CHAPTER THREE
The Federal Reserve Act
"Our financial system is a false one and a huge burden on the people . . . This
Act establishes the most gigantic trust on earth."~Congressman Charles
Augustus Lindbergh, Sr.
The speeches of Senator LaFollette and Congressman Lindbergh became
rallying points of opposition to the Aldrich Plan in 1912. They also aroused
popular feeling against the Money Trust. Congressman Lindbergh said, on
December 15, 1911, "The government prosecutes other trusts, but supports
the money trust. I have been waiting patiently for several years for an
opportunity to expose the false money standard, and to show that the
greatest of all favoritism is that extended by the government to the money
trust."
Senator LaFollette publicly charged that a money trust of fifty men
controlled the United States. George F. Baker, partner of J.P. Morgan, on
being queried by reporters as to the truth of the charge, replied that it was
absolutely in error. He said that he knew from personal knowledge that not
more than eight men ran this country.
The Nation Magazine replied editorially to Senator LaFollette that "If there
is a Money Trust, it will not be practical to establish that it exercises its
influence either for good or for bad."
Senator LaFollette remarks in his memoirs that his speech against the Money
Trust later cost him the Presidency of the United States, just as Woodrow
Wilson's early support of the Aldrich Plan had brought him into
consideration for that office.
Congress finally made a gesture to appease popular feeling by appointing a
committee to investigate the control of money and credit in the United States.
This was the Pujo Committee , a subcommittee of the House Banking and
Currency Committee, which conducted the famous "Money Trust" hearings
in 1912, under the leadership of Congressman Arsene Pujo of Louisiana, who
was regarded as a spokesman for the oil interests. These hearings were
deliberately dragged on for five months, and resulted in six-thousand pages
of printed testimony in four volumes. Month after month, the bankers made
the train trip from New York to Washington, testified before the Committee
and returned to New York. The hearings were extremely dull, and no
startling information turned up at these sessions. The bankers solemnly
admitted that they
27
were indeed bankers, insisted that they always operated in the public interest, and
claimed that they were animated only by the highest ideals of public service,
like the Congressmen before whom they were testifying.
The paradoxical nature of the Pujo Money Trust Hearings may better be
understood if we examine the man who single-handedly carried on these
hearings, Samuel Untermyer. He was one of the principal contributors to
Woodrow Wilson's Presidential campaign fund, and was one of the
wealthiest corporation lawyers in New York. He states in his autobiography
in "Who's Who" of 1926 that he once received a $775,000 fee for a single
legal transaction, the successful merger of the Utah Copper Company and
the Boston Consolidated and Nevada Company, a firm with a market value
of one hundred million dollars. He refused to ask either Senator LaFollette
or Congressman Lindbergh to testify in the investigation which they alone
had forced Congress to hold. As Special Counsel for the Pujo Committee,
Untermyer ran the hearings as a one-man operation. The Congressional
members, including its chairman, Congressman Arsene Pujo, seemed to have
been struck dumb from the commencement of the hearings to their
conclusion. One of these silent servants of the public was Congressman
James Byrnes, of South Carolina, representing Bernard Baruch's home
district, who later achieved fame as "Baruch's man", and was placed by
Baruch in charge of the Office of War Mobilization during the Second World
War.
Although he was a specialist in such matters, Untermyer did not ask any of
the bankers about the system of interlocking directorates through which they
controlled industry. He did not go into international gold movements, which
were known as a factor in money panics, or the international relationships
between American bankers and European bankers. The international
banking houses of Eugene Meyer, Lazard Freres, J. & W. Seligman,
Ladenburg Thalmann, Speyer Brothers, M. M. Warburg, and the Rothschild
Brothers did not arouse Samuel Untermyer's curiosity, although it was well
known in the New York financial world that all of these family banking
houses either had branches or controlled subsidiary houses in Wall Street.
When Jacob Schiff appeared before the Pujo Committee, Mr. Untermyer's
adroit questioning allowed Mr. Schiff to talk for many minutes without
revealing any information about the operations of the banking house of
Kuhn Loeb Company, of which he was senior partner, and which Senator
Robert L. Owen had identified as the representative of the European
Rothschilds in the United States.
The aging J.P. Morgan, who had only a few more months to live, appeared
before the Committee to justify his decades of international financial deals.
He stated for Mr. Untermyer's edification that "Money is a commodity."
This was a favorite ploy of the money creators, as they wished to make the
public believe that the creation of money was a natural occur-
28
rence akin to the growing of a field of corn, although it was actually a bounty
conferred upon the bankers by governments over which they had gained
control.
J.P. Morgan also told the Pujo Committee that, in making a loan, he
seriously considered only one factor, a man's character; even the man's
ability to repay the loan, or his collateral, were of little importance. This
astonishing observation startled even the blase members of the Committee.
The farce of the Pujo Committee ended without a single well-known
opponent of the money creators being allowed to appear or testify. As far as
Samuel Untermyer was concerned, Senator LaFollette and Congressman
Charles Augustus Lindbergh had never existed. Nevertheless, these
Congressmen had managed to convince the people of the United States that
the New York bankers did have a monopoly on the nation's money and
credit. At the close of the hearings, the bankers and their subsidized
newspapers claimed that the only way to break this monopoly was to enact
the banking and currency legislation now being proposed to Congress, a bill
which would be passed a year later as the Federal Reserve Act. The press
seriously demanded that the New York banking monopoly be broken by
turning over the administration of the new banking system to the most
knowledgeable banker of them all, Paul Warburg.
The Presidential campaign of 1912 records one of the more interesting
political upsets in American history. The incumbent, William Howard Taft,
was a popular president, and the Republicans, in a period of general
prosperity, were firmly in control of the government through a Republican
majority in both houses. The Democratic challenger, Woodrow Wilson,
Governor of New Jersey, had no national recognition, and was a stiff, austere
man who excited little public support. Both parties included a monetary
reform bill in their platforms: The Republicans were committed to the
Aldrich Plan, which had been denounced as a Wall Street plan, and the
Democrats had the Federal Reserve Act. Neither party bothered to inform
the public that the bills were almost identical except for the names. In
retrospect, it seems obvious that the money creators decided to dump Taft
and go with Wilson. How do we know this? Taft seemed certain of reelection,
and Wilson would return to obscurity. Suddenly, Theodore Roosevelt "threw
his hat into the ring." He announced that he was running as a third party
candidate, the "Bull Moose". His candidacy would have been ludicrous had
it not been for the fact that he was exceptionally well-financed. Moreover, he
was given unlimited press coverage, more than Taft and Wilson combined.
As a Republican ex-president, it was obvious that Roosevelt would cut deeply
into Taft's vote. This proved the case, and Wilson won the election. To this
day, no one can say what Theodore Roosevelt's program was, or why he
would sabotage his own party. Since the bankers were financing all three
candi-
29
dates, they would win regardless of the outcome. Later Congressional testimony
showed that in the firm of Kuhn Loeb Company, Felix Warburg was
supporting Taft, Paul Warburg and Jacob Schiff were supporting Wilson,
and Otto Kahn was supporting Roosevelt. The result was that a Democratic
Congress and a Democratic President were elected in 1912 to get the central
bank legislation passed. It seems probable that the identification of the
Aldrich Plan as a Wall Street operation predicted that it would have a
difficult passage through Congress, as the Democrats would solidly oppose it,
whereas a successful Democratic candidate, supported by a Democratic
Congress, would be able to pass the central bank plan. Taft was thrown
overboard because the bankers doubted he could deliver on the Aldrich Plan,
and Roosevelt was the instrument of his demise. *The final electoral vote in 1912
was Wilson - 409; Roosevelt - 167; and Taft - 15.
To further confuse the American people and blind them to the real purpose
of the proposed Federal Reserve Act, the architects of the Aldrich Plan,
powerful Nelson Aldrich, although no longer a senator, and Frank
Vanderlip, president of the National City Bank, set up a hue and cry against
the bill. They gave interviews whenever they could find an audience
denouncing the proposed Federal Reserve Act as inimical to banking and to
good government. The bugaboo of inflation was raised because of the Act's
provisions for printing Federal Reserve notes. The Nation, on October 23,
1913, pointed out, "Mr. Aldrich himself raised a hue and cry over the issue of
government "fiat money", that is, money issued without gold or bullion back
of it, although a bill to do precisely that had been passed in 1908 with his own
name as author, and he knew besides, that the 'government' had nothing to
do with it, that the Federal Reserve Board would have full charge of the
issuing of such moneys."
Frank Vanderlip's claims were so bizarre that Senator Robert L. Owen,
chairman of the newly formed Senate Banking and Currency Committee,
which had been formed on March 18, 1913, accused him of openly carrying
on a campaign of misrepresentation about the bill. The interests of the
public, so Carter Glass claimed in a speech on September 10, 1913 to
Congress, would be protected by an advisory council of bankers. "There can
be nothing sinister about its transactions. Meeting with it at least four times a
year will be a bankers' advisory council representing every regional reserve
district in the system. How could we have exercised greater caution in
safeguarding the public interests?"
Glass claimed that the proposed Federal Advisory Council would force the
Federal Reserve Board of Governors to act in the best interest of the people.
Senator Root raised the problem of inflation, claiming that under the Federal
Reserve Act, note circulation would always expand indefinitely, causing great
inflation. However, the later history of the Federal Reserve
30
System showed that it not only caused inflation, but that the issue of notes could
also be restricted, causing deflation, as occurred from 1929 to 1939.
One of the critics of the proposed "decentralized" system was a lawyer from
Cleveland, Ohio, Alfred Crozier: Crozier was called to testify for the Senate
Committee because he had written a provocative book in 1912, U.S. Money
vs. Corporation Currency.* He attacked the Aldrich-Vreeland Act of 1908 as
a Wall Street instrument, and he pointed out that when our government had
to issue money based on privately owned securities, we were no longer a free
nation.
Crozier testified before the Senate Committee that, "It should prohibit the
granting or calling in
of loans for the purpose of influencing quotation prices of securities and the
contracting of loans
or increasing interest rates in concert by the banks to influence public
opinion or the action of
any legislative body. Within recent months, William McAdoo, Secretary of
the Treasury of the
United States was reported in the open press as charging specifically that
there was a conspiracy
among certain of the large banking interests to put a contraction upon the
currency and to raise
interest rates for the sake of making the public force Congress into passing
currency legislation
desired by those interests. The so-called administration currency bill grants
just what Wall Street
and the big banks for twenty-five years have been striving for, that is,
PRIVATE INSTEAD OF
PUBLIC CONTROL OF CURRENCY. It does this as completely as the
Aldrich Bill. Both
measures rob the government and the people of all effective control over the
public's money, and
vest in the banks exclusively the dangerous power to make money among the
people scarce or
plenty. The Aldrich Bill puts this power in one central bank. The
Administration Bill puts it in
31
twelve regional central banks, all owned exclusively by the identical private
interests that would
have owned and operated the Aldrich Bank. President Garfield shortly
before his assassination
declared that whoever controls the supply of currency would control the
business and activities of
the people. Thomas Jefferson warned us a hundred years ago that a private
central bank issuing
the public currency was a greater menace to the liberties of the people than a
standing army."
It is interesting to note how many assassinations of Presidents of the United
States follow their concern with the issuing of public currency; Lincoln with
his Greenback, non-interest-bearing notes, and Garfield, making a
pronouncement on currency problems just before he was assassinated.
We now begin to understand why such a lengthy campaign of planned
deception was necessary, from the secret conference at Jekyll Island to the
identical "reform" plans proposed by the Democratic and
* Crozier's book exposed the financiers plan to substitute "corporation
currency" for the lawful money of the U.S. as guaranteed by Article I, Sec. 8
Para. 5, of the Constitution.
Republican parties under different names. The bankers could not wrest
control of the issuance of money from the citizens of the United States, to
whom it had been designated through its Congress by the Constitution, until
the Congress granted them their monopoly for a central bank. Therefore,
much of the influence exerted to get the Federal Reserve Act passed was done
behind the scenes, principally by two shadowy, non-elected persons: The
German immigrant, Paul Warburg, and Colonel Edward Mandell House of
Texas.
Paul Warburg made an appearance before the House Banking and Currency
Committee in 1913, in which he briefly stated his background: "I am a
member of the banking house of Kuhn, Loeb Company. I came over to this
country in 1902, having been born and educated in the banking business in
Hamburg, Germany, and studied banking in London and Paris, and have
gone all around the world. In the Panic of 1907, the first suggestion I made
was 'Let us get a national clearing house.' The Aldrich Plan contains some
things which are simply fundamental rules of banking. Your aim in this plan
32
(the Owen-Glass bill) must be the same—centralizing of reserves, mobilizing
commercial credit, and getting an elastic note issue."
Warburg's phrase, "mobilization of credit" was an important one, because
the First World War was due to begin shortly, and the first task of the
Federal Reserve System would be to finance the World War. The European
nations were already bankrupt, because they had maintained large standing
armies for almost fifty years, a situation created by their own central banks,
and therefore they could not finance a war. A central bank always imposes a
tremendous burden on the nation for "rearmament" and "defense", in order
to create inextinguishable debt, simultaneously creating a military
dictatorship and enslaving the people to pay the "interest" on the debt which
the bankers have artificially created.
In the Senate debate on the Federal Reserve Act, Senator Stone said on
December 12, 1913,
"The great banks for years have sought to have and control agents in the
Treasury to serve their
purposes. Let me quote from this World article, 'Just as soon as Mr. McAdoo
came to
Washington, a woman whom the National City Bank had installed in the
Treasury Department to
get advance information on the condition of banks, and other matters of
interest to the big Wall
Street group, was removed. Immediately the Secretary and the Assistant
Secretary, John Skelton
Williams, were criticized severely by the agents of the Wall Street group.'"
"I myself have known more than one occasion when bankers refused credit
to men who opposed
their political views and purposes. When Senator Aldrich and others were
going around the
country exploiting this scheme, the big banks of New York and Chicago were
engaged in
raising a munificent fund to bolster up the Aldrich propaganda. I have been
told by bankers of
my own state that contributions to this exploitation fund had been demanded
of them and that
33
they had contributed because they were afraid of being blacklisted or boycotted.
There are
bankers of this country who are enemies of the public welfare. In the past, a
few great banks have
followed policies and projects that have paralyzed the industrial energies of
the country to
perpetuate their tremendous power over the financial and business industries
of America."
Carter Glass states in his autobiography that he was summoned by Woodrow
Wilson to the White House, and that Wilson told him he intended to make
the reserve notes obligations of the United States. Glass says, "I was for an
instant speechless. I remonstrated. There is not any government obligation
here, Mr. President. Wilson said he had had to compromise on this point in
order to save the bill."
The term "compromise" on this point came directly from Paul Warburg.
Col. Elisha Ely Garrison, in Roosevelt,* Wilson and the Federal Reserve Law
wrote,
"In 1911, Lawrence Abbot, Mr. Roosevelt's private officer at 'The Outlook'
handed me a copy of
the so-called Aldrich Plan for currency reform. I said, I could not believe
that Mr. Warburg was
the author. This plan is nothing more than the Aldrich- Vreeland legislation
which provided for
currency issue against securities. Warburg knows that as well as I do. I am
going to see him at
once and ask him about it. All right, the truth. Yes, I wrote it, he said. Why?
I asked. It was a
compromise, answered Warburg." 13
Garrison says that Warburg wrote him on February 8, 1912.
"I have no doubt that at the end of a thorough discussion, either you will see
it my way or I will
see it yours— but I hope you will see it mine."
This was another famous Warburg saying when he secretly lobbied
Congressmen to support his interest, the veiled threat that they should "see it
34
his way". Those who did not found large sums contributed to their opponents at
the next elections, and usually went down in defeat.
Col. Garrison, an agent of Brown Brothers bankers, later Brown Brothers
Harriman, had entree everywhere in the financial community. He writes of
Col. House, "Col. House agreed entirely with the early writing of Mr.
Warburg." Page 337, he quotes Col. House:
"I am also suggesting that the Central Board be increased from four
members to five and their
terms lengthened from eight to ten years. This would give stability and would
take away the
power of a President to change the personnel of the board during a single
term of office."
Theodore Roosevelt
13 Elisha Ely Garrison, Roosevelt, Wilson and the Federal Reserve Law,
Christopher Publications, Boston, 1931
House's phrase, "take away the power of a President" is significant, because
later Presidents found themselves helpless to change the direction of the
government because they did not have the power to change the composition
of the Federal Reserve Board to attain a majority on it during that
President's term of office. Garrison also wrote in this book,
"Paul Warburg is the man who got the Federal Reserve Act together after
the Aldrich Plan
aroused such nationwide resentment and opposition. The mastermind of
both plans was Baron
Alfred Rothschild of London."
Colonel Edward Mandell House* was referred to by Rabbi Stephen Wise in
his autobiography, Challenging Years as "the unofficial Secretary of State".
House noted that he and Wilson knew that in passing the Federal Reserve
Act, they had created an instrument more powerful than the Supreme Court.
The Federal Reserve Board of Governors actually comprised a Supreme
Court of Finance, and there was no appeal from any of their rulings.
In 1911, prior to Wilson's taking office as President, House had returned to
his home in Texas and completed a book called Philip Dru, Administrator.
Ostensibly a novel, it was actually a detailed plan for the future government
of the United States, "which would establish Socialism as dreamed by Karl
35
Marx", according to House. This "novel" predicted the enactment of the
graduated income tax, excess profits tax, unemployment insurance, social
security, and a flexible currency system. In short, it was the blueprint which
was later followed by the Woodrow Wilson and Franklin D. Roosevelt
administrations. It was published "anonymously" by B. W. Huebsch of New
York, and widely circulated among government officials, who were left in no
doubt as to its authorship. George Sylvester Viereck**, who knew House for
years, later wrote an account of the Wilson-House relationship, The
Strangest Friendship in History.14 In 1955, WestbrookPegler, the Hearst
columnist from 1932 to 1956, heard of the Philip Dru book and called
Viereck to ask if he had a copy. Viereck sent Pegler his copy of the book, and
Pegler wrote a column about it, stating:
"One of the institutions outlined in Philip Dru is the Federal Reserve System.
The Schiffs, the
Warburgs, the Kahns, the Rockefellers and Morgans put their faith in
House. The Schiff,
Warburg, Rockefeller and Morgan interests were personally represented in
the mysterious
conference at Jekyll Island. Frankfurter landed on the Harvard law faculty,
thanks to a financial
contribution to Harvard by Felix Warburg and Paul
* See House note in "Biographies"
** See Viereck note in "Biographies"
14 George Sylvester Viereck, The Strangest Friendship in History, Woodrow
Wilson and Col. House, Liveright, New York, 1932
Warburg, and so we got Alger and Donald Hiss, Lee Pressman, Harry Dexter
White and many
other proteges of Little Weenie."*
House's openly Socialistic views were forthrightly expressed in Philip Dru,
Administrator; on pages 57-58, House wrote:
"In a direct and forceful manner, he pointed out that our civilization was
fundamentally wrong,
inasmuch, among other things, as it restricted efficiency; that if society were
properly organized,
36
there would be none who were not sufficiently clothed and fed. The result, that the
laws, habits
and ethical training in vogue were alike responsible for the inequalities in
opportunity and the
consequent wide difference between the few and the many; that the results of
such conditions was
to render inefficient a large part of the population, the percentage differing
in each country in the ratio that education and enlightenment and unselfish
laws bore to ignorance, bigotry and selfish
laws." 15
In his book, House (Dru) envisions himself becoming a dictator and forcing
on the people his radical views, page 148: "They recognized the fact that Dru
dominated the situation and that a master mind had at last risen in the
Republic." He now assumes the title of General. "General Dru announced
his purpose of assuming the powers of a dictator . . . they were assured that
he was free from any personal ambition ... he proclaimed himself
'Administrator of the Republic.'"*
This pensive dreamer who imagined himself a dictator actually managed to
place himself in the position of the confidential advisor to the President of the
United States, and then to have many of his desires enacted into law! On
page 227, he lists some of the laws he wishes to enact as dictator. Among
them are an old age pension law, laborers insurance compensation,
cooperative markets, a federal reserve banking system, cooperative loans,
national employment bureaus, and other "social legislation", some of which
was enacted during Wilson's administration, and others during the Franklin
D. Roosevelt's administration. The latter was actually a continuation of the
Wilson Administration,
* The present writer was with Viereck in his suite at the Hotel Belleclaire
when Pegler called and asked for the book. Viereck sent it over by his
secretary. He grinned and said Pegler seemed very excited. "He ought to get
a good column out of that," Viereck told me. Indeed Pegler did get a good
column out of it. Unfortunately for him, he had gone too far in mentioning
the Warburgs. As long as he confined his attacks to La Grand Bouche
(Eleanor Roosevelt), and her spouse, he had been permitted to continue, but
now that he had exposed the Warburg connection with the Communist spy
ring in Washington, his column was immediately dropped by the big city
dailies, and Pegler' s long run was over.
37
15 Col. Edward M. House, Philip Dru, Administrator, B. W. Heubsch, New York,
1912.
* This quotation from Philip Dru, Administrator, written by Col. House in
1912, is included here to show his totalitarian Marxist philosophy. House was
to become for 8 years with Wilson, the President's closest advisor. Later he
continued his influence in the Franklin D. Roosevelt administration. From
his home in Magnolia, Mass., House advised FDR through frequent trips of
Felix Frankfurter to the White House. Frankfurter was later appointed to
the Supreme Court by F.D.R.
with many of the same personnel, and with House guiding the administration
from behind the scenes.
Like most of the behind-the-scenes operators in this book, Col. Edward
Mandell House had the obligatory "London connection". Originally a Dutch
family, "Huis", his ancestors had lived in England for three hundred years,
after which his father settled in Texas, where he made a fortune in blockade-
running during the Civil War, shipping cotton and other contraband to his
British connections, including the Rothschilds, and bringing back supplies
for the beleaguered Texans. The senior House, not trusting the volatile Texas
situation, prudently deposited all his profits from his blockade-running in
gold with Baring banking house in London*. At the close of the Civil War, he
was one of the wealthiest men in Texas. He named his son "Mandell" after
one of his merchant associates. According to Arthur Howden Smith, when
House's father died in 1880, his estate was distributed among his sons as
follows: Thomas William got the banking business; John, the sugar
plantation; and Edward M. the cotton plantations, which brought him an
income of $20,000 a year.16
At the age of twelve, the young Edward Mandell House had brain fever, and
was later further crippled by sunstroke. He was a semi-invalid, and his
ailments gave him an odd Oriental appearance. He never entered any
profession, but used his father's money to become the kingmaker of Texas
politics, successively electing five governors from 1893 to 1911. In 1911 he
began to support Wilson for president, and threw the crucial Texas
delegation to him which ensured his nomination. House met Wilson for the
first time at the Hotel Gotham, May 31, 1912.
In The Strangest Friendship In History, Woodrow Wilson and Col. House,
by George Sylvester Viereck, Viereck writes:
"What," I asked House, "cemented your friendship?" "The identity of our
temperaments and our
public policies," answered House. "What was your purpose and his?" "To
translate into
legislation certain liberal and progressive ideas. "17
House told Viereck that when he went to Wilson at the White
* Dope, Inc., identifies Barings as follows: "Baring Brothers, the premier
merchant bank of the opium trade from 1783 to the present day, also
maintained close contact with the Boston families . . . The group's leading
banker became, at the close of the 19th century, the House of Morgan—which
also took its cut in Eastern opium traffic . . . Morgan's Far Eastern
operations were the officially conducted British opium traffic . . . Morgan's
case deserves special scrutiny from American police and regulatory agencies,
for the intimate associations of Morgan Guaranty Trust with the identified
leadership of the British dope banks."
16 Arthur Howden Smith, The Real Col. House, Doran Company, New York,
1918
17 George Sylvester Viereck, The Strangest Friendship in History, Woodrow
Wilson and Col. House, Liveright, New York, 1932
House, he handed him $35,000. This was exceeded only by the $50,000 which
Bernard Baruch had given Wilson.
The successful enactment of House's programs did not escape the notice of
other Wilson associates. In Vol. 1, page 157 of The Intimate Papers of Col.
House, House notes, "Cabinet members like Mr. Lane and Mr. Bryan
commented upon the influence of Dru with the President. 'All that the book
has said should be,' wrote Lane, 'comes about. The President comes to
'Philip Dru' in the end.' "18
House recorded some of his efforts on behalf of the Federal Reserve Act in
The Intimate Papers of Col. House,
"December 19, 1912. 1 talked with Paul Warburg over the phone concerning
currency reform. I
told of my trip to Washington and what I had done there to get it in working
order. I told him
that the Senate and the Congressmen seemed anxious to do what he desired,
and that President-
elect Wilson thought straight concerning the issue." 19
Thus we have Warburg's agent in Washington, Col. House, assuring him
that the Senate and Congressmen will do what he desires, and that the
President-elect "thought straight concerning the issue." In this context,
39
representative government seems to have ceased to exist. House continues in his
"Papers":
"March 13, 1913. Warburg and I had an intimate discussion concerning
currency reform.
March 27, 1913. Mr. J.P. Morgan, Jr. and Mr. Denny of his firm came
promptly at five.
McAdoo came about ten minutes afterward. Morgan had a
currency plan already printed. I suggested he have it
typewritten, so it would not seem too prearranged, and send it
to Wilson and myself today.
July 23, 1913. 1 tried to show Mayor Quincy (of Boston) the
folly of the Eastern bankers taking
an antagonistic attitude towards the Currency Bill. I explained
to Major Henry Higginson* with what care the bill had been
framed. Just before he arrived, I had finished a review by
Professor Sprague of Harvard of Paul Warburg's criticism of
the Glass-Owen Bill, and will transmit it to Washington
tomorrow. Every banker known to Warburg, who knows the
subject practically, has been called up about the making of the
bill.
October 13, 1913. Paul Warburg was my first caller today. He
came to discuss the currency measure. There are many
features of the Owen-Glass Bill that he does not approve. I
promised to put him in touch with McAdoo and Senator Owen
so that he might discuss it with them.
November 17, 1913. Paul Warburg telephoned about his trip to
Washington. Later, he and Mr. Jacob Schiff came over for a
few minutes.
18 Col. Edward Mandell House, The Intimate Papers of Col. House, edited
by Charles Seymour, Houghton Mifflin Co., 1926-28, Vol. 1, p. 157
19 Ibid. Vol. 1, p. 163
* The most prominent banker in Boston.
Warburg did most of the talking. He had a new suggestion in
regard to grouping the regular reserve banks so as to get the
units welded together and in easier touch with the Federal
Reserve Board."
40
George Sylvester Viereck in The Strangest Friendship in History, Woodrow
Wilson and Col. House wrote: "The Schiffs, the Warburgs, the Kahns, the
Rockefellers, the Morgans put their faith in House. When the Federal
Reserve legislation at last assumed definite shape, House was the
intermediary between the White House and the financiers. "20
On page 45, Viereck notes, "Col. House looks upon the reform of the
monetary system as the crowning internal achievement of the Wilson
Administration."21
The Glass Bill (the House version of the final Federal Reserve Act) had
passed the House on September 18, 1913 by 287 to 85. On December 19,
1913, the Senate passed their version by a vote of 54-34. More than forty
important differences in the House and Senate versions remained to be
settled, and the opponents of the bill in both houses of Congress were led to
believe that many weeks would yet elapse before the Conference bill would
be ready for consideration. The Congressmen prepared to leave Washington
for the annual Christmas recess, assured that the Conference bill would not
be brought up until the following year. Now the money creators prepared
and executed the most brilliant stroke of their plan. In a single day, they
ironed out all forty of the disputed passages in the bill and quickly brought it
to a vote. On Monday, December 22, 1913, the bill was passed by the House
282-60 and the Senate 43-23.
On December 21, 1913, The New York Times commented editorially on the
act, "New York will be on a firmer basis of financial growth, and we shall
soon see her the money centre of the world."
The New York Times reported on the front page, Monday, December 22,
1913 in headlines: MONEY BILL MAY BE LAW TODAY-CONFEREES
HAD ADJUSTED NEARLY ALL DIFFERENCES AT 1:30 THIS
MORNING-NO DEPOSIT GUARANTEES-SENATE YIELDS ON THIS
POINT BUT PUTS THROUGH MANY OTHER CHANGES "With almost
unprecedented speed, the conference to adjust the House and Senate
differences on the Currency Bill practically completed its labours early this
morning. On Saturday the Conferees did little more than dispose of the
preliminaries, leaving forty essential differences to be thrashed out Sunday. .
. . No other legislation of importance will be taken up in either House of
Congress this week. Members of both houses are already preparing to leave
Washington."
20 George Sylvester Viereck, The Strangest Friendship In History, Woodrow
Wilson and Col. House, Liveright, New York, 1932
21 Ibid.
41
"Unprecedented speed", says The New York Times. One sees the fine hand of
Paul Warburg in this final strategy. Some of the bill's most vocal critics had
already left Washington. It was a long-standing political courtesy that
important legislation would not be acted upon during the week before
Christmas, but this tradition was rudely shattered in order to perpetrate the
Federal Reserve Act on the American people.
The Times buried a brief quote from Congressman Lindbergh that "the bill
would establish the most gigantic trust on earth," and quoted Representative
Guernsey of Maine, a Republican on the House Banking and Currency
Committee, that "This is an inflation bill, the only question being the extent
of the inflation."
Congressman Lindbergh said on that historic day, to the House:
"This Act establishes the most gigantic trust on earth. When the President
signs this bill, the
invisible government by the Monetary Power will be legalized. The people
may not know it
immediately, but the day of reckoning is only a few years removed. The
trusts will soon realize
that they have gone too far even for their own good. The people must make a
declaration of
independence to relieve themselves from the Monetary Power. This they will
be able to do by
taking control of Congress. Wall Streeters could not cheat us if you Senators
and Representatives
did not make a humbug of Congress. ... If we had a people's Congress, there
would be stability.
The greatest crime of Congress is its currency system. The worst legislative
crime of the ages is
perpetrated by this banking bill. The caucus and the party bosses have again
operated and
prevented the people from getting the benefit of their own government."
The December 23, 1913 New York Times editorially commented, in contrast
to Congressman Lindbergh's criticism of the bill, "The Banking and
Currency Bill became better and sounder every time it was sent from one
end of the Capitol to the other. Congress worked under public supervision in
making the bill."
42
By "public supervision", The Times apparently meant Paul Warburg, who for
several days had maintained a small office in the Capitol building, where he
directed the successful pre-Christmas campaign to pass the bill, and where
Senators and Congressmen came hourly at his bidding to carry out his
strategy.
The "unprecedented speed" with which the Federal Reserve Act had been
passed by Congress during what became known as "the Christmas
massacre" had one unforeseen aspect. Woodrow Wilson was taken unaware,
as he, like many others, had been assured the bill would not come up for a
vote until after Christmas. Now he refused to sign it, because he objected to
the provisions for the selection of Class B. Directors. William L. White
relates in his biography of Bernard Baruch that Baruch, a principal
contributor to Wilson's campaign fund, was stunned when he was informed
that Wilson refused to sign the bill. He hurried
to the White House and assured Wilson that this was a minor matter, which
could be fixed up later through "administrative processes". The important
thing was to get the Federal Reserve Act signed into law at once. With this
reassurance, Wilson signed the Federal Reserve Act on December 23, 1913.
History proved that on that day, the Constitution ceased to be the governing
covenant of the American people, and our liberties were handed over to a
small group of international bankers.
The December 24, 1913 New York Times carried a front page headline
"WILSON SIGNS THE CURRENCY BILL!" Below it, also in capital
letters, were two further headlines, "PROSPERITY TO BE FREE" and
"WILL HELP EVERY CLASS". Who could object to any law which
provided benefits to everyone? The Times described the festive atmosphere
while Wilson's family and government officials watched him sign the bill.
"The Christmas spirit pervaded the gathering," exulted The Times.
In his biography of Carter Glass, Rixey Smith states that those present at the
signing of the bill included Vice President Marshall, Secretary Bryan, Carter
Glass, Senator Owen, Secretary McAdoo, Speaker Champ Clark, and other
Treasury officials. None of the real writers of the bill, the draftees of Jekyll
Island, were present. They had prudently absented themselves from the scene
of their victory. Rixey Smith also wrote, "It was as though Christmas had
come two days early." On December 24, 1913, Jacob Schiff wrote to Col.
House,
"My dear Col. House. I want to say a word to you for the silent, but no doubt
effective work you
have done in the interest of currency legislation and to congratulate you that
the measure
43
has finally been enacted into law. I am with good wishes, faithfully yours, JACOB
SCHIFF."
Representative Moore of Kansas, in commenting on the passage of the Act,
said to the House of Representatives:
"The President of the United States now becomes the absolute dictator of all
the finances of the
country. He appoints a controlling board of seven men, all of whom belong to
his political party,
even though it is a minority. The Secretary of the Treasury is to rule supreme
whenever there is
a difference of opinion between himself and the Federal Reserve Board.
AND, only one member
of the Board is to pass out of office while the President is in office."
The ten year terms of office of the members of the Board were lengthened by
the Banking Act of 1935 to fourteen years, which meant that these directors
of the nation's finances, although not elected by the people, held office longer
than three presidents.
While Col. House, Jacob Schiff and Paul Warburg basked in the glow of a
job well done, the other actors in this drama were subject to later
afterthoughts. Woodrow Wilson wrote in 1916, National Economy and the
Banking System, Sen. Doc. No. 3, No. 223, 76th Congress, 1st session, 1939:
"Our system of credit is concentrated (in the Federal Reserve
System). The growth of the nation, therefore, and all our activities, are in the
hands of a few men."
When he was asked by Clarence W. Barron whether he approved of the bill
as it was finally passed. Warburg remarked, "Well, it hasn't got quite
everything we want, but the lack can be adjusted later by administrative
processes."
Woodrow Wilson and Carter Glass are given credit for the Act by most
contemporary historians, but of all those concerned, Wilson had least to do
with Congressional action on the bill. George Creel, a veteran Washington
correspondent, wrote in Harper's Weekly, June 26, 1915:
"As far as the Democratic Party was concerned, Woodrow Wilson was
without influence, save for
the patronage he possessed. It was Bryan who whipped Congress into line on
the tariff bill, on
44
the Panama Canal tolls repeal, and on the currency bill." Mr. Bryan later wrote,
"That is the one
thing in my public career that I regret—my work to secure the enactment of
the Federal Reserve
Law."
On December 25, 1913, The Nation pointed out that "The New York Stock
Market began to rise steadily upon news that the Senate was ready to pass
the Federal Reserve Act."
This belies the claim that the Federal Reserve Act was a monetary reform
bill. The New York Stock Exchange is generally considered an accurate
barometer of the true meaning of any financial legislation passed in
Washington. Senator Aldrich also decided that he no longer had misgivings
about the Federal Reserve Act. In a magazine which he owned, and which he
called The Independent, he wrote in July, 1914: "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."
H.W. Loucks denounced the Federal Reserve Act in The Great Conspiracy of
the House of Morgan,
"In the Federal Reserve Law, they have wrested from the people and secured
for themselves the
constitutional power to issue money and regulate the value thereof." On page
31, Loucks writes,
"The House of Morgan is now in supreme control of our industry, commerce
and political affairs.
They are in complete control of the policy making of the Democratic,
Republican and Progressive
parties. The present extraordinary propaganda for 'preparedness' is planned
more for home
coercion than for defense against foreign aggression."22
The signing of the Federal Reserve Act by Woodrow Wilson represented the
culmination of years of collusion with his intimate friend, Col. House, and
Paul Warburg. One of the men with whom House became acquainted in the
Wilson Administration was Franklin D.
45
22 H.W. Loucks, The Great Conspiracy of the House of Morgan, Privately
printed, 1916
Roosevelt, Assistant Secretary of Navy. As soon as he obtained the
Democratic nomination for President, in 1932, Franklin D. Roosevelt made a
"pilgrimage" to Col. House's home at Magnolia, Mass. Roosevelt, after the
Republican hiatus of the 1920s, filled in the goals of Philip Dru,
Administrator,23 which Wilson had not been able to carry out. The late
Roosevelt achievements included the enactment of the social security
program, excess profits tax, and the expansion of the graduated income tax
to 90% of earned income.
House's biographer, Charles Seymour, wrote: "He was wearied by the
details of party politics
and appointments. Even the share he had taken in constructive domestic
legislation (the
Federal Reserve Act, tariff revision, and the Income Tax amendment) did not
satisfy him. From
the beginning of 1914 he gave more and more of his time to what he regarded
as the highest
form of politics and that for which he was particularly suited—international
affairs."24
In 1938, shortly before he died, House told Charles Seymour, "During the
last fifteen years I have been close to the center of things, although few
people suspect it. No important foreigner has come to the United States
without talking to me. I was close to the movement that nominated Roosevelt.
He has given me a free hand in advising him. All the Ambassadors have
reported to me frequently."
A comparative print of the Federal Reserve Act of 1913 as passed by the
House of Representatives and amended by the Senate shows the following
striking change:
The Senate struck out, "To suspend the officials of Federal Reserve banks
for cause, stated in writing with opportunity of hearing, require the removal
of said official for incompetency, dereliction of duty, fraud or deceit, such
removal to be subject to approval by the President of the United States."
This was changed by the Senate to read "To suspend or remove any officer
or director of any Federal Reserve Bank, the cause of such removal to be
forthwith communicated in writing by the Federal Reserve Board to the
removed officer or director and to said bank." This completely altered the
conditions under which an officer or director might be removed. We no
longer know what the conditions for removal are, or the cause. Apparently
46
incompetency, dereliction of duty, fraud or deceit do not matter to the Federal
Reserve Board. Also, the removed officer does not have the opportunity of
appeal to the President. In answer to written inquiry, the Assistant Secretary
of the Federal Reserve Board replied that only one officer has been removed
"for cause" in the thirty-six years, the name and details of this matter being
a "private concern" between the individual, the Reserve Bank concerned,
and the Federal Reserve Board.
23 E.M. House, Philip Dru, Administrator, B. W. Heubsch, N.Y., 1912
24 Col. E.M. House, The Intimate Papers of Col. House, 4 v. 1926-1928,
Houghton Mifflin Co.
The Federal Reserve System began its operations in 1914 with the activity of
the Organization Committee, appointed by Woodrow Wilson, and composed
of Secretary of the Treasury William McAdoo, who was his son-in-law,
Secretary of Agriculture Houston and Comptroller of the Currency John
Skelton Williams.
On January 6, 1914. J.P. Morgan met with the Organizing Committee in
New York. He informed them that there should not be more than seven
regional districts in the new system.
This committee was to select the locations of the "decentralized" reserve
banks. They were empowered to select from eight to twelve reserve banks,
although J.P. Morgan had testified he thought that not more than four
should be selected. Much politicking went into the selection of these sites, as
the twelve cities thus favored would become enormously important as centers
of finance. New York, of course, was a foregone conclusion. Richmond was
the next selection, as a payoff to Carter Glass and Woodrow Wilson, the two
Virginians who had been given political credit for the Federal Reserve Act.
The other selections of the Committee were Boston, Philadelphia, Cleveland,
Chicago, St. Louis, Atlanta, Dallas, Minneapolis, Kansas City, and San
Francisco. All of these cities later developed important "financial districts"
as the result of this selection.
These local battles, however, paled in view of the complete dominance of the
Federal Reserve bank of New York in the system. Ferdinand Lundberg
pointed out, in America's Sixty Families, that, "In practice, the Federal
Reserve Bank of New York became the fountainhead of the system of twelve
regional banks, for New York was the money market of the nation. The other
eleven banks were so many expensive mausoleums erected to salve the local
pride and quell the Jacksonian fears of the hinterland. Benjamin Strong,
president of the Bankers Trust (J.P. Morgan) was selected as the first
Governor of the New York Federal Reserve Bank. Adept in high finance,
Strong for many years manipulated the country's monetary system at the
47
discretion of directors representing the leading New York banks. Under Strong,
the Reserve System was brought into interlocking relations with the Bank of
England and the Bank of France. Benjamin Strong held his position as
Governor of the Federal Reserve Bank of New York until his sudden death in
1928, during a Congressional investigation of the secret meetings between
Reserve Governors and
heads of European central banks which brought on the Great Depression of
1929-31."25
Strong had married the daughter of the President of Bankers Trust, which
brought him into the line of succession in the dynastic intrigues which play
such an important role in the world of high finance. He also had been a
member of the original Jekyll Island group, the First Name Club, and was
thus qualified for the highest position in the Federal Reserve System, as the
Governor of the Federal Reserve Bank of New York which dominated the
entire system.
Paul Warburg also is mentioned in J. Laurence Laughlin's definitive volume,
The Federal Reserve Act, Its Origins and Purposes,
"Mr. Paul Warburg of Kuhn, Loeb Company offered in March, 1910 a fairly
well thought out
plan to be known as the United Reserve Bank of the United States. This was
published in The
New York Times of March 24, 1910. The group interested in the purposes of
the National
Monetary Commission met secretly at Jekyll Island for about two weeks in
December, 1910, and
concentrated on the preparation of a bill to be presented to Congress by the
National Monetary
Commission. The men who were present at Jekyll Island were Senator
Aldrich, H. P. Davison of
J.P. Morgan Company, Paul Warburg of Kuhn, Loeb Company, Frank
Vanderlip of the National
City Bank, and Charles D. Norton of the First National Bank. No doubt the
ablest banking mind
in the group was that of Mr. Warburg, who had had a European banking
training. Senator
Aldrich had no special training in banking."26
48
A mention of Paul Warburg, written by Harold Kelloch, and titled, "Warburg the
Revolutionist" appeared in the Century Magazine, May, 1915. Kelloch
writes:
"He imposed his ideas on a nation of a hundred million people . . . Without
Mr. Warburg there
would have been no Federal Reserve Act. The banking house of Warburg
and Warburg in
Hamburg has always been strictly a family business. None but a Warburg
has been eligible for it,
but all Warburgs have been born into it. In 1895 he married the daughter of
the late Solomon
Loeb of Kuhn Loeb Company. He became a member of Kuhn Loeb
Company in 1902. Mr.
Warburg's salary from his private business has been approximately a half
million a year. Mr.
Warburg's motives had been purely those of patriotic self-sacrifice."
The true purposes of the Federal Reserve Act soon began to disillusion many
who had at first believed in its claims. W. H. Allen wrote in Moody's
Magazine, 1916,
"The purpose of the Federal Reserve Act was to prevent concentration of
money in the New York
banks by making it profitable for country bankers to use their funds at
home, but the
movement of currency shows
25 Ferdinand Lundberg, America's Sixty Families, 1937
26 J. Laurence Laughlin, The Federal Reserve Act, It's Origins and Purposes
that the New York banks gained from the interior in every month except
December, 1915, since
the Act went into effect. The stabilization of rates has taken place in New
York alone. In other
parts, high rates continue. The Act, which was to deprive Wall Street of its
funds for speculation,
49
has really given the bulls and the bears such a supply as they have never had
before. The truth is
that far from having clogged the channel to Wall Street, as Mr. Glass so
confidently boasted, it
actually widened the old channels and opened up two new ones. The first of
these leads directly
to Washington and gives Wall Street a string on all the surplus cash in the
United States
Treasury. Besides, in the power to issue bank-note currency, it furnishes an
inexhaustible supply
of credit money; the second channel leads to the great central banks of
Europe, whereby, through
the sale of acceptances, virtually guaranteed by the United States
Government, Wall Street is
granted immunity from foreign demands for gold which have precipitated
every great crisis in
our history."
For many years, there has been considerable mystery about who actually
owns the stock of the Federal Reserve Banks. Congressman Wright Patman,
leading critic of the System, tried to find out who the stockholders were. The
stock in the original twelve regional Federal Reserve Banks was purchased
by national banks in those twelve regions. Because the Federal Reserve Bank
of New York was to set the interest rates and direct open market operations,
thus controlling the daily supply and price of money throughout the United
States, it is the stockholders of that bank who are the real directors of the
entire system. For the first time, it can be revealed who those stockholders
are. This writer has the original organization certificates of the twelve
Federal Reserve Banks, giving the ownership of shares by the national banks
in each district. The Federal Reserve Bank of New York issued 203,053
shares, and, as filed with the Comptroller of the Currency May 19, 1914, the
large New York City banks took more than half of the outstanding shares.
The Rockefeller Kuhn, Loeb-controlled National City Bank took the largest
number of shares of any bank, 30,000 shares. J.P. Morgan's First National
Bank took 15,000 shares. When these two banks merged in 1955, they owned
in one block almost one fourth of the shares in the Federal Reserve Bank of
New York, which controlled the entire system, and thus they could name
Paul Volcker or anyone else they chose to be Chairman of the Federal
Reserve Board of Governors. Chase National Bank took 6,000 shares. The
Marine Nation Bank of Buffalo, later known as Marine Midland, took 6,000
50
shares. This bank was owned by the Schoellkopf family, which controlled Niagara
Power Company and other large interests. National Bank of Commerce of
New York City took 21,000 shares. The shareholders of these banks which
own the stock of the Federal Reserve Bank of New York are the people who
have controlled our political and economic destinies since 1914. They are the
Rothschilds, of Europe, Lazard Freres (Eugene Meyer), Kuhn Loeb
Company, Warburg Company, Lehman Brothers,
Goldman Sachs, the Rockefeller family, and the J.P. Morgan interests. These
interests have merged and consolidated in recent years, so that the control is
much more concentrated. National Bank of Commerce is now Morgan
Guaranty Trust Company. Lehman Brothers has merged with Kuhn, Loeb
Company, First National Bank has merged with the National City Bank, and
in the other eleven Federal Reserve Districts, these same shareholders
indirectly own or control shares in those banks, with the other shares owned
by the leading families in those areas who own or control the principal
industries in these regions.* The "local" families set up regional councils, on
orders from New York, of such groups as the Council on Foreign Relations,
The Trilateral Commission, and other instruments of control devised by
their masters. They finance and control political developments in their area,
name candidates, and are seldom successfully opposed in their plans.
With the setting up of the twelve "financial districts" through the Federal
Reserve Banks, the traditional division of the United States into the forty-
eight states was overthrown, and we entered the era of "regionalism", or
twelve regions which had no relation to the traditional state boundaries.
These developments following the passing of the Federal Reserve Act proved
every one of the allegations Thomas Jefferson had made against a central
bank in 1791: that the subscribers to the Federal Reserve Bank stock had
formed a corporation, whose stock could be and was held by aliens; that this
stock would be transmitted to a certain line of successors; that it would be
placed beyond forfeiture and escheat; that they would receive a monopoly of
banking, which was against the laws of monopoly; and that they now had the
power to make laws, paramount to the laws of the states. No state legislature
can countermand any of the laws laid down by the Federal Reserve Board of
Governors for the benefit of their private stockholders. This board issues
laws as to what the interest rate shall be, what the quantity of money shall be
and what the price of money shall be. All of these powers abrogate the
powers of the state legislatures and their responsibility to the citizens of those
states.
The New York Times stated that the Federal Reserve Banks would be ready
for business on August 1, 1914, but they actually began operations on
November 16, 1914. At that time, their total assets were listed at
$143,000,000, from the sale of shares in the Federal Reserve Banks to
stockholders of the national banks which subscribed to it.
51
The actual part of this $143,000,000 which was paid in for these shares remains
shrouded in mystery. Some historians believe that the shareholders only paid
about half of the amount in cash; others believe
See charts V through IX
that they paid in no cash at all, but merely sent in checks which they drew on
the national banks which they owned. This seems most likely, that from the
very outset, the Federal Reserve operations were "paper issued against
paper", that bookkeeping entries comprised the only values which changed
hands.
The men whom President Woodrow Wilson chose to make up the first
Federal Reserve Board of Governors were men drawn from the banking
group. He had been nominated for the Presidency by the Democratic Party,
which had claimed to represent the "common man" against the "vested
interests". According to Wilson himself, he was allowed to choose only one
man for the Federal Reserve Board. The others were chosen by the New
York bankers. Wilson's choice was Thomas D. Jones, a trustee of Princeton
and director of International Harvester and other corporations. The other
members were Adolph C. Miller, economist from Rockefeller's University of
Chicago and Morgan's Harvard University, and also serving as Assistant
Secretary of the Interior; Charles S. Hamlin, who had served previously as
an Assistant Secretary to the Treasury for eight years; F.A. Delano, a
Roosevelt relative, and railroad operator who took over a number of
railroads for Kuhn, Loeb Company, W.P.G. Harding, President of the First
National Bank of Atlanta; and Paul Warburg of Kuhn, Loeb Company.
According to The Intimate Papers of Col. House, Warburg was appointed
because "The President accepted (House's) suggestion of Paul Warburg of
New York because of his interest and experience in currency problems under
both Republican and Democratic Administrations."27 Like Warburg,
Delano had also been born outside the continental limits of the United States,
although he was an American citizen. Delano's father, Warren Delano,
according to Dr. Josephson and other authorities, was active in Hong Kong
in the Chinese opium trade, and Frederick Delano was born in Hong Kong in
1863.
In The Money Power of Europe, Paul Emden writes that "The Warburgs
reached their outstanding eminence during the last twenty years of the past
century, simultaneously with the growth of Kuhn, Loeb Company in New
York, with whom they stood in a personal union and family relationship.
Paul Warburg with magnificent success carried through in 1913 the
reorganization of the American banking system, at which he had with
Senator Aldrich been working since 1911, and thus most thoroughly
consolidated the currency and finances of the United States."28
52
27 Charles Seymour, The Intimate Papers of Col. House, 4 v. 1926-1928,
Houghton Mifflin Co.
28 Paul Emden, The Money Power of Europe in the 19th and 20th Century,
S. Low, Marston Co., London, 1937
The New York Times* had noted on May 6, 1914 that Paul Warburg had
"retired" from Kuhn, Loeb Company in order to serve on the Federal
Reserve Board, although he had not resigned his directorships of American
Surety Company, Baltimore and Ohio Railroad, National Railways of
Mexico, Wells Fargo, or Westinghouse Electric Corporation, but would
continue to serve on these boards of directors. "Who's Who" listed him as
holding these directorships and in addition, American I.G. Chemical
Company (branch of I.G. Farben), Agfa Ansco Corporation, Westinghouse
Acceptance Company, Warburg Company of Amsterdam, chairman of the
Board of International Acceptance Bank, and numerous other banks,
railways and corporations. "Kuhn Loeb & Co. with Warburg have four
votes or the majority of the Federal Reserve Board."29
Despite his retirement from Kuhn, Loeb Company in May of 1914 to serve
on the Federal Reserve Board of Governors, Warburg was asked to appear
before a Senate Subcommittee in June of 1914 and answer some questions
about his behind-the-scenes role in getting the Federal Reserve Act through
Congress. This might have meant some questions about the secret conference
in Jekyll Island, and Warburg refused to appear. On July 7, 1914 he wrote a
letter to G.M. Hitchcock, Chairman of the Senate Banking and Currency
Committee, stating that it might impair his usefulness on the Board if he
were required to answer any questions, and that he would therefore
withdraw his name. It seemed that Warburg was prepared to bluff the
Senate Committee into confirming him without any questions asked. On July
10, 1914, The New York Times defended Warburg on the editorial page and
denounced the "Senatorial Inquisition". Since Warburg had not yet been
asked any questions, the term "Inquisition" seemed remarkably
inappropriate, nor was there any real danger that the Senators were
preparing to use instruments of torture on Mr. Warburg. The imbroglio was
resolved when the Senate Committee, in abject surrender, agreed that Mr.
Warburg would be given a list of questions in advance of his appearance so
that he could go over them, and that he could be excused from answering any
questions which might tend to impair his service on the Board of Governors.
The Nation reported on July 23, 1914 that "Mr. Warburg finally had a
conference with Senator O'Gorman and agreed to meet the members of the
Senate Subcommittee informally, with a view to coming to an understanding,
and to giving them any reasonable information they might desire. The
opinion in Washington is that Mr. Warburg's confirmation is assured." The
Nation
53
* The New York Times April 30, 1914, reported that the 12 districts had
subscriptions of $74,740,800 and that the subscribing banks would pay one-
half of this sum in six months.
29 Clarence W. Barron, More They Told Barron, Arno Press, New York
Times, 1973, June 12, 1914. p. 204
was correct. Mr. Warburg was confirmed, the way having been smoothed by
his "fixer", Senator O'Gorman of New York, more familiarly known as "the
Senator from Wall Street". Senator Robert L. Owen had previously charged
that Warburg was the American representative of the Rothschild family, but
questioning him about this would indeed have smacked of the mediaeval
"Inquisition", and his fellow Senators were too civilized to indulge in such
barbarity*.
During the Senate Hearings on Paul Warburg before the Senate Banking and
Currency Committee, August 1, 1914, Senator Bristow asked, "How many of
these partners (of Kuhn, Loeb Company) are American citizens?"
WARBURG: "They are all American citizens except Mr. Kahn. He is a
British subject." BRISTOW: "He was at one time a candidate for
Parliament, was he not?" WARBURG: "There was talk about it, it had been
suggested and he had it in his mind."
Paul Warburg also stated to the Committee, "I went to England, where I
stayed for two years, first in the banking and discount firm of Samuel
Montague & Company. After that I went to France, where I stayed in a
French bank."
CHAIRMAN: "What French bank was that?" WARBURG: "It is the
Russian bank for foreign trade which has an agency in Paris."
BRISTOW: "I understand you to say that you were a Republican, but when
Mr. Theodore Roosevelt came around, you then became a sympathizer with
Mr. Wilson and supported him?" WARBURG: "Yes." BRISTOW: "While
your brother (Felix Warburg) was supporting Taft?" WARBURG: "Yes."
Thus three partners of Kuhn, Loeb Company were supporting three
different candidates for President of the United States. Paul Warburg was
supporting Wilson, Felix Warburg was supporting Taft, and Otto Kahn was
supporting Theodore Roosevelt. Paul Warburg explained this curious
situation by telling the Committee that they had no influence over each
other's political beliefs, "as finance and politics don't mix."
Questions about Warburg's appointment vanished in a hue and cry with
Wilson's sole appointment to the Board of Governors, Thomas B. Jones.
Reporters had discovered that Jones, at the time of his appointment, was
under indictment by the Attorney General of the United States. Wilson
54
leaped to the defense of his choice, telling reporters that "The majority of the men
connected with what we have come to call 'big business' are honest,
incorruptible and patriotic." Despite Wilson's protestations, the Senate
Banking and Currency Committee scheduled
* Warburg was confirmed August 8, 1914, 38-11, and principally opposed by
Sen. Bristow of Kansas, who was denounced by The New York Times as a
"radical Republican", and whose excellent library of rare books on banking
were acquired by the present writer in 1983 for research on this work.
hearings on the fitness of Thomas D. Jones to be a member of the Board of
Governors. Wilson then wrote a letter to Senator Robert L. Owen, Chairman
of that Committee:
White House
June 18, 1914
Dear Senator Owen:
Mr. Jones has always stood for the rights of the people against the
rights of privilege. His connection with the Harvester Company was a
public service, not a private interest. He is the one man of the whole
number who was in a peculiar sense my personal choice.
Sincerely,
Woodrow Wilson
Woodrow Wilson said, "There is no reason to believe that the unfavorable
report represents the attitude of the Senate itself." After several weeks,
Thomas D. Jones withdrew his name, and the country had to do without his
services.
The other members of the first Board of Governors were Secretary of the
Treasury, William McAdoo, Wilson's son-in-law, and President of the
Hudson-Manhattan Railroad, a Kuhn, Loeb Company controlled enterprise,
and Comptroller of the Currency John Skelton Williams.
When the Federal Reserve Banks were opened for business on November 16,
1914, Paul Warburg said, "This date may be considered as the Fourth of
July in the economic history of the United States."
55
CHAPTER FOUR
The Federal Advisory Council
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