Chapter Ten

PAUL WARBURG AND THE AMERICAN

ACCEPTANCE COUNCIL

After the Agricultural Depression of 1920-21, the Federal Reserve Board of Governors settled down to a steady eight years of providing credit expansion for the New York bankers, a policy which culminated in the Great Depression of 1929-31 and paralyzed the economic structure of the world. Paul Warburg had resigned in May, 1918, after the monetary system of the United States had been changed from a bond-secured currency to a currency based upon commercial paper and the shares of the Federal Reserve Banks. Warburg returned to his five hundred thousand dollar a year job with Kuhn, Loeb Co., but he continued to determine the policy of the Federal Reserve System, as President of the Federal Advisory Council and as Chairman of the Executive Committee of the American Acceptance Council.

From 1921 to 1929, Paul Warburg organized three of the greatest trusts in the United States, the International Acceptance Bank, largest acceptance bank in the world, Agfa Ansco Film Corporation, with headquarters in Belgium, and I. G. Farben Corporation, whose American branch Warburg set up as American I. G. Chemical Corporation. A co-director in these enterprises was Bronson Winthrop, law partner of Henry L. Stimson, while Stimson continued to devote his life to public service.

In the early 1920s, the Federal Reserve System played the decisive role in the reentry of Russia into the international finance structure. Winthrop and Stimson continued to be the correspondents between Russian and American bankers, and Henry L. Stimson handled the negotiations concluding in our recognition of the Soviet after Roosevelt’s election in 1932. This was an anti-climax, because we had long before resumed exchange relations with Russian financiers.

The Federal Reserve System began purchasing Russian gold in 1920, and Russian currency was accepted on the Exchanges. According to Colonel Ely Garrison, in his autobiography, and according to the United States Naval Secret Service Report on Paul Warburg, the Russian Revolution had been financed by the Rothschilds and Warburgs, with a member of the Warburg family carrying the actual funds used by Lenin and Trotsky in Stockholm in 1918. This would theoretically place Russia outside the pale of international finance.

An article in the English monthly, “Fortnightly”, July, 1922, says:

“During the past year, practically every single capitalistic institution has been restored. This is true of the State Bank, private banking, the Stock Exchange, the right to possess money to unlimited amount, the right of inheritance, the bill of exchange system, and other institutions and practices involved in the conduct of private industry and trade. A great part of the former nationalized industries are now found in semi-independent trusts.”

The organization of powerful trusts in Russia under the guise of Communism made possible the sending of large amounts of financial and technical help from the United States. The Russian aristocracy had been wiped out because it was too inefficient to manage a modern industrial state. The international financiers provided funds for Lenin and Trotsky to overthrow the Czarist regime and keep Russia in the First World War. Peter Drucker, spokesman for the oligarchy in America, declared in an article in the Saturday Evening Post in 1948, that:

“RUSSIA IS THE IDEAL OF THE MANAGED ECONOMY TOWARDS WHICH WE ARE MOVING.”

In Russia, the issuance of sufficient currency to handle the needs of their economy occurred only after a government had been put in power which had absolute control of the people. During the 1920s, Russia issued large quantities of so-called “inflation money”, a managed currency. The same Fortnightly article (of July 1922) observed that:

“As economic pressure produced the “astronomical-dimensions system” of currency, it can never destroy it. Taken alone, the system is self-contained, logically perfected, even intelligent. And it can perish only through collapse or destruction of the political edifice which it decorates.”

Fortnightly also remarked, in 1929, that:

“Since 1921, the daily life of the Soviet citizen is no different from that of the American citizen, and the Soviet system of government is more economical.”

Admiral Kochak, leader of the White Russian armies, was for awhile supported by the international bankers, who sent British and American troops to Siberia in order to have a pretext for printing Kochak rubles. At one time in 1920, the bankers were manipulating on the London Exchange the old Czarist rubles, Kerensky rubles and Kolchak rubles, the values of all three fluctuating according to the movements of the Allied troops aiding Kolchak. Kolchak also was in possession of considerable amounts of gold which had been seized by his armies. After his defeat, a trainload of this gold disappeared in Siberia. At the Senate Hearings in 1921 on the Federal Reserve System, it was brought out that the System had been receiving this gold. Congressman Dunbar questioned Governor W. P. G. Harding of the Federal Reserve Board as follows:

DUNBAR: “In other words, Russia is sending a great deal of gold to the European countries, which in turn send it to us?

HARDING: This is done to pay for the stuff bought in this country and to create dollar exchange.

DUNBAR: At the same time, that gold came from Russia through Europe?

HARDING: Some of it is thought to be Kolchak gold, coming through Siberia, but it is none of the Federal Reserve Banks’ business. The Secretary of the Treasury has issued instructions to the assay office not to take any gold which does not bear the mint mark of a friendly nation.”

Just what Governor Harding meant by “a friendly nation” is not clear. In 1921, we were not, militarily, at least, at war with any country. At any rate, Congress was already beginning to question the international gold dealings of the Federal Reserve System. Governor Harding could very well shrug his shoulders and say that it was none of the Federal Reserve Banks’ business where the gold came from. Gold knows no nationality or race. The United States by law had ceased to be interested in where its gold came from in 1906, when Secretary of the Treasury Shaw made arrangements with several of the larger New York banks (ones in which he had interests) to purchase gold with advances of cash from the United States Treasury, which would then purchase the gold from these banks. The Treasury could then claim that it did not know where its gold came from, since their office only registers the bank from which it made the purchase. Since 1906, the Treasury has not known which of the international gold merchants it was buying its gold from.

The First World War changed the status of the United States from that of a debtor nation to the position of the world’s greatest creditor nation, a title formerly occupied by England. Since debt is money, according to Governor Marriner Eccles of the Federal Reserve Board, this also made us the richest nation of the world. The war also caused the removal of the headquarters of the world’s acceptance market from London to New York, and Paul Warburg became the most powerful trade acceptance banker in the world. The mainstay of the international financiers, however, remained the same. The gold standard was still the basis of foreign exchange, and the small group of people who owned the gold controlled the monetary systems of the Western nations.

The chief weapon of the gold standard bankers during the 1920s and the 1930s was the League of Nations. Through this institution, most of the democracies were forced to go back on the gold standard between 1924 and 1928. These countries needed money for reconstruction after the First World War, and the League of Nations was willing to oblige. The only conditions were that the applicant nation have a central bank and be on the gold standard. Loans were not granted where these conditions did not exist. Consequently, central banks were set up in many countries where they had not been known before, particularly in the South American nations. Paul Einzig, in the London Economist, writes that:

“The League of Nations and cooperation between central banks put Europe back on the gold standard. Although in most cases, it was the League Finance Committee that created the international loans, its work was largely inspired by the Bank of England. Post-war international cooperation also assumed the form of extremely close contact between central banks. There was regular international exchange of information, and important decisions, such as bank-rate changes, were usually communicated in advance to other leading central banks. The internationalization of finance since the war was also largely responsible for governments and central banks accumulating huge floating balances.

During the 1920s, the Federal Reserve System functioned as a central bank mechanism which provided the facilities for domestic credit expansion and for foreign loans. Much of the increased potential of American heavy industry had been used up in the First World War. With the coming of peace, however, our economy faced the twin problems of overproduction and distribution. The insufficient quantity of integer of account (monetary unit) in the United States prevented its citizens from receiving the benefits of the increased production, and on many items the manufacturers were faced with the problems of market satiation. American bankers during this period found it more profitable to finance foreign markets than to finance consumption at home.

At the House Hearings on Senate Bill 2472 on September 19, 1919, Edmund Piatt, Chairman of the House Banking and Currency Committee, said:

“Some time ago a young man came up ta me who said he had been to Bulgaria, I believe it was, and sold a million dollars worth of beds. He wanted the United States Government to send the money over to Bulgaria to pay for those beds.”

Senator Walter Edge, representing Standard Oil, remarked:

“That is exactly the story you are going to be getting from the manufacturers of this country very soon.” The manufacturers sold goods abroad during the 1920s, and the Federal Reserve System cooperated by helping to float billions of dollars of foreign loans in this country during the 1920s. Franklin D. Roosevelt played an important part in many of these transactions, as President of some of the loan companies, and as lawyer for them in his firm of Roosevelt and O’Connor. The Federal Reserve System by its discount rate and open market operations created easy money conditions and cheap money rates in the United States so that the American people would buy those bonds. The bonds subsequently defaulted and our citizens lost three dollars out of four which they had invested in them.

Professor Gustav Cassel wrote in 1928:

“The American dollar, not the gold standard, is the world’s monetary standard. The American Federal Reserve Board has the power to determine the purchasing power of the dollar by making changes in the rate of discount, and thus controls the monetary standard of the world.”

If this were true, the members of the Federal Reserve Board would be the most powerful financiers in the world. Occasionally their membership includes such influential men as Paul Warburg or Eugene Meyer, Jr., but usually they are a rubber-stamp committee for the Federal Advisory Board and the Wall Street bankers. There has been a great deal of secrecy surrounding the activities of the Federal Reserve System, and its employees are investigated thoroughly before being hired. The System has high standards as regards “loyalty” and “security.”

The matter of changing the discount rate, for instance, has never been satisfactorily explained. Inquiry at the Federal Reserve Board in Washington elicited the reply that “the condition of the money market is the prime consideration behind changes in the rate.” Since the money market is in New York, it needs no wild imagination to deduce that New York bankers are interested in changes of the rate and attempt to influence it.

Norman Lombard, in the periodical “World’s Work”, writes that:

“In their consideration and disposal of proposed changes of policy, the Federal Reserve Board should follow the procedure and ethics observed by our courts of law. Suggestions that there should be a change of rate or that the Reserve Banks should buy or sell securities may come from anyone and with no formality or written argument. The suggestion may be made to a Governor or Director of the Federal Reserve System over the telephone or at his club over the luncheon table, or it may be made in the course of a casual call on a member of the Federal Reserve Board. The interests of the one proposing the change need not be revealed, and his name and any suggestions he makes are usually kept secret. If it concerns the matter of open market operations, the public has no inkling of the decision until the regular weekly statement appears, showing changes in the holdings of the Federal Reserve Banks. Meanwhile, there is no public discussion, there is no statement of the reasons for the decision, or of the names of those opposing or favoring it.”

The chances of the average citizen meeting a Governor of the Federal Reserve System at his club are slight.

The House Hearings on Stabilization of the Purchasing Power of the Dollar in 1928 proved conclusively that the Federal Reserve Board worked in close cooperation with the heads of European central banks, and that the Depression of 1929-31 was planned at a secret luncheon of the Federal Reserve Board and those heads of European central banks in 1927. The Board has never been responsible to the public for its decisions or actions.

The true allegiance of the members of the Federal Reserve Board has always been to the big bankers, and this has merely been carrying out their central bank duties. The three features of the central bank, its ownership by private stockholders who receive rent and profit for their use of the nation’s credit, absolute control of the nation’s financial resources, and mobilization of the nation’s credit to finance foreigners, all were demonstrated by the Federal Reserve System during the first fifteen years of its operations.

R. H. Brand, Chairman of the Proceedings of the Chatham House Study Group on Gold, in England in 1930, stated that:

“The first and fundamental duty of every central bank is to maintain its currency at a par with gold. The second duty of a central bank should be to work the gold standard so as to harmonize as far as possible external with internal requirements. The third duty, of course, is that each central bank should do what it can to maintain stability in the value of gold itself, but that is not a problem which can be solved in any way by one central bank; it must be the work in cooperation of all central banks.”

Chairman Brand pointed out that the central banks, including the Federal Reserve System, had to work together to keep the world on the gold standard and to keep up the price of gold. The League of Nations was set up to carry out these two objectives.

Jeremiah Smith said that:

“Before the World War there was little cooperation between the central banks of the different countries. The Experts’ Conference of 1929 set up the Bank for International Settlements. It is imperative that an institution of this sort, which would be carrying on transactions in all the important money markets of the world, should be governed by public interest. These considerations suggested immediately that the appropriate agencies for appointing the directors of the International Bank were the central banks of issue of the different countries, for these banks are relatively free from government influence. The other important benefit to be expected from the establishment of the Bank for International Settlements lies in its furnishing a regular meeting-place for the representatives of central banks, where the common problems of world finance may be discussed in a broad-minded manner. The Bank should vastly increase the prospects for international cooperation in the field of finance. The United States Government has announced that it would have nothing to do officially with the Bank, although apparently it does not object to having individuals participate at their own risk in the enterprise, if they are associated in no way with the Government or the Federal Reserve System.”

The Government’s cool attitude towards the Bank for International Settlements was short-lived, for it soon maintained a Treasury representative at the Bank for International Settlements, H. Merle Cochran, who was special liaison officer from the United States Embassy in Paris. The Bank soon became known as the “Central Bankers’ Club”, where they could discuss world finance in a broad-minded manner, relatively free from newspaper reporters or public-minded citizens. Paul Einzig points out that “Meetings between Central Bankers are always either concealed or given obviously untrue explanations.” The Bank for International Settlements was an international hideaway for them.

Paul Warburg’s original plan for the Federal Reserve System, which was presented to Congress as the Aldrich Plan, had provided for the System to have branches in the principal foreign countries. Congress refused to approve such a provision, not realizing the exigencies of international finance, but the League of Nations later remedied this lack by setting up central banks in many countries which did not have them. These central banks, particularly those in South America, worked so closely in cooperation with the Federal Reserve System that they were, in effect, branch banks of the System. The officials of the Department of State stationed in those countries have seen to it that these central banks did their job.

In its report for 1918, the Federal Reserve Bank of New York outlined the arrangements which it had made with foreign banks on behalf of all reserve banks, whether those reserve banks liked it or not. The Federal Reserve Bank of New York has always handled foreign correspondence with foreign central banks.

“The following relationships, with the approval of the Federal Reserve Board, have been concluded between the Federal Reserve Bank of New York and foreign banks or governments:

BANK OF ENGLAND: This is an arrangement of a formal character, covered by written agreement, ratified by the directors of the two institutions, covering in detail the basis of the principal operations and making a very close, complete, and effective agency. The business thus far transacted has been very limited, but under the agreement can be extended whenever the need arises.

BANK OF FRANCE: A somewhat limited agreement has been effected with the Bank of France, which it is hoped and expected by both institutions will soon ripen into a closer relationship.

BANK OF ITALY: A mutual agreement has been entered into between this institution and the Federal Reserve Bank of New York, whereby each has appointed the other its correspondent. No business has been or is likely to be transacted between the two institutions as long as arrangements for dealing with exchange problems growing out of the war are dealt with by the Governments of the two nations.

BANK OF JAPAN: Mutual arrangements, similar to those established with the Bank of Italy, have been concluded with the Bank of Japan, and although no active business has yet been transacted, it is hoped that, as in the case of other foreign agents and correspondents, a more active relationship will develop when international commerce resumes its natural course.

PHILIPPINE NATIONAL BANK: In May, 1917, mutual agency appointments were effected between the Philippine National Bank and this bank, but as the former has an active branch of its own in New York, the relationship, while ready for operations at any time, is likely to be largely of an emergency character.

DE NEDERLANDSCHE BANK: During 1918, at the request of the Treasury Department, this bank opened a current account with de Neder-landsche Bank for the purpose of receiving therein, for the use of the Treasury Department, the proceeds in guilders of wheat and other commodities.

ARGENTINA: Early in 1918 an important arrangement was entered into between the United States and the Argentine Governments whereby the Federal Reserve Bank of New York and the Banco de la Nacion appointed each other as correspondents, and the former undertook to receive deposits not exceeding $100,000,000 exportable in gold coin after the proclamation of peace and the deposit of over $16,000,000 in gold coin then on deposit, earmarked, in New York, and since then withdrawn and exported. The purpose of this agreement, which has proved successful in operation, was to stabilize the badly demoralized exchange situation between the two countries.

DE JAVASCHE BANK: The arrangement effected in April, relating to deposits in current account, investments, collections and the earmarking of gold, has continued in active operation. The Federal Reserve Bank of New York has formally appointed de Javasche Bank its agent and correspondent in Java, and in turn has acted as New York agent and correspondent of de Javasche Bank.”

The aforegoing are typical arrangements made by the Federal Reserve Bank of New York, acting as agent for the entire System, with foreign central banks. It has always kept considerable quantities of gold in its vaults in New York which is earmarked for various foreign central banks, and the sizes and importance of this gold, sometimes amounting to hundreds of millions of dollars, has made it appear somewhat improper to have international gold dealers such as Albert Strauss and Eugene Meyer, Jr. on the Federal Reserve Board of Governors.

Further proof of the international purposes of the Federal Reserve Act of 1913 is provided by the “Edge Amendment”, of December 24, 1919, which authorizes the organization of corporations expressly for “engaging in international or foreign banking or other international or foreign financial operations, including the dealing in gold or bullion, and the holding of stock in foreign corporations.” On commenting on this amendment, E. W. Kemmerer, economist from Princeton University, remarked that:

“The federal reserve system is proving to be a great influence in the internationalizing of American trade and American finance.”

The historic fact that this internationalizing of American trade and American finance has been the direct cause for involving us in two world wars does not disturb Mr. Kemmerer or any other well-paid economist. There is plenty of evidence to prove how Paul Warburg used the Federal Reserve System as the instrument for getting trade acceptances adopted on a wide scale by American businessmen.

The use of trade acceptances, (which are the currency of international trade) by bankers and corporations in the United States prior to 1915 is practically unknown. The coming to power of the Federal Reserve System exactly parallels the increase in the use of acceptances in this country, nor is this a coincidence. The men who wanted the Federal Reserve System are the men who set up acceptance banks and profited by the use of acceptances. The leader of these men was Paul Warburg.

As early as 1910, the National Monetary Commission began to issue pamphlets and other propaganda urging bankers and businessmen in this country to adopt trade acceptances in their transactions. For three years the Commission carried on this campaign, and the Aldrich Plan, written mainly by Paul Warburg, and presented to Congress as the work of the Commission, included a broad provision authorizing the introduction and use of bankers’ acceptances into the American system of commercial paper.

The Federal Reserve Act of 1913 as passed by Congress did not specifically authorize the use of acceptances, and the Federal Reserve Board in 1915 and 1916 defined “trade acceptance”, further defined by Regulation A, Series of 1920, and further defined by Regulation A, Series 1924. One of the first official acts of the Board of Governors in 1914 was to grant acceptances a preferentially low rate of discount at Federal Reserve Banks. Since acceptances were not being used in this country at that time, no explanation of business exigency could be advanced for this action. It was apparent that someone in power on the Board of Governors wanted the adoptance of acceptances.

The National Bank Act of 1864, which was the determining financial authority of the United States until November, 1914, when it was replaced by the Federal Reserve Act, did not permit banks to lend their credit. Consequently, the power of banks to create money was greatly limited. We did not have a bank of issue, that is, a central bank, which could create money in large amounts. To get a central bank, the bankers forced money panic after money panic on the business people of the United States, by shipping gold out of the country, creating a money shortage, and then importing it back. After we got our central bank, the Federal Reserve System, there was no longer any need for a money panic, because the banks could create money. However, the panic as an instrument of power over the business and financial community was used again on two important occasions, in 1920, causing the Agricultural Depression, because state banks and trust companies had refused to join the Federal Reserve System, and in 1929, causing the Great Depression, which centralized all power in this country in the hands of a few great trusts.

A trade acceptance is a draft drawn by the seller of goods on the purchaser, and accepted by the purchaser, with a time of expiration stamped upon it. The use of trade acceptances in the wholesale market supplies short-term, assured credit to carry goods in process of production, storage, transit, and marketing. It facilitates domestic and foreign commerce. Seemingly, then, the bankers who wish to replace the open-book account system with the trade acceptance system were progressive-minded men who wished to help American import-export trade. Much propaganda was issued to that effect, but this was not the story.

The open-book system, heretofore used entirely by American business people, allowed a discount for cash. The acceptance system however, discourages the use of cash, by allowing a discount for credit. The open-book system also allowed much easier terms of payment, with liberal extensions on the debt. The acceptance does not allow this, since it is a short-term credit with the time-date stamped upon it. It is out of the seller’s hands, and in the hands of a bank, usually an acceptance bank, which does not allow any extension of time. Thus, the adoption of acceptances by American businessmen during the 1920s greatly facilitated the domination and swallowing up of small business into huge trusts, which culminated in the crash of 1929.

Trade acceptances had been used to some extent in the United States before the Civil War. During that war, exigencies of trade had destroyed the acceptance as a credit medium, and it had not come back into favor in this country, our people preferring the simplicity and generosity of the open-book system. Open-book accounts are single-name commercial paper, bearing only the name of the debtor. Acceptances are two-name paper, bearing the name of the debtor and the creditor. Thus they are much more acceptable by banks. To the creditor, under the open-book system, the debt is a liability. To the acceptance bank holding an acceptance, the debt is an asset. The men who set up acceptance banks in this country, under the leadership of Paul Warburg, secured control of the billions of dollars of credit existing as open accounts on the books of American businessmen.

Governor Marriner Eccles of the Federal Reserve Board stated before the House Banking and Currency Committee that:

“Debt is the basis for the creation of money.”

The holders of trade acceptances got the use of billions of dollars worth of credit-money, besides the rate of interest charged upon the acceptance itself. It is understandable why Paul Warburg should have devoted so much time, money, and energy to getting acceptances adopted in this country.

On September 4, 1914, the National City Bank accepted the first time-draft drawn on a national bank under provisions of the Federal Reserve Act of 1913. This was the beginning of the end of the open-book account system as an important factor in wholesale trade. Beverly Harris, vice-president of the National City Bank of New York, issued a pamphlet in 1915 stating that:

“Merchants using the open account system are usurping the functions of bankers.”

This was a plain statement of the purpose of Warburg and his bunch who wanted “monetary reform” in this country. They were out to get control of all credit in the United States, and they got it, by means of the Federal Reserve System and the acceptance system.

The First World War was a boon to the introduction of trade acceptances, and the volume jumped to four hundred million dollars in 1917, growing through the 1920s to more than a billion dollars a year, which culminated in a high peak just before the Great Depression of 1929-31. The Federal Reserve Bank of New York’s charts show that its use of acceptances reached a peak in November 1929, the month of the stock market crash, and declined sharply thereafter. The acceptance people had got what they wanted, which was control of American business and industry. Fortune Magazine in February of 1950 pointed out that:

“Volume of acceptances declined from $1,732 million in 1929 to $209 million in 1940, because of the concentration of acceptance banking in a few hands, and the Treasury’s low-interest policy, which made direct loans cheaper than acceptance. There has been a slight upturn since the war, but it is often cheaper for large companies to finance imports from their own coffers.”

In other words, the “large companies”, more accurately, the great trusts, now have control of credit and have not needed acceptances since the Great Depression.

Despite the preference shown by Federal Reserve Banks for acceptances, their use did not increase rapidly among American businessmen, and a great deal of propaganda was necessary to foster them. Besides the barrage of propaganda issued by the Federal Reserve System itself, the National Association of Credit Men, the American Bankers’ Association, and other fraternal organizations of the New York bankers devoted much time and money to distributing acceptance propaganda. Even their flood of lectures and pamphlets proved insufficient, and in 1919 Paul Warburg organized the American Acceptance Council, which was devoted entirely to acceptance propaganda.

The first convention held by this association at Detroit, Michigan, on June 9, 1919, coincided with the annual convention of the National Association of Credit Men, held there on that date, so that “interested observers might with facility participate in the lectures and meetings of both groups,” according to a pamphlet issued by the American Acceptance Council.

Paul Warburg was elected President of this organization, and later became Chairman of the Executive Committee of the American Acceptance Council, a position which he held until his death in 1932. The Council published lists of corporations using trade acceptances, all of them businesses in which Kuhn, Loeb Co. or its affiliates held control. Lectures given before the Council or by members of the Council were attractively bound and distributed free by the National City Bank of New York to the country’s businessmen.

Louis T. McFadden, Chairman of the House Banking and Currency Committee, charged in 1922 that the American Acceptance Council was exercising undue influence on the Federal Reserve Board, and called for a Congressional investigation, but Congress was not interested.

At the second annual convention of the American Acceptance Council, held in New York on December 2, 1920, President Paul Warburg stated:

“It is a great satisfaction to report that during the year under review it was possible for the American Acceptance Council to further develop and strengthen its relations with the Federal Reserve Board.”

During the 1920s, Paul Warburg, who had resigned from the Federal Reserve Board after holding a position as Governor for a year in wartime, because his brother was head of the German Secret Service, continued to exercise direct personal influence on the Federal Reserve Board by meeting with the Board as President of the Federal Advisory Board, and as President of the American Acceptance Council. He was, from its organization in 1920 until his death in 1932, Chairman of the Board of the International Acceptance Bank of New York, the largest acceptance bank in the world. His brother, Felix M. Warburg, also a partner in Kuhn, Loeb Co., was director of the International Acceptance Bank, and Paul’s son, James Paul Warburg, was Vice-President. Paul Warburg was also a director on other important acceptance banks in this country, such as the Westinghouse Acceptance Bank, which were organized in the United States immediately after the World War, when the headquarters of the international acceptance market was moved from London to New York, and Paul Warburg became the most powerful acceptance banker in the world.

It was the transference of the acceptance market from England to this country which gave rise to Thomas Lamont’s ecstatic speech before the Academy of Political Science in 1917 that:

“The dollar, not the pound, is now the basis for international exchange.”

Mr. Lamont’s joy is somewhat difficult to understand, for his firm of J. P. Morgan Co., was more interested in England’s financial structure than that of the United States.

Visible proof of the undue influence of the American Acceptance Council on the Federal Reserve Board, about which Congressman McFadden complained, is the chart showing the rate-pattern of the Federal Reserve Bank of New York during the 1920s. The Bank’s official discount rate follows exactly for nine years the ninety-day bankers’ acceptance rate, and the Federal Reserve Bank of New York sets the discount rate for the rest of the Reserve Banks. During this period, other rates of this Bank, such as the call-money rate, show remarkable variations, but the official rate and the acceptance rate move along as one.