The stock market crash in 1929 provides an excellent example of how an emergency or crisis can be used to revolutionize a society permanently and destroy liberty and well-being in the process.

Contrary to popular myth, especially among public (i.e., government) schoolteachers and professors in state-supported colleges and universities, the 1929 stock market crash did not demonstrate the “failure of America’s free enterprise system.” That was the official line at the time and has remained the official line ever since. But it’s been a lie or at least false propaganda the entire time.

The stock-market crash was caused by the Federal Reserve, which was a governmental agency charged with centrally planning the nation’s monetary system.

From the time the Constitution called the federal government into existence in the early 1790s until 1913, there was no Federal Reserve. The Fed was established in 1913, around 16 years before the 1929 crash.

America’s gold-coin, silver-coin monetary system

Up until President Franklin Roosevelt’s regime in the 1930s, the United States had a monetary system that was based on gold coins and silver coins. That had been the official money of the American people for more than century.

That’s what the Constitution called for. The Constitution gave the federal government the power to coin money. It did not give the federal government the power to print money. It also expressly prohibited the states from making anything but gold and silver legal tender, i.e., official money.

The Constitution also gave the federal government the power to borrow money. When the government issued debt instruments, they were written in terms of promises to pay gold coin or silver coin.

The government had to be careful not to issue too many debt instruments because there was always the chance that people might come in and demand to be paid. If they over-issued debt instruments, they wouldn’t have enough gold or silver coins to pay off everyone.

Thus, the federal government was severely constrained with respect to its spending habits. If it wanted to spend money, it had to raise the money through taxation. And since there was no income tax, it was unable to raise large sums of money from the American people. And the gold-coin, silver-coin system precluded officials from simply printing up the money.

The Federal Reserve and the 1929 crash

U.S. intervention into World War I occurred just a few years after the Federal Reserve was established. During the war and then into the “Roaring 20s,” the Fed overissued its supply of debt instruments. Realizing the risk that federal debt-holders were going to come in and demand their gold and salver, the Fed panicked and over-contracted the money supply. That’s what brought about the stock-market crash in 1929.

If people had known that the federal government had caused the crash, there might well have been violent riots in the streets. After all, people lost fortunes, which even motivated some of them to commit suicide. At the same time, the country was thrown into a massive economic depression, which later became known as the Great Depression.

That’s why officialdom had to sell the crisis as one involving the “failure of America’s free-enterprise system.” They were too fearful of what people might do if they knew the truth.

Revolutionizing America’s monetary system

Thus, when Roosevelt came into office in 1933, it was with the idea of “saving free enterprise” with “free-market reforms.” In actuality, what Roosevelt did was totally revolutionize America’s economic system into something that was the precise opposite of “free enterprise.”

He nationalized the gold holdings of the American people, which was no different from what the communists were doing in the Soviet Union and China and what communists would later do in Cuba. He issued an “emergency” order commanding every American to deliver his gold coins to the federal government, which would give him, in return, Federal Reserve notes that were promises to pay nothing. If anyone refused, he was hit with a federal criminal indictment and prosecution.

Roosevelt’s decree not only destroyed America’s monetary system, it also nullified the Constitution. Why is that important? Because the Constitution is the higher law that the American people imposed on federal officials. The president and the Congress have no authority to nullify or amend the higher law. The only way to do that is by following the procedure for constitutional amendment outlined in the institution itself.

But this was an “emergency” — an economic emergency — and as we all know, people become very afraid during emergencies — so afraid that they were willing, even eager, to trade away their freedom for the aura of “safety” and “security.” Thus, when Roosevelt revolutionized America’s monetary system by destroying the system that had been established by the Constitution, most Americans meekly went along with it.

Paper money now became the official money of the United States, without even the semblance of a constitutional amendment. Even though the Great Depression ended decades ago, FDR’s paper money standard continues to exist today, along with ever-increasing economic and monetary chaos and crises.

That’s not all.

The welfare-state revolution

When the federal government was called into existence, there was no income tax or IRS. People were free to keep everything they earned and decide for themselves what to do with it. That system lasted until 1913 — the same year the Fed was established — with the adoption of a federal income tax.

Roosevelt then used the economic emergency to convert the federal government into what is now known as a “welfare state,” a type of system in which people are forced to be good and caring to others. That was when Social Security was called into existence, a concept that had originated among socialists in Germany in the late 1800s.

Social Security was never based on the concept of a retirement fund into which people “contributed” their money during the work lives. It was always nothing more than a welfare program for seniors, one that was based on the concept of coerced charity. The IRS forcibly took money from younger people and distributed it to seniors, under the guise of “care and compassion” and paternalistic government.

Even though the economic emergency of the Great Depression turned out to be temporary, Social Security became a permanent part of American life. It is still with us today, along with countless other welfare-state programs.


Roosevelt also used the economic crisis to revolutionize American business and industry. That’s what his National Industrial Recovery Act was all about. The NIRA placed business and industry into cartels and gave them the power to set their own prices and wages, labor conditions, and production of goods.

The NIRA was a system based on the concept of economic fascism. It would have fit perfectly in the fascist regime of Italian dictator Benito Mussolini. To ensure compliance with his new system, FDR employed a propaganda poster called the Blue Eagle, which could have been taken straight out of Mussolini’s fascist playbook and which American businesses were “persuaded” to display in their stores.

One day, the U.S. Supreme Court declared FDR’s fascist NIRA unconstitutional, which meant that the Framers had not intended to call into existence a government based on fascist principles. Interestingly, the Court’s ruling brought about an immediate resurgence of economic activity.

FDR’s infamous court-packing scheme

FDR also tried to used the economic emergency to revolutionize the federal judiciary. Angered over the Supreme Court’s ruling declaring his NIRA and other parts of his New Deal unconstitutional, Roosevelt came up with a plan to pack the Court with his cronies, so that the rest of his revolutionary legislation would be upheld.

Interestingly, this was the one time during the emergency that the American people rose up in unison against FDR. People were simply unwilling to permit the president to tamper with their federal judicial system. Roosevelt’s court-packing scheme went down to ignoble defeat.

So, at least we were spared having to live under a fascist NIRA and under FDR’s corrupt court-packing scheme. Unfortunately, we are still saddled with a massive income tax and a tyrannical IRS, an enormous welfare state, an ever-growing warfare state, and a Federal Reserve that continues producing economic chaos and monetary destruction.

See what emergencies can do to people’s liberty and well-being?

Jacob Hornberger
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