The Harvest

excerpted from the book

The Creature from Jekyll Island

a second look at the Federal Reserve

by G. Edward Griffin

American Media, 2008, paperback (original 1994)

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 allegiance.

... 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 in 1912

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 objectives

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 bank runs;

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 action:

1. Do not call it a cartel nor even a central bank.

2. Make it look like a government agency.

3. Establish regional branches to create the appearance of decentralization, not dominated by Wall Street banks.

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 recognizes and
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 cartel agreement.

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."

H.S. Kenan

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 England.

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 money trust."

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.

Ron Chernow

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 and Wilson.

... 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".

Paul Warburg

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 failed.

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 Families:

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 became institutionalized.

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 than gemstones.

... 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 an end.

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. It

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 people."

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 by surprise.

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 [1929] ... 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 [1929] 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 [1929] 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 pad.

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 passing month.

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.

The Creature from Jekyll Island

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