Chapter Twenty-Two: The Creature Swallows Congress
The second attempt to pass legislation to legalize the banking cartel; the bankers selection of Woodrow Wilson as a Presidential candidate; their strategy to get him elected; the role played by Wilson to promote the cartels legislation; the final passage of the Federal Reserve Act.
The election of 1912 was a textbook example of power politics and voter deception. The Republican President, William Howard Taft, was up for reelection. Like most Republicans of that era, his political power was based upon the support of big-business and banking interests in the industrial regions. He had been elected to his first term in the expectation that he would continue the protectionist policies of his predecessor, Teddy Roosevelt, particularly in the expansion of cartel markets for sugar, coffee, and fruit from Latin America. Once in office, however, he grew more restrained in these measures and earned the animosity of many powerful Republicans, The ultimate breach occurred when Taft refused to support the Aldrich Plan. He objected, not because it would create a central bank which would impose government control over the economy, but because it would not offer enough government control. He recognized that the Jekyll Island formula Would place the bankers into the driver’s seat with only nominal participation by the government. He did not object to the ancient partnership between monetary and political scientists, he merely Wanted a greater share for the political side. The bankers were not adverse to negotiating the balance of power nor were they unwilling to make compromises, but what they really needed at this juncture was a man in the White House who, instead of being lukewarm on the plan, could be counted on to become its champion and who would use his influence as President to garner support from the fence straddlers in Congress. From that moment forward, Taft was marked for political extinction.
This was a period of general prosperity, and Taft was popular with the voters as well as with the rank-and-file Party organization He had easily won the nomination at the Republican convention, and there was little doubt that he could take the presidential election as well. Wilson had been put forth as the Democratic challenger, but his dry personality and aloof mannerisms had failed to arouse sufficient voter interest to make him a serious contender.
The Bull Moose Candidate
However, when Teddy Roosevelt returned from his latest African safari, he was persuaded by Morgan’s deputies, George Perkins and Frank Munsey, to challenge the President for the Party’s nomination. When that effort failed, he was then persuaded to run against Taft as the
Bull Moose candidate on the Progressive Party ticket. It is unclear what motivated him to accept such a proposition, but there is no doubt regarding the intent of his backers. They did not expect Roosevelt to win, but, as a former Republican President, they knew he would split the Party and, by pulling away votes from Taft, put Wilson into the White House.
Presidential campaigns need money and lots of it. The Republican Party was well financed, largely from the same individuals who now wanted to see the defeat of its own candidate. It would not be possible to cut off this funding without causing too many questions. The solution, therefore, was to provide the financial resources for all three candidates, with special attention to the needs of Wilson and Roosevelt.
Some historians, while admitting the facts, have scoffed at the conclusion that deception was intended. Ron Chernow says:
By 1924, the House of Morgan was so influential in American politics that conspiracy buffs couldn’t tell which presidential candidate was more beholden to the bank. But one does not have to be a conspiracy buff to recognize the evidence of foul play. Ferdinand Lundberg tells us:
J. P. Morgan and Company played the leading role in the national election of 1912… Roosevelt’s preconvention backers were George W. Perkins and Frank Munsey. These two, indeed, encouraged Roosevelt to contest Taffs nomination … Munsey functioned in the newspaper field for J. P. Morgan and Company — buying, selling, creating, and suppressing newspapers in consonance with J. P. Morgan’s shifting needs … Perkins resigned from J. P. Morgan and Company on January 1,1911, to assume a larger political role …
The suspicion seems justified that the two were not over-anxious to have Roosevelt win. The notion that Perkins and Munsey may have wanted Wilson to win … is partly substantiated by the view that Perkins put a good deal of cash behind the Wilson campaign through Cleveland H. Dodge. Dodge and Perkins financed, to the extent of $35,500, the Trenton True American, a newspaper that circulated nationally with Wilson propaganda …
Throughout the three-cornered fight, Roosevelt had Munsey and George Perkins constantly at his heels, supplying money, going over his speeches, bringing people from Wall Street in to help, and, in general, carrying the entire burden of the campaign against Taft … Perkins and J. P. Morgan and Company were the substance of the Progressive Party; everything else was trimming … Munsey’s cash contribution to the Progressive Party brought his total political outlay for 1912 to $229,255.72. Perkins made their joint contribution more than $500,000, and Munsey expended $1,000,000 in cash additionally to acquire from Henry Einstein the New York Press so that Roosevelt would have a New York City morning newspaper. Perkins and Munsey, as the Clapp [Senate Privileges and Election] Committee learned from Roosevelt himself, also underwrote the heavy expense of Roosevelt’s campaign train. In short, most of Roosevelf s campaign fund was supplied by the two Morgan hatchet men who were seeking Taft’s scalp.
Morgan & Company was not the only banking firm on Wall Street to endorse a three-way election as a means of defeating Taft. Within the firm of Kuhn, Loeb & Company, Felix Warburg was dutifully putting money into the Republican campaign as expected, but his brother, Paul Warburg and Jacob Schiff were backing Wilson, while yet another partner, Otto Kahn, supported Roosevelt. Other prominent Republicans who contributed to the Democratic campaign that year were Bernard Baruch, Henry Morganthau, and Thomas Fortune Ryan. And the Rockefeller component of the cartel was just as deeply involved. William McAdoo, who was Wilson’s national campaign vice chairman, says that Cleveland Dodge of Rockefeller’s National City Bank personally contributed $51,300 — more than one-fourth the total raised from all other sources. In McAdoo’s words,
He was a Godsend. Ferdinand Lundberg describes Dodge as
the financial genius behind Woodrow Wilson. Continuing, he says:
Wilson’s nomination represented a personal triumph for Cleveland H. Dodge, director of the National City Bank, scion of the Dodge copper and munitions fortune … The nomination represented no less a triumph for Ryan, Harvey, and J. P. Morgan and Company. Sitting with Dodge as co-directors of the National Gty Bank at the time were the younger J. P. Morgan, now the head of the [Morgan] firm, Jacob Schiff, William Rockefeller, J. Ogden Armour, and James Stillman. In short, except for George F. Baker, everyone whom the Pujo Committee had termed rulers of theMoney Trustwas in this bank.
And so it came to pass that the monetary scientists carefully selected their candidate and set about to clear the way for his victory. The maneuver was brilliant. Who would suspect that Wall Street would support a Democrat, especially when the Party platform contained this plank:
We oppose the so-called Aldrich Bill or the establishment of a central bank; and … what is known as the money trust.
What irony it was. The Party of the working man, the Party of Thomas Jefferson — formed only a few generations earlier for the specific purpose of opposing a central bank — was now cheering a new leader who was a political captive of Wall Street bankers and who had agreed to the hidden agenda of establishing the Federal Reserve System. As George Harvey later boasted, the financiers
felt no animosity toward Mr. Wilson for such of his utterances as they regarded as radical and menacing to their interests. He had simply played the political game.
William McAdoo, Wilson’s national campaign vice chairman, destined to become Secretary of the Treasury, saw what was happening from a ringside seat He said:
The major contributions to any candidate’s campaign fund are made by men who have axes to grind — and the campaign chest is the grindstone … The fact is that there is a serious danger of this country becoming a pluto-democracy; that is, a sham republic with the real government in the hands of a small clique of enormously wealthy men, who speak through their money, and whose influence, even today, radiates to every corner of the United States.
Experience has shown that the most practicable method of getting hold of a political party is to furnish it with money in large quantities. This brings the big money-giver or givers into close communion with the party leaders. Contact and influence do the rest.
The Money Trust They Love to Hate
Roosevelt actually had very little interest in the banking issue, probably because he didn’t understand it. Furthermore, in the unlikely event the blustery
trust buster would actually win the election, the financiers still had little to fear. In spite of his well-publicized stance of opposing big business, his true convictions were quite acceptable to Wall Street. As Chernow observed:
Although the Roosevelt-Morgan relationship is sometimes caricatured as that of trust buster versus trust king, it was far more complex than that. The public wrangling obscured deeper ideological affinities … Roosevelt saw trusts as natural, organic outgrowths of economic development. Stopping them, he said, was like trying to dam the Mississippi River. Both TR and Morgan disliked the rugged, individualistic economy of the nineteenth century and favored big business …, In the sparring between Roosevelt and Morgan there was always a certain amount of shadow play, a pretense of greater animosity than actually existed … Roosevelt and Morgan were secret blood brothers.
It is not surprising, therefore, as Warburg noted in January, 1912 — ten months before the election — that Teddy had been
fairly won over to a favorable consideration of the Aldrich Plan.
Inner convictions on these issues notwithstanding, both Wilson and Roosevelt played their roles to the hilt Privately financed by Wall Street’s most powerful bankers, they publicly carried a flaming crusade against the
Money Trust from one end of the country to the other. Roosevelt bellowed that the
issue of currency should be lodged with the government and be protected from domination and manipulation by Wall Street, And he quoted over and over again the Bull Moose (Progressive Party) platform which said:
We are opposed to the so-called Aldrich Currency Bill because its provisions would place our currency and credit system in private hands, Meanwhile, at the other end of town, Wilson declared:
There has come about an extraordinary and very sinister concentration in the control of business in the country … The growth of our nation, therefore, and all our activities, are in the hands of a few men … This money trust, or as it should be more properly called, this credit trust … is no myth.
Throughout the campaign, Taft was portrayed as the champion of big business and Wall Street banks — which, of course, he was. But so were Roosevelt and Wilson. The primary difference was that Taft, judged by his actual performance in office, was known to be such, whereas his opponents could only be judged by their words. The outcome of the election was exactly as the strategists had anticipated. Wilson won with only forty-two percent of the popular vote, which means, of course, that fifty-eight percent had been cast against him. Had Roosevelt not entered the race, most of his votes undoubtedly would have gone to Taft, and Wilson would have become a footnote. As Colonel House confided to author George Viereck years later,
Wilson was elected by Teddy Roosevelt.
Now that the Creature had moved into the White House, passage of the Jekyll Island plan went into its final phase. The last bastion of opposition in Congress consisted of the Populist wing of the Democratic Party under the leadership of William Jennings Bryan. The problem with this group was that they had taken their campaign platform seriously. They really were opposed to the Money Trust. While it may have been a simple matter to pull the wool over the eyes of voters, it would not be so easy to fool this group of experienced politicians. What was needed now was an entirely new bill that, on the surface, would appear to contain changes of sufficient magnitude to allow the Bryan wing to change its position. The essential features of the plan, however, must not be abandoned. And, to coordinate this final strategy, the services of someone with great political skill would be essential. Fortunately for the planners, there was exactly such a man residing at the White House. It was not the President of the United States. It was Edward Mandell House.
The Role of Colonel House
Colonel House, who had been educated in England and whose father represented England’s merchant interests in the American South, had come into public life through the London Connection. It will be recalled from previous chapters that, perhaps more than |any other person in America, he had helped maneuver the United States into World War I on the side of a desperate Britain and, by so doing, had also rescued the massive loans to Britain and France made by the Morgan interests. Not only had he been responsible for Wilson’s nomination at the Democratic convention, but had become the President’s constant companion, his personal adviser, and in many respects his political superior. It was through House that Wilson was made aware of the wishes of the Money Trust, and it was House who guided the President in every aspect of foreign and economic policy. An admiring biographer, Arthur Smith, writing in the year 1918, says that House
holds a power never wielded before in this country by any man out of office, a power greater than that of any political boss or Cabinet member. A more recent biographer, George Viereck, was not exaggerating when he described House as
Chief Magistracy of the Republic,
The pilot who guided the ship. Continuing, he said:
For six years two rooms were at his disposal in the North Wing of the White House … In work and play their thoughts were one. House was the double of Wilson. It was House who made the slate for the , Cabinet, formulated the first policies of the Administration and practically directed the foreign affairs of the United States. We had, indeed, two Presidents for one! …
The Schiffs, the Warburgs, the Kahns, the Rockefellers, the Morgans put their faith in House. When the Federal Reserve legislation at last assumed definite shape, House was the intermediary between the White House and the financiers.
Daily entries in the personal journal of Colonel House reveal the extent to which his office had become the command post for the Jekyll Island team. The following sample notations are typical:
- December 19, 1912.
- I talked with Paul Warburg over the telephone regarding the currency reform. I told of my Washington trip and what I had done there to get it in working order.
- March 24, 1913.
- I had an engagement with Carter Glass at five. We drove, in order not to be interrupted … I spoke to the President about this after dinner and advised that McAdoo and I whip the Glass measure into final shape, which he could endorse and take to Owen [Chairman of the Senate Banking Committee] as his own.
- March 27, 1913.
- Mr. J. P. Morgan, Jr., and Mr. Denny of his firm, came promptly at five. McAdoo came about ten minutes afterwards. Morgan had a currency plan already formulated and printed. We discussed it at some length. I suggested he have it typewritten [so it would not seem too prearranged] and sent to us today.
- October 19, 1913.
- I saw Senator Reed of Missouri in the late afternoon and discussed the currency question with him.
- October 19, 1913.
- Paul Warburg was my first caller, and he came to discuss the currency measure … Senator Murray Crane followed Warburg. He has been in touch with Senators Weeks and Nelson of the Currency Committee.
- November 17, 1913.
- Paul Warburg telephoned about his trip to Washington. He is much disturbed over the currency situation and requested an interview, along with lacob Schiff and Cleveland H. Dodge.
- January 21, 1914.
- After dinner we [Wilson and House] went to the President’s study as usual and began work on the Federal Reserve Board appointments.
As far as the banking issue was concerned, Colonel House was the President of the United States, and all interested parties knew it. Wilson made no pretense at knowledge of banking theory. He said:
The greatest embarrassment of my political career has been that active duties seem to deprive me of time for careful investigation. I seem almost obliged to form conclusions from impressions instead of from study … I wish that I had more knowledge, more thorough acquaintance, with the matters involved. To which Charles Seymour adds:
Colonel House was indefatigable in providing for the President the knowledge that he sought … The Colonel was the unseen guardian angel of the bill,
Death of the Aldrich Plan
The first task for the Jekyll Island team was to hold a funeral for the Aldrich Plan without actually burying it. Professor Laughlin had come to agree with Warburg regarding the inadvisability of having Aldrich’s name attached to any banking bill, especially now that the Democrats were in control of both Congress and the White House, and he was anxious to give it a new identity. Writing in the periodical Banking Reform, which was the official publication of the National Citizens’ League, Laughlin said:
It is progress that the Aldrich plan came and went. It is progress that the people have been aroused and interested. The League was now free, he said, to
try to help in getting a proper bill adopted by the Democrats, a bill that
in non-essentials … could be made different from the old plan.
It did not take long for the Democrats to bring forth their own proposal. In fact, that process had begun even before the election of 1912. One of the most outspoken critics of the Aldrich plan was the Democratic Chairman of the House Banking and Currency Committee, Congressman Carter Glass from Virginia. And it was Glass who was given the responsibility of developing the new plan. By his own admission, however, he had virtually no technical knowledge of banking. To provide that expertise and to actually write the bill he hired an economics teacher from Washington and Lee University, Henry Parker Willis. We should not be surprised to learn that Willis had been a former student and protege of Professor Laughlin and had been retained by the National Citizens’ League as a technical writer. Explaining the significance of this relationship, Kolko says:
Throughout the spring of 1912 Willis wrote Laughlin about his work for the Glass Committee, his relationship to his superior, and Washington gossip. The advice of the old professor was much reveredWhen you arrive,he wrote Laughlin concerning a memorandum he had written,I should like to show it to you for such criticisms as occur to you.The student-teacher relationship between the two men was still prominent …
Laughlin, Colonel House, and Glass were to frequently consult with major bankers about reform, and provided an importantand continuous bridge for their ideas while bills were being drafted … Colonel House, in addition, was talked to by Frick, Otto Kahn, and others in late February, and the following month also met Vanderlip, J P Morgan, Jr., and other bankers to discuss currency reform … To make sure the reform was more to the liking of bankers, a steady barrage of personal, unobtrusive communications with Glass, House, and Wilson was kept up throughout February and March … The [Citizens’] league was fulsome in its praise of Glass, and bankers felt greater and greater confidence as Colonel House began visiting Glass and showing interest in his currency measure …
The new President admittedhe knew nothingabout banking theory or practice. Glass made the same confession to Colonel House in November, and this vacuum is of the utmost significance. The entire banking reform movement, at all crucial stages, was centralized in the hands of a few men who for years were linked, ideologically and personally with one another.
The Glass-Owen Bill Emerges
In his Committee House Report in 1913, Glass objected to the Aldrich Bill on the following grounds: It lacked government control, he said; it concentrated power into the hands of the larger New York banks; it opened the door to inflation; it was dishonest in its estimate of cost to the taxpayer; and it established a banking monopoly. All of which was correct. What the country needed, Glass said, was an entirely fresh approach, a genuine reform bill which was not written by agents of the Money Trust and which would truly meet the needs of the common man. That, too, was quite correct. Then he brought forth his own bill, drafted by Willis and inspired by Laughlin, which in every important detail was merely the old corpse of the Aldrich Bill pulled from its casket, freshly perfumed, and dressed in a new suit.
The Glass Bill was soon reconciled with a similar measure sponsored by Senator Robert L. Owen and it emerged as the Glass-Owen Bill. Although there were initially some minor differences between Glass and Owen on the proper degree of government control over banking, Owen was basically of identical mind to Willis and Laughlin. While serving in the Senate, he also was the president of a bank in Oklahoma. Like Aldrich, he had made several trips to Europe to study the central banks of England and Germany, and these were the models for his legislation.
The less technically minded members of the cartel became nervous over the anti-Wall Street rhetoric of the Bill’s sponsors. Warburg, in an attempt to quell their fears and, at the same time, strengthen his private boast that he had been the real author, published a side-by-side comparison of the Aldrich and Glass proposals. The analysis showed that, not only were the two bills in agreement on all essential provisions, but they even contained entire sections that were identical in their wording. He wrote:
Brushing aside, then, the external differences affecting the
shells we find the
kernels of the two systems very closely resembling and related to one another.
It was important for the success of the Glass Bill to create the impression it was in response to the views of a broad cross section of the financial community. To this end, Glass and his committee staged public hearings for the announced purpose of giving everyone a chance for input to the process. It was, of course, a sham. The first draft of the Bill had already been completed in secret several months before the hearings were held. And, as was customary in such matters, Congressman Lindbergh and other witnesses opposing the Jekyll Island plan were not allowed to speak. The hearings were widely reported in the press, and the public was given the impression that the favorable testimony was truly representative of expert opinion. Kolko summarizes:
Although they were careful to keep the contents of their work confidential to aid the passage of any bill that might be agreed upon Glass deemed it desirable to hold public hearings on the topic and to make sure the course of these hearings was not left to chance … The public assumption of the hearing was that no bills had been drafted, and Willis’ draft was never mentioned, much less revealed … The hearings of Glass’ subcommittee in January and February, 1913, were nothing less than a love feast.
Bankers Become Divided
The public was not the only victim of deception. The bankers themselves were also targeted — at least the lesser ones who were not part of the Wall Street power center. As early as February, 1911, a group of twenty-two of the country’s most powerful bankers met for three days behind closed doors in Atlantic City to work out a strategy for getting the smaller banks to support the concept of using the government to authorize and maintain their own cartel. The objective frankly discussed among those present was that the proposed cartel would bring the smaller banks under control of the larger ones, but that this fact had to be obscured when presenting it to them for endorsement.
The annual meeting of the American Bankers Association was held a few months later, and a resolution endorsing the Aldrich Bill was steam rollered through the plenary session, much to the dismay of many of those present. Andrew Frame was one of them. Representing a group of Western bankers, he testified at the hearings of the Glass subcommittee, mentioned previously, and described the hoax:
When that monetary bill was given to the country, it was but a few days previous to the meeting of the American Bankers Association in New Orleans in 1911. There was not one banker in a hundred who had read that bill. We had twelve addresses in favor of it. General Hamby of Austin, Texas, wrote a letter to President Watts asking for a hearing against the bill. He did not get a very courteous answer. I refused to vote on it, and a great many other bankers did likewise … They would not allow anyone on the program who was not in favor of the bill.
It is interesting that during Frame’s testimony, Congressman Glass refrained from commenting on the unfairness of allowing only one side of an issue to be heard in a public forum. He could hardly afford to. That is exactly what he was then doing with his own agenda.
As the Federal Reserve Act moved closer to its birth in the form of the Glass-Owen Bill (Owen was the co-sponsor in the Senate), both Aldrich and Vanderlip threw themselves into a great public display of opposition. No opportunity was overlooked to make a statement to the press — or anyone else of public prominence — expressing their eternal animosity to this monstrous legislation. Vanderlip warned against the evils of fiat money and rampant inflation. Aldrich charged that the Glass-Owen Bill was inimical to sound banking and good government. Vanderlip predicted speculation and instability in the stock market. Aldrich sourly complained that the bill was
revolutionary in its character (implying Bolshevistic) and
will be the first and most important step toward changing our form of government from a democracy to an autocracy.
The Pretense Is Dropped
That all of this was merely high-level showmanship was made clear when Vanderlip accepted a debate with Congressman Glass before the New York Economic Society on November 13. There were eleven hundred bankers and businessmen present, and Vanderlip was under pressure to make a good showing before this impressive group. The debate was going badly for him and, in a moment of desperation, he finally dropped the pretense.
For years, he said,
bankers have been almost the sole advocates of just this sort of legislation that it is now hoped we will have, and it is unfair to accuse them of being in opposition to sound legislation, Twenty-two years later, when the need for pretense had long passed, Vanderlip was even more candid. Writing in the Saturday Evening Post, he said:
Although the Aldrich Federal Reserve Plan was defeated when it bore the name Aldrich, nevertheless its essential points were all contained in the plan that finally was adopted.
In his autobiography, Treasury Secretary William McAdoo offers this view:
Bankers fought the Federal Reserve legislation — and every provision of the Federal Reserve Act — with the tireless energy of men fighting a forest fire. They said it was populistic, socialistic, half-baked, destructive, infantile, badly conceived, and unworkable …
These interviews with bankers led me to an interesting conclusion. I perceived gradually, through all the haze and smoke of controversy, that the banking world was not really as opposed to the bill as it pretended to be.
That is the key to this entire episode: mass psychology. Since Aldrich was recognized as associated with the Morgan interests and Vanderlip was President of Rockefeller’s National City Bank, the public was skillfully led to believe that the
Money Trust was mortally afraid of the proposed Federal Reserve Act. The Nation was the only prominent publication to point out that every one of the horrors described by Aldrich and Vanderlip could have been equally ascribed to the Aldrich Bill as well. But this lone voice was easily drowned by the great cacophony of deception and propaganda.
The Glass Bill was a flexible document which was designed from the beginning to be altered in non-essential matters in order to appear as though compromises were being made to satisfy the various political factions. Since very few understood central-bank technicalities, the ploy was easy to execute. The basic strategy was to focus debate on such relatively unimportant items as the number of regional banks, the structure of the governing board, and the process by which that board was to be selected. When truly crucial matters could not be avoided, the response was to agree to almost anything but to write the provisions in vague language. In that way, the back door would be left ajar for later implementation of the original intent. The goal was to get the bill passed and perfect it later.
House and Warburg feared that, if they waited until they had everything they wanted, they would get nothing at all or, worse, that opponents of a central bank would be able to muster their forces and pass a reform bill of their own; a real one. Willis was quick to agree. In a letter to his former professor, he wrote:
It is much better to take a half a loaf rather than to be absolutely deprived of a chance of getting any bread whatsoever … The so-called Glass echoed the sentiment. Directing his remarks at those smaller banks which were resisting domination by the New York banks, he said:
progressive element — such as Lindbergh and his supporters — will be encouraged to enact dangerous legislation.
Unless the conservative bankers of the country are willing to yield something and get behind the bill, we shall get legislation very much less to be desired, or have nothing done at all.
Bryan Makes An Ultimatum
The Populist, William Jennings Bryan, was considered at that time to be the most influential Democrat in Congress, and it was clear from the start that the Federal Reserve Act could never be passed without his approval and support. As Charles Seymour observed:
The Commoner’s sense of loyalty [to the Party] had kept him from an attack upon the Federal Reserve Act which, it would appear, he never entirely understood … With his influence in the Party, he could have destroyed the measure which failed to accord with his personal doctrines.
Bryan had said that he would not support any bill that resulted in private money being issued by private banks. The money supply, he insisted, must be government issue. When he finally saw an actual draft of the bill in midsummer of 1913, he was dismayed to find that, not only was the money to be privately issued, but the entire governing body of the central bank was to be composed of private bankers. His ultimatum was not long in coming. He hotly demanded (1) that the Federal-Reserve notes must be Treasury currency, issued and guaranteed by the government; and (2) that the governing body must be appointed by the President and approved by the Senate.
Colonel House and the other monetary scientists were reasonably sure that these provisions eventually would be required for final approval of the bill but, being master strategists, they deliberately withheld them from early drafts so they could be used as bargaining points and added later as concessions in a show of compromise. Furthermore, since practically no one really understood the technical aspects of the measure, they knew it would be easy to fool their opponents by creating the appearance of compromise when, in actual operation, the originally intended features would remain.
An Amazing Revelation
The nature of this deception was spelled out years later by Carter Glass in his book, Adventures in Constructive Finance. From this source we learn that, after Bryan had delivered his ultimatum, Glass was summoned to the White House and told by Wilson that the decision had been made to make the Federal Reserve notes obligations of the United States government.
I was for an instant speechless! wrote Glass who then explained how he reminded the President that the only backing for the new currency would be a small amount of gold, a large amount of government and commercial debt, and the private assets of the individual banks themselves.
It would be a pretense on its face, he said.
Was there ever a government note based primarily on the property of banking institutions? Was there ever a government issue not one dollar of which could be put out except by demand of a bank? The suggested government obligation is so remote it could never be discovered.
To which the President replied:
Exactly so, Glass. Every word you say is true; the government liability is a mere thought. And so, if we can hold the substance of the thing and give the other fellow the shadow, why not do it, if thereby we may save our bill?
Years later, Paul Warburg would explain further:
While technically and legally the Federal Reserve note is an obligation of the United States Government, in reality it is an obligation, the sole actual responsibility for which rests on the reserve banks … The government could only be called upon to take them up after the reserve banks had failed.
Warburg’s explanation should be carefully analyzed. It is an incredibly important statement. The man who masterminded the Federal Reserve System is telling us that Federal Reserve notes constitute privately issued money with the taxpayers standing by to cover the potential losses of those banks which issue it. One of the more controversial assertions of this book is that the objectives set forth at the Jekyll Island meeting included the shifting of the cartel’s losses from the owners of the banks to the taxpayers. Warburg himself has confirmed it.
But let us return to the great deceit of 1913. The second demand made by Bryan — political control over the System, not banker control — was met with an equally beguiling
compromise. In addition to the governing board of regional bankers previously proposed, there now would be a central regulatory commission, to be called the Federal Reserve Board, appointed by the President with the advice and consent of the Senate. Thus, the public was to be protected through a sharing of power, a melding of interests, a system of checks and balances. In this way, said Wilson,
the banks may be instruments, not the masters, of business and of individual enterprise and initiative.
The arrangement was heralded as a bold, new experiment in representative government. In reality, it was but the return of the ancient partnership between the monetary and political scientists. The only thing new was that power was now to be shared openly in plain view of the public. But, of course, there would not be much to see. All the deliberations and most of the decisions were to happen behind closed doors. Furthermore, the division of power and responsibility between these groups was left deliberately vague. Without a detailed line of command or even a clear concept of function, it was inevitable that, as with the drafting of the bill itself, real power would gravitate into the hands of those with technical [knowledge and Wall Street connections. To the monetary scientists drafting the bill and engineering the compromises, the eventual concentration of effective control into their hands was never in serious doubt. And, as we shall see in the next chapter, subsequent events have proved the soundness of that strategy.
Bryan Endorses the Bill
Bryan was no match for the Jekyll Island strategists and he accepted the
compromises at face value. Had there been any lingering doubts in his mind, they were swept away by gratitude for his appointment as Wilson’s Secretary of State. Now that he was on the team, he declared:
I appreciate so profoundly the service rendered by the President to the people in the stand he has taken on the fundamental principles involved in currency reform, that I am with him in all the details … The right of the government to issue money is not surrendered to the banks; the control over the money so issued is not relinquished by the government … I am glad to endorse earnestly and unreservedly the currency bill as a much better measure than I supposed it possible to secure at this time … Conflicting opinions have been reconciled with a success hardly to have been expected.
With the conversion of Bryan, there was no longer any doubt about the final outcome. The Federal Reserve Act was released from the joint House and Senate conference committee on December 22, 1913, just as Congress was preoccupied with departure for the Christmas recess and in no mood for debate. It quickly passed by a vote of 282 to 60 in the House and 43 to 23 in the Senate. The President signed it into law the next day.
The Creature had swallowed Congress.
President Taft, although a Republican spokesman for big business, refused to champion the Aldrich Bill for a central bank. This marked him for political extinction. The Money Trust wanted a President who would aggressively promote the bill, and the man selected was Woodrow Wilson who had already publicly declared his allegiance. Wilson’s nomination at the Democratic national convention was secured by Colonel House, a close associate of Morgan and Warburg. To make sure that Taft did not win his bid for reelection, the Money Trust encouraged the former Republican President, Teddy Roosevelt, to run on the Progressive ticket. The result, as planned, was that Roosevelt pulled away Republican support from Taft, and Wilson won the election with less than a majority vote. Wilson and Roosevelt campaigned vigorously against the evils of the Money Trust while, all along, being dependent upon that same Trust for campaign funding.
When Wilson was elected, Colonel House literally moved into the White House and became the unseen President of the United States. Under his guidance, the Aldrich Bill was given cosmetic surgery and emerged as the Glass-Owen Bill. Although sponsored by Democrats, in all essential features it was still the Jekyll Island plan. Aldrich, Vanderlip, and others identified with Wall Street put on a pretense of opposing the Glass-Owen Bill to convince Congress and the public that big bankers were fearful of it. The final bill was written with many sound features which were included to make it palatable during Congressional debate but which were predesigned to be dropped in later years. To win the support of the Populists under the leadership of William Jennings Bryan, the Jekyll Island team also engineered what appeared to be compromises but which in actual operation were, as Wilson called them, mere
shadows while the
substance remained. In short, Congress was outflanked, outfoxed, and outclassed by a deceptive, but brilliant, psycho-political attack. The result is that, on December 23, 1913, America once again had a central bank.