PAUL WARBURG
A comparative print of the Federal Reserve Act of 1913 as passed by the House of Representatives and amended by the Senate shows the following impressive changes:
Section 2, Part 2. Provided that the districts shall be apportioned with due regard to the convenience and customary course of business of the community. (The Senate struck out the phrase ‘of the community’.) No Federal Reserve bank shall commence business with a paid up and unimpaired capital less in amount then five million dollars. (The Senate struck out ‘paid up and unimpaired’, and changed the required amount to three million dollars.)
Section 4. Class B directors shall consist of three members who shall be representative of the general public interests of the reserve districts at the time of their election. (The Senate struck out ‘shall be representative of the general public interests of the reserve districts’, and added, after the closing word election, ‘shall be actively engaged in their district in commerce, in agriculture, or in some other industrial pursuit’.) At a regularly called meeting of the board of directors of each member bank in the reserve district, the board of directors of such member bank it shall elect by ballot one of its own members a district reserve elector and shall certify his name to the chairman of the board of directors of the Federal Reserve Bank of the district. (The Senate struck out all italicized words.) Concerning the election of directors: They shall be fairly representative of the commercial, agricultural, or industrial interests of their respective districts. (This was struck out altogether by the Senate and replaced with): “He shall be a person of tested banking experience.”
The Senate also increased the proposed salaries of the Governors of the Federal Reserve System from ten to twelve thousand dollars a year, and struck out, “The Federal Reserve Board shall have the power to remove any director of Class B in any Federal Reserve Bank if it should appear at any time that such director does not fairly represent the commercial, agricultural, or industrial interests in his district.”
The following provision was among those struck out by the Senate:
“To suspend the officials of Federal Reserve banks for cause, stated in writing with opportunity of hearing, require the removal of said officials for incompetency, dereliction of duty, fraud, or deceit, such removal to be subject to approval by the President of the United States.”
The Senate changed this to read as follows:
“To suspend or remove any officer or director of any Federal Reserve bank, the cause of such removal to be forthwith communicated in writing by the Federal Reserve Board to the removed officer or director and to said bank.”
This changed entirely the conditions under which an official or director might be removed. Under the Senate’s clause, we do not know what the conditions are for removal, or the cause. Apparently incompetency, dereliction of duty, fraud, or deceit, do not matter to the Federal Reserve System. Also, the removed officer does not, under this change, have the opportunity of appeal to the President. This removes any possibility that an incoming President, who might be hostile to the incumbent members of the Board, can exercise any control over them. In answer to written inquiry, the Assistant Secretary of the Federal Reserve Board replied that only one officer has been removed “for cause” in thirty-six years, the name and details of the matter being a “private concern” between the individual, the Reserve Bank concerned, and the Federal Reserve Board.
The public really has no right to ask questions of the Board of Governors, for this unique body, although appointed by the President, an elected official, have their salaries paid by the privately owned member banks. Thus, there is no reason to expect them to place the interests of the public ahead of the interests of the stockholders of the Federal Reserve System, and they have in the past thirty-five years shown unanswering loyalty to their employers.
This review of the changes made by the Senate in the Federal Reserve Act reveals the uncompromising hostility of that body toward any provision of the bill which showed consideration for local representation in the control of money and credit. The very first deletion, of the phrase “of the community”, typifies the attitude of the Senate toward the interests of the American people, which was sworn to represent those interests.
In the past twenty years, occasional disagreement has arisen between the principals of this drama as to which of them was most responsible for riveting this yoke on the necks of the American people. Paul Warburg never came out and said that he wrote the bill, nor did he ever mention Jekyl Island, except in a privately published memorandum. However, he did collect his writings in a twenty-five hundred page volume on the Federal Reserve System, which proved conclusively that it all originated in his banker’s brain.
The late Senator Carter Glass of Virginia, in his book written on the subject, “Adventure in Constructive Finance”, took credit for writing the Act. This caused Samuel Untermyer, one of the real authors, to write a letter to his son commenting on this claim, saying that Glass must be senile to put such a bald misstatement into print. Glass later listed himself in Who’s Who in America merely as the patron and sponsor of the bill for the House of Representatives. H. Parker Willis, Paul Warburg, and Samuel Untermyer were the principal writers of the administration bill which the Democratic Party presented to Congress. All the important provisions of this bill stem directly from Paul Warburg’s work at Jekyl Island. When he was asked by Carter Barron whether he approved of the bill as it was finally passed, Warburg remarked, “Well, it hasn’t got quite everything we want, but the lack can be adjusted later by administrative processes.” To make certain that those “administrative processes” would begin as he wished, he had Colonel House appoint him as the first Chairman of the Board of Governors of the Federal Reserve System.
Woodrow Wilson and Carter Glass are given full credit for the Act by contemporary historians, but of all the politicians concerned, Wilson had least to do with the fight over the Act in Congress. George Creel, veteran Washington correspondent, wrote in the Harper’s Weekly of June 26, 1915, that:
“As far as the Democratic Party was concerned, Woodrow Wilson was without influence, save for the patronage he possessed. It was Bryan who whipped Congress into line on the tariff bill, on the Panama Canal tolls repeal, and on the currency bill. Mr. Bryan later wrote, ‘That is the one thing in my public career that I regret — my work to secure the enactment of the Federal Reserve Law.’”
When Wilson signed the Federal Reserve Act on December 23, 1913, he fulfilled the pledge he made to the men who had financed his campaign. Cleveland H. Dodge of Kuhn, Loeb’s National City Bank, Jacob Schiff of Kuhn, Loeb Co., Bernard Baruch, the brilliant young speculator and organizer of the tobacco and rubber trusts, Samuel Untermyer, the multi-millionaire corporation lawyer, and Henry Morgenthau, Sr., the Harlem real estate speculator, never made a better investment than when they purchased the White House for Woodrow Wilson. The money and credit resources of the United States were now in the complete control of the bankers’ alliance between J. P. Morgan’s First National Bank group and Kuhn, Loeb’s National City Bank interests, whose principal loyalties were to the international banking interests then quartered in London, and which moved to New York during the First World War.
Senator Nelson Aldrich now decided that he had not been really opposed to the Federal Reserve Act after all. In a magazine which he owned, entitled, appropriately enough, the Independent, he wrote:
“Before the passage of this Act, the New York bankers could only dominate the reserves of New York. Now we are able to dominate the bank reserves of the entire country.”
An interesting observation on the origins and purpose of the Federal Reserve Act was made by Colonel Ely Garrison, friend and financial adviser to Presidents Theodore Roosevelt and Woodrow Wilson. In his autobiographical book, “Roosevelt, Wilson, and the Federal Reserve Law”, Garrison wrote:
“Paul Warburg is the man who got the Federal Reserve Act together after the Aldrich Plan aroused such nationwide resentment and opposition. The mastermind of both plans was Baron Alfred Rothschild of London.”
Colonel Garrison moved in the inner circles of high finance, being an international agent of Brown Brothers, bankers, of New York.
The most important revelation of the intent of the Federal Reserve Act of 1913 occurs in a brief observation in the Nation on December 25, 1913.
“THE NEW YORK STOCK MARKET BEGAN TO RISE STEADILY UPON NEWS THAT THE SENATE WAS READY TO PASS THE FEDERAL RESERVE ACT.”
This item would seem to contradict the claims of the admirers of Woodrow Wilson and Carter Glass that the Federal Reserve Act was a monetary reform bill. Had there been any possibility that the Act would carry out any monetary reforms whatsoever, that is, that it would reduce the centralization of the nation’s money and credit in New York, the Stock Exchange might have had as disastrous a day as the famous Black Thursday of 1929. The New York Stock Exchange is the most accurate barometer of the true meaning of any financial legislation passed in Washington. Whenever legislation is passed which restricts the dictatorship of The New York bankers, as on the occasion of the Glass-Steagall Act of 1933, which provided that banking houses could not be engaged simultaneously in investment banking and deposit banking, the stock market has had a bad day. Whenever legislation as favorable to the big financiers as the Federal Reserve Act is passed, prices of stocks rise rapidly.
E. W. Kemmerer, famous economist of Princeton, states in his “A B C of the Federal Reserve System” that:
“The federal reserve banks are essentially bankers’ banks.” This would indicate that other claims for the bill are false.
Benjamin Strong, in an introduction to the same volume, says:
“The managers of the new federal reserve banks soon found that the welcome accorded to them by the banks of the country was, to say the least, cool. Both bankers and business men were regrettably ignorant of what the Act really meant.” The propaganda for the Act had been so devious that, once the bankers had the Act passed, they could not get the country to understand how it should work.
S. E. Harris gives a fair estimate of the Federal Reserve Act in a critique published in the Quarterly Journal of Economics in 1931:
“Glass and his colleagues on the House Banking and Currency Committee in 1913 provided for a regional system in which control occupied a relatively unimportant place, but a measure of control was introduced through acceptance by Glass of suggestions in the Aldrich Plan, and through the influence of Bryan and the Senate. In the Federal Reserve Act of 1913 there remained but a small proportion of the provisions which had been in the early drafts of the Glass Bill. Warburg during the entire period exercised an important influence on the progress of the legislation through his work on the Aldrich Bill, and through his direct contact with the Senate Banking and Currency Committee.”
Further corroboration of Mr. Warburg’s work is given by J. Laurence Laughlin in his definitive volume, “The Federal Reserve Act, Its Origins and Purposes”:
“Mr. Paul Warburg, of Kuhn, Loeb Co., offered in March 1910 a fairly well-thought out plan to be known as the United Reserve Bank of the United States. This was published in the New York Times of March 24, 1910. The group interested in the purposes of the National Monetary Commission met secretly at Jekyl Island for about two weeks in December, 1910, and concentrated on the preparation of a bill to be presented to Congress by the National Monetary Commission. The men who were present at Jekyl Island were Senator Aldrich, H. P. Davison of J. P. Morgan Co., Paul Warburg of Kuhn, Loeb Co., Frank Vanderlip of the National City Bank, and Charles D. Norton of the First National Bank. No doubt the ablest banking mind in the group was that of Mr. Warburg, who had had a European banking training. Senator Aldrich had no special training in banking.”
The Federal Reserve Act soon disappointed many people who had believed in it. W. H. Allen wrote in Moody’s Magazine in 1916, that:
“The purpose of the Federal Reserve Act was to prevent concentration of money in the New York banks, by making it profitable for country bankers to use their funds at home, but the movement of currency shows that the New York banks gained from the interior in every month except December 1915 since the Act went into effect. The stabilizing of rates has taken place in New York alone. In other parts, high rates continue. The Act, which was to deprive Wall Street of its funds for speculation, has really given the bulls and the bears such a supply as they have never had before. The truth is, that, far from having clogged the channel to Wall Street, as Mr. Glass so confidently boasted, it actually has widened the old channels and opened up two new ones. The first of these leads directly to Washington and gives Wall Street a string on all the surplus cash in the United States Treasury. Besides, in the power to issue banknote currency, it furnishes an inexhaustible supply of credit money; the second channel leads to the great central banks of Europe, whereby, through the sale of acceptances, virtually guaranteed by the United States Government, Wall Street is granted immunity from those foreign demands for gold which have precipitated every great crisis in our history.”