to support Great Britain’s impracticalrnmonetary policy, it created credit again,rnproducing the boom that turned intornthe Great Depression, which in turnrngave us Franklin D. Roosevelt, the NewrnDeal, gold confiscation, the welfarernstate, and America’s entry into WorldrnWar II.rnThe final blow to sound money camernon August 15, 1971, when Richard M.rnNixon closed the “gold window” thatrnhad allowed foreign governments to redeemrntheir dollars for gold. A check onrncentral-bank discretion, this “window”rnwas the last link to the rule of law inrnmonetary affairs. Since then, the aftertax,rnafter-inflation income of the averagernAmerican family has fallen more thanrn19 percent. Said Leonid Brezhnev atrnthe time, “We are now witnessing thernbeginning of the devaluation of thernUnited States dollar,” and “the possibilityrnof a profound crisis of the capitalistrnsystem should not be excluded.”rnIn this saga of monetary destruction.rnGrant’s list of scoundrels is long. Onrnhis shorter list of heroes is John M. “OnernHundred Percent” Nichols, president ofrnthe First National Bank of Englewood,rnIllinois. During the bank runs of 1933,rnNichols had invited nervous depositorsrnto withdraw their money, since—truernto his nickname—his bank was 100 percentrnliquid, with a dollar in cash or readilyrnmarketable securities for every dollarrnon deposit. (Modern banks are inherentlyrnbankrupt and protected from defaultrnonly by a federal safety net.) “OnernHundred Percent” Nichols later called arnpress conference to write down publiclyrnthe value of the Federal Reserve Bankrnof Chicago stock he was obliged to hold.rnHe was supposed to value it at $24,000,rnbut said its real worth was ten cents. Hernalso refused to pay any assessments tornthe new FDIC, calling it a “damnablernpiece of political trickery.” In 1941, hernclosed his bank “for the duration of thernRoosevelt-concocted emergency,” arnpledge he had made during the 1940rnelection, and, in 1943, he spent $10,000rnto tear his headquarters building downrnrather than sell it, ordering the site coveredrnwith black soil for “an honorablernburial.” He felt that he could not bernboth a banker and an honest man underrnthe new regime.rnAnother hero is Sewell Avery, head ofrnMontgomery Ward and a self-madernman on what used to be the Americanrnmodel. A member of the Old Right, herndespised everything about the NewrnDeal: higher taxes, deficit spending, thernsocialist National Recovery Administration,rnand Roosevelt himself. But mostrnof all he hated the income tax, whichrnhe denounced, as Fortune noted, as “thernwork of Satan.” When Roosevelt tookrnover the Gontinental Illinois in 1933,rnusing one of Herbert Hoover’s proto-rnNew Deal agencies, the ReconstructionrnFinance Corporation, he installed thernfirst head of the FDIC as president.rnSewell Avery would have none of it andrnresigned from the board. During thernDepression, Avery saved MontgomeryrnWard through a combination of entrepreneurialrntalent and fiscal conservatism.rnBut fearing another depressionrnafter World War II, he refused to expandrnthrough debt. As a result, he lostrnmarket share to those companies thatrnhad their indebtedness wiped out byrnFederal Reserve inflation.rnIn 1944 Avery refused to sign arngovernment-imposed union contractrnthat would have resulted in the firing ofrnnonunion workers, so Roosevelt seizedrnthe company. Avery refused to leave andrnwas carried out of Ward’s headquartersrnby two Army MPs. “He was actuallyrnpicked up and carried out in his chair,”rnsaid Attorney General Francis Biddle, atrnwhom Avery had flung his worst insult,rn”You New Dealer!”rnAs Grant notes, “Avery awoke in thernmorning of postwar America on thernwrong side of the bed.” Business “facedrnnot a standard deflation but a newfangled,rnstate-sponsored inflation.” Becausernthe dollar would be depreciated, itrnwould pay to borrow and to repay inrncheaper money. Refusing to conform,rnAvery lasted until the 1950’s, when thern80-year-old man lost a proxy fight to thernyoung Louis E. Wolfson, who would gornon to fame and fortune—and jail—inrnthe new era.rnCentral banking is bad enough, butrndeposit insurance really wreaks havoc.rnFederal deposit insurance, the welfarernmeasure that did so much to help bringrnon the 1980’s, was first proposed in 1894rnby banker Charles G. Dawes, a futurernVice-President of the United States. Itrnwent nowhere, but in the Progressive Erarnsome of the states followed Dawes’ lead,rnstarting with Oklahoma in 1908. YetrnOklahoma’s plan folded in 1910 after arnlarge bank failure, and none of the othersrnwere successful either.rnWhy? Because it is impossible to insurerna bank, which is an entrepreneurialrnfirm. Insurance can only succeed with arnbroad class of similar policyholdersrn(homeowners, for example) whom companiesrnknow from actuarial tables willrnhave only a certain number of fires, burglaries,rnetc., each year. Firms chargernenough to cover these losses and make arnprofit. But one cannot buy insurancernagainst, for example, the natural marketrnuncertainties of the restaurant business,rnand, absent government intervention,rnno one will insure banks in this way.rnDeposit insurance, public or private, is arnpipedream, and therefore right up thernpolitician’s alley.rnIn 1913, a version of the Dawes planrnwas introduced in Congress, but SenatorrnJohn W. Weeks of Massachusettsrnhelped to defeat it. By adopting such arnsystem, he said, people would seek thernhighest return on their money withoutrnconsidering a bank’s soundness. Depositrninsurance would subsidize the riskiestrnbanks at the expense of the sound. Instead,rna person “should be taught to bernsolicitous for his own personal welfarernby keeping his eyes open and his mindrnexercised to protect his personal interests.”rnA “form of socialism” is no answer.rnBut it was, as usual, a solution forrnRoosevelt, who in the frenetic beginningrnof his New Deal established the FederalrnDeposit Insurance Corporation (now goingrnbust and creating a much biggerrnmess than the S&Ls).rnIt was, for example, the FDIC—combinedrnwith Reagan’s deregulation of therninsured S&Ls—that made “Monkeybrains”rnPatterson rich. In the earlyrn1980’s, Patterson, who earned his nicknamernin college, was head of a tiny shopping-rncenter bank in Oklahoma Cityrncalled Penn Square. There he wasrnknown for wearing Mickey Mouse ears,rnhowling like a hound dog, and gettingrnrich by making crazed oil patch loansrnand selling them to big banks like ContinentalrnIllinois. By the time PennrnSquare went under in 1982—not beingrnone of the 12 banks that Reagan’s Controllerrnof the Currency called “too bigrnto [be allowed to] fail”—Monkeybrainsrnand his friends were rolling in dough andrnPenn Square had palmed off more thanrn$1 billion worth of uncollectable loansrnon Continental Illinois.rnWhen the news got out, there was arnbank run on the Chicago institution.rnNot the old-fashioned sort, where worriedrncustomers line up at the door forrntheir money (which is never there, givenrnthe nature of fractional-reserve banking),rnbut an electronic run. Foreign cus-rnDECEMBER 1992/37rnrnrn