excerpted from the book
The Creature from Jekyll Island
a second look at the Federal Reserve
by G. Edward Griffin
American Media, 2008, paperback
It is one of the least understood realities of modem history that
many of America's most prominent political and financial figures
- then as now - have been willing to sacrifice the best interests
of the United States in order to further their goal of creating
a one-world government. The strategy has remained unchanged since
the formation of Cecil Rhodes' society and its offspring, the
Round Table Groups. It is to merge the English-speaking nations
into a single political entity, while at the same time creating
similar groupings for other geopolitical regions. After this is
accomplished, all of these groupings are to be amalgamated into
a global government, the so-called Parliament of Man.
Andrew Carnegie in his book, 'Triumphant Democracy', expressing
concern that England was in decline as a world power
Reunion with her American children is
the only sure way to prevent continued decline [England] ....
Whatever obstructs reunion oppose; whatever promotes reunion favor.
I judge all political questions from this standpoint...
The Parliament of Man and the Federation
of the World have already been hailed by the poet, and these mean
a step much farther in advance of the proposed reunion of Britain
and America .... I say that as surely as the sun in the heavens
once shone upon Britain and America united, so surely is it one
morning to rise, shine upon, and greet again the reunited state,
"The British-American Union".
After the Civil War, America experienced a series of expansions
and contractions of the money supply leading directly to economic
booms and busts. This was the result of the creation of fiat money
by a banking system which, far from being free and competitive,
was a half-way house to central banking. Throughout the chaos,
one banking firm, the House of Morgan, was able to prosper out
of the failure of others. Morgan had close ties with the financial
structure and culture of England and was, in fact, more British
than American. Events suggest the possibility that Morgan and
Company was in concealed partnership with the House of Rothschild
throughout most of this period.
Benjamin Strong was a Morgan man and was
appointed as the first Governor of the Federal Reserve Bank of
New York which rapidly assumed dominance over the System. Strong
immediately entered into close alliance with Montagu Norman, Governor
of the Bank of England, to save the English economy from depression.
This was accomplished by deliberately creating inflation in the
U.S. which caused an outflow of gold, a loss of foreign markets,
unemployment, and speculation in the stock market, all of which
were factors that propelled America into the crash of 1929 and
the great depression of the 30s.
... the same forces were responsible for
American involvement in both world wars to provide the economic
and military resources England needed to survive. Furthermore,
the key players in this action were men who were part of the network
of a secret society established by Cecil Rhodes for the expansion
of the British empire.
Between 1900 and 1910, seventy per cent of American corporate
growth was funded internally, making industry increasingly independent
of the banks at the bankers wanted-and what many businessmen wanted
also-was a more "flexible" or "elastic" money
supply which would allow them to create enough of it at any point
in time so as to be able to drive interest rates downward at will.
That would make loans to businessmen so attractive they would
have little choice but to return to the bankers' stable.
The concept of trusts and cartels had dawned in America and, to
those who already had made it to the top, joint ventures, market
sharing, price fixing, and mergers were far more profitable than
free-enterprise competition. Ron Chernow explains:
Wall Street was snowballing into one
big, Morgan-dominated institution] In December 1909, Pierpont
had bought a majority stake in the Equitble Life Assurance Society
from Thomas Fortune Ryan. This gave him strong influence over
America's three biggest insurance companies-Mutual Life, Equitable,
and New York Life .... His Bankers Trust had taken over three
other banks. In 1909, he had gained control of Guaranty Trust,
which through a series of mergers he converted into America's
largest trust .... The core Money Trust group included J.P. Morgan
and Company, First National Bank, and National City Bank ....
Wall Street bankers incestuously swapped
seats on each others boards. Some banks had so many overlapping
directors it was hard to separate them .... The banks also shared
large equity stakes in each other ....
Why didn't banks just merge instead of
carrying out the charade of swapping shares and board members?
... The answer harked back to traditional American antipathy against
concentrated financial power. The Morgan-First National-National
City trio feared public retribution if it openly declared its
... As these combines became larger and
larger, ways were sought to bring them together at the top rather
than to capture the corporate entities which comprised them. Thus
was born the concept of a cartel, a "community of interest"
among businessmen in the same field, a mechanism for coming together
as partners at a high level and to reduce or eliminate altogether
the harsh necessity of competition.
Henry P Davison, a J.P. Morgan partner, told a Congressional committee
I would rather have regulation and control
than free competition.
John D. Rockefeller
Competition is a sin.
John Moody, 1919
This remarkable welding together of great
corporate interests could not, of course, have been accomplished
if the "masters of capital" in Wall Street had not themselves
during the same period become more closely allied... Although
the two great groups of financiers represented on the one hand
by Morgan and his allies and on the other by the Standard Oil
forces, were still distinguishable, they were now working in practical
harmony on the basis of a sort of mutual "community of interest"
of their own. Thus the control of capital and credit through banking
resources tended to become concentrated in the hands of fewer
and fewer men .... Before long it could be said, indeed, that
two rival banking groups no longer existed, but that one vast
and harmonious banking power had taken their place.
The monetary contractions of 1879 and 1893 were handled by Wall
Street fairly easily and without government intervention, but
the crisis of 1907 pushed their resources close to the abyss.
It became clear that two changes had to be made: all remnants
of banking competition now had to be totally eliminated and replaced
by a national cartel; and far greater sums of fiat money had to
be made available to the banks to protect them from future runs
by depositors. There was now no question that Congress would have
to be brought in as a partner in order to use the power of government
to accomplish these objectives.
Seven men, representing one-fourth of the wealth of the world
[met] on Jekyll Island to work out a plan to achieve five primary
1. How to stop the growing influence of
small, rival banks and to insure that control over the nation's
financial resources would remain in the hands of those present;
2. How to make the money supply more elastic
in order to reverse the trend of private capital formation and
to recapture the industrial loan market;
3. How to pool the meager reserves of
all the nation's banks into one large reserve so that at least
a few of them could protect themselves from currency drains and
4. How to shift the inevitable losses
from the owners of the banks to the taxpayers;
5. How to convince Congress that the scheme
was a measure to protect the public.
To convince Congress and the public that the establishment of
a banking cartel was, somehow, a measure to protect the public,
the Jekyll Island strategists laid down the following plan of
1. Do not call it a cartel nor even a
2. Make it look like a government agency.
3. Establish regional branches to create
the appearance of decentralization, not dominated by Wall Street
4. Begin with a conservative structure
including many sound banking principles knowing that the provisions
can be quietly altered or removed in subsequent years.
5. Use the anger caused by recent panics
and bank failures to create popular demand for monetary reform.
6. Offer the Jekyll Island plan as though
it were in response to that need.
7. Employ university professors to give
the plan the appearance of academic approval.
8. Speak out against the plan to convince
the public that Wall Street bankers do not want it.
Americans would never have accepted the Federal Reserve System
if they had known that it was half cartel and half central bank.
Even though the concept of government protectionism was rapidly
gaining acceptance in business, academic, and political circles,
the idea of cartels, trusts, and restraint of free competition
was still quite alien to the average voter. And within the halls
of Congress, any forthright proposal for either a cartel or a
central bank would have been soundly defeated.
If not using the word bank was essential to the Jekyll Island
plan, avoiding the word cartel was even more so. Yet, the cartel
nature of the proposed central bank was obvious to any astute
observer. In an address before the American Bankers Association,
Aldrich laid it out plainly. He said: "The organization proposed
is not a bank, but a cooperative union of all the banks of the
country for definite purposes." Two years later, in a speech
before that same group of bankers, A. Barton Hepburn of Chase
National Bank , was even more candid. He said: "The measure
adopts the principles of a central bank. Indeed, it works out
as the sponsors of the law hope, it will make all incorporated
banks together joint owners of a central dominating power."
It would be difficult to find a better definition of the word
cartel than that.
The plan to structure the Creature conservatively
at the start and then to remove the safeguards later was the brainchild
of Paul Warburg. The creation of a powerful Federal Reserve Board
was also his idea as a means by which the regional branches could
be absorbed into a central bank with control safely in New York.
It is true that the Federal Reserve was to be a private institution,
but it is certainly not true that this was to mark the disappearance
of the government from 4 the banking business. In fact, it was
just the opposite, because it f marked the appearance of the government
as a partner with private bankers and as the enforcer of their
Congressman Charles Lindbergh
Ever since the Civil War, Congress has
allowed the bankers to completely control financial legislation.
The membership of the Finance Committee in the Senate and the
Committee on Banking and Currency in the House, has been made
up of bankers, their agents and attorneys. These committees have
controlled the nature of the bills to be reported, the extent
of them, and the debates that were to be held on "l them
when they were being considered in the Senate and the House. No
one, not on the committee, is recognized ... unless someone favorable
to the committee has been arranged for.
In 1902 [Woodrow Wilson] he had been elected as the president
of Princeton University, a position he could not have held without
the concurrence of the University's benefactors among Wall Street
bankers. He was particularly close with Andrew Carnegie and had
become a trustee of the Carnegie Foundation.
Two of the most generous donors were Cleveland
H. Dodge and Cyrus McCormick, directors of Rockefeller's National
City Bank. They were part of that Wall Street elite which the
Pujo Committee had described as America's "Money Trust."
Both men had been Wilson's classmates at Princeton University.
When Wilson returned to Princeton as a professor in 1890, Dodge
and McCormick were, by reason of their wealth, University trustees,
and they took it upon themselves to personally advance his career.
Ferdinand Lundberg, in America's Sixty Families, says this:
For nearly twenty years before his nomination
Woodrow Wilson had moved in the shadow of Wall Street .... In
1898 Wilson, his salary unsatisfactory, besieged with offers of
many university presidencies, threatened to resign. Dodge and
McCormick thereupon constituted themselves his financial guardians,
and agreed to raise the additional informal stipendium that kept
him at Princeton. The contributors to this private fund were Dodge,
McCormick, and Moses Taylor Pyne and Percy R. Pyne, of the family
that founded the National City Bank. In 1902 this same group arranged
Wilson's election as president of the university.
A grateful Wilson often had spoken in
glowing terms about the rise of vast corporations and had praised
J.P. Morgan as a great American leader. He also had come to acceptable
conclusions about the value of a controlled economy. "The
old time of individual competition is probably gone by,"
he said. "It may come back; I don't know; it will not come
back within our time, I dare say."
Woodrow Wilson, President Of Princeton
University, was the first prominent educator to speak in favor
of the Aldrich Plan, a gesture which immediately brought him the
Governorship of New Jersey and later the Presidency of the United
States. During the panic of 1907, Wilson declared that: "all
this trouble could be averted if we appointed a committee of six
or seven public-spirited men like J.P. Morgan to handle the affairs
of our country."
Banking in the period immediately prior to passage of the Federal
Reserve Act was subject to a myriad of controls, regulations,
subsidies, and privileges at both the federal and state levels.
Popular history portrays this period as one of unbridled competition
and free banking. It was, in fact, a half-way house to central
banking. Wall Street, however, wanted more government participation.
The New York bankers particularly wanted a "lender of last
resort" to create unlimited amounts of fiat money for their
use in the event they were exposed to bank runs or currency drains.
They also wanted to force all banks to follow the same inadequate
reserve policies so that me cautious ones would not draw down
the reserves of the others. An additional objective was to limit
the growth of new banks in the South and West.
This was a time of growing enchantment
with the idea of trusts and cartels. For those who had already
made it to the top, competition was considered chaotic and wasteful.
Wall Street was snowballing into two major banking groups: the
Morgans and the Rockefellers, and even they had largely ceased
competing with each other in favor of cooperative financial structures.
But to keep these cartel combines from flying apart, a means of
discipline was needed to force the participants to abide by the
agreements. The federal government was brought in as a partner
to serve that function.
To sell the plan to Congress, the cartel
reality had to be hidden and the name "central bank"
had to be avoided. The word Federal was chosen to make it sound
like it was a government operation; the word Reserve was chosen
to make it appear financially sound; and the word System (the
first drafts used the word Association) was chosen to conceal
the fact that it was a central bank. A structure of 12 regional
institutions was conceived as a further ploy to create the illusion
of decentralization, but the mechanism was designed from the beginning
to operate as a central bank closely modeled after the Bank of
the monetary scientists carefully selected their candidate [Woodrow
Wilson] - and set about to clear the way for his victory. The
maneuver was brilliant. Who would suspect that Wall Street would
support a Democrat, especially when the Party platform contained
this plank: "We oppose the so-called Aldrich Bill or the
establishment of a central bank; and ... what is known as the
What irony it was. The Party of the working
man, the Party of Thomas Jefferson - formed only a few generations
earlier for the specific purpose of opposing a central bank -
was now cheering a new leader [Woodrow Wilson] who was a political
captive of Wall Street bankers and who had agreed to the hidden
agenda of establishing the Federal Reserve System.
William McAdoo, Woodrow Wilson' s national campaign vice-chairman
The fact is that there is a serious danger
of this country becoming a pluto-democracy; that is, a sham republic
with the real government in the hands of a small clique of enormously
wealthy men, who speak through their money, and whose influence,
even today, radiates to every corner of the United States.
Although the [Theodore] Roosevelt-[J.P.]
Morgan relationship is sometimes caricatured as that of trust
buster versus trust king, it was far more complex than that. The
public wrangling obscured deeper ideological . affinities....
Roosevelt saw trusts as natural, organic outgrowths of economic
development. Stopping them, he said, was like trying to dam the
Mississippi River. Both [Theodore] Roosevelt and [J.P.] Morgan
disliked the rugged, individualistic economy of the nineteenth
century and favored big business .... In the sparring between
Roosevelt and Morgan there was always a certain amount of shadow
play, a pretense of greater animosity than actually existed ....
Roosevelt and Morgan were secret blood brothers.
Both [Woodrow] Wilson and [Theodore] Roosevelt played their roles
to the hilt. Privately financed by Wall Street's most powerful
bankers, they publicly carried a flaming crusade against the "Money
Trust" from one end of the country to the other.
... Throughout the campaign, [William
Howard] Taft was portrayed as the champion of big business and
Wall Street banks- - which, of course, he was. But so were Roosevelt
... The outcome of the election was exactly
as the strategists had anticipated. Wilson won with only forty-two
per cent of the popular vote, which means, of course, that fifty-eight
per cent had been cast against him. Had Roosevelt not entered
the race, most of his votes undoubtedly would have gone to Taft,
and Wilson would have become a footnote. As Colonel House confided
to author George Viereck years later, "Wilson was elected
by Teddy Roosevelt".
While technically and legally the Federal
Reserve note is an obligation, of the United States Government,
in reality it is an obligation, the sole actual responsibility
for which rests on the reserve banks .... The government could
only be called upon to take them up after the reserve banks had
Warburg's explanation should be carefully
analyzed. It is an incredibly important statement. The man who
masterminded the Federal Reserve System is telling us that Federal
Reserve notes constitute privately issued money with the taxpayers
standing by to cover the potential losses of those banks which
issue it. One of the more controversial assertions of this book
is that the objectives set forth at the Jekyll Island meeting
included the shifting of the cartel's losses from the owners of
the banks to the taxpayers.
President [William Howard] Taft, although a Republican spokesman
for big business, refused to champion the Aldrich Bill for a central
bank. This marked him for political extinction. The Money Trust
wanted a President who would aggressively promote the bill, and
the man selected was Woodrow Wilson who had already publicly declared
his allegiance. Wilson's nomination at the Democratic national
convention was secured by Colonel House, a close associate of
Morgan and Warburg. To make sure that Taft did not win his bid
for reelection, the Money Trust encouraged the former Republican
President, Teddy Roosevelt, to run on the Progressive ticket.
The result, as planned, was that Roosevelt pulled away Republican
support from Taft, and Wilson won the election with less than
a majority vote. Wilson and Roosevelt campaigned vigorously against
the evils of the Money Trust while, all along, being I dependent
upon that same Trust for campaign funding.
In 1913, public distaste for concentration of financial power
in the hands of a few Wall Street banks helped to fuel the fire
for passage of the Federal Reserve Act. To make it appear that
the new System would put an end to the New York "money trust,"
as it was called, the public was told that the Federal Reserve
would not represent any one group or one region. Instead, it would
have its power diffused over twelve regional Federal Reserve Banks,
and none would be able to dominate.
... The United States entry into World
War I provided the impetus for increasing the power of the Fed.
The System became the sole fiscal agent of the Treasury, Federal
Reserve Notes were issued, virtually all of the gold reserves
of the nation's commercial banks were gathered together into the
vaults of the Federal System, and many of the legislative restraints
placed into the original Act were abandoned. Voters ask fewer
questions when their nation is at war.
The concentration of power into the hands
of the very "money trust" the Fed was supposed to defeat,
is described by Ferdinand Lundberg, author of America's Sixty
In practice, the Federal Reserve Bank
of New York became the fountainhead of twelve regional banks,
for New York was the money market of the nation. The other eleven
banks were so many expensive mausoleums erected to salve the local
pride and quell the Jacksonian fears of the hinterland. Benjamin
Strong,... president of the Bankers Trust Company [J.P. Morgan]
was selected as the first Governor of the New York Reserve Bank.
An adept in high finance, Strong for many years manipulated the
country's monetary system at the discretion of directors representing
the leading New York banks. Under Strong the Reserve System, unsuspected
by the nation, was brought into interlocking relations with the
Bank of England and the Bank of France.
It was the interlock [U.S. Federal Reserve,
the Bank of England, and the Bank of France] during World War
I that was responsible or the confiscation from American taxpayers
of billions of dollars which were given to the central banks of
England and France. Much of that money found its way to the associates
of J.P. Morgan as interest payments on war bonds and as fees for
supplying munitions and other war materials.
Seventy percent of the cost of World War
I was paid by inflation rather than taxes, a process that was
orchestrated by the Federal Reserve System. This was considered
by the Fed's supporters as its first real test, and it passed
with flying colors. American inflation during that period was
only slightly less than in England, which had been more deeply
committed to war and for a longer period of time. That is not
surprising inasmuch as a large portion of Europe's war costs had
been transferred to the American taxpayers.
After the war was over [World War I],
the transfusion of American dollars continued as part of a plan
to pull England out of depression. The methods chosen for that
transfer were artificially low interest rates and a deliberate
inflation of the American money supply. That was calculated to
weaken the value of the dollar relative to the English pound and
cause gold reserves to move from America to England.
International money managers may be citizens of a particular country
but, to many of them, that is a meaningless accident of birth.
They consider themselves to be citizens of the world first. They
speak of affection for all mankind, but their highest loyalty
is to themselves and their profession.
Professor [Carroll] Quigley
It must not be felt that these heads
of the world's chief central banks [the governors of the Bank
of England and the Federal Reserve] were themselves substantive
powers in world finance. They were not. Rather, they were the
technicians and agents of the dominant investment bankers of their
own countries, who had raised them up and were perfectly capable
of throwing them down. The substantive financial powers of the
world were in the hands of these investment bankers (also called
"international" or "merchant" bankers who
remained largely behind the scenes in their own unincorporated
private banks. These formed a system of international cooperation
and national dominance which was more private, more powerful,
and more secret than that of their agents in the central banks.
Politicians come and go, but those who wield the power of money
remain to pick their successors.
Congressman Charles Lindberg, Sr.
Under the Federal Reserve Act, panics
are scientifically created.
The war years [World War I] were largely a period of testing new
strategies and consolidating power. Ironically, it was not until
after the war-when there was no longer a justification for deficit
spending-that government debt became plentiful. Up until World
War I, annual federal expenses had been running about $750 million.
By the end of the war, it was running $18 and-a-half billion,
an increase of 2,466%. Approximately 70% of the cost of war had
been financed by debt. Murray Rothbard reminds us that, on the
eve of depression in 1928, ten years after the end of war, the
banking system held more government bonds than during the war
itself. That means the government did not pay off those bonds
when they came due. Instead, it rolled them over by offering new
bonds to replace the old. Why? Was it because Congress needed
more money? No. The bonds had become the basis for money in circulation
and, if they had been redeemed, the money supply would have decreased.
A decrease in the money supply is viewed by politicians and central
bankers as a threat to economic stability. Thus, the government
found itself unable to get out of debt even when it had the money
to do so, a dilemma that continues to this day.
By the end of the war [World War I], Congress had awakened to
the fact that it could use the Federal Reserve System to obtain
revenue without taxes. From that point forward, deficit spending
Responding to herd instinct and a belief in the possibility of
something-for-nothing, men were driven to the most bizarre form
of investment speculation.
One of the most graphic examples occurred
in Holland between the years 1634 and 1636. It came to pass that
a new, rare flower, called the tulip, was discovered in the gardens
of some of the more wealthy inhabitants of Constantinople, now
known as Istanbul. When the root bulbs of these exotic blossoms
were brought into Holland, they rapidly became a status symbol
among the wealthy-much as race horses or rare breeds of dogs are
today in our own society-and those with surplus funds found that
an investment in tulips brought them significant social recognition.
The price of tulip bulbs climbed steadily
until they became, not merely symbols of status, but speculative
investments as well. At one point, prices doubled every few days,
and speculators were seen everywhere amassing great fortunes with
no input of either labor or service. Many otherwise prudent people
found themselves infected by the hysteria. They borrowed against
their homes and invested their life savings to get in on the anticipated
windfall. This pushed up prices even further and tended to create
the fulfillment of its own prophecy. Contracts for the future
delivery of tulip bulbs-a form of today's commodity market-became
a dominant feature of Holland's stock market.
Tulip bulbs eventually became more precious
... Then, one day without warning, reality
returned from her j two-year vacation. By that time, everyone
knew deep in their hearts that the spiraling prices bore no honest
relationship to the value of the tulips and that, sooner or later,
someone was going to get hurt. But they continued to speculate
for fear of being too quick in their timing and losing out on
profits yet to come. Everyone was confident they would sell out
precisely at the top of the market. In any herd, however, there
are always a few who will take the lead and, by 1636, all it took
was one or two prominent merchants to sell out their stock. Overnight,
there were no buyers whatsoever, at any price. The tulip market
vanished, and speculators by the thousands saw their dreams of
easy wealth-and, in many cases, their life savings also-disappear
with it. Tulipomania, as it was called at the time, had come to
During the final phase of America's credit expansion of the 1920s,
the rise in prices on the stock market was entirely speculative.
Buyers did not care if their stocks were overpriced compared to
the dividends they paid. Commonly traded issues were selling for
20 to 50 times their earnings; some traded at 100. Speculators
acquired stock merely to hold for a while and then sell at a profit.
Was the "Greater-Fool" strategy.
No matter how high the price is today, there will be a greater
fool tomorrow who will buy at an even higher price. For a while,
that strategy seemed to work.
... From August of 1921 to September of
1929, the Dow-Jones industrial stock-price average went 63.9 to
381.17, a rise of 597%. Credit was abundant, loans were cheap,
profits were big.
It is not unreasonable to surmise that the central bankers had
come to the conclusion [February 1929] that the [stock market]
bubble - not only in America, but in Europe - was probably going
to rupture very soon. Rather than fight it, as they had in the
past, it was time to stand back and let it happen, clear out the
speculators, and return the markets to reality. As [John Kenneth]
Galbraith put it: "How much better, as seen from the Federal
Reserve, to let nature take its course and thus allow nature to
take the blame."
[Andrew] Mellon was even more emphatic.
Herbert Hoover described Mellon's views as follows:
Mr. Mellon had only one formula: "liquidate
labor, liquidate stocks, liquidate the farmers, liquidate real
estate." He insisted that, when the people get an inflation
brainstorm, the only way to get it out of their blood is to let
it collapse. He held that even a panic was not altogether a bad
thing. He said: "It will purge the rottenness out of the
system. High costs of living and high living will come down. People
will work harder, live a moral life. Values will be adjusted,
and enterprising people will pick up the wrecks from less competent
On February 6, the Federal Reserve issued an advisory to its member
banks to liquidate their holdings in the stock market. The following
month, Paul Warburg gave the same advice in the annual report
to the stockholders of his International Acceptance Bank. He explained
the reason for that advice:
If the orgies of unrestrained speculation
are permitted to spread, the ultimate collapse is certain not
only to affect the speculators themselves, but to bring about
a general depression involving the entire country.
Paul Warburg was a partner with Kuhn,
Loeb & Co. which maintained a list of preferred customers.
These were fellow bankers, wealthy industrialists, prominent politicians,
and high officials in foreign governments. A similar list was
maintained at J.P. Morgan Co... The men on these lists were notified
of the coming crash.
John D. Rockefeller, J.P. Morgan, Joseph
P. Kennedy, Bernard Baruch, Henry Morganthau, Douglas Dillon-the
biographies of all the Wall Street giants at that time boast that
these men were "wise" enough to get out of the stock
market just before the Crash. And it is true. Virtually all of
the inner club was rescued. There is no record of any member of
the interlocking directorate between the Federal Reserve, the
major New York banks, and their prime customers having been caught
President [Calvin] Coolidge and Treasury Secretary Mellon had
been vociferous in their public utterances that the economy was
in better shape than ever... And, from the plush offices of his
New York Federal Reserve Bank, Benjamin Strong boasted:
The very existence of the Federal Reserve
System is a safeguard against anything like a calamity growing
out of money rates .... In former days the psychology was different,
because the facts of the banking situation were different. Mob
panic, and consequently mob disaster, is less likely to arise.
The public was comforted, and the balloon
continued to expand. It was now time to sharpen the pin.
On August 9  ... the Federal Reserve Board reversed its
easy-credit policy and raised the discount rate to six per cent.
A few days later, the Bank of England raised its rate also. Bank
reserves in both countries began to shrink and, along with them,
so did the money supply. Simultaneously, the System began to sell
securities in the open market, a maneuver that also contracts
the money supply. Call rates on margin loans had jumped to fifteen,
then twenty percent.
The securities market reached its high point on September 19.
Then, it began to slide. The public was not yet aware that the
end had arrived. The roller coaster had dipped before. Surely
it would shoot upward again. For five more weeks, the public bought
heavily on the way down. More than a million shares were traded
during that period. Then, on Thursday, October 24, like a giant
school of fish suddenly turning direction in response to an unseen
signal, thousands of investors stampeded to sell. The ticker tape
was hopelessly overloaded. Prices tumbled. Thirteen million shares
exchanged hands. Everyone said the bottom had dropped out of the
market. They were wrong. Five days later, it did.
On Tuesday, October 29, the exchanges
were crushed by an avalanche of selling. At times there were no
buyers at all. By the end of the trading session, over sixteen
million shares had been dumped, in most cases at any price that
was offered. Within a single day, millions of investors were wiped
out. Within a few weeks of further decline, $3 billion of wealth
had disappeared. Within twelve months, $40 billion had vanished.
People who had counted / their paper profits and thought they
were rich suddenly found themselves to be very poor.
There is no evidence that the Crash  was planned for the
purpose of profit taking. In fact, there is much to show that
the monetary scientists tried mightily to avert it, and might
have done so had not their higher-priority agendas gotten in the
way. Yet, once they realized the inevitability of a collapse in
the market, they were not bashful about using their privileged
position to take full advantage of it. In that sense, FDR's son-in-law,
Curtis Dall, was right when he wrote: "It was the calculated
'shearing' of the public [the World Money Powers."
It is human nature for man to place personal priorities ahead
of all others. Even the best of men cannot long resist the temptation
to benefit at the expense of their neighbors if the occasion is
placed squarely before them. This is especially true when the
means by which they benefit is obscure and not likely to be perceived
as such. There may be exceptional men from time to time who can
resist that temptation, but their numbers are small. The general
rule will prevail in the long run.
A managed economy presents men with precisely
that kind of opportunity. The power to create and extinguish the
nation's money supply provides unlimited potential for personal
gain. Throughout history the granting of that power has been justified
as being necessary to protect the public, but the results have
always been the opposite. It has been used against the public
and for the personal gain of those who control. Therefore,
When men are entrusted with the power
to control the money supply, they will eventually use that power
to confiscate the wealth of their neighbors.
There is no better illustration of that
law than the Crash of 1929 and the lingering depression that followed.
The lingering  depression is an important part of the story.
The speculators had been ruined, but what they lost was money
acquired without effort. There were some unfortunate souls who
also lost their life savings, but only because they gambled those
savings on call loans. Those who bought stock with money they
actually possessed did not have to sell, and they did quite well
in the long run. For the most part, something-for-nothing had
merely been converted back into nothing. The price of stocks had
plummeted, but the companies behind them were still producing
products, still employing people, and still paying dividends.
No one lost his job just because the market fell. The tulips were
gone, but the wheat crop remained.
So, where was the problem? In truth, there
was none-at least not yet. The crash, as devastating as it was
to the speculators, had little effect on the average American.
Unemployment didn't become rampant until the depression years
which came later and were caused by continued government restraint
of the free market. The drop of prices in the stock market was
really a long-overdue and healthy adjustment to the economy. The
stage was now set for recovery and sound economic growth, as always
had happened in the past.
It did not happen this time. The monetary
and political scientists who had created the problem now were
in full charge of the rescue. They saw the crash as a golden opportunity
to justify even more controls than before. Herbert Hoover launched
a multitude of government programs to bolster wage rates, prevent
prices from dropping, prop up failing firms, stimulate construction,
guarantee home loans, protect the depositors, rescue the banks,
subsidize the farmers, and provide public works. FDR was swept
into office by promising even more of the same under the slogan
of a New Deal. And the Federal Reserve launched a series of "banking
reforms," all of which were measures to further extend its
power over the money supply.
In 1931, fresh money was pumped into the
economy to restart the cycle, but this time the rocket would not
lift off. The dead weight of new bureaucracies and government
regulations and subsidies and taxes and welfare benefits and deficit
spending and tinkering with prices had kept it on the launching
Eventually, the productive foundation
of the country also began to crumble under the weight. Taxes and
regulatory agencies forced companies out of business. Those that
remained had to curtail production. Unemployment began to spread.
By every economic measure, the economy was no better or worse
in 1939 than it was in 1930 when the rescue began. It wasn't until
the outbreak of World War II, and the tooling up for war production
that followed, that the depression was finally brought to an end.
It was a dubious save. In almost every
way, it was a repeat of the drama played out with World War I,
even to the names of two of its most important players. FDR and
Churchill worked together behind the scenes to bring America into
the conflict-Churchill wanting American assistance in a war England
was losing and could not afford, FDR wanting a jolt to the economy
for political reasons, and the financiers, gathered behind J.P.
Morgan, wanting profits of war.
During the nine years before the crash of 1929, the Federal Reserve
was responsible for a massive expansion of the money supply. A
primary motive for that policy was to assist the government of
Great Britain to pay for its socialist programs which, by then,
had drained its treasury. By devaluing the dollar and depressing
interest rates in America, investors would move their money to
England where rates and values were higher. That strategy succeeded
in helping Great Britain for a while, but it set in motion the
forces that made the stock-market crash inevitable.
The money supply expanded throughout this
period, but the trend was interspersed with short spasms of contraction
which were the result of attempts to halt the expansions. Each
resolve to use restraint was broken by the higher political agenda
of helping the governments of Europe. In the long view, the result
of plentiful money and easy credit was a wave of speculation in
the stock market and urban real estate that intensified with each
There is circumstantial evidence that
the Bank of England and the Federal Reserve had concluded, at
a secret meeting in February of 1929, that a collapse in the market
was inevitable and that the best action was to let nature take
its course. Immediately after that meeting, the financiers sent
advisory warnings to lists of preferred customers-wealthy industrialists,
prominent politicians, and high officials in foreign governments-to
get out of the stock market. Meanwhile, the American people were
being assured that the economy was in sound condition.
On August 9, the Federal Reserve applied
the pin to the bubble. It increased the bank-loan rate and began
to sell securities in the open market. Both actions have the effect
of reducing the money supply. Rates on brokers' loans jumped to
20%. On October 29, the stock market collapsed. Thousands of investors
were wiped out in a single day. The insiders who were forewarned
had converted their stocks into cash while prices were still high.
They now became the buyers. Some of the greatest fortunes in America
were made in that fashion.
Creature from Jekyll Island