"inflation is an indispensable means of militarism."

The U.S. central bank, called the Federal Reserve, was created in 1913. No one promoted this institution with the slogan that it would make wars more likely and guarantee that nearly half a million Americans would die in battle in foreign lands, along with millions of foreign soldiers and civilians. No one pointed out that this institution would permit Americans to fund, without taxes, the destruction of cities abroad and overthrow governments at will. No one said that the central bank would make it possible for the U.S. to be at large-scale war in one of every four years for a full century. It was never pointed out that this institution would make it possible for the U.S. government to establish a global empire that would make Imperial Rome and Britain look benign by comparison.

You can line up 100 professional war historians and political scientists and talk about the twentieth century, and not one is likely to mention the role of the Fed in funding U.S. militarism. And yet it is true: the Fed is the institution that has created the money to fund the wars. In this role, it has solved a major problem that the state has confronted for all of human history. A state without money or a state that must tax its citizens to raise money for its wars is necessarily limited in its imperial ambitions. Keep in mind that this is only a problem for the state. It is not a problem for the people. The inability of the state to fund its unlimited ambitions is worth more for the people than every kind of legal check and balance. It is more valuable than all the constitutions ever devised.

The state has no wealth that is its own. It is not a profitable enterprise. Everything it possesses it must take from society in a zero-sum game. That usually means taxes, but taxes annoy people. They can destabilize the state and threaten its legitimacy. They inspire anger, revolt, and even revolution. Rather than risk that result, the state from the Middle Ages to the dawn of the central banking age was somewhat cautious in its global ambitions simply because it was cautious in its need to steal openly and directly from the people in order to pay its bills.

To be sure, it doesn't require a central bank for a state to choose inflation over taxes as a means of funding itself. All it really requires is a monopoly on the production of money. Once acquired, the monopoly on money production leads to a systematic process of depreciating the currency, whether by coin clipping or debasement or the introduction of paper money, which can then be printed without limit. The central bank assists in this process in a critical sense: it cartelizes the banking system as the essential conduit by which money is lent to the public and to the government itself. The banking system thereby becomes a primary funding agency to the state, and, in exchange for its services, the banking system is guaranteed against insolvency and business failure as it profits from inflation. If the goal of the state is the complete monopolization of money under an infinitely flexible paper-money system, there is no better path for the state than the creation of a central bank. This is the greatest achievement for the victory of power over liberty.

The connection between war and inflation, then, dates long before the creation of the Federal Reserve. In fact, in America, it dates to the colonial era, and to the founding itself. The fate of the Continental currency, printed massively during and after the Revolutionary war, for example, was a very bad omen for our future, and the whole country paid a very serious price. It was this experience that later led to the gold clause in the U.S. Constitution. Except for the Hamiltonians, that entire generation of political activists saw the unity of freedom and sound money, and regarded paper money as the fuel of tyranny.

Consider Thomas Paine: "Paper money is like dram-drinking, it relieves for a moment by deceitful sensation, but gradually diminishes the natural heat, and leaves the body worse than it found it. Were not this the case, and could money be made of paper at pleasure, every sovereign in Europe would be as rich as he pleased…. Paper money appears at first sight to be a great saving, or rather that it costs nothing; but it is the dearest money there is. The ease with which it is emitted by an assembly at first serves as a trap to catch people in at last. It operates as an anticipation of the next year's taxes."

But the wisdom of this generation, subverted by Lincoln, was finally thrown out during the Progressive Era. It was believed that an age of scientific public policy needed a scientific money machinery that could be controlled by powerful elites. The dawn of the age of central banking was also the dawn of the age of central planning, for there can be no government control over the nation's commercial life without first controlling the money. And once the state has the money and the banking system, its ambitions can be realized.

Before the creation of the Federal Reserve, the idea of American entry into the conflict that became World War I would have been inconceivable. In fact, it was a highly unpopular idea, and Woodrow Wilson himself campaigned on a platform that promised to keep us out of war. But with a money monopoly, all things seem possible. It was a mere four years after the Fed was invented under the guise of scientific policy planning that the real agenda became obvious. The Fed would fund the U.S. entry into World War I.

It was not only entry alone that was made possible. World War I was the first total war. It involved nearly the whole of the civilized world, and not only their governments but also the civilian populations, both as combatants and as targets. It has been described as the war that ended civilization in the 19th-century sense in which we understand that term. That is to say, it was the war that ended liberty as we knew it. What made it possible was the Federal Reserve. And not only the U.S. central bank; it was also its European counterparts. This was a war funded under the guise of scientific monetary policy.

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