America's Money Machine

T o
25.
The New Deal and
the Federal Reserve
THE ECONOMIC HISTORIAN the phenomenon known as New
Deal offers fascinating excursions, but we must confine our attention
here to its relations with the Federal Reserve System.
One point may be made clear at once: without the Federal Reserve the
New Deal would not have been possible. Monetary management was the
core and the motor of the New Deal. The Federal Reserve provided the
mechanism by which money was managed. It also was the veil by which
these manipulations were concealed and given the illusion of normal
fiscal operations in the traditional convention. It permitted the Administration
to avoid the naked seizure and exercise of power. By filtering its
activities through the monetary fabric,· government retained the appearance
offunctioning within the historic private enterprise system. Thus,
government was nevercompelled to requisitionor sequester property for
its needs; it could always acquire it by purchase, since its means were
unlimited.
We do not say this· was by conscious design; rather it was the product
of a mixture of economic heresy and morbid fear of depression and
unemployment on the part of the public by which they demanded or
accepted whatever controls and mechanisms were recommended by the
experts.
As we have noted above, the early Roosevelt was attached to traditional
monetary and fiscal policy. During the campaign, in several of his
speeches, particularly in. the Western mining country; in Salt Lake City,
Butte, and Seattle, he had attacked Republican charges that Democratic