R.G. Hawtrey, the English economist, said, in the March, 1926
American Economic Review:
"When external investment outstrips the supply of general
savings the investment market must
carry the excess with money borrowed from the banks. A remedy
is control of credit by a rise in
The Federal Reserve Board applied this control of credit, but
not in 1926, nor as a remedial measure. It was not applied until
1929, and then the rate was raised as a punitive measure, to
freeze out everybody but the big trusts.
Professor Cassel, in the Quarterly Journal of Economics, August
1928, wrote that:
"The fact that a central bank fails to raise its bank rate
in accordance with the actual situation of
the capital market very much increases the strength of the cyclical
movement of trade, with all its
pernicious effects on social economy. A rational regulation of
the bank rate lies in our hands, and
may be accomplished only if we perceive its importance and decide
to go in for such a policy.
With a bank rate regulated on these lines the conditions for
the development of trade cycles
would be radically altered, and indeed, our familiar trade cycles
would be a thing of the past."
This is the most authoritative premise yet made relating that
our business depressions are artificially precipitated. The occurrence
of the Panic of 1907, the Agricultural Depression of 1920, and
the Great Depression of 1929, all three in good crop years and
in periods of national prosperity, suggests that premise is not
guesswork. Lord Maynard Keynes pointed out that most theories
of the business cycle failed to relate their analysis adequately
to the money mechanism. Any survey or study of a depression which
failed to list such factors as gold movements and pressures on
foreign exchange would be worthless, yet American economists
have always dodged this issue.
The League of Nations had achieved its goal of getting the nations
of Europe back on the gold standard by 1928, but three-fourths
of the world's gold was in France and the United States. The
problem was how to get that gold to countries which needed it
as a basis for money and credit. The answer was action by the
Federal Reserve System.
Following the secret meeting of the Federal Reserve Board and
the heads of the foreign central banks in 1927, the Federal Reserve
Banks in a few months doubled their holdings of Government securities
and acceptances, which resulted in the exportation of five hundred
million dollars in gold in that year. The System's market activities
forced the rates of call money down on the Stock Exchange, and
forced gold out of the country. Foreigners also took this opportunity
to purchase heavily in Government securities because of the low
call money rate.
"The agreement between the Bank of England and the Washington
Federal Reserve authorities
many months ago was that we would force the export of 725 million
of gold by reducing the bank
rates here, thus helping the stabilization of France and Europe
and putting France on a gold
basis."89 (April 20, 1928)
On February 6, 1929, Mr. Montagu Norman, Governor of the Bank
of England, came to Washington and had a conference with Andrew
Mellon, Secretary of the Treasury. Immediately after that mysterious
visit, the Federal Reserve Board abruptly changed its policy
and pursued a high discount rate policy, abandoning the cheap
money policy which it had inaugurated in 1927 after Mr. Norman's
other visit. The stock market crash and the deflation of the
American people's financial structure was scheduled to take place
in March. To get the ball rolling, Paul Warburg gave the official
warning to the traders to get out of the market. In his annual
report to the stockholders of his International Acceptance Bank,
in March, 1929, Mr. Warburg said:
"If the orgies of unrestrained speculation are permitted
to spread, the ultimate collapse is certain
not only to affect the speculators themselves, but to bring about
a general depression involving
the entire country."
During three years of "unrestrained speculation", Mr.
Warburg had not seen fit to make any remarks about the condition
of the Stock Exchange. A friendly organ, The New York Times,
not only gave the report two columns on its editorial page, but
editorially commented on the wisdom and profundity of Mr. Warburg's
observations. Mr. Warburg's concern was genuine, for the stock
market bubble had gone much farther than it had been intended
to go, and the bankers feared the consequences if the people
realized what was going on. When this report in The New York
Times started a sudden wave of selling on the Exchange, the bankers
grew panicky, and it was decided to ease the market somewhat.
Accordingly, Warburg's National City Bank rushed twenty-five
million dollars in cash to the call money market, and postponed
the day of the crash.
The revelation of the Federal Reserve Board's final decision
to trigger the Crash of 1929 appears, amazingly enough, in The
New York Times. On April 20, 1929, the Times headlined, "Federal
Advisory Council Mystery
89 Clarence W. Barron, They Told Barron, Harpers, New York, 1930,
Meeting in Washington. Resolutions were adopted by the council
and transmitted to the board, but their purpose was closely guarded.
An atmosphere of deep mystery was thrown about the proceedings
both by the board and the council. Every effort was made to guard
the proceedings of this extraordinary session. Evasive replies
were given to newspaper correspondents."
Only the innermost council of "The London Connection"
knew that it had been decided at this "mystery meeting"
to bring down the curtain on the greatest speculative boom in
American history. Those in the know began to sell off all speculative
stocks and put their money in government bonds. Those who were
not privy to this secret information, and they included some
of the wealthiest men in America, continued to hold their speculative
stocks and lost everything they had.
In FDR, My Exploited Father-in-Law, Col. Curtis B. Dall, who
was a broker on Wall Street at that time, writes of the Crash,
"Actually it was the calculated 'shearing' of the public
by the World Money-Powers, triggered by the planned sudden shortage
of the supply of call money in the New York money market."90
Overnight, the Federal Reserve System had raised the call rate
to twenty percent. Unable to meet this rate, the speculators'
only alternative was to jump out of windows.
The New York Federal Reserve Bank rate, which dictated the national
interest rate, went to six percent on November 1, 1929. After
the investors had been bankrupted, it dropped to one and one-half
percent on May 8, 1931. Congressman Wright Patman in "A
Primer On Money", says that the money supply decreased by
eight billion dollars from 1929 to 1933, causing 11,630 banks
of the total of 26,401 in the United States to go bankrupt and
close their doors.
The Federal Reserve Board had already warned the stockholders
of the Federal Reserve Banks to get out of the Market, on February
6, 1929, but it had not bothered to say anything to the rest
of the people. Nobody knew what was going on except the Wall
Street bankers who were running the show. Gold movements were
completely unreliable. The Quarterly Journal of Economics noted
"The question has been raised, not only in this country,
but in several European
countries, as to whether customs statistics record with accuracy
the movements of
precious metals, and, when investigation has been made, confidence
figures has been weakened rather than strengthened. Any movement
France and England, for instance, should be recorded in each
country, but such
comparison shows an average yearly discrepancy of fifty million
francs for France
and eighty-five million francs for England. These enormous discrepancies
The Right Honorable Reginald McKenna stated that:
90 Col. Curtis B. Dall, F.D.R., My Exploited Father-in-Law, Liberty
Lobby, Wash., D.C. 1970
"Study of the relations between changes in gold stock and
movement in price levels shows what
should be very obvious, but is by no means recognized, that the
gold standard is in no sense
automatic in operation. The gold standard can be, and is, usefully
managed and controlled for the
benefit of a small group of international traders."
In August 1929, the Federal Reserve Board raised the rate to
six percent. The Bank of England in the next month raised its
rate from five and one-half percent to six and one-half percent.
Dr. Friday in the September, 1929, issue of Review of Reviews,
could find no reason for the Board's action:
"The Federal Reserve statement for August 7, 1929, shows
that signs of inadequacy for autumn
requirements do not exist. Gold resources are considerably more
than the previous year, and gold
continues to move in, to the financial embarrassment of Germany
and England. The reasons for
the Board's action must be sought elsewhere. The public has been
given only the hint that 'This
problem has presented difficulties because of certain peculiar
conditions'. Every reason which
Governor Young advanced for lowering the bank rate last year
exists now. Increasing the rate
means that not only is there danger of drawing gold from abroad,
but imports of the yellow metal
have been in progress for the last four months. To do anything
to accentuate this is to take the
responsibility for bringing on a world-wide credit deflation."
Thus we find that not only was the Federal Reserve System responsible
for the First World War, which it made possible by enabling the
United States to finance the Allies, but its policies brought
on the world-wide depression of 1929-31. Governor Adolph C. Miller
stated at the Senate Investigation of the Federal Reserve Board
in 1931 that:
"If we had had no Federal Reserve System, I do not think
we would have had as bad a speculative
situation as we had, to begin with."
Carter Glass replied, "You have made it clear that the Federal
Reserve Board provided a terrific credit expansion by these open
Emmanuel Goldenweiser said, "In 1928-29 the Federal Board
was engaged in an attempt to restrain the rapid increase in security
loans and in stock market speculation. The continuity of this
policy of restraint, however, was interrupted by reduction in
bill rates in the autumn of 1928 and the summer of 1929."
Both J.P. Morgan and Kuhn, Loeb Co. had "preferred lists"
of men to whom they sent advance announcements of profitable
stocks. The men on these preferred lists were allowed to purchase
these stocks at cost, that is, anywhere from 2 to 15 points a
share less than they were sold to the public. The men on these
lists were fellow bankers, prominent industrialists, powerful
city politicians, national Committeemen of the Republican and
Democratic Parties, and rulers of foreign countries. The men
on these lists were notified of the coming crash, and sold all
but so-called gilt-edged stocks, General Motors, Dupont, etc.
The prices on these stocks also sank to record lows, but they
came up soon afterwards. How the big bankers operated in
1929 is revealed by a Newsweek story on May 30, 1936, when a
Roosevelt appointee, Ralph W. Morrison, resigned from the Federal
"The consensus of opinion is that the Federal Reserve Board
has lost an able man. He sold his
Texas utilities stock to Insull for ten million dollars, and
in 1929 called a meeting and ordered
his banks to close out all security loans by September 1. As
a result, they rode through the
depression with flying colors."
Predictably enough, all of the big bankers rode through the depression
"with flying colors." The people who suffered were
the workers and farmers who had invested their money in get-rich
stocks, after the President of the United States, Calvin Coolidge,
and the Secretary of the Treasury, Andrew Mellon, had persuaded
them to do it.
There had been some warnings of the approaching crash in England,
which American newspapers never saw. The London Statist on May
25, 1929 said:
"The banking authorities in the United States apparently
want a business panic to curb
The London Economist on May 11, 1929, said:
"The events of the past year have seen the beginnings of
a new technique, which, if maintained
and developed, may succeed in 'rationing the speculator without
injuring the trader.'"
Governor Charles S. Hamlin quoted this statement at the Senate
hearings in 1931 and said, in corroboration of it:
"That was the feeling of certain members of the Board, to
remove Federal Reserve credit from the
speculator without injuring the trader."
Governor Hamlin did not bother to point out that the "speculators"
he was out to break were the school-teachers and small town merchants
who had put their savings into the stock market, or that the
"traders" he was trying to protect were the big Wall
Street operators, Bernard Baruch and Paul Warburg.
When the Federal Reserve Bank of New York raised its rate to
six percent on August 9, 1929, market conditions began which
culminated in tremendous selling orders from October 24 into
November, which wiped out a hundred and sixty billion dollars
worth of security values. That was a hundred and sixty billions
which the American citizens had one month and did not have the
next. Some idea of the calamity may be had if we remember that
our enormous outlay of money and goods in the Second World War
amounted to not much more than two hundred billions of dollars,
and a great deal of that remained as negotiable securities in
the national debt. The stock market crash is the greatest misfortune
which the United States has ever suffered.
The Academy of Political Science of Columbia University in its
annual meeting in January, 1930, held a post-mortem on the Crash
of 1929. Vice-
President Paul Warburg was to have presided, and Director Ogden
Mills was to have played an important part in the discussion.
However, these two gentlemen did not show up. Professor Oliver
M.W. Sprague of Harvard University remarked of the crash:
"We have here a beautiful laboratory case of the stock market's
dropping apparently from its own
It was pointed out that there was no exhaustion of credit, as
in 1893, nor any currency famine, as in the Panic of 1907, when
clearing-house certificates were resorted to, nor a collapse
of commodity prices, as in 1920. What then, had caused the crash?
The people had purchased stocks at high prices and expected the
prices to continue to rise. The prices had to come down, and
they did. It was obvious to the economists and bankers gathered
over their brandy and cigars at the Hotel Astor that the people
were at fault. Certainly the people had made a mistake in buying
over-priced securities, but they had been talked into it by every
leading citizen from the President of the United States on down.
Every magazine of national circulation, every big newspaper,
and every prominent banker, economist, and politician, had joined
in the big confidence game of urging people to buy those over-priced
securities. When the Federal Reserve Bank of New York raised
its rate to six percent, in August 1929, people began to get
out of the market, and it turned into a panic which drove the
prices of securities down far below their natural levels. As
in previous panics, this enabled both Wall Street and foreign
operators in the know to pick up "blue-chip" and gilt-edged"
securities for a fraction of their real value.
The Crash of 1929 also saw the formation of giant holding companies
which picked up these cheap bonds and securities, such as the
Marine Midland Corporation, the Lehman Corporation, and the Equity
Corporation. In 1929 J.P. Morgan Company organized the giant
food trust, Standard Brands. There was an unequaled opportunity
for trust operators to enlarge and consolidate their holdings.
Emmanuel Goldenweiser, director of research for the Federal Reserve
System, said, in 1947:
"It is clear in retrospect that the Board should have ignored
the speculative expansion and
allowed it to collapse of its own weight."
This admission of error eighteen years after the event was small
comfort to the people who lost their savings in the Crash.
The Wall Street Crash of 1929 was the beginning of a world-wide
credit deflation which lasted through 1932, and from which the
Western democracies did not recover until they began to rearm
for the Second World War. During this depression, the trust operators
achieved further control by their backing of three international
swindlers, The Van Sweringen brothers, Samuel Insull, and Ivar
Kreuger. These men pyramided billions of dollars worth of securities
to fantastic heights. The bankers who promoted
them and floated their stock issue could have stopped them at
any time, by calling loans of less than a million dollars, but
they let these men go on until they had incorporated many industrial
and financial properties into holding companies, which the banks
then took over for nothing. Insull piled up public utility holdings
throughout the Middle West, which the banks got for a fraction
of their worth. Ivar Kreuger was backed by Lee Higginson Company,
supposedly one of the nation's most reputable banking houses.
The Saturday Evening Post called him "more than a financial
titan", and the English review Fortnightly said, in an article
written December 1931, under the title, "A Chapter in Constructive
Finance": "It is as a financial irrigator that Kreuger
has become of such vital importance to Europe."*
"Financial irrigator" we may remember, was the title
bestowed upon Jacob Schiff by Newsweek Magazine, when it described
how Schiff had bought up American railroads with Rothschild's
The New Republic remarked on January 25th, 1933, when it commented
on the fact that Lee Higginson Company had handled Kreuger and
Toll Securities on the American market:
"Three-quarters of a billion dollars was made away with.
Who was able to dictate to the French
police to keep secret the news of this extremely important suicide
for some hours, during which
somebody sold Kreuger securities in large amounts, thus getting
out of the market before the
The Federal Reserve Board could have checked the enormous credit
expansion of Insull and Kreuger by investigating the security
on which their loans were being made, but the Governors never
made any examination of the activities of these men.
The modern bank with the credit facilities it affords, gives
an opportunity which had not previously existed for such operators
as Kreuger to make an appearance of abundant capital by the aid
of borrowed capital. This enables the speculator to buy securities
with securities. The only limit to the amount he can corner is
the amount to which the banks will back him, and, if a speculator
is being promoted by a reputable banking house, as Kreuger was
promoted by Lee Higginson Company, the only way he could be stopped
would be by an investigation of his actual financial resources,
which in Kreuger's case would have proved to be nil.
The leader of the American people during the Crash of 1929 and
the subsequent depression was Herbert Hoover. After the first
break of the
* NOTE: Ivar Kreuger, we may recall, was occasionally the personal
guest of his old friend, President Herbert Hoover, at the White
House. Hoover seems to have maintained a cordial relationship
with many of the most prominent swindlers of the twentieth century,
including his partner, Emile Francqui. The receivership of the
billion dollar Kreuger Fraud was handled by Samuel Untermeyer,
former counsel for Pujo Committee hearings.
market (the five billion dollars in security values which disappeared
on October 24, 1929) President Hoover said:
"The fundamental business of the country, that is, production
and distribution of commodities, is
on a sound and prosperous basis."
His Secretary of the Treasury, Andrew Mellon, stated on December
25, 1929, that:
"The Government's business is in sound condition."
His own business, the Aluminum Company of America, apparently
was not doing so well, for he had reduced the wages of all employees
by ten percent.
The New York Times reported on April 7, 1931, "Montagu Norman,
Governor of the Bank of England, conferred with the Federal Reserve
Board here today. Mellon, Meyer, and George L. Harrison, Governor
of the Federal Reserve Bank of New York, were present."
The London Connection had sent Norman over this time to ensure
that the Great Depression was proceeding according to schedule.
Congressman Louis McFadden had complained, as reported in The
New York Times, July 4, 1930, "Commodity prices are being
reduced to 1913 levels. Wages are being reduced by the labor
surplus of four million unemployed. The Morgan control of the
Federal Reserve System is exercised through control of the Federal
Reserve Bank of New York, the mediocre representation and acquiescence
of the Federal Reserve Board in Washington." As the depression
deepened, the trust's lock on the American economy strengthened,
but no finger was pointed at the parties who were controlling