Chapter Five

CARTER GLASS

Despite the growing publicity for the Federal Reserve Act and the influence of William Jennings Bryan on the Democratic Congress, many Senators and Representatives who were familiar with the banking and currency legislation’s import were not yet willing to wreck the Constitution and double-cross their constituents by voting for such a bill. The Senate Banking and Currency Committee was ready to write its own version of the Owen-Glass Bill which Representative Carter Glass, Chairman of the House Banking and Currency Committee was ready to send them, but Owen’s contribution to the bill, the stabilization of the monetary unit (integer of account) had already been stricken out of the Act. The hearings before the two Committees dragged on for many weeks. Many of the same bankers who had come down from New York to tell all before the Pujo Committee now appeared before Congress to speak in favor of the Federal Reserve Act, a coincidence which the newspapers let pass unnoticed.

Andrew Frame stated before the House Committee that the plan still smacked too much of the government monarchies of Europe, and that it was not in accord with our institutions. This was as close as anybody came to calling the Act unconstitutional, which it was, since it proposed to remove Congress’ power of issuing money and credit and turn it over to an appointive body.

Frank Vanderlip declared before the Senate Committee that he now favored the Act, a second reversal of policy in as many months. He had come to the conclusion, he said, that the plan would proceed along democratic lines, since the President would appoint all Board members for ten year terms.

Senator Weeks inquired of him, “Should the Federal Reserve hearings be public, as these hearings are before this Committee?”

“No,” replied Mr. Vanderlip, “they are not exactly hearings, they are official meetings.” The President of the National City Bank evidently felt that democracy was alright, but that it had to stop somewhere. Carter Glass agreed with him, when he wrote, in “Adventure in Constructive Finance” that:

“The meetings of the Federal Reserve Board are bank board meetings, and neither the public nor reporters should be present.” Neither Vanderlip nor Glass appears to consider the fact that these “bank board meetings” would be making decisions which would have a more important and more direct impact on the welfare of the American people than the decisions of Congress.

Senator Root also raised the charge of inflation, claiming that under the Federal Reserve Act, note circulation would always expand indefinitely, causing great inflation. The history of the Federal Reserve System refutes this charge. The System has, if anything, kept the note circulation below the amount needed to carry on business and commerce in this country, except during the two World Wars, when it did double and triple the circulation. Even after the Great Depression of 1929-31, when so much of the circulating medium had been withdrawn that the American people had to print their own money on wood and paper, the Federal Reserve System did not increase the amount of notes in circulation.

At the House Committee on Banking and Currency Hearings of 1913, Mr. Paul Warburg testified as follows:

“I am a member of the banking firm of Kuhn, Loeb Co. I came over to this country in 1902, having been born and educated in the banking business in Hamburg, Germany, and studied banking in London and Paris, and have gone all around the world. In the Panic of 1907, the first suggestion I made was ‘Let us get a national clearing house’. The Aldrich Plan contains some things which are simply fundamental rules of banking. Your aim in this plan (The Owen-Glass Bill) must be the same — centralizing of reserves, mobilizing commercial credit, and getting an elastic note issue.”

Paul Warburg was the most clever of the important New York bankers. In all his writings and speeches and testimonials before Congress, he never made a misstatement. For instance, he did not bother to mention at this appearance that the banking business he had been brought up in in Hamburg, Germany, was his own family banking house of M. M. Warburg Co., a fact which might have been brought up later when he was nominated for the Board of Governors of the Federal Reserve System. Warburg’s term “mobilization of credit” was no accident, for the First World War was due to begin in a few months, and the first big job of the System would be to finance the Allies in their war against Germany.

Leslie Shaw, banker from Philadelphia, dissented with most of the other witnesses at these hearings when he testified that:

“Under the Aldrich Plan the bankers are to have local associations and district associations, and when you have a local organization, the centered control is assured. Suppose we have a local association in Indianapolis; can you not name the three men who will dominate that association? And then can you not name the one man who will dominate the three? The same is true in Richmond and everywhere else. When you have hooked the banks together, they can have the biggest political influence of anything in this country, with the exception of the newspapers.”

Mr. Shaw did not know that many newspapers were already owned by or mortgaged to, big banks, or that Frank Munsey, agent for J. P. Morgan Co. sometimes bought newspapers to promote a single big stock issue, and let the paper go afterwards.

The most fiery of the opponents to the Federal Reserve Act was a lawyer from Cleveland, Ohio, named Alfred Crozier, who was the most outspoken critic of the Wall Street banking fraternity. He had written a book in 1912 entitled “U. S. Money vs. Corporation Currency”, which attacked the Aldrich-Vreeland Act of 1908 as a Wall Street instrument and pointed out that when our government had to issue money based on privately owned securities, we were no longer a free nation. The Federal Reserve System allowed the issue of notes on the privately owned shares of the Federal Reserve Banks.

Crozier suggested to the Senate Committee that:

“It should prohibit the granting or calling in of loans for the purpose of influencing quotation prices of securities and the contracting of loans or increasing interest rates in concert by the banks to influence public opinion or the action of any legislative body. Within recent months the Secretary of the Treasury of the United States was reported in the open press as charging specifically that there was a conspiracy among certain of the large banking interests to put a contraction upon the currency and to raise interest rates for the sake of making the public force Congress into passing currency legislation desired by those interests. The so-called administration currency bill grants just what Wall Street and the big banks for twenty-five years have been striving for, that is, PRIVATE INSTEAD OF PUBLIC CONTROL OF CURRENCY. It does this as completely as the Aldrich Bill. Both measures rob the government and the people of all effective control over the public’s money, and vest in the banks exclusively the dangerous power to make money among the people scarce or plenty. The Aldrich Bill puts this power in one central bank. The Administration Bill puts it in twelve regional central banks, all owned exclusively by the identical private interests that would have owned and operated the Aldrich Bank. President Garfield shortly before his assassination declared that whoever controls the supply of currency would control the business and activities of all the people. Thomas Jefferson warned us a hundred years ago that a private central bank issuing the public currency was a greater menace to the liberties of the people than a standing army.”

As the House spokesman for the Democratic Party, Representative Carter Glass took occasion to make public the sorry record of the Republican organization, the National Monetary Commission, in its failure to prepare adequate banking and currency legislation. His House Report in 1913 said:

“Senator MacVeagh fixes the cost of the National Monetary Commission to May 12, 1911, at $207,130. They have since spent another hundred thousand dollars of the taxpayer’s money. The work done at such cost cannot be ignored, but, having examined the extensive literature published by the Commission, the Banking and Currency Committee finds little that bears upon the present state of the credit market of the United States. We object to the Aldrich Bill on the following points:

Its entire lack of adequate government or public control of the banking mechanism it sets up.

Its tendency to throw voting control into the hands of the large banks of the system.

The extreme danger of inflation of currency inherent in the scheme.

The insincerity of the bond-refunding plan provided for by the measure, there being a barefaced pretense that this system was to cost the government nothing.

The dangerous monopolistic aspects of the bill.

Our Committee at the outset of its work was met by a well-defined sentiment in favor of a central bank, which was the manifest outgrowth of the work that had been done by the National Monetary Commission.”

Representative Glass’ denunciation of the Aldrich Bill as a central bank ignored the fact that his own Federal Reserve System would fulfill all the functions of a central bank, that is, its stock would be owned by private stockholders who could use the Government’s credit for their own profit, since they would have the privilege of note issue on the Government’s credit; it would have control of the nation’s money and credit resources, and it would finance the Government by mobilizing credit in time of war. The Federal Reserve System was acknowledged by economists in 1913 to be a bank of issue like the European central banks.

The Federal Reserve Act as Carter Glass presented it was passed by the House virtually intact. It then went to the Senate Committee on Banking and Currency, where such provisions of the Aldrich Bill as were deemed necessary were restored to it. In the Senate debate on the bill, Senator Stone said on December 12, 1913:

“The great banks for years sought to have and control agents in the Treasury to serve their purposes. Let me quote from this World article, ‘Just as soon as Mr. McAdoo came to Washington, a woman whom the National City Bank had installed in the Treasury Department to get advance information on the condition of banks, and other matters of interest to the big Wall Street group, was removed. Immediately the Secretary and the Assistant Secretary, John Skelton Williams, were criticized severely by the agents of the Wall Street group.’

“I myself have known more than one occasion when bankers refused credit to men who opposed their political views and purposes. When Senator Aldrich and others were going around the country exploiting this scheme, the big banks of New York and Chicago were engaged in raising a munificent fund to bolster up the Aldrich propaganda. I have been told by bankers of my own state that contributions to this exploitation fund had been demanded of them and that they had contributed because they were afraid of being blacklisted or boycotted. There are bankers of this country who are enemies of the public welfare. In the past, a few great banks have followed policies and projects that have paralyzed the industrial energies of the country to perpetuate their tremendous power over the financial and business industries of America.”

The Federal Reserve Act, as altered by the Senate, was finally passed on December 22, 1913, and went to Woodrow Wilson for his signature. Colonel House’s connection with Warburg and the Act are revealed in the volume “The Intimate Papers of Colonel House.” This Journal contains the following notes:

“Dec. 19, 1912. I talked with Paul Warburg over the telephone, regarding currency reform. I told of my trip to Washington and what I had done there to get it in working order. I told him that the Senate and the Congressmen seemed anxious to do what he desired, and that President-elect Wilson thought straight concerning the issue.

March 13, 1913. Warburg and I had an intimate discussion regarding currency reform.

March 27, 1913. Mr. J. P. Morgan, Jr. and Mr. Denny of his firm came promptly at five. McAdoo came about ten minutes afterward. Morgan had a currency plan already printed. I suggested he have it typewritten, so it would not seem too prearranged, and send it to Wilson and myself today.

Oct. 13, 1913. Paul Warburg was my first caller today. He came to discuss the currency measure. There are many features of the Owen-Glass Bill that he does not approve. I promised to put him in touch with McAdoo and Senator Owen so that he might discuss it with them.

Nov. 17, 1913. Paul Warburg telephoned about his trip to Washington. Later, he and Mr. Jacob Schiff came over for a few minutes. Warburg did most of the talking. He had a new suggestion in regard to grouping tha regular reserve banks so as to get the units welded together and in easier touch with the Federal Reserve Board.” *

[*Colonel House was spoken of by Rabbi Wise in his autobiography, “Challenging Yean,” as the unofficial Secretary of State. It would be more appropriate to call House our unofficial President during the Wilson years, for it was House who was representing us at Versailles, and when Wilson came over, the European politicians laughed at him for his self-importance. They knew who pulled his strings.

House also writes in his memoirs that he and Wilson knew that in passing the Federal Reserve Act they had created an instrument more powerful than the Supreme Court. The Federal Reserve Board of Governors is a Supreme Court of Finance, and it forced the Supreme Court to its knees in 1935, when the Justices were made to approve the criminal conspiracy of Roosevelt, Morgenthau, and the international gold dealers to alter the price of gold. If the justices had disapproved, writes Secretary of the Treasury, Morgenthau, “We were ready to rush through an alternate policy.”]

Warburg’s plan to get the units welded together was merely an indication of his anxiety over getting them under as tight a control as possible. House’s papers also reveal that it was he who gave Warburg’s name to Wilson as candidate for Governor of the first Federal Reserve Board. Wilson approved the choice because of Warburg’s interest and experience in currency problems under both Republican and Democratic administrations.

Woodrow Wilson had been piqued by the consistent opposition to the Federal Reserve Act in Congress, and he was haunted by the fear that he would not be able to deliver the goods to his employers. When the bill finally reached him, on December 23, 1913, he refused at first to sign it, because of the provisions for the selection of Class B Directors. Bernard Baruch, relates William L. White in his biography of that great man, a principal contributor to Wilson’s campaign fund, hurried over to the White House and told Wilson it did not matter. That could be fixed up later, the main thing was to get the thing signed into law. With this reassurance, Wilson signed the Federal Reserve Act on that December 23, 1913. On that day, the Constitution ceased to be the governing covenant of the American people, and our liberties were handed over to a small group of international bankers.

That same day, Representative Moore of Kansas said, on the floor of the House of Representatives:

“The President of the United States now becomes the absolute dictator of all the finances of the country. He appoints a controlling board of seven men, all of whom belong to his political party, even though it is a minority. The Secretary of the Treasury is to rule supreme whenever there is a difference of opinion between himself and the Federal Reserve Board. AND, only one member of the Board is to pass out of office while the President is in office.”

The ten year terms of office of the members of the Board, lengthened by the Banking Act of 1935 to FOURTEEN YEARS, meant that these dictators of finance, although not elected by the people, held office longer than any elected official. Now, they hold office longer than three Presidents, if we except the late Mr. Roosevelt from such a calculation.

It remained for Congressman Lindbergh to make the final statement on the swindle which had been perpetrated on the American people. Speaking after Representative Moore on that day of December 23, 1913, he said:

“This Act establishes the most gigantic trust on earth. When the President signs this bill, the invisible government by the Monetary Power will be legalized. The people may not know it immediately, but the day of reckoning is only a few years removed. The trusts will soon realize that they have gone too far even for their own good. The people must make a declaration of independence to relieve themselves from the Monetary Power. This they will be able to do by taking control of Congress. Wall Streeters could not cheat us if you Senators and Representatives did not make a humbug of Congress. The division of Congress into political parties is a crime. The main object of the bosses in both political parties is to get offices and grant special favors at the people’s expense. This is inherently a National Government, and that is why party government is unsuccessful in dealing with economic problems. If we had a people’s Congress, there would be stability. The greatest crime of Congress is its currency system. The worst legislative crime of the ages is perpetrated by this banking and currency bill. The caucus and the party bosses have again operated and prevented the people from getting the benefit of their own government.”

Lindbergh was overly optimistic in thinking that the trust dictatorship of the United States would last only a few years. The American people have been kept from rising against oppression at home by being sent abroad to fight in two world wars in which we as a people had no immediate political or economic stake. Between wars, two great depressions have kept our people scrambling for their daily bread. They have not had time to object to anything. Lindbergh’s theory that party government is unsuccessful in dealing with economic problems could neither be proved nor disproved, because party government has not dealt with economic problems since the days of Jefferson and Adams. The architects and contrivers of the economic inequalities and instabilities existing in this country are the leaders and owners of the major political parties. They will not move to improve them.