Chapter Sixteen

THOMAS B. McCABE

Immediately after the Second World War, Governor Marriner Eccles began agitating to get back under the control of the Federal Reserve System the 160 billion dollars worth of short-term Government securities, the war bonds purchased by the war workers and soldiers. At the Bretton Woods Hearings on the establishment of the International Monetary Fund, Eccles said:

“The way we financed the war resulted in too much bank financing. The Federal Reserve has to stand ready to purchase these short-term Government securities (war bonds) at the established rate. The option is in the hands of the banks to provide themselves with reserves by selling short-term securities. That is why increased control by our central bank is necessary. The option or control over the monetization of the national debt is going to be in the hands of private banks unless it is again restored to the central banking authorities of the Federal Reserve System. You cannot deal with this through the usual orthodox means of raising the rate through open market operations. I think that management of the credit structure is a minor factor in preventing inflation. We must have this International Monetary Fund. An international currency is synonymous with international government.”

What Governor Eccles feared was that the banks outside of the Federal Reserve System now had the same opportunities of creating money which had been reserved by the central Federal Reserve Banks, the privilege of creating money by creating reserves when they sold the short-term Government securities, the war bonds issued during the Second World War. How this is done is best revealed by Governor Eccles at Hearings before the House Committee on Banking and Currency on June 24, 1941:

ECCLES: “The banking system as a whole creates and extinguishes the deposits as they make loans and investments, whether they buy Government Bonds or whether they buy utility bonds, or whether they make Fanners’ loans.

MR. PATMAN: I am thoroughly in accord with what you say, Governor, but the fact remains that they created the money, did they not?

ECCLES: Well, the banks create money when they make loans and investments.”

On September 30, 1941, before the same Committee, Governor Eccles was asked by Representative Patman:

“How did you get the money to buy those two billion dollars worth of Government securities in 1933?

ECCLES:We created it.

MR. PATMAN: Out of what?

ECCLES: Out of the right to issue credit money.

MR. PATMAN: And there is nothing behind it, is there, except our Government’s credit?

ECCLES: That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.”

On June 17, 1942, Governor Eccles was interrogated by Mr. Dewey.

ECCLES: “I mean the Federal Reserve, when it carries out an open market operation, that is, if it purchases Government securities in the open market, it puts new money into the hands of the banks which creates idle deposits.

DEWEY: There are no excess reserves to use for this purpose?

ECCLES: Whenever the Federal Reserve System buys Government securities in the open market, or buys them direct from the Treasury, either one, that is what it does.

DEWEY: What are you going to use to buy them with? You are going to create credit?

ECCLES: That is all we have ever done. That is the way the Federal Reserve System operates. The Federal Reserve System creates money. It is a bank of issue.”

At the House Hearings of 1947, Mr. Kilburn asked Mr. Eccles:

“What do you mean by monetization of the public debt?

ECCLES: I mean the bank creating money by the purchase of Government securities. All money is created by debt — either private or public debt.

FLETCHER: Chairman Eccles, when do you think there is a possibility of returning to a free and open market, instead of this pegged and artificially controlled financial market we now have?

ECCLES: Never. Not in your lifetime or mine.”

We have to have an artificially controlled market because the big bankers do not wish the power of creating money to pass out of their hands. These hearings demonstrate the way that banks can create money if they have quantities of these Government short-term securities or war bonds which were sold during the war. The bankers never intended that the people should get their money back on those bonds. Eccles’ group wanted the monetization of the public debt stopped by the exercise of a financial dictatorship which would forbid banks to sell these war bonds and create money by doing so. This would be in keeping with the desires of the International Monetary Fund. Like his dead master, Roosevelt, Eccles was an ardent internationalist. His methods of controlling the 160 billion dollars of money floating around was contrary to President Truman’s gang, so Eccles was deprived of the Chairmanship of the Federal Reserve Board of Governors and replaced by Thomas B. McCabe, head of the Toilet-Paper Trust, the Scott Paper Company. McCabe, according to Drew Pearson, had agreed to go along with the Truman-Snyder crowd, who had decided to wipe out the 160 billion dollars of war bonds owned by citizens and banks outside the Federal Reserve System by a very simple method, inflation. Subsidies of farm products and other commodities were increased by the Truman Administration, which since 194S has steadily followed an inflation policy for the purpose of extinguishing that part of the national debt owed to American citizens.

Like Thomas D. Jones in 1914 and Eugene Meyer, Jr. in 1931, Thomas B. McCabe had a very bad record for a man who was to be given supreme financial authority over the American people. He had been President of the Scott Paper Company until 1945, when he was appointed head of the Foreign Liquidation Commission, which disposed of twelve billion dollars worth of surplus Army goods stored abroad. Practically all of those goods found their way into the black markets of the world, or were sold by black market methods by McCabe’s assistants. The industrialists of this country did not care what he did with the stuff. They had been paid for it, the bill was now part of the national debt, and all McCabe had to do was to be sure that it did not get back into the United States and compete with the post-war production. He could give it away, sell it, anything to get it off the market.

The Senate Hearings proved conclusively that Thomas B. McCabe was directly responsible for the black market dealings carried out by men under his immediate supervision. One of the more unsavory of such incidents was McCabe’s officer in charge of surplus stored in China selling blood plasma, (which had been donated by loyal Americans to the troops who were fighting overseas) on the Chinese black market. The enterprising Chinese advertised it in their newspapers, being careful to point out to prospective purchasers that it was American blood. The Hearings also brought out the interesting fact that large quantities of narcotics, chiefly morphine and codeine from first-aid kits, went from McCabe’s Foreign Liquidation Commission directly into international narcotics trade.

These billions of dollars worth of Army material which were being given away or sold for a fraction of their worth, had a very corrupting influence on the domestic politics of countries where there were large depots of such supplies. Particularly in England, China, India, and the Philippine Islands did the Foreign Liquidation Commission encourage criminal activity among politicians which, six years later, is still bringing to light unsavory incident after unsavory incident.

Walter B. Schleiter, employee of Muller-Phipps Asia Ltd., New York, export-import merchants dealing with China and India, had been one of McCabe’s agents in India. He got into trouble because he tried to be partway honest, and attempted to keep open bids on the merchandise which he was charged with disposing of. A British firm, represented by Sir Archibald Rowlandson, had already made an agreement over Schleiter’s head to buy this merchandise at their own price, and Schleiter was sent home. He told the following amusing anecdote at the Senate Hearings on Thomas B. McCabe.

SENATOR TOBEY, CHAIRMAN: That is the figure, three hundred million dollars, that you accuse Sir Archibald Rowlandson of stealing from you, facetiously?

SCHLEITER: That was more or less humorous.

TOBEY: But it is a grim joke, accusing a man of stealing three hundred million dollars from you.

SCHLEITER: That is what I thought he had done. And he more or less admitted it, Senator.

TOBEY: Did he?

SCHLEITER: He did.

TOBEY: Did he pay for the lunch?

SCHLEITER: He paid for the drink.”

Also brought out at these Hearings was the fact that through McCabe’s personal intervention, General Claire Chennault had been allowed to purchase a hundred and fifty-one brand-new B25 airplanes at a fraction of their worth for his recently organized aviation firm, China Air Transport Company.

Despite these revelations of unbelievable corruption, officially involving a high Government agency, the Foreign Liquidation Commission, with deals in narcotic smuggling and selling American blood on the Chinese black market, the Senate approved of the fact that Thomas B. McCabe had gotten rid of twelve billion dollars worth of Army surplus on the black markets of the world, and confirmed his appointment by President Truman as Chairman of the Board of Governors of the Federal Reserve System.

Thomas B. McCabe now issued a statement that:

“Our basic problem is to absorb reserves in the Federal Reserve System.”

This was an oversimplification of the problem. The reserves, in the first place, which he wished to absorb were outside of the jurisdiction of the System. The Administration had to extinguish them by encouraging high prices. Thus, the amount of currency, the printing press Federal Reserve notes without any collateral behind them, which by any name meant counterfeit, had swollen from seven billion dollars in 1940 to twenty-one and a half billion dollars in 1944, had shrunk after the war, and by spring of 1951 had been swollen again to more than twenty-seven billion dollars, to increase inflation and wipe out that part of the debt owed to the loyal workers and soldiers who had been cajoled and threatened into buying war bonds during the war. The Federal Reserve had to play second fiddle to John Snyder and the United States Treasury in the handling of this outstanding credit. Meanwhile, the Treasury was spending billions of dollars to keep up the price of these short-term Government securities on the exchange, in order to protect the big speculators like Baruch and Lehman who owned most of them.

Eccles’ last plea for power in the Federal Reserve System through dictatorial methods in handling this free credit had been made at the House Hearings on the continuance of the Office of Price Administration in 1946, when he said:

“Our money supply expands through borrowing. The Government can stop further creation of bank credit by bringing about a balanced budget. It could reduce the existing supply of money by paying down the public debt and have commercial banks sell some of their Government securities to nonbank investors (charitable and educational foundations). Stopping further monetization of the public debt will tend to stabilize interest rates.”

This statement was in direct contradiction to the wishes of the crowd backing Truman and Snyder. They wanted further monetization of the debt as an integral part of their inflation policy, and they most emphatically did not wish to pay down the public debt. With five billions of dollars a year in interest coming in, what banker would wish to pay down the public debt?

At the House Committee on Banking and Currency Hearings February 21, 1945, on the extension of the public debt, Undersecretary of the Treasury Bell read a prepared statement saying that the public debt of the United States then amounted to 232 billion dollars. Mr. Jenkins of Ohio protested that the actual debt was at least a hundred billion dollars more than that. Mr. William Lemke of North Dakota figured that, considering the total long term commitments of the government, the debt amounted to 643 billion dollars, a figure which has not yet been successfully disputed.

In answer to Mr. Jenkins’ protest about a mere hundred billion dollars, Undersecretary Bell said:

“Oh, you must be including 67 or 68 billion dollars of unliquidated obligations under contracts entered into by various departments of the Government.” The unliquidated obligations, as Undersecretary Bell finally admitted, were debts. Then Secretary of the Treasury Fred Vinson, speaking at the Bretton Woods Hearings before the House Committee in May, 1946, spoke of Britain’s First World War debt, incurred through the ministrations of Ambassador Walter Hines Page, J. P. Morgan Company, and Woodrow Wilson:

“Her first war debt was four and a quarter billion dollars, of which she paid about two billion, of which 450 million dollars was principal, and one billion six hundred million was interest.” The significance of these figures should not be lost. The principal was owed to the American people, through the proceeds of Liberty Loans. The interest was paid to international bankers. Three-fourths of her total repayment went to bankers in the form of interest, one-fourth came back to our Treasury, and more than half of the total debt was repudiated in its entirety by the British Government.

Secretary Vinson, later Chief Justice of the Supreme Court, also testified at the Bretton Woods Hearings that:

“One reason we did not accept the Clearing Union was that it permitted credit creation. The Bretton Woods Plan was quite different. I was there helping make it. The idea of creating credit was rejected by the International Bank.”

The International Bank for Reconstruction and Development, headed by Eugene Meyer, Jr., and the International Monetary Fund, were created to extinguish the enormous amount of credit created by the Second World War. After the First World War, we had two great depressions to extinguish the credit produced by the war. The totalitarian dictatorship of these organizations, taking over the sovereignty and the right to coin money of every country in the world, should make depressions unnecessary.

Governor Eccles had remarked before the Senate Committee that:

“An international currency is synonymous with international government.”

The League of Nations had failed because it had not created an international currency. It had not been able to do so because it had failed to enlist the credit of the Government of the United States behind it, and we had the Great Depression of 1929-31 as the inevitable result of that condition.

Colonel Ely Garrison, in his book, “Roosevelt, Wilson, and the Federal Reserve Act”, published in 1915, had pointed out that:

“In finance, there can be no doubt about the stabilizing influence of internationalism, whereby closely knit alliances of money groups and forces in scattered sections of the world can come to the relief of their beleaguered friends.”

Essentially, this internationalism means making the people of one country responsible for debts of another country. Through central banks, the big bankers have organized the credit of entire countries, and through alliances of central banks, they have organized the credit of groups of countries. Through the creation of enormous and inextinguishable debts, they now propose to rule unchallenged over all peoples of the world.

Phillips, in his textbook, “Readings in Money and Banking”, said:

“The banker, relatively speaking, has no human factor to consider.”

Henry Hazlitt, in Newsweek of August 16, 1948, said:

“The world dollar shortage will last as long as world exchange control lasts. And the American taxpayer will continue to foot the bill.”

We can thank Eugene Meyer, Jr. and the International Monetary Fund for that. Young pointed out in the American Economic Review of September, 1947, that:

“The International Monetary Fund provided for revision of rates, but only on the event of fundamental disequilibrium. The day of fluctuating rates is gone. Rates are now a matter of considered decision to a degree greater than ever before.”

Fundamental disequilibrium, of course, meant any time the people might get hold of their own money, as after the Second World War when they had that purchasing power held in the war bonds which they had bought.

R. S. Sayers, in the Quarterly Journal of Economics of May, 1949, gives a clear summation of the aims of the Federal Reserve System since the end of the war. He says:

“The latest decades have seen a consolidation of the power of the world’s greatest central banks, the Federal Reserve System, and the Bank of England — of their power, that is to say, to control their respective monetary systems. The Governors of the Federal Reserve Board, however, are not satisfied by the great extension of their power over the total supply of money. Among the newer powers they have been persistently seeking from Congress are a freer hand in the alteration of cash reserve rations, and the power to prescribe minimum rations of short-term government paper to be held by the commercial banks. Although the latter proposal found its origin in the particular shape of postwar bank statistics, it is fundamentally to be ascribed to the Reserve Board of Governors’ desire to secure complete control over the quantity and price of credit. The swing of opinion is away from a simple quantitative control of credit, such as was given by the original Federal Reserve Act of 1913, and the desire of the Federal Reserve System for permanent powers on the lines of the wartime emergency powers, to regulate installment credit, is in substantial alignment with Governor Eccles’ ideas on consumer credit control and the regulation of house-purchase finance, although central bank action in this field could hardly be necessary where government subsidies were important and could be varied as a part of general employment policy.”

Eccles was as power mad as his mentor Roosevelt. He sought to maintain the dictatorial consumer credit controls and to secure for the Board of Governors power in the home finance field, in which the United States already was operating a substantial monopoly.

Representative H. O. Talle of Ohio pointed out that:

“If a central bank has in mind control of credit, as we had in our Federal Reserve System when we employed the rediscount rate and open market operations, and as when the government operates on a cheap money policy, the central bank of the government is thwarted in its attempt to control credit and stabilize the price level. Our money system and our banking system are the same. We are slaves to our public debt.”

The 643 billion dollars of public debt is the controlling factor in America’s financial system, and the Federal Reserve Board has managed it as a central bank manages a debt, that is, the Government’s credit is now mortgaged to them, and there is no way under the present monetary system whereby the credit of the people of the United States can ever become their rightful property once more.

Edward C. Simmons said in the American Economic Review of September, 1947:

“There can be no doubt that the twelve Federal Reserve Banks and the coordinating machinery represented by the Board of Governors and the Open Market Committee constitute a central bank which has been erected to make the volume of the mass of payment a manageable variable.”

This is a more complicated way of saying, “control of money and credit.”

C. R. Whittlesey of the University of Pennsylvania said before the American Economic Association in 1944:

“Bank loans have changed from commercial loans to comprise substantial amounts of collateral, real estate, term, and personal loans. They have very largely ceased to be commercial in origin or self-liquidating in character. In addition, income from services, particularly in service charges on checking accounts, has come to play an appreciable part in bank emolument. A second major change in banking has been the emergence on a large scale of excess reserves, and their continuance year after year in spite of strong efforts to reduce them. While excess reserves have existed for short periods in the, past, notably after the establishment of the Federal Reserve System, this constitutes a distinct departure from accepted banking tradition. Keynes laid down the law that reserves must be used to the hilt. Other changes involve establishment of the Federal Deposit Insurance Corporation, adoption by the Federal Reserve Board of an active policy with respect to government bonds, and to the pattern of interest rates.”

Whittlesey’s survey of the changes in the character of banking point up the most important factor, the lessening and almost disappearance of banking’s oldest and primary function, lending money to start businesses and aid in production, loans which were self-liquidating in character. In the first place, the giant trusts established during and after the Great Depression of 1929-31, controlled and financed themselves from their own treasuries any further business expansion in this country, so that avenue of investment was closed to banks. It was to the bankers’ own interest, however, to change the nature of their loans from self-liquidating to inextinguishable debts, as the following quotation from Henry Ford makes apparent:

“The one aim of these financiers is world control by the creation of inextinguishable debts. And since gold is a metal which neither laws nor inventions can increase, the supplies of which Nature has so far limited, control has become a very simple achievement.”

Since the end of the Second World War, there has sprung up a worldwide black market in gold, in which the Federal Reserve System, as the world’s largest holder of gold, and the United States Government, which has pegged the price of gold at $35 an ounce, are inextricably involved. Our Government is selling gold at $35 an ounce to black marketeers who retail it from $57 to $75 an ounce anywhere in the world. The Gold Trading Act of 1949, which sought to restore a free market in gold, was opposed by our Government because the United States is controlled by these international gold dealers and black marketeers. Some of the Hearings on this Act are given below:

Mr. Lawrence, banker from New York, said:

“Aramco (Arabian-American Oil Company) made a deal with Ibn Saud agreeing to give him, among other things, 80 million dollars in British gold sovereigns. The earth was scoured in order to find the eighty million dollars in British sovereigns. And you may be surprised, gentlemen, just as much as I was, to know that these eighty million dollars in British gold sovereigns were finally found to be in the possession of a gentleman named Peron. A deal was made, and an additional twenty million dollars in British gold sovereigns was provided, which is being used today for purposes which I cannot exactly define, in Greece. We, who are in possession of 75% of the world’s gold, are forced to go to South America and make a deal under the counter, paying fifty to sixty dollars an ounce, as compared to our own thirty-five dollars an ounce set by Mr. Roosevelt. Is it not strange that we are forced in an important deal of this kind to go to Peron and obtain from him on terms we cannot exactly ascertain at the present time, an amount of gold sufficient to perform a simple contract like this? The free gold market in this country from 1862-1879 or the free gold market prevailing in Great Britain from 1919-1925 did not create any currency chaos. During the war and postwar years the moneys of the world have been in the hands of men who believed in a managed currency. The originator of this theory is Georg Friederich Knapp. This man, in the time of the Kaiser, believed that a state could give its currency any value that it chose. He outlined for the first time the complex structure of exchange controls later adopted by Schacht in Nazi Germany. This same theory was given a slightly different angle and sold to the Anglo-Saxon world by Lord Keynes. A managed currency in this country means that Congress must forfeit its constitutional power to regulate the value of money and delegate it to a non-elected and politically irresponsible bureaucracy. The men who make up our Federal Reserve Board and the International Monetary Fund are not men who have to face the approval or disapproval of an electorate. Largely as a result of English influence, this country organized the Bretton Woods institutions, the International Monetary Fund and the World Bank for Reconstruction and Development. Out of a total fund capital of eight billion dollars, this country contributed two billion seven hundred and fifty million in gold.

CHAIRMAN: We have put up all the gold?

MR. LAWRENCE: Yes.”

At these same hearings, Mr. Searles, President of the Newmont Mining Company, gave for the first time the story behind the dramatic airlift operation in Berlin.

MR. SEARLES: “I have figured for the price of the airlift. It cost 350 million dollars. Now, if we had put 350 million dollars in gold behind the mark currency of Berlin, we would not have had to have that airlift. The cause of the airlift and the Russian blockade into Berlin was the dispute over the Berlin currency and the introduction of the Deutsch-mark. And the failure of the United Nations to end that blockade last autumn, if you remember, was due to the fact that the United Nations would not permit a sufficient length of time to negotiate over the Berlin currency. I once wrote Mr. Sproul of the Federal Reserve Board and said if this government would permit the export of newly mined gold, it would swamp the black market in gold in a short time.”

The international gold merchants do not want a free market in gold, and so the United States Government does not want a free market in gold.

Seltzer said before the American Economic Association in 1946 that:

“Since 1929 our commercial banking system has been transformed from one in which bank deposits and bank earnings were based mainly on direct customer loans to one in which they earn money mainly from bank ownership of the public debt.” The commercial banks’ enormous income from the ownership of the public debt and subsequent lack of interest in loans has given rise to the small loan companies which charge exorbitant rates of interest, and to the auto loan and finance companies which charge extremely high rates.

H. A. Dulan in the Southwestern Quarterly of June, 1943, says:

“Prior to 1943, member banks of the Federal Reserve System relied on interest and discount on loans for the largest portion of their earnings. Since 1943, the interest and dividends on securities from the public debt have contributed the largest portion of earnings.”

Besides important bankers, appointments to the Federal Reserve Board lately have included big industrialists such as Ernest G. Draper, President of the big California packers, Hill Brothers, and Dromedary Date Company, and Thomas B. McCabe, head of the Toilet-Paper Trust, the Scott Paper Company. In March, 1951, McCabe resigned as Chairman of the Federal Reserve Board of Governors, and was replaced by William McChesney Martin, former President of the Stock Exchange, and former President of the Export-Import Bank. Martin’s father was a close associate of Paul Warburg in the American Acceptance Council, and worked with him to get American finance and Industry to adopt the use of acceptances, on which Warburg held a virtual monopoly in this country. The elder Martin was Governor of the Federal Reserve Bank of St. Louis.

Whatever its leadership, the Federal Reserve Board is committed to tightening its financial dictatorship over the United States. Bernard Baruch testified before Congress that:

“We have not had a free or competitive economy since the First World War.”

Governor Marriner Eccles testified that we should not see our money market free from the money power’s control in our lifetime.

The latest statement was made by Governor Mencius Szymczak of the Federal Reserve Board, who was appointed by Boss Kelly of Chicago to that office. Governor Szymczak stated in Time Magazine in September, 1950, that:

“The more we can accomplish by means of monetary, credit, and fiscal policies, the less need there will be for the authoritarian harness of rationing and other direct controls.”

The most ominous pronouncement of the real rulers of the country, the trust owners who control finance and business, comes from Peter Drucker, a spokesman for them. Writing in the Saturday Evening Post of October 28, 1944, on the occasion of the Bretton Woods agreements, Mr. Drucker wrote:

“Should the world adopt a controlled economic system, leadership would logically fall to the Soviet Union. Russia would be the model for such a dictatorship, for Russia was the first country to develop the technique of international economic control — for transacting monopoly directed foreign trade and foreign exchange money. Her independence and military success had shown us naturally what could be done with such policies, which explains the acceptance of these policies by independent labor unions and political parties the world over.”

In the first place, Russia has no independence, as far as her citizens are concerned. In the second place, as a military success she collapsed when Hitler marched against Moscow, and was saved only by American production and shipment of lend-lease supplies given by our people. Nevertheless, our trust-owners whole-heartedly admire the way Stalin and the Politburo have subjected the Russian people to their dictatorship, and our own versions of Stalin and the Politburo are well on their way to doing the same thing over here.

This dictatorship cannot be exercised without the control of money and credit. If Congress actually had retained its sovereignty and refused to let Woodrow Wilson and Carter Glass hand over the sovereign right of coinage and the issue of our money to private bankers in 1913, the American people today would not stand on the brink of slavery. The Federal Reserve System has been the death of our Constitution, and the end of our liberties. The Federal Reserve Board of Governors, chosen by and working for the powerful international bankers, have inflicted catastrophe after catastrophe upon our people. They have involved us into two World Wars, they have planned and executed two of the worst economic depressions we have ever suffered. The American people have been kept in ignorance of the forces working against them. The love of liberty, the innate self-reliance, and the uncompromising individualism of the native American must assert itself against the tyranny of the Federal Reserve Board if we are to renew the American Republic.