James A. Watkins is an entrepreneur, musician, and a writer with four non-fiction books and hundreds of magazine articles read by millions.
America was Awesome Without the Federal Reserve
America prospered after the Civil War to an extent unmatched in human history. The country's incredible economic growth by 1910 was accomplished without the 'help' of the federal government in the affairs of men. And without a central bank. There was virtually no inflation. Americans loved their freedom, including the Laissez Faire free market (without government interference).
Then, President Woodrow Wilson was elected and began to implement the agenda of the new 'progressives,' including the creation of the Federal Reserve and our first-ever National Income Tax, both in 1913.
Since the birth of the Federal Reserve, the value of a dollar has steadily shrunk. What one single dollar would buy in 1913 will today cost you about $30. Put another way, if you saved $30,000 back then, you would today find it only worth $1,000. Some reward for your disciplined thriftiness. In other words, your wealth will have disappeared. Where did it go? To those who created the Federal Reserve: Bankers and the Federal Government. As G. Edward Griffin notes, “The system has failed because it is incapable of achieving its stated objectives” because “those were never its true objectives.”
Banking Before and After the Federal Reserve
Before the creation of the Federal Reserve, bankers had to operate like any other business. They had to be careful how they conducted their affairs. Banks could suffer huge losses and even go bankrupt if poorly managed. Risk regulated their behavior. Famed economist Hans Sennholz called creating the Federal Reserve “the most tragic blunder ever committed by Congress.” It enabled bankers to escape the consequences of bad decisions that all of us regular folks must face.
The Federal Reserve is not federal, and it has no reserves. Its very name was designed to deceive. In this article, we will not look at how the Federal Reserve caused the Great Depression. Nor will we examine the stupefying 2009 Bank Bailout by taxpayers to the tune of $8,000,000,000,000 of those "too big to fail." We will only look at how the Federal Reserve came to be in the first place. A sinister deed indeed.
The Creation of the Federal Reserve
The Federal Reserve was conceived in 1910 at a top-secret meeting held during one week on Jekyll Island, Georgia. A strategy was hatched there to package the ‘creature’ to get it past Congress and not cause an uproar amongst the American citizenry. Only six men attended the conclave, led by a powerful senator from Rhode Island, Nelson Aldrich. The father-in-law of John D. Rockefeller, Jr., Aldrich had sizeable investments and assets in business, manufacturing, banking, and public utilities. He was also big buddies with the ultra-rich "Banker of America," J.P. Morgan, at whose hunting lodge the men convened.
The other men present included two additional representatives of Morgan’s bank, Henry Davison and Benjamin Strong; Abraham Andrew of the U.S. Treasury; Frank Vanderlip of National City Bank, who also represented the Rockefeller family; and most importantly, Paul Warburg, who was the boss of international bankers Kuhn, Loeb, & Company, brother to the most prominent banker in Germany and the Netherlands, and personal representative of the Rothschilds. Warburg, one of the wealthiest men in America through his control of the nation’s railroads, was the mastermind, indeed known today as the ‘Father of the Federal Reserve.’ These men represented one-fourth of the wealth of the world.
The meeting was so clandestine that it would be six years before word leaked to the press that it even took place. In 1916, the later founder of Forbes Magazine, B.C. Forbes revealed the story this way: "Picture a party of the nation's greatest bankers … sneaking onto an island … the strangest, most secret expedition in the history of American finance. The real story of how our new currency system was written."
All attendees were sworn to secrecy. As Warburg said in 1930, “Even the fact that there had been a meeting was not permitted to become public.” In 1935, Vanderlip wrote, “I was as secretive—indeed, as furtive—as any conspirator. If it were to be exposed publicly that our particular group had gotten together and written a banking bill, that bill would have no chance whatever of passage by Congress."
The Purpose of the Federal Reserve and the Strategy to Make it Law
The idea of the Federal Reserve was for the richest men in America to take control of all banking, issuing of credit, money supply, and even to take a monopoly over all money, especially the coining and printing of it. In addition, to relieve themselves of risk by shifting their losses onto the backs of taxpayers. Without having to share the profits, of course.
These men were irked at the growing power of smaller banks not connected to New York and Wall Street, which had grown out in the south and the west as the country expanded. The Jekyll Island cartel planned to put the authority of the United States government behind their schemes. That would require legislation that could only be passed if deception was devised that the entire idea was only to protect the public. The banking cartel behind it was careful not to use the word “bank” in their proposal, especially not a “central bank,” an idea long opposed by Americans, though common in Europe.
In 1911, Senator Aldrich told the American Bankers Association, "The organization proposed is not a bank, but a cooperative union of all the banks." Before the Federal Reserve Act passed, Barton Hepburn of Chase National Bank explained approvingly that it would make the New York banks “joint owners of a central dominating power.” After the creature was made law, Aldrich bragged, “Before the passage of this Act, the New York bankers could only dominate the reserves of New York. Now we are able to dominate the bank reserves of the entire country.”
Textbooks Lie About the Federal Reserve
A typical textbook will claim that the creation of the Federal Reserve was to "stabilize the economy." I quote from one: "The country was fed up once and for all with the anarchy of unstable private banking."
The real reason was, as described by William Greider of the Washington Post in 1987: “As new companies prospered without Wall Street, so did the new regional banks that handled their funds. New York’s concentrated share of bank deposits was still huge, about half the nation’s total, but it was declining steadily.” Or as Anthony Sutton of the Hoover Institute puts it: “Warburg’s revolutionary plan was to get American society to go to work for Wall Street. …The Federal Reserve is a private legal monopoly of the money supply.”
Griffin describes the objectives of the Jekyll Island brigands: "Stop the growing competition from the nation's newer banks; obtain a franchise to create money out of nothing for the purpose of lending; get control of the reserves of all banks; get the taxpayer to pick up the cartel's inevitable losses; convince Congress that the purpose was to protect the public."
When the Federal Reserve Act was passed in 1913, non-national banks had grown swiftly to become 71% of America's banks, capturing 57% of the nation's deposits. In addition, American companies were increasingly financing their expansion without banks through their own profits. This would not do.
How the Fed Works
The Fed makes enormous loans to the American government, giant corporations, and foreign governments. If the borrowers default, the American taxpayer picks up the bill. The bigger the loan, the bigger the interest payments – and the public does not guarantee small loans to small fries – so large loans are where it’s at. And here is the key element I learned: Banks do not want the colossal loans paid back! Their profit is from the interest. If the loan is paid off, no more interest is forthcoming, and they must find a new fish.
That is why the banking cartel loves to loan to governments: They are notorious for never paying off their national debts. Instead, the banks will lend them more and more if the borrower can keep up the interest payments. Banks will even loan to those in default, with which to make interest payments! If the borrowers go broke and cannot even come up with interest payments, they will have to be bailed out by Congress using taxpayer funds. The public is told it had to be done or a Great Depression would come again.
Most people do not understand this. One man in the audience on the Phil Donahue Show was wildly applauded by those gathered for asking, “Why can’t the government pay for these debts instead of the taxpayers?”
How the Deal was Sold
The banking cartel wanted to use the police powers of government to enforce their authority. They would have to persuade Congress first. For a start, they persuaded Congress to pass the 1910 Aldrich-Vreeland Act. It granted national banks the power to issue Scrip, a piece of paper representing something of value but with no intrinsic value.
The Act also authorized the formation of a National Monetary Commission to advise Congress on what it should do to stabilize our currency, chaired by Senator Aldrich, of course. The Commission held no meetings, and its commissioners, 18 members of Congress, were not even asked for their opinions on the matter. The issue was settled on Jekyll Island, and none of them were invited.
The strategy was to make the Federal Reserve look like it would be part of the government. Under the control of We the People, in other words, which it would decidedly not be. Regional branches would be created to disguise it, making it appear not to be a central bank, which was an extremely unpopular thing in America. University professors would be hired to give their enthusiastic approval of the plan. And lastly, the big bankers themselves would rant and rave against the idea. This would give the public the impression that the plan was to punish and control fat cats – not to put them in power over our nation's money supply.
In fact, the Federal Reserve would take power to lend money to the U.S. government, be the holder of government funds, and create the only official currency of our country, with the words on every note, “The United States of America,” signed by the Treasurer of the United States.
To Convince the Little Guy it was for His Own Good
The banking cartel put up five million dollars to create an "educational" fund. In today's money, that would be $150 million. This money was disbursed to colleges in exchange for glowing academic papers written by their professors about how excellent the idea was. The fund also launched the National Citizen's League, making it look like a grassroots group of concerned citizens from Chicago. In reality, it was under the auspices of Paul Warburg in New York. The League printed hundreds of thousands of booklets for public consumption, organized phony letters written to Congress, and supplied a steady stream of quotes for the news media. All in favor of the creature, of course.
The Big Coup was yet to come. The bankers needed a president who would sign the Act. They had just the right man in mind: Woodrow Wilson, a close friend of Andrew Carnegie, and former college classmate of Cyrus McCormick and Cleveland Dodge, three of the mega-rich men in favor of the plan.
Wilson was President of Princeton University and the first well-known egghead to give speeches in favor of the plan. He was rewarded by being made Governor of New York in 1910 and then President of the United States in 1912.
Woodrow Wilson made President and Federal Reserve Act Signed into Law
In the 1912 election, the very popular Republican President William Howard Taft was up for reelection. He was against the Federal Reserve because he saw it for what it was: New York bankers taking over our monetary system. Taft had to go.
Times were quite prosperous around the country, and Taft was a heavy favorite. Nobody thought the aloof, humorless bookworm Wilson with the charisma of a tree stump could win. J.P. Morgan had the answer. He would persuade former Republican President Teddy Roosevelt to run as a third-party candidate. That would take a substantial number of Taft's voters away - precisely what happened. Teddy was a national hero. His running gave the presidency to Wilson even though 58% of Americans voted against him.
The Democrats lied throughout the campaign that they were against the formation of the Federal Reserve, even making their opposition part of their official platform. Democrats had always claimed to be the working man's party and had always opposed any central bank. They kept their true agenda top secret and made fools of the voters.
After Wilson took office, both Aldrich and Vanderlip vehemently denigrated the Federal Reserve Act non-stop—even though they were both totally for it. Having wealthy bankers against it made it an easier sell to the little man. As Wilson's Treasury Secretary William McAdoo admitted in his memoirs, "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 were not really opposed to the bill."
The final hurdle was to get it past William Jennings Bryan, the most popular Democrat in the country, and a man totally against any central bank, including the one proposed. They duped him, too. They made sure the bill draft did not have a couple of essential items they wanted that they knew would be Bryan's hot buttons. His reaction was precisely as they predicted. He demanded that currency issued by the Federal Reserve must be United States government notes, and that the Fed must have a governing body appointed by the President and approved by the Senate. So now they could say, “You sure drive a hard bargain, Bryan. I guess we have no choice but to reluctantly give in to your demands.”
I will sum it up with a quote from Murray Rothbard: “The financial elites of this country, notably the Morgan, Rockefeller, and Kuhn, Loeb interests, were responsible for putting through the Federal Reserve System, as a governmentally created and sanctioned cartel device to enable the nation’s banks to inflate the money supply in a coordinated fashion, without suffering quick retribution from depositors or noteholders demanding cash. Recent researchers, however, have also highlighted the vital supporting role of the growing number of technocratic experts and academics, who were happy to lend the patina of their allegedly scientific expertise to the elites’ drive for a central bank. To achieve a regime of big government and government control, power elites cannot achieve their goal of privilege through statism without the vital legitimizing support of the supposedly disinterested experts and the professoriat. To achieve the Leviathan state, interests seeking special privilege, and intellectuals offering scholarship and ideology, must work hand in hand.”
Sources: The Creature from Jekyll Island by G. Edward Griffin; End the Fed by Ron Paul; The Origins of the Federal Reserve by Murray Rothbard; and Capitalism in America by Alan Greenspan & Adrian Woolridge.
James A Watkins (author) from Chicago on September 02, 2021:
Will Starr ~ Always a pleasure to see your name and hear your thoughts. Thank you for reading my piece, and for your kind compliments. I very much look forward to reading your work on "real money vs fiat money and the history of US money."
I love that Milton Friedman quote. I do not recall seeing it before: "the Fed is a scheme devised by charlatans to enable government to spend worthless trillions into circulation and then use the accompanying new Income Tax as a way to get it back out of circulation."
Wow. What a scheme.
And you are, of course, spot on that "all the gold and silver coin that government has confiscated by taking it out of circulation was not theirs to take!"
James A Watkins (author) from Chicago on September 02, 2021:
Ken Burgess ~ Thank you for taking the time to read my article on the Federal Reserve. I appreciate your kind compliments on it and I agree with your assessment.
WillStarr from Phoenix, Arizona on August 31, 2021:
Economist Dr. Milton Friedman once explained the Fed as a scheme devised by charlatans to enable government to spend worthless trillions into circulation and then use the accompanying new Income Tax as a way to get it back out of circulation.
What no one wants to admit is that all the gold and silver coin that government has confiscated by taking it out of circulation was not theirs to take! All but a little of that belonged to those citizens who deposited it in banks for safekeeping! Government minted that coin using the gold and silver from miners and the foreign coin belonging to We, the People.
Excellent, James and as we once discussed, I'll post a similar Hub about real money vs fiat money and the history of US money.
Ken Burgess from Florida on August 31, 2021:
Well done, well researched, and yes Woodrow Wilson did more to undermine America than any other single person.