The classical gold standard would have been an insurmountable obstacle to such heedless spending of the people's savings. This is why politicians and officials passionately disparage and decry it as a relic of the distant past. Their deus ex machina which resolves any financial difficulty is the Fed. The great popularity of the Fed rests not only on its multifarious functions as economic regulator and lender of last resort but also on thorough public indoctrination by the academic community. To inquire into the history of any institution is to search for the doctrines and theories that guide the policy makers.
Ideas control the world, and monetary ideas shape monetary institutions.
Most American colleges teach various systems of economic thought which place the Federal Reserve System in the center of their economic universe. Most professors of economics merely recite the doctrines and theories offered by the most famous and influential economist of the 20th century, John Maynard Keynes. Unemployment and depression, according to Keynes, are the result of inadequate effective demand. Therefore, government must apply monetary and fiscal policy to increase aggregate demand. The central bank must increase the nominal amount of money, which causes interest rates to fall, investments to increase, and income to rise.