Day: October 13, 2025

Today, October 13, marks 100 years since Margaret Thatcher’s birth. First becoming prime minister in 1979, she led her British Conservative Party to three consecutive electoral victories, making her the longest-tenured resident of 10 Downing Street in the twentieth century. Her impact far exceeded her longevity, though, as she led transformative administrations fundamentally reconfiguring the politics and economics of her nation. The “postwar consensus,” which had seen government spending marching steadily upward and great swathes of industry nationalized, was comprehensively dismantled. Under Thatcher, Britain became a land of free markets and deregulation.

Disgust with socialism at home was matched by her opposition to communism abroad, rendering her a vocal Cold Warrior. Indeed, a hardline speech against Soviet behavior in 1975 led the Red Army’s propaganda paper to dismiss her with the nickname the “Iron Lady,” a moniker more accurate than they could have realized. By the time she left the global stage, most of her enemies within and without—trade union socialists, Argentinian generals, Soviet commissars—lay prostrate before her. Margaret Thatcher was arguably the most consequential female politician in the last century. Yet, as I chronicle in Forging the Iron Lady: Margaret Thatcher, the 1970s, and the Origins of Neoliberalism, her rise to national power and global prominence was both an unpredictable and unlikely outcome.

Her ascent must be understood in the times in which it occurred, for the United Kingdom in the 1970s was a mess. US Secretary of State Henry Kissinger lamented to President Gerald Ford, “Britain is a tragedy—it has sunk to begging, borrowing, and stealing until North Sea oil comes in.” Long-term economic underperformance against healthier continental countries like France and West Germany produced relative decline. Britain had become “the sick man of Europe.” The global economic downturn at the end of the postwar boom rendered these maladies far more acute, manifesting in rising inflation and industrial unrest.

Crisis followed upon crisis. Edward Heath’s Conservative government (1970–74) faced rampant industrial action, including a coal miners’ strike that shut down power generation and forced industry onto a three-day week. The “lights going out” remains an illuminative metaphor for the entire decade. The Conservatives ran on a manifesto implying a less interventionist, anti-collectivist approach. Faced with a sea of troubles, Heath reversed course—his “U-turns”—jacking up spending and subsidizing industry. It did him no good. Growth came, only to be wiped out by rising inflation (“stagflation”), and a second miners’ strike was called in 1974. To break that strike, Heath called a snap “Who governs Britain?” election, which he promptly lost.

His replacement, Harold Wilson and the Labour Party, fared little better. A “Social Contract” promising more government benefits to workers in exchange for industrial peace drove spending to its peacetime peak. Inflation soon followed, hitting 25 percent in 1975. The next year saw a financing crisis, necessitating an appeal to the IMF for an emergency loan. Labour, now led by Jim Callaghan, had to accept deep spending cuts. With each new calamity, the system seemed more paralytic; the country was becoming “ungovernable,” regardless of whether the Conservatives or Labour was in charge.

Economic crisis begets political opportunity. That Thatcher would emerge with the laurels, becoming Tory leader in 1975 and prime minister by 1979, would have been considered the longest of shots to any analyst at the start of the decade. A 1967 Sunday Times assessment of future party leaders put her odds at 1000-1. She entered Ted Heath’s Cabinet as Secretary of State for Education in 1970. However, education is not one of the great offices of state, and she remained largely invisible to most voters. Visibility came, albeit in an unwelcome manner, from tabloid-driven accusations of cruelly cutting school milk programs. She became a household name: “Margaret Thatcher, milk snatcher.”

Better opportunities eventually followed, and Thatcher made the most of them. With few skilled communicators among their front ranks, she was drafted to be a key spokesperson for the Conservatives’ October 1974 election campaign, bringing some life to an otherwise gloomy affair. Shortly thereafter, she was tapped to lead opposition to the government’s Finance Bill, where she combined detailed dissections of Labour’s economic proposals with rhetorical bravado. To Chancellor of the Exchequer Denis Healey, she declared: “Some chancellors are macroeconomic. Other chancellors are fiscal. This one is just plain cheap. … If this chancellor can be chancellor, anyone in this House of Commons could be chancellor!” Roars of approval arose from Tory backbench MPs, who finally saw somebody fighting back successfully after the disappointments of the Heath years.

Indeed, the greatest thing she had going for her was having Edward Heath as her opponent. Heath lost three out of the four elections as leader. It was time for him to go, a reality recognized by almost everyone. Except Ted Heath. His refusal to step aside forced a leadership campaign. It also froze many likely contenders, especially William Whitelaw, his most obvious replacement, who remained loyal to Heath and did not want to stand against him.

Heath’s caustic personality had long ago alienated many of his own MPs. Placating disgruntled MPs through patronage or promotion was a shabby political art he thought beneath him. Beyond the personal, sticking with Heath also meant continuing a technocratic, value-light, status quo-oriented politics he represented. Others were pitching a new approach of smaller taxes, reduced spending, and economic deregulation. That proved a more appealing offer to many Tory MPs.

Thatcher, however, was not the obvious alternative; that was Sir Keith Joseph, who had served alongside Thatcher in the previous government, where they bonded as political kindred spirits. Defeat set him to profound soul-searching, at the end of which he decided that he was not a conservative at all. He had acquiesced in the steady advance of socialism in the postwar years. His personal self-reflection also fell on his party, and the Heath Government in particular. Real change was needed. Through a well-publicized speech campaign in 1974, he laid out this critique and positioned himself as the voice of the discontented Tory right wing. Joseph, alas, went one speech too far, raising questions during a speech on social welfare as to the health of “our human stock,” a whiff of eugenics that scuttled his chances.

When Joseph informed Thatcher he was withdrawing from the leadership contest, she stepped in, “because someone who represents our viewpoint has to stand.” Even then, few saw her as a strong contender. The Economist described her as, “Precisely the sort of candidate that ought to be able to stand, and lose, harmlessly.” MP Airey Neave, who hated Heath with a burning intensity, organized a successful campaign playing on Heath’s failings among his colleagues and implying Thatcher did not have enough votes anyway, so why not send Ted a message? It worked perfectly. She ousted him in the first round and then fended off other challengers in the second. In February 1975, Margaret Thatcher became the first woman leader of any major UK political party.

Winning the leadership did not mean she had full control over the party. The majority of the Shadow Cabinet were One Nation Tory moderates like Jim Prior and Ian Gilmour, who were closer to Heath, and her position as leader was insufficiently secure to see them off. Tory moderates believed the postwar consensus and the drift toward bigger government were simply the reality to which the party must adapt. Nor did they see the prior Conservative government as a failure. Heath had a run of bad luck and misguidedly tried to challenge the unions. Court the moderate voters who defected to the Liberals in 1974, and they would be back in office in no time. The party needed to be offering comforting words, assurances of stability, not fire-breathing radicalism.

Thatcher and her allies, however, believed they had no choice; continuing the status quo meant further decline. Divisions within the party proved a roadblock to the articulation of new policies. On the most pressing issues of that decade—how to fight inflation and how to handle the unions—the moderates and Thatcherites fought for several years to a draw. The major policy documents of the time were studies in obfuscation.

Success came by bringing outsiders into the discussion, mainly via the Centre for Policy Studies, a think tank established by Joseph. Among the most important of these were John Hoskyns and Norman Strauss, authors of the “Stepping Stones” strategy. Winning the next election, they argued, was not enough; the Conservatives had to induce a “sea-change in Britain’s political economy.” Voters had to reject socialism and support transformative regeneration, which meant grappling with the main obstacle to economic reform: the unions.

The party establishment thought all of this was dangerous nonsense. Chairman Peter Thorneycroft ordered that every copy of “Stepping Stones” be burned. Thatcher, Joseph, and crucially Whitelaw, supported it; on the other hand, these ideas were woven into Conservative policy, providing focus and clarity when events eventually broke their way.

Break their way they did with the “Winter of Discontent,” the wave of strikes sweeping the country in 1978–79. The Callaghan Government combatted inflation through an incomes policy, seeking to hold wage growth below inflation. With real wages declining for several years, workers finally rebelled. Strike followed upon strike throughout a frigid winter, the inconveniences, disruptions, and misery piling up upon the public. Petrol ran out, food went undelivered, hospitals shut down, bodies went unburied, and, yet again, the lights went out. Callaghan’s government also froze, unable to formulate a coherent response to the chaos.

The political space for transformative politics was thus opened. Thatcher could now properly articulate her vision, moving her party definitively to the right and taking a much harder line against the unions. Politics in the ‘70s dismayed so many because so many leaders seemed incapable of managing the nation’s problems. Voters saw in Thatcher a firm hand on the tiller. By the spring of 1979, the next election was never really in doubt.

At multiple points in this narrative, Thatcher’s advance could have been easily halted, reducing her to a historical footnote. She might have been booted from office over the “milk snatcher” row, condemned to rebuild her position from the backbenches. Had Heath more self-awareness, he might have voluntarily stepped aside to allow one of his favored alternatives to become leader. Had Joseph been more reserved in his rhetoric, he would have been the one to challenge Heath. Had Jim Callaghan called for an election before the “Winter of Discontent,” which he seriously contemplated, the Conservatives might well have lost, and Thatcher would have been unlikely to remain leader.

We know, of course, this is not how the story ends. During the 1970s, through the interplay of events and opportunities, Margaret Thatcher changed from being an improbable national leader to her taking her first steps in becoming the Iron Lady of our historical imagination. However, this is not a tale of mere chance and good fortune. Thatcher rightfully remains the central figure by putting herself into a position to take advantage of chances when they arose, actually earning the nickname the Soviets had already gifted her by demonstrating courage and conviction in situations of genuine political danger. At the same time, she was also a skilled pragmatist, conceding when she could not win, all the while not losing sight of the goal.

Thatcher tempered her remarkable courage and conviction with patience and persistence. The chaotic ‘70s created political opportunities for many politicians, but faced with crises, others crumbled where Thatcher did not. She possessed the skill, acumen, and resolve needed to take advantage of the moment and assert control, leading her into Downing Street and on the path to great accomplishments.

Article I of the Constitution grants Congress the power to “coin money and regulate the value thereof.” The Supreme Court has ruled that this power is exclusive and that Congress “may constitutionally secure the benefit of it to the people by appropriate legislation, and to that end may restrain, by suitable enactments, the circulation of any notes, not issued under its own authority,” including taxing the circulation of such notes.

The GENIUS Act of 2025 creates a new electronic pseudo-currency—payment stablecoins. Stablecoins are instruments that can be used to make payments at distance over the Internet and circumvent the need and expense of using banks and their payment systems. In many respects, the GENIUS Act stablecoins resemble banknotes issued by state-chartered banks that circulated as currency until the 1860s.

Until the passage of the GENIUS Act, Congress has, either directly or indirectly, taxed the circulation of notes issued by for-profit businesses that were commonly used as currency. Congress has the authority to tax stablecoins, and to tax them out of existence should a future Congress determine that such an action is in the national interest.

The GENIUS Act breaks with the longstanding congressional tradition of taxing currency issued by for-profit enterprises. Not only does the Act fail to tax the digital currency of for-profit stablecoin issuers, but the Act also fails to grant stablecoin regulatory agencies the power to impose fees on stablecoin issuers to defer the expense of stablecoin federal supervision and regulation.

This break from tradition has received little or no public attention. This essay reviews the historical record regarding the congressional delegation of its exclusive power to “coin money and regulate the value thereof” and contrasts this history with the provisions of the GENIUS Act.

The 2025 GENIUS Act and Stablecoins

The GENIUS Act defines a stablecoin as a digital asset that trades on a public distributed ledger that is designed to facilitate payments. Stablecoins are prohibited from paying interest. The law requires that stablecoins be redeemable for national currency, but states that stablecoins are not a national currency, a bank deposit, or a security. The Act is explicit in saying that a stablecoin issuer may not “market a payment stablecoin in such a way that a reasonable person would perceive the payment stablecoin to be—(I) legal tender, as described in section 5103 of title 31, United States Code.” And yet the Act also seemingly implies that GENIUS Act stablecoins can be accounted for and used as a cash equivalent in a host of financial transactions:

A payment stablecoin that is not [emphasis added] issued by a permitted payment stablecoin issuer shall not be—(1) treated as cash or as a cash equivalent for accounting purposes; (2) eligible as cash or as a cash equivalent margin and collateral for futures commission merchants, derivative clearing organizations, broker-dealers, registered clearing agencies, and swap dealers; or (3) acceptable as a settlement asset to facilitate wholesale payments between banking organizations or by a payment infrastructure to facilitate exchange and settlement among banking organizations.

While not explicitly a “national currency,” a GENIUS Act stablecoin seemingly can be treated as if it is a national currency in financial statements and many transactions.

A stablecoin issuer must hold, at a minimum, dollar-for-dollar reserves in Federal Reserve district bank deposits, bank deposits, very short-term government securities, or mutual fund shares that hold the equivalent thereof. These reserves provide the stablecoin issuer with interest income, back the issuer’s outstanding stablecoins, and “create the reasonable expectation” that the stablecoin will maintain a stable dollar redemption value. The stablecoin issuer must provide monthly public reports on the composition of its stablecoin reserves, which periodically must be audited by a licensed public accounting firm.

The Act directs federal bank regulatory agencies to draft and issue chartering, safety and soundness, and anti-money laundering rules and regulations for stablecoin issuers. The Act does not appropriate any funds to defer the cost of issuing and enforcing stablecoin regulations. Nor does the Act impose any examination fees or franchise taxes on stablecoin issuers, or delegate the authority to impose such fees or taxes to federal regulatory agencies.

The Historical Delegation of Congressional Power to Coin Money

In 1791, President George Washington signed an act that created the first Bank of the United States. Each of the bank’s eight branches issued banknotes that were redeemable for “legal money”—gold and silver coins and specie—at the issuing branch. Its banknotes functioned as national currency and were accepted as payment for all federal taxes. The Treasury initially retained a 20 percent interest in the bank but later sold its shares. In total, the Treasury earned over $1.1 million in dividend income on its shares and a capital gain of $671,860 when it sold its shares.

The War of 1812 reduced the federal government’s tariff revenues, forcing the Treasury to issue bonds. The Bank of the United States’ charter expired in 1811, leaving the Treasury without a fiscal agent to market a bond issue. The Act for a National Bank created the second Bank of the United States in part to act as the Treasury’s fiscal agent. The bank’s 25 branches issued banknotes, redeemable for specie on demand, that were used as currency in commercial transactions and were accepted as payment for federal taxes, customs duties, and federal land sales. In creating the bank, Congress retained a 20 percent interest for the Treasury. In addition to dividend income on its shares, the Act required the bank to pay Treasury $1.5 million, “in consideration of the exclusive privileges and benefits conferred by this act.”

Until Congress created National Bank Notes in the mid-1860s, banknotes of state-chartered banks functioned as currency but were not recognized by Congress as legal tender. State banknotes promised redemption in gold or silver when presented at the issuing bank. However, unless the bank was chartered in a state that had an insurance scheme, the promise was not backed by a state government guarantee.

Banknotes issued by state-chartered institutions were commonly accepted for payment in commercial transactions in lieu of federally designated forms of legal money, but typically were valued at a discount from their par value. The par value discount varied based on the distance from, and the perceived credit standing of, the bank that issued the banknote. These discounts were widely believed to discourage interstate commerce.

GENIUS Act stablecoins closely resemble state-chartered banknotes. Neither is recognized as a national currency, yet both promise redemption at par value in national currency. Neither instrument’s redemption promise is guaranteed by the federal government. State-chartered banknotes were commonly traded at a discount from par value, and so may GENIUS Act stablecoins.

The Legal Tender Act of 1863 imposed a tax on all circulating state-chartered banknotes equal to a tax Congress had imposed on National Bank Notes. The National Banking Act of 1864 imposed an additional tax of 10 percent on the value of state-chartered banknotes paid out by any bank. The latter Act effectively taxed state banknotes out of circulation.

In 1863, Congress also passed the National Bank Act, which created the Office of the Comptroller of the Currency (OCC) and empowered it to charter national banks—privately owned for-profit entities that were required to issue National Bank Notes. National banks had to purchase and deposit specific interest-bearing Treasury bonds with the Treasury and, in return, received National Bank Notes. A bank was required to maintain the market value of its Treasury bond collateral on deposit above 111 percent of the value of National Bank Notes it had been issued. By design, National Bank Note issuance was a profitable business. Banks earned interest (6 percent in 1863) on the bonds they deposited with the Treasury, and National Bank Notes did not pay interest.

National Bank Notes circulated at par because the notes were required to be redeemable in specie at par by the issuing bank, and the Treasury was empowered to liquidate the collateral on deposit and use the proceeds to redeem National Bank Notes of banks that failed or suspended specie redemptions. National Bank Notes could be used to satisfy all debts except federal customs duties or interest payments on Treasury debt.

In return for the delegated power to issue a national currency, Congress imposed a franchise tax on circulating National Bank Notes:

Such associations authorized under this act shall, semi-annually, … pay to the comptroller of the currency, in lawful money of the United States, one per centum on the amount of circulating notes received by such association.

Congress adjusted the collateral requirements and franchise tax on National Bank Notes over time to reflect changes in the interest rates on Treasury bond collateral and ensure note issuance remained profitable. For example, the Gold Standard Act of 1900 lowered the franchise tax and increased the allotment for National Bank Notes issued (from 90 percent to 100 percent) on notes collateralized with 2-percent Treasury bonds.

From National Bank Notes to Federal Reserve Notes

In the wake of the Panic of 1907, Congress passed the Aldrich-Vreeland Act, which empowered the secretary of treasury to authorize the issuance of emergency temporary National Bank Notes and created the National Monetary Commission “to examine the United States monetary policy, evaluate alternative monetary regimes, and recommend a course for monetary policy going forward.” The findings of the commission were influential in discussions of banking system reforms that culminated in the creation of the Federal Reserve System. 

The Act authorized the creation of emergency National Bank Notes that were collateralized by assets other than Treasury bonds, but “should be treated in the same way” as National Bank Notes. The Act imposed a franchise tax rate on outstanding notes that increased each month after issuance to ensure that, once issued, the notes would be quickly withdrawn from circulation. The 1914 outbreak of World War I created a specie shortage. Treasury Secretary William Gibbs McAdoo authorized the issuance of this emergency currency, which helped avert a financial crisis. The notes were quickly retired from circulation.

The Federal Reserve Act of 1913 created a new national currency, Federal Reserve Notes. Designed to replace National Bank Notes, Federal Reserve Notes were issued by the twelve Federal Reserve district banks created by the 1913 Act. According to the Act,

Said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues.

The 1913 Federal Reserve Act includes an explicit franchise tax on district banks’ earnings assessed for the express privilege of providing this new national currency:

After all necessary expenses of a Federal reserve bank have been paid or provided for, the stockholders shall be entitled to receive an annual dividend of six per centum on the paid-in capital stock, … all the net earnings shall be paid to the United States as a franchise tax, except that one-half of such net earnings shall be paid into a surplus fund until it shall amount to forty per centum of the paid-in capital stock of such bank.

The Victory Liberty Loan Act of March 1919 allowed district banks to keep all net earnings after dividends and expenses until their surplus account equaled their subscribed capital, after which district banks were required to pay 90 percent of their net earnings to the US Treasury.

The Glass-Steagall Act of 1933 created the Federal Deposit Insurance Corporation and capitalized it by requiring each Federal Reserve district bank to subscribe to FDIC shares in an amount equal to half of the bank’s surplus account. The shares had no voting rights and did not pay dividends. In return, Congress eliminated the Fed’s franchise tax on net earnings. Yet, as the Federal Reserve Board’s 1933 annual report explained, the change had little practical importance, because, “the investment of $139,000,000 of their surplus in the stock of the Federal Deposit Insurance Corporation reduced the surplus to a point where it would have taken a considerable number of years to bring that surplus up to 100 percent of the subscribed capital.” Congress retired the FDIC’s stock in 1947 and directed the FDIC to cancel Fed district banks’ Class B shares and return the invested funds to the Treasury.

In 1934, Congress passed the Industrial Advances Act which created Federal Reserve Section 13(b) powers that allowed district banks to make working capital loans to industrial and commercial businesses that were unable to secure credit on a reasonable basis from normal sources. To fund these loans, Congress directed the Treasury to loan to each district bank an amount equal to the surplus funds Congress had taken from it the prior year. District banks were required to remit to the Treasury 2 percent interest on these loans.

In 1947, the Federal Reserve Board voluntarily reinstated a franchise tax on Federal Reserve Note issuance by resuming the practice of remitting 90 percent of district bank net earnings after dividends to the Treasury. The policy was designed to preempt Congress from reimposing a franchise tax in legislation and to facilitate the Fed’s plan to increase short-term interest rates, since, with the franchise tax, the majority of any increase in Fed profits would accrue to the Treasury. The Fed maintained its self-imposed franchise tax policy until 1996.

Beginning in the 1990s, a series of congressional appropriation bills indirectly taxed Federal Reserve district banks by limiting the surplus balances district banks were allowed to accumulate or by mandating specific remittance payments to the Treasury. These bills, which include the Omnibus Budget Reconciliation Act of 1993, the omnibus spending bill of 1999, the 2015 “FAST Act,” the Bipartisan Budget Act of 2018, and the “Economic Growth, Regulatory Relief, and Consumer Protection Act” of 2018, imposed decreasing limits on the system’s consolidated surplus account balance and required excess surplus balances and earnings to be remitted to the Treasury.

On a consolidated basis, the twelve Federal Reserve district banks have had negative net earnings since early September 2022. However, it is the net earnings after dividend payments of each individual district bank and the bank’s maximum legal surplus that determines whether a district bank remits net earnings to the Treasury.

As of September 24, 2025, two district banks, Atlanta and St. Louis, still have positive net earnings after dividend payments and remit earnings to the US Treasury. The other ten Federal Reserve district banks have negative net earnings and will likely continue posting losses for several years. The CBO estimates that these banks are unlikely to recover their accumulated losses and resume making remittances to the Treasury until sometime after 2030.

Precedent and the GENIUS Act

The GENIUS Act breaks over 200 years of congressional precedent by delegating congressional authority to “coin money and regulate the value thereof” to private enterprises that will profit by issuing a new currency without imposing a franchise tax on the new currency. Moreover, the GENIUS Act does not appropriate funds to defer the bank regulatory agencies’ costs incurred to draft and issue the new regulations mandated by law. Nor does the Act impose fees on private stablecoin issuers to defer ongoing supervisory costs. If the cost of bank supervision is any guide, the cost of stablecoin supervision and regulation is likely to be substantial.

The Constitution vests Congress with the power to collect seigniorage profits from its exclusive right to determine the coin of the realm. Congress spent considerable time debating and exercising this power by imposing franchise taxes on banknotes issued by state and national banks, as well as on the issuance of Federal Reserve Notes. To the best of my knowledge, however, there was no public discussion of these issues as Congress debated the provisions of the GENIUS Act.

Are the unusual benefits accorded stablecoin issuers the result of an unintended legislative oversight, or did Congress intentionally award the stablecoin industry the total seigniorage profits, at least a part of which should accrue to taxpayers? Is the GENIUS Act a reflection of congressional genius, or did industry lobbyists just pull off the Great Stablecoin Heist of 2025?