The Beast from Jekyll Island
The banking world was on a roll now, moving inexorably towards its long-cherished central bank, with politicians in charge who understood their business. In 1900 the Gold Standard Act brought a golden axe down on silver money and the romance of old.
And by now the academic world was being busily inseminated by the new neoclassical economics through financing of economics departments, newspaper ownership, all to hide the machinations of monopoly in a dizzying maze of complexity, mathematics and voodoo verbiage.
Later in 1900, William Jennings Bryan tried for the presidency again, and again in 1908 and never made it, but would remain a powerful player in American politics for some time. Many in the Populist movement were disgusted that from the 1900 campaign onwards, the focus switched from currency issues to issues of big business in general, the demonetisation of silver coming just before the 1900 election.
In the 08 campaign Bryan campaigned against corporate domination, corporate funding of parties. He didn’t have anything to say about currency anymore, and he suffered his worst defeat. These were more affluent times and his words had less resonance.
Four years on, he gave his support to Woodrow Wilson to succeed him as Democratic presidential candidate. Wilson may have seemed the ideal choice to Bryan to carry the struggle on, for Woodrow Wilson seemed to think clearly. Henry Morgenthau, Sr., former US Ambassador, said years later, in an interview in the New York Times in 1941, that:
Mr. Wilson had but one prejudice. That was against wealth; he believed that no man could honestly amass a million dollars in a lifetime. At heart he was a follower of Henry George and strongly objected to private profit accruing through the increase in land values.
If only he’d followed his heart. In fact, he had four Single Taxers in his cabinet (we don’t yet know who these were and what they were doing there.) Interesting that still, in 1941, someone would mention Henry George’s name to a newspaper in full expectation of recognition and understanding.
Woodrow Wilson’s view on matters close to Bryan’s heart might have seemed sufficiently expressed in this quote:
The great monopoly in this country is the monopoly of big credits. So long as that exists, our old variety and freedom and individual energy of development are out of the question. A great industrial nation is controlled by its system of credit. Our system of credit is privately concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men …
The New Freedom - A call for the emancipation of the generous energies of a people (1913),
Chapter VIII, Monopoly or Opportunity? New York and Garden City: Doubleday, Page and Company.
Nice piece, worth a read.
Yet despite this apparent insight, it would be on Woodrow Wilson’s watch as President, and the same year that he published these words, that the Federal Reserve Act would come to pass. That's a hard one. And when Wilson was elected, Bryan became Secretary of State.
In 1907, another big financial crisis had occurred; certain voices spreading market rumours, panics, runs on banks, widespread business ruin. JP Morgan, a famous banking figure (perhaps actually representing a much larger entity from overseas) took centre stage with a banking coalition, who were somehow allowed to print up a serious amount of money, and save America by spending the money into the economy, largely by buying up assets from bankrupt businesses and banks. The whole turmoil was then cast as a powerful argument for the stability that a central bank would apparently bring.
Apparent preparatory work for the Federal Reserve had occurred in 1912, with the adoption of the 16th Amendment to the Constitution, which allowed the federal government to levy income tax directly onto the citizens, preparing the class that would pay the national debt to come. Britain had first introduced income tax as long ago as 1798.
The design of the Federal Reserve Act had been drafted in a secret meeting of bankers with their government man. They secretly convened at Jekyll Island, off of the Georgia coast, and here they crafted the details. (Have had recommended G Edward Griffin’s telling of the story in his The Creature from Jekyll Island (1994)
Like the Bank of England before it, its cleverly chosen name serves it well; The Federal Reserve, it does sound sagacious and trustworthy. But it’s not federal, and there is no reserve. It’s another con trick with words, like neoclassical or neoliberal. It’s a private affair, and in this they have fooled nearly all of the people, all of the time, to this day.
The 1913 Federal Reserve Act was certainly not without opposition. Many American politicians were aghast. US Representative Charles Lindbergh Sr., father of the US aviator, described the Act as the worst legislative crime of the ages. He warned that there was now the power to:
cause the pendulum of a rising and falling market to swing gently back and forth by slight changes in the discount rate, or cause violent fluctuations by greater rate variation, and in either case it will possess inside information as to financial conditions and advance knowledge of the coming change, either up or down.
This is the strangest, most dangerous advantage ever placed in the hands of a special privilege class by any Government that ever existed. . . . The financial system has been turned over to . . . a purely profiteering group. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people’s money.
Bells keep ringing!
And so, 16 years after Henry George’s death, the banks achieved their final victory in the struggle of this era – and the result which stands to this day – when the Federal Reserve Act of 1913 granted a private banking corporation, universally perceived to be an arm of the state, the magical power to create money out of nothing and then loan it at interest, and to control the supply of the national currency, and weld this power to the military power of this empire state.
This was the seventh and apparently final time the baton of money monopoly changed hands between the people’s government and private ownership. Throughout a century and a bit long struggle with American Presidents and popular movements, the money power had pursued its golden goose relentlessly, and finally achieved what it wanted; an American central bank. 1913 brings to a close a long era of American history.
The crushing final victory represented by the Federal Reserve Act was such that this whole question of who properly issues money, almost the dominant issue of American politics until this point, has never again been debated in American politics (and mentioned just the once.) It has become the unquestioned order of life. And all of this history, so fundamental to society, is largely neglected and disregarded, such a given in people’s minds are the governing arrangements, and rarely ever considered even in academic circles (or maybe especially in academic circles.)
Bryan, as Secretary of State, was closely involved in thrashing out the deal that got the Federal Reserve Act passed.
This is a very informative article from George Selgin, Director of the Cato Institute's Center for Monetary and Financial Alternatives, which tells a more detailed tale of Bryan and the Federal Reserve, and what was happening with banking in Canada at the time, which had been attracting some attention in the US. And he says:
And so it happened that, through his unrelenting efforts over the course of more than two decades, William Jennings Bryan, the most stalwart enemy of both private currency and currency monopoly since Andrew Jackson, helped to create a currency monopoly far more powerful than any that Jackson could ever have envisaged, and far more capable of gratifying Wall Street, at the expense of the rest of the nation, than Wall Street alone, left perfectly free from government controls, could ever have devised.
And that sounds like a political tragedy.
By the time it took to get into the studio and get enough tracks finished and mixed, we had read The Science of Political Economy, which gave a perfect analysis of the purpose and nature of money. We are novices with more to read. We knew almost instantly that on the principles of wealth and distribution, Progress and Poverty is a complete statement, but there is more to read of George. And from Social Problems, George is clear about what is not the business of government and what absolutely is:
To illustrate: It is not the business of government to interfere with the views which any one may hold of the Creator or with the worship he may choose to pay him, so long as the exercise of these individual rights does not conflict with the equal liberty of others; and the result of governmental interference in this domain has been hypocrisy, corruption, persecution and religious war. It is not the business of government to direct the employment of labor and capital, and to foster certain industries at the expense of other industries; and the attempt to do so leads to all the waste, loss and corruption due to protective tariffs. On the other hand it is the business of government to issue money. This is perceived as soon as the great labor saving invention of money supplants barter. To leave it to every one who chose to do so to issue money would be to entail general inconvenience and loss, to offer many temptations to roguery, and to put the poorer classes of society at a great disadvantage. These obvious considerations have everywhere, as society became well organized, led to the recognition of the coinage of money as an exclusive function of government. When in the progress of society, a further labor-saving improvement becomes possible by the substitution of paper for the precious metals as the material for money, the reasons why the issuance of this money should be made a government function become still stronger. The evils entailed by wildcat banking in the United States are too well remembered to need reference. The loss and inconvenience, the swindling and corruption that flowed from the assumption by each State of the Union of the power to license banks of issue ended with the war, and no-one would now go back to them. Yet instead of doing what every public consideration impels us to, and assuming wholly and fully as the exclusive function of the General Government the power to issue money, the private interests of bankers have, up to this, compelled us to the use of a hybrid currency, of which a large part, though guaranteed by the General Government, is issued and made profitable to corporations. The legitimate business of banking – the safekeeping and loaning of money, and the making and exchange of credits, is properly left to individuals and associations; but by leaving to them, even in part and under restrictions and guarantees, the issuance of money, the people of the United States suffer an annual loss of millions of dollars, and sensibly increase the influences which exert a corrupting effect upon their government.
The Complete Works of Henry George. "Social Problems", p. 178, Doubleday Page & Co, New York, 1904
And in our random and scattergun reading, we maybe wish we’d read this piece earlier from the Henry George Foundation on the concept of value, which summarises George’s view of money in The Science of Political Economy and explains well just what money is. Had we read all this earlier, likely our notes on all this would have taken a different shape, but somehow it stands, anyway, as illustrative of the confusion and misinformation around the subject.
We’re going to return to the whole issue of money, and hopefully by the second album, we’ll understand much more about it. And we need some greater understanding of the nature of the obfuscation. In Lindy Davies’ afterword to The Science of Political Economy, he said that he intended an afterword that was an update of this work from the end of the 19th century, how George would see it now. He says:
However, as I proceeded with the abridgment I realized that I was making the same sort of mistake that the academic establishment has always tended to make regarding George's work. We find none of today's economic buzzwords in The Science of Political Economy; however, George also had little to say about the buzzwords of his own time, except as examples of underlying confusion. As a "primer of political economy", George's work still stands.
So much of what a modern economist would fret and agonise over are really just manifestations of the underlying confusion that comes from not following natural economic laws. So, things like externalities, business cycle theory, look very different when viewed through a proper perspective. There really is nothing that just arises mysteriously from the well of market complexity, these complications can all be seen to be distortions which accrue from the straying from the just path. Lindy says:
In George's view, these natural laws of distribution cannot be broken; if human arrangements unwisely go against them, the consequences will inevitably be seen in subsequent production patterns.
Back to the world that did unwisely turn from them, in the moment of the newly inaugurated Federal Reserve, with Europe sliding into tribal bloodletting, and we came across this piece:
Congressman Oscar Callaway lost his Congressional election for opposing US entry into WW 1. Before he left office, he demanded investigation into JP Morgan & Co for purchasing control over America’s leading 25 newspapers in order to propagandize US public opinion in favor of his corporate and banking interests, including profits from US participation in the war. Mr. Callaway alleged he had the evidence to prove Morgan associates were working as editors to select and edit articles, with the press receiving monthly payments for their allegiance to Morgan.
One of the leading papers, The New York Times, printed the story [published Feb. 14, 1917] of Congressman Callaway’s call for investigation from Washington, D.C., but the editor chose a curious obfuscating headline:
FOR PRESS INVESTIGATION
Moore Asks Inquiry Into Charges
on Preparedness Campaign.
The year after the Federal Reserve Act, the First World War broke out in Europe, with, as had long been the game, different national branches of the same international banking group financing the desperate war efforts of Britain, France and Germany as they sacrificed their youth, while their agents in America controlled the supply of war materials to Britain and France, a trade worth $10 million a day. The First World War was, of course, boom time for central bankers. Their trade is in debt, and nothing generates debt like war.
Across the world, 1917, the Czar of Russia, the last European power to hold out against a central bank, was overthrown in the Bolshevik Revolution. There is suggestion made that the Revolution was the bankers’ revenge for the earlier Czarist resistance of the central bank racket, going back to the Alexander II’s support of Lincoln 50 years earlier, anchoring Russian fleets in American harbours.
There is a very famous old banker, one of the in-crowd of big international bankers, who is quoted as boasting on his deathbed of his funnelling money to the Bolshevik Revolution to destroy the Czars, which is probably an invention with possibly a little background to it, maybe. What is certain is that large sums of money did flow from the West to the Bolsheviks and the agents of the revolt were aided in the West. It was claimed on the floor of the House of Representatives by Louis McFadden, (more later), that the Federal Reserve financed the Russian Revolution. He was called mad.
At the very end of the Soviet Union, new Russian President Yeltsin was reported in 1992 as being alarmed at the amount of money leaving Russia in debt service to Western banks. Lots of money was coming in, lots more money was going out. Was this all really a sham?
Why though? In whose interests would it be that money from the West was channelled to the Bolsheviks? Was the USSR created to give the West an enemy to have an arms race with, with the guaranteed eye-watering profits to be had there?
Author Gary Allen had this angle on it:
If one understands that Socialism is not a share-the-wealth programme but is, in reality, a method to consolidate and control the wealth, then the seeming paradox of super-rich men promoting Socialism becomes no paradox at all. Instead, it becomes logical, even the perfect tool of power-seeking megalomaniacs. Communism or, more accurately, Socialism, is not a movement of the downtrodden masses but of the economic elite.
There’s certainly a confusing plethora of views around.
(Much more later.)