors shall then begin.
The Congress shall assemble at least once in every year, and such meeting shall begin at noon on the 3d day of January, unless they shall by law appoint a different day.
If, at the time fixed for the beginning of the term of the President, the President elect shall have died, the Vice President elect shall become President. If a President shall not have been chosen before the time fixed for the beginning of his term, or if the President elect shall have failed to qualify, then the Vice President elect shall act as President until a President shall have qualified; and the Congress may by law provide for the case wherein neither a President elect nor a Vice President shall have qualified, declaring who shall then act as President, or the manner in which one who is to act shall be selected, and such person shall act accordingly until a President or Vice President shall have qualified.
The Congress may by law provide for the case of the death of any of the persons from whom the House of Representatives may choose a President whenever the right of choice shall have devolved upon them, and for the case of the death of any of the persons from whom the Senate may choose a Vice President whenever the right of choice shall have devolved upon them.
Sections 1 and 2 shall take effect on the 15th day of October following the ratification of this article.
This article shall be inoperative unless it shall have been ratified as an amendment to the Constitution by the legislatures of three-fourths of the several States within seven years from the date of its submission.
The Twenty-First Amendment repealed the Eighteenth Amendment.
In the previous blog post, we saw that the Eighteenth Amendment established Prohibition in 1919 and enforced through the Volstead Act. Neither the Volstead Act nor the Amendment was enforced with great success. Indeed, entire illegal economies (bootlegging, speakeasies, and distilling operations) flourished. The public appetite for alcohol remained and was only intensified with the stock market crash of 1929. In March 1933, shortly after taking office, Pres. Franklin D. Roosevelt signed the Cullen-Harrison Act, which amended the Volstead Act, permitting the manufacturing and sale of low-alcohol beer and wines (up to 3.2 percent alcohol by volume). Nine months later, on December 5, 1933, federal prohibition was repealed with the ratification of the Twenty-first Amendment.
Note: The Eighteenth Amendment is the only amendment to date to have secured ratification and later been repealed.
The eighteenth article of amendment to the Constitution of the United States is hereby repealed.
The transportation or importation into any State, Territory, or Possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.
This article shall be inoperative unless it shall have been ratified as an amendment to the Constitution by conventions in the several States, as provided in the Constitution, within seven years from the date of the submission hereof to the States by the Congress.
In the autumn of 2020, we are facing yet another cycle of financial reset, panics and financial crashes, and possible wars as the Fed and central banks around the world are poised to reset. This time, however, the reset will either be completely global – including what is left of the country formerly known as America – or the United States will continue the Trump administration’s pull away from the central banking system. Election Day 2020 is the door to the next season. This blog has offered much information over the past two years on ways to stay mentally, physically, and spiritually healthy despite external circumstances. Please continue to take advantage of these helps and know that I am committed to being here for you and for our like-minded community.
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FDR created the foundation for socialism in the United States: https://www.politico.com/magazine/story/2019/08/16/democrats-socialism-fdr-roosevelt-227622