In 1930 Herbert Hoover appointed to the Federal Reserve Board
an old friend from World War I days, Eugene Meyer, Jr., who had
a long record of public service dating from 1915, when he went
into partnership with Bernard Baruch in the Alaska-Juneau Gold
Mining Company. Meyer had been a Special Advisor to the War Industries
Board on Non-Ferrous Metals (gold, silver, etc.); Special Assistant
to the Secretary of War on aircraft production; in 1917 he was
appointed to the National Committee on War Savings, and was made
Chairman of the War Finance Corporation from 1918-1926. He then
was appointed chairman of the Federal Farm Loan Board from 1927-29.
Hoover put him on the Federal Reserve Board in 1930, and Franklin
D. Roosevelt created the Reconstruction Bank for Reconstruction
and Development in 1946. Meyer must have been a man of exceptional
ability to hold so many important posts. However, there were
some Senators who did not believe he should hold any Government
office, because of his family background as an international
gold dealer and his mysterious operations in billions of dollars
of Government securities in the First World War. Consequently,
the Senate held Hearings to determine whether Meyer ought to
be on the Federal Reserve Board.
At these Hearings, Representative Louis T. McFadden, Chairman
of the House Banking and Currency Committee, said:
"Eugene Meyer, Jr. has had his own crowd with him in the
government since he started in 1917.
His War Finance Corporation personnel took over the Federal Farm
Loan System, and almost
immediately afterwards, the Kansas City Join Stock Land Bank
and the Ohio Joint Stock Land
REPRESENTATIVE RAINEY: Mr. Meyer, when he nominally resigned
as head of the Federal Farm Loan Board, did not really cease
his activities there. He left behind him an able body of wreckers.
They are continuing his policies and consulting with him. Before
his appointment, he was frequently in consultation with Assistant
Secretary of the Treasury Dewey. Just before his appointment,
the Chicago Joint Land Stock Bank, the Dallas Joint Stock Land
Bank, the Kansas City Joint Land Stock Bank, and the Des Moines
Land Bank were all functioning. Their bonds
were selling at par. The then farm commissioner had an understanding
with Secretary Dewey that nothing would be done without the consent
and approval of the Federal Farm Loan Board. A few days afterwards,
United States Marshals, with pistols strapped at their sides,
and sometimes with drawn pistols, entered these five banks and
demanded that the banks be turned over to them. Word went out
all over the United States, through the newspapers, as to what
had happened, and these banks were ruined. This led to the breach
with the old Federal Farm Loan Board, and to the resignation
of three of its members, and the appointment of Mr. Meyer to
be head of that Board.
SENATOR CAREY: Who authorized the marshals to take over the banks?
REP. RAINEY: Assistant Secretary of the Treasury Dewey. That
started the ruin of all these rural banks, and the Gianninis
bought them up in great numbers."
World's Work of February 1931, said:
"When the World War began for us in 1917, Mr. Eugene Meyer,
Jr. was among the first to be
called to Washington. In April, 1918, President Wilson named
him Director of the War Finance
Corporation. This corporation loaned out 700 million dollars
to banking and financial
The Senate Hearings on Eugene Meyer, Jr. continued:
REPRESENTATIVE MCFADDEN: "Lazard Freres, the international
banking house of New York and Paris, was a Meyer family banking
house. It frequently figures in imports and exports of gold,
and one of the important functions of the Federal Reserve System
has to do with gold movements in the maintenance of its own operations.
In looking over the minutes of the hearing we had last Thursday,
Senator Fletcher had asked Mr. Meyer, 'Have you any connections
with international banking?' Mr. Meyer had answered, 'Me? Not
personally.' This last question and answer do not appear in the
stenographic transcript. Senator Fletcher remembers asking the
question and the answer. It is an odd omission.
SENATOR BROOKHART: I understand that Mr. Meyer looked it over
REPRESENTATIVE MCFADDEN: Mr. Meyer is a brother-in-law of George
Blumenthal, a member of the firm of J.P. Morgan Company, which
represents the Rothschild interests. He also is a liaison officer
between the French Government and J.P. Morgan. Edmund Platt,
who had eight years to go on a term of ten years as Governor
of the Federal Reserve Board, resigned to make room for Mr. Meyer.
Platt was given a Vice-Presidency of Marine Midland Corporation
by Meyer's brother-in-law Alfred A. Cook. Eugene Meyer, Jr. as
head of the War Finance Corporation, engaged in the placing of
two billion dollars in Government
securities, placed many of those orders first with the banking
house now located at 14 Wall Street in the name of Eugene Meyer,
Jr. Mr. Meyer is now a large stockholder in the Allied Chemical
Corporation. I call your attention to House Report No. 1635,
68th Congress, 2nd Session, which reveals that at least twenty-four
million dollars in bonds were duplicated. Ten billion dollars
worth of bonds surreptitiously destroyed. Our committee on Banking
and Currency found the records of the War Finance Corporation
under Eugene Meyer, Jr. extremely faulty. While the books were
being brought before our committee by the people who were custodians
of them and taken back to the Treasury at night, the committee
discovered that alterations were being made in the permanent
The record of public service did not prevent Eugene Meyer, Jr.
from continuing to serve the American people on the Federal Reserve
Board, as Chairman of the Reconstruction Finance Corporation,
and as head of the International Bank.
President Rand, of the Marine Midland Corporation, questioned
about his sudden desire for the services of Edmund Platt, said:
"We pay Mr. Platt $22,000 a year, and we took his secretary
over, of course." This meant another five thousand a year.
Senator Brookhart showed that Eugene Meyer, Jr. administered
the Federal Farm Loan Board against the interests of the American
"Mr. Meyer never loaned more than 180 million dollars of
the capital stock of 500 million dollars
of the farm loan board, so that in aiding the farmers he was
not even able to use half of the
MR. MEYER: Senator Kenyon wrote me a letter which showed that
I cooperated with great advantage to the people of Iowa.
SENATOR BROOKHART: "You went out and took the opposite side
from the Wall Street crowd. They always send somebody out to
do that. I have not yet discovered in your statements much interest
in making loans to the farmers at large, or any real effort to
help their condition. In your two years as head of the Federal
Farm Loan Board you made very few loans compared to your capital.
You loaned only one-eighth of the demand, according to your own
Despite the damning evidence uncovered at these Senate Hearings,
Eugene Meyer, Jr. remained on the Federal Reserve Board.
During this tragic period, chairman Louis McFadden of the House
Banking and Currency Committee continued his lone crusade against
the "London Connection" which had wrecked the nation.
On June 10, 1932, McFadden addressed the House of Representatives:
"Some people think the Federal Reserve banks are United
States Government institutions. They
are not government institutions. They are private credit monopolies
which prey upon the people
of the United
States for the benefit of themselves and their foreign customers.
The Federal Reserve banks are
the agents of the foreign central banks. Henry Ford has said,
'The one aim of these financiers is
world control by the creation of inextinguishable debts.' The
truth is the Federal Reserve Board
has usurped the Government of the United States by the arrogant
credit monopoly which operates
the Federal Reserve Board and the Federal Reserve Banks."
On January 13, 1932, McFadden had introduced a resolution indicting
the Federal Reserve Board of Governors for "Criminal Conspiracy":
"Whereas I charge them, jointly and severally, with the
crime of having treasonably conspired
and acted against the peace and security of the United States
and having treasonably conspired to
destroy constitutional government in the United States. Resolved,
that the Committee on the
Judiciary is authorized and directed as a whole or by subcommittee
to investigate the official
conduct of the Federal Reserve Board and agents to determine
whether, in the opinion of the said
committee, they have been guilty of any high crime or misdemeanour
which in the contemplation
of the Constitution requires the interposition of the Constitutional
powers of the House."
No action was taken on this Resolution. McFadden came back on
December 13, 1932 with a motion to impeach President Herbert
Hoover. Only five Congressmen stood with him on this, and the
resolution failed. The Republican majority leader of the House
remarked, "Louis T. McFadden is now politically dead."
On May 23, 1933, McFadden introduced House Resolution No. 158,
Articles of Impeachment against the Secretary of the Treasury,
two Assistant Secretaries of the Treasury, the Federal Reserve
Board of Governors, and officers and directors of the Federal
Reserve Banks for their guilt and collusion in causing the Great
Depression. "I charge them with having unlawfully taken
over 80 billion dollars from the United States Government in
the year 1928, the said unlawful taking consisting of the unlawful
recreation of claims against the United States Treasury to the
extent of over 80 billion dollars in the year 1928, and in each
year subsequent, and by having robbed the United States Government
and the people of the United States by their theft and sale of
the gold reserve of the United States."
The Resolution never reached the floor. A whispering campaign
that McFadden was insane swept Washington, and in the next Congressional
elections, he was overwhelmingly defeated by thousands of dollars
poured into his home district of Canton, Pennsylvania.
In 1932, the American people elected Franklin D. Roosevelt President
of the United States. This was hailed as the freeing of the American
people from the evil influence which had brought on the Great
sion, the ending of Wall Street domination, and the disappearance
of the banker from Washington.
Roosevelt owed his political career to a fortuitous circumstance.
As Assistant Secretary of the Navy during World War I, because
of old school ties, he had intervened to prevent prosecution
of a large ring of homosexuals in the Navy which included several
Groton and Harvard chums. This brought him to the favorable appreciation
of a wealthy international homosexual set which travelled back
and forth between New York and Paris, and which was presided
over by Bessie Marbury, of a very old and prominent New York
family. Bessie's "wife", who lived with her for a number
of years, was Elsie de Wolfe, later Lady Mendl in a "mariage
de convenance", the arbiter of the international set. They
recruited J.P. Morgan's youngest daughter, Anne Morgan, into
their circle, and used her fortune to restore the Villa Trianon
in Paris, which became their headquarters. During World War I,
it was used as a hospital. Bessie Marbury expected to be awarded
the Legion of Honor by the French Government as a reward, but
J.P. Morgan, Jr., who despised her for corrupting his youngest
sister, requested the French Government to withhold the award,
which they did. Smarting from this rebuff, Bessie Marbury threw
herself into politics, and became a power in the Democratic National
Party. She had also recruited Eleanor Roosevelt into her circle,
and, during a visit to Hyde Park, Eleanor confided that she was
desperate to find something for "poor Franklin" to
do, as he was confined to a wheelchair, and was very depressed.
"I know what we'll do," exclaimed Bessie, "We'll
run him for Governor of New York!" Because of her power,
she succeeded in this goal, and Roosevelt later became President.
One of the men Roosevelt brought down from New York with him
as a Special Advisor to the Treasury was Earl Bailie of J &
W Seligman Company, who had become notorious as the man who handed
the $415,000 bribe to Juan Leguia, son of the President of Peru,
in order to get the President to accept a loan from J & W
Seligman Company. There was a great deal of criticism of this
appointment, and Mr. Roosevelt, in keeping with his new role
as defender of the people, sent Earl Bailie back to @bringing
in New York.
Franklin D. Roosevelt himself was an international banker of
ill repute, having floated large issues of foreign bonds in this
country in the 1920s. These bonds defaulted, and our citizens
lost millions of dollars, but they still wanted Mr. Roosevelt
as President. The New York Directory of Directors lists Mr. Roosevelt
as President and Director of United European Investors, Ltd.,
in 1923 and 1924, which floated many millions of German marks
in this country, all of which defaulted. Poor's Directory of
Directors lists him as a director of The International Germanic
Trust Company in 1928. Franklin D. Roosevelt was also an advisor
Federal International Banking Corporation, an Anglo-American
outfit dealing in foreign securities in the United States.
Roosevelt's law firm of Roosevelt and O'Connor during the 1920s
represented many international corporations. His law partner,
Basil O'Connor, was a director in the following corporations:
Cuban-American Manganese Corporation, Venezuela-Mexican Oil Corporation,
West Indies Sugar Corporation, American Reserve Insurance Corporation,
Warm Springs Foundation. He was director in other corporations,
and later head of the American Red Cross.
When Franklin D. Roosevelt took office as President of the United
States, he appointed as Director of the Budget James Paul Warburg,
son of Paul Warburg, and Vice President of the International
Acceptance Bank and other corporations. Roosevelt appointed as
Secretary of the Treasury W.H. Woodin, one of the biggest industrialists
in the country, Director of the American Car Foundry Company
and numerous other locomotive works, Remington Arms, The Cuba
Company, Consolidated Cuba Railroads, and other big corporations.
Woodin was later replaced by Henry Morgenthau, Jr., son of the
Harlem real estate operator who had helped put Woodrow Wilson
in the White House. With such a crew as this, Roosevelt's promises
of radical social changes showed little likelihood of fulfillment.
One of the first things he did was to declare a bankers' moratorium,
to help the bankers get their records in order.
World's Work says:
"Congress has left Charles G. Dawes and Eugene Meyer, Jr.
free to appraise, by their own
methods, the security which prospective borrowers of the two
billion dollar capital may offer."
Roosevelt also set up the Securities Exchange Commission, to
see to it that no new faces got into the Wall Street gang, which
caused the following colloquy in Congress:
REPRESENTATIVE WOLCOTT: At hearings before this committee in
1933, the economists showed us charts which proved beyond all
doubt that the dollar value commodities followed the price level
of gold. It did not, did it?
LEON HENDERSON: No.
REPRESENTATIVE GIFFORD: Wasn't Joe Kennedy put in [as Chairman
of the Securities Exchange Committee] by President Roosevelt
because he was sympathetic with big business?
LEON HENDERSON: I think so.
Paul Einzig pointed out in 1935 that:
"President Roosevelt was the first to declare himself openly
in favor of a monetary policy aiming
at a deliberately engineered rise in prices. In a negative sense
his policy was successful. Between
1933 and 1935 he succeeded in reducing private indebtedness,
but this was done at the cost of
increasing public indebtedness."
In other words, he eased the burden of debts off of the rich
onto the poor, since the rich are few and the poor many.
Senator Robert L. Owen, testifying before the House Committee
on Banking and Currency in 1938, said:
"I wrote into the bill which was introduced by me in the
Senate on June 26, 1913, a provision
that the powers of the System should be employed to promote a
stable price level, which meant a
dollar of stable purchasing, debt-paying power. It was stricken
out. The powerful money interests
got control of the Federal Reserve Board through Mr. Paul Warburg,
Mr. Albert Strauss, and Mr.
Adolph C. Miller and they were able to have that secret meeting
of May 18, 1920, and bring
about a contraction of credit so violent it threw five million
people out of employment. In 1920
that Reserve Board deliberately caused the Panic of 1921. The
same people, unrestrained in the
stock market, expanding credit to a great excess between 1926
and 1929, raised the price of
stocks to a fantastic point where they could not possibly earn
dividends, and when the people
realized this, they tried to get out, resulting in the Crash
of October 24, 1929."
Senator Owen did not go into the question of whether the Federal
Reserve Board could be held responsible to the public. Actually,
they cannot. They are public officials who are appointed by the
President, but their salaries are paid by the private stockholders
of the Federal Reserve Banks.
Governor W.P.G. Harding of the Federal Reserve Board testified
in 1921 that:
"The Federal Reserve Bank is an institution owned by the
stockholding member banks. The
Government has not a dollar's worth of stock in it."
However, the Government does give the Federal Reserve System
the use of its billions of dollars of credit, and this gives
the Federal Reserve its characteristic of a central bank, the
power to issue currency on the Government's credit. We do not
have Federal Government notes or gold certificates as currency.
We have Federal Reserve Bank notes, issued by the Federal Reserve
Banks, and every dollar they print is a dollar in their pocket.
W. Randolph Burgess, of the Federal Reserve Bank of New York,
stated before the Academy of Political Science in 1930 that:
"In its major principles of operation the Federal Reserve
System is no different from other banks
of issue, such as the Bank of England, the Bank of France, or
All of these central banks have the power of issuing currency
in their respective countries. Thus, the people do not own their
own money in Europe, nor do they own it here. It is privately
printed for private profit. The people have no sovereignty over
their money, and it has developed that they have no sovereignty
over other major political issues such as foreign policy.
As a central bank of issue, the Federal Reserve System has behind
it all the enormous wealth of the American people. When it began
operations in 1913, it created a serious threat to the central
banks of the impoverished countries of Europe. Because it represented
this great wealth, it attracted far more gold than was desirable
in the 1920s, and it was apparent that soon all of the world's
gold would be piled up in this country. This would make the gold
standard a joke in Europe, because they would have no gold over
there to back their issue of money and credit. It was the Federal
Reserve's avowed aim in 1927, after the secret meeting with the
heads of the foreign central banks, to get large quantities of
that gold sent back to Europe, and its methods of doing so, the
low interest rate and heavy purchases of Government securities,
which created vast sums of new money, intensified the stock market
speculation and made the stock market crash and resultant depression
a national disaster.
Since the Federal Reserve System was guilty of causing this disaster,
we might suppose that they would have tried to alleviate it.
However, through the dark years of 1931 and 1932, the Governors
of the Federal Reserve Board saw the plight of the American people
worsening and did nothing to help them. This was more criminal
than the original plotting of the Depression. Anyone who lived
through those years in this country remembers the widespread
unemployment, the misery, and the hunger of our people. At any
time during those years the Federal Reserve Board could have
acted to relieve this situation.
The problem was to get some money back into circulation. So much
of the money normally used to pay rent and food bills had been
sucked into Wall Street that there was no money to carry on the
business of living. In many areas, people printed their own money
on wood and paper for use in their communities, and this money
was good, since it represented obligations to each other which
The Federal Reserve System was a central bank of issue. It had
the power to, and did, when it suited its owners, issue millions
of dollars of money. Why did it not do so in 1931 and 1932? The
Wall Street bankers were through with Mr. Herbert Hoover, and
they wanted Franklin D. Roosevelt to come in on a wave of glory
as the saviour of the nation. Therefore, the American people
had to starve and suffer until March of 1933, when the White
Knight came riding in with his crew of Wall Street
bribers and put some money into circulation. That was all there
was to it. As soon as Mr. Roosevelt took office, the Federal
Reserve began to buy Government securities at the rate of ten
million dollars a week for ten weeks, and created a hundred million
dollars in new money, which alleviated the critical famine of
money and credit, and the factories started hiring people again.
During the Roosevelt Administration, The Federal Reserve Board,
insofar as the public was concerned, was Marriner Eccles, an
emulator and admirer of "the Chief". Eccles was a Utah
banker, President of the First Securities Corporation, a family
investment trust consisting of a number of banks which Eccles
had picked up cheap during the Agricultural Depression of 1920-21.
Eccles also was a director of such corporations as Pet Milk Company,
Mountain States Implement Company, and Amalgamated Sugar. As
a big banker, Eccles fitted in well with the group of powerful
men who were operating Roosevelt.
There was some discussion in Congress as to whether Eccles ought
to be on the Federal Reserve Board at the same time he had all
of these banks in Utah, but he testified that he had very little
to do with the First Securities Corporation besides being President
of it, and so he was confirmed as Chairman of the Board.
Eugene Meyer, Jr. now resigned from the Board to spend more of
his time lending the two billion dollar capital of the Reconstruction
Finance Corporation, and determining the value of collateral
by his own methods.
The Banking Act of 1935, which greatly increased Roosevelt's
power over the nation's finances, was an integral part of the
legislation by which he proposed to extend his reign in the United
States. It was not opposed by the people as was the National
Recovery Act, because it was not so naked an infringement of
their liberties. It was, however, an important measure. First
of all, it extended the terms of office of the Federal Reserve
Board of Governors to fourteen years, or, three and a half times
the length of a Presidential term. This meant that a President
assuming office who might be hostile to the Board could not appoint
a majority to it who would be favorable to him. Thus, a monetary
policy inaugurated before a President came into the White House
would go on regardless of his wishes.
The Banking Act of 1935 also repealed the clause of the Glass-Steagall
Banking Act of 1933, which had provided that a banking house
could not be on the Stock Exchange and also be involved in investment
banking. This clause was a good one, since it prevented a banking
house from lending money to a corporation which it owned. Still
it is to be remembered that this clause covered up some other
provisions in that Act, such as the creation of the Federal Deposit
Insurance Corporation, providing insurance money to the amount
of 150 million dollars, to
guarantee fifteen billion dollars worth of deposits. This increased
the power of the big bankers over small banks and gave them another
excuse to investigate them. The Banking Act of 1933 also legislated
that all earnings of the Federal Reserve Banks must by law go
to the banks themselves. At last the provision in the Act that
the Government share in the profits was gotten rid of. It had
never been observed, and the increase in the assets of the Federal
Reserve Banks from 143 million dollars in 1913 to 45 billion
dollars in 1949 went entirely to the private stockholders of
the banks. Thus, the one constructive provision of the Banking
Act of 1933 was repealed in 1935, and also the Federal Reserve
Banks were now permitted to loan directly to industry, competing
with the member banks, who could not hope to match their capacity
in arranging large loans.
When the provision that banks could not be involved in investment
banking and operate on the Stock Exchange was repealed in 1935,
Carter Glass, originator of that provision, was asked by reporters:
"Does that mean that J.P. Morgan can go back into investment
"Well, why not?" replied Senator Glass. "There
has been an outcry all over the country that the banks will not
make loans. Now the Morgans can go back to underwriting."
Because that provision was unfavorable to them, the bankers had
simply clamped down on making loans until it was repealed.
Newsweek of March 14, 1936, noted that:
"The Federal Reserve Board fired nine chairmen of Reserve
Banks, explaining that 'it intended
to make the chairmanships of the Reserve Banks largely a part-time
job on an honorary basis.'"
This was another instance of the centralization of control in
the Federal Reserve System. The regional district system had
never been an important factor in the administration of monetary
policy, and the Board was not cutting down on its officials outside
of Washington. The Chairman of the Senate Committee on Banking
and Currency had asked, during the Gold Reserve Hearings of 1934:
"Is it not true, Governor Young, that the Secretary of the
Treasury for the past twelve years has
dominated the policy of the Federal Reserve Banks and the Federal
Reserve Board with respect to
the purchase of United States bonds?"
Governor Young had denied this, but it had already been brought
out that on both of his hurried trips to this country in 1927
and 1929 to dictate Federal Reserve policy, Governor Montagu
Norman of the Bank of England had gone directly to Andrew Mellon,
Secretary of the Treasury, to get him to purchase Government
securities on the open market and start the movement of gold
out of this country back to Europe.
The Gold Reserve Hearings had also brought in other people who
had more than a passing interest in the operations of the Federal
Reserve System. James Paul Warburg, just back from the London
Economic Conference with Professor O.M.W. Sprague and Henry L.
Stimson, came in to declare that he thought we ought to modernize
the gold standard. Frank Vanderlip suggested that we do away
with the Federal Reserve Board and set up a Federal Monetary
Authority. This would have made no difference to the New York
bankers, who would have selected the personnel anyway. And Senator
Robert L. Owen, longtime critic of the system, made the following
"The people did not know the Federal Reserve Banks were
organized for profit-making. They
were intended to stabilize the credit and currency supply of
the country. That end has not been
accomplished. Indeed, there has been the most remarkable variation
in the purchasing power of
money since the System went into effect. The Federal Reserve
men are chosen by the big banks,
through discreet little campaigns, and they naturally follow
the ideals which are portrayed to
them as the soundest from a financial point of view."
Benjamin Anderson, economist for the Chase National Bank of New
"At the moment, 1934, we have 900 million dollars excess
reserves. In 1924, with increased
reserves of 300 million, you got some three or four billion in
bank expansion of credit very
quickly. That extra money was put out by the Federal Reserve
Banks in 1924 through buying
government securities and was the cause of the rapid expansion
of bank credit. The banks
continued to get excess reserves because more gold came in, and
because, whenever there was a
slackening, the Federal Reserve people would put out some more.
They held back a bit in 1926.
Things firmed up a bit that year. And then in 1927 they put out
less than 300 million additional
reserves, set the wild stock market going, and that led us right
into the smash of 1929."
Dr. Anderson also stated that:
"The money of the Federal Reserve Banks is money they created.
When they buy Government
securities they create reserves. They pay for the Government
securities by giving checks on
themselves, and those checks come to the commercial banks and
are by them deposited in the
Federal Reserve Banks, and then money exists which did not exist
SENATOR BULKLEY: It does not increase the circulating medium
This is an explanation of the manner in which the Federal Reserve
Banks increased their assets from 143 million dollars to 45 billion
dollars in thirty-five years. They did not produce anything,
they were non-productive enterprises, and yet they had this enormous
profit, merely by creating money, 95 percent of it in the form
of credit, which did not add
to the circulating medium. It was not distributed among the people
in the form of wages, nor did it increase the buying power of
the farmers and workers. It was credit-money created by bankers
for the use and profit of bankers, who increased their wealth
by more than forty billion dollars in a few years because they
had obtained control of the Government's credit in 1913 by passing
the Federal Reserve Act.
Marriner Eccles also had much to say about the creation of money.
He considered himself an economist, and had been brought into
the Government service by Stuart Chase and Rexford Guy Tugwell,
two of Roosevelt's early brain-trusters. Eccles was the only
one of the Roosevelt crowd who stayed in office throughout his
Before the House Banking and Currency Committee on June 24, 1941,
Governor Eccles said:
"Money is created out of the right to issue credit-money."
Turning over the Government's credit to private bankers in 1913
gave them unlimited opportunities to create money. The Federal
Reserve System could also destroy money in large quantities through
open market operations. Eccles said, at the Silver Hearings of
"When you sell bonds on the open market, you extinguish
Extinguishing reserves means wiping out a basis for money and
credit issue, or, tightening up on money and credit, a condition
which is usually even more favorable to bankers than the creation
of money. Calling in or destroying money gives the banker immediate
and unlimited control of the financial situation, since he is
the only one with money and the only one with the power to issue
money in a time of money shortage. The money panics of 1873,
1893, 1920-21, and 1929-31, were characterized by a drawing in
of the circulating medium. In economical terms, this does not
sound like such a terrible thing, but when it means that people
do not have money to pay their rent or buy food, and when it
means that an employer has to lay off three-fourths of his help
because he cannot borrow the money to pay them, the enormous
guilt of the bankers and the long record of suffering and misery
for which they are responsible would suggest that no punishment
might be too severe for their crimes against their fellowmen.
On September 30, 1940, Governor Eccles said:
"If there were no debts in our money system, there would
be no money."
This is an accurate statement about our money system. Instead
of money being created by the production of the people, the annual
increase in goods and services, it is created by the bankers
out of the debts of the people. Because it is inadequate, it
is subject to great fluctuations and is basically unstable. These
fluctuations are also a source of great profit. For that reason,
the Federal Reserve Board has consistently opposed any
legislation which attempts to stabilize the monetary system.
Its position has been set forth definitively in Chairman Eccles'
letter to Senator Wagner on March 9, 1939, and the Memorandum
issued by the Board on March 13, 1939.
Chairman Eccles wrote that:
". . . you are advised that the Board of Governors of the
Federal Reserve System does not favor
the enactment of Senate Bill No. 31, a bill to amend the Federal
Reserve Act, or any other
legislation of this general character."
The Memorandum of the Board stated, in its "Memorandum on
Proposals to maintain prices at fixed levels":
"The Board of Governors opposes any bill which proposes
a stable price level, on the grounds
that prices do not depend primarily on the price or cost of money;
that the Board's control over
money cannot be made complete; and that steady average prices,
even if obtainable by official
action, would not insure lasting prosperity."
Yet William McChesney Martin, the Chairman of the Board of Governors
in 1952, said before the Subcommittee on Debt Control, the Patman
Committee, on March 10, 1952 that "One of the fundamental
purposes of the Federal Reserve Act is to protect the value of
Senator Flanders questioned him: "Is that specifically stated
in the original legislation setting up the Federal Reserve System?"
"No," replied Mr. Martin, "but it is inherent
in the entire legislative history and in the surrounding circumstances."
Senator Robert L. Owen has told us how it was taken out of the
original legislation against his will, and that the Board of
Governors has opposed such legislation. Apparently Mr. Martin
does not know this.
Steady average prices, indeed, are impossible so long as we have
the speculators on the stock exchange driving prices up and down
in order to reap profits for themselves. Despite Governor Eccles'
insistence that steady average prices would not insure lasting
prosperity, they could do much to bring about this condition.
A man on a yearly wage of $2,500 is not more prosperous if the
price of bread increases five cents a loaf during the year.
In 1935, Eccles said before the House Committee on Banking and
"The Government controls the gold reserve, that is, the
power to issue money and credit, thus
largely regulating the price structure."
This is an almost direct contradiction of Eccles' statement in
1939 that prices do not depend, primarily, on the price or cost
In 1935, Governor Eccles stated before the House Committee:
"The Federal Reserve Board has the power of open market
operations are the most important single instrument of
control over the volume and cost of credit in this country. When
I say "credit" in this connection,
I mean money, because by far the largest part of money in use
by the people of this country is in
the form of bank credit or bank deposits. When the Federal Reserve
Banks buy bills or securities
in the open market, they increase the volume of the people's
money and lower its cost; and when
they sell in the open market they decrease the volume of money
and increase its cost. Authority
over these operations, which affect the welfare of the whole
people, must be invested in a body
representing the national interest."
Governor Eccles testimony exposes the heart of the money machine
which Paul Warburg revealed to his incredulous fellow bankers
at Jekyll Island in 1910. Most Americans comment that they cannot
understand how the Federal Reserve System operates. It remains
beyond understanding, not because it is complex, but because
it is so simple. If a confidence man comes up to you and offers
to demonstrate his marvelous money machine, you watch while he
puts in a blank piece of paper, and cranks out a $100 bill. That
is the Federal Reserve System. You then offer to buy this marvelous
money machine, but you cannot. It is owned by the private stockholders
of the Federal Reserve Banks, whose identities can be traced
partially, but not completely, to "the London Connection."
At the House Banking and Currency Committee Hearings on June
6, 1960, Congressman Wright Patman, Chairman, questioned Carl
E. Allen, President of the Federal Reserve Bank of Chicago. (p.
4). PATMAN: "Now Mr. Allen, when the Federal Reserve Open
Market Committee buys a million dollar bond you create the money
on the credit of the Nation to pay for that bond, don't you?
ALLEN: That is correct. PATMAN: And the credit of the Nation
is represented by Federal Reserve Notes in that case, isn't it?
If the banks want the actual money, you give Federal Reserve
notes in payment, don't you? ALLEN: That could be done, but nobody
wants the Federal Reserve notes. PATMAN: Nobody wants them, because
the banks would rather have the credit as reserves."
This is the most incredible part of the Federal Reserve operation
and one which is difficult for anyone to understand. How can
any American citizen grasp the concept that there are people
in this country who have the power to make an entry in a ledger
that the government of the United States now owes them one billion
dollars, and to collect the principal and interest on this "loan"?
Congressman Wright Patman tells us in "The Primer of Money",
p. 38 of going into a Federal Reserve Bank and asking to see
their bonds on which the American people are paying interest.
After being shown the bonds, he asked to see their cash, but
they only had some ledgers and blank checks. Patman says,
"The cash, in truth, does not exist and has never existed.
What we call 'cash reserves' are simply
bookkeeping credits entered upon ledgers
of the Federal Reserve Banks. The credits are created by the
Federal Reserve Banks and then
passed along through the banking system."
Peter L. Bernstein, in A Primer On Money, Banking and Gold says:
"The trick in the Federal Reserve notes is that the Federal
reserve banks lose no cash when they
pay out this currency to the member banks. Federal Reserve notes
are not redeemable in anything
except what the Government calls 'legal tender'--that is, money
that a creditor must be willing to
accept from a debtor in payment of sums owed him. But since all
Federal Reserve notes are
themselves declared by law to be legal money, they are really
redeemable only in themselves . . .
they are an irredeemable obligation issued by the Federal Reserve
As Congressman Patman puts it,
"The dollar represents a one dollar debt to the Federal
Reserve System. The Federal Reserve Banks create money out of
thin air to buy Government bonds from the United States Treasury,
lending money into circulation at interest, by bookkeeping entries
of checkbook credit to the United States Treasury. The Treasury
writes up an interest bearing bond for one billion dollars. The
Federal Reserve gives the Treasury a one billion dollar credit
for the bond, and has created out of nothing a one billion dollar
debt which the American people are obligated to pay with interest."
(Money Facts, House Banking and Currency Committee, 1964, p.
"Where does the Federal Reserve system get the money with
which to create Bank Reserves?
Answer. It doesn't get the money, it creates it. When the Federal
Reserve writes a check, it is
creating money. The Federal Reserve is a total moneymaking machine.
It can issue money or
In 1951, the Federal Reserve Bank of New York published a pamphlet,
"A Day's Work at the Federal Reserve Bank of New York."
On page 22, we find that:
"There is still another and more important element of public
interest in the operation of banks
besides the safekeeping of money; banks can 'create' money. One
of the most important factors to
remember in this connection is that the supply of money affects
the general level of prices--the
cost of living. The Cost of Living Index and money supply are
The decisions of the Federal Reserve Board, or rather, the decisions
which they are told to make by "parties unknown", affect
the daily lives of every American by the effect of these decisions
on prices. Raising the interest rate, or causing money to became
"dearer" acts to limit the amount of money available
in the market, as does the raising of reserve
91 Peter L. Bernstein, A Primer On Money, Banking and Gold, Vintage
Books, New York, 1965, p. 104
requirements by the Federal Reserve System. Selling bonds by
the Open Market Committee also extinguishes and lowers the money
supply. Buying government securities on the open market "creates"
more money, as does lowering the interest rate and making money
"cheaper". It is axiomatic that an increase in the
money supply brings prosperity, and that a decrease in the money
supply brings on a depression. Dramatic increases in the money
which outstrip the supply of goods brings on inflation, "too
much money chasing too few goods". A more esoteric aspect
of the monetary system is "velocity of circulation",
which sounds much more technical than it is. This is the speed
at which money changes hands; if it is gold buried in the peasant's
garden, that is a slow velocity of circulation, caused by a lack
of confidence in the economy or the nation. Very rapid velocity
of circulation, such as the stock market boom of the late 1920s,
means quick turnover, spending and investment of money, and its
stems from confidence, or overconfidence, in the economy. With
a high velocity of circulation, a smaller money supply circulates
among as many people and goods as a larger money supply would
circulate with a slower velocity of circulation. We mention this
because the velocity of circulation, or confidence in the economy,
also is greatly affected by the Federal Reserve actions. Milton
Friedman comments in Newsweek, May 2, 1983, "The Federal
Reserve's major function is to determine the money supply. It
has the power to increase or decrease the money supply at any
rate it chooses."
This is an enormous power, because increasing the money supply
can cause the re-election of an administration, while decreasing
it can cause an administration to be defeated. Friedman goes
on to criticize the Federal Reserve, "How is it that an
institution which has so poor a record of performance nevertheless
has so high a public reputation and even commands a considerable
measure of credibility for its forecasts?"
All open market transactions, which affect the money supply,
are conducted for a single System account by the Federal Reserve
Bank of New York on the behalf of all the Federal Reserve Banks,
and supervised by an officer of the Federal Reserve Bank of New
York. The conferences at which decisions are made to buy or sell
securities by the Open Market Committee remain closed to the
public, and the deliberations also remain a mystery. On May 8,
1928, The New York Times reported that Adolph C. Miller, Governor
of the Federal Reserve Board, testifying before the House Banking
and Currency Committee, stated that open market purchases and
rediscount rates were established through "conversations".
At that time, the purchases on the open market amounted to seventy
or eighty million dollars a day, and would be ten times that
today. These are vast sums to be manipulated on the basis of
mere "conversations", but that is as much information
as we can obtain.
Because of these mysterious transactions which affect the life,
liberty and happiness of every American citizen, there have been
numerous proposals such as Senate Document No. 23, presented
by Mr. Logan on January 24, 1939, that "The Government should
create, issue and circulate all the currency and credit needed
to satisfy the spending power of the Government and the buying
power of the consumers. The privilege of creating and issuing
money is not only the supreme prerogative of Government, but
it is the Government's greatest creative opportunity."
On March 21, 1960, Congressman Wright Patman used a simple illustration
in the Congressional Record of how banks "create money".
"If I deposit $100 with my bank and the reserve requirements
imposed by the Federal Reserve
Bank are 20% then the bank can make a loan to John Doe of up
to $80. Where does the $80
come from? It does not come out of my deposit of $100; on the
contrary, the bank simply credits John Doe's account with $80.
The bank can acquire Government obligations by the same procedure,
by simply creating deposits to the credit of the government.
Money creating is a power of the commercial banks . . . Since
1917 the Federal Reserve has given the private banks forty-six
billion dollars of reserves."
How this is done is best revealed by Governor Eccles at Hearings
before the House Committee on Banking and Currency on June 24,
ECCLES: "The banking system as a whole creates and extinguishes
the deposits as they make
loans and investments, whether they buy Government Bonds or whether
they buy utility bonds or whether they make Farmer's loans.
MR. PATMAN: I am thoroughly in accord with what you say, Governor,
but the fact remains
that they created the money, did they not?
ECCLES: Well, the banks create money when they make loans and
On September 30, 1941, before the same Committee, Governor Eccles
was asked by Representative Patman:
"How did you get the money to buy those two billion dollars
worth of Government securities in
ECCLES: We created it.
MR. PATMAN: Out of what?
ECCLES: Out of the right to issue credit money.
MR. PATMAN: And there is nothing behind it, is there, except
our Government's credit?
ECCLES: That is what our money system is. If there were no debts
in our money system, there
wouldn't be any money."
On June 17, 1942, Governor Eccles was interrogated by Mr. Dewey.
ECCLES: "I mean the Federal Reserve, when it carries out
an open market operation, that is, if it
purchases Government securities in the
open market, it puts new money into the hands of the banks which
creates idle deposits.
DEWEY: There are no excess reserves to use for this purpose?
ECCLES: Whenever the Federal Reserve System buys Government securities
in the open market,
or buys them direct from the Treasury, either one, that is what
DEWEY: What are you going to use to buy them with? You are going
to create credit?
ECCLES: That is all we have ever done. That is the way the Federal
Reserve System operates.
The Federal Reserve System creates money. It is a bank of issue."
At the House Hearing of 1947, Mr. Kolburn asked Mr. Eccles:
"What do you mean by monetization of the public debt?
ECCLES: I mean the bank creating money by the purchase of Government
is created by debt--either private or public debt.
FLETCHER: Chairman Eccles, when do you think there is a possibility
of returning to a free and
open market, instead of this pegged and artificially controlled
financial market we now have?
ECCLES: Never. Not in your lifetime or mine."
Congressman Jerry Voorhis is quoted in U.S. News, August 31,
1959, as questioning Secretary of Treasury Anderson, "Do
you mean that Banks, in buying Government securities, do not
lend out their customers' deposits? That they create the money
they use to buy the securities? ANDERSON: That is correct. Banks
are different from other lending institutions. When a savings
association, an insurance company, or a credit union makes a
loan, it lends the very dollar that its customers have previously
paid in. But when a bank makes a loan, it simply adds to the
borrower's deposit account in the bank by the amount of the loan.
The money is not taken from anyone. It is new money, recreated
by the bank, for the use of the borrower."
Strangely enough, there has never been a court trial on the legality
or Constitutionality of the Federal Reserve Act. Although it
is on much the same shaky grounds as the National Recovery Act,
or NRA, which was challenged in Schechter Poultry v. United States
of America, 29 U.S. 495, 55 US 837.842 (1935), the NRA was ruled
unconstitutional by the Supreme Court on the grounds that "Congress
may not abdicate or transfer to others its legitimate functions.
Congress cannot Constitutionally delegate its legislative authority
to trade or industrial associations or groups so as to empower
them to make laws."
Article 1, Sec. 8 of the Constitution provides that "The
Congress shall have power to borrow money on the credit of the
United States . . . and to coin Money, regulate the value thereof,
and of foreign Coin, and fix the Standard of Weights and Measures."
According to the NRA deci-
sion, Congress cannot delegate this power to the Federal Reserve
System, nor can it delegate its legislative authority to the
Federal Reserve System to allow the System to fix the rate of
bank reserves, the rediscount rate, or the volume of money. All
of these are "legislated" by the Federal Reserve Board,
meeting in legislative sessions to determine these matters and
to issue "laws" or regulations fixing them.
The Second World War gave the big bankers who owned the Federal
Reserve System a chance to unload on the country billions of
dollars printed early in 1930, in the biggest counterfeiting
operation in history, all legalized by Roosevelt's government,
of course. Henry Hazlitt writes in the January 4, 1943 issue
of Newsweek Magazine:
"The money that began to appear in circulation a week ago,
December 21, 1942, was really
printing press money in the fullest sense of the term, that is,
money which has no collateral of any kind behind it. The Federal
Reserve statement that 'The Board of Governors, after consultation
with the Treasury Department, has authorized Federal Reserve
Banks to utilize at this time the existing stocks of currency
printed in the early thirties, known as 'Federal Reserve Banknotes'.
We repeat, these notes have absolutely no collateral of any kind
Governor Eccles also testified to some other interesting matters
of the Federal Reserve and war finance at the Senate Hearings
on the Office of Price Administration in 1944:
"The currency in circulation was increased from seven billion
dollars in four years to twenty-one
and a half billion. We are losing some considerable amounts of
gold during the war period. As
our exports have gone out, largely on a lend-lease basis, we
have taken imports on which we have
given dollar balances. These countries are now drawing off these
dollar balances in the form of
MR. SMITH: Governor Eccles, what is the objective that the foreign
governments are after in
this projected program whereby we would contribute gold to an
GOVERNOR ECCLES: I would like to discuss OPA, and leave the stabilization
fund for a time
when I am prepared to go into it.
MR. SMITH: Just a minute. I feel that this fund is very pertinent
to what we are talking about
MR. FORD: I believe that the stabilization fund is entirely off
the @OPA and consequently we
ought to stick to the business at hand."
The Congressmen never did get to discuss the Stabilization Fund,
another setup whereby we would give the impoverished countries
of Europe back the gold which had been sent over here. In 1945,
Henry Hazlitt, commenting in Newsweek of January 22, on Roosevelt's
annual budget message to Congress, quoted Roosevelt as saying:
"I shall later recommend legislation reducing the present
high gold reserve requirements of the
Federal Reserve Banks."
Hazlitt pointed out that the reserve requirement was not high,
it was just what it had been for the past thirty years. Roosevelt's
purpose was to free more gold from the Federal Reserve System
and make it available for the Stabilization Fund, later called
the International Monetary Fund, part of the World Bank for Reconstruction
and Development, the equivalent of the League Finance Committee
which would have swallowed the financial sovereignty of the United
States if the Senate had let us join it.