THE CREATURE
FROM
JEKYLL ISLAND
A Second Look at the Federal Reserve
by G. Edward Griffin
PREFACE
A Second Look at the Federal Reserve
by G. Edward Griffin
PREFACE
Does the world really need another book on the Federal
Reserve System?
I have struggled with that question for several years. My
own library is mute testimony to the fact that there has been no
shortage of writers willing to set off into the dark forest to do
battle with the evil dragon. But, for the most part, their books
have been ignored by the mainstream, and the giant snorter
remains undaunted in his lair. There seemed to be little reason to
think that I could succeed where so many others have failed.
Yet, the idea was haunting. There was no doubt in my mind
that the Federal Reserve is one of the most dangerous creatures
ever to stalk our land. Furthermore, as my probing brought me
into contact with more and more hard data, I came to realize that
I was investigating one of the greatest "who-dunits" of history.
And, to make matters worse, I discovered who did it.
Someone has to get this story through to the public. The
problem, however, is that the public doesn't want to hear it. After
all, this is bad news, and we certainly get enough of that as it is.
Another obstacle to communication is that this tale truly is
incredible, which means unbelievable. The magnitude by which
reality deviates from the accepted myth is so great that, for most
people, it simply is beyond credibility. Anyone carrying this
message is immediately suspected of paranoia. Who will listen
to a madman?
And, finally, there is the subject matter itself. It can become
pretty complex. Well, at least that's how it seems at first.
Treatises on this topic often read like curriculum textbooks for
banking and finance. It is easy to become ensnared in a sticky
web of terminology and abstractions. Only monetary professionals
are motivated to master the new language, and even they
often find themselves in serious disagreement. For example, in a
recent letter circulated by a group of monetary experts who, for
years, have conducted an ongoing exchange of ideas regarding
monetary reform, the editor said: "It is frustrating that we
cannot find more agreement among ourselves on this vital issue.
We seem to differ so much on definitions and on, really, an unbiased, frank, honest, correct understanding of just how our
current monetary system does function."
So why am I now making my own charge into the dragon's
teeth? It's because I believe there is a definite change in the wind
of public attitude. As the gathering economic storm draws
nearer, more and more people will tune into the weather
report—even if it is bad news. Furthermore, the evidence of the
truth of this story is now so overpowering that I trust my readers
will have no choice but to accept it, all questions of sanity aside.
If the village idiot says the bell has fallen from the steeple and
comes dragging the bell behind him, well,...
Lastly, I have discovered that this subject is not as complicated
as it first appeared to be, and I am resolved to avoid the
pitfall of trodding the usual convoluted path. What follows,
therefore, will be the story of a crime, not a course on criminology
It
was intended that this book would be half its present size
and be completed in about one year. From the beginning,
however, it took on a life force of its own, and I became but a
servant to its will. It refused to stay within the confines
prescribed and, like the genie released from its bottle, grew to
enormous size. When the job was done and it was possible to
assess the entire manuscript, I was surprised to realize that four
books had been written instead of one.
First, there is a crash course on money, the basics of banking
and currency. Without that, it would be impossible to understand
the fraud that now passes for acceptable practice within
the banking system.
Second, there is a book on how the world's central banks—
the Federal Reserve being one of them—are catalysts for war.
That is what puts real fire into the subject, because it shows that
we are dealing, not with mere money, but with blood, human
suffering, and freedom itself.
Third, there is a history of central banking in America. That
is essential to a realization that the concept behind the Federal
Reserve was tried three times before in America. We need to
know that and especially need to know why those institutions
were eventually junked.
Finally, there is an analysis of the Federal Reserve itself and
its dismal record since 1913. This is probably the least important
part of all, but it is the reason we are here. It is the least
important, not because the subject lacks significance, but because it has been written before by writers far more qualified
and more skilled than I. As mentioned previously, however,
those volumes generally have remained unread except by
technical historians, and the Creature has continued to dine
upon its hapless victims.
There are seven discernible threads that are woven throughout
the fabric of this study. They represent the reasons for
abolition of the Federal Reserve System. When stated in their
purest form, without embellishment or explanation, they sound
absurd to the casual observer. It is the purpose of this book,
however, to show that these statements are all-too-easy to
substantiate.
The Federal Reserve System should be abolished for the
following reasons:
• It is incapable of accomplishing its stated objectives.
(Chapter 1.)
• It is a cartel operating against the public interest. (Chapter 3.)
• It is the supreme instrument of usury. (Chapter 10.)
• It generates our most unfair tax. (Chapter 10.)
• It encourages war. (Chapter 14.)
• It destabilizes the economy. (Chapter 23.)
• It is an instrument of totalitarianism. (Chapters 5 and 26.)
This is a story about limitless money and hidden global
power. The good news is that it is as fascinating as any work of
fiction could be, and this, I trust, will add both pleasure and
excitement to the learning process.
The bad news is that every detail of what follows is true.
G. Edward Griffin
Section I
WHAT CREATURE
IS THIS?
What is the Federal Reserve System? The answer
may surprise you. It is not federal and there are
no reserves. Furthermore, the Federal Reserve
Banks are not even banks. The key to this riddle is
to be found, not at the beginning of the story, but
in the middle. Since this is not a textbook, we are
not confined to a chronological structure. The
subject matter is not a curriculum to be mastered
but a mystery to be solved. So let us start where
the action is.
Chapter One
THE JOURNEY TO
JEKYLL ISLAND
The secret meeting on Jekyll Island in Georgia at
which the Federal Reserve was conceived; the
birth of a banking cartel to protect its members
from competition; the strategy of how to convince
Congress and the public that this cartel was an
agency of the United States government.
The New Jersey railway station was bitterly cold that night.
Flurries of the year's first snow swirled around street lights.
November wind rattled roof panels above the track shed and gave
a long, mournful sound among the rafters.
It was approaching ten P.M., and the station was nearly empty
except for a few passengers scurrying to board the last Southbound
of the day. The rail equipment was typical for that year of 1910,
mostly chair cars that converted into sleepers with cramped upper
and lower berths. For those with limited funds, coach cars were
coupled to the front. They would take the brunt of the engine's
noise and smoke that, somehow, always managed to seep through
unseen cracks. A dining car was placed between the sections as a
subtle barrier between the two classes of travelers. By today's
standards, the environment was drab. Chairs and mattresses were
hard. Surfaces were metal or scarred wood. Colors were dark green
and gray.
In their hurry to board the train and escape the chill of the
wind, few passengers noticed the activity at the far end of the
platform. At a gate seldom used at this hour of the night was a
spectacular sight. Nudged against the end-rail bumper was a long
car that caused those few who saw it to stop and stare. Its gleaming
black paint was accented with polished brass hand rails, knobs,
frames, and filigrees. The shades were drawn, but through the open
door, one could see mahogany paneling, velvet drapes, plush armchairs, and a well stocked bar. Porters with white serving coats
were busying themselves with routine chores. And there was the
distinct aroma of expensive cigars. Other cars in the station bore
numbers on each end to distinguish them from their dull brothers.
But numbers were not needed for this beauty. On the center of each
side was a small plaque bearing but a single word: ALDRICH.
The name of Nelson Aldrich, senator from Rhode Island, was
well known even in New Jersey. By 1910, he was one of the most
powerful men in Washington, D.C., and his private railway car
often was seen at the New York and New Jersey rail terminals
during frequent trips to Wall Street. Aldrich was far more than a
senator. He was considered to be the political spokesman for big
business. As an investment associate of J.P. Morgan, he had
extensive holdings in banking, manufacturing, and public utilities.
His son-in-law was John D. Rockefeller, Jr. Sixty years later, his
grandson, Nelson Aldrich Rockefeller, would become Vice President
of the United States.
When Aldrich arrived at the station, there was no doubt he was
the commander of the private car. Wearing a long, fur-collared
coat, a silk top hat, and carrying a silver-tipped walking stick, he
strode briskly down the platform with his private secretary,
Shelton, and a cluster of porters behind them hauling assorted
trunks and cases.
No sooner had the Senator boarded his car when several more
passengers arrived with similar collections of luggage. The last
man appeared just moments before the final "all aboard." He
was carrying a shotgun case.
While Aldrich was easily recognized by most of the travelers
who saw him stride through the station, the other faces were not
familiar. These strangers had been instructed to arrive separately,
to avoid reporters, and, should they meet inside the station, to
pretend they did not know each other. After boarding the train,
they had been told to use first names only so as not to reveal each
other's identity. As a result of these precautions, not even the
private-car porters and servants knew the names of these guests.
Back at the main gate, there was a double blast from the
engine's whistle. Suddenly, the gentle sensation of motion; the
excitement of a journey begun. But, no sooner had the train cleared
the platform when it shuttered to a stop. Then, to everyone's
surprise, it reversed direction and began moving toward the station again. Had they forgotten something? Was there a problem with
the engine?
A sudden lurch and the slam of couplers gave the answer. They
had picked up another car at the end of the train. Possibly the mail
car? In an instant the forward motion was resumed, and all
thoughts returned to the trip ahead and to the minimal comforts of
the accommodations.
And so, as the passengers drifted off to sleep that night to the
rhythmic clicking of steel wheels against rail, little did they dream
that, riding in the car at the end of their train, were seven men who
represented an estimated one-fourth of the total wealth of the entire
world.
This was the roster of the Aldrich car that night:
1. Nelson W. Aldrich, Republican "whip" in the Senate, Chairman
of the National Monetary Commission, business associate of J.P.
Morgan, father-in-law to John D. Rockefeller, Jr.;
2. Abraham Piatt Andrew, Assistant Secretary of the United States
Treasury;
3. Frank A. Vanderlip, president of the National City Bank of New
York, the most powerful of the banks at that time, representing
William Rockefeller and the international investment banking
house of Kuhn, Loeb & Company;
4. Henry P. Davison, senior partner of the J.P. Morgan Company;
5. Charles D. Norton, president of J.P. Morgan's First National Bank
of New York;
1
6. Benjamin Strong, head of J.P. Morgan's Bankers Trust Company;
and
7. Paul M. Warburg, a partner in Kuhn, Loeb & Company, a
representative of the Rothschild banking dynasty in England
and France, and brother to Max Warburg who was head of the
Warburg banking consortium in Germany and the Netherlands.
CONCENTRATION OF WEALTH
Centralization of control over financial resources was far
advanced by 1910. In the United States, there were two main focal
points of this control: the Morgan group and the Rockefeller group.
Within each orbit was a maze of commercial banks, acceptance
banks, and investment firms. In Europe, the same process had
proceeded even further and had coalesced into the Rothschild
group and the Warburg group. An article appeared in the New York
Times on May 3, 1931, commenting on the death of George Baker,
one of Morgan's closest associates. It said: "One-sixth of the total
wealth of the world was represented by members of the Jekyll
Island Club." The reference was only to those in the Morgan group,
(members of the Jekyll Island Club). It did not include the
Rockefeller group or the European financiers. When all of these are
combined, the previous estimate that one-fourth of the world's
wealth was represented by these groups is probably conservative.
In 1913, the year that the Federal Reserve Act became law, a
subcommittee of the House Committee on Currency and Banking,
under the chairmanship of Arsene Pujo of Louisiana, completed its
investigation into the concentration of financial power in the
United States. Pujo was considered to be a spokesman for the oil
interests, part of the very group under investigation, and did
everything possible to sabotage the hearings. In spite of his efforts,
however, the final report of the committee at large was devastating:
Your committee is satisfied from the proofs submitted ... that
there is an established and well defined identity and community of
interest between a few leaders of finance ... which has resulted in great
and rapidly growing concentration of the control of money and credit
in the hands of these few men....
Under our system of issuing and distributing corporate securities
the investing public does not buy directly from the corporation. The
securities travel from the issuing house through middlemen to the
investor. It is only the great banks or bankers with access to the
mainsprings of the concentrated resources made up of other people's
money, in the banks, trust companies, and life insurance companies,
and with control of the machinery for creating markets and
distributing securities, who have had the power to underwrite or
guarantee the sale of large-scale security issues. The men who through
their control over the funds of our railroad and industrial companies
are able to direct where such funds shall be kept, and thus to create
these great reservoirs of the people's money are the ones who are in a position to tap those reservoirs for the ventures in which they are
interested and to prevent their being tapped for purposes which they
do not approve....
When we consider, also, in this connection that into these
reservoirs of money and credit there flow a large part of the reserves of
the banks of the country, that they are also the agents and
correspondents of the out-of-town banks in the loaning of their
surplus funds in the only public money market of the country, and
that a small group of men and their partners and associates have now
further strengthened their hold upon the resources of these
institutions by acquiring large stock holdings therein, by
representation on their boards and through valuable patronage, we
begin to realize something of the extent to which this practical and
effective domination and control over our greatest financial, railroad
and industrial corporations has developed, largely within the past five
years, and that it is fraught with peril to the welfare of the country.1
1- Herman E. Krooss, ed.. Documentary History of Currency and Banking in the United
States (New York: Chelsea House, 1983), Vol. Ill, "Final Report from the Pujo
Committee, February 28,1913," pp. 222-24.
Such was the nature of the wealth and power represented by
those seven men who gathered in secret that night and traveled in
the luxury of Senator Aldrich's private car.
DESTINATION JEKYLL ISLAND
As the train neared its destination of Raleigh, North Carolina,
the next afternoon, it slowed and then stopped in the switching
yard just outside the station terminal. Quickly, the crew threw a
switch, and the engine nudged the last car onto a siding where, just
as quickly, it was uncoupled and left behind. When passengers
stepped onto the platform at the terminal a few moments later,
their train appeared exactly as it had been when they boarded.
They could not know that their traveling companions for the night,
at that very instant, were joining still another train which, within
the hour, would depart Southbound once again.
The elite group of financiers was embarked on a thousand-mile
journey that led them to Atlanta, then to Savannah and, finally, to
the small town of Brunswick, Georgia. At first, it would seem that
Brunswick was an unlikely destination. Located on the Atlantic
seaboard, it was primarily a fishing village with a small but lively
port for cotton and lumber. It had a population of only a few
thousand people. But, by that time, the Sea Islands that sheltered the coast from South Carolina to Florida already had become
popular as winter resorts for the very wealthy. One such island, just
off the coast of Brunswick, had recently been purchased by J.P.
Morgan and several of his business associates, and it was here that
they came in the fall and winter to hunt ducks or deer and to escape
the rigors of cold weather in the North. It was called Jekyll Island.
When the Aldrich car was uncoupled onto a siding at the small
Brunswick station, it was, indeed, conspicuous. Word traveled
quickly to the office of the town's weekly newspaper. While the
group was waiting to be transferred to the dock, several people
from the paper approached and began asking questions. Who were
Mr. Aldrich's guests? Why were they here? Was there anything
special happening? Mr. Davison, who was one of the owners of
Jekyll Island and who was well known to the local paper, told them
that these were merely personal friends and that they had come for
the simple amusement of duck hunting. Satisfied that there was no
real news in the event, the reporters returned to their office.
Even after arrival at the remote island lodge, the secrecy
continued. For nine days the rule for first-names-only remained in
effect. Full-time caretakers and servants had been given vacation,
and an entirely new, carefully screened staff was brought in for the
occasion. This was done to make absolutely sure that none of the
servants might recognize by sight the identities of these guests. It is
difficult to imagine any event in history—including preparation for
war—that was shielded from public view with greater mystery and
secrecy.
The purpose of this meeting on Jekyll Island was not to hunt
ducks. Simply stated, it was to come to an agreement on the
structure and operation of a banking cartel. The goal of the cartel,
as is true with all of them, was to maximize profits by minimizing
competition between members, to make it difficult for new competitors
to enter the field, and to utilize the police power of
government to enforce the cartel agreement. In more specific terms,
the purpose and, indeed, the actual outcome of this meeting was to
create the blueprint for the Federal Reserve System.
THE STORY IS CONFIRMED
For many years after the event, educators, commentators, and
historians denied that the Jekyll Island meeting ever took place.
Even now, the accepted view is that the meeting was relatively unimportant, and only paranoid unsophisticates would try to make
anything out of it. Ron Chernow writes: "The Jekyll Island meeting
would be the fountain of a thousand conspiracy theories."[1] Little
by little, however, the story has been pieced together in amazing
detail, and it has come directly or indirectly from those who
actually were there. Furthermore, if what they say about their own
purposes and actions does not constitute a classic conspiracy, then
there is little meaning to that word.
1. Ron Chernow, The House of Morgan: An American Banking Dynasty and the Rise of
Modem Finance (New York: Atlantic Monthly Press, 1990), p. 129.
The first leak regarding this meeting found its way into print in
1916. It appeared in Leslie's Weekly and was written by a young
financial reporter by the name of B.C.Forbes, who later founded
Forbes Magazine. The article was primarily in praise of Paul
Warburg, and it is likely that Warburg let the story out during
conversations with the writer. At any rate, the opening paragraph
contained a dramatic but highly accurate summary of both the
nature and purpose of the meeting:
Picture a party of the nation's greatest bankers stealing out of New
York on a private railroad car under cover of darkness, stealthily
hieing hundreds of miles South, embarking on a mysterious launch,
sneaking on to an island deserted by all but a few servants, living there
a full week under such rigid secrecy that the names of not one of them
was once mentioned lest the servants learn the identity and disclose to
the world this strangest, most secret expedition in the history of
American finance.
I am not romancing. I am giving to the world, for the first time, the
real story of how the famous Aldrich currency report, the foundation
of our new currency system, was written.[2]
2. "Men Who Are Making America/' by B.C. Forbes, Leslie's Weekly, October 19,
1916, p. 423.
In 1930, Paul Warburg wrote a massive book—1750 pages in
all—entitled The Federal Reserve System, Its Origin and Growth. In this
tome, he described the meeting and its purpose but did not
mention either location or the names of those who attended. But
he did say: "The results of the conference were entirely confidential.
Even the fact there had been a meeting was not permitted to
become public." Then, in a footnote he added: "Though eighteen
years have since gone by, I do not feel free to give a description of this most interesting conference concerning which Senator Aldrich
pledged all participants to secrecy."3
An interesting insight to Paul Warburg's attendance at the
Jekyll Island meeting came thirty-four years later, in a book written
by his son, James. James had been appointed by F.D.R. as Director
of the Budget and, during World War II, as head of the Office of
War Information. In his book he described how his father, who
didn't know one end of a gun from the other, borrowed a shotgun
from a friend and carried it with him to the train to disguise himself
as a duck hunter.4
This part of the story was corroborated in the official biography
of Senator Aldrich, written by Nathaniel Wright Stephenson:
In the autumn of 1910, six men in addition to Aldrich went out to
shoot ducks. That is to say, they told the world that was their purpose.
Mr. Warburg, who was of the number, gives an amusing account of his
feelings when he boarded a private car in Jersey City, bringing with
him all the accouterments of a duck shooter. The joke was in the fact
that he had never shot a duck in his life and had no intention of
shooting any.... The duck shoot was a blind.5
Stephenson continues with a description of the encounter at
Brunswick station. He tells us that, shortly after they arrived, the
station master walked into the private car and shocked them by his
apparent knowledge of the identities of everyone on board. To
make matters even worse, he said that a group of reporters were
waiting outside. Davison took charge. "Come outside, old man," he
said, "and I will tell you a story." No one claims to know what story
was told standing on the railroad ties that morning, but a few
moments later Davison returned with a broad smile on his face.
"It's all right," he said reassuringly. "They won't give us away."
Stephenson continues: "The rest is silence. The reporters dispersed,
and the secret of the strange journey was not divulged. No
one asked him how he managed it and he did not volunteer the
information."
In the February 9, 1935, issue of the Saturday Evening Post, an
article appeared written by Frank Vanderlip. In it he said:
Despite my views about the value to society of greater publicity
for the affairs of corporations, there was an occasion, near the close of
1910, when I was as secretive—indeed, as furtive—as any
conspirator.... I do not feel it is any exaggeration to speak of our secret
expedition to Jekyll Island as the occasion of the actual conception of
what eventually became the Federal Reserve System....
We were told to leave our last names behind us. We were told,
further, that we should avoid dining together on the night of our
departure. We were instructed to come one at a time and as
unobtrusively as possible to the railroad terminal on the New Jersey
littoral of the Hudson, where Senator Aldrich's private car would be in
readiness, attached to the rear end of a train for the South....
Once aboard the private car we began to observe the taboo that
had been fixed on last names. We addressed one another as "Ben,"
"Paul," "Nelson," "Abe"—it is Abraham Piatt Andrew. Davison and I
adopted even deeper disguises, abandoning our first names. On the
theory that we were always right, he became Wilbur and I became
Orville, after those two aviation pioneers, the Wright brothers....
The servants and train crew may have known the identities of one
or two of us, but they did not know all, and it was the names of all
printed together that would have made our mysterious journey
significant in Washington, in Wall Street, even in London. Discovery,
we knew, simply must not happen, or else all our time and effort
would be wasted. If it were to be exposed publicly that our particular
group had got together and written a banking bill, that bill would have
no chance whatever of passage by Congress. [7]
THE STRUCTURE WAS PURE CARTEL
The composition of the Jekyll Island meeting was a classic
example of cartel structure. A cartel is a group of independent
businesses which join together to coordinate the production,
pricing, or marketing of their members. The purpose of a cartel is to
reduce competition and thereby increase profitability. This is
accomplished through a shared monopoly over their industry
which forces the public to pay higher prices for their goods or
services than would be otherwise required under free-enterprise
competition.
Here were representatives of the world's leading banking
consortia: Morgan, Rockefeller, Rothschild, Warburg, and KuhnLoeb.
They were often competitors, and there is little doubt that
there was considerable distrust between them and skillful maneuvering
for favored position in any agreement. But they were driven
together by one overriding desire to fight their common enemy.
The enemy was competition.
In 1910, the number of banks in the United States was growing
at a phenomenal rate. In fact, it had more than doubled to over
twenty thousand in just the previous ten years. Furthermore, most
of them were springing up in the South and West, causing the New
York banks to suffer a steady decline of market share. Almost all
banks in the 1880's were national banks, which means they were
chartered by the federal government. Generally, they were located
in the big cities, and were allowed by law to issue their own
currency in the form of bank notes. Even as early as 1896, however,
the number of non-national banks had grown to sixty-one per cent,
and they already held fifty-four per cent of the country's total
banking deposits. By 1913, when the Federal Reserve Act was
passed, those numbers were seventy-one per cent non-national
banks holding fifty-seven per cent of the deposits.8 In the eyes of
those duck hunters from New York, this was a trend that simply
had to be reversed.
Competition also was coming from a new trend in industry to
finance future growth out of profits rather than from borrowed
capital. This was the outgrowth of free-market interest rates which
set a realistic balance between debt and thrift. Rates were low
enough to attract serious borrowers who were confident of the
success of their business ventures and of their ability to repay, but
they were high enough to discourage loans for frivolous ventures
or those for which there were alternative sources of funding—for
example, one's own capital. That balance between debt and thrift
was the result of a limited money supply. Banks could create loans
in excess of their actual deposits, as we shall see, but there was a
limit to that process. And that limit was ultimately determined by
the supply of gold they held. Consequently, between 1900 and
1910, seventy per cent of the funding for American corporate growth was generated internally, making industry increasingly
independent of the banks.9 Even the federal government was
becoming thrifty. It had a growing stockpile of gold, was systematically
redeeming the Greenbacks—which had been issued during
the Civil War—and was rapidly reducing the national debt.
Here was another trend that had to be halted. What the bankers
wanted—and what many businessmen wanted also—was to intervene
in the free market and tip the balance of interest rates
downward, to favor debt over thrift. To accomplish this, the money
supply simply had to be disconnected from gold and made more
plentiful or, as they described it, more elastic.
THE SPECTER OF BANK FAILURE
The greatest threat, however, came, not from rivals or private
capital formation, but from the public at large in the form of what
bankers call a run on the bank. This is because, when banks accept a
customer's deposit, they give in return a "balance" in his account.
This is the equivalent of a promise to pay back the deposit anytime
he wants. Likewise, when another customer borrows money from
the bank, he also is given an account balance which usually is
withdrawn immediately to satisfy the purpose of the loan. This
creates a ticking time bomb because, at that point, the bank has
issued more promises to "pay-on-demand" than it has money in
the vault. Even though the depositing customer thinks he can get
his money any time he wants, in reality it has been given to the
borrowing customer and no longer is available at the bank.
The problem is compounded further by the fact that banks are
allowed to loan even more money than they have received in
deposit. The mechanism for accomplishing this seemingly impossible
feat will be described in a later chapter, but it is a fact of modern
banking that promises-to-pay often exceed savings deposits by a
factor of ten-to-one. And, because only about three per cent of these
accounts are actually retained in the vault in the form of cash—the
rest having been put into even more loans and investments—the
bank's promises exceed its ability to keep those promises by a factor
of over three hundred-to-one.10 As long as only a small percentage of depositors request their money at one time, no one is the wiser.
But if public confidence is shaken, and if more than a few per cent
attempt to withdraw their funds, the scheme is finally exposed. The
bank cannot keep all its promises and is forced to close its doors.
Bankruptcy usually follows in due course.
CURRENCY DRAINS
The same result could happen—and, prior to the Federal
Reserve System, often did happen—even without depositors making
a run on the bank. Instead of withdrawing their funds at the
teller's window, they simply wrote checks to purchase goods or
services. People receiving those checks took them to a bank for
deposit. If that bank happened to be the same one from which the
check was drawn, then all was well, because it was not necessary to
remove any real money from the vault. But if the holder of the
check took it to another bank, it was quickly passed back to the
issuing bank and settlement was demanded between banks.
This is not a one-way street, however. While the Downtown
Bank is demanding payment from the Uptown Bank, the Uptown
Bank is also clearing checks and demanding payment from the
Downtown bank. As long as the money flow in both directions is
equal, then everything can be handled with simple bookkeeping.
But if the flow is not equal, then one of the banks will have to
actually send money to the other to make up the difference. If the
amount of money required exceeds a few percentage points of the
bank's total deposits, the result is the same as a run on the bank by
depositors. This demand of money by other banks rather than by
depositors is called a currency drain.
In 1910, the most common cause of a bank having to declare
bankruptcy due to a currency drain was that it followed a loan
policy that was more reckless than that of its competitors. More
money was demanded from it because more money was loaned by
it. It was dangerous enough to loan ninety per cent of their
customers' savings (keeping only one dollar in reserve out of every
ten), but that had proven to be adequate most of the time. Some
banks, however, were tempted to walk even closer to the precipice.
They pushed the ratio to ninety-two per cent, ninety -five per cent,
ninety -nine per cent. After all, the way a bank makes money is to
collect interest, and the only way to do that is to make loans. The
more loans, the better. And, so, there was a practice among some of the more reckless banks to "loan up," as they call it. Which was
another way of saying to push down their reserve ratios.
But, in 1910, such a bankers' Utopia had not yet been created. If the Downtown bank began to loan at a greater ratio to its reserves than its competitors, the amount of checks which would come back to it for payment also would be greater. Thus, the bank which pursued a more reckless lending policy had to draw against its reserves in order to make payments to the more conservative banks and, when those funds were exhausted, it usually was forced into bankruptcy.
Historian John Klein tells us that "The financial panics of 1873, 1884,1893, and 1907 were in large part an outgrowth of ... reserve pyramiding and excessive deposit creation by reserve city ... banks. These panics were triggered by the currency drains that took place in periods of relative prosperity when banks were loaned up."11 In other words, the "panics" and resulting bank failures were caused, not by negative factors in the economy, but by currency drains on the banks which were loaned up to the point where they had practically no reserves at all. The banks did not fail because the system was weak. The system failed because the banks were weak.
This was another common problem that brought these seven men over a thousand miles to a tiny island off the shore of Georgia. Each was a potentially fierce competitor, but uppermost in their minds were the so-called panics and the very real 1,748 bank failures of the preceding two decades. Somehow, they had to join forces. A method had to be devised to enable them to continue to make more promises to pay-on-demand than they could keep. To do this, they had to find a way to force all banks to walk the same distance from the edge, and, when the inevitable disasters happened, to shift public blame away from themselves. By making it appear to be a problem of the national economy rather than of private banking practice, the door then could be opened for the use of tax money rather than their own funds for paying off the losses.
Here, then, were the main challenges that faced that tiny but powerful group assembled on Jekyll Island:
1. How to stop the growing influence of small, rival banks and to insure that control over the nation's financial resources would remain in the hands of those present;
2. How to make the money supply more elastic in order to reverse the trend of private capital formation and to recapture the industrial loan market;
3. How to pool the meager reserves of the nation's banks into one large reserve so that all banks will be motivated to follow the same loan-to-deposit ratios. This would protect at least some of them from currency drains and bank runs;
4. Should this lead eventually to the collapse of the whole banking system, then how to shift the losses from the owners of the banks to the taxpayers.
5. How to convince Congress that the scheme was a measure to protect the public.
The task was a delicate one. The American people did not like the concept of a cartel. The idea of business enterprises joining together to fix prices and prevent competition was alien to the free-enterprise system. It could never be sold to the voters. But, if the word cartel was not used, if the venture could be described
A BANKERS' UTOPIA
If all banks could be forced to issue loans in the same ratio to
their reserves as other banks did, then, regardless of how small that
ratio was, the amount of checks to be cleared between them would
balance in the long run. No major currency drains would ever
occur. The entire banking industry might collapse under such a
system, but not individual banks—at least not those that were part
of the cartel. All would walk the same distance from the edge,
regardless of how close it was. Under such uniformity, no individual
bank could be blamed for failure to meet its obligations. The
blame could be shifted, instead, to the "economy" or "government
policy" or "interest rates" or "trade deficits" or the "exchange value
of the dollar" or even to the "capitalist system" itself. But, in 1910, such a bankers' Utopia had not yet been created. If the Downtown bank began to loan at a greater ratio to its reserves than its competitors, the amount of checks which would come back to it for payment also would be greater. Thus, the bank which pursued a more reckless lending policy had to draw against its reserves in order to make payments to the more conservative banks and, when those funds were exhausted, it usually was forced into bankruptcy.
Historian John Klein tells us that "The financial panics of 1873, 1884,1893, and 1907 were in large part an outgrowth of ... reserve pyramiding and excessive deposit creation by reserve city ... banks. These panics were triggered by the currency drains that took place in periods of relative prosperity when banks were loaned up."11 In other words, the "panics" and resulting bank failures were caused, not by negative factors in the economy, but by currency drains on the banks which were loaned up to the point where they had practically no reserves at all. The banks did not fail because the system was weak. The system failed because the banks were weak.
This was another common problem that brought these seven men over a thousand miles to a tiny island off the shore of Georgia. Each was a potentially fierce competitor, but uppermost in their minds were the so-called panics and the very real 1,748 bank failures of the preceding two decades. Somehow, they had to join forces. A method had to be devised to enable them to continue to make more promises to pay-on-demand than they could keep. To do this, they had to find a way to force all banks to walk the same distance from the edge, and, when the inevitable disasters happened, to shift public blame away from themselves. By making it appear to be a problem of the national economy rather than of private banking practice, the door then could be opened for the use of tax money rather than their own funds for paying off the losses.
Here, then, were the main challenges that faced that tiny but powerful group assembled on Jekyll Island:
1. How to stop the growing influence of small, rival banks and to insure that control over the nation's financial resources would remain in the hands of those present;
2. How to make the money supply more elastic in order to reverse the trend of private capital formation and to recapture the industrial loan market;
3. How to pool the meager reserves of the nation's banks into one large reserve so that all banks will be motivated to follow the same loan-to-deposit ratios. This would protect at least some of them from currency drains and bank runs;
4. Should this lead eventually to the collapse of the whole banking system, then how to shift the losses from the owners of the banks to the taxpayers.
THE CARTEL ADOPTS A NAME
Everyone knew that the solution to all these problems was a
cartel mechanism that had been devised and already put into
similar operation in Europe. As with all cartels, it had to be created
by legislation and sustained by the power of government under the
deception of protecting the consumer. The most important task
before them, therefore, can be stated as objective number five: 5. How to convince Congress that the scheme was a measure to protect the public.
The task was a delicate one. The American people did not like the concept of a cartel. The idea of business enterprises joining together to fix prices and prevent competition was alien to the free-enterprise system. It could never be sold to the voters. But, if the word cartel was not used, if the venture could be described
with words which are emotionally neutral-perhaps even alluring—then half the battle would be won.
The first decision, therefore, was to follow the practice adopted in Europe. Henceforth, the cartel would operate as a central bank. And even that was to be but a generic expression. For purposes of public relations and legislation, they would devise a name that would avoid the word bank altogether and which would conjure the image of the federal government itself. Furthermore, to create the impression that there would be no concentration of power, they would establish regional branches of the cartel and make that a main selling point. Stephenson tells us: "Aldrich entered this discussion at Jekyll Island an ardent convert to the idea of a central bank His desire was to transplant the system of one of the great European banks, say the Bank of England, bodily to America." But political expediency required that such plans be concealed from the public. As John Kenneth Galbraith explained it: "It was his [Aldrich's] thought to outflank the opposition by having not one central bank but many. And the word bank would itself be avoided." 12
With the exception of Aldrich, all of those present were bankers, but only one was an expert on the European model of a central bank. Because of this knowledge, Paul Warburg became the dominant and guiding mind throughout all of the discussions. Even a casual perusal of the literature on the creation of the Federal Reserve System is sufficient to find that he was , indeed, the cartel's mastermind. Galbraith says "... Warburg has, with some justice, been called the father of the system." 13 Professor Edwin Seligman, a member of the international banking family of J. & W. Seligman, and head of the Department of Economic's at Columbia University, writes that "in its fundamental features, the Federal Reserve Act is the work of Mr. Warburg more than any other man in the country." 14
At this distance in history, it is difficult to appreciate the importance of this man. But some understanding may be had from the fact that the legendary character, Daddy Warbucks, in the comic strip Little Orphan Annie, was a contemporary commentary on the presumed benevolence of Paul Warburg, and the almost magic ability to accomplish good through the power of his unlimited wealth.
A third brother, Max Warburg, was the financial adviser of the Kaiser and became Director of the Reichsbank in Germany. This was, of course, a central bank, and it was one of the cartel models used in the construction of the Federal Reserve System. The Reichsbank, incidentally, a few years later would create the massive hyperinflation that occurred in Germany, wiping out the middle class and the entire German economy as well.
Paul Warburg soon became well known on Wall Street as a persuasive advocate for a central bank in America. Three years before the Jekyll Island meeting, he had published several pamphlets. One was entitled Defects and Needs of Our Banking System, and the other was A Plan for A Modified Central Bank. These attracted wide attention in both financial and academic circles and set the intellectual climate for all future discussions regarding banking legislation. In these treatises, Warburg complained that the American monetary system was crippled by its dependency on gold and government bonds, both of which were in limited supply. What America needed, he argued, was an elastic money supply that could be expanded and contracted to accommodate the fluctuating needs of commerce. The solution, he said, was to follow the German example whereby banks could create currency solely on the basis of "commercial paper," which is banker language for I O.U.s from corporations.
Warburg was tireless in his efforts. He was a featured speaker before scores of influential audiences and wrote a steady stream of published articles on the subject. In March of that year, for example, The New York Times published an eleven-part series written by Warburg explaining and expounding what he called the Reserve Bank of the United States.16
This was, nevertheless, the cold reality, and the more perceptive bankers were well aware of it. In an address before the American Bankers Association the following year, Aldrich laid it out for anyone who was really listening to the meaning of his words. He said: "The organization proposed is not a bank, but a cooperative union of all the banks of the country for definite purposes."17 Precisely. A union of banks.
Two years later, in a speech before that same group of bankers, A. Barton Hepburn of Chase National Bank was even more candid. He said: "The measure recognizes and adopts the principles of a central bank. Indeed, if it works out as the sponsors of the law hope, it will make all incorporated banks together joint owners of a central dominating power."18 And that is about as good a definition of a cartel as one is likely to find.
In 1914, one year after the Federal Reserve Act was passed into law, Senator Aldrich could afford to be less guarded in his remarks. In an article published in July of that year in a magazine called The Independent, he boasted: "Before the passage of this Act, the New York bankers could only dominate the reserves of New York. Now we are able to dominate the bank reserves of the entire country."
Let us be more specific on that last point. By 1990, an annual income of $10,000 was required to buy what took only $1,000 in 1914.19 That incredible loss in value was quietly transferred to the federal government in the form of hidden taxation, and the Federal Reserve System was the mechanism by which it was accomplished.
Actions have consequences. The consequences of wealth confiscation by the Federal-Reserve mechanism are now upon us. In the current decade, corporate debt is soaring; personal debt is greater than ever; both business and personal bankruptcies are at an all-time high; banks and savings and loan associations are failing in larger numbers than ever before; interest on the national debt is consuming half of our tax dollars; heavy industry has been largely replaced by overseas competitors; we are facing an international trade deficit for the first time in our history; 75% of downtown Los Angeles and other metropolitan areas is now owned by foreigners; and over half of our nation is in a state of economic recession.
If an institution is incapable of achieving its objectives, there is no reason to preserve it—unless it can be altered in some way to change its capability. That leads to the question: why is the System incapable of achieving its stated objectives? The painful answer is: those were never its true objectives. When one realizes the circumstances under which it was created, when one contemplates the identities of those who authored it, and when one studies its actual performance over the years, it becomes obvious that the System is merely a cartel with a government facade. There is no doubt that those who run it are motivated to maintain full employment, high productivity, low inflation, and a generally sound economy. They are not interested in killing the goose that lays such beautiful golden eggs. But, when there is a conflict between the public interest and the private needs of the cartel—a conflict that arises almost daily-—the public will be sacrificed. That is the nature of the beast. It is foolish to expect a cartel to act in any other way.
This view is not encouraged by Establishment institutions and publishers. It has become their apparent mission to convince the American people that the system is not intrinsically flawed. It merely has been in the hands of bumbling oafs. For example,William Greider was a former Assistant Managing Editor for The Washington Post. His book, Secrets of The Temple, was published in 1987 by Simon and Schuster. It was critical of the Federal Reserve because of its failures, but, according to Greider, these were not caused by any defect in the System itself, but merely because the economic factors are "sooo complicated" that the good men who have struggled to make the System work have just not yet been able to figure it all out. But, don't worry, folks, they're working on it! That is exactly the kind of powder-puff criticism which is acceptable in our mainstream media. Yet, Greider's own research points to an entirely different interpretation. Speaking of the System's origin, he says:
As new companies prospered without Wall Street, so did the new regional banks that handled their funds. New York's concentrated share of bank deposits was still huge, about half the nation's total, but it was declining steadily. Wall Street was still "the biggest kid on the block," but less and less able to bully the others.
This trend was a crucial fact of history, a misunderstood reality that completely alters the political meaning of the reform legislation that created the Federal Reserve. At the time, the conventional wisdom in Congress, widely shared and sincerely espoused by Progressive reformers, was that a government institution would finally harness the "money trust," disarm its powers, and establish broad democratic control over money and credit.... The results were nearly the opposite. The money reforms enacted in 1913, in fact, helped to preserve the status quo, to stabilize the old order. Money-center bankers would not only gain dominance over the new central bank, but would also enjoy new insulation against instability and their own decline. Once the Fed was in operation, the steady diffusion of financial power halted. Wall Street maintained its dominant position—and even enhanced it.20
Anthony Sutton, former Research Fellow at the Hoover Institution for War, Revolution and Peace, and also Professor of Economics at California State University, Los Angeles, provides a somewhat deeper analysis. He writes:
Warburg's revolutionary plan to get American Society to go to work for Wall Street was astonishingly simple. Even today,... academic theoreticians cover their blackboards with meaningless equations, and the general public struggles in bewildered confusion with inflation and the coming credit collapse, while the quite simple explanation of the problem goes undiscussed and almost entirely uncomprehended. The Federal Reserve System is a legal private monopoly of the money supply operated for the benefit of the few under the guise of protecting and promoting the public interest.
The real significance of the journey to Jekyll Island and the creature that was hatched there was inadvertently summarized by the words of Paul Warburg's admiring biographer, Harold Kellock:
Paul M. Warburg is probably the mildest-mannered man that ever personally conducted a revolution. It was a bloodless revolution: he did not attempt to rouse the populace to arms. He stepped forth armed simply with an idea. And he conquered. That's the amazing thing. A shy, sensitive man, he imposed his idea on a nation of a hundred million people.21
next
THE NAME OF THE GAME IS BAILOUT 38s
The first decision, therefore, was to follow the practice adopted in Europe. Henceforth, the cartel would operate as a central bank. And even that was to be but a generic expression. For purposes of public relations and legislation, they would devise a name that would avoid the word bank altogether and which would conjure the image of the federal government itself. Furthermore, to create the impression that there would be no concentration of power, they would establish regional branches of the cartel and make that a main selling point. Stephenson tells us: "Aldrich entered this discussion at Jekyll Island an ardent convert to the idea of a central bank His desire was to transplant the system of one of the great European banks, say the Bank of England, bodily to America." But political expediency required that such plans be concealed from the public. As John Kenneth Galbraith explained it: "It was his [Aldrich's] thought to outflank the opposition by having not one central bank but many. And the word bank would itself be avoided." 12
With the exception of Aldrich, all of those present were bankers, but only one was an expert on the European model of a central bank. Because of this knowledge, Paul Warburg became the dominant and guiding mind throughout all of the discussions. Even a casual perusal of the literature on the creation of the Federal Reserve System is sufficient to find that he was , indeed, the cartel's mastermind. Galbraith says "... Warburg has, with some justice, been called the father of the system." 13 Professor Edwin Seligman, a member of the international banking family of J. & W. Seligman, and head of the Department of Economic's at Columbia University, writes that "in its fundamental features, the Federal Reserve Act is the work of Mr. Warburg more than any other man in the country." 14
THE REAL DADDY WARBUCKS
Paul Moritz Warburg was a leading member of the investment
banking firm of M.M. Warburg & Company of Hamburg,
Germany, and Amsterdam, the Netherlands. He had come to the
United States only nine years previously. Soon after arrival, however,
and with funding provided mostly by the Rothschild group,
he and his brother, Felix, had been able to buy partnerships in the
New York investment banking firm of Kuhn, Loeb & Company,
while continuing as partners in Warburg of Hamburg.15 Within
twenty years, Paul would become one of the wealthiest men in
America with an unchallenged domination over the country's
railroad system. At this distance in history, it is difficult to appreciate the importance of this man. But some understanding may be had from the fact that the legendary character, Daddy Warbucks, in the comic strip Little Orphan Annie, was a contemporary commentary on the presumed benevolence of Paul Warburg, and the almost magic ability to accomplish good through the power of his unlimited wealth.
A third brother, Max Warburg, was the financial adviser of the Kaiser and became Director of the Reichsbank in Germany. This was, of course, a central bank, and it was one of the cartel models used in the construction of the Federal Reserve System. The Reichsbank, incidentally, a few years later would create the massive hyperinflation that occurred in Germany, wiping out the middle class and the entire German economy as well.
Paul Warburg soon became well known on Wall Street as a persuasive advocate for a central bank in America. Three years before the Jekyll Island meeting, he had published several pamphlets. One was entitled Defects and Needs of Our Banking System, and the other was A Plan for A Modified Central Bank. These attracted wide attention in both financial and academic circles and set the intellectual climate for all future discussions regarding banking legislation. In these treatises, Warburg complained that the American monetary system was crippled by its dependency on gold and government bonds, both of which were in limited supply. What America needed, he argued, was an elastic money supply that could be expanded and contracted to accommodate the fluctuating needs of commerce. The solution, he said, was to follow the German example whereby banks could create currency solely on the basis of "commercial paper," which is banker language for I O.U.s from corporations.
Warburg was tireless in his efforts. He was a featured speaker before scores of influential audiences and wrote a steady stream of published articles on the subject. In March of that year, for example, The New York Times published an eleven-part series written by Warburg explaining and expounding what he called the Reserve Bank of the United States.16
THE MESSAGE WAS PLAIN
FOR THOSE WHO
UNDERSTOOD
Most of Warburg's writing and lecturing on this topic was
eyewash for the public. To cover the fact that a central bank is
merely a cartel which has been legalized, its proponents had to lay
down a thick smoke screen of technical jargon focusing always on
how it would supposedly benefit commerce, the public, and the
nation; how it would lower interest rates, provide funding for
needed industrial projects, and prevent panics in the economy.
There was not the slightest glimmer that, underneath it all, was a
master plan which was designed from top to bottom to serve
private interests at the expense of the public. This was, nevertheless, the cold reality, and the more perceptive bankers were well aware of it. In an address before the American Bankers Association the following year, Aldrich laid it out for anyone who was really listening to the meaning of his words. He said: "The organization proposed is not a bank, but a cooperative union of all the banks of the country for definite purposes."17 Precisely. A union of banks.
Two years later, in a speech before that same group of bankers, A. Barton Hepburn of Chase National Bank was even more candid. He said: "The measure recognizes and adopts the principles of a central bank. Indeed, if it works out as the sponsors of the law hope, it will make all incorporated banks together joint owners of a central dominating power."18 And that is about as good a definition of a cartel as one is likely to find.
In 1914, one year after the Federal Reserve Act was passed into law, Senator Aldrich could afford to be less guarded in his remarks. In an article published in July of that year in a magazine called The Independent, he boasted: "Before the passage of this Act, the New York bankers could only dominate the reserves of New York. Now we are able to dominate the bank reserves of the entire country."
MYTH ACCEPTED AS HISTORY
The accepted version of history is that the Federal Reserve was
created to stabilize our economy. One of the most widely-used
textbooks on this subject says: "It sprang from the panic of 1907,
with its alarming epidemic of bank failures: the country was fed up once and for all with the anarchy of unstable private banking."
Even the most naive student must sense a grave contradiction
between this cherished view and the System's actual performance.
Since its inception, it has presided over the crashes of 1921 and
1929; the Great Depression of '29 to '39; recessions in '53, '57, '69,
'75, and '81; a stock market "Black Monday" in '87; and a 1000%
inflation which has destroyed 90% of the dollar's purchasing
power. Let us be more specific on that last point. By 1990, an annual income of $10,000 was required to buy what took only $1,000 in 1914.19 That incredible loss in value was quietly transferred to the federal government in the form of hidden taxation, and the Federal Reserve System was the mechanism by which it was accomplished.
Actions have consequences. The consequences of wealth confiscation by the Federal-Reserve mechanism are now upon us. In the current decade, corporate debt is soaring; personal debt is greater than ever; both business and personal bankruptcies are at an all-time high; banks and savings and loan associations are failing in larger numbers than ever before; interest on the national debt is consuming half of our tax dollars; heavy industry has been largely replaced by overseas competitors; we are facing an international trade deficit for the first time in our history; 75% of downtown Los Angeles and other metropolitan areas is now owned by foreigners; and over half of our nation is in a state of economic recession.
FIRST REASON TO
ABOLISH THE SYSTEM
That is the scorecard eighty years after the Federal Reserve was
created supposedly to stabilize our economy! There can be no
argument that the System has failed in its stated objectives.
Furthermore, after all this time, after repeated changes in personnel,
after operating under both political parties, after numerous
experiments in monetary philosophy, after almost a hundred
revisions to its charter, and after the development of countless new
formulas and techniques, there has been more than ample opportunity
to work out mere procedural flaws. It is not unreasonable to
conclude, therefore, that the System has failed, not because it needs
a new set of rules or more intelligent directors, but because it is
incapable of achieving its stated objectives. If an institution is incapable of achieving its objectives, there is no reason to preserve it—unless it can be altered in some way to change its capability. That leads to the question: why is the System incapable of achieving its stated objectives? The painful answer is: those were never its true objectives. When one realizes the circumstances under which it was created, when one contemplates the identities of those who authored it, and when one studies its actual performance over the years, it becomes obvious that the System is merely a cartel with a government facade. There is no doubt that those who run it are motivated to maintain full employment, high productivity, low inflation, and a generally sound economy. They are not interested in killing the goose that lays such beautiful golden eggs. But, when there is a conflict between the public interest and the private needs of the cartel—a conflict that arises almost daily-—the public will be sacrificed. That is the nature of the beast. It is foolish to expect a cartel to act in any other way.
This view is not encouraged by Establishment institutions and publishers. It has become their apparent mission to convince the American people that the system is not intrinsically flawed. It merely has been in the hands of bumbling oafs. For example,William Greider was a former Assistant Managing Editor for The Washington Post. His book, Secrets of The Temple, was published in 1987 by Simon and Schuster. It was critical of the Federal Reserve because of its failures, but, according to Greider, these were not caused by any defect in the System itself, but merely because the economic factors are "sooo complicated" that the good men who have struggled to make the System work have just not yet been able to figure it all out. But, don't worry, folks, they're working on it! That is exactly the kind of powder-puff criticism which is acceptable in our mainstream media. Yet, Greider's own research points to an entirely different interpretation. Speaking of the System's origin, he says:
As new companies prospered without Wall Street, so did the new regional banks that handled their funds. New York's concentrated share of bank deposits was still huge, about half the nation's total, but it was declining steadily. Wall Street was still "the biggest kid on the block," but less and less able to bully the others.
This trend was a crucial fact of history, a misunderstood reality that completely alters the political meaning of the reform legislation that created the Federal Reserve. At the time, the conventional wisdom in Congress, widely shared and sincerely espoused by Progressive reformers, was that a government institution would finally harness the "money trust," disarm its powers, and establish broad democratic control over money and credit.... The results were nearly the opposite. The money reforms enacted in 1913, in fact, helped to preserve the status quo, to stabilize the old order. Money-center bankers would not only gain dominance over the new central bank, but would also enjoy new insulation against instability and their own decline. Once the Fed was in operation, the steady diffusion of financial power halted. Wall Street maintained its dominant position—and even enhanced it.20
Anthony Sutton, former Research Fellow at the Hoover Institution for War, Revolution and Peace, and also Professor of Economics at California State University, Los Angeles, provides a somewhat deeper analysis. He writes:
Warburg's revolutionary plan to get American Society to go to work for Wall Street was astonishingly simple. Even today,... academic theoreticians cover their blackboards with meaningless equations, and the general public struggles in bewildered confusion with inflation and the coming credit collapse, while the quite simple explanation of the problem goes undiscussed and almost entirely uncomprehended. The Federal Reserve System is a legal private monopoly of the money supply operated for the benefit of the few under the guise of protecting and promoting the public interest.
The real significance of the journey to Jekyll Island and the creature that was hatched there was inadvertently summarized by the words of Paul Warburg's admiring biographer, Harold Kellock:
Paul M. Warburg is probably the mildest-mannered man that ever personally conducted a revolution. It was a bloodless revolution: he did not attempt to rouse the populace to arms. He stepped forth armed simply with an idea. And he conquered. That's the amazing thing. A shy, sensitive man, he imposed his idea on a nation of a hundred million people.21
SUMMARY
The basic plan for the Federal Reserve System was drafted at a
secret meeting held in November of 1910 at the private resort of J.P.
Morgan on Jekyll Island off the coast of Georgia. Those who
attended represented the great financial institutions of Wall Street
and, indirectly, Europe as well. The reason for secrecy was simple.
Had it been known that rival factions of the banking community
had joined together, the public would have been alerted to the
possibility that the bankers were plotting an agreement in restraint
of trade—which, of course, is exactly what they were doing. What
emerged was a cartel agreement with five objectives: stop the
growing competition from the nation's newer banks; obtain a
franchise to create money out of nothing for the purpose of lending;
get control of the reserves of all banks so that the more reckless
ones would not be exposed to currency drains and bank runs; get
the taxpayer to pick up the cartel's inevitable losses; and convince
Congress that the purpose was to protect the public. It was realized
that the bankers would have to become partners with the politicians
and that the structure of the cartel would have to be a central
bank. The record shows that the Fed has failed to achieve its stated
objectives. That is because those were never its true goals. As a
banking cartel, and in terms of the five objectives stated above, it
has been an unqualified success. next
THE NAME OF THE GAME IS BAILOUT 38s
1. Ron Chernow, The House of Morgan: An American Banking Dynasty and the Rise of Modem Finance (New York: Atlantic Monthly Press, 1990), p. 129.
2. "Men Who Are Making America/' by B.C. Forbes, Leslie's Weekly, October 19, 1916, p. 423.
3. Paul Warburg, The Federal Reserve System: Its Origin and Growth (New YorkMacmil an, 1930), Vol. I, p. 58. It is apparent that Warburg wrote this line two years before the book was published.
4. James Warburg, The Long Road Home (New York: Doubleday, 1964) p 29
5. Nathaniel Wright Stephenson, Nelson W. Aldrich in American Politics\New YorkScnbners, 1930; rpt. New York: Kennikat Press, 1971), p. 373.
6. Stephenson, p. 376.
7.. "From Farm Boy to Financier," by Frank A. Vanderlip, The Saturday Evening
Post, Feb. 9, 1933, pp. 25, 70. The identical story was told two years later in
Vanderlip's book bearing the same title as the article (New York: D. AppletonCentury
Company, 1935), pp. 210-219.
8. See Gabriel Kolko, The Triumph of Conservatism (New York: The Free Press of
Glencoe, a division of the Macmillan Co., 1963), p. 140.
9. William Greider, Secrets of the Temple (New York: Simon and Schuster, 1987), p.
274, 275. Also Kolko, p. 145.
10. Another way of putting it is that their reserves are underfunded by over
33,333% (10-to-l divided by .03 = 333.333-tol. That divided by .01 = 33,333%.)
11. See Vera C. Smith, The Rationale of Central Banking (London: P.S. King & Son, 1936), p. 36.
12. Stephenson Galbraith, Money. Whence It Came, Where It Went (Boston: Houghton Mifflin, 1975), p. 122.
13. Galbraith, p. 123. .
14. The Academy of Political Science, Proceedings, 1914, Vol. 4, No. 4, p. 387.
15.Anthony Sutton, Wall Street and FDR (New Rochelle, New York: Arlington House, 1975), p. 92.
16. See J. Lawrence Laughlin, The Federal Reserve Act: Its Origin and Problems (New York: Macmillan, 1933), p. 9.
17. The full text of the speech is reprinted by Herman E. Krooss and Paul A. Samuelson, Vol. 3, p. 1202.
18. Quoted by Kolko, Triumph, p. 235.
19. When one considers that the income tax had just been introduced in 1913 and that such low figures were completely exempt, an income at that time of $1,000 actually was the equivalent of earning $15,400 now, before paying 35% taxes. When the amount now taken by state and local governments is added to the total bite, the figure is close to $20,000.
20.Greider, p. 275.
21. Harold Kellock, "Warburg, the Revolutionist," The Century Magazine, May 1915, p. 79.
11. See Vera C. Smith, The Rationale of Central Banking (London: P.S. King & Son, 1936), p. 36.
12. Stephenson Galbraith, Money. Whence It Came, Where It Went (Boston: Houghton Mifflin, 1975), p. 122.
13. Galbraith, p. 123. .
14. The Academy of Political Science, Proceedings, 1914, Vol. 4, No. 4, p. 387.
15.Anthony Sutton, Wall Street and FDR (New Rochelle, New York: Arlington House, 1975), p. 92.
16. See J. Lawrence Laughlin, The Federal Reserve Act: Its Origin and Problems (New York: Macmillan, 1933), p. 9.
17. The full text of the speech is reprinted by Herman E. Krooss and Paul A. Samuelson, Vol. 3, p. 1202.
18. Quoted by Kolko, Triumph, p. 235.
19. When one considers that the income tax had just been introduced in 1913 and that such low figures were completely exempt, an income at that time of $1,000 actually was the equivalent of earning $15,400 now, before paying 35% taxes. When the amount now taken by state and local governments is added to the total bite, the figure is close to $20,000.
20.Greider, p. 275.
21. Harold Kellock, "Warburg, the Revolutionist," The Century Magazine, May 1915, p. 79.
3 comments:
Welcome to 1994.
People got to start somewhere,not everyone can know everything like you.
hi,
Just wondering about Charles D. Norton.
In his article in 1935, Vanderlip only talks about six persons, and Norton isnt one of them.
Where do you get the info that Norton was present?
Also, if he really was present, what would be the reason Vanderlip doesn't mention him?
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