CHAPTER 4. The Federal Advisory Council: The Secrets of the Federal Reserve by Eustace Mullins from archive.org

CHAPTER FOUR

The Federal Advisory Council

In steamrolling the Federal Reserve Act through the House of

Representatives, Congressman Carter Glass declared on September 30, 1913

on the floor of the House that the interests of the public would be protected

by an advisory council of bankers. "There can be nothing sinister about its

transactions. Meeting with it at least four times a year will be a bankers'

advisory council representing every regional reserve district in the system.

How could we have exercised greater caution in safeguarding the public

interest?

Carter Glass neither then nor later gave any substantiation for his belief that
a group of bankers would protect the interests of the public, nor is there any
evidence in the history of the United States that any group of bankers has
ever done so. In fact, the Federal Advisory Council proved to be the

"administrative process" which Paul Warburg had inserted into the Federal
Reserve Act to provide just the type of remote but unseen control over the
System which he desired. When he was asked by financial reporter C.W.
Barron, just after the Federal Reserve Act was enacted into law by Congress,
whether he approved of the bill as it was finally passed, Warburg replied,
"Well, it hasn't got quite everything we want, but the lack can be adjusted
later by administrative processes." The council proved to be the ideal vehicle
for Warburg's purposes, as it has functioned for seventy years in almost
complete anonymity, its members and their business associations, unnoticed
by the public.

Senator Robert Owen, chairman of the Senate Banking and Currency
Committee, had said, as quoted in The New York Times, August 3, 1913
before passage of the act:

"The Federal Reserve Act will furnish the bank and industrial and
commercial interests with the

discount of qualified commercial paper and thus stabilize our commercial
and industrial life. The

Federal Reserve banks are not intended as money making banks, but to serve
a great national

purpose of accommodating commerce and businessmen and banks,
safeguard a fixed market for

manufactured goods, for agricultural products and for labor. There is no
reason why the banks



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should be in control of the Federal Reserve system. Stability will make our
commerce expand

healthfully in every direction."

Senator Owen's optimism was doomed by the domination of the Jekyll Island

promoters over the initial composition of the Federal Reserve System. Not

only did the Morgan-Kuhn, Loeb alliance purchase the dominant control of

stock in the Federal Reserve Bank of New York, with almost half of the

shares owned by the five New York banks under their control, First National

Bank, National City Bank, National Bank of Commerce, Chase National

Bank and Hanover National Bank, but they also persuaded President

Woodrow Wilson to appoint one of the Jekyll Island group, Paul Warburg,

to the Federal Reserve Board of Governors.

Each of the twelve Federal Reserve Banks was to elect a member of the
Federal Advisory Council, which would meet with the Federal Reserve
Board of Governors four times a year in Washington, in order to "advise"
the Board on future monetary policy. This seemed to assure absolute
democracy, as each of the twelve "advisors", representing a different region
of the United States, would be expected to speak up for the economic
interests of his area, and each of the twelve members would have an equal
vote. The theory may have been admirable in its concept, but the hard facts
of economic life resulted in a quite different picture. The president of a small
bank in St. Louis or Cincinnati, sitting in conference with Paul Warburg and
J.P. Morgan to "advise" them on monetary policy, would be unlikely to
contradict two of the most powerful international financiers in the world, as
a scribbled note from either one of them would be sufficient to plunge his
little bank into bankruptcy. In fact, the small banks of the twelve Federal
Reserve districts existed only as satellites of the big New York financial
interests, and were completely at their mercy. Martin Mayer, in The
Bankers, points out that "J.P. Morgan maintained correspondent
relationships with many small banks all over the country. "30 The big New
York banks did not confine themselves to multi-million dollar deals with
other great financial interests, but carried on many smaller and more routine
dealings with their "correspondent" banks across the United States.

Apparently secure in their belief that their activities would never be exposed
to the public, the Morgan-Kuhn, Loeb interests boldly selected the members
of the Federal Advisory Council from their correspondent banks and from
banks in which they owned stock. No one in the financial community seemed
to notice, as nothing was said about it during seventy years of the Federal
Reserve System's operation.

To avoid any suspicion that New York interests might control the Federal
Advisory Council, its first president, elected in 1914 by the other members,
was J.B. Forgan, president of the First National Bank of



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30 Martin Mayer, The Bankers, Weybright and Talley, New York, 1974, p.

207.

Chicago. Rand McNally Bankers Directory for 1914 lists the principal

correspondents of the large banks. The principal correspondent bank of the

Baker-Morgan controlled First National Bank of New York is listed as the

First National Bank of Chicago. The principal correspondent listed by the

First National Bank of Chicago is the Bank of Manhattan in New York,

controlled by Jacob Schiff and Paul Warburg of Kuhn, Loeb Company.

James B. Forgan also was listed as a director of Equitable Life Insurance

Company, also controlled by Morgan. However, the relationship between

First National Bank of Chicago and these New York banks was even closer

than these listings indicate.

On page 701 of The Growth of Chicago Banks by F. Cyril James, we find
mention of "the First National Bank of Chicago's profitable connection with
the Morgan interests. A goodwill ambassador was hastily sent to New York
to invite George F. Baker to become a director of the First National Bank of
Chicago."31 (J.B. Forgan to Ream, January 7, 1903.) In effect, Baker and
Morgan had personally chosen the first president of the Federal Advisory
Council.

James B. Forgan (1852-1924) also shows the obligatory "London
Connection" in the operation of the Federal Reserve System. Born in St.
Andrew's, Scotland, he began his banking career there with the Royal Bank
of Scotland, a correspondent of the Bank of England. He came to Canada for
the Bank of British North America, worked for the Bank of Nova Scotia,
which sent him to Chicago in the 1880's, and by 1900 he had become
president of the First National Bank of Chicago. He served for six years as
president of the Federal Advisory Council, and when he left the council, he
was replaced by Frank O. Wetmore, who had also replaced him as president
of the First National Bank of Chicago when Forgan was named chairman of
the board.

Representing the New York Federal Reserve district on the first Federal
Advisory Council was J.P. Morgan. He was named chairman of the
Executive Committee. Thus, Paul Warburg and J.P. Morgan sat in
conference at the meetings of the Federal Reserve Board during the first four
years of its operation, surrounded by the other Governors and members of
the council, who could hardly have been unaware that their futures would be
guided by these two powerful bankers.

Another member of the Federal Advisory Council in 1914 was Levi L. Rue,
representing the Philadelphia district. Rue was president of the Philadelphia



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National Bank. Rand McNally Bankers Directory of 1914 listed as principal
correspondent of the First National Bank of New York,



31 F. Cyril James, The Growth of Chicago Banks, Harper, New York, 1938.

the Philadelphia National Bank. First National Bank of Chicago also listed
Philadelphia National Bank as its principal correspondent in Philadelphia.

The other members of the Federal Advisory Council included Daniel S.

Wing, president of the First National Bank of Boston, W.S. Rowe, president

of the First National Bank of Cincinnati, and C.T. Jaffray, president of the

First National Bank of Minneapolis. These were all correspondent banks of

the New York "big five" banks who controlled the money market in the

United States.

Jaffray had an even closer connection with the Baker-Morgan interests. In
1908, to reinvest the large annual dividends from their First National Bank
of New York stock, Baker and Morgan set up a holding company, First
Security Corporation, which bought 500 shares of the First National Bank of
Minneapolis. Thus Jaffray was little more than a wage-earning employee of
Baker and Morgan, although he had been "selected" by stockholders of the
Federal Reserve Bank of Minneapolis to represent their interests. First
Security Corporation also owned 50,000 shares of Chase National Bank, 5400
shares of National Bank of Commerce, 2500 shares of Bankers Trust, 928
shares of Liberty National Bank, the bank of which Henry P. Davison had
been president when he was tapped to join the J.P. Morgan firm, and shares
of New York Trust, Atlantic Trust and Brooklyn Trust. First Security
concentrated on bank stocks which rapidly appreciated in value, and paid
handsome annual dividends. In 1927, it earned five million dollars, but paid
the shareholders eight million, taking the rest from its surplus.

Another member of the initial Federal Advisory Council was E.F. Swinney,
president of the First National Bank of Kansas City. He was also a director of
Southern Railway, and lists himself in Who's Who as "independent in
politics".

Archibald Kains represented the San Francisco district on the Federal
Advisory Council, although he maintained his office in New York, as
president of the American Foreign Banking Corporation.

After serving as a Governor of the Federal Reserve Board from 1914-1918,
Paul Warburg did not request another term. However, he was not ready to
sever his connection with the Federal Reserve System which he had done so
much to set up and put into operation. J.P. Morgan obligingly gave up his
seat on the Federal Advisory Council, and for the next ten years, Paul
Warburg continued to represent the Federal Reserve district of New York on
the Council. He was vice president of the council 1922-25, and president



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1926-27. Thus Warburg remained the dominant presence at Federal Reserve
Board meetings throughout the 1920s, when the European central banks
were planning the great contraction of credit which precipitated the Crash of
1929 and the Great Depression.

Although most of the Federal Advisory Council's "advice" to the Board of
Governors has never been reported, on rare instances a few glimpses into its

deliberations were afforded by brief items in The New York Times. On

November 21, 1916, The Times reported that the Federal Advisory Council

had met in Washington for its quarterly conference.

"There was talk about absorbing Europe's extension of credit to South
America and other

countries. Federal Reserve officials said that to maintain a position as one of
the world's bankers

the United States must expect to be called upon to render a good deal of the
service performed

largely by England in the past, in extending short term credits necessary in
the production and

transportation of goods of all kinds in the world's trade, and that
acceptances in foreign trade

require lower discounts and the freest and most reliable gold markets." (The
First World War

was at its zenith in 1916.)

In addition to his service on the Board of Governors and the Federal
Advisory Council, Paul Warburg continued to address bankers' groups
about the monetary policies they were expected to follow. On October 22,
1915, he addressed the Twin City Bankers Club, St. Paul, Minnesota during
which speech he stated,

"It is to your interest to see the Federal Reserve banks as strong as they
possibly can be. It

staggers the imagination to think what the future may have in store for the
development of

American banking. With Europe's foremost powers limited to their own
field, with the United

States turned into a creditor nation for all the world, the boundaries of the
field that lies open for



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us are determined only by our power of safe expansion. The scope of our banking
future will

ultimately be limited by the amount of gold that we can muster as the
foundation of our banking

and credit structure."

The composition of the Federal Reserve Board of Governors and the Federal
Reserve Advisory Council, from its initial membership to the present day,
shows links to the Jekyll Island conference and the London banking
community which offers incontrovertible evidence, acceptable in any court of
law, that there was a plan to gain control of the money and credit of the
people of the United States, and to use it for the profit of the architects. Old
Jekyll Island hands were Frank Vanderlip, president of the National City
Bank, which bought a large portion of the shares of the Federal Reserve
Bank of New York in 1914; Paul Warburg of Kuhn, Loeb Company; Henry
P. Davison, J.P. Morgan's righthand man, and director of the First National
Bank of New York and the National Bank of Commerce, which took a large
portion of Federal Reserve Bank of New York stock; and Benjamin Strong,
also known as a Morgan lieutenant,

who served as Governor of the Federal Reserve Bank of New York during

the 1920's.*

The selection of the regional members of the Federal Advisory Council from
the list of bankers who worked most closely with the "big five" banks of New
York, and who were their principal correspondent banks, proves that the
much-touted "regional safeguarding of the public interest" by Carter Glass
and other Washington proponents of the Federal Reserve Act was from its
very inception a deliberate deception. The fact that for seventy years this
council was able to meet with the Federal Reserve Board of Governors and to
"advise" the Governors on decisions of monetary policy which affected the
daily lives of every person in the United States, without the public being
aware of their existence, demonstrates that the planners of the central bank
operation knew exactly how to achieve their objectives through
"administrative processes" of which the public would remain ignorant. The
claim that the "advice" of the council members is not binding on the
Governors or that it carries no weight is to claim that four times a year,
twelve of the most influential bankers in the United States take time from
their work to travel to Washington to meet with the Federal Reserve Board
merely to drink coffee and exchange pleasantries. It is a claim which anyone
familiar with the workings of the business community will find impossible to
take seriously. In 1914, it was a four-day trip each way for bankers from the
Far West to come to Washington for a council meeting with the Federal
Reserve Board. These men had extensive business interests which demanded



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their time. J.P. Morgan was a director of sixty-three corporations which held
annual meetings, and



* "The Federal Advisory Council has great influence with the Federal
Reserve Board. Conspicuously upon that council is J.P. Morgan, the leading
member of J.P. Morgan Company and son of the late J.P. Morgan. Every one
of the twelve members of the Advisory Council, as you well know, was
educated in the same atmosphere. The Federal Reserve Act is not only a
special privilege act but privileged persons have been placed in control and
are its advisors in its administration. The Federal Reserve Board and the
Federal Advisory Council administer the Federal Reserve System as its head
authority, and no one of the lesser officials, even if they wished, would dare
to cross swords with them."

(FROM: "Why Is Your Country At War?" by Charles Lindbergh, published
in 1917). The above paragraph explains why Woodrow Wilson ordered
government agents to seize and destroy the printing plates and copies of this
book in the spring of 1918.

could hardly be expected to travel to Washington to attend meetings of the
Federal Reserve Board if his advice was to be considered of no importance.**



** The J.P. Morgan connection has remained predominant on the Federal
Advisory Council. For the past several years, the prestigious Federal Reserve
District No. 2, the New York District, has been represented on the Federal
Advisory Council by Lewis Preston. Preston is Chairman of J.P. Morgan
Company and also Chairman and Chief Executive Officer of Morgan
Guaranty Trust, New York. An heir to the Baldwin fortune (a company
controlled by Morgan), Preston married the heiress to the Pulitzer
newspaper fortune. On February 26, 1929, The New York Times noted that a
merger had been effected between National Bank of Commerce and
Guaranty Trust, making them the largest bank in the United States, with a
capital of two billion dollars. The merger was negotiated by Myron C.
Taylor, president of U.S. Steel, a Morgan firm. The banks occupied adjoining
buildings on Wall Street, and, as The New York Times noted, "The
Guaranty Trust Company long has been known as one of 'the Morgan
group' of banks." The National Bank of Commerce has also been identified
with Morgan interests.



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CHAPTER FIVE

The House of Rothschild