C HAPTER THREE

C HAPTER THREE

The Fe d e ra l Re se rve Ac t

"O ur fina nc ia l syste m is a fa lse o ne a nd a hug e b urd e n o n the p e o p le . . . This Ac t e sta b lishe s the mo st g ig a ntic trust o n e a rth."--

C o ng re ssma n C ha rle s Aug ustus Lind b e rg h, Sr. The sp e e c he s o f Se na to r La Fo lle tte a nd C o ng re ssma n Lind b e rg h

b e c a me ra llying p o ints o f o p p o sitio n to the Ald ric h Pla n in 1912. The y a lso a ro use d p o p ula r fe e ling a g a inst the Mo ne y Trust.

C o ng re ssma n Lind b e rg h sa id , o n De c e mb e r 15, 1911, "The

g o ve rnme nt p ro se c ute s o the r trusts, b ut sup p o rts the mo ne y trust. I

ha ve b e e n wa iting p a tie ntly fo r se ve ra l ye a rs fo r a n o p p o rtunity to

e xp o se the fa lse mo ne y sta nd a rd , a nd to sho w tha t the g re a te st o f

a ll fa vo ritism is tha t e xte nd e d b y the g o ve rnme nt to the mo ne y trust."

Se na to r La Fo lle tte p ub lic ly c ha rg e d tha t a mo ne y trust o f fifty me n

c o ntro lle d the Unite d Sta te s. G e o rg e F. Ba ke r, p a rtne r o f J.P. Mo rg a n, o n b e ing q ue rie d b y re p o rte rs a s to the truth o f the

c ha rg e , re p lie d tha t it wa s a b so lute ly in e rro r. He sa id tha t he kne w fro m p e rso na l kno wle d g e tha t no t mo re tha n e ig ht me n ra n this

c o untry. The Na tio n Ma g a zine re p lie d e d ito ria lly to Se na to r La Fo lle tte tha t "If

the re is a Mo ne y Trust, it will no t b e p ra c tic a l to e sta b lish tha t it

e xe rc ise s its influe nc e e ithe r fo r g o o d o r fo r b a d ." Se na to r La Fo lle tte re ma rks in his me m o irs tha t his sp e e c h a g a inst the

Mo ne y Trust la te r c o st him the Pre sid e nc y o f the Unite d Sta te s, just

a s Wo o d ro w Wilso n’ s e a rly sup p o rt o f the Ald ric h Pla n ha d b ro ug ht him into c o nsid e ra tio n fo r tha t o ffic e .

C o ng re ss fina lly ma d e a g e sture to a p p e a se p o p ula r fe e ling b y

a p p o inting a c o mmitte e to inve stig a te the c o ntro l o f mo ne y a nd

c re d it in the Unite d Sta te s. This wa s the Pujo C o mmitte e , a sub c o mmitte e o f the Ho use Ba nking a nd C urre nc y C o mmitte e , whic h c o nd uc te d the fa mo us "Mo ne y Trust" he a ring s in 1912, und e r the le a d e rship o f C o ng re ssma n Arse ne Pujo o f Lo uisia na , who wa s re g a rd e d a s a sp o ke sma n fo r the o il inte re sts. The se he a ring s we re

d e lib e ra te ly d ra g g e d o n fo r five mo nths, a nd re sulte d in six- tho usa nd p a g e s o f p rinte d te stimo ny in fo ur vo lume s. Mo nth a fte r mo nth, the b a nke rs ma d e the tra in trip fro m Ne w Yo rk to

Wa shing to n, te stifie d b e fo re the C o mmitte e a nd re turne d to Ne w Yo rk. The he a ring s we re e xtre me ly d ull, a nd no sta rtling info rma tio n turne d up a t the se se ssio ns. The b a nke rs so le mnly a d mitte d tha t the y

16 we re ind e e d b a nke rs, insiste d tha t the y a lwa ys o p e ra te d in the

p ub lic inte re st, a nd c la ime d tha t the y we re a nima te d o nly b y the hig he st id e a ls o f p ub lic se rvic e , like the C o ng re ssme n b e fo re who m the y we re te stifying .

The p a ra d o xic a l na ture o f the Pujo Mo ne y Trust He a ring s ma y b e tte r

b e und e rsto o d if we e xa mine the ma n who sing le -ha nd e d ly c a rrie d o n the se he a ring s, Sa mue l Unte rmye r. He wa s o ne o f the p rinc ip a l

c o ntrib uto rs to Wo o d ro w Wilso n’ s Pre sid e ntia l c a mp a ig n fund , a nd wa s o ne o f the we a lthie st c o rp o ra tio n la wye rs in Ne w Yo rk. He sta te s in his a uto b io g ra p hy in "Who ’ s Who " o f 1926 tha t he o nc e re c e ive d a $775,000 fe e fo r a sing le le g a l tra nsa c tio n, the suc c e ssful me rg e r o f the Uta h C o p p e r C o mp a ny a nd the Bo sto n C o nso lid a te d

a nd Ne va d a C o mp a ny, a firm with a ma rke t va lue o f o ne hund re d millio n d o lla rs. He re fuse d to a sk e ithe r Se na to r La Fo lle tte o r

C o ng re ssma n Lind b e rg h to te stify in the inve stig a tio n whic h the y

a lo ne ha d fo rc e d C o ng re ss to ho ld . As Sp e c ia l C o unse l fo r the Pujo

C o mmitte e , Unte rmye r ra n the he a ring s a s a o ne -ma n o p e ra tio n. The C o ng re ssio na l me mb e rs, inc lud ing its c ha irma n, C o ng re ssma n Arse ne Pujo , se e me d to ha ve b e e n struc k d umb fro m the

c o mme nc e me nt o f the he a ring s to the ir c o nc lusio n. O ne o f the se sile nt se rva nts o f the p ub lic wa s C o ng re ssma n Ja me s Byrne s, o f So uth C a ro lina , re p re se nting Be rna rd Ba ruc h’ s ho me d istric t, who la te r a c hie ve d fa me a s "Ba ruc h’ s ma n", a nd wa s p la c e d b y Ba ruc h in c ha rg e o f the O ffic e o f Wa r Mo b iliza tio n d uring the Se c o nd Wo rld Wa r.

Altho ug h he wa s a sp e c ia list in suc h ma tte rs, Unte rmye r d id no t a sk

a ny o f the b a nke rs a b o ut the syste m o f inte rlo c king d ire c to ra te s thro ug h whic h the y c o ntro lle d ind ustry. He d id no t g o into inte rna tio na l g o ld mo ve me nts, whic h we re kno wn a s a fa c to r in mo ne y p a nic s, o r the inte rna tio na l re la tio nship s b e twe e n Ame ric a n

b a nke rs a nd Euro p e a n b a nke rs. The inte rna tio na l b a nking ho use s o f Eug e ne Me ye r, La za rd Fre re s, J. & W. Se lig ma n, La d e nb urg Tha lma nn, Sp e ye r Bro the rs, M. M. Wa rb urg , a nd the Ro thsc hild Bro the rs d id no t a ro use Sa mue l Unte rmye r’ s c urio sity, a ltho ug h it wa s we ll kno wn in the Ne w Yo rk fina nc ia l wo rld tha t a ll o f the se b a nke rs a nd Euro p e a n b a nke rs. The inte rna tio na l b a nking ho use s o f Eug e ne Me ye r, La za rd Fre re s, J. & W. Se lig ma n, La d e nb urg Tha lma nn, Sp e ye r Bro the rs, M. M. Wa rb urg , a nd the Ro thsc hild Bro the rs d id no t a ro use Sa mue l Unte rmye r’ s c urio sity, a ltho ug h it wa s we ll kno wn in the Ne w Yo rk fina nc ia l wo rld tha t a ll o f the se

C o mmitte e , Mr. Unte rmye r’ s a d ro it q ue stio ning a llo we d Mr. Sc hiff to ta lk fo r ma ny minute s witho ut re ve a ling a ny info rma tio n a b o ut the o p e ra tio ns o f the b a nking ho use o f Kuhn Lo e b C o mp a ny, o f whic h

he wa s se nio r p a rtne r, a nd whic h Se na to r Ro b e rt L. O we n ha d id e ntifie d a s the re p re se nta tive o f the Euro p e a n Ro thsc hild s in the Unite d Sta te s.

The a g ing J.P. Mo rg a n, who ha d o nly a fe w mo re mo nths to live ,

a p p e a re d b e fo re the C o mmitte e to justify his d e c a d e s o f inte rna tio na l fina nc ia l d e a ls. He sta te d fo r Mr. Unte rmye r’ s

e d ific a tio n tha t "Mo ne y is a c o m m o d ity." This wa s a fa vo rite p lo y o f the mo ne y c re a to rs, a s the y wishe d to ma ke the p ub lic b e lie ve tha t the c re a tio n o f mo ne y wa s a na tura l o c c ur

17 re nc e a kin to the g ro wing o f a fie ld o f c o rn, a ltho ug h it wa s a c tua lly

a b o unty c o nfe rre d up o n the b a nke rs b y g o ve rnme nts o ve r whic h the y ha d g a ine d c o ntro l.

J.P. Mo rg a n a lso to ld the Pujo C o mmitte e tha t, in ma king a lo a n, he se rio usly c o nsid e re d o nly o ne fa c to r, a ma n’ s c ha ra c te r; e ve n the ma n’ s a b ility to re p a y the lo a n, o r his c o lla te ra l, we re o f little imp o rta nc e . This a sto nishing o b se rva tio n sta rtle d e ve n the b la sé me mb e rs o f the C o mmitte e .

The fa rc e o f the Pujo C o mmitte e e nd e d witho ut a sing le we ll-kno wn o p p o ne nt o f the mo ne y c re a to rs b e ing a llo we d to a p p e a r o r te stify. As fa r a s Sa mue l Unte rmye r wa s c o nc e rne d , Se na to r La Fo lle tte a nd

C o ng re ssma n C ha rle s Aug ustus Lind b e rg h ha d ne ve r e xiste d . Ne ve rthe le ss, the se C o ng re ssme n ha d ma na g e d to c o nvinc e the p e o p le o f the Unite d Sta te s tha t the Ne w Yo rk b a nke rs d id ha ve a mo no p o ly o n the na tio n’ s mo ne y a nd c re d it. At the c lo se o f the

he a ring s, the b a nke rs a nd the ir sub sid ize d ne wsp a p e rs c la ime d tha t the o nly wa y to b re a k this mo no p o ly wa s to e na c t the b a nking a nd

c urre nc y le g isla tio n no w b e ing p ro p o se d to C o ng re ss, a b ill whic h wo uld b e p a sse d a ye a r la te r a s the Fe d e ra l Re se rve Ac t. The p re ss se rio usly d e ma nd e d tha t the Ne w Yo rk b a nking mo no p o ly b e

b ro ke n b y turning o ve r the a d ministra tio n o f the ne w b a nking syste m to the mo st kno wle d g e a b le b a nke r o f the m a ll, Pa ul Wa rb urg .

The Pre sid e ntia l c a mp a ig n o f 1912 re c o rd s o ne o f the mo re inte re sting p o litic a l up se ts in Ame ric a n histo ry. The inc umb e nt, Willia m Ho wa rd Ta ft, wa s a p o p ula r p re sid e nt, a nd the Re p ub lic a ns, in a p e rio d o f g e ne ra l p ro sp e rity, we re firmly in c o ntro l o f the

g o ve rnme nt thro ug h a Re p ub lic a n ma jo rity in b o th ho use s. The De mo c ra tic c ha lle ng e r, Wo o d ro w Wilso n, G o ve rno r o f Ne w Je rse y,

ha d no na tio na l re c o g nitio n, a nd wa s a stiff, a uste re ma n who

e xc ite d little p ub lic sup p o rt. Bo th p a rtie s inc lud e d a mo ne ta ry re fo rm b ill in the ir p la tfo rms: The Re p ub lic a ns we re c o mmitte d to the Ald ric h Pla n, whic h ha d b e e n d e no unc e d a s a Wa ll Stre e t p la n,

a nd the De mo c ra ts ha d the Fe d e ra l Re se rve Ac t. Ne ithe r p a rty

b o the re d to info rm the p ub lic tha t the b ills we re a lmo st id e ntic a l

e xc e p t fo r the na me s. In re tro sp e c t, it se e ms o b vio us tha t the mo ne y c re a to rs d e c id e d to d ump Ta ft a nd g o with Wilso n. Ho w d o we kno w this? Ta ft se e me d c e rta in o f re e le c tio n, a nd Wilso n wo uld re turn to o b sc urity. Sud d e nly, The o d o re Ro o se ve lt "thre w his ha t into the ring ." He a nno unc e d tha t he wa s running a s a third p a rty

c a nd id a te , the "Bull Mo o se ". His c a nd id a c y wo uld ha ve b e e n lud ic ro us ha d it no t b e e n fo r the fa c t tha t he wa s e xc e p tio na lly we ll-fina nc e d . Mo re o ve r, he wa s g ive n unlimite d p re ss c o ve ra g e , mo re tha n Ta ft a nd Wilso n c o mb ine d . As a Re p ub lic a n e x-p re sid e nt, it wa s o b vio us tha t Ro o se ve lt wo uld c ut d e e p ly into Ta ft’ s vo te . This p ro ve d the c a se , a nd Wilso n wo n the e le c tio n. To this d a y, no o ne

c a n sa y wha t The o d o re Ro o se ve lt’ s p ro g ra m wa s, o r why he wo uld sa b o ta g e his o wn p a rty. Sinc e the b a nke rs we re fina nc ing a ll thre e

c a nd i-

d a te s, the y wo uld win re g a rd le ss o f the o utc o me . La te r

C o ng re ssio na l te stimo ny sho we d tha t in the firm o f Kuhn Lo e b

C o mp a ny, Fe lix Wa rb urg wa s sup p o rting Ta ft, Pa ul Wa rb urg a nd Ja c o b Sc hiff we re sup p o rting Wilso n, a nd O tto Ka hn wa s sup p o rting Ro o se ve lt. The re sult wa s tha t a De mo c ra tic C o ng re ss a nd a De mo c ra tic Pre sid e nt we re e le c te d in 1912 to g e t the c e ntra l b a nk le g isla tio n p a sse d . It se e ms p ro b a b le tha t the id e ntific a tio n o f the Ald ric h Pla n a s a Wa ll Stre e t o p e ra tio n p re d ic te d tha t it wo uld ha ve

a d iffic ult p a ssa g e thro ug h C o ng re ss, a s the De mo c ra ts wo uld so lid ly o p p o se it, whe re a s a suc c e ssful De mo c ra tic c a nd id a te , sup p o rte d b y a De mo c ra tic C o ng re ss, wo uld b e a b le to p a ss the

c e ntra l b a nk p la n. Ta ft wa s thro wn o ve rb o a rd b e c a use the b a nke rs

d o ub te d he c o uld d e live r o n the Ald ric h Pla n, a nd Ro o se ve lt wa s d o ub te d he c o uld d e live r o n the Ald ric h Pla n, a nd Ro o se ve lt wa s

To furthe r c o nfuse the Ame ric a n p e o p le a nd b lind the m to the re a l p urp o se o f the p ro p o se d Fe d e ra l Re se rve Ac t, the a rc hite c ts o f the Ald ric h Pla n, p o we rful Ne lso n Ald ric h, a ltho ug h no lo ng e r a se na to r,

a nd Fra nk Va nd e rlip , p re sid e nt o f the Na tio na l C ity Ba nk, se t up a hue a nd c ry a g a inst the b ill. The y g a ve inte rvie ws whe ne ve r the y

c o uld find a n a ud ie nc e d e no unc ing the p ro p o se d Fe d e ra l Re se rve Ac t a s inimic a l to b a nking a nd to g o o d g o ve rnme nt. The b ug a b o o o f infla tio n wa s ra ise d b e c a use o f the Ac t’ s p ro visio ns fo r p rinting Fe d e ra l Re se rve no te s. The Na tio n, o n O c to b e r 23, 1913, p o inte d o ut, "Mr. Ald ric h himse lf ra ise d a hue a nd c ry o ve r the issue o f

g o ve rnme nt "fia t mo ne y", tha t is, mo ne y issue d witho ut g o ld o r

b ullio n b a c k o f it, a ltho ug h a b ill to d o p re c ise ly tha t ha d b e e n p a sse d in 1908 with his o wn na me a s a utho r, a nd he kne w b e sid e s, tha t the ‘ g o ve rnme nt’ ha d no thing to d o with it, tha t the Fe d e ra l Re se rve Bo a rd wo uld ha ve full c ha rg e o f the issuing o f suc h mo ne ys."

Fra nk Va nd e rlip ’ s c la ims we re so b iza rre tha t Se na to r Ro b e rt L. O we n, c ha irma n o f the ne wly fo rme d Se na te Ba nking a nd

C urre nc y C o mmitte e , whic h ha d b e e n fo rme d o n Ma rc h 18, 1913,

a c c use d him o f o p e nly c a rrying o n a c a mp a ig n o f misre p re se nta tio n a b o ut the b ill. The inte re sts o f the p ub lic , so

C a rte r G la ss c la ime d in a sp e e c h o n Se p te mb e r 10, 1913 to

C o ng re ss, wo uld b e p ro te c te d b y a n a d viso ry c o unc il o f b a nke rs. "The re c a n b e no thing siniste r a b o ut its tra nsa c tio ns. Me e ting with it

a t le a st fo ur time s a ye a r will b e a b a nke rs’ a d viso ry c o unc il re p re se nting e ve ry re g io na l re se rve d istric t in the syste m. Ho w c o uld we ha ve e xe rc ise d g re a te r c a utio n in sa fe g ua rd ing the p ub lic inte re sts? "

G la ss c la ime d tha t the p ro p o se d Fe d e ra l Ad viso ry C o unc il wo uld fo rc e the Fe d e ra l Re se rve Bo a rd o f G o ve rno rs to a c t in the b e st inte re st o f the p e o p le .

Se na to r Ro o t ra ise d the p ro b le m o f infla tio n, c la iming tha t und e r the Fe d e ra l Re se rve Ac t, no te c irc ula tio n wo uld a lwa ys e xp a nd ind e finite ly, c a using g re a t infla tio n. Ho we ve r, the la te r histo ry o f the Fe d e ra l Re se rve

Syste m sho we d tha t it no t o nly c a use d infla tio n, b ut tha t the issue o f no te s c o uld a lso b e re stric te d , c a using d e fla tio n, a s o c c urre d fro m 1929 to 1939.

O ne o f the c ritic s o f the p ro p o se d "d e c e ntra lize d " syste m wa s a la wye r fro m C le ve la nd , O hio , Alfre d C ro zie r: C ro zie r wa s c a lle d to te stify fo r the Se na te C o mmitte e b e c a use he ha d writte n a p ro vo c a tive b o o k in 1912, U.S. Mo ne y vs. C o rp o ra tio n C urre nc y.* He

a tta c ke d the Ald ric h-Vre e la nd Ac t o f 1908 a s a Wa ll Stre e t instrume nt, a nd he p o inte d o ut tha t whe n o ur g o ve rnme nt ha d to issue mo ne y b a se d o n p riva te ly o wne d se c uritie s, we we re no lo ng e r a fre e na tio n.

C ro zie r te stifie d b e fo re the Se na te C o mmitte e tha t, "It sho uld p ro hib it the g ra nting o r c a lling in o f lo a ns fo r the p urp o se o f influe nc ing q uo ta tio n p ric e s o f se c uritie s a nd the c o ntra c ting o f lo a ns o r inc re a sing inte re st ra te s in c o nc e rt b y the b a nks to influe nc e p ub lic o p inio n o r the a c tio n o f a ny le g isla tive b o d y. Within re c e nt mo nths, Willia m Mc Ad o o , Se c re ta ry o f the Tre a sury o f the Unite d Sta te s wa s re p o rte d in the o p e n p re ss a s c ha rg ing sp e c ific a lly tha t the re wa s a c o nsp ira c y a mo ng c e rta in o f the la rg e

b a nking inte re sts to p ut a c o ntra c tio n up o n the c urre nc y a nd to ra ise inte re st ra te s fo r the sa ke o f ma king the p ub lic fo rc e C o ng re ss into p a ssing c urre nc y le g isla tio n d e sire d b y tho se inte re sts. The so -

c a lle d a d ministra tio n c urre nc y b ill g ra nts just wha t Wa ll Stre e t a nd the b ig b a nks fo r twe nty-five ye a rs ha ve b e e n striving fo r, tha t is, PRIVATE INSTEAD O F PUBLIC C O NTRO L O F C URRENC Y. It d o e s this a s

c o mp le te ly a s the Ald ric h Bill. Bo th me a sure s ro b the g o ve rnme nt

a nd the p e o p le o f a ll e ffe c tive c o ntro l o ve r the p ub lic ’ s mo ne y,

a nd ve st in the b a nks e xc lusive ly the d a ng e ro us p o we r to ma ke mo ne y a mo ng the p e o p le sc a rc e o r p le nty. The Ald ric h Bill p uts this p o we r in o ne c e ntra l b a nk. The Ad ministra tio n Bill p uts it in twe lve re g io na l c e ntra l b a nks, a ll o wne d e xc lusive ly b y the id e ntic a l p riva te inte re sts tha t wo uld ha ve o wne d a nd o p e ra te d the Ald ric h Ba nk. Pre sid e nt G a rfie ld sho rtly b e fo re his a ssa ssina tio n d e c la re d tha t who e ve r c o ntro ls the sup p ly o f c urre nc y wo uld c o ntro l the

b usine ss a nd a c tivitie s o f the p e o p le . Tho ma s Je ffe rso n wa rne d us a hund re d ye a rs a g o tha t a p riva te c e ntra l b a nk issuing the p ub lic

c urre nc y wa s a g re a te r me na c e to the lib e rtie s o f the p e o p le tha n

a sta nd ing a rmy." It is inte re sting to no te ho w ma ny a ssa ssina tio ns o f Pre sid e nts o f the

Unite d Sta te s fo llo w the ir c o nc e rn with the issuing o f p ub lic

c urre nc y; Linc o ln with his G re e nb a c k, no n-inte re st-b e a ring no te s, c urre nc y; Linc o ln with his G re e nb a c k, no n-inte re st-b e a ring no te s,

b e fo re he wa s a ssa ssina te d . We no w b e g in to und e rsta nd why suc h a le ng thy c a mp a ig n o f

p la nne d d e c e p tio n wa s ne c e ssa ry, fro m the se c re t c o nfe re nc e a t Je kyll Isla nd to the id e ntic a l "re fo rm" p la ns p ro p o se d b y the De mo c ra tic a nd

__________________________ * C ro zie r’ s b o o k e xp o se d the fina nc ie rs p la n to sub stitute

"c o rp o ra tio n c urre nc y" fo r the la wful mo ne y o f the U.S. a s

g ua ra nte e d b y Artic le I, Se c . 8 Pa ra . 5, o f the C o nstitutio n.

20 Re p ub lic a n p a rtie s und e r d iffe re nt na me s. The b a nke rs c o uld no t

wre st c o ntro l o f the issua nc e o f mo ne y fro m the c itize ns o f the Unite d Sta te s, to who m it ha d b e e n d e sig na te d thro ug h its C o ng re ss

b y the C o nstitutio n, until the C o ng re ss g ra nte d the m the ir mo no p o ly fo r a c e ntra l b a nk. The re fo re , muc h o f the influe nc e e xe rte d to g e t the Fe d e ra l Re se rve Ac t p a sse d wa s d o ne b e hind the sc e ne s, p rinc ip a lly b y two sha d o wy, no n-e le c te d p e rso ns: The G e rma n immig ra nt, Pa ul Wa rb urg , a nd C o lo ne l Ed wa rd Ma nd e ll Ho use o f Te xa s.

Pa ul Wa rb urg ma d e a n a p p e a ra nc e b e fo re the Ho use Ba nking a nd

C urre nc y C o mmitte e in 1913, in whic h he b rie fly sta te d his

b a c kg ro und : "I a m a me mb e r o f the b a nking ho use o f Kuhn, Lo e b

C o mp a ny. I c a me o ve r to this c o untry in 1902, ha ving b e e n b o rn

a nd e d uc a te d in the b a nking b usine ss in Ha mb urg , G e rma ny, a nd stud ie d b a nking in Lo nd o n a nd Pa ris, a nd ha ve g o ne a ll a ro und the wo rld . In the Pa nic o f 1907, the first sug g e stio n I ma d e wa s ‘ Le t us

g e t a na tio na l c le a ring ho use .’ The Ald ric h Pla n c o nta ins so me thing s whic h a re simp ly fund a me nta l rule s o f b a nking . Yo ur a im in this p la n (the O we n-G la ss b ill) must b e the sa me --c e ntra lizing o f re se rve s, mo b ilizing c o mme rc ia l c re d it, a nd g e tting a n e la stic no te issue ."

Wa rb urg ’ s p hra se , "mo b iliza tio n o f c re d it" wa s a n imp o rta nt o ne ,

b e c a use the First Wo rld Wa r wa s d ue to b e g in sho rtly, a nd the first ta sk o f the Fe d e ra l Re se rve Syste m wo uld b e to fina nc e the Wo rld Wa r. The Euro p e a n na tio ns we re a lre a d y b a nkrup t, b e c a use the y

ha d ma inta ine d la rg e sta nd ing a rmie s fo r a lmo st fifty ye a rs, a situa tio n c re a te d b y the ir o wn c e ntra l b a nks, a nd the re fo re the y ha d ma inta ine d la rg e sta nd ing a rmie s fo r a lmo st fifty ye a rs, a situa tio n c re a te d b y the ir o wn c e ntra l b a nks, a nd the re fo re the y

In the Se na te d e b a te o n the Fe d e ra l Re se rve Ac t, Se na to r Sto ne sa id o n De c e mb e r 12, 1913, "The g re a t b a nks fo r ye a rs ha ve so ug ht to ha ve a nd c o ntro l a g e nts in the Tre a sury to se rve the ir p urp o se s. Le t me q uo te fro m this Wo rld a rtic le , ‘ Just a s so o n a s Mr. Mc Ad o o

c a me to Wa shing to n, a wo m a n who m the Na tio na l C ity Ba nk ha d insta lle d in the Tre a sury De p a rtme nt to g e t a d va nc e info rm a tio n o n the c o nd itio n o f b a nks, a nd o the r ma tte rs o f inte re st to the b ig Wa ll Stre e t g ro up , wa s re mo ve d . Imme d ia te ly the Se c re ta ry a nd the Assista nt Se c re ta ry, Jo hn Ske lto n Willia ms, we re c ritic ize d se ve re ly b y the a g e nts o f the Wa ll Stre e t g ro up .’ "

"I myse lf ha ve kno wn mo re tha n o ne o c c a sio n whe n b a nke rs re fuse d c re d it to me n who o p p o se d the ir p o litic a l vie ws a nd p urp o se s. Whe n Se na to r Ald ric h a nd o the rs we re g o ing a ro und the

c o untry e xp lo iting this sc he me , the b ig b a nks o f Ne w Yo rk a nd

C hic a g o we re e ng a g e d in

21 ra ising a munific e nt fund to b o lste r up the Ald ric h p ro p a g a nd a . I

ha ve b e e n to ld b y b a nke rs o f my o wn sta te tha t c o ntrib utio ns to this

e xp lo ita tio n fund ha d b e e n d e ma nd e d o f the m a nd tha t the y ha d

c o ntrib ute d b e c a use the y we re a fra id o f b e ing b la c kliste d o r

b o yc o tte d . The re a re b a nke rs o f this c o untry who a re e ne mie s o f the p ub lic we lfa re . In the p a st, a fe w g re a t b a nks ha ve fo llo we d p o lic ie s a nd p ro je c ts tha t ha ve p a ra lyze d the ind ustria l e ne rg ie s o f the c o untry to p e rp e tua te the ir tre me nd o us p o we r o ve r the fina nc ia l a nd b usine ss ind ustrie s o f Ame ric a ."

C a rte r G la ss sta te s in his a uto b io g ra p hy tha t he wa s summo ne d b y Wo o d ro w Wilso n to the White Ho use , a nd tha t Wilso n to ld him he inte nd e d to ma ke the re se rve no te s o b lig a tio ns o f the Unite d Sta te s.

G la ss sa ys, "I wa s fo r a n insta nt sp e e c hle ss. I re mo nstra te d . The re is no t a ny g o ve rnme nt o b lig a tio n he re , Mr. Pre sid e nt. Wilso n sa id he

ha d ha d to c o mp ro mise o n this p o int in o rd e r to sa ve the b ill." The te rm "c o mp ro mise " o n this p o int c a me d ire c tly fro m Pa ul

Wa rb urg . C o l. Elisha Ely G a rriso n, in Ro o se ve lt,* Wilso n a nd the Fe d e ra l Re se rve La w wro te , "In 1911, La wre nc e Ab b o t, Mr.

Ro o se ve lt’ s p riva te o ffic e r a t ‘ The O utlo o k’ ha nd e d me a c o p y o f the so -c a lle d Ald ric h Pla n fo r c urre nc y re fo rm. I sa id , I c o uld no t

b e lie ve tha t Mr. Wa rb urg wa s the a utho r. This p la n is no thing mo re tha n the Ald ric h-Vre e la nd le g isla tio n whic h p ro vid e d fo r c urre nc y issue a g a inst se c uritie s. Wa rb urg kno ws tha t a s we ll a s I d o . I a m

g o ing to se e him a t o nc e a nd a sk him a b o ut it. All rig ht, the truth. Ye s, I wro te it, he sa id . Why? I a ske d . It wa s a c o mp ro mise ,

a nswe re d Wa rb urg ."13

G a rriso n sa ys tha t Wa rb urg wro te him o n Fe b rua ry 8, 1912. "I ha ve no d o ub t tha t a t the e nd o f a tho ro ug h d isc ussio n, e ithe r

yo u will se e it my wa y o r I will se e it yo urs--b ut I ho p e yo u will se e it mine ."

This wa s a no the r fa mo us Wa rb urg sa ying whe n he se c re tly lo b b ie d

C o ng re ssme n to sup p o rt his inte re st, the ve ile d thre a t tha t the y sho uld "se e it his wa y". Tho se who d id no t fo und la rg e sums

c o ntrib ute d to the ir o p p o ne nts a t the ne xt e le c tio ns, a nd usua lly we nt d o wn in d e fe a t.

C o l. G a rriso n, a n a g e nt o f Bro wn Bro the rs b a nke rs, la te r Bro wn Bro the rs Ha rrima n, ha d e ntre e e ve rywhe re in the fina nc ia l

c o mmunity. He write s o f C o l. Ho use , "C o l. Ho use a g re e d e ntire ly with the e a rly writing o f Mr. Wa rb urg ." Pa g e 337, he q uo te s C o l. Ho use :

"I a m a lso sug g e sting tha t the C e ntra l Bo a rd b e inc re a se d fro m fo ur me mb e rs to five a nd the ir te rms le ng the ne d fro m e ig ht to te n ye a rs. This wo uld g ive sta b ility a nd wo uld ta ke a wa y the p o we r o f a Pre sid e nt to c ha ng e the p e rso nne l o f the b o a rd d uring a sing le te rm o f o ffic e ."

__________________________ * The o d o re Ro o se ve lt

13 Elisha Ely G a rriso n, Ro o se ve lt, Wilso n a nd the Fe d e ra l Re se rve La w, C hristo p he r Pub lic a tio ns, Bo sto n, 1931

22 Ho use ’ s p hra se , "ta ke a wa y the p o we r o f a Pre sid e nt" is sig nific a nt,

b e c a use la te r Pre sid e nts fo und the mse lve s he lp le ss to c ha ng e the

d ire c tio n o f the g o ve rnme nt b e c a use the y d id no t ha ve the p o we r to c ha ng e the c o mp o sitio n o f the Fe d e ra l Re se rve Bo a rd to a tta in a d ire c tio n o f the g o ve rnme nt b e c a use the y d id no t ha ve the p o we r to c ha ng e the c o mp o sitio n o f the Fe d e ra l Re se rve Bo a rd to a tta in a

"Pa ul Wa rb urg is the ma n who g o t the Fe d e ra l Re se rve Ac t to g e the r

a fte r the Ald ric h Pla n a ro use d suc h na tio nwid e re se ntme nt a nd o p p o sitio n. The ma ste rmind o f b o th p la ns wa s Ba ro n Alfre d Ro thsc hild o f Lo nd o n."

C o lo ne l Ed wa rd Ma nd e ll Ho use * wa s re fe rre d to b y Ra b b i Ste p he n Wise in his a uto b io g ra p hy, C ha lle ng ing Ye a rs a s "the uno ffic ia l Se c re ta ry o f Sta te ". Ho use no te d tha t he a nd Wilso n kne w tha t in p a ssing the Fe d e ra l Re se rve Ac t, the y ha d c re a te d a n instrume nt mo re p o we rful tha n the Sup re me C o urt. The Fe d e ra l Re se rve Bo a rd o f G o ve rno rs a c tua lly c o mp rise d a Sup re me C o urt o f Fina nc e , a nd the re wa s no a p p e a l fro m a ny o f the ir ruling s.

In 1911, p rio r to Wilso n’ s ta king o ffic e a s Pre sid e nt, Ho use ha d re turne d to his ho me in Te xa s a nd c o mp le te d a b o o k c a lle d Philip Dru, Ad ministra to r. O ste nsib ly a no ve l, it wa s a c tua lly a d e ta ile d p la n fo r the future g o ve rnme nt o f the Unite d Sta te s, "whic h wo uld

e sta b lish So c ia lism a s d re a me d b y Ka rl Ma rx", a c c o rd ing to Ho use . This "no ve l" p re d ic te d the e na c tme nt o f the g ra d ua te d inc o me ta x,

e xc e ss p ro fits ta x, une mp lo yme nt insura nc e , so c ia l se c urity, a nd a fle xib le c urre nc y syste m. In sho rt, it wa s the b lue p rint whic h wa s la te r fo llo we d b y the Wo o d ro w Wilso n a nd Fra nklin D. Ro o se ve lt

a d ministra tio ns. It wa s p ub lishe d "a no nymo usly" b y B. W. Hue b sc h o f Ne w Yo rk, a nd wid e ly c irc ula te d a mo ng g o ve rnme nt o ffic ia ls, who we re le ft in no d o ub t a s to its a utho rship . G e o rg e Sylve ste r Vie re c k**, who kne w Ho use fo r ye a rs, la te r wro te a n a c c o unt o f the Wilso n-Ho use re la tio nship , The Stra ng e st Frie nd ship in Histo ry.14 In 1955, We stb ro o k Pe g le r, the He a rst c o lumnist fro m 1932 to 1956,

he a rd o f the Philip Dru b o o k a nd c a lle d Vie re c k to a sk if he ha d a

c o p y. Vie re c k se nt Pe g le r his c o p y o f the b o o k, a nd Pe g le r wro te a

c o lumn a b o ut it, sta ting : "O ne o f the institutio ns o utline d in Philip Dru is the Fe d e ra l Re se rve

Syste m. The Sc hiffs, the Wa rb urg s, the Ka hns, the Ro c ke fe lle rs a nd Mo rg a ns p ut the ir fa ith in Ho use . The Sc hiff, Wa rb urg , Ro c ke fe lle r

a nd Mo rg a n inte re sts we re p e rso na lly re p re se nte d in the myste rio us

c o nfe re nc e a t Je kyll Isla nd . Fra nkfurte r la nd e d o n the Ha rva rd la w

fa c ulty, tha nks to a fina nc ia l c o ntrib utio n to Ha rva rd b y Fe lix Wa rb urg a nd Pa ul

* Se e Ho use no te in "Bio g ra p hie s" ** Se e Vie re c k no te in "Bio g ra p hie s"

14 G e o rg e Sylve ste r Vie re c k, The Stra ng e st Frie nd ship in Histo ry, Wo o d ro w Wilso n a nd C o l. Ho use , Live rig ht, Ne w Yo rk, 1932

23 Wa rb urg , a nd so we g o t Alg e r a nd Do na ld Hiss, Le e Pre ssma n, Ha rry

De xte r White a nd ma ny o the r p ro té g é s o f Little We e nie ."* Ho use ’ s o p e nly So c ia listic vie ws we re fo rthrig htly e xp re sse d in Philip

Dru, Ad ministra to r; o n p a g e s 57-58, Ho use wro te : "In a d ire c t a nd fo rc e ful ma nne r, he p o inte d o ut tha t o ur c iviliza tio n

wa s fund a me nta lly wro ng , ina smuc h, a mo ng o the r thing s, a s it re stric te d e ffic ie nc y; tha t if so c ie ty we re p ro p e rly o rg a nize d , the re wo uld b e no ne who we re no t suffic ie ntly c lo the d a nd fe d . The re sult, tha t the la ws, ha b its a nd e thic a l tra ining in vo g ue we re a like re sp o nsib le fo r the ine q ua litie s in o p p o rtunity a nd the c o nse q ue nt wid e d iffe re nc e b e twe e n the fe w a nd the ma ny; tha t the re sults o f suc h c o nd itio ns wa s to re nd e r ine ffic ie nt a la rg e p a rt o f the p o p ula tio n, the p e rc e nta g e d iffe ring in e a c h c o untry in the ra tio tha t e d uc a tio n a nd e nlig hte nme nt a nd unse lfish la ws b o re to ig no ra nc e , b ig o try a nd se lfish la ws."15

In his b o o k, Ho use (Dru) e nvisio ns himse lf b e c o ming a d ic ta to r a nd fo rc ing o n the p e o p le his ra d ic a l vie ws, p a g e 148: "The y re c o g nize d the fa c t tha t Dru d o mina te d the situa tio n a nd tha t a ma ste r mind

ha d a t la st rise n in the Re p ub lic ." He no w a ssume s the title o f

G e ne ra l. "G e ne ra l Dru a nno unc e d his p urp o se o f a ssuming the p o we rs o f a d ic ta to r . . . the y we re a ssure d tha t he wa s fre e fro m

a ny p e rso na l a mb itio n . . . he p ro c la ime d himse lf ‘ Ad ministra to r o f the Re p ub lic .’ "*

This p e nsive d re a me r who ima g ine d himse lf a d ic ta to r a c tua lly ma na g e d to p la c e himse lf in the p o sitio n o f the c o nfid e ntia l a d viso r to the Pre sid e nt o f the Unite d Sta te s, a nd the n to ha ve ma ny o f his

d e sire s e na c te d into la w! O n p a g e 227, he lists so me o f the la ws he wishe s to e na c t a s d ic ta to r. Amo ng the m a re a n o ld a g e p e nsio n la w, la b o re rs insura nc e c o mp e nsa tio n, c o o p e ra tive ma rke ts, a

fe d e ra l re se rve b a nking syste m , c o o p e ra tive lo a ns, na tio na l

e mp lo yme nt b ure a us, a nd o the r "so c ia l le g isla tio n", so m e o f whic h wa s e na c te d d uring Wilso n’ s a d ministra tio n, a nd o the rs d uring the

Fra nklin D. Ro o se ve lt’ s a d ministra tio n. The la tte r wa s a c tua lly a

c o ntinua tio n o f the Wilso n Ad ministra tio n, __________________________ * The p re se nt write r wa s with Vie re c k in his suite a t the Ho te l

Be lle c la ire whe n Pe g le r c a lle d a nd a ske d fo r the b o o k. Vie re c k se nt it o ve r b y his se c re ta ry. He g rinne d a nd sa id Pe g le r se e me d ve ry

e xc ite d . "He o ug ht to g e t a g o o d c o lumn o ut o f tha t," Vie re c k to ld me . Ind e e d Pe g le r d id g e t a g o o d c o lumn o ut o f it. Unfo rtuna te ly fo r him , he ha d g o ne to o fa r in me ntio ning the Wa rb urg s. As lo ng a s

he c o nfine d his a tta c ks to La G ra nd Bo uc he (Ele a no r Ro o se ve lt),

a nd he r sp o use , he ha d b e e n p e rmitte d to c o ntinue , b ut no w tha t

he ha d e xp o se d the Wa rb urg c o nne c tio n with the C o mmunist sp y ring in Wa shing to n, his c o lumn wa s imme d ia te ly d ro p p e d b y the b ig

c ity d a ilie s, a nd Pe g le r’ s lo ng run wa s o ve r.

15 C o l. Ed wa rd M. Ho use , Philip Dru, Ad ministra to r, B. W. He ub sc h, Ne w Yo rk, 1912.

* This q uo ta tio n fro m Philip Dru, Ad ministra to r, writte n b y C o l. Ho use in 1912, is inc lud e d he re to sho w his to ta lita ria n Ma rxist p hilo so p hy. Ho use wa s to b e c o me fo r 8 ye a rs with Wilso n, the Pre sid e nt’ s c lo se st

a d viso r. La te r he c o ntinue d his influe nc e in the Fra nklin D. Ro o se ve lt

a d ministra tio n. Fro m his ho me in Ma g no lia , Ma ss., Ho use a d vise d FDR thro ug h fre q ue nt trip s o f Fe lix Fra nkfurte r to the White Ho use . Fra nkfurte r wa s la te r a p p o inte d to the Sup re me C o urt b y F.D.R.

24 with ma ny o f the sa me p e rso nne l, a nd with Ho use g uid ing the

a d ministra tio n fro m b e hind the sc e ne s. Like mo st o f the b e hind -the -sc e ne s o p e ra to rs in this b o o k, C o l.

Ed wa rd Ma nd e ll Ho use ha d the o b lig a to ry "Lo nd o n c o nne c tio n". O rig ina lly a Dutc h fa mily, "Huis", his a nc e sto rs ha d live d in Eng la nd fo r thre e hund re d ye a rs, a fte r whic h his fa the r se ttle d in Te xa s, whe re he ma d e a fo rtune in b lo c ka d e -running d uring the C ivil Wa r, ship p ing c o tto n a nd o the r c o ntra b a nd to his British c o nne c tio ns, inc lud ing the Ro thsc hild s, a nd b ring ing b a c k sup p lie s fo r the

b e le a g ue re d Te xa ns. The se nio r Ho use , no t trusting the vo la tile Te xa s situa tio n, p rud e ntly d e p o site d a ll his p ro fits fro m his b lo c ka d e - running in g o ld with Ba ring b a nking ho use in Lo nd o n*. At the c lo se o f the C ivil Wa r, he wa s o ne o f the we a lthie st me n in Te xa s. He na me d his so n "Ma nd e ll" a fte r o ne o f his me rc ha nt a sso c ia te s.

Ac c o rd ing to Arthur Ho wd e n Smith, whe n Ho use ’ s fa the r d ie d in 1880, his e sta te wa s d istrib ute d a mo ng his so ns a s fo llo ws: Tho ma s Willia m g o t the b a nking b usine ss; Jo hn, the sug a r p la nta tio n; a nd Ed wa rd M. the c o tto n p la nta tio ns, whic h b ro ug ht him a n inc o me o f $20,000 a ye a r.16

At the a g e o f twe lve , the yo ung Ed wa rd Ma nd e ll Ho use ha d b ra in

fe ve r, a nd wa s la te r furthe r c rip p le d b y sunstro ke . He wa s a se mi- inva lid , a nd his a ilme nts g a ve him a n o d d O rie nta l a p p e a ra nc e . He ne ve r e nte re d a ny p ro fe ssio n, b ut use d his fa the r’ s mo ne y to

b e c o me the king ma ke r o f Te xa s p o litic s, suc c e ssive ly e le c ting five

g o ve rno rs fro m 1893 to 1911. In 1911 he b e g a n to sup p o rt Wilso n fo r p re sid e nt, a nd thre w the c ruc ia l Te xa s d e le g a tio n to him whic h

e nsure d his no mina tio n. Ho use me t Wilso n fo r the first time a t the Ho te l G o tha m , Ma y 31, 1912.

In The Stra ng e st Frie nd ship In Histo ry, Wo o d ro w Wilso n a nd C o l. Ho use , b y G e o rg e Sylve ste r Vie re c k, Vie re c k write s:

"Wha t," I a ske d Ho use , "c e m e nte d yo ur frie nd ship ? " "The id e ntity o f o ur te mp e ra me nts a nd o ur p ub lic p o lic ie s," a nswe re d Ho use . "Wha t wa s yo ur p urp o se a nd his? " "To tra nsla te into le g isla tio n c e rta in lib e ra l a nd p ro g re ssive id e a s."

17 Ho use to ld Vie re c k tha t whe n he we nt to Wilso n a t the White __________________________

* Do p e , Inc ., id e ntifie s Ba ring s a s fo llo ws: "Ba ring Bro the rs, the p re mie r me rc ha nt b a nk o f the o p ium tra d e fro m 1783 to the p re se nt d a y, a lso ma inta ine d c lo se c o nta c t with the Bo sto n

fa milie s . . . The g ro up ’ s le a d ing b a nke r b e c a me , a t the c lo se o f the 19th c e ntury, the Ho use o f Mo rg a n – whic h a lso to o k its

c ut in Ea ste rn o p ium tra ffic . . . Mo rg a n’ s Fa r Ea ste rn o p e ra tio ns we re the o ffic ia lly c o nd uc te d British o p ium tra ffic . . . Mo rg a n’ s

c a se d e se rve s sp e c ia l sc rutiny fro m Ame ric a n p o lic e a nd re g ula to ry a g e nc ie s, fo r the intima te a sso c ia tio ns o f Mo rg a n

G ua ra nty Trust with the id e ntifie d le a d e rsh ip o f the British d o p e

b a nks."

16 Arthur Ho wd e n Smith, The Re a l C o l. Ho use , Do ra n C o mp a ny, Ne w Yo rk, 1918

17 G e o rg e Sylve ste r Vie re c k, The Stra ng e st Frie nd ship in Histo ry, Wo o d ro w Wilso n a nd C o l. Ho use , Live rig ht, Ne w Yo rk, 1932

Ho use , he ha nd e d him $35,000. This wa s e xc e e d e d o nly b y the $50,000 whic h Be rna rd Ba ruc h ha d g ive n Wilso n.

The suc c e ssful e na c tme nt o f Ho use ’ s p ro g ra ms d id no t e sc a p e the no tic e o f o the r Wilso n a sso c ia te s. In Vo l. 1, p a g e 157 o f The Intima te Pa p e rs o f C o l. Ho use , Ho use no te s, "C a b ine t me mb e rs like Mr. La ne

a nd Mr. Brya n c o mme nte d up o n the influe nc e o f Dru with the Pre sid e nt. ‘ All tha t the b o o k ha s sa id sho uld b e ,’ wro te La ne , ‘ c o me s

a b o ut. The Pre sid e nt c o me s to ‘ Philip Dru’ in the e nd .’ "18 Ho use re c o rd e d so me o f his e ffo rts o n b e ha lf o f the Fe d e ra l Re se rve

Ac t in The Intima te Pa p e rs o f C o l. Ho use , "De c e mb e r 19, 1912. I ta lke d with Pa ul Wa rb urg o ve r the p ho ne c o nc e rning c urre nc y re fo rm. I to ld o f my trip to Wa shing to n a nd wha t I ha d d o ne the re to g e t it in wo rking o rd e r. I to ld him tha t the Se na te a nd the C o ng re ssme n se e me d

a nxio us to d o wha t he d e sire d , a nd tha t Pre sid e nt-e le c t Wilso n tho ug ht stra ig ht c o nc e rning the issue ."19 Thus we ha ve Wa rb urg ’ s a g e nt in Wa shing to n, C o l. Ho use , a ssuring him tha t the Se na te a nd

C o ng re ssme n will d o wha t he d e sire s, a nd tha t the Pre sid e nt-e le c t "tho ug ht stra ig ht c o nc e rning the issue ." In this c o nte xt, re p re se nta tive

g o ve rnme nt se e ms to ha ve c e a se d to e xist. Ho use c o ntinue s in his "Pa p e rs":

"Ma rc h 13, 1913. Wa rb urg a nd I ha d a n intima te d isc ussio n c o nc e rning

c urre nc y re fo rm. Ma rc h 27, 1913. Mr. J.P. Mo rg a n, Jr. a nd Mr. De nny o f his firm c a me

p ro mp tly a t five .

Mc Ad o o c a me a b o ut te n minute s a fte rwa rd . Mo rg a n

ha d a c urre nc y p la n a lre a d y p rinte d . I sug g e ste d he ha ve it typ e writte n, so it wo uld no t se e m to o p re a rra ng e d , a nd se nd it to Wilso n a nd myse lf to d a y.

July 23, 1913. I trie d to sho w Ma yo r Q uinc y (o f Bo sto n) the fo lly o f the Ea ste rn b a nke rs ta king a n a nta g o nistic

a ttitud e to wa rd s the C urre nc y Bill. I e xp la ine d to Ma jo r He nry Hig g inso n* with wha t c a re the b ill ha d b e e n fra me d . Just b e fo re he a rrive d , I ha d finishe d a re vie w b y Pro fe sso r Sp ra g ue o f Ha rva rd o f Pa ul Wa rb urg ’ s c ritic ism o f the G la ss-O we n Bill, a nd will tra nsmit it to Wa shing to n to mo rro w. Eve ry b a nke r kno wn to Wa rb urg , who kno ws the sub je c t p ra c tic a lly, ha s b e e n c a lle d up a b o ut the ma king o f the b ill.

O c to b e r 13, 1913. Pa ul Wa rb urg wa s my first c a lle r to d a y. He c a me to d isc uss the c urre nc y me a sure . The re a re ma ny fe a ture s o f the O we n-G la ss Bill tha t he d o e s no t

a p p ro ve . I p ro mise d to p ut him in to uc h with Mc Ad o o

a nd Se na to r O we n so tha t he mig ht d isc uss it with the m. No ve mb e r 17, 1913. Pa ul Wa rb urg te le p ho ne d a b o ut his

trip to Wa shing to n. La te r, he a nd Mr. Ja c o b Sc hiff c a me o ve r fo r a fe w minute s.

18 C o l. Ed wa rd Ma nd e ll Ho use , The Intima te Pa p e rs o f C o l. Ho use ,

e d ite d b y C ha rle s Se ymo ur, Ho ug hto n Mifflin C o ., 1926-28, Vo l. 1, p . 157

19 Ib id . Vo l. 1, p . 163

* The mo st p ro mine nt b a nke r in Bo sto n.

26 Wa rb urg d id mo st o f the ta lking . He ha d a ne w

sug g e stio n in re g a rd to g ro up ing the re g ula r re se rve

b a nks so a s to g e t the units we ld e d to g e the r a nd in e a sie r to uc h with the Fe d e ra l Re se rve Bo a rd ."

G e o rg e Sylve ste r Vie re c k in The Stra ng e st Frie nd ship in Histo ry, Wo o d ro w Wilso n a nd C o l. Ho use wro te : "The Sc hiffs, the Wa rb urg s, the Ka hns, the Ro c ke fe lle rs, the Mo rg a ns p ut the ir fa ith in Ho use . Whe n the Fe d e ra l Re se rve le g isla tio n a t la st a ssume d d e finite sha p e , Ho use wa s the inte rme d ia ry b e twe e n the White Ho use a nd the fina nc ie rs."20

O n p a g e 45, Vie re c k no te s, "C o l. Ho use lo o ks up o n the re fo rm o f the mo ne ta ry syste m a s the c ro wning inte rna l a c hie ve me nt o f the Wilso n Ad ministra tio n."21

The G la ss Bill (the Ho use ve rsio n o f the fina l Fe d e ra l Re se rve Ac t) ha d p a sse d the Ho use o n Se p te mb e r 18, 1913 b y 287 to 85. O n De c e mb e r

19, 1913, the Se na te p a sse d the ir ve rsio n b y a vo te o f 54-34. Mo re tha n fo rty imp o rta nt d iffe re nc e s in the Ho use a nd Se na te ve rsio ns re ma ine d to b e se ttle d , a nd the o p p o ne nts o f the b ill in b o th ho use s o f C o ng re ss we re le d to b e lie ve tha t ma ny we e ks wo uld ye t e la p se b e fo re the

C o nfe re nc e b ill wo uld b e re a d y fo r c o nsid e ra tio n. The C o ng re ssme n p re p a re d to le a ve Wa shing to n fo r the a nnua l C hristma s re c e ss,

a ssure d tha t the C o nfe re nc e b ill wo uld no t b e b ro ug ht up until the fo llo wing ye a r. No w the mo ne y c re a to rs p re p a re d a nd e xe c ute d the mo st b rillia nt stro ke o f the ir p la n. In a sing le d a y, the y iro ne d o ut a ll fo rty o f the d isp ute d p a ssa g e s in the b ill a nd q uic kly b ro ug ht it to a a ssure d tha t the C o nfe re nc e b ill wo uld no t b e b ro ug ht up until the fo llo wing ye a r. No w the mo ne y c re a to rs p re p a re d a nd e xe c ute d the mo st b rillia nt stro ke o f the ir p la n. In a sing le d a y, the y iro ne d o ut a ll fo rty o f the d isp ute d p a ssa g e s in the b ill a nd q uic kly b ro ug ht it to a

c e ntre o f the wo rld ." The Ne w Yo rk Time s re p o rte d o n the fro nt p a g e , Mo nd a y, De c e mb e r

22, 1913 in he a d line s: MO NEY BILL MAY BE LAW TO DAY--C O NFEREES HAD ADJUSTED NEARLY ALL DIFFERENC ES AT 1:30 THIS MO RNING --NO DEPO SIT G UARANTEES--SENATE YIELDS O N THIS PO INT BUT PUTS THRO UG H MANY O THER C HANG ES "With a lmo st unp re c e d e nte d sp e e d , the c o nfe re nc e to a d just the Ho use a nd Se na te d iffe re nc e s o n the C urre nc y Bill p ra c tic a lly c o mp le te d its la b o urs e a rly this mo rning . O n Sa turd a y the C o nfe re e s d id little mo re tha n d isp o se o f the p re limina rie s, le a ving fo rty e sse ntia l d iffe re nc e s to b e thra she d o ut Sund a y. . . . No o the r le g isla tio n o f imp o rta nc e will b e ta ke n up in e ithe r Ho use o f C o ng re ss this we e k. Me mb e rs o f b o th ho use s a re a lre a d y p re p a ring to le a ve Wa shing to n."

20 G e o rg e Sylve ste r Vie re c k, The Stra ng e st Frie nd ship In Histo ry, Wo o d ro w Wilso n a nd C o l. Ho use , Live rig ht, Ne w Yo rk, 1932

21 Ib id .

27 "Unp re c e d e nte d sp e e d ", sa ys The Ne w Yo rk Time s. O ne se e s the fine

ha nd o f Pa ul Wa rb urg in this fina l stra te g y. So me o f the b ill’ s mo st vo c a l

c ritic s ha d a lre a d y le ft Wa shing to n. It wa s a lo ng -sta nd ing p o litic a l

c o urte sy tha t imp o rta nt le g isla tio n wo uld no t b e a c te d up o n d uring c o urte sy tha t imp o rta nt le g isla tio n wo uld no t b e a c te d up o n d uring

The Time s b urie d a b rie f q uo te fro m C o ng re ssma n Lind b e rg h tha t "the

b ill wo uld e sta b lish the mo st g ig a ntic trust o n e a rth," a nd q uo te d Re p re se nta tive G ue rnse y o f Ma ine , a Re p ub lic a n o n the Ho use Ba nking a nd C urre nc y C o mmitte e , tha t "This is a n infla tio n b ill, the o nly q ue stio n b e ing the e xte nt o f the infla tio n."

C o ng re ssma n Lind b e rg h sa id o n tha t histo ric d a y, to the Ho use : "This Ac t e sta b lishe s the mo st g ig a ntic trust o n e a rth. Whe n the

Pre sid e nt sig ns this b ill, the invisib le g o ve rnme nt b y the Mo ne ta ry Po we r will b e le g a lize d . The p e o p le ma y no t kno w it imme d ia te ly, b ut the d a y o f re c ko ning is o nly a fe w ye a rs re mo ve d . The trusts will so o n re a lize tha t the y ha ve g o ne to o fa r e ve n fo r the ir o wn g o o d . The p e o p le must ma ke a d e c la ra tio n o f ind e p e nd e nc e to re lie ve the mse lve s fro m the Mo ne ta ry Po we r. This the y will b e a b le to d o b y ta king c o ntro l o f

C o ng re ss. Wa ll Stre e te rs c o uld no t c he a t us if yo u Se na to rs a nd Re p re se nta tive s d id no t ma ke a humb ug o f C o ng re ss. . . . If we ha d a p e o p le ’ s C o ng re ss, the re wo uld b e sta b ility.

The g re a te st c rime o f C o ng re ss is its c urre nc y syste m. The wo rst le g isla tive c rime o f the a g e s is p e rp e tra te d b y this b a nking b ill. The

c a uc us a nd the p a rty b o sse s ha ve a g a in o p e ra te d a nd p re ve nte d the p e o p le fro m g e tting the b e ne fit o f the ir o wn g o ve rnme nt."

The De c e mb e r 23, 1913 Ne w Yo rk Time s e d ito ria lly c o mme nte d , in

c o ntra st to C o ng re ssma n Lind b e rg h’ s c ritic ism o f the b ill, "The Ba nking

a nd C urre nc y Bill b e c a me b e tte r a nd so und e r e ve ry time it wa s se nt a nd C urre nc y Bill b e c a me b e tte r a nd so und e r e ve ry time it wa s se nt

By "p ub lic sup e rvisio n", The Time s a p p a re ntly me a nt Pa ul Wa rb urg , who fo r se ve ra l d a ys ha d ma inta ine d a sma ll o ffic e in the C a p ito l b uild ing , whe re he d ire c te d the suc c e ssful p re -C hristma s c a mp a ig n to p a ss the

b ill, a nd whe re Se na to rs a nd C o ng re ssme n c a me ho urly a t his b id d ing to c a rry o ut his stra te g y.

The "unp re c e d e nte d sp e e d " with whic h the Fe d e ra l Re se rve Ac t ha d

b e e n p a sse d b y C o ng re ss d uring wha t b e c a me kno wn a s "the

C hristma s ma ssa c re " ha d o ne unfo re se e n a sp e c t. Wo o d ro w Wilso n wa s ta ke n una wa re , a s he , like ma ny o the rs, ha d b e e n a ssure d the b ill wo uld no t c o me up fo r a vo te until a fte r C hristma s. No w he re fuse d to sig n it, b e c a use he o b je c te d to the p ro visio ns fo r the se le c tio n o f C la ss

B. Dire c to rs. Willia m L. White re la te s in his b io g ra p hy o f Be rna rd Ba ruc h tha t Ba ruc h, a p rinc ip a l c o ntrib uto r to Wilso n’ s c a mp a ig n fund , wa s stunne d whe n he wa s info rme d tha t Wilso n re fuse d to sig n the b ill. He hurrie d

28 to the White Ho use a nd a ssure d Wilso n tha t this wa s a mino r ma tte r,

whic h c o uld b e fixe d up la te r thro ug h "a d ministra tive p ro c e sse s". The imp o rta nt thing wa s to g e t the Fe d e ra l Re se rve Ac t sig ne d into la w a t o nc e . With this re a ssura nc e , Wilso n sig ne d the Fe d e ra l Re se rve Ac t o n De c e mb e r 23, 1913. Histo ry p ro ve d tha t o n tha t d a y, the C o nstitutio n

c e a se d to b e the g o ve rning c o ve na nt o f the Ame ric a n p e o p le , a nd o ur lib e rtie s we re ha nd e d o ve r to a sma ll g ro up o f inte rna tio na l

b a nke rs.

The De c e mb e r 24, 1913 Ne w Yo rk Time s c a rrie d a fro nt p a g e he a d line "WILSO N SIG NS THE C URRENC Y BILL!" Be lo w it, a lso in c a p ita l le tte rs, we re two furthe r he a d line s, "PRO SPERITY TO BE FREE" a nd "WILL HELP EVERY C LASS". Who c o uld o b je c t to a ny la w whic h p ro vid e d b e ne fits to e ve ryo ne ? The Time s d e sc rib e d the fe stive a tmo sp he re while Wilso n’ s fa mily a nd g o ve rnme nt o ffic ia ls wa tc he d him sig n the b ill. "The

C hristma s sp irit p e rva d e d the g a the ring ," e xulte d The Time s. In his b io g ra p hy o f C a rte r G la ss, Rixe y Smith sta te s tha t tho se p re se nt a t

the sig ning o f the b ill inc lud e d Vic e Pre sid e nt Ma rsha ll, Se c re ta ry Brya n,

C a rte r G la ss, Se na to r O we n, Se c re ta ry Mc Ad o o , Sp e a ke r C ha mp

C la rk, a nd o the r Tre a sury o ffic ia ls. No ne o f the re a l write rs o f the b ill, the d ra fte e s o f Je kyll Isla nd , we re p re se nt. The y ha d p rud e ntly

a b se nte d the mse lve s fro m the sc e ne o f the ir vic to ry. Rixe y Smith a lso wro te , "It wa s a s tho ug h C hristma s ha d c o me two d a ys e a rly." O n De c e mb e r 24, 1913, Ja c o b Sc hiff wro te to C o l. Ho use ,

"My d e a r C o l. Ho use . I wa nt to sa y a wo rd to yo u fo r the sile nt, b ut no

d o ub t e ffe c tive wo rk yo u ha ve d o ne in the inte re st o f c urre nc y le g isla tio n a nd to c o ng ra tula te yo u tha t the me a sure ha s fina lly b e e n

e na c te d into la w. I a m with g o o d wishe s, fa ithfully yo urs, JAC O B SC HIFF."

Re p re se nta tive Mo o re o f Ka nsa s, in c o mme nting o n the p a ssa g e o f the Ac t, sa id to the Ho use o f Re p re se nta tive s: "The Pre sid e nt o f the Unite d Sta te s no w b e c o me s the a b so lute d ic ta to r o f a ll the fina nc e s o f the c o untry. He a p p o ints a c o ntro lling b o a rd o f se ve n me n, a ll o f who m b e lo ng to his p o litic a l p a rty, e ve n tho ug h it is a mino rity. The Se c re ta ry o f the Tre a sury is to rule sup re me whe ne ve r the re is a

d iffe re nc e o f o p inio n b e twe e n himse lf a nd the Fe d e ra l Re se rve Bo a rd .

AND, o nly o ne me mb e r o f the Bo a rd is to p a ss o ut o f o ffic e while the Pre sid e nt is in o ffic e ."

The te n ye a r te rms o f o ffic e o f the me mb e rs o f the Bo a rd we re le ng the ne d b y the Ba nking Ac t o f 1935 to fo urte e n ye a rs, whic h me a nt tha t the se d ire c to rs o f the na tio n’ s fina nc e s, a ltho ug h no t e le c te d b y the p e o p le , he ld o ffic e lo ng e r tha n thre e p re sid e nts.

While C o l. Ho use , Ja c o b Sc hiff a nd Pa ul Wa rb urg b a ske d in the g lo w o f a jo b we ll d o ne , the o the r a c to rs in this d ra ma we re sub je c t to la te r

a fte rtho ug hts. Wo o d ro w Wilso n wro te in 1916, Na tio na l Ec o no my a nd the Ba nking Syste m, Se n. Do c . No . 3, No . 223, 76th C o ng re ss, 1st se ssio n, 1939: "O ur syste m o f c re d it is c o nc e ntra te d (in the Fe d e ra l Re se rve

29 Syste m). The g ro wth o f the na tio n, the re fo re , a nd a ll o ur a c tivitie s, a re

in the ha nd s o f a fe w me n." Whe n he wa s a ske d b y C la re nc e W. Ba rro n whe the r he a p p ro ve d o f

the b ill a s it wa s fina lly p a sse d . Wa rb urg re ma rke d , "We ll, it ha sn’ t g o t q uite e ve rything we wa nt, b ut the la c k c a n b e a d juste d la te r b y

a d ministra tive p ro c e sse s." Wo o d ro w Wilso n a nd C a rte r G la ss a re g ive n c re d it fo r the Ac t b y mo st

c o nte mp o ra ry histo ria ns, b ut o f a ll tho se c o nc e rne d , Wilso n ha d le a st to d o with C o ng re ssio na l a c tio n o n the b ill. G e o rg e C re e l, a ve te ra n Wa shing to n c o rre sp o nd e nt, wro te in Ha rp e r’ s We e kly, June 26, 1915:

"As fa r a s the De mo c ra tic Pa rty wa s c o nc e rne d , Wo o d ro w Wilso n wa s witho ut influe nc e , sa ve fo r the p a tro na g e he p o sse sse d . It wa s Brya n "As fa r a s the De mo c ra tic Pa rty wa s c o nc e rne d , Wo o d ro w Wilso n wa s witho ut influe nc e , sa ve fo r the p a tro na g e he p o sse sse d . It wa s Brya n

e na c tme nt o f the Fe d e ra l Re se rve La w." O n De c e mb e r 25, 1913, The Na tio n p o inte d o ut tha t "The Ne w Yo rk

Sto c k Ma rke t b e g a n to rise ste a d ily up o n ne ws tha t the Se na te wa s re a d y to p a ss the Fe d e ra l Re se rve Ac t."

This b e lie s the c la im tha t the Fe d e ra l Re se rve Ac t wa s a mo ne ta ry re fo rm b ill. The Ne w Yo rk Sto c k Exc ha ng e is g e ne ra lly c o nsid e re d a n

a c c ura te b a ro me te r o f the true me a ning o f a ny fina nc ia l le g isla tio n p a sse d in Wa shing to n. Se na to r Ald ric h a lso d e c id e d tha t he no lo ng e r

ha d misg iving s a b o ut the Fe d e ra l Re se rve Ac t. In a ma g a zine whic h he o wne d , a nd whic h he c a lle d The Ind e p e nd e nt, he wro te in July, 1914: "Be fo re the p a ssa g e o f this Ac t, the Ne w Yo rk b a nke rs c o uld o nly

d o mina te the re se rve s o f Ne w Yo rk. No w we a re a b le to d o mina te the

b a nk re se rve s o f the e ntire c o untry." H.W. Lo uc ks d e no unc e d the Fe d e ra l Re se rve Ac t in The G re a t

C o nsp ira c y o f the Ho use o f Mo rg a n, "In the Fe d e ra l Re se rve La w, the y

ha ve wre ste d fro m the p e o p le a nd se c ure d fo r the mse lve s the

c o nstitutio na l p o we r to issue mo ne y a nd re g ula te the va lue the re o f." O n p a g e 31, Lo uc ks write s, "The Ho use o f Mo rg a n is no w in sup re me

c o ntro l o f o ur ind ustry, c o mme rc e a nd p o litic a l a ffa irs. The y a re in c o mp le te c o ntro l o f the p o lic y ma king o f the De mo c ra tic ,

Re p ub lic a n a nd Pro g re ssive p a rtie s. The p re se nt e xtra o rd ina ry p ro p a g a nd a fo r ‘ p re p a re d ne ss’ is p la nne d mo re fo r ho me c o e rc io n tha n fo r d e fe nse a g a inst fo re ig n a g g re ssio n."22 The sig ning o f the Fe d e ra l Re se rve Ac t b y Wo o d ro w Wilso n re p re se nte d the c ulmina tio n Re p ub lic a n a nd Pro g re ssive p a rtie s. The p re se nt e xtra o rd ina ry p ro p a g a nd a fo r ‘ p re p a re d ne ss’ is p la nne d mo re fo r ho me c o e rc io n tha n fo r d e fe nse a g a inst fo re ig n a g g re ssio n."22 The sig ning o f the Fe d e ra l Re se rve Ac t b y Wo o d ro w Wilso n re p re se nte d the c ulmina tio n

22 H.W. Lo uc ks, The G re a t C o nsp ira c y o f the Ho use o f Mo rg a n, Priva te ly p rinte d , 1916

30 Ro o se ve lt, Assista nt Se c re ta ry o f Na vy. As so o n a s he o b ta ine d the

De mo c ra tic no mina tio n fo r Pre sid e nt, in 1932, Fra nklin D. Ro o se ve lt ma d e a "p ilg rima g e " to C o l. Ho use ’ s ho me a t Ma g no lia , Ma ss. Ro o se ve lt, a fte r the Re p ub lic a n hia tus o f the 1920s, fille d in the g o a ls o f Philip Dru, Ad ministra to r,23 whic h Wilso n ha d no t b e e n a b le to c a rry o ut. The la te Ro o se ve lt a c hie ve me nts inc lud e d the e na c tme nt o f the so c ia l se c urity p ro g ra m, e xc e ss p ro fits ta x, a nd the e xp a nsio n o f the

g ra d ua te d inc o me ta x to 90% o f e a rne d inc o me . Ho use ’ s b io g ra p he r, C ha rle s Se ymo ur, wro te : "He wa s we a rie d b y the

a nd a p p o intme nts. Eve n the sha re he ha d ta ke n in c o nstruc tive d o me stic le g isla tio n (the Fe d e ra l Re se rve Ac t, ta riff re visio n, a nd the Inc o me Ta x a me nd me nt) d id no t sa tisfy him. Fro m the b e g inning o f 1914 he g a ve mo re a nd mo re o f his time to wha t he re g a rd e d a s the hig he st fo rm o f p o litic s a nd tha t fo r whic h he wa s p a rtic ula rly suite d --inte rna tio na l a ffa irs."24

d e ta ils o f p a rty p o litic s

In 1938, sho rtly b e fo re he d ie d , Ho use to ld C ha rle s Se ymo ur, "During the la st fifte e n ye a rs I ha ve b e e n c lo se to the c e nte r o f thing s, a ltho ug h

fe w p e o p le susp e c t it. No imp o rta nt fo re ig ne r ha s c o me to the Unite d Sta te s witho ut ta lking to me . I wa s c lo se to the mo ve me nt tha t fe w p e o p le susp e c t it. No imp o rta nt fo re ig ne r ha s c o me to the Unite d Sta te s witho ut ta lking to me . I wa s c lo se to the mo ve me nt tha t

A c o mp a ra tive p rint o f the Fe d e ra l Re se rve Ac t o f 1913 a s p a sse d b y the Ho use o f Re p re se nta tive s a nd a me nd e d b y the Se na te sho ws the fo llo wing striking c ha ng e :

The Se na te struc k o ut, "To susp e nd the o ffic ia ls o f Fe d e ra l Re se rve

b a nks fo r c a use , sta te d in writing with o p p o rtunity o f he a ring , re q uire the re mo va l o f sa id o ffic ia l fo r inc o mp e te nc y, d e re lic tio n o f d uty, fra ud o r d e c e it, suc h re mo va l to b e sub je c t to a p p ro va l b y the Pre sid e nt o f the Unite d Sta te s." This wa s c ha ng e d b y the Se na te to re a d "To susp e nd o r re mo ve a ny o ffic e r o r d ire c to r o f a ny Fe d e ra l Re se rve Ba nk, the c a use o f suc h re mo va l to b e fo rthwith c o mmunic a te d in writing b y the Fe d e ra l Re se rve Bo a rd to the re mo ve d o ffic e r o r d ire c to r a nd to sa id b a nk." This c o mp le te ly a lte re d the c o nd itio ns und e r whic h a n o ffic e r o r d ire c to r mig ht b e re mo ve d . We no lo ng e r kno w wha t the

c o nd itio ns fo r re mo va l a re , o r the c a use . Ap p a re ntly inc o mp e te nc y,

d e re lic tio n o f d uty, fra ud o r d e c e it d o no t ma tte r to the Fe d e ra l Re se rve Bo a rd . Also , the re mo ve d o ffic e r d o e s no t ha ve the o p p o rtunity o f a p p e a l to the Pre sid e nt. In a nswe r to writte n inq uiry, the Assista nt Se c re ta ry o f the Fe d e ra l Re se rve Bo a rd re p lie d tha t o nly o ne o ffic e r ha s b e e n re mo ve d "fo r c a use " in the thirty-six ye a rs, the na me

a nd d e ta ils o f this ma tte r b e ing a "p riva te c o nc e rn" b e twe e n the ind ivid ua l, the Re se rve Ba nk c o nc e rne d , a nd the Fe d e ra l Re se rve Bo a rd .

23 E.M. Ho use , Philip Dru, Ad ministra to r, B. W. He ub sc h, N.Y., 1912

24 C o l. E.M. Ho use , The Intima te Pa p e rs o f C o l. Ho use , 4 v. 1926-1928, Ho ug hto n Mifflin C o .

31 The Fe d e ra l Re se rve Syste m b e g a n its o p e ra tio ns in 1914 with the

a c tivity o f the O rg a niza tio n C o mmitte e , a p p o inte d b y Wo o d ro w Wilso n, a nd c o mp o se d o f Se c re ta ry o f the Tre a sury Willia m Mc Ad o o , who wa s his so n-in-la w, Se c re ta ry o f Ag ric ulture Ho usto n a nd

C o mp tro lle r o f the C urre nc y Jo hn Ske lto n Willia ms. O n Ja nua ry 6, 1914. J.P. Mo rg a n me t with the O rg a nizing C o mmitte e in

Ne w Yo rk. He info rme d the m tha t the re sho uld no t b e mo re tha n se ve n re g io na l d istric ts in the ne w syste m.

This c o mmitte e wa s to se le c t the lo c a tio ns o f the "d e c e ntra lize d " re se rve b a nks. The y we re e mp o we re d to se le c t fro m e ig ht to twe lve re se rve b a nks, a ltho ug h J.P. Mo rg a n ha d te stifie d he tho ug ht tha t no t mo re tha n fo ur sho uld b e se le c te d . Muc h p o litic king we nt into the se le c tio n o f the se site s, a s the twe lve c itie s thus fa vo re d wo uld

b e c o me e no rmo usly imp o rta nt a s c e nte rs o f fina nc e . Ne w Yo rk, o f

c o urse , wa s a fo re g o ne c o nc lusio n. Ric hmo nd wa s the ne xt se le c tio n,

a s a p a yo ff to C a rte r G la ss a nd Wo o d ro w Wilso n, the two Virg inia ns who ha d b e e n g ive n p o litic a l c re d it fo r the Fe d e ra l Re se rve Ac t. The o the r se le c tio ns o f the C o mmitte e we re Bo sto n, Phila d e lp hia ,

C le ve la nd , C hic a g o , St. Lo uis, Atla nta , Da lla s, Minne a p o lis, Ka nsa s C ity,

a nd Sa n Fra nc isc o . All o f the se c itie s la te r d e ve lo p e d imp o rta nt "fina nc ia l d istric ts" a s the re sult o f this se le c tio n.

The se lo c a l b a ttle s, ho we ve r, p a le d in vie w o f the c o mp le te

d o mina nc e o f the Fe d e ra l Re se rve b a nk o f Ne w Yo rk in the syste m.

Fe rd ina nd Lund b e rg p o inte d o ut, in Ame ric a ’ s Sixty Fa milie s, tha t, "In p ra c tic e , the Fe d e ra l Re se rve Ba nk o f Ne w Yo rk b e c a me the fo unta inhe a d o f the syste m o f twe lve re g io na l b a nks, fo r Ne w Yo rk wa s the mo ne y ma rke t o f the na tio n. The o the r e le ve n b a nks we re so ma ny

e xp e nsive ma uso le ums e re c te d to sa lve the lo c a l p rid e a nd q ue ll the Ja c kso nia n fe a rs o f the hinte rla nd . Be nja min Stro ng , p re sid e nt o f the Ba nke rs Trust (J.P. Mo rg a n) wa s se le c te d a s the first G o ve rno r o f the Ne w Yo rk Fe d e ra l Re se rve Ba nk. Ad e p t in hig h fina nc e , Stro ng fo r ma ny ye a rs ma nip ula te d the c o untry’ s mo ne ta ry syste m a t the

d isc re tio n o f d ire c to rs re p re se nting the le a d ing Ne w Yo rk b a nks. Und e r Stro ng , the Re se rve Syste m wa s b ro ug ht into inte rlo c king re la tio ns with the Ba nk o f Eng la nd a nd the Ba nk o f Fra nc e . Be nja min Stro ng he ld his p o sitio n a s G o ve rno r o f the Fe d e ra l Re se rve Ba nk o f Ne w Yo rk until his sud d e n d e a th in 1928, d uring a C o ng re ssio na l inve stig a tio n o f the se c re t me e ting s b e twe e n Re se rve G o ve rno rs a nd

he a d s o f Euro p e a n c e ntra l b a nks whic h b ro ug ht o n the G re a t De p re ssio n o f 1929-31."25 Stro ng ha d ma rrie d the d a ug hte r o f the Pre sid e nt o f Ba nke rs Trust, whic h b ro ug ht him into the line o f suc c e ssio n in the d yna stic intrig ue s whic h p la y suc h a n imp o rta nt ro le in the wo rld o f hig h fina nc e . He a lso ha d b e e n a me mb e r o f the o rig ina l Je kyll Isla nd g ro up , the First Na me C lub , a nd wa s thus q ua lifie d fo r the hig he st p o sitio n in the Fe d e ra l Re se rve Syste m, a s the G o ve rno r o f the Fe d e ra l Re se rve Ba nk o f Ne w Yo rk whic h d o mina te d the e ntire syste m.

Pa ul Wa rb urg a lso is me ntio ne d in J. La ure nc e La ug hlin’ s d e finitive vo lume , The Fe d e ra l Re se rve Ac t, Its O rig ins a nd Purp o se s, "Mr. Pa ul Wa rb urg o f Kuhn, Lo e b C o mp a ny o ffe re d in Ma rc h, 1910 a fa irly we ll Pa ul Wa rb urg a lso is me ntio ne d in J. La ure nc e La ug hlin’ s d e finitive vo lume , The Fe d e ra l Re se rve Ac t, Its O rig ins a nd Purp o se s, "Mr. Pa ul Wa rb urg o f Kuhn, Lo e b C o mp a ny o ffe re d in Ma rc h, 1910 a fa irly we ll

g ro up inte re ste d in the p urp o se s o f the Na tio na l Mo ne ta ry C o mmissio n me t se c re tly a t Je kyll Isla nd fo r a b o ut two we e ks in De c e mb e r, 1910,

a nd

c o nc e ntra te d o n the p re p a ra tio n o f a b ill to b e p re se nte d to

C o ng re ss b y the Na tio na l Mo ne ta ry C o mmissio n. The me n who we re p re se nt a t Je kyll Isla nd we re Se na to r Ald ric h, H. P. Da viso n o f J.P. Mo rg a n C o mp a ny, Pa ul Wa rb urg o f Kuhn, Lo e b C o mp a ny, Fra nk Va nd e rlip o f the Na tio na l C ity Ba nk, a nd C ha rle s D. No rto n o f the First Na tio na l Ba nk. No d o ub t the a b le st b a nking mind in the g ro up wa s tha t o f Mr. Wa rb urg , who ha d ha d a Euro p e a n b a nking tra ining .

Se na to r Ald ric h ha d no sp e c ia l tra ining in b a nking ."26

A me ntio n o f Pa ul Wa rb urg , writte n b y Ha ro ld Ke llo c h, a nd title d , "Wa rb urg the Re vo lutio nist" a p p e a re d in the C e ntury Ma g a zine , Ma y, 1915. Ke llo c h write s:

"He imp o se d his id e a s o n a na tio n o f a hund re d millio n p e o p le . . . Witho ut Mr. Wa rb urg the re wo uld ha ve b e e n no Fe d e ra l Re se rve Ac t. The b a nking ho use o f Wa rb urg a nd Wa rb urg in Ha mb urg ha s a lwa ys

b e e n stric tly a fa mily b usine ss. No ne b ut a Wa rb urg ha s b e e n e lig ib le fo r it, b ut a ll Wa rb urg s ha ve b e e n b o rn into it. In 1895 he ma rrie d the

d a ug hte r o f the la te So lo mo n Lo e b o f Kuhn Lo e b C o mp a ny. He

b e c a me a me mb e r o f Kuhn Lo e b C o mp a ny in 1902. Mr. Wa rb urg ’ s sa la ry fro m his p riva te b usine ss ha s b e e n a p p ro xima te ly a ha lf millio n a ye a r. Mr.Wa rb urg ’ s mo tive s ha d b e e n p ure ly tho se o f p a trio tic se lf- sa c rific e ."

The true p urp o se s o f the Fe d e ra l Re se rve Ac t so o n b e g a n to d isillusio n ma ny who ha d a t first b e lie ve d in its c la ims. W. H. Alle n wro te in

Mo o d y’ s Ma g a zine , 1916, "The p urp o se o f the Fe d e ra l Re se rve Ac t wa s to p re ve nt c o nc e ntra tio n o f mo ne y in the Ne w Yo rk b a nks b y ma king it p ro fita b le fo r c o untry b a nke rs to use the ir fund s a t ho me , b ut the mo ve me nt o f c urre nc y sho ws

25 Fe rd ina nd Lund b e rg , Ame ric a ’ s Sixty Fa milie s, 1937

26 J. La ure nc e La ug hlin, The Fe d e ra l Re se rve Ac t, It’ s O rig ins a nd Purp o se s

33 tha t the Ne w Yo rk b a nks g a ine d fro m the inte rio r in e ve ry mo nth

e xc e p t De c e mb e r, 1915, sinc e the Ac t we nt into e ffe c t. The sta b iliza tio n o f ra te s ha s ta ke n p la c e in Ne w Yo rk a lo ne . In o the r p a rts, hig h ra te s c o ntinue . The Ac t, whic h wa s to d e p rive Wa ll Stre e t o f its fund s fo r sp e c ula tio n, ha s re a lly g ive n the b ulls a nd the b e a rs suc h a sup p ly a s the y ha ve ne ve r ha d b e fo re . The truth is tha t fa r fro m ha ving

c lo g g e d the c ha nne l to Wa ll Stre e t, a s Mr. G la ss so c o nfid e ntly

b o a ste d , it a c tua lly wid e ne d the o ld c ha nne ls a nd o p e ne d up two ne w o ne s. The first o f the se le a d s d ire c tly to Wa shing to n a nd g ive s Wa ll Stre e t a string o n a ll the surp lus c a sh in the Unite d Sta te s Tre a sury. Be sid e s, in the p o we r to issue b a nk-no te c urre nc y, it furnishe s a n ine xha ustib le sup p ly o f c re d it mo ne y; the se c o nd c ha nne l le a d s to the

g re a t c e ntra l b a nks o f Euro p e , whe re b y, thro ug h the sa le o f

a c c e p ta nc e s, virtua lly g ua ra nte e d b y the Unite d Sta te s G o ve rnme nt, Wa ll Stre e t is g ra nte d immunity fro m fo re ig n d e ma nd s fo r g o ld whic h

ha ve p re c ip ita te d e ve ry g re a t c risis in o ur histo ry."

Fo r ma ny ye a rs, the re ha s b e e n c o nsid e ra b le myste ry a b o ut who

a c tua lly o wns the sto c k o f the Fe d e ra l Re se rve Ba nks. C o ng re ssma n Wrig ht Pa tma n, le a d ing c ritic o f the Syste m, trie d to find o ut who the sto c kho ld e rs we re . The sto c k in the o rig ina l twe lve re g io na l Fe d e ra l Re se rve Ba nks wa s p urc ha se d b y na tio na l b a nks in tho se twe lve re g io ns. Be c a use the Fe d e ra l Re se rve Ba nk o f Ne w Yo rk wa s to se t the inte re st ra te s a nd d ire c t o p e n ma rke t o p e ra tio ns, thus c o ntro lling the

d a ily sup p ly a nd p ric e o f mo ne y thro ug ho ut the Unite d Sta te s, it is the sto c kho ld e rs o f tha t b a nk who a re the re a l d ire c to rs o f the e ntire syste m. Fo r the first time , it c a n b e re ve a le d who tho se sto c kho ld e rs

a re . This write r ha s the o rig ina l o rg a niza tio n c e rtific a te s o f the twe lve Fe d e ra l Re se rve Ba nks, g iving the o wne rship o f sha re s b y the na tio na l

b a nks in e a c h d istric t. The Fe d e ra l Re se rve Ba nk o f Ne w Yo rk issue d 203,053 sha re s, a nd , a s file d with the C o mp tro lle r o f the C urre nc y Ma y

19, 1914, the la rg e Ne w Yo rk C ity b a nks to o k mo re tha n ha lf o f the o utsta nd ing sha re s. The Ro c ke fe lle r Kuhn, Lo e b -c o ntro lle d Na tio na l

C ity Ba nk to o k the la rg e st numb e r o f sha re s o f a ny b a nk, 30,000 sha re s. J.P. Mo rg a n’ s First Na tio na l Ba nk to o k 15,000 sha re s. Whe n the se two

b a nks me rg e d in 1955, the y o wne d in o ne b lo c k a lmo st o ne fo urth o f the sha re s in the Fe d e ra l Re se rve Ba nk o f Ne w Yo rk, whic h c o ntro lle d the e ntire syste m, a nd thus the y c o uld na me Pa ul Vo lc ke r o r a nyo ne

e lse the y c ho se to b e C ha irma n o f the Fe d e ra l Re se rve Bo a rd o f

G o ve rno rs. C ha se Na tio na l Ba nk to o k 6,000 sha re s. The Ma rine Na tio n Ba nk o f Buffa lo , la te r kno wn a s Ma rine Mid la nd , to o k 6,000 sha re s. This

b a nk wa s o wne d b y the Sc ho e llko p f fa mily, whic h c o ntro lle d Nia g a ra Po we r C o mp a ny a nd o the r la rg e inte re sts. Na tio na l Ba nk o f

C o mme rc e o f Ne w Yo rk C ity to o k 21,000 sha re s. The sha re ho ld e rs o f the se b a nks whic h o wn the sto c k o f the Fe d e ra l Re se rve Ba nk o f Ne w

Yo rk a re the p e o p le who ha ve c o ntro lle d o ur p o litic a l a nd e c o no mic

d e stinie s sinc e 1914. The y a re the Ro thsc hild s, o f Euro p e , La za rd Fre re s (Eug e ne Me ye r), Kuhn Lo e b C o mp a ny, Wa rb urg C o mp a ny, Le hma n Bro the rs,

G o ld ma n Sa c hs, the Ro c ke fe lle r fa mily, a nd the J.P. Mo rg a n inte re sts. The se inte re sts ha ve me rg e d a nd c o nso lid a te d in re c e nt ye a rs, so tha t the c o ntro l is muc h mo re c o nc e ntra te d . Na tio na l Ba nk o f C o mme rc e is no w Mo rg a n G ua ra nty Trust C o mp a ny. Le hma n Bro the rs ha s me rg e d with Kuhn, Lo e b C o mp a ny, First Na tio na l Ba nk ha s me rg e d with the Na tio na l C ity Ba nk, a nd in the o the r e le ve n Fe d e ra l Re se rve Distric ts, the se sa me sha re ho ld e rs ind ire c tly o wn o r c o ntro l sha re s in tho se

b a nks, with the o the r sha re s o wne d b y the le a d ing fa milie s in tho se

a re a s who o wn o r c o ntro l the p rinc ip a l ind ustrie s in the se re g io ns.* The "lo c a l" fa milie s se t up re g io na l c o unc ils, o n o rd e rs fro m Ne w Yo rk, o f suc h g ro up s a s the C o unc il o n Fo re ig n Re la tio ns, The Trila te ra l

C o mmissio n, a nd o the r instrume nts o f c o ntro l d e vise d b y the ir ma ste rs. The y fina nc e a nd c o ntro l p o litic a l d e ve lo p me nts in the ir a re a , na me

c a nd id a te s, a nd a re se ld o m suc c e ssfully o p p o se d in the ir p la ns. With the se tting up o f the twe lve "fina nc ia l d istric ts" thro ug h the Fe d e ra l

Re se rve Ba nks, the tra d itio na l d ivisio n o f the Unite d Sta te s into the fo rty-

e ig ht sta te s wa s o ve rthro wn, a nd we e nte re d the e ra o f "re g io na lism", o r twe lve re g io ns whic h ha d no re la tio n to the tra d itio na l sta te

b o und a rie s. The se d e ve lo p me nts fo llo wing the p a ssing o f the Fe d e ra l Re se rve Ac t

p ro ve d e ve ry o ne o f the a lle g a tio ns Tho ma s Je ffe rso n ha d ma d e

a g a inst a c e ntra l b a nk in 1791: tha t the sub sc rib e rs to the Fe d e ra l

Re se rve Ba nk sto c k ha d fo rme d a c o rp o ra tio n, who se sto c k c o uld b e

a nd wa s he ld b y a lie ns; tha t this sto c k wo uld b e tra nsmitte d to a

c e rta in line o f suc c e sso rs; tha t it wo uld b e p la c e d b e yo nd fo rfe iture

a nd e sc he a t; tha t the y wo uld re c e ive a mo no p o ly o f b a nking , whic h wa s a g a inst the la ws o f mo no p o ly; a nd tha t the y no w ha d the p o we r to ma ke la ws, p a ra mo unt to the la ws o f the sta te s. No sta te le g isla ture

c a n c o unte rma nd a ny o f the la ws la id d o wn b y the Fe d e ra l Re se rve Bo a rd o f G o ve rno rs fo r the b e ne fit o f the ir p riva te sto c kho ld e rs. This

b o a rd issue s la ws a s to wha t the inte re st ra te sha ll b e , wha t the q ua ntity o f mo ne y sha ll b e a nd wha t the p ric e o f mo ne y sha ll b e . All o f the se p o we rs a b ro g a te the p o we rs o f the sta te le g isla ture s a nd the ir re sp o nsib ility to the c itize ns o f tho se sta te s.

The Ne w Yo rk Time s sta te d tha t the Fe d e ra l Re se rve Ba nks wo uld b e re a d y fo r b usine ss o n Aug ust 1, 1914, b ut the y a c tua lly b e g a n o p e ra tio ns o n No ve mb e r 16, 1914. At tha t time , the ir to ta l a sse ts we re liste d a t $143,000,000, fro m the sa le o f sha re s in the Fe d e ra l Re se rve Ba nks to sto c kho ld e rs o f the na tio na l b a nks whic h sub sc rib e d to it.

The a c tua l p a rt o f this $143,000,000 whic h wa s p a id in fo r the se sha re s re ma ins shro ud e d in myste ry. So me histo ria ns b e lie ve tha t the sha re ho ld e rs o nly p a id a b o ut ha lf o f the a mo unt in c a sh; o the rs

b e lie ve __________________________ Se e c ha rts V thro ug h IX

35 tha t the y p a id in no c a sh a t a ll, b ut me re ly se nt in c he c ks whic h the y

d re w o n the na tio na l b a nks whic h the y o wne d . This se e ms mo st like ly, d re w o n the na tio na l b a nks whic h the y o wne d . This se e ms mo st like ly,

The me n who m Pre sid e nt Wo o d ro w Wilso n c ho se to ma ke up the first Fe d e ra l Re se rve Bo a rd o f G o ve rno rs we re me n d ra wn fro m the

b a nking g ro up . He ha d b e e n no mina te d fo r the Pre sid e nc y b y the De mo c ra tic Pa rty, whic h ha d c la ime d to re p re se nt the "c o mmo n ma n"

a g a inst the "ve ste d inte re sts". Ac c o rd ing to Wilso n himse lf, he wa s

a llo we d to c ho o se o nly o ne ma n fo r the Fe d e ra l Re se rve Bo a rd . The o the rs we re c ho se n b y the Ne w Yo rk b a nke rs. Wilso n’ s c ho ic e wa s Tho ma s D. Jo ne s, a truste e o f Princ e to n a nd d ire c to r o f Inte rna tio na l Ha rve ste r a nd o the r c o rp o ra tio ns. The o the r me mb e rs we re Ad o lp h C . Mille r, e c o no mist fro m Ro c ke fe lle r’ s Unive rsity o f C hic a g o a nd Mo rg a n’ s Ha rva rd Unive rsity, a nd a lso se rving a s Assista nt Se c re ta ry o f the Inte rio r; C ha rle s S. Ha mlin, who ha d se rve d p re vio usly a s a n Assista nt Se c re ta ry to the Tre a sury fo r e ig ht ye a rs; F.A. De la no , a Ro o se ve lt re la tive , a nd ra ilro a d o p e ra to r who to o k o ve r a numb e r o f ra ilro a d s fo r Kuhn, Lo e b C o mp a ny, W.P.G . Ha rd ing , Pre sid e nt o f the First Na tio na l Ba nk o f Atla nta ; a nd Pa ul Wa rb urg o f Kuhn, Lo e b

C o mp a ny. Ac c o rd ing to The Intima te Pa p e rs o f C o l. Ho use , Wa rb urg wa s a p p o inte d b e c a use "The Pre sid e nt a c c e p te d (Ho use ’ s) sug g e stio n o f Pa ul Wa rb urg o f Ne w Yo rk b e c a use o f his inte re st a nd e xp e rie nc e in

c urre nc y p ro b le ms und e r b o th Re p ub lic a n a nd De mo c ra tic Ad ministra tio ns."27 Like Wa rb urg , De la no ha d a lso b e e n b o rn o utsid e the c o ntine nta l limits o f the Unite d Sta te s, a ltho ug h he wa s a n Ame ric a n c itize n. De la no ’ s fa the r, Wa rre n De la no , a c c o rd ing to Dr. Jo se p hso n a nd o the r a utho ritie s, wa s a c tive in Ho ng Ko ng in the

C hine se o p ium tra d e , a nd Fre d e ric k De la no wa s b o rn in Ho ng Ko ng in 1863.

In The Mo ne y Po we r o f Euro p e , Pa ul Emd e n write s tha t "The Wa rb urg s re a c he d the ir o utsta nd ing e mine nc e d uring the la st twe nty ye a rs o f the p a st c e ntury, simulta ne o usly with the g ro wth o f Kuhn, Lo e b

C o mp a ny in Ne w Yo rk, with who m the y sto o d in a p e rso na l unio n a nd

fa mily re la tio nship . Pa ul Wa rb urg with ma g nific e nt suc c e ss c a rrie d thro ug h in 1913 the re o rg a niza tio n o f the Ame ric a n b a nking syste m, a t whic h he ha d with Se na to r Ald ric h b e e n wo rking sinc e 1911, a nd thus mo st tho ro ug hly c o nso lid a te d the c urre nc y a nd fina nc e s o f the Unite d Sta te s."28

27 C ha rle s Se ymo ur, The Intima te Pa p e rs o f C o l. Ho use , 4 v. 1926-1928, Ho ug hto n Mifflin C o .

28 Pa ul Emd e n, The Mo ne y Po we r o f Euro p e in the 19th a nd 20th

C e ntury, S. Lo w, Ma rsto n C o ., Lo nd o n, 1937

36 The Ne w Yo rk Time s* ha d no te d o n Ma y 6, 1914 tha t Pa ul Wa rb urg ha d

"re tire d " fro m Kuhn, Lo e b C o mp a ny in o rd e r to se rve o n the Fe d e ra l Re se rve Bo a rd , a ltho ug h he ha d no t re sig ne d his d ire c to rship s o f Ame ric a n Sure ty C o mp a ny, Ba ltimo re a nd O hio Ra ilro a d , Na tio na l Ra ilwa ys o f Me xic o , We lls Fa rg o , o r We sting ho use Ele c tric C o rp o ra tio n,

b ut wo uld c o ntinue to se rve o n the se b o a rd s o f d ire c to rs. "Who ’ s Who " liste d him a s ho ld ing the se d ire c to rship s a nd in a d d itio n, Ame ric a n I.G .

C he mic a l C o mp a ny (b ra nc h o f I.G . Fa rb e n), Ag fa Ansc o C o rp o ra tio n, We sting ho use Ac c e p ta nc e C o mp a ny, Wa rb urg C o mp a ny o f

Amste rd a m, c ha irma n o f the Bo a rd o f Inte rna tio na l Ac c e p ta nc e Ba nk,

a nd nume ro us o the r b a nks, ra ilwa ys a nd c o rp o ra tio ns. "Kuhn Lo e b &

C o . with Wa rb urg ha ve fo ur vo te s o r the ma jo rity o f the Fe d e ra l Re se rve Bo a rd ."29

De sp ite his re tire me nt fro m Kuhn, Lo e b C o mp a ny in Ma y o f 1914 to se rve o n the Fe d e ra l Re se rve Bo a rd o f G o ve rno rs, Wa rb urg wa s a ske d to a p p e a r b e fo re a Se na te Sub c o mmitte e in June o f 1914 a nd a nswe r so me q ue stio ns a b o ut his b e hind -the -sc e ne s ro le in g e tting the Fe d e ra l Re se rve Ac t thro ug h C o ng re ss. This mig ht ha ve me a nt so me q ue stio ns

a b o ut the se c re t c o nfe re nc e in Je kyll Isla nd , a nd Wa rb urg re fuse d to

a p p e a r. O n July 7, 1914 he wro te a le tte r to G .M. Hitc hc o c k, C ha irma n o f the Se na te Ba nking a nd C urre nc y C o mmitte e , sta ting tha t it mig ht imp a ir his use fulne ss o n the Bo a rd if he we re re q uire d to a nswe r a ny q ue stio ns, a nd tha t he wo uld the re fo re withd ra w his na me . It se e me d tha t Wa rb urg wa s p re p a re d to b luff the Se na te C o mmitte e into

c o nfirming him witho ut a ny q ue stio ns a ske d . O n July 10, 1914, The Ne w Yo rk Time s d e fe nd e d Wa rb urg o n the e d ito ria l p a g e a nd d e no unc e d the "Se na to ria l Inq uisitio n". Sinc e Wa rb urg ha d no t ye t b e e n a ske d a ny q ue stio ns, the te rm "Inq uisitio n" se e me d re ma rka b ly ina p p ro p ria te , no r wa s the re a ny re a l d a ng e r tha t the Se na to rs we re p re p a ring to use instrume nts o f to rture o n Mr. Wa rb urg . The imb ro g lio wa s re so lve d whe n the Se na te C o mmitte e , in a b je c t surre nd e r, a g re e d tha t Mr. Wa rb urg wo uld b e g ive n a list o f q ue stio ns in a d va nc e o f his a p p e a ra nc e so tha t he c o uld g o o ve r the m, a nd tha t he c o uld b e e xc use d fro m

a nswe ring a ny q ue stio ns whic h mig ht te nd to imp a ir his se rvic e o n the Bo a rd o f G o ve rno rs. The Na tio n re p o rte d o n July 23, 1914 tha t "Mr. Wa rb urg fina lly ha d a c o nfe re nc e with Se na to r O ’ G o rma n a nd

a g re e d to me e t the me mb e rs o f the Se na te Sub c o mmitte e info rma lly, a g re e d to me e t the me mb e rs o f the Se na te Sub c o mmitte e info rma lly,

__________________________ * The Ne w Yo rk Time s Ap ril 30, 1914, re p o rte d tha t the 12 d istric ts ha d

sub sc rip tio ns o f $74,740,800 a nd tha t the sub sc rib ing b a nks wo uld p a y o ne -ha lf o f this sum in six mo nths.

29 C la re nc e W. Ba rro n, Mo re The y To ld Ba rro n, Arno Pre ss, Ne w Yo rk Time s, 1973, June 12, 1914. p . 204

37 wa s c o rre c t. Mr. Wa rb urg wa s c o nfirme d , the wa y ha ving b e e n

smo o the d b y his "fixe r", Se na to r O ’ G o rma n o f Ne w Yo rk, mo re fa milia rly kno wn a s "the Se na to r fro m Wa ll Stre e t". Se na to r Ro b e rt L. O we n ha d p re vio usly c ha rg e d tha t Wa rb urg wa s the Ame ric a n re p re se nta tive o f the Ro thsc hild fa mily, b ut q ue stio ning him a b o ut this wo uld ind e e d

ha ve sma c ke d o f the me d ia e va l "Inq uisitio n", a nd his fe llo w Se na to rs we re to o c ivilize d to ind ulg e in suc h b a rb a rity*.

During the Se na te He a ring s o n Pa ul Wa rb urg b e fo re the Se na te Ba nking a nd C urre nc y C o mmitte e , Aug ust 1, 1914, Se na to r Bristo w

a ske d , "Ho w ma ny o f the se p a rtne rs (o f Kuhn, Lo e b C o mp a ny) a re Ame ric a n c itize ns? " WARBURG : "The y a re a ll Ame ric a n c itize ns e xc e p t Mr. Ka hn. He is a British sub je c t." BRISTO W: "He wa s a t o ne time a

c a nd id a te fo r Pa rlia me nt, wa s he no t? " WARBURG : "The re wa s ta lk

a b o ut it, it ha d b e e n sug g e ste d a nd he ha d it in his mind ."

Pa ul Wa rb urg a lso sta te d to the C o mmitte e , "I we nt to Eng la nd , whe re

I sta ye d fo r two ye a rs, first in the b a nking a nd d isc o unt firm o f Sa mue l Mo nta g ue & C o mp a ny. Afte r tha t I we nt to Fra nc e , whe re I sta ye d in a Fre nc h b a nk."

C HAIRMAN: "Wha t Fre nc h b a nk wa s tha t? " WARBURG : "It is the Russia n

b a nk fo r fo re ig n tra d e whic h ha s a n a g e nc y in Pa ris." BRISTO W: "I und e rsta nd yo u to sa y tha t yo u we re a Re p ub lic a n, b ut

whe n Mr. The o d o re Ro o se ve lt c a me a ro und , yo u the n b e c a me a symp a thize r with Mr. Wilso n a nd sup p o rte d him? " WARBURG : "Ye s." BRISTO W: "While yo ur b ro the r (Fe lix Wa rb urg ) wa s sup p o rting Ta ft? " WARBURG : "Ye s." Thus thre e p a rtne rs o f Kuhn, Lo e b C o mp a ny we re sup p o rting thre e d iffe re nt c a nd id a te s fo r Pre sid e nt o f the Unite d Sta te s. Pa ul Wa rb urg wa s sup p o rting Wilso n, Fe lix Wa rb urg wa s sup p o rting Ta ft,

a nd O tto Ka hn wa s sup p o rting The o d o re Ro o se ve lt. Pa ul Wa rb urg

e xp la ine d this c urio us situa tio n b y te lling the C o mmitte e tha t the y ha d no influe nc e o ve r e a c h o the r’ s p o litic a l b e lie fs, "a s fina nc e a nd p o litic s

d o n’ t mix." Q ue stio ns a b o ut Wa rb urg ’ s a p p o intme nt va nishe d in a hue a nd c ry

with Wilso n’ s so le a p p o intme nt to the Bo a rd o f G o ve rno rs, Tho ma s B. Jo ne s. Re p o rte rs ha d d isc o ve re d tha t Jo ne s, a t the time o f his

a p p o intme nt, wa s und e r ind ic tme nt b y the Atto rne y G e ne ra l o f the Unite d Sta te s. Wilso n le a p e d to the d e fe nse o f his c ho ic e , te lling re p o rte rs tha t "The ma jo rity o f the me n c o nne c te d with wha t we ha ve

c o me to c a ll ‘ b ig b usine ss’ a re ho ne st, inc o rrup tib le a nd p a trio tic ." De sp ite Wilso n’ s p ro te sta tio ns, the Se na te Ba nking a nd C urre nc y

C o mmitte e sc he d ule d __________________________

* Wa rb urg wa s c o nfirme d Aug ust 8, 1914, 38-11, a nd p rinc ip a lly o p p o se d b y Se n. Bristo w o f Ka nsa s, who wa s d e no unc e d b y The Ne w Yo rk Time s a s a "ra d ic a l Re p ub lic a n", a nd who se e xc e lle nt lib ra ry o f ra re b o o ks o n b a nking we re a c q uire d b y the p re se nt write r in 1983 fo r re se a rc h o n this wo rk.

he a ring s o n the fitne ss o f Tho ma s D. Jo ne s to b e a me mb e r o f the Bo a rd o f G o ve rno rs. Wilso n the n wro te a le tte r to Se na to r Ro b e rt L. O we n, C ha irma n o f tha t C o mmitte e :

White Ho use June 18, 1914 De a r Se na to r O we n: Mr. Jo ne s ha s a lwa ys sto o d fo r the rig hts o f the p e o p le a g a inst the rig hts o f p rivile g e . His c o nne c tio n with the Ha rve ste r C o mp a ny wa s a p ub lic se rvic e , no t a p riva te inte re st. He is the o ne ma n o f the who le numb e r who wa s in a p e c ulia r se nse my p e rso na l c ho ic e . Sinc e re ly, Wo o d ro w Wilso n Wo o d ro w Wilso n sa id , "The re is no re a so n to b e lie ve tha t the

unfa vo ra b le re p o rt re p re se nts the a ttitud e o f the Se na te itse lf." Afte r se ve ra l we e ks, Tho ma s D. Jo ne s withd re w his na me , a nd the c o untry

ha d to d o witho ut his se rvic e s.

The o the r me mb e rs o f the first Bo a rd o f G o ve rno rs we re Se c re ta ry o f the Tre a sury, Willia m Mc Ad o o , Wilso n’ s so n-in-la w, a nd Pre sid e nt o f the Hud so n-Ma nha tta n Ra ilro a d , a Kuhn, Lo e b C o mp a ny c o ntro lle d

e nte rp rise , a nd C o mp tro lle r o f the C urre nc y Jo hn Ske lto n Willia ms. Whe n the Fe d e ra l Re se rve Ba nks we re o p e ne d fo r b usine ss o n

No ve mb e r 16, 1914, Pa ul Wa rb urg sa id , "This d a te ma y b e c o nsid e re d

a s the Fo urth o f July in the e c o no mic histo ry o f the Unite d Sta te s."

39