SECRETS OF THE FEDERAL RESERVE
The London Connection
By Eustace Mullins
World War One
"Money is the worst of all contraband."--William Jennings Bryan
It is now apparent that there might have been no World War without the Federal Reserve System. A strange sequence of events, none of which were accidental, had occurred. Without Theodore Roosevelt’s "Bull Moose" candidacy, the popular President Taft would have been reelected, and Woodrow Wilson would have returned to obscurity.* If Wilson had not been elected, we might have had no Federal Reserve Act, and World War One could have been avoided. The European nations had been led to maintain large standing armies as the policy of the central banks which dictated their governmental decisions. In April, 1887, the Quarterly Journal of Economics had pointed out:
"A detailed revue of the public debts of Europe shows interest and sinking fund payments of
$5,343 million annually (five and one-third billion). M. Neymarck’s conclusion is much like Mr.
Atkinson’s. The finances of Europe are so involved that the governments may ask whether war,
with all its terrible chances, is not preferable to the maintenance of such a precarious and costly
peace. If the military preparations of Europe do not end in war, they may well end in the
bankruptcy of the States. Or, if such follies lead neither to war nor to ruin, then they assuredly
point to industrial and economic revolution."
From 1887 to 1914, this precarious system of heavily armed but bankrupt European nations endured, while the United States continued to be a debtor nation, borrowing money from abroad, but making few international loans, because we did not have a central bank or "mobilization of credit". The system of national loans developed by the Rothschild's served to finance European struggles during the nineteenth century, because they were spread out over Rothschild branches in several countries. By 1900, it was obvious that the European countries could not afford a major war. They had large standing armies, universal military service, and modern weapons, but their economies could not support the enormous expenditures. The Federal Reserve System began operations in
*NOTE: P.34. "House revealed to me in a confidential moment, ‘Wilson was elected by Teddy Roosevelt.’" The Strangest Friendship in History, Woodrow Wilson and Col. House, George Sylvester Viereck, Liveright, N.Y. 1932
1914, forcing the American people to lend the Allies twenty-five billion dollars which was not repaid, although considerable interest was paid to New York bankers. The American people were driven to make war on the German people, with whom we had no conceivable political or economic quarrel. Moreover, the United States comprised the largest nation in the world composed of Germans; almost half of its citizens were of German descent, and by a narrow margin, German had been voted down as the national language.* The German Ambassador to Turkey, baron Wangeheim asked the American Ambassador to Turkey, Henry Morgenthau, why the United States intended to make war in Germany. "We Americans," replied Morgenthau, speaking for the group of Harlem real estate operators of which he was the head, "are going to war for a moral principle." J.P. Morgan received the proceeds of the First Liberty Loan to pay off $400,000,000 which he advanced to Great Britain at the outset of the war. To cover this loan, $68,000,000 in notes had been issued under the provisions of the Aldrich-Vreeland Act for issuing notes against securities, the only time this provision was employed. The notes were retired as soon as the Federal Reserve Banks began operation, and replaced by Federal Reserve Notes.
During 1915 and 1916, Wilson kept faith with the bankers who had purchased the White House for him, by continuing to make loans to the Allies. His Secretary of State, William Jennings Bryan, protested constantly, stating that "Money is the worst of all contraband." By 1917, the Morgans and Kuhn, Loeb Company had floated a billion and a half dollars in loans to the Allies. The bankers also financed a host of "peace" organizations which worked to get us involved in the World War. The Commission for Relief in Belgium manufactured atrocity stories against the Germans, while a Carnegie organization, The League to Enforce Peace, agitated in Washington for our entry into war. This later became the Carnegie Endowment for International Peace, which during the 1940s was headed by Alger Hiss. One writer* claimed that he had never seen any "peace movement" which did not end in war.
The U.S. Ambassador to Britain, Walter Hines Page, complained that he could not afford the position, and was given twenty-five thousand dollars a year spending money by Cleveland H. Dodge, president of the National City Bank. H.L. Mencken openly accused Page in 1916 of being a British agent, which was unfair. Page was merely a bankers’ agent.
On March 5, 1917, Page sent a confidential letter to Wilson. "I think that the pressure of this approaching crisis has gone beyond the ability of the Morgan Financial Agency for the British and French Govern-
* 1787 Constitutional Convention
* NOTE: Emmett Tyrell, Jr., Richmond Times Dispatch, Feb. 15, 1983 "Every peace movement of this century has been followed by war."
ments . . . The greatest help we could give the Allies would be a credit. Unless we go to war with Germany, our Government, of course, cannot make such a direct grant of credit."
The Rothschilds were wary of Germany’s ability to continue in the war, despite the financial chaos caused by their agents, the Warburgs, who were financing the Kaiser, and Paul Warburg’s brother, Max, who, as head of the German Secret Service, authorized Lenin’s train to pass through the lines and execute the Bolshevik Revolution in Russia. According to Under Secretary of the Navy, Franklin D. Roosevelt, America’s heavy industry had been preparing for war for a year. Both the Army and Navy Departments had been purchasing war supplies in large amounts since early in 1916. Cordell Hull remarks in his Memoirs:
"The conflict forced the further development of the income-tax principle. Aiming, as it did, at the
one great untaxed source of revenue, the income-tax law had been enacted in the nick of time to
meet the demands of the war. And the conflict also assisted the putting into effect of the Federal
Reserve System, likewise in the nick of time."70
One may ask, in the nick of time for whom? Certainly not for the American people, who had no need for "mobilization of credit" for a European war, or to enact an income tax to finance a war. Hull’s statement affords a rare glimpse into the machinations of our "public servants".
The Notes of the Journal of Political Economy, October, 1917, state:
"The effect of the war upon the business of the Federal Reserve Banks has required an immense
development of the staffs of these banks, with a corresponding increase in expenses. Without, of
course, being able to anticipate so early and extensive a demand for their services in this
connection, the framers of the Federal Reserve Act had provided that the Federal Reserve Banks
should act as fiscal agents of the Government."
The bankers had been waiting since 1887 for the United States to enact a central bank plan so that they could finance a European war among the nations whom they had already bankrupted with armament and "defense" programs. The most demanding function of the central bank mechanism is war finance.
On October 13, 1917, Woodrow Wilson made a major address, stating:
"It is manifestly imperative that there should be a complete mobilization of the banking reserves
of the United States. The burden and the privilege (of the Allied loans) must be shared by every
banking institution in the country. I believe that cooperation on the part of the banks is a patriotic
duty at this time, and that membership in the Federal Reserve System is a distinct and
significant evidence of patriotism."
70 Cordell Hull, Memoirs, Macmillan, New York, 1948, v. 1, page 76
E.W. Kemmerer writes that "As fiscal agents of the Government, the federal reserve banks rendered the nations services of incalculable value after our entrance into the war. They aided greatly in the conservation of our gold resources, in the regulation of our foreign exchanges, and in the centralization of our financial energies. One shudders when he thinks what might have happened if the war had found us with our former decentralized and antiquated banking system."
Mr. Kemmerer’s shudders ignore the fact that if we had kept "our antiquated banking system" we would not have been able to finance the World War or to enter as a participant ourselves.
Woodrow Wilson himself did not believe in his crusade to save the world for democracy. He later wrote that "The World War was a matter of economic rivalry."
On being questioned by Senator McCumber about the circumstances of our entry into the war, Wilson was asked, "Do you think if Germany had committed no act of war or no act of injustice against our citizens that we would have gotten into this war?"
"I do think so," Wilson replied.
"You think we would have gotten in anyway?" pursued McCumber.
"I do," said Wilson.
In Wilson’s War Message in 1917, he included an incredible tribute to the Communists in Russia who were busily slaughtering the middle class in that unfortunate country.
"Assurance has been added to our hope for the future peace of the world by the wonderful and
heartening things that have been happening in the last few weeks in Russia. Here is a fit partner
for a League of Honor."71
Wilson’s paean to a bloodthirsty regime which has since murdered sixty-six million of its inhabitants in the most barbarous manner exposes his true sympathies and his true backers, the bankers who had financed the blood purge in Russia. When the Communist Revolution seemed in doubt, Wilson sent his personal emissary, Elihu Root, to Russia with one hundred million dollars from his Special Emergency War Fund to save the toppling Bolshevik regime.
The documentation of Kuhn, Loeb Company’s involvement in the establishment of Communism in Russia is much too extensive to be quoted here, but we include one brief mention, typical of the literature on this subject. In his book, Czarism and the Revolution, Gen. Arsene de Goulevitch writes,
71 Public Papers of Woodrow Wilson, Dodd & Baker, v.5, p. 12-13
"Mr. Bakmetiev, the late Russian Imperial Ambassador to the United States, tells us that the
Bolsheviks, after victory, transferred 600 million roubles in gold between the years 1918-1922 to
Kuhn, Loeb Company."
After our entry into World War I, Woodrow Wilson turned the government of the United States over to a triumvirate of his campaign backers, Paul Warburg, Bernard Baruch and Eugene Meyer. Baruch was appointed head of the War Industries Board, with life and death powers over every factory in the United States. Eugene Meyer was appointed head of the War Finance Corporation, in charge of the loan program which financed the war. Paul Warburg was in control of the nation’s banking system*.
Knowing that the overwhelming sentiment of the American people during 1915 and 1916 had been anti-British and pro-German, our British allies viewed with some trepidation the prominence of Paul Warburg and Kuhn, Loeb Company in the prosecution of the war. They were uneasy about his high position in the Administration because his brother, Max Warburg, was at that time serving as head of the German Secret Service. On December 12, 1918, the United States Naval Secret Service Report on Mr. Warburg was as follows:
"WARBURG, PAUL: New York City. German, naturalized citizen, 1911. was decorated by the
Kaiser in 1912, was vice chairman of the Federal Reserve Board. Handled large sums furnished
by Germany for Lenin and Trotsky. Has a brother who is leader of the espionage system of
Strangely enough, this report, which must have been compiled much earlier, while we were at war with Germany, is not dated until December 12, 1918. AFTER the Armistice had been signed. Also, it does not contain the information that Paul Warburg resigned from the Federal Reserve Board in May, 1918, which indicates that it was compiled before May, 1918, when Paul Warburg would theoretically have been open to a charge of treason because of his brother’s control of Germany’s Secret Service.
Paul Warburg’s brother Felix in New York was a director of the Prussian Life Insurance Company of Berlin, and presumably would not have liked to see too many of his policyholders killed in the war. On September 26, 1920, The New York Times mentioned in its obituary of Jacob Schiff in reference to Kuhn, Loeb and Company, "During the world War certain of its members were in constant contact with the Government in an advisory capacity. It shared in the conferences which were held regarding the organization and formation of the Federal Reserve System."
* NOTE: New York Times, August 10, 1918; "Mr. (Paul) Warburg was the author of the plan organizing the War Finance Corporation."
The 1920 Schiff obituary revealed for the first time that Jacob Schiff, like the Warburgs, also had two brothers in Germany during World War I, Philip and Ludwig Schiff, of Frankfurt-on-Main, who also were active as bankers to the German Government! This was not a circumstance to be taken lightly, as on neither side of the Atlantic were the said bankers obscure individuals who had no influence in the conduct of the war. On the contrary, the Kuhn, Loeb partners held the highest governmental posts in the United States during World War I, while in Germany, Max and Fritz Warburg, and Philip and Ludwig Schiff, moved in the highest councils of government. From Memoirs of Max Warburg, "The Kaiser thumbed the table violently and shouted, ‘Must you always be right?’ but then listened carefully to Max’s view on financial matters."72
In June, 1918, Paul Warburg wrote a private note to Woodrow Wilson, "I have two brothers in Germany who are bankers. They naturally now serve their country to their utmost ability, as I serve mine."73
Neither Wilson nor Warburg viewed the situation as one of concern, and Paul Warburg served out his term on the Federal Reserve Board of Governors, while World War I continued to rage.
The background of Kuhn, Loeb & Company had been exposed in "Truth Magazine", edited by George Conroy:
"Mr. Schiff is head of the great private banking house of Kuhn, Loeb & Co. which represents the
Rothschild interest on this side of the Atlantic. He has been described as a financial strategist and
has been for years the financial minister to the great impersonal power known as Standard Oil.
He was hand-in-glove with the Harrimans, the Goulds and the Rockefellers, in all their railroad
enterprises and has become the dominant power in the railroad and financial world in America.
Louis Brandeis, because of his great ability as a lawyer and for other reasons which will appear
later, was selected by Schiff as the instrument through which Schiff hoped to achieve his
ambition in New England. His job was to carry on an agitation which would undermine public
confidence in the New Haven system and cause a decrease in the price of its securities, thus
forcing them on the market for the wreckers to buy."74
We mention Schiff’s lawyer, Brandeis, here because the first available appointment on the Supreme Court of the United States which Woodrow Wilson was allowed to fill was given to the Kuhn, Loeb lawyer, Brandeis.
Not only was the U.S. Food Administration managed by Hoover’s director, Lewis Lichtenstein Strauss, who married into the Kuhn Loeb Company by marrying Alice Hanauer, daughter of partner Jerome
72 Max Warburg, Memoirs of Max Warburg, Berlin, 1936
73 David Farrar, The Warburgs, Michael Joseph, Ltd., London, 1974
74 "Truth Magazine", George Conroy, editor, Boston, issue of December 16, 1912
Hanauer, but in the most critical field, military intelligence, Sir William Wiseman, chief of the British Secret Service, was a partner of Kuhn, Loeb & Company. He worked most closely with Wilson’s alter ego, Col. House. "Between House and Wiseman there were soon to be few political secrets, and from their mutual comprehension resulted in large measure our close cooperation with the British."75
One example of House’s cooperation with Wiseman was a confidential agreement which House negotiated pledging the United States to enter into World War I on the side of the Allies. Ten months before the election which returned Wilson to the White House in 1916 ‘because he kept us out of war’, Col. House negotiated a secret agreement with England and France on behalf of Wilson which pledged the United States to intervene on behalf of the Allies. On March 9, 1916, Wilson formally sanctioned the undertaking.76
Nothing could more forcefully illustrate the duplicity of Woodrow Wilson’s nature than his nationwide campaign on the slogan, "He kept us out of war", when he had pledged ten months earlier to involve us in the war on the side of England and France. This explains why he was regarded with such contempt by those who learned the facts of his career. H.L. Mencken wrote that Wilson was "the perfect model of the Christian cad", and that we ought "to dig up his bones and make dice of them."
According to The New York Times, Paul Warburg’s letter of resignation stated that some objection had been made because he had a brother in the Swiss Secret Service. The New York Times has never corrected this blatant falsehood, perhaps because Kuhn, Loeb Company owned a controlling interest in its stock. Max Warburg was not Swiss, and although he had probably come into contact with the Swiss Secret Service during his term of office as head of the German Secret Service, no responsible editor at The New York Times could have been unaware of the fact that Max Warburg was German, and that his family banking house was in Hamburg, and that he held a number of high positions in the German Government. He represented Germany at the Versailles Peace Conference, and remained peacefully in Germany until 1939, during a period when persons of his religion were being persecuted. To avoid injury during the approaching war, when bombs would rain on Germany, Max Warburg was allowed to sail to New York, his funds intact.
At the outset of World War I, Kuhn, Loeb Company had figured in the transfer of German shipping interests to other control. Sir Cecil
75 Edward M. House, The Intimate Papers of Col. House, edited by Charles Seymour, Vol. II, p. 399. Houghton, Mifflin Co.
76 George Sylvester Viereck, The Strangest Friendship in History, Woodrow Wilson and Col. House, p. 106
Spring-Rice, British Ambassador to the United States, in a letter to Lord Grey wrote:
"Another matter is the question of the transfer of the flag to the Hamburg Amerika ships. The
company is practically a German Government affair. The ships are used for Government
purposes, the Emperor himself is a large shareholder, and so is the great banking house of Kuhn,
Loeb Company. A member of that house (Warburg) has been appointed to a very responsible
position in New York, although only just naturalized. He is concerned in business with the
Secretary of the Treasury, who is the President’s son-in-law. It is he who is negotiating on behalf
of the Hamburg Amerika Shipping Company."77
On November 13, 1914, in a letter to Sir Valentine Chirol, Spring-Rice wrote, (p. 241, v. 2)
"I was told today that The New York Times has been practically acquired by Kuhn, Loeb and
Schiff, special protégé of the (German) Emperor. Warburg, nearly related to Kuhn Loeb and
Schiff is a brother of the well known Warburg of Hamburg, the associate of Ballin (Hamburg)
Amerika line), is a member of the Federal Reserve Board or rather THE member. He practically
controls the financial policy of the Administration, and Paish & Blackett (England) had mainly
to negotiate with him. Of course, it was exactly like negotiating with Germany. Everything that
was said was German property."
Col. Garrison wrote in Roosevelt, Wilson and the Federal Reserve Law, that "Through the banking House of the Kuhn Loeb Company, a powerful weapon would have been placed in the hands of the German Kaiser over the destiny of American business and American citizens."78
Garrison was referring to the Hamburg Amerika affair.
It seemed strange that Woodrow Wilson felt it necessary to place the nation in the hands of three men whose personal history was one of ruthless speculation and the quest for personal gain, or that during war with Germany, he found as persons of supreme trust a German immigrant naturalized in 1911, the son of an immigrant from Poland, and the son of an immigrant from France. Bernard Baruch first attracted attention on Wall Street in 1890 while working for A.A. Housman & Co.
In 1896 he merged the six principal tobacco companies of the United States into the Consolidated Tobacco Company, forcing James Duke and the American Tobacco Trust to enter into this combination. The second great trust set up by Baruch brought the copper industry into the hands
77 Letters and Friendships of Sir Cecil Spring-Rice, p. 219-220
78 Col. Elisha Garrison, Roosevelt, Wilson and the Federal Reserve Law, Christopher Publishing House, Boston, 1931, p. 260
of the Guggenheim family, who have controlled it ever since. Baruch worked with Edward H. Harriman, who was Schiff’s front man in controlling America’s railway system for the Rothschild family. Baruch and Harriman also combined their talents to gain control over the New York City transit system, which has been in perilous financial condition ever since.
In 1901, Baruch formed the firm of Baruch Brothers, bankers, with his brother Herman, in New York. In 1917, when Baruch was appointed Chairman of the War Industries Board, the name was changed to Hentz Brothers.
Testifying before the Nye Committee on September 13, 1937, Bernard Baruch stated that "All wars are economic in their origin." So much for religious and political disagreements, which had been specially touted as the cause of wars.*
A profile in the "New Yorker" magazine reported that Baruch made a profit of seven hundred fifty thousand dollars in one day during World War I, after a phony peace rumor was planted in Washington. In "Who’s Who", Baruch mentions that he was a member of the Commission which handled all purchasing for the Allies during World War I. In fact, Baruch WAS the Commission. He spent the American taxpayer’s money at the rate of ten billion dollars a year, and was also the dominant member of the Munitions Price-Fixing Committee. He set the prices at which the Government bought war materials. It would be naive to presume that the orders did not go to firms in which he and his associates had more than a polite interest.
dictator over American manufacturers.* At the Nye Committee hearings in 1935, Baruch testified,
"President Wilson gave me a letter authorizing me to take over any industry or plant. There was
Judge Gary, President of United States Steel, whom we were having trouble with, and when I
showed him that letter, he said, ‘I guess we will have to fix this up’, and he did fix it up."
Some members of Congress were curious about Baruch’s qualifications to exercise life and death powers over American industry in time of war. He was not a manufacturer, and had never been in a factory. When he was called before a Congressional Committee, Bernard Baruch stated that his profession was "Speculator". A Wall Street gambler had been made Czar of American Industry.
* NOTE: Baruch also stated in this testimony, "I carried through the war three major investments, Alaska Juneau Gold Mining Company (with partner Eugene Meyer), Texas Gulf Sulphur, and Atolia Mining Company (tungsten)." Rep. Mason, Illinois, told the House on February 21, 1921 that Baruch made more than $50 million in copper during the war.
* Baruch chose as Assistant Chairman of the War Industries Board a fellow Wall Street speculator, Clarence Dillon (Lapowitz). See biographies.
@insert Facsimile of New York Times article
Facsimile of an article which appeared in The New York Times dated September 23, 1914. Listed are major stockholders of the five New York City banks which purchased 40% of the 203, 053 shares of the Federal Reserve Bank of New York when the System was organized in 1914. They thus obtained control of that Federal Reserve Bank and have held it ever since. As of Tuesday, July 26, 1983, the top five surviving New York City banks have increased their ownership of the Federal Reserve Bank of New York to 53% of the shares.
@insert CHART I
@CHART I cont.
Chart I reveals the linear connection between the Rothschilds and the Bank of England, and the London banking houses which ultimately control the Federal Reserve Banks through their stockholdings of bank stock and their subsidiary firms in New York. The two principal Rothschild representatives in New York, J.P. Morgan Co., and Kuhn, Loeb & Co. were the firms which set up the Jekyll Island Conference at which the Federal Reserve Act was drafted, who directed the subsequent successful campaign to have the plan enacted into law by Congress, and who purchased the controlling amounts of stock in the Federal Reserve Bank of New York in 1914. These firms had their principal officers appointed to the Federal Reserve Board of Governors and the Federal Advisory Council in 1914.
In 1914 a few families (blood or business related) owning controlling stock in existing banks (such as in New York City) caused those banks to purchase controlling shares in the Federal Reserve regional banks.
Examination of the charts and text in the House Banking Committee Staff Report of August, 1976 and the current stockholders list of the 12 regional Federal Reserve Banks shows this same family control.
Baruch’s erstwhile partner, Eugene Meyer, (Alaska-Juneau Gold Mining Co.), later claimed that Baruch was a nitwit, and that Meyer, with his family banking connections (Lazard Freres), had guided Baruch’s investment career. These claims appeared in the fiftieth anniversary edition of The Washington Post, editorial page, June 4, 1983, with a parting shot from Meyer’s editor, Al Friendly, that "Every journalist in Washington, Meyer included, knew that Bernard M. Baruch was a self-aggrandizing phony."
The third member of the Triumvirate, Eugene Meyer, was son of the partner in the international banking house of Lazard Freres, of Paris and New York. In My Own Story Baruch explains how Meyer became head of the War Finance Corporation. "At the outset of World War One," he says, "I sought out Eugene Meyer, Jr. . . . who was a man of the highest integrity with a keen desire to be of public service."79
The nation has suffered greatly from persons who desired to be of public service, because their desires often went considerably beyond their passion for office. In fact, Meyer and Baruch had operated an Alaska venture, Alaska-Juneau Gold Mining Company in 1915, and had worked together on other financial schemes. Meyer’s family house of Lazard Freres specialized in international gold movements.
79 Bernard Baruch, My Own Story, Henry-Holt Company, New York, 1957, p. 194
Eugene Meyer’s stewardship of the War Finance Corporation comprises one of the most amazing financial operations ever partially recorded in this country. We say "partially recorded", because subsequent Congressional investigations revealed that each night, the books were being altered before being brought in for the next day’s investigation. Louis McFadden, Chairman of the House Banking and Currency Committee, figured in two investigations of Meyer, in 1925, and again in 1930, when Meyer was proposed as Governor of the Federal Reserve Board. The Select Committee to Investigate the Destruction of Government Bonds, submitted, on March 2, 1925, "Preparation and Destruction of Government Bonds--68th Congress, 2d Session, Report No. 1635:
p.2. "Duplicate bonds amounting to 2314 pairs and duplicate coupons amounting to 4698 pairs
ranging in denominations from $50 to $10,000 have been redeemed to July 1, 1924. Some of
these duplications have resulted from error and some from fraud."
These investigations may explain why, at the end of World War One, Eugene Meyer was able to buy control of Allied Chemical and Dye Corporation, and later on, the nation’s most influential newspaper, The Washington Post. The duplication of bonds, "one for the government, one for me" in denominations to the amount of $10,000 each, resulted in a tidy sum.
p. 6 of these Hearings. "These transactions of the Treasury prior to June 20, 1920 (including
settlements for purchases and sales), executed by the War Finance Corporation (Eugene Meyer,
managing director), were largely directed by the managing director of the War Finance
Corporation, and settlements with the Treasury were made principally by him with the Assistant Secretary of the Treasury, and the books show that the basis of the price paid by the Government
for over $1,894 millions worth of bonds ($1,894,000,000.00), which the Treasury purchased
through the War Finance Corporation was not the market price and was not the cost of the bond
plus interest, and the elements entering into the settlement are not disclosed by the correspondence. The managing director of the War Finance Corporation stated that he and an
Assistant Secretary of the Treasury (Jerome J. Hanauer, partner of Kuhn, Loeb Co. whose daughter married Lewis L. Strauss) agreed to the price, and it was simply an arbitrary figure set by an Assistant Secretary of the Treasury as to the bonds so purchased by the War Finance Corporation. During the period of these transactions and up until quite a recent date the managing director of the War Finance Corporation, Eugene Meyer, Jr., in his private capacity maintained an office at No. 14 Wall Street, New York City, and through the War Finance Corporation sold about $70 millions in bonds to the Government, and also bought through the War Finance Corporation about $10 millions in bonds, and approved the bills for most, if not all, of these bonds in his official capacity as managing director of the War Finance Corporation. When these transactions, just referred to, were disclosed to the committee in open hearing, the managing director
This chart shows the interlocking banking directorates which were revealed by the backgrounds of the officials selected to be the original members of the Federal Advisory Council in 1914. The principals were the same bankers who had been present or represented at the Jekyll Island Conference in 1910, and during the campaign to have the Federal Reserve Act enacted into law by Congress in 1913. These officials represented the largest stock holdings in the New York banks which bought the controlling stock in the Federal Reserve Bank of New York, and also were the principal correspondent banks of the banks in other Federal Reserve districts who, in turn, selected their officials to represent them on the Federal Advisory Council.
appeared before the committee and stated the fact that commissions were paid on these
transactions, they were in turn paid over to the brokers, selected by the managing director, who
executed the orders issued by his brokerage house, and immediately after this disclosure to the
committee, the managing director employed Ernst and Ernst, certified public accountants, to
audit the books of the War Finance Corporation, who did, upon completion of the examination of
these books, report to the committee that all moneys received by the brokerage house of the
managing director had been accounted for. While simultaneously with the examination being
made by the committee, the certified public accountants, heretofore referred to, were nightly
carrying on their examination, it was discovered by your committee that alterations and changes
were being made in the books of record covering these transactions, and when the same was
called to the attention of the treasurer of the War Finance Corporation, he admitted to the
committee that changes were being made. To what extent these books have been altered during
the process the committee have not been able to determine. After June, 1921, about $10 billions
worth of securities were destroyed."
It was Eugene Meyer’s Washington Post, (under the direction of his daughter, Katherine Graham) which was later to drive a President of the United States from the White House on the grounds that he had knowledge of a burglary. What are we to think of the revelations of duplications of hundreds of millions of dollars worth of bonds during
@insert CHART III
The J. Henry Schroder Banking Company chart encompasses the entire history of the twentieth century, embracing as it does the program (Belgian Relief Commission) which provisioned Germany from 1915-1918 and dissuaded Germany from seeking peace in 1916; financing Hitler in 1933 so as to make a Second World War possible; backing the Presidential campaign of Herbert Hoover; and even at the present time, having two of its major executives of its subsidiary firm, Bechtel Corporation serving as Secretary of Defense and Secretary of State in the Reagan Administration.
The head of the Bank of England since 1973, Sir Gordon Richardson, Governor of the Bank of England (controlled by the House of Rothschild), was chairman of J. Henry Schroder, New York, and Schroder Banking Corporation, New York, as well as Lloyd’s Bank of London, and Rolls Royce. He maintains a residence on Sutton Place in New York City, and as head of "The London Connection", can be said to be the single most influential banker in the world.
Meyer’s directorship of the War Finance Corporation, the alteration of the books during a Congressional investigation, and the fact that Meyer came out of this situation with many millions of dollars with which he proceeded to buy Allied Chemical Corporation, The Washington Post, and other properties? Incidentally, Lazard Brothers, Meyer’s family banking house, personally manages the fortunes of many of our political luminaries, including the Kennedy family fortune.
Besides these men, Warburg, Baruch, and Meyer, a host of J.P. Morgan Co., and Kuhn, Loeb Co., partners, employees, and satellites came to Washington after 1917 to administer the fate of the American people.
The Liberty Loans, which sold bonds to our citizens, were nominally in the jurisdiction of the United States Treasury, under the leadership of Wilson’s Secretary of the Treasury, William G. McAdoo, whom Kuhn, Loeb Co. had placed in charge of the Hudson-Manhattan Railway Co. in 1902. Paul Warburg had most of the Kuhn Loeb Co. firm with him in Washington during the War. Jerome Hanauer, partner in Kuhn, Loeb Co., was Assistant Secretary of the Treasury in charge of Liberty Loans. The two Under-secretaries of the Treasury during the War were S. Parker Gilbert and Roscoe C. Leffingwell. Both Gilbert and Leffingwell came to the Treasury from the law firm of Cravath and Henderson, and returned
@insert CHART IV
The Peabody-Morgan chart shows the London Connection of these prominent banking firms, which have been headquartered in London since their inception. The Peabody fortune set up an Educational Fund in 1865, which was later absorbed by John D. Rockefeller into the General Educational Board in 1905, which, in turn, was absorbed by the Rockefeller Foundation in 1960.
to that firm when they had fulfilled their mission for Kuhn, Loeb Co. in the Treasury. Cravath and Henderson were the lawyers for Kuhn Loeb Co. Gilbert and Leffingwell subsequently received partnerships in J.P. Morgan Co.
Kuhn, Loeb Company, the nation’s largest owners of railroad properties in this country and in Mexico, protected their interests during the First World War by having Woodrow Wilson set up a United States Railroad Administration. The Director-General was William McAdoo, Comptroller of the Currency. Warburg replaced this set up in 1918 with a tighter organization which he called the Federal Transportation Council. The purpose of both of these organizations was to prevent strikes against Kuhn, Loeb Company during the War, in case the railroad workers should try to get in wages some of the millions of dollars in wartime profits which Kuhn, Loeb received from the United States Government.
Among the important bankers present in Washington during the War was Herbert Lehman, of the rapidly rising firm of Lehman Brothers, Bankers, New York, Lehman was promptly put on the General Staff of the Army, and given the rank of Colonel.
The Lehmans had had prior experience in "taking the profits out of war", a double entendre and one of Baruch’s favorite phrases. In Men Who Rule America, Arthur D. Howden Smith writes of the Lehmans during the Civil War, "They were often agents, fixers for both sides, intermediaries for confidential communications and handlers of the many illicit transactions in cotton and drugs for the Confederacy, purveyors of information for the North. The Lehmans, with Mayer in Montgomery, the first capital of the Confederacy, Henry in New Orleans, and Emanuel in New York were ideally situated to take advantage of every opportunity for profit which appeared. They seem to have missed few chances."80
80 Arthur D. Howden Smith, Men Who Rule America, Bobbs Merrill, N.Y. 1935, p. 112
The David Rockefeller chart shows the link between the Federal Reserve Bank of New York, Standard Oil of Indiana, General Motors, and Allied Chemical Corporation (Eugene Meyer family) and Equitable Life (J.P. Morgan).
Other appointments during the First World War were as follows:
J.W. McIntosh, director of the Armour meat-packing trust, who was made chief of Subsistence for the United States Army in 1918. He later became Comptroller of the Currency during Coolidge’s Administration, and ex-officio member of the Federal Reserve Board. During the Harding Administration, he did his bit as Director of Finance for the United States Shipping Board when the Board sold ships to the Dollar Lines for a hundredth of their cost and then let the Dollar Line default on its payments. After leaving public service, J.W. McIntosh became a partner in J.W. Wollman Co., New York Stockbrokers.
W.P.G. Harding, Governor of the Federal Reserve Board, was also managing director of the War Finance Corporation under Eugene Meyer.
George R. James, member of the Federal Reserve Board in 1923-24, had been Chief of the Cotton Section of the War Industries Board.
Henry P. Davison, senior partner in J.P. Morgan Co., was appointed head of the American Red Cross in 1917 in order to get control of the three hundred and seventy million dollars cash which was collected from the American people in donations.
Ronald Ransom, banker from Atlanta, and Governor of the Federal Reserve Board under Roosevelt in 1938-39, had been the Director in Charge of Personnel for Foreign Service for the American Red Cross in 1918.
John Skelton Williams, Comptroller of the Currency, was appointed National Treasurer of the American Red Cross.
President Woodrow Wilson, the great liberal who signed the Federal Reserve Act and declared war against Germany, had an odd career for a man who is now enshrined as a defender of the common people. His chief supporter in both his campaigns for the Presidency was Cleveland H. Dodge, of Kuhn Loeb, who controlled National City Bank of New York. Dodge was also President of the Winchester Arms Company and Remington Arms Company. He was very close to President Wilson
This chart shows the interlocks between the Federal Reserve Bank of New York, J. Henry Schroder Banking Corp., J. Henry Schroder Trust Co., Rockefeller Center, Inc., Equitable Life Assurance Society (J.P. Morgan), and the Federal Reserve Bank of Boston.
throughout the great democrat’s political career. Wilson lifted the embargo on shipment of arms to Mexico on February 12, 1914, so that Dodge could ship a million dollars worth of arms and ammunition to Carranza and promote the Mexican Revolution. Kuhn, Loeb Co. which owned the Mexican National Railways System, had become dissatisfied with the administration of Huerta and had him kicked out.
When the British naval auxiliary Lusitania was sunk in 1915, it was loaded with ammunition from Dodge’s factories. Dodge became Chairman of the "Survivors of Victims of the Lusitania Fund", which did so much to arouse the public against Germany. Dodge also was notorious for using professional gangsters against strikers in his plants, yet the liberal Wilson does not appear to have ever been disturbed by this.
Another clue to Wilson’s peculiar brand of liberalism is to be found in Chaplin’s book Wobbly, which relates how Wilson scrawled the word "REFUSED" across the appeal for clemency sent him by the aging and ailing Eugene Debs, who had been sent to Atlanta Prison for "speaking and writing against war". The charge on which Debs was convicted was "spoken and written denunciation of war". This was treason to the Wilson dictatorship, and Debs was imprisoned. As head of the Socialist Party, Debs ran for the Presidency from Atlanta Prison, the only man ever to do so, and polled more than a million votes. It was ironic that Debs’ leadership of the Socialist Party, which at that time represented the desires of many Americans for an honest government, should fall into the sickly hands of Norman Thomas, a former student and admirer of Woodrow Wilson at Princeton University. Under Thomas’ leadership, the Socialist Party no longer stood for anything, and suffered a steady decline in influence and prestige.
Wilson continued to be deeply involved in the Bolshevik Revolution, as were House and Wiseman. Vol. 3, p. 421 of House Intimate Papers records a cable from Sir William Wiseman to House from London, May 1, 1918, suggesting allied intervention at the invitation of the Bolsheviki
@insert CHART VII
This chart shows the interlocks of the Federal Reserve Bank of New York with Citibank, Guaranty Bank and Trust Co. (J.P. Morgan), J.P. Morgan Co., Morgan Guaranty Trust Co., Alex Brown & Sons (Brown Brothers Harriman), Kuhn Loeb & Co., Los Angeles and Salt Lake RR (controlled by Kuhn Loeb Co.), and Westinghouse (controlled by Kuhn Loeb Co.).
to help organize the Bolshevik forces. Lt. Col. Norman Thwaites, in his memoirs, Velvet and Vinegar says,
"Often during the years 1917-20 when delicate decisions had to be made, I consulted with Mr.
(Otto) Kahn, whose calm judgment and almost uncanny foresight as to political and economic
tendencies proved most helpful. Another remarkable man with whom I have been closely
associated is Sir William Wiseman who was advisor on American affairs to the British delegation
at the Peace Conference, and liaison officer between the American and British government
during the war. He was rather more the Col. House of this country in his relations with Downing
In the summer of 1917, Woodrow Wilson named Col. House to head the American War Mission to the Interallied War Conference, the first American mission to a European council in history. House was criticized for naming his son-in-law, Gordon Auchincloss, as his assistant on this mission. Paul Cravath, the lawyer for Kuhn, Loeb Company, was third in charge of the American War Mission. Sir William Wiseman guided the American War Mission in its conferences. In The Strangest Friendship in History, Viereck writes,
"After America entered the War, Wiseman, according to Northcliffe, was the only man who had
access at all times to the Colonel and to the White House. Wiseman rented an apartment in the
house where the Colonel lived. David Lawrence referred to the Fifty-Third Street house (New York City) jestingly as the American No. 10 Downing St. . . . Col. House had a special code used only with Sir William Wiseman. Col. House was Bush, the Morgans were Haslam, and Trotsky was Keble."82
Thus these two "unofficial" advisors to the British and American governments had a code solely for each other, which no one else could understand. Even stranger was the fact that the international Communist
81 Lt. Col. Norman Thwaites, Velvet and Vinegar, Grayson Co., London, 1932
82 George Sylvester Viereck, The Strangest Friendship in History, Woodrow Wilson and Col. House, Liveright, N.Y. 1932, p. 172
@insert CHART VIII
This chart shows the link between the Federal Reserve Bank of New York, Brown Brothers Harriman, Sun Life Assurance Co. (N.M. Rothschild and Sons), and the Rockefeller Foundation.
espionage apparatus for many years used Col. House’s book, Philip Dru, Administrator, as their official code book. Francois Coty writes,
"Gorodin, Lenin’s agent in China, was alleged to have with him a copy of the book published by
Col. House, Philip Dru, Administrator and a code expert who lived in China told this writer that
the purpose of having constant access to this book by Gorodin was to use it for coding and
After the Armistice, Woodrow Wilson assembled the American Delegation to the Peace Conference, and embarked for Paris. It was, on the whole, a most congenial group, consisting of the bankers who had always guided Wilson’s policies. He was accompanied by Bernard Baruch, Thomas W. Lamont of J.P. Morgan Co., Albert Strauss of J & W Seligman bankers, who had been chosen by Wilson to replace Paul Warburg on the Federal Reserve Board of Governors, J.P. Morgan, and Morgan lawyers Frank Polk and John W. Davis. Accompanying them were Walter Lippmann, Felix Frankfurter, Justice Brandeis, and other interested parties. Mason’s biography of Brandeis states that "In Paris in June of 1919, Brandeis met with such friends as Paul Warburg, Col. House, Lord Balfour, Louis Marshall, and Baron Edmond de Rothschild."
Indeed, Baron Edmond de Rothschild served as the genial host to the leading members of the American Delegation, and even turned over his Paris mansion to them, although the lesser members had to rough it at the elegant Hotel Crillon with Col. House and his personal staff of 201 servants.
Baruch later testified before the Graham Committee of the Senate Foreign Relations Committee, "I was economic advisor with the peace mission. GRAHAM: Did you frequently advise the President while there? BARUCH: Whenever he asked my advice I gave it. I had something to do with the reparations clauses. I was the American Commissioner in charge of what they called the Economic Section. I was a
83 Francois Coty, Tearing Away the Veil, Paris, 1940
@insert CHART IX
This chart shows the interlocks between the Federal Reserve Bank of New York and J.P. Morgan Co., Morgan Guaranty Trust Co., and the Rothschild affiliates of Royal Bank of Canada, Sun Life Assurance Co. of Canada, Sun Alliance, and London Assurance Group.
member of the Supreme Economic Council in charge of raw metals. GRAHAM: Did you sit in the council with the gentlemen who were negotiating the treaty? BARUCH: Yes, sir, some of the time. GRAHAM: All except the meetings that were participated in by the Five? (The Five being the leaders of the five allied nations). BARUCH: And frequently those also."
Paul Warburg accompanied Wilson on the American Commission to Negotiate Peace as his chief financial advisor. He was pleasantly surprised to find at the head of the German delegation his brother, Max Warburg, who brought along Carl Melchior, also of M.M. Warburg Company, William Georg von Strauss, Franz Urbig, and Mathias Erzberger.
Thomas W. Lamont states in his privately printed memoirs, Across World Frontiers, "The German delegation included two German bankers of the Warburg firm whom I happened to know slightly and with whom I was glad to talk informally, for they seemed to be striving earnestly to offer some reparations composition that might be acceptable to the Allies."84 Lamont was also pleased to see Sir William Wiseman, chief advisor to the British delegation.
The bankers at the conference convinced Wilson that they needed an international government to facilitate their international monetary operations. Vol. IV, p. 52, Intimate Papers of Col. House quotes a message from Sir William Wiseman to Lord Reading, August 16, 1918, "The President has two main principles in view; there must be a League of Nations and it must be virile."
Wilson, who seems to have lived in a world of fantasy, was shocked when American citizens booed him during his campaign to have them sign over their hard won independence to what appeared to many to be an international dictatorship. He promptly went into a depression, and retired to his bedroom. His wife immediately shut the White House doors against Col. House, and from September 25, 1919 to April 13, 1920, she
84 Thomas W. Lamont, Across World Frontiers, (Privately printed) 1950, p. 138
ruled the United States with the aid of an intimate friend, her "military aide", Col. Rixey Smith. As everyone was shut out of their deliberations, no one ever knew which of the pair functioned as the President, and which was the Vice President.
The admirers of Woodrow Wilson were led for decades by Bernard Baruch, who stated that Woodrow Wilson was the greatest man he ever knew. Wilson’s appointments to the Federal Reserve Board, and that body’s responsibility for financing the First World War, as well as Wilson’s handing over the United States to the immigrant triumvirate during the War, made him appear to be the most important single effector of ruin in American history.
It is no wonder that after his abortive trip to Europe, where he was hissed and jeered in the streets by the French people, and snickered at in the halls of Versailles by Orlando and Clemenceau, Woodrow Wilson returned home to take to his bed. The sight of the destruction and death in Europe, for which he was directly responsible, was perhaps more of a shock than he could bear. The Italian Minister Pentaleoni expressed the feelings of the European peoples when he wrote that:
"Woodrow Wilson is a type of Pecksniff who was now disappeared amid universal execration."
It is America’s misfortune that our subsidized press and educational system have been devoted to enshrining a man who colluded in causing so much death and sorrow throughout the world.
The financial cartel suffered only minor setbacks in those crucial years. On February 12, 1917, The New York Times reported that "The five members of the Federal Reserve Board were impeached on the floor of the House by Rep. Charles A. Lindbergh, Republican member of the House Banking and Currency Committee. According to Mr. Lindbergh, ‘the conspiracy began in’ 1906 when the late J.P. Morgan, Paul M. Warburg, a present member of the Federal Reserve Board, the National City Bank and other banking firms ‘conspired’ to obtain currency legislation in the interest of big business and the appointment of a special board to administer such a law, in order to create industrial slaves of the masses, the aforesaid conspirators did conspire and are now conspiring to have the Federal Reserve Board administered so as to enable the conspirators to coordinate all kinds of big business and to keep themselves in control of big business in order to amalgamate all the trusts into one great trust in restraint and control of trade and commerce." The impeachment resolution was not acted on by the House.
The New York Times reported on August 10, 1918, "Mr. Warburg’s term having expired, he voluntarily retired from the Federal Reserve Board." Thus the previous intimation that Mr. Warburg left the Federal Reserve Board because he had a brother in the Secret Service of a foreign
country, namely, Germany, with whom we were at war, was not the cause of his retirement. In any case, he did not leave the Federal Reserve Administration, as he immediately took over J.P. Morgan’s seat on the Federal Advisory Council, from which post he continued to administer the Federal Reserve System for the next ten years.
The Agricultural Depression
When Paul Warburg resigned from the Federal Reserve Board of Governors in 1918, his place was taken by Albert Strauss, partner in the international banking house of J & W Seligman. This banking house had large interests in Cuba and South America, and played a prominent part in financing the many revolutions in those countries. Its most notorious publicity came during the Senate Finance Committee’s investigation in 1933, when it was brought out that J & W Seligman had given a $415,000 bribe to Juan Leguia, son of the President of Peru, in order to get that nation to accept a loan.
A partial list of Albert Strauss’ directorships, according to "Who’s Who", shows that he was: Chairman of the Board of the Cuba Cane Sugar Corporation; director, Brooklyn Manhattan Transit Co., Coney Island Brooklyn RR, New York Rapid Transit, Pierce-Arrow, Cuba Tobacco Corporation, and the Eastern Cuba Sugar Corporation.
Governor Delano resigned in August, 1918, to be commissioned a Colonel in the Army. The war ended on November 11, 1918.
William McAdoo was replaced in 1918 by Carter Glass as Secretary of the Treasury. Both Strauss and Glass were present during the secret meeting of the Federal Reserve Board on May 18, 1920, when the Agricultural Depression of 1920-21 was made possible.
One of the main lies about the Federal Reserve Act when it was being ballyhooed in 1913 was its promise to take care of the farmer. Actually, it has never taken care of anybody but a few big bankers. Prof. O.M.W. Sprague, Harvard economist, writing in the Quarterly Journal of Economics of February, 1914, said:
"The primary purpose of the Federal Reserve Act is to make sure that there will always be an
available supply of money and credit in this country to meet unusual banking requirements."
There is nothing in that wording to help the farmer.
The First World War had introduced into this country a general prosperity, as revealed by the stocks of heavy industry on the New York Exchange in 1917-1918, by the increase in the amount of money circulated, and by the enormous bank clearings during the whole of 1918. It was the assigned duty of the Federal Reserve System to get back the vast amount
of money and credit which had escaped their control during this time of prosperity. This was done by the Agricultural Depression of 1920-21.
The operations of the Federal Reserve Open Market Committee in 1917-18, while Paul Warburg was still Chairman, show a tremendous increase in purchases of bankers’ and trade acceptances. There was also a great increase in the purchase of United States Government securities, under the leadership of the able Eugene Meyer, Jr. A large part of the stock market speculation in 1919, at the end of the War when the market was very unsettled, was financed with funds borrowed from Federal Reserve Banks with Government securities as collateral. Thus the Federal Reserve System set up the Depression, first by causing inflation, and then raising the discount rate and making money dear.
In 1914, Federal Reserve Bank rates had dropped from six percent to four percent, had gone to a further low of three percent in 1916, and had stayed at that level until 1920. The reason for the low interest rate was the necessity for floating the billion dollar Liberty Loans. At the beginning of each Liberty Loan Drive, the Federal Reserve Board put a hundred million dollars into the New York money market through its open market operations, in order to provide a cash impetus for the drive. The most important role of the Liberty Bonds was to soak up the increase in circulation of the medium of exchange (integer of account) brought about by the large amount of currency and credit put out during the war. Laborers were paid high wages, and farmers received the highest prices for their produce they had ever known. These two groups accumulated millions of dollars in cash which they did not put into Liberty Bonds. That money was effectively out of the hands of the Wall Street group which controlled the money and credit of the United States. They wanted it back, and that is why we had the Agricultural Depression of 1920-21.
Much of the money was deposited in small country banks in the Middle West and West which had refused to have any part of the Federal Reserve System, the farmers and ranchers of those regions seeing no good reason why they should give a group of international financiers control of their money. The main job of the Federal Reserve System was to break these small country banks and get back the money which had been paid out to the farmers during the war, in effect, ruin them, and this it proceeded to do.
First of all, a Federal Farm Loan Board was set up which encouraged the farmers to invest their accrued money in land on long term loans, which the farmers were eager to do. Then inflation was allowed to take its course in this country and in Europe in 1919 and 1920. The purpose of the inflation in Europe was to cancel out a large portion of the war debts owed by the Allies to the American people, and its purpose in this country was to draw in the excess moneys which had been distributed to
the working people in the form of higher wages and bonuses for production. As prices went higher and higher, the money which the workers had accumulated became worth less and less, inflicting upon them an unfair drain, while the propertied classes were enriched by the inflation because of the enormous increase in the value of land and manufactured goods. The workers were thus effectively impoverished, but the farmers, who were as a class more thrifty, and who were more self-sufficient, had to be handled more harshly.
G.W. Norris, in "Collier’s Magazine" of March 20, 1920, said:
"Rumor has it that two members of the Federal Reserve Board had a plain talk with some New
York bankers and financiers in December, 1919. Immediately afterwards, there was a notable
decline in transactions on the stock market and a cessation of company promotions. It is
understood that action in the same general direction has already been taken in other sections of the country, as evidence of the abuse of the Federal Reserve System to promote speculation in land and commodities appeared."
Senator Robert L. Owen, Chairman of the Senate Banking and Currency Committee, testified at the Senate Silver Hearings in 1939 that:
"In the early part of 1920, the farmers were exceedingly prosperous. They were paying off the
mortgages and buying a lot of new land, at the instance of the Government--had borrowed money
to do it--and then they were bankrupted by a sudden contraction of credit and currency which
took place in 1920. What took place in 1920 was just the reverse of what should have been taking
place. Instead of liquidating the excess of credits created by the war through a period of years, the
Federal Reserve Board met in a meeting which was not disclosed to the public. They met on the
18th of May, 1920, and it was a secret meeting. They spent all day conferring; the minutes made
sixty printed pages, and they appear in Senate Document 310 of February 19, 1923. The Class A
Directors, the Federal Reserve Advisory Council, were present, but the Class B Directors, who
represented business, commerce, and agriculture, were not present. The Class C Directors,
representing the people of the United States, were not present and were not invited to be present.
Only the big bankers were there, and their work of that day resulted in a contraction of credit
which had the effect the next year of reducing the national income fifteen billion dollars,
throwing millions of people out of employment, and reducing the value of lands and ranches by
twenty billion dollars."
Carter Glass, member of the Board in 1920 as Secretary of the Treasury, wrote in his autobiography, Adventure in Constructive Finance published in 1928; "Reporters were not present, of course, as they should not have been and as they never are at any bank board meeting in the world."85
85 Carter Glass, Adventure in Constructive Finance, Doubleday, N.Y. 1928
It was Carter Glass who had complained that, if a suggested amendment by Senator LaFollette were passed, on the Federal Reserve Act of 1913, to the effect that no member of the Federal Reserve Board should be an official or director or stockholder of any bank, trust company, or insurance company, we would end up by having mechanics and farm laborers on the Board. Certainly mechanics and farm laborers could have caused no more damage to the country than did Glass, Strauss, and Warburg at the secret meeting of the Federal Reserve Board.
Senator Brookhart of Iowa testified that at that secret meeting Paul Warburg, also President of the Federal Advisory Council, had a resolution passed to send a committee of five to the Interstate Commerce Commission and ask for an increase in railroad rates. As head of Kuhn, Loeb Co. which owned most of the railway mileage in the United States, he was already missing the huge profits which the United States Government had paid during the war, and he wanted to inflict new price raises on the American people.
Senator Brookhart also testified that:
"I went into Myron T. Herrick’s office in Paris, and told him that I came there to study
cooperative banking. He said to me, ‘as you go over the countries of Europe, you will find that
the United States is the only civilized country in the world that by law is prohibiting its people
from organizing a cooperative system.’ I went up to New York and talked to about two hundred people. After talking cooperation and standing around waiting for my train--I did not specifically mention cooperative banking, it was cooperation in general--a man called me off to one side and said, ‘I think Paul Warburg is the greatest financier we have ever produced. He believes a lot more of your cooperative ideas than you think he does, and if you want to consult anybody about the business of cooperation, he is the man to consult, because he believes in you, and you can rely on him.’ A few minutes later I was steered up against Mr. Warburg himself, and he said to me, ‘You are absolutely right about this cooperative idea. I want to let you know that the big bankers are with you. I want to let you know that now, so that you will not start anything on cooperative
banking and turn them against you.’ I said, ‘Mr. Warburg, I have already prepared and tomorrow
I am going to offer an amendment to the Lant Bill authorizing the establishment of cooperative
national banks.’ That was the intermediate credit act which was then pending to authorize the
establishment of cooperative national banks. That was the extent of my conversation with Mr.
Warburg, and we have not had any since."
Mr. Wingo testified that in April, May, June and July of 1920, the manufacturers and merchants were allowed a very large increase in credits. This was to tide them through the contraction of credit which was intended to ruin the American farmers, who, during this period, were denied all credit.
At the Senate Hearings in 1923, Eugene Meyer, Jr. put his finger on a primary reason for the Federal Reserve Board’s action in raising the interest rate to 7% on agricultural and livestock paper:
"I believe," he said, "that a great deal of trouble would have been avoided if a larger number of
the eligible non-member banks had been members of the Federal Reserve System."
Meyer was correct in pointing this out. The purpose of the Board’s action was to break those state and joint land stock banks which had steadfastly refused to surrender their freedom to the banker’s dictatorship set up by the System. Kemmerer in the ABC of the Federal Reserve System had written in 1919 that:
"The tendency will be toward unification and simplicity which will be brought about by the state
institutions, in increasing numbers, becoming stockholders and depositors in the reserve banks."
However, the state banks had not responded.
The Senate Hearings of 1923 investigating the causes of the Agricultural Depression of 1920-21 had been demanded by the American people. The complete record of the secret meeting of the Federal Reserve Board on May 18, 1920 had been printed in the "Manufacturers’ Record" of Baltimore, Maryland, a magazine devoted to the interests of small Southern manufacturers.
Benjamin Strong, Governor of the Federal Reserve Bank of New York, and close friend of Montagu Norman, the Governor of the Bank of England, claimed at these Hearings:
"The Federal Reserve System has done more for the farmer than he has yet begun to realize."
Emmanuel Goldenweiser, Director of Research for the Board of Governors, claimed that the discount rate was raised purely as an anti-inflationary measure, but he failed to explain why it was a raise aimed solely at farmers and workers, while at the same time the System protected the manufacturers and merchants by assuring them increased credits.
The final statement on the Federal Reserve Board’s causing the Agricultural Depression of 1920-21 was made by William Jennings Bryan. In "Hearst’s Magazine" of November, 1923, he wrote:
"The Federal Reserve Bank that should have been the farmer’s greatest protection has become his
greatest foe. The deflation of the farmer was a crime deliberately committed."
The Money Creators
The editorial page of The New York Times, January 18, 1920, carried an interesting comment on the Federal Reserve System. The unidentified writer, perhaps Paul Warburg, stated, "The Federal Reserve is a fount of credit, not of capital." This is one of the most revealing statements ever made about the Federal Reserve System. It says that the Federal Reserve System will never add anything to our capital structure, or to the formation of capital, because it is organized to produce credit, to create money for credit money and speculations, instead of providing capital funds for the improvement of commerce and industry. Simply stated, capitalization would mean the providing of notes backed by a precious metal or other commodity. Reserve notes are unbacked paper loaned at interest.
On July 25, 1921, Senator Owen stated on the editorial page of The New York Times, The Federal Reserve Board is the most gigantic financial power in all the world. Instead of using this great power as the Federal Reserve Act intended that it should, the board....delegated this power to the banks, threw the weight of its influence toward the support of the policy of German inflation." The senator whose name was on the Act saw that it was not performing as promised.
After the Agricultural Depression of 1920-21, the Federal Reserve Board of Governors settled down to eight years of providing rapid credit expansion of the New York bankers, a policy which culminated in the Great Depression of 1929-31 and helped paralyze the economic structure of the world. Paul Warburg had resigned in May, 1918, after the monetary system of the United States had been changed from a bond-secured currency to a currency based upon commercial paper and the shares of the Federal Reserve Banks. Warburg returned to his five hundred thousand dollar a year job with Kuhn, Loeb Company, but he continued to determine the policy of the Federal Reserve System, as President of the Federal Advisory Council and as Chairman of the Executive Committee of the American Acceptance Council.
From 1921 to 1929, Paul Warburg organized three of the greatest trusts in the United States, the International Acceptance Bank, largest acceptance bank in the world, Agfa Ansco Film Corporation, with headquarters in Belgium, and I.G. Farben Corporation whose American
branch Warburg set up as I.G. Chemical Corporation. The Westinghouse Corporation is also one of his creations.
In the early 1920s, the Federal Reserve System played the decisive role in the re-entry of Russia into the international finance structure. Winthrop and Stimson continued to be the correspondents between Russian and American bankers, and Henry L. Stimson handled the negotiations concluding in our recognition of the Soviet after Roosevelt’s election in 1932. This was an anti-climax, because we had long before resumed exchange relations with Russian financiers.
The Federal Reserve System began purchasing Russian gold in 1920, and Russian currency was accepted on the Exchanges. According to Colonel Ely Garrison, in his autobiography, and according to the United States Naval Secret Service Report on Paul Warburg, the Russian Revolution had been financed by the Rothschilds and Warburgs, with a member of the Warburg family carrying the actual funds used by Lenin and Trotsky in Stockholm in 1918.
An article in the English monthly "Fortnightly", July, 1922, says:
"During the past year, practically every single capitalistic institution has been restored. This is
true of the State Bank, private banking, the Stock Exchange, the right to possess money to
unlimited amount, the right of inheritance, the bill of exchange system, and other institutions and
practices involved in the conduct of private industry and trade. A great part of the former
nationalized industries are now found in semi-independent trusts."
The organization of powerful trusts in Russia under the guise of Communism made possible the receipt of large amounts of financial and technical help from the United States. The Russian aristocracy had been wiped out because it was too inefficient to manage a modern industrial state. The international financiers provided funds for Lenin and Trotsky to overthrow the Czarist regime and keep Russia in the First World War. Peter Drucker, spokesman for the oligarchy in America, declared in an article in the Saturday Evening Post in 1948, that:
"RUSSIA IS THE IDEAL OF THE MANAGED ECONOMY TOWARDS WHICH WE ARE
In Russia, the issuance of sufficient currency to handle the needs of their economy occurred only after a government had been put in power which had absolute control of the people. During the 1920s, Russia issued large quantities of so-called "inflation money", a managed currency. The same "Fortnightly" article (of July, 1922) observed that:
"As economic pressure produced the ‘astronomical dimensions system’ of currency; it can never
destroy it. Taken alone, the system is self-contained, logically perfected, even intelligent. And it
can perish only through the collapse or destruction of the political edifice which it decorates."
"Fortnightly" also remarked, in 1929, that:
"Since 1921, the daily life of the Soviet citizen is no different from that of the American citizen,
and the Soviet system of government is more economical."
Admiral Kolchak, leader of the White Russian armies, was supported by the international bankers, who sent British and American troops to Siberia in order to have a pretext for printing Kolchak rubles. At one time in 1920, the bankers were manipulating on the London Exchange the old Czarist rubles, Kerensky rubles and Kolchak rubles, the values of all three fluctuating according to the movements of the Allied troops aiding Kolchak. Kolchak also was in possession of considerable amounts of gold which had been seized by his armies. After his defeat, a trainload of this gold disappeared in Siberia. At the Senate Hearings in 1921 on the Federal Reserve System, it was brought out that the System had been receiving this gold. Congressman Dunbar questioned Governor W.P.G. Harding of the Federal Reserve Board as follows:
DUNBAR: "In other words, Russia is sending a great deal of gold to the European countries, which in turn send it to us?"
HARDING: "This is done to pay for the stuff bought in this country and to create dollar exchange."
DUNBAR: "At the same time, that gold came from Russia through Europe?"
HARDING: "Some of it is thought to be Kolchak gold, coming through Siberia, but it is none of the Federal Reserve Banks’ business. The Secretary of the Treasury has issued instructions to the assay office not to take any gold which does not bear the mint mark of a friendly nation."
Just what Governor Harding meant by "a friendly nation" is not clear. In 1921, we were not at war with any country, but Congress was already beginning to question the international gold dealings of the Federal Reserve System. Governor Harding could very well shrug his shoulders and say that it was none of the Federal Reserve Banks’ business where the gold came from. Gold knows no nationality or race. The United States by law had ceased to be interested in where its gold came from in 1906, when Secretary of the Treasury Shaw made arrangements with several of the larger New York banks (ones in which he had interests) to purchase gold with advances of cash from the United States Treasury, which would then purchase the gold from these banks. The Treasury could claim that it did not know where its gold came from since their office only registers the bank from which it made the purchase. Since 1906, the Treasury has not known from which of the international gold merchants it was buying its gold.
The international gold dealings of the Federal Reserve System, and its active support in helping the League of Nations to force all the nations
of Europe and South America back on the gold standard for the benefit of international gold merchants like Eugene Meyer, Jr. and Albert Strauss, is best demonstrated by a classic incident, the sterling credit of 1925.
J.E. Darling wrote, in the English periodical, "Spectator", on January 10, 1925 that:
"Obviously, it is of the first importance to the United States to induce England to resume the gold
standard as early as possible. An American controlled Gold Standard, which must inevitably
result in the United States becoming the world’s supreme financial power, makes England a
tributary and satellite, and New York the world’s financial centre."
Mr. Darling fails to point out that the American people have as little to do with this as the British people, and that resumption of the gold standard by Britain would benefit only that small group of international gold merchants who own the world’s gold. No wonder that "Banker’s Magazine" gleefully remarked in July, 1925 that:
"The outstanding event of the past half year in the banking world was the restoration of the gold
The First World War changed the status of the United States from that of a debtor nation to the position of the world’s greatest creditor nation, a title formerly occupied by England. Since debt is money, according to the Governor Marriner Eccles of the Federal Reserve Board, this also made us the richest nation of the world. The war also caused the removal of the headquarters of the world’s acceptance market from London to New York, and Paul Warburg became the most powerful trade acceptance banker in the world. The mainstay of the international financiers, however, remained the same. The gold standard was still the basis of foreign exchange, and the small group of internationals who owned the gold controlled the monetary system of the Western nations.
Professor Gustav Cassel wrote in 1928:
"The American dollar, not the gold standard, is the world’s monetary standard. The American
Federal Reserve Board has the power to determine the purchasing power of the dollar by making
changes in the rate of discount, and thus controls the monetary standard of the world."
If this were true, the members of the Federal Reserve Board would be the most powerful financiers in the world. Occasionally their membership includes such influential men as Paul Warburg or Eugene Meyer, Jr., but usually they are a rubber-stamp committee for the Federal Advisory Council and the London bankers.
In May, 1925, the British Parliament passed the Gold Standard Act, putting Great Britain back on the gold standard. The Federal Reserve System’s major role in this event came out on March 16, 1926, when George Seay, Governor of the Federal Reserve Bank of Richmond, testified before the House Banking and Currency Committee that:
"A verbal understanding confirmed by correspondence, extended Great Britain a two hundred
million dollar gold loan or credit. All negotiations were conducted between Benjamin Strong,
Governor of the Federal Reserve Bank of New York and Mr. Montagu Norman, Governor of the
Bank of England. The purpose of this loan was to help England get back on the gold standard,
and the loan was to be met by investment of Federal Reserve funds in bills of exchange and
The Federal Reserve Bulletin of June, 1925, stated that:
"Under its arrangement with the Bank of England the Federal Reserve Bank of New York
undertakes to sell gold on credit to the Bank of England from time to time during the next two
years, but not to exceed $200,000,000 outstanding at any one time."
A two hundred million dollar gold credit had been arranged by a verbal understanding between the international bankers, Benjamin Strong and Montagu Norman. It was apparent by this time that the Federal Reserve System had other interests at heart than the financial needs of American business and industry. Great Britain’s return to the gold standard was further facilitated by an additional gold loan of a hundred million dollars from J.P. Morgan Company. Winston Churchill, British Chancellor of the Exchequer, complained later that the cost to the British government of this loan was $1,125,000 the first year, this sum representing the profit to J.P. Morgan Company in that time.
The matter of changing the discount rate, for instance, has never been satisfactorily explained. Inquiry at the Federal Reserve Board in Washington elicited the reply that "the condition of the money market is the prime consideration behind changes in the rate." Since the money market is in New York, it takes no imagination to deduce that New York bankers may be interested in changes of the rate and often attempt to influence it.
Norman Lombard, in the periodical "World’s Work" writes that:
"In their consideration and disposal of proposed changes of policy, the Federal Reserve Board
should follow the procedure and ethics observed by our court of law. Suggestions that there
should be a change of rate or that the Reserve Banks should buy or sell securities may come from
anyone and with no formality or written argument. The suggestion may be made to a Governor or
Director of the Federal Reserve System over the telephone or at his club over the luncheon table,
or it may be made in the course of a casual call on a member of the Federal Reserve Board. The
interests of the one proposing the change need not be revealed, and his name and any suggestions
he makes are usually kept secret. If it concerns the matter of open market operations, the public
has no inkling of the decision until the regular weekly statement appears, showing changes in the
holdings of the Federal Reserve Banks. Meanwhile, there is no public discussion, there is no
statement of the reasons for the decision, or of the names of those opposing or favoring it."
The chances of the average citizen meeting a Governor of the Federal Reserve System at his club are also slight.
The House Hearings on Stabilization of the Purchasing Power of the Dollar in 1928 proved conclusively that the Federal Reserve Board worked in close cooperation with the heads of European central banks, and that the Depression of 1929-31 was planned at a secret luncheon of the Federal Reserve Board and those heads of European central banks in 1927. The Board has never been made responsible to the public for its decisions or actions. The constitutional checks and balances seem not to operate in finance.
The true allegiance of the members of the Federal Reserve Board has always been to the central bankers. The three features of the central bank, its ownership by private stockholders who receive rent and profit for their use of the nation’s credit, absolute control of the nation’s financial resources, and mobilization of the nation’s credit to finance foreigners, all were demonstrated by the Federal Reserve System during the first fifteen years of its operations.
Further demonstration of the international purposes of the Federal Reserve Act of 1913 is provided by the "Edge Amendment" of December 24, 1919, which authorizes the organization of corporations expressly for "engaging in international foreign banking and other international or foreign financial operations, including the dealing in gold or bullion, and the holding of stock in foreign corporations." In commenting on this amendment, E.W. Kemmerer, economist from Princeton University, remarked that:
"The federal reserve system is proving to be a great influence in the internationalizing of
American trade and American finance."
The fact that this internationalizing of American trade and American finance has been a direct cause for involving us in two world wars does not disturb Mr. Kemmerer. There is plenty of evidence to show how Paul Warburg used the Federal Reserve System as the instrument for getting trade acceptance adopted on a wide scale by American businessmen.
The use of trade acceptances, (which are the currency of international trade) by bankers and corporations in the United States prior to 1915 was practically unknown. The rise of the Federal Reserve System exactly parallels the increase in the use of acceptances in this country, nor is this a coincidence. The men who wanted the Federal Reserve System were the men who set up acceptance banks and profited by the use of acceptances.
As early as 1910, the National Monetary Commission began to issue pamphlets and other propaganda urging bankers and businessmen in this country to adopt trade acceptances in their transactions. For three
years the Commission carried on this campaign, and the Aldrich Plan included a broad provision authorizing the introduction and use of bankers’ acceptances into the American system of commercial paper.
The Federal Reserve Act of 1913 as passed by Congress did not specifically authorize the use of acceptances, but the Federal Reserve Board in 1915 and 1916 defined "trade acceptance", further defined by Regulation A Series of 1920, and further defined by Series 1924. One of the first official acts of the Board of Governors in 1914 was to grant acceptances a preferentially low rate of discount at Federal Reserve Banks. Since acceptances were not being used in this country at that time, no explanation of business exigency could be advanced for this action. It was apparent that someone in power on the Board of Governors wanted the adoptance of acceptances.
The National Bank Act of 1864, which was the determining financial authority of the United States until November, 1914, did not permit banks to lend their credit. Consequently, the power of banks to create money was greatly limited. We did not have a bank of issue, that is, a central bank, which could create money. To get a central bank, the bankers caused money panic after money panic on the business people of the United States, by shipping gold out of the country, creating a money shortage, and then importing it back. After we got our central bank, the Federal Reserve System, there was no longer any need for a money panic, because the banks could create money. However, the panic as an instrument of power over the business and financial community was used again on two important occasions, in 1920, causing the Agricultural Depression, because state banks and trust companies had refused to join the Federal Reserve System, and in 1929, causing the Great Depression, which centralized nearly all power in this country in the hands of a few great trusts.
A trade acceptance is a draft drawn by the seller of goods on the purchaser, and accepted by the purchaser, with a time of expiration stamped upon it. The use of trade acceptances in the wholesale market supplies short-term, assured credit to carry goods in process of production, storage, transit, and marketing. It facilitates domestic and foreign commerce. Seemingly, then, the bankers who wished to replace the open-book account system with the trade acceptance system were progressive men who wished to help American import-export trade. Much propaganda was issued to that effect, but this was not really the story.
The open-book system, heretofore used entirely by American business people, allowed a discount for cash. The acceptance system discourages the use of cash, by allowing a discount for credit. The open-book system also allowed much easier terms of payment, with liberal extensions on the debt. The acceptance does not allow this, since it is
a short-term credit with the time-date stamped upon it. It is out of the seller’s hands, and in the hands of a bank, usually an acceptance bank, which does not allow any extension of time. Thus, the adoption of acceptances by American businessmen during the 1920’s greatly facilitated the domination and swallowing up of small business into huge trusts, which accelerated the crash of 1929.
Trade acceptances had been used to some extent in the United States before the Civil War. During that war, exigencies of trade had destroyed the acceptance as a credit medium, and it had not come back into favor in this country, our people preferring the simplicity and generosity of the open-book system. Open-book accounts are a single-name commercial paper, bearing only the name of the debtor. Acceptances are two-name paper, bearing the name of the debtor and the creditor. Thus they became commodities to be bought and sold by banks. To the creditor, under the open-book system, the debt is a liability. To the acceptance bank holding an acceptance, the debt is an asset. The men who set up acceptance banks in this country, under the leadership of Paul Warburg, secured control of the billions of dollars of credit existing as open accounts on the books of American businessmen.
Governor Marriner Eccles of the Federal Reserve Board stated before the House Banking and Currency Committee that: "Debt is the basis for the creation of money."
Large holders of trade acceptances got the use of billions of dollars worth of credit-money, besides the rate of interest charged upon the acceptance itself. It is obvious why Paul Warburg should have devoted so much time, money, and energy to getting acceptances adopted by this country’s banking machinery.
On September 4, 1914, the National City Bank accepted the first time-draft drawn on a national bank under provisions of the Federal Reserve Act of 1913. This was the beginning of the end of the open-book account system as an important factor in wholesale trade. Beverly Harris, vice-president of the National City Bank of New York, issued a pamphlet in 1915 stating that:
"Merchants using the open account system are usurping the functions of bankers."
In The New York Times on June 14, 1920, Paul Warburg, Chairman of the American Acceptance Council, said:
"Unless the Federal Reserve Board puts itself heart and soul behind the untrammeled
development of acceptances as a prime investment for banks of the Federal Reserve Banks the
future safe and sound development of the system will be jeopardized."
This was a statement of the purpose of Warburg and his bunch who wanted "monetary reform" in this country. They were out to get control
of all credit in the United States, and they got it, by means of the Federal Reserve System, the acceptance system, and the lack of concern by the citizens.
The First World War was a boon to the introduction of trade acceptances, and the volume jumped to four hundred million dollars in 1917, growing through the 1920s to more than a billion dollars a year, which culminated in a high peak just before the Great Depression of 1929-31. The Federal Reserve Bank of New York’s charts show that its use of acceptances reached a peak in November, 1929, the month of the stock market crash, and declined sharply thereafter. The acceptance people by then had gotten what they wanted, which was control of American business and industry. "Fortune Magazine" in February of 1950 pointed out that:
"Volume of acceptances declined from $1,732 million in 1929 to $209 million in 1940, because
of the concentration of acceptance banking in a few hands, and the Treasury’s low-interest
policy, which made direct loans cheaper than acceptance. There has been a slight upturn since
the war, but it is often cheaper for large companies to finance imports from their own coffers."
In other words, the "large companies" more accurately, the great trusts, now have control of credit and have not needed acceptances. Besides the barrage of propaganda issued by the Federal Reserve System itself, the National Association of Credit Men, the American Bankers’ Association, and other fraternal organizations of the New York bankers devoted much time and money to distributing acceptance propaganda. Even their flood of lectures and pamphlets proved insufficient, and in 1919 Paul Warburg organized the American Acceptance Council, which was devoted entirely to acceptance propaganda.
The first convention held by this association at Detroit, Michigan, on June 9, 1919, coincided with the annual convention of the National Association of Credit Men, held there on that date, so that "interested observers might with facility participate in the lectures and meetings of both groups," according to a pamphlet issued by the American Acceptance Council.
Paul Warburg was elected President of this organization, and later became chairman of the Executive Committee of the American Acceptance Council, a position which he held until his death in 1932. The Council published lists of corporations using trade acceptances, all of them businesses in which Kuhn, Loeb Co. or its affiliates held control. Lectures given before the Council or by members of the Council were attractively bound and distributed free by the National City Bank of New York to the country’s businessmen.
Louis T. McFadden, Chairman of the House Banking and Currency Committee, charged in 1922 that the American Acceptance Council was
exercising undue influence on the Federal Reserve Board and called for a Congressional investigation, but Congress was not interested.
At the second annual convention of the American Acceptance Council, held in New York on December 2, 1920, President Paul Warburg stated:
"It is a great satisfaction to report that during the year under review it was possible for the
American Acceptance Council to further develop and strengthen its relations with the Federal
During the 1920s Paul Warburg, who had resigned from the Federal Reserve Board after holding a position as Governor for a year in wartime, continued to exercise direct personal influence on the Federal Reserve Board by meeting with the Board as President of the Federal Advisory Council and as President of the American Acceptance Council. He was, from its organization in 1920 until his death in 1932, Chairman of the Board of the International Acceptance Bank of New York, the largest acceptance bank in the world. His brother, Felix M. Warburg, also a partner in Kuhn, Loeb Co., was director of the International Acceptance Bank and Paul’s son, James Paul Warburg, was Vice-President. Paul Warburg was also a director on other important acceptance banks in this country, such as Westinghouse Acceptance Bank, which were organized in the United States immediately after the World War, when the headquarters of the international acceptance market was moved from London to New York, and Paul Warburg became the most powerful acceptance banker in the world.
Paul Warburg became an even more legendary figure by his memorialization as "Daddy Warbucks" in the comic strip, "Little Orphan Annie". The strip celebrated a homeless waif and her dog who are adopted by "the richest man in the world", Daddy Warbucks, a takeoff on "Warburg", who has almost magical powers and can accomplish anything by the power of his limitless wealth. Those in the know snickered when "Annie", the musical comedy version of this story, had a highly successful run of several years on Broadway, because the vast majority of the audience had no idea that this was merely another Warburg operation.
It was the transference of the acceptance market from England to this country which gave rise to Thomas Lamont’s ecstatic speech before the Academy of Political Science in 1917 that:
"The dollar, not the pound, is now the basis for international exchange."
Americans were proud to hear that, but they did not realize at what a price.
Visible proof of the undue influence of the American Acceptance Council on the Federal Reserve Board, about which Congressman McFadden complained, is the chart showing the rate-pattern of the
Federal Reserve Bank of New York during the 1920s. The Bank’s official discount rate follows exactly for nine years the ninety-day bankers’ acceptance rate, and the Federal Reserve Bank of New York sets the discount rate for the rest of the Reserve Banks.
Throughout the 1920s the Board of Governors retained two of its first members, C.S. Hamlin and Adolph C. Miller. These men found themselves careers as arbiters of the nation’s monetary policy. Hamlin was on the Board from 1914 until 1936, when he was appointed Special Counsel to the Board, while Miller served from 1914 until 1931. These two men were allowed to stay on the Board so many years because they were both eminently respectable men who gave the Board a certain prestige in the eyes of the public. During these years one important banker after another came on the Board, served for awhile, and went on to better things. Neither Miller nor Hamlin ever objected to anything that the New York bankers wanted. They changed the discount rate and they performed open market operation with Government securities whenever Wall Street wanted them to. Behind them was the figure of Paul Warburg, who exercised a continuous and dominant influence as President of the Federal Advisory Council, on which he had such men of common interests with himself as Winthrop Aldrich and J.P. Morgan. Warburg was never too occupied with his duties of organizing the big international trusts to supervise the nation’s financial structures. His influence from 1902, when he arrived in this country as immigrant from Germany, until 1932, the year of his death, was dependent on his European alliance with the banking cartel. Warburg’s son, James Paul Warburg, continued to exercise such influence, being appointed Franklin D. Roosevelt’s Director of the Budget when that great man assumed office in 1933, and setting up the Office of War Information, our official propaganda agency during the Second World War.
In The Fight for Financial Supremacy, Paul Einzig, editorial writer for the London Economist, wrote that:
"Almost immediately after World War I a close cooperation was established between the Bank of
England and the Federal Reserve authorities, and more especially with the Federal Reserve Bank
of New York.* This cooperation was largely due to the cordial relations existing between Mr.
Montagu Norman of the Bank of England and Mr. Benjamin Strong, Governor of the Federal
Reserve Bank of New York until 1928. On several occasions the discount rate policy of the
Federal Reserve Bank of New York was guided by a desire to help the Bank of England.
* William Boyce Thompson (Wall Street operator) commented to Clarence Barron, Nov. 27, 1920, "Why should the Federal Reserve Bank have private wires all over the country and talk daily by cable with the Bank of England?" p. 327 "They Told Barron".
There has been close cooperation in the fixing of discount rates between London and NewYork."86
86 Paul Einzig, The Fight For Financial Supremacy, Macmillan, 1931
Lord Montagu Norman
The collaboration between Benjamin Strong and Lord Montagu Norman is one of the greatest secrets of the twentieth century. Benjamin Strong married the daughter of the president of Bankers Trust in New York, and subsequently succeeded to its presidency. Carroll Quigley, in Tragedy and Hope says: "Strong became Governor of the Federal Reserve Bank of New York as the joint nominee of Morgan and of Kuhn, Loeb Company in 1914."87
Lord Montagu Norman is the only man in history who had both his maternal grandfather and his paternal grandfather serve as Governors of the Bank of England. His father was with Brown, Shipley Company, the London Branch of Brown Brothers (now Brown Brothers Harriman). Montagu Norman (1871-1950) came to New York to work for Brown Brothers in 1894, where he was befriended by the Delano family, and by James Markoe, of Brown Brothers. He returned to England, and in 1907 was named to the Court of the Bank of England. In 1912, he had a nervous breakdown, and went to Switzerland to be treated by Jung, as was fashionable among the powerful group which he represented.*
Lord Montagu Norman was Governor of the Bank of England from 1916 to 1944. During this period, he participated in the central bank conferences which set up the Crash of 1929 and a worldwide depression. In The Politics of Money by Brian Johnson, he writes, "Strong and Norman, intimate friends, spent their holidays together at Bar Harbour and in the South of France." Johnson says, "Norman therefore became Strong’s alter ego. . . . "Strong’s easy money policies on the New York money market from 1925-28 were the fulfillment of his agreement with Norman to keep New York interest rates below those of London. For the sake of international cooperation, Strong withheld the steadying hand of high interest rates from New York until it was too late. Easy money in New
87 Carroll Quigley, Tragedy and Hope, Macmillan, New York, p. 326
* When people of this class are stricken by guilt feelings while plotting world wars and economic depressions which will bring misery, suffering and death to millions of the world’s inhabitants, they sometimes have qualms. These qualms are jeered at by their peers as "a failure of nerve". After a bout with their psychiatrists, they return to their work with renewed gusto, with no further digressions of pity for "the little people" who are to be their victims.
York had encouraged the surging American boom of the late 1920s, with its fantastic heights of speculation."88
Benjamin Strong died suddenly in 1928. The New York Times obituary, Oct. 17, 1928, describes the conference between the directors of the three great central banks in Europe in July, 1927, "Mr. Norman, Bank of England, Strong of the New York Federal Reserve Bank, and Dr. Hjalmar Schacht of the Reichsbank, their meeting referred to at the time as a meeting of ‘the world’s most exclusive club’. No public reports were ever made of the foreign conferences, which were wholly informal, but which covered many important questions of gold movements, the stability of world trade, and world economy."
The meetings at which the future of the world’s economy are decided are always reported as being "wholly informal", off the record, no reports made to the public, and on the rare occasions when outraged Congressmen summon these mystery figures to testify about their activities they merely trace the outline of steps taken, and develop no information about what was really said or decided.
At the Senate Hearings on the Federal Reserve System in 1931, H. Parker Willis, one of the authors and First Secretary of the Federal Reserve Board from 1914 until 1920, pointedly asked Governor George Harrison, Strong’s successor as Governor of the Federal Reserve Bank of New York:
"What is the relationship between the Federal Reserve Bank of New York and the money
committee of the Stock Exchange?"
"There is no relationship," Governor Harrison replied.
"There is no assistance or cooperation in fixing the rate in any way?", asked Willis.
"No," said Governor Harrison, "although on various occasions they advise us of the state of the
money situation, and what they think the rate ought to be." This was an absolute contradiction of
his statement that "There is no relationship". The Federal Reserve Bank of New York which set
the discount rate for the other Reserve Banks, actually maintained a close liaison with the money
committee of the Stock Exchange.
The House Stabilization Hearings of 1928 proved conclusively that the Governors of the Federal Reserve System had been holding conferences with heads of the big European central banks. Even had the Congressmen known the details of the plot which was to culminate in the Great Depression of 1929-31, there would have been nothing they could have done to stop it. The international bankers who controlled gold movements could inflict their will on any country, and the United States was as helpless as any other.
Notes from these House Hearings follow:
88 Brian Johnson, The Politics of Money, McGraw Hill, New York, 1970, p. 63.
MR. BEEDY: "I notice on your chart that the lines which produce the most violent fluctuations are found under ‘Money Rates in New York.’ As the rates of money rise and fall in the big cities the loans that are made on investments seem to take advantage of them, at present, a quite violent change, while industry in general does not seem to avail itself of these violent changes, and that line is fairly even, there being no great rises or declines.
GOVERNOR ADOLPH MILLER: This was all more or less in the interests of the international situation. They sold gold credits in New York for sterling balances in London.
REPRESENTATIVE STRONG: (No relation to Benjamin): Has the Federal Reserve Board the power to attract gold to this country?
E.A. GOLDENWEISER, research director for the Board: The Federal Reserve Board could attract gold to this country by making money rates higher.
GOVERNOR ADOLPH MILLER: I think we are very close to the point where any further solicitude on our part for the monetary concerns of Europe can be altered. The Federal Reserve Board last summer, 1927, set out by a policy of open market purchases, followed in course by reduction on the discount rate at the Reserve Banks, to ease the credit situation and to cheapen the cost of money. The official reasons for that departure in credit policy were that it would help to stabilize international exchange and stimulate the exportation of gold.
CHAIRMAN MCFADDEN: Will you tell us briefly how that matter was brought to the Federal Reserve Board and what were the influences that went into the final determination?
GOVERNOR ADOLPH MILLER: You are asking a question impossible for me to answer.
CHAIRMAN MCFADDEN: Perhaps I can clarify it--where did the suggestion come from that caused this decision of the change of rates last summer?
GOVERNOR ADOLPH MILLER: The three largest central banks in Europe had sent representatives to this country. There were the Governor of the Bank of England, Mr. Hjalmar Schacht, and Professor Rist, Deputy Governor of the Bank of France. These gentlemen were in conference with officials of the Federal Reserve Bank of New York. After a week or two, they appeared in Washington for the better part of a day. They came down the evening of one day and were the guests of the Governors of the Federal Reserve Board the following day, and left that afternoon for New York.
CHAIRMAN MCFADDEN: Were the members of the Board present at this luncheon?
GOVERNOR ADOLPH MILLER: Oh, yes, it was given by the Governors of the Board for the purpose of bringing all of us together.
CHAIRMAN MCFADDEN: Was it a social affair, or were matters of importance discussed?
GOVERNOR MILLER: I would say it was mainly a social affair. Personally, I had a long conversation with Dr. Schacht alone before the luncheon, and also one of considerable length with Professor Rist. After the luncheon I began a conversation with Mr. Norman, which was joined in by Governor Strong of New York.
CHAIRMAN MCFADDEN: Was that a formal meeting of the Board?
GOVERNOR ADOLPH MILLER: No.
CHAIRMAN MCFADDEN: It was just an informal discussion of the matters they had been discussing in New York?
GOVERNOR MILLER: I assume so. It was mainly a social occasion. What I said was mainly in the nature of generalities. The heads of these central banks also spoke in generalities.
MR. KING: What did they want?
GOVERNOR MILLER: They were very candid in answers to questions. I wanted to have a talk with Mr. Norman, and we both stayed behind after luncheon, and were joined by the other foreign representatives and the officials of the New York Reserve Bank. These gentlemen were all pretty concerned with the way the gold standard was working. They were therefore desirous of seeing an easy money market in New York and lower rates, which would deter gold from moving from Europe to this country. That would be very much in the interest of the international money situation which then existed.
MR. BEEDY: Was there some understanding arrived at between the representatives of these foreign banks and the Federal Reserve Board or the New York Federal Reserve Bank?
GOVERNOR MILLER: Yes.
MR. BEEDY: It was not reported formally?
GOVERNOR MILLER: No. Later, there came a meeting of the Open-Market Policy Committee, the investment policy committee of the Federal Reserve System, by which and to which certain recommendations were made. My recollection is that about eighty million dollars worth of securities were purchased in August consistent with this plan.
CHAIRMAN MCFADDEN: Was there any conference between the members of the Open Market Committee and those bankers from abroad?
GOVERNOR MILLER: They may have met them as individuals, but not as a committee.
MR. KING: How does the Open-Market Committee get its ideas?
GOVERNOR MILLER: They sit around and talk about it. I do not know whose idea this was. It was distinctly a time in which there was a cooperative spirit at work.
CHAIRMAN MCFADDEN: You have outlined here negotiations of very great importance.
GOVERNOR MILLER: I should rather say conversations.
CHAIRMAN MCFADDEN: Something of a very definite character took place?
GOVERNOR MILLER: Yes.
CHAIRMAN MCFADDEN: A change of policy on the part of our whole financial system which has resulted in one of the most unusual situations that has ever confronted this country financially (the stock market speculation boom of 1927-1929). It seems to me that a matter of that importance should have been made a matter of record in Washington.
GOVERNOR MILLER: I agree with you.
REPRESENTATIVE STRONG: Would it not have been a good thing if there had been a direction that those powers given to the Federal Reserve System should be used for the continued stabilization of the purchasing power of the American dollar rather than be influenced by the interests of Europe?
GOVERNOR MILLER: I take exception to that term "influence". Besides, there is no such thing as stabilizing the American dollar without stabilizing every other gold currency. They are tied together by the gold standard. Other eminent men who come here are very adroit in knowing how to approach the folk who make up the personnel of the Federal Reserve Board.
MR. STEAGALL: The visit of these foreign bankers resulted in money being cheaper in New York?
GOVERNOR MILLER: Yes, exactly.
CHAIRMAN MCFADDEN: I would like to put in the record all who attended that luncheon in Washington.
GOVERNOR MILLER: In addition to the names I have given you, there was also present one of the younger men from the Bank of France. I think all members of the Federal Reserve Board were there. Under Secretary of the Treasury Ogden Mills was there, and the Assistant Secretary of the Treasury, Mr. Schuneman, also, two or three men from the State Department and Mr. Warren of the Foreign Department of the Federal Reserve Bank of New York. Oh yes, Governor Strong was present.
CHAIRMAN MCFADDEN: This conference, of course, with all of these foreign bankers did not just happen. The prominent bankers from Germany, France, and England came here at whose suggestion?
GOVERNOR MILLER: A situation had been created that was distinctly embarrassing to London by reason of the impending withdrawal of a certain amount of gold which had been recovered by France and that had originally been shipped and deposited in the Bank of England by the French Government as a war credit. There was getting to be some tension of mind in Europe because France was beginning to put her house in order for a return to the gold standard. This situation was one which called for some moderating influence.
MR. KING: Who was the moving spirit who got those people together?
GOVERNOR MILLER: That is a detail with which I am not familiar.
REPRESENTATIVE STRONG: Would it not be fair to say that the fellows who wanted the gold were the ones who instigated the meeting?
GOVERNOR MILLER: They came over here.
REPRESENTATIVE STRONG: The fact is that they came over here, they had a meeting, they banqueted, they talked, they got the Federal Reserve Board to lower the discount rate, and to make the purchases in the open market, and they got the gold.
MR. STEAGALL: Is it true that action stabilized the European currencies and upset ours?
GOVERNOR MILLER: Yes, that was what it was intended to do.
CHAIRMAN MCFADDEN: Let me call your attention to the recent conference in Paris at which Mr. Goldenweiser, director of research for the Federal Reserve Board, and Dr. Burgess, assistant Federal Reserve Agent of the Federal Reserve Bank of New York, were in consultation with the representatives of the other central banks. Who called the conference?
GOVERNOR MILLER: My recollection is that it was called by the Bank of France.
GOVERNOR YOUNG: No, it was the League of Nations who called them together."
The secret meeting between the Governors of the Federal Reserve Board and the heads of the European central banks was not called to stabilize anything. It was held to discuss the best way of getting the gold held in the United States by the System back to Europe to force the nations of that continent back on the gold standard. The League of Nations had not yet succeeded in doing that, the objective for which that body was set up in the first place, because the Senate of the United States
had refused to let Woodrow Wilson betray us to an international monetary authority. It took the Second World War and Franklin D. Roosevelt to do that. Meanwhile, Europe had to have our gold and the Federal Reserve System gave it to them, five hundred million dollars worth. The movement of that gold out of the United States caused the deflation of the stock boom, the end of the business prosperity of the 1920s and the Great Depression of 1929-31, the worst calamity which has ever befallen this nation. It is entirely logical to say that the American people suffered that depression as a punishment for not joining the League of Nations. The bankers knew what would happen when that five hundred million dollars worth of gold was sent to Europe. They wanted the Depression because it put the business and finance of the United States in their hands.
The Hearings continue:
MR. BEEDY: "Mr. Ebersole of the Treasury Department concluded his remarks at the dinner we attended last night by saying that the Federal Reserve System did not want stabilization and the American businessman did not want it. They want these fluctuations in prices, not only in securities but in commodities, in trade generally, because those who are now in control are making their profits out of that very instability. If control of these people does not come in a legitimate way, there may be an attempt to produce it by general upheavals such as have characterized society in days gone by. Revolutions have been promoted by dissatisfaction with existing conditions, the control being in the hands of the few, and the many paying the bills.
CHAIRMAN MCFADDEN: I have here a letter from a member of the Federal Reserve Board who was summoned to appear here. I would like to have it put in the record. It is from Governor Cunningham:
Dear Mr. Chairman:
For the past several weeks I have been confined to my home on account of illness and am
now preparing to spend a few weeks away from Washington for the purpose of hastening
Edward H. Cunningham
This is in answer to an invitation extended him to appear before our Committee. I also have a letter from George Harrison, Deputy Governor of the Federal Reserve Bank of New York.
My dear Mr. Congressman:
Governor Strong sailed for Europe last week. He had not been at all well since the first of the
year, and, while he did appear before your Committee last March, it was only shortly after that
that he suffered a very severe attack of shingles, which has sorely racked his nerves.
George L. Harrison, May 19, 1928
I also desire to place in the record a statement in the New York Journal of Commerce, dated May 22, 1928, from Washington:
‘It is stated in well-informed circles here that the chief topic being taken up by Governor Strong
of the Federal Reserve Bank of New York on his present visit to Paris is the arrangement of
stabilization credits for France, Rumania, and Yugoslavia. A second vital question Mr. Strong
will take up is the amount of gold France is to draw from this country.’"
Further questioning by Chairman McFadden about the strange illness of Benjamin Strong brought forth the following testimony from Governor Charles S. Hamlin of the Federal Reserve Board on May 23rd, 1928:
"All I know is that Governor Strong has been very ill, and he has gone over to Europe primarily,
I understand, as a matter of health. Of course, he knows well the various offices of the European
central banks and undoubtedly will call on them."
Governor Benjamin Strong died a few weeks after his return from Europe, without appearing before the Committee.
The purpose of these hearings before the House Committee on Banking and Currency in 1928 was to investigate the necessity for passing the Strong bill, presented by Representative Strong (no relation to Benjamin, the international banker), which would have provided that the Federal Reserve System be empowered to act to stabilize the purchasing power of the dollar. This had been one of the promises made by Carter Glass and Woodrow Wilson when they presented the Federal Reserve Act before Congress in 1912, and such a provision had actually been put in the Act by Senator Robert L. Owen, but Carter Glass’ House Committee on Banking and Currency had struck it out. The traders and speculators did not want the dollar to become stable, because they would no longer be able to make a profit. The citizens of this country had been led to gamble on the stock market in the 1920s because the traders had created a nationwide condition of instability.
The Strong Bill of 1928 was defeated in Congress.
The financial situation in the United States during the 1920s was characterized by an inflation of speculative values only. It was a trader-made situation. Prices of commodities remained low, despite the over-pricing of securities on the exchange.
The purchasers did not expect their securities to pay dividends. The idea was to hold them awhile and sell them at a profit. It had to stop somewhere, as Paul Warburg remarked in March, 1929. Wall Street did not let it stop until the people had put their savings into these over-priced securities. We had the spectacle of the President of the United States, Calvin Coolidge, acting as a shill for the stock market operators when he recommended to the American people that they continue buying on the
market, in 1927. There had been uneasiness about the inflated condition of the market, and the bankers showed their power by getting the President of the United States, the Secretary of the Treasury, and the Chairman of the Board of Governors of the Federal Reserve System to issue statements that brokers’ loans were not too high, and that the condition of the stock market was sound.
Irving Fisher warned us in 1927 that the burden of stabilizing prices all over the world would soon fall on the United States. One of the results of the Second World War was the establishment of an International Monetary Fund to do just that. Professor Gustav Cassel remarked in the same year that:
"The downward movement of prices has not been a spontaneous result of forces beyond our
control. It is the result of a policy deliberately framed to bring down prices and give a higher
value to the monetary unit."
The Democratic Party, after passing the Federal Reserve Act and leading us into the First World War, assumed the role of an opposition party during the 1920s. They were on the outside of the political fence, and were supported during those lean years by liberal handouts from Bernard Baruch, according to his biography. How far outside of it they were and how little chance they had in 1928, is shown by a plank in the official Democratic Party platform adopted at Houston on June 28, 1928:
"The administration of the Federal Reserve System for the advantage of the stock-market
speculators should cease. It must be administered for the benefit of farmers, wage-earners,
merchants, manufacturers, and others engaged in constructive business."
This idealism insured defeat for its protagonist, Al Smith, who was nominated by Franklin D. Roosevelt. The campaign against Al Smith also was marked by appeals to religious intolerance, because he was a Catholic. The bankers stirred up anti-Catholic sentiment all over the country to achieve the election of their World War I protégé, Herbert Hoover.
Instead of being used to promote the financial stability of the country, as had been promised by Woodrow Wilson when the Act was passed, financial instability has been steadily promoted by the Federal Reserve Board. An official memorandum issued by the Board on March 13, 1939, stated that:
"The Board of Governors of the Federal Reserve System opposes any bill which proposes a stable
Politically, the Federal Reserve Board was used to advance the election of the bankers’ candidates during the 1920s. The "Literary Digest" on August 4, 1928, said, on the occasion of the Federal Reserve Board raising the rate to five percent in a Presidential year:
"This reverses the politically desirable cheap money policy of 1927, and gives smooth conditions
on the stock market. It was attacked by the Peoples’ Lobby of Washington, D.C. which said that
‘This increase at a time when farmers needed cheap money to finance the harvesting of their
crops was a direct blow at the farmers, who had begun to get back on their feet after the
Agricultural Depression of 1920-21.
"The New York World" said on that occasion:"Criticism of Federal Reserve Board policy by many investors is not based on its attempt to deflate the stock market, but on the charge that the Board itself, by last year’s policy, is completely responsible for such stock market inflation as exists."
A damning survey of the Federal Reserve System’s first fifteen years appears in the "North American Review" of May, 1929, by H. Parker Willis, professional economist who was one of the authors of the Act and First Secretary of the Board from 1914 until 1920. He expresses complete disillusionment.
"My first talk with President-elect Wilson was in 1912. Our conversation related entirely to
banking reform. I asked whether he felt confident we could secure the administration of a
suitable law and how we should get it applied and enforced. He answered: ‘We must rely on
American business idealism.’ He sought for something which could be trusted to afford
opportunity to American Idealism. It did serve to finance the World War and to revise American
banking practices. The element of idealism that the President prescribed and believed we could
get on the principle of noblesse oblige from American bankers and businessmen was not there.
Since the inauguration of the Federal Reserve Act we have suffered one of the most serious
financial depressions and revolutions ever known in our history, that of 1920-21. We have seen
our agriculture pass through a long period of suffering and even of revolution, during which one
million farmers left their farms, due to difficulties with the price of land and the odd status of
credit conditions. We have suffered the most extensive era of bank failures ever known in this
country. Forty-five hundred banks have closed their doors since the Reserve System began
functioning. In some Western towns there have been times when all banks in that community
failed, and given banks have failed over and over again. There has been little difference in
liability to failure between members and non-members of the Federal Reserve System.
"Wilson’s choice of the first members of the Federal Reserve Board was not especially happy.
They represented a composite group chosen for the express purpose of placating this, that, or the
other big interest. It was not strange that appointees used their places to pay debts. When the
Board was considering a resolution to the effect that future members of the reserve system should
be appointed solely on merit, because of the demonstrated incompetence of some of their number.
Comptroller John Skelton Williams moved to strike out the word ‘solely’ and in this he was
sustained by the Board. The inclusion of certain elements (Warburg,
Strauss, etc.) in the Board gave an opportunity for catering to special interests that was to prove
disastrous later on.
"President Wilson erred, as he often erred, in supposing that the holding of an important office
would transform an incumbent and revivify his patriotism. The Reserve Board reached the low
ebb of the Wilson period with the appointment of a member who was chosen for his ability to get
delegates for a Democratic candidate for the Presidency. However, this level was not the dregs
reached under President Harding. He appointed an old crony, D.R. Crissinger, as Governor of the
Board, and named several other super-serviceable politicians to other places. Before his death he
had done his utmost to debauch the whole undertaking. The System has gone steadily downhill
"Reserve Banks had hardly assumed their first form when it became apparent that local bankers
had sought to use them as a means of taking care of ‘favorite sons’, that is, persons who had by
common consent become a kind of general charge upon the banking community, or inefficients
of various kinds. When reserve directors were to be chosen, the country bankers often refused to
vote, or, when they voted, cast their ballots as directed by city correspondents. In these
circumstances popular or democratic control of reserve banks was out of the question. Reasonable
efficiency might have been secured if honest men, recognizing their public duty, had assumed
power. If such men existed, they did not get on the Federal Reserve Board. In one reserve bank
today the chief management is in the hands of a man who never did a day’s actual banking in his
life, while in another reserve institution both Governor and Chairman are the former heads of now defunct banks. They naturally have a high failure record in their district. In a majority of districts the standard of performance as judged by good banking standards is disgracefully low among reserve executive officials. The policy of the Federal Reserve Bank of Philadelphia is known in the System as the ‘Friends and Relatives Banks.’
"It was while making war profits in considerable amounts that someone conceived the idea of
using the profits to provide themselves with phenomenally costly buildings. Today the Reserve
Banks must keep a full billion dollars of their money constantly at work merely to pay their own
expenses in normal times.
"The best illustration of what the System has done and not done is offered by the experience
which the country was having with speculation, in May, 1929. Three years prior to that, the
present bull market was just getting under way. In the autumn of 1926 a group of bankers, among
them one of world famous name, were sitting at a table in a Washington hotel. One of them
raised the question whether the low discount rates of the System were not likely to encourage
"‘Yes’, replied the famous banker, ‘they will, but that cannot be helped. It is the price we must
pay for helping Europe.’
"It may well be questioned whether the encouragement of speculation by the Board has been the
price paid for helping Europe or whether
it is the price paid to induce a certain class of financiers to help Europe, but in either case
European conditions should not have had anything to do with the Board’s discount policy. The
fact of the matter is that the Federal Reserve Banks do not come into contact with the community.
"The ‘small man’ from Maine to Texas has gradually been led to invest his savings in the stock
market, with the result that the rising tide of speculation, transacted at a higher and higher rate
of speed, has swept over the legitimate business of the country.
"In March, 1928, Roy A. Young, Governor of the Board, was called before a Senate committee.
‘Do you think the brokers’ loans are too high?", he was asked.
"‘I am not prepared to say whether brokers’ loans are too high or too low,’ he replied, ‘but I am
sure they are safely and conservatively made.’
"Secretary of the Treasury Mellon in a formal statement assured the country that they were not
too high, and Coolidge, using material supplied him by the Federal Reserve Board, made a plain
statement to the country that they were not too high. The Federal Reserve Board, charged with the duty of protecting the interests of the average man, thus did its utmost to assure the average man that he should feel no alarm about his savings. Yet the Federal Reserve Board issued on February 2, 1929, a letter addressed to the Reserve Bank Directors cautioning them against grave danger of further speculation.
"What could be expected from a group of men such as composed the Board, a set of men who
were solely interested in standing from under when there was any danger of friction, displaying a
bovine and canine appetite for credit and praise, while eager only to ‘stand in’ with the ‘big men’
whom they know as the masters of American finance and banking?"
H. Parker Willis omitted any reference to Lord Montague Norman and the machinations of the Bank of England which were about to result in the Crash of 1929 and the Great Depression.
Secrets of the Federal Reserve Pt. 4