Obama Administration Czar Cass Sunstein wrote a paper in 2008 stating that the government should respond to conspiracy theories via "cognitive infiltration of extremist groups." In other words, Cass Sunstein advocates thought and speech control.
So in light of Sunstein's extremist point of view, I decided to write a series on conspiracy theories that turned out to be true!
The Federal Reserve Bank
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. - Adam Smith
The major push for a central bank began with a speech by Jacob Schiff, head of Kuhn, Loeb, and Company in 1906, where he stated that the "country needed money to prevent the next crisis." Working with his partner Paul Warburg, and Rockefeller-owned National City Bank of New York's Frank Vanderlip, they created a commission and delivered a report to the New York Chamber of Commerce calling for a "central bank of issue under government control."
The New York Chamber then developed its own commission, which was to include Frank Vanderlip, Jacob Schiff, J.P. Morgan, George Baker of the First National Bank of New York (Morgan's closest friend), and former Secretary of the Treasury Lyman Gage (president of Rockefeller's US Trust Company at the time). In other words, the commission would consist of two Rockefeller men (Vanderlip and Gage), two Morgan men (Morgan and Baker), and one representative from Kuhn, Loeb.
"Only Vanderlip was available to serve, however, so the commission had to be redrawn. In addition to Vanderlip, beginning in March 1906, there sat, instead of Schiff, his close friend Isidore Straus, a director of R. H. Macy and Company. Instead of Morgan and Baker there now served two Morgan men: Dumont Clarke, president of the American Exchange National Bank and a personal adviser to J. P. Morgan and Charles A. Conant, treasurer of Morton and Company. The fifth man was a veteran of the Indianapolis Monetary Convention, John Claflin, of H. B. Claflin and Company, a large integrated wholesaling concern. Coming on board as secretary of the new currency committee was Vanderlip's old friend Joseph French Johnson, now of New York University, who had been calling for a central bank since 1900." [1]
The commission soon issued their "Currency Report," declaring a need for "centralization of financial responsibility." Sound familiar? They also wanted to be able to issue money not based on gold, but on general assets and government bonds. Thus, the agitation for a central bank began.
They first went to work on the American Banking Association (ABA). In October 1906, the ABA rejected the commissions plan, but agreed to appoint a 15-man commission of their own, to meet with the New York Chamber currency committee in order to attempt to agree on legislation.
Prominent members of this new commission included:
Arthur Reynolds, president of the Des Moines National Bank, close to the Morgan-oriented Des Moines Regency, and brother of the prominent Chicago banker, George M. Reynolds, formerly of Des Moines and then president of the Morgan-oriented Continental National Bank of Chicago and the powerful chairman of the executive council of the ABA.
James B. Forgan, president of the Rockefeller-run First National Bank of Chicago, and close friend of Jacob Schiff of Kuhn, Loeb, as well as of Vanderlip.
Joseph T. Talbert, vice president of the Rockefeller-dominated Commercial National Bank of Chicago, and soon to become vice president of Rockefeller's flagship bank, the National City Bank of New York.
Myron T. Herrick, one of the most prominent Rockefeller politicians and businessmen in the country. Herrick was the head of the Cleveland Society of Savings, and was one of the small team of close Rockefeller business allies who, along with Mark Hanna, bailed out Governor William McKinley from bankruptcy in 1893. Herrick was a previous president of the ABA, had just finished a two-year stint as Governor of Ohio, and was later to become Ambassador to France under his old friend and political ally William Howard Taft as well as later under President Warren G. Harding, also a recipient of Herrick's political support and financial largesse.
Chairman of the ABA commission was A. Barton Hepburn, president of one of the leading Morgan commercial banks, the Chase National Bank of New York, and author of the well-regarded History of Coinage and Currency in the United States. [2]
The ABA commission presented proposals to the public, the press, and to the Congress for a broader-asset currency as well as provisions for emergency issue of banknotes by the national banks. The groundwork for a central bank had been laid.
The Panic of 1907
In 1907, there was a recession most known today as the "Panic of 1907." Another name for it is the "banker's panic," because it was caused by the inherent problems with fractional-reserve banking. The banks had inflated their currencies too much (as in all other banking crisis), so they suspended specie payments (stopped paying out gold to their depositors). This of course, is the logical result of lending out more money than you have in deposits (see Fractional Reserve Banking and The Fed as Giant Counterfeiter for more information).
As Rahm Emmanuel famously stated, "never let a crisis go to waste." So academia, agitators and politicians went into full-force demanding the government "do something!" So the bankers (the largest banks, that is), who were already laying the groundwork for a central bank, now had their opportunity.
In 1908, Senator Nelson W. Aldrich (R-RI), head of the Senate Finance Committee and father-in-law of John D. Rockefeller, Jr., introduced a bill dealing with whether and on what basis national banks could issue special currency (because they loaned more money than they had). After some typical congressional horse-trading, the Aldrich-Vreeland Act was passed.
Note: Senator Nelson Aldrich is Nelson Rockefeller's grandfather and namesake.
The Aldrich-Vreeland Act created the National Monetary Commission, to study banking reform. The commission of course, was staffed by people close to the largest banks: First National Bank of New York, Kuhn, Loeb, Bankers Trust Company, and the Continental National Bank of Chicago, all Rockefeller and Morgan connected men, who then went travelling throughout Europe, and returned to propagandize the European central banks.
Note: Today, the "experts" all just happen to be Goldman Sachs men. However, this post doesn't intend to continue past the passing of the Federal Reserve Act to explain this part of history.
Charles A. Conant, the commissions chief public relations man, wrote a series of articles in the Wall Street Journal on the need for a central bank. Another writer at the Journal, Sereno S. Pratt, wrote a rather telling article in which he said:
Reform can only be brought about by educating the people up to it, and such education must necessarily take much time. In no other way can such education be effected more thoroughly and rapidly than by means of a commission … [that] would make an international study of the subject and present an exhaustive report, which could be made the basis for an intelligent agitation. [3]
"Educating the people up to it" was a common refrain during the Progressive Era. Sound eerily like the "intellectuals" of today?
In the meantime, Paul Warburg (J.P. Morgan's man) formed a currency committee at the New York Merchant's Association. Warburg met and corresponded frequently with leading academics advocating banking reform (it's always called "reform"). The most notable names included Thomas Nixon Carver of Harvard, Henry R. Seager of Columbia, Davis R. Dewey, historian of banking at MIT (and brother of progressive philosopher John Dewey), Oliver M.W. Sprague (of the Morgan connected Sprague family), professor of banking at Harvard, and Irving Fisher of Yale.
By 1909, even President William Howard Taft endorsed a central bank! By 1910, the time was right for drafting legislation that would eventually become the Federal Reserve Act.
The Jekyll Island Club
... if we face a monopolist we are at his mercy. And an authority directing the whole economic system would be the most powerful monopolist conceivable. - F.A. Hayek
The purpose of the previous section wasn't to provide a complete history of the events that led the Federal Reserve, but to highlight that it was the big banks who were the main agitators for a central bank - most notably the J.P. Morgan and J.D. Rockefeller interests. Here's the rest of the story ...
By November 1910, the time was right to draft legislation to establish a central bank. What happens next, is almost too bizarre to take seriously, but history has recorded the facts that a secret meeting was held at a coastal resort called the Jekyll Island Club, which was co-owned by John D. Rockefeller himself.
Now one can believe that this was the first and only time in history in which an interest group drafted legislation for the public good at their own expense. Or we can consider the possibility that their desire was to entrench special privileges for their particular industry at the expense of the rest of society.
On November 22, 1910, Senator Aldrich, with a handful of companions, set forth in a privately chartered railroad car from Hoboken, New Jersey to the coast of Georgia, where they sailed to the exclusive Jekyll Island Club. The press reported it as a duck-hunting expedition, but those who attended took elaborate steps to preserve their secrecy. The most prominent attendees of this secret meeting were:
- Senator Nelson Aldrich, J.D. Rockefeller Jr.'s father-in-law.
- Henry Davison, Senior Partner at J.P. Morgan
- Paul Warburg, director of Wells Fargo & Company (Kuhn, Loeb) and German émigré
- Frank Vanderlip, vice president of Rockefeller's National City Bank
- A. Piatt Andrew, economist, National Monetary Commission staffer and Assistant Secretary of the Treasury to President Taft.
In total, there were 2 Rockefellers, 2 Morgans, one Kuhn, Loeb person, and one economist.
[T]he essence of the Fed: powerful bankers and government officials working together to make the nation’s money system serve their interests, with economists there to provide scientific gloss. It has been pretty much the same ever since. [4]
The 6 men worked in secrecy for a full week hammering out their plan. They didn't want a traditional European-style central bank, but a central bank system camouflaged in politically more palatable "decentralization." So they decided to split it up into 12 member banks, which provided ample coverage for their new cartel. And though the bank was to remain independent of the government, they settled on a government-sounding name - The Federal Reserve Bank.
The full plan was then presented to the National Monetary Commission in 1911, and the propaganda went into full steam, with newspaper editorials, phony citizens’ leagues, and endorsements from trade organizations. The next step was to remove the Republican partisanship from the bill and replace it with a "bipartisan" one, so the agitation went into over-drive!
Note: At this time in our history, Democrats were the sound money, free market advocates. But soon to be turned into the progressives under Woodrow Wilson's leadership.
The bankers had wanted to appoint the Federal Reserve Board themselves, but to gain the support of the Democrats, they agreed their cartel could still be achieved if the president appointed the board. So the compromise was made, and on December 23, 1913, when just about everyone in Washington had travelled home for the Christmas holiday (think about how difficult travel was at the time), the Federal Reserve Act was passed and signed into law!
The government had now officially provided legitimacy to a banking cartel, permitting them to inflate the currency at will and protect themselves against the consequences of bad loans and over-extended credit via the American taxpayers wallet.
[It was] the most tragic blunder ever committed by Congress. The day it was passed, old America died and a new era began. A new institution was born that was to cause, or greatly contribute to, the unprecedented economic instability in the decades to come. - Hans Sennholz
Conclusion
The Federal Reserve is a form of financial socialism that benefits the rich and powerful at the expense of the poor. The excuse given, that the Fed would protect the monetary and financial system against inflation and violent swings in market activity, stabilize the system by providing stimulus when necessary, and pull back on inflation when the economy overheated has proven to be nothing but a farce.
Since its founding (at the behest of the financial elite), the dollar has lost 96% of its purchasing power, we've suffered many recessions, we're heading into our second Great Depression, and we've witnessed a record number of bank failures over the past 100 years as well. It's safe to say that not only has the Federal Reserve been a failure, but that the banks and government have stolen 96 cents out of every American taxpayers dollar!
Sure ... You can sit there and tell me it was "for your own good," and that Rockefeller and Morgan drafted the Federal Reserve out of necessity. Believe that if you must. But this is the true story of the Federal Reserve. It was designed by, and for, the largest banks in the country.
Fractional Reserves
The institution of fractional reserves mixes these functions, such that warehousing becomes a source for lending. The bank loans out money that has been warehoused—and stands ready to use in checking accounts or other forms of checkable deposits—and that loaned money is deposited yet again in checkable deposits. It is loaned out again and deposited, with each depositor treating the loan money as an asset on the books. In this way, fractional reserves create new money, pyramiding it on a fraction of old deposits. An initial deposit of $1,000, thanks to this “money multiplier,” turns into $10,000. The Fed adds reserves to the balances of member banks in the hope of inspiring ever more lending. [5]
Sources:
[1] Origins of the Federal Reserve, Murray N. Rothbard.
[2] Ibid.
[3] Ibid.
[4] The Money Monopoly, The American Conservative.
[5] Ibid.
Book Review: The Case Against the Fed, Doug French.
The Federal Reserve - Its Origins, History & Current Strategy, Wayne N. Krautkramer.
Bankers: Their Gains, Our Risks, Gary North.
End the Fed, Ron Paul.
Meltdown, Thomas E. Woods Jr.
