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"America's Secret Establishment"


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Secrets of the Federal Reserve

The history, organization and controlling interests behind the Federal
Reserve
-- by Eustace Mullins, 1983 source: Whale.to

..: with hyperlinks to entries from the MHP database :.
Chapter 13: The 1930s
The Fed during the Hoover and Roosevelt administrations
Governor Eugene Meyer, Jr.
Congressman Louis T. McFadden
President Franklin D. Roosevelt
The Unaccountable Central Bank
Chairman Marriner Eccles
The Banking Act of 1935
The Gold Reserve Hearings (1934)
Expansion and Contraction of the Money Supply
Footnotes
Governor Eugene Meyer, Jr.

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 Bank
failed.

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
institutions."

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 for
corrections.

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 records."

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 farmer,
saying:
"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 capital."

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 statement.

Despite the damning evidence uncovered at these Senate Hearings, Eugene
Meyer, Jr. remained on the Federal Reserve Board.

Congressman Louis T. McFadden

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.

President Franklin D. Roosevelt

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
Depression, 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 [bonds] 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 to the 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, a 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.

The Unaccountable Central Bank

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 the Reichsbank."

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 people fulfilled.

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.

Chairman Marriner Eccles

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

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 banking?"

"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 (1934)

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 statement:
"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 York,
said:
"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 before.

SENATOR BULKLEY: It does not increase the circulating medium at all?

ANDERSON: No.

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.

Expansion and Contraction of the Money Supply

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 administration.
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 1939:
"When you sell bonds on the open market, you extinguish reserves."

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 the dollar."

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
Currency:
"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 of money.

In 1935, Governor Eccles stated before the House Committee:
"The Federal Reserve Board has the power of open market operations.
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 Banks."
[91]

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. 9)

Patman continues:
"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 checks."

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 parallel."

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 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, 1941:
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
investments."

On September 30, 1941, before the same Committee, Governor Eccles was
asked by Representative Patman:
MR. PATMAN: How did you get the money to buy those two billion dollars
worth of Government securities in 1933?

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 it does.

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
securities. All 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 decision, 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 behind
them."

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 (OPA) 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 gold.

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 international fund?

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 today.

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 [of Nations] Finance
Committee which would have swallowed the financial sovereignty of the
United States if the Senate had let us join it.
Notes for Chapter 13

91. Peter L. Bernstein, A Primer On Money, Banking and Gold, Vintage
Books, New York, 1965, p. 104

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