CHAPTER THIRTEEN The 1930's : Secrets of the Federal Reserve by Eustace Mullins from archive.org

CHAPTER THIRTEEN 

The 1930's 

In 1930 Herbert Hoover appointed to the Federal Reserve Board an old 
friend from World War I days, Eugene Meyer, Jr., who had a long record of 
public service dating from 1915, when he went into partnership with Bernard 
Baruch in the Alaska-Juneau Gold Mining Company. Meyer had been a 
Special Advisor to the War Industries Board on Non-Ferrous Metals (gold, 
silver, etc.); Special Assistant to the Secretary of War on aircraft production; 
in 1917 he was appointed to the National Committee on War Savings, and 
was made Chairman of the War Finance Corporation from 1918-1926. He 
then was appointed chairman of the Federal Farm Loan Board from 1927- 
29. Hoover put him on the Federal Reserve Board in 1930, and Franklin D. 
Roosevelt created the Reconstruction Bank for Reconstruction and 
Development in 1946. Meyer must have been a man of exceptional ability to 
hold so many important posts. However, there were some Senators who did 
not believe he should hold any Government office, because of his family 
background as an international gold dealer and his mysterious operations in 
billions of dollars of Government securities in the First World War. 
Consequently, the Senate held Hearings to determine whether Meyer ought 
to be on the Federal Reserve Board. 

At these Hearings, Representative Louis T. McFadden, Chairman of the 
House Banking and Currency Committee, said: 

"Eugene Meyer, Jr. has had his own crowd with him in the government since 
he started in 1917. 

His War Finance Corporation personnel took over the Federal Farm Loan 
System, and almost 

immediately afterwards, the Kansas City Join Stock Land Bank and the 
Ohio Joint Stock Land 

Bank failed." 

REPRESENTATIVE RAINEY: Mr. Meyer, when he nominally resigned as 
head of the Federal Farm Loan Board, did not really cease his activities 
there. He left behind him an able body of wreckers. They are continuing his 
policies and consulting with him. Before his appointment, he was frequently 
in consultation with Assistant Secretary of the Treasury Dewey. Just before 
his appointment, the Chicago Joint Land Stock Bank, the Dallas Joint Stock 
Land Bank, the Kansas City Joint Land Stock Bank, and the Des Moines 
Land Bank were all functioning. Their bonds 



171 
were selling at par. The then farm commissioner had an understanding with 

Secretary Dewey that nothing would be done without the consent and 

approval of the Federal Farm Loan Board. A few days afterwards, United 

States Marshals, with pistols strapped at their sides, and sometimes with 

drawn pistols, entered these five banks and demanded that the banks be 

turned over to them. Word went out all over the United States, through the 

newspapers, as to what had happened, and these banks were ruined. This led 

to the breach with the old Federal Farm Loan Board, and to the resignation 

of three of its members, and the appointment of Mr. Meyer to be head of that 

Board. 

SENATOR CAREY: Who authorized the marshals to take over the banks? 

REP. RAINEY: Assistant Secretary of the Treasury Dewey. That started the 
ruin of all these rural banks, and the Gianninis bought them up in great 
numbers." 

World's Work of February 1931, said: 

"When the World War began for us in 1917, Mr. Eugene Meyer, Jr. was 
among the first to be 

called to Washington. In April, 1918, President Wilson named him Director 
of the War Finance 

Corporation. This corporation loaned out 700 million dollars to banking and 
financial 

institutions." 

The Senate Hearings on Eugene Meyer, Jr. continued: 

REPRESENTATIVE MCFADDEN: "Lazard Freres, the international 
banking house of New York and Paris, was a Meyer family banking house. It 
frequently figures in imports and exports of gold, and one of the important 
functions of the Federal Reserve System has to do with gold movements in 
the maintenance of its own operations. In looking over the minutes of the 
hearing we had last Thursday, Senator Fletcher had asked Mr. Meyer, 'Have 
you any connections with international banking?' Mr. Meyer had answered, 
'Me? Not personally.' This last question and answer do not appear in the 
stenographic transcript. Senator Fletcher remembers asking the question 
and the answer. It is an odd omission. 

SENATOR BROOKHART: I understand that Mr. Meyer looked it over for 
corrections. 

REPRESENTATIVE MCFADDEN: Mr. Meyer is a brother-in-law of 
George Blumenthal, a member of the firm of J.P. Morgan Company, which 
represents the Rothschild interests. He also is a liaison officer between the 



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French Government and J.P. Morgan. Edmund Piatt, who had eight years to go 
on a term of ten years as Governor of the Federal Reserve Board, resigned to 
make room for Mr. Meyer. Piatt was given a Vice-Presidency of Marine 
Midland Corporation by Meyer's brother-in-law Alfred A. Cook. Eugene 
Meyer, Jr. as head of the War Finance Corporation, engaged in the placing 
of two billion dollars in Government 

securities, placed many of those orders first with the banking house now 

located at 14 Wall Street in the name of Eugene Meyer, Jr. Mr. Meyer is now 

a large stockholder in the Allied Chemical Corporation. I call your attention 

to House Report No. 1635, 68th Congress, 2nd Session, which reveals that at 

least twenty-four million dollars in bonds were duplicated. Ten billion dollars 

worth of bonds surreptitiously destroyed. Our committee on Banking and 

Currency found the records of the War Finance Corporation under Eugene 

Meyer, Jr. extremely faulty. While the books were being brought before our 

committee by the people who were custodians of them and taken back to the 

Treasury at night, the committee discovered that alterations were being 

made in the permanent records." 

The record of public service did not prevent Eugene Meyer, Jr. from 
continuing to serve the American people on the Federal Reserve Board, as 
Chairman of the Reconstruction Finance Corporation, and as head of the 
International Bank. 

President Rand, of the Marine Midland Corporation, questioned about his 
sudden desire for the services of Edmund Piatt, said: 

"We pay Mr. Piatt $22,000 a year, and we took his secretary over, of 
course." This meant another five thousand a year. 

Senator Brookhart showed that Eugene Meyer, Jr. administered the Federal 
Farm Loan Board against the interests of the American farmer, saying: 

"Mr. Meyer never loaned more than 180 million dollars of the capital stock 
of 500 million dollars 

of the farm loan board, so that in aiding the farmers he was not even able to 
use half of the 

capital." 

MR. MEYER: Senator Kenyon wrote me a letter which showed that I 
cooperated with great advantage to the people of Iowa. 

SENATOR BROOKHART: "You went out and took the opposite side from 
the Wall Street crowd. They always send somebody out to do that. I have not 
yet discovered in your statements much interest in making loans to the 
farmers at large, or any real effort to help their condition. In your two years 



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as head of the Federal Farm Loan Board you made very few loans compared to 
your capital. You loaned only one-eighth of the demand, according to your 
own statement." 

Despite the damning evidence uncovered at these Senate Hearings, Eugene 
Meyer, Jr. remained on the Federal Reserve Board. 

During this tragic period, chairman Louis McFadden of the House Banking 
and Currency Committee continued his lone crusade against the "London 
Connection" which had wrecked the nation. On June 10, 1932, McFadden 
addressed the House of Representatives: 

"Some people think the Federal Reserve banks are United States 
Government institutions. They 

are not government institutions. They are private credit monopolies which 
prey upon the people 

of the United 

States for the benefit of themselves and their foreign customers. The Federal 

Reserve banks are 

the agents of the foreign central banks. Henry Ford has said, 'The one aim of 
these financiers is 

world control by the creation of inextinguishable debts.' The truth is the 
Federal Reserve Board 

has usurped the Government of the United States by the arrogant credit 
monopoly which operates 

the Federal Reserve Board and the Federal Reserve Banks." 

On January 13, 1932, McFadden had introduced a resolution indicting the 
Federal Reserve Board of Governors for "Criminal Conspiracy": 

"Whereas I charge them, jointly and severally, with the crime of having 
treasonably conspired 

and acted against the peace and security of the United States and having 
treasonably conspired to 

destroy constitutional government in the United States. Resolved, that the 
Committee on the 

Judiciary is authorized and directed as a whole or by subcommittee to 
investigate the official 



174 
conduct of the Federal Reserve Board and agents to determine whether, in the 
opinion of the said 

committee, they have been guilty of any high crime or misdemeanour which 
in the contemplation 

of the Constitution requires the interposition of the Constitutional powers of 
the House." 

No action was taken on this Resolution. McFadden came back on December 
13, 1932 with a motion to impeach President Herbert Hoover. Only five 
Congressmen stood with him on this, and the resolution failed. The 
Republican majority leader of the House remarked, "Louis T. McFadden is 
now politically dead." 

On May 23, 1933, McFadden introduced House Resolution No. 158, Articles 
of Impeachment against the Secretary of the Treasury, two Assistant 
Secretaries of the Treasury, the Federal Reserve Board of Governors, and 
officers and directors of the Federal Reserve Banks for their guilt and 
collusion in causing the Great Depression. "I charge them with having 
unlawfully taken over 80 billion dollars from the United States Government 
in the year 1928, the said unlawful taking consisting of the unlawful 
recreation of claims against the United States Treasury to the extent of over 
80 billion dollars in the year 1928, and in each year subsequent, and by 
having robbed the United States Government and the people of the United 
States by their theft and sale of the gold reserve of the United States." 

The Resolution never reached the floor. A whispering campaign that 
McFadden was insane swept Washington, and in the next Congressional 
elections, he was overwhelmingly defeated by thousands of dollars poured 
into his home district of Canton, Pennsylvania. 

In 1932, the American people elected Franklin D. Roosevelt President of the 
United States. This was hailed as the freeing of the American people from the 
evil influence which had brought on the Great Depres- 
sion, the ending of Wall Street domination, and the disappearance of the 

banker from Washington. 

Roosevelt owed his political career to a fortuitous circumstance. As Assistant 
Secretary of the Navy during World War I, because of old school ties, he had 
intervened to prevent prosecution of a large ring of homosexuals in the Navy 
which included several Groton and Harvard chums. This brought him to the 
favorable appreciation of a wealthy international homosexual set which 
travelled back and forth between New York and Paris, and which was 
presided over by Bessie Marbury, of a very old and prominent New York 
family. Bessie's "wife", who lived with her for a number of years, was Elsie 
de Wolfe, later Lady Mendl in a "mariage de convenance", the arbiter of the 



175 
international set. They recruited J.P. Morgan's youngest daughter, Anne 
Morgan, into their circle, and used her fortune to restore the Villa Trianon in 
Paris, which became their headquarters. During World War I, it was used as 
a hospital. Bessie Marbury expected to be awarded the Legion of Honor by 
the French Government as a reward, but J.P. Morgan, Jr., who despised her 
for corrupting his youngest sister, requested the French Government to 
withhold the award, which they did. Smarting from this rebuff, Bessie 
Marbury threw herself into politics, and became a power in the Democratic 
National Party. She had also recruited Eleanor Roosevelt into her circle, and, 
during a visit to Hyde Park, Eleanor confided that she was desperate to find 
something for "poor Franklin" to do, as he was confined to a wheelchair, and 
was very depressed. 

"I know what we'll do," exclaimed Bessie, "We'll run him for Governor of 
New York!" Because of her power, she succeeded in this goal, and Roosevelt 
later became President. 

One of the men Roosevelt brought down from New York with him as a 
Special Advisor to the Treasury was Earl Bailie of J & W Seligman 
Company, who had become notorious as the man who handed the $415,000 
bribe to Juan Leguia, son of the President of Peru, in order to get the 
President to accept a loan from J & W Seligman Company. There was a 
great deal of criticism of this appointment, and Mr. Roosevelt, in keeping 
with his new role as defender of the people, sent Earl Bailie back to 
@bringing in New York. 

Franklin D. Roosevelt himself was an international banker of ill repute, 
having floated large issues of foreign bonds in this country in the 1920s. 
These bonds defaulted, and our citizens lost millions of dollars, but they still 
wanted Mr. Roosevelt as President. The New York Directory of Directors 
lists Mr. Roosevelt as President and Director of United European Investors, 
Ltd., in 1923 and 1924, which floated many millions of German marks in this 
country, all of which defaulted. Poor's Directory of Directors lists him as a 
director of The International Germanic Trust Company in 1928. Franklin D. 
Roosevelt was also an advisor to the 

Federal International Banking Corporation, an Anglo-American outfit 
dealing in foreign securities in the United States. 

Roosevelt's law firm of Roosevelt and O'Connor during the 1920s 
represented many international corporations. His law partner, Basil 
O'Connor, was a director in the following corporations: 

Cuban-American Manganese Corporation, Venezuela-Mexican Oil 
Corporation, West Indies Sugar Corporation, American Reserve Insurance 
Corporation, Warm Springs Foundation. He was director in other 
corporations, and later head of the American Red Cross. 



176 
When Franklin D. Roosevelt took office as President of the United States, he 
appointed as Director of the Budget James Paul Warburg, son of Paul 
Warburg, and Vice President of the International Acceptance Bank and 
other corporations. Roosevelt appointed as Secretary of the Treasury W.H. 
Woodin, one of the biggest industrialists in the country, Director of the 
American Car Foundry Company and numerous other locomotive works, 
Remington Arms, The Cuba Company, Consolidated Cuba Railroads, and 
other big corporations. Woodin was later replaced by Henry Morgenthau, 
Jr., son of the Harlem real estate operator who had helped put Woodrow 
Wilson in the White House. With such a crew as this, Roosevelt's promises of 
radical social changes showed little likelihood of fulfillment. One of the first 
things he did was to declare a bankers' moratorium, to help the bankers get 
their records in order. 

World's Work says: 

"Congress has left Charles G. Dawes and Eugene Meyer, Jr. free to appraise, 
by their own 

methods, the security which prospective borrowers of the two billion dollar 
capital may offer." 

Roosevelt also set up the Securities Exchange Commission, to see to it that no 
new faces got into the Wall Street gang, which caused the following colloquy 
in Congress: 

REPRESENTATIVE WOLCOTT: At hearings before this committee in 
1933, the economists showed us charts which proved beyond all doubt that 
the dollar value commodities followed the price level of gold. It did not, did 
it? 

LEON HENDERSON: No. 

REPRESENTATIVE GIFFORD: Wasn't Joe Kennedy put in [as Chairman 
of the Securities Exchange Committee] by President Roosevelt because he 
was sympathetic with big business? 

LEON HENDERSON: I think so. 

Paul Einzig pointed out in 1935 that: 

"President Roosevelt was the first to declare himself openly in favor of a 

monetary policy aiming 

at a deliberately engineered rise in prices. In a negative sense his policy was 
successful. Between 

1933 and 1935 he succeeded in reducing private indebtedness, but this was 
done at the cost of 



177 
increasing public indebtedness." 

In other words, he eased the burden of debts off of the rich onto the poor, 
since the rich are few and the poor many. 

Senator Robert L. Owen, testifying before the House Committee on Banking 
and Currency in 1938, said: 

"I wrote into the bill which was introduced by me in the Senate on June 26, 
1913, a provision 

that the powers of the System should be employed to promote a stable price 
level, which meant a 

dollar of stable purchasing, debt-paying power. It was stricken out. The 
powerful money interests 

got control of the Federal Reserve Board through Mr. Paul Warburg, Mr. 
Albert Strauss, and Mr. 

Adolph C. Miller and they were able to have that secret meeting of May 18, 
1920, and bring 

about a contraction of credit so violent it threw five million people out of 
employment. In 1920 

that Reserve Board deliberately caused the Panic of 1921. The same people, 
unrestrained in the 

stock market, expanding credit to a great excess between 1926 and 1929, 
raised the price of 

stocks to a fantastic point where they could not possibly earn dividends, and 
when the people 

realized this, they tried to get out, resulting in the Crash of October 24, 
1929." 

Senator Owen did not go into the question of whether the Federal Reserve 
Board could be held responsible to the public. Actually, they cannot. They 
are public officials who are appointed by the President, but their salaries are 
paid by the private stockholders of the Federal Reserve Banks. 

Governor W.P.G. Harding of the Federal Reserve Board testified in 1921 
that: 

"The Federal Reserve Bank is an institution owned by the stockholding 
member banks. The 

Government has not a dollar's worth of stock in it." 



178 
However, the Government does give the Federal Reserve System the use of its 
billions of dollars of credit, and this gives the Federal Reserve its 
characteristic of a central bank, the power to issue currency on the 
Government's credit. We do not have Federal Government notes or gold 
certificates as currency. We have Federal Reserve Bank notes, issued by the 
Federal Reserve Banks, and every dollar they print is a dollar in their 
pocket. 

W. Randolph Burgess, of the Federal Reserve Bank of New York, stated 
before the Academy of Political Science in 1930 that: 

"In its major principles of operation the Federal Reserve System is no 
different from other banks 

of issue, such as the Bank of England, the Bank of France, or the 
Reichsbank." 

All of these central banks have the power of issuing currency in their 

respective countries. Thus, the people do not own their own money in 

Europe, nor do they own it here. It is privately printed for private profit. The 

people have no sovereignty over their money, and it has developed that they 

have no sovereignty over other major political issues such as foreign policy. 

As a central bank of issue, the Federal Reserve System has behind it all the 
enormous wealth of the American people. When it began operations in 1913, 
it created a serious threat to the central banks of the impoverished countries 
of Europe. Because it represented this great wealth, it attracted far more 
gold than was desirable in the 1920s, and it was apparent that soon all of the 
world's gold would be piled up in this country. This would make the gold 
standard a joke in Europe, because they would have no gold over there to 
back their issue of money and credit. It was the Federal Reserve's avowed 
aim in 1927, after the secret meeting with the heads of the foreign central 
banks, to get large quantities of that gold sent back to Europe, and its 
methods of doing so, the low interest rate and heavy purchases of 
Government securities, which created vast sums of new money, intensified 
the stock market speculation and made the stock market crash and resultant 
depression a national disaster. 

Since the Federal Reserve System was guilty of causing this disaster, we 
might suppose that they would have tried to alleviate it. However, through 
the dark years of 1931 and 1932, the Governors of the Federal Reserve Board 
saw the plight of the American people worsening and did nothing to help 
them. This was more criminal than the original plotting of the Depression. 
Anyone who lived through those years in this country remembers the 
widespread unemployment, the misery, and the hunger of our people. At any 
time during those years the Federal Reserve Board could have acted to 
relieve this situation. 



179 
The problem was to get some money back into circulation. So much of the money 
normally used to pay rent and food bills had been sucked into Wall Street 
that there was no money to carry on the business of living. In many areas, 
people printed their own money on wood and paper for use in their 
communities, and this money was good, since it represented obligations to 
each other which people fulfilled. 

The Federal Reserve System was a central bank of issue. It had the power to, 
and did, when it suited its owners, issue millions of dollars of money. Why 
did it not do so in 1931 and 1932? The Wall Street bankers were through 
with Mr. Herbert Hoover, and they wanted Franklin D. Roosevelt to come in 
on a wave of glory as the saviour of the nation. Therefore, the American 
people had to starve and suffer until March of 1933, when the White Knight 
came riding in with his crew of Wall Street 

bribers and put some money into circulation. That was all there was to it. As 

soon as Mr. Roosevelt took office, the Federal Reserve began to buy 

Government securities at the rate often million dollars a week for ten weeks, 

and created a hundred million dollars in new money, which alleviated the 

critical famine of money and credit, and the factories started hiring people 

again. 

During the Roosevelt Administration, The Federal Reserve Board, insofar as 
the public was concerned, was Marriner Eccles, an emulator and admirer of 
"the Chief". Eccles was a Utah banker, President of the First Securities 
Corporation, a family investment trust consisting of a number of banks 
which Eccles had picked up cheap during the Agricultural Depression of 
1920-21. Eccles also was a director of such corporations as Pet Milk 
Company, Mountain States Implement Company, and Amalgamated Sugar. 
As a big banker, Eccles fitted in well with the group of powerful men who 
were operating Roosevelt. 

There was some discussion in Congress as to whether Eccles ought to be on 
the Federal Reserve Board at the same time he had all of these banks in 
Utah, but he testified that he had very little to do with the First Securities 
Corporation besides being President of it, and so he was confirmed as 
Chairman of the Board. 

Eugene Meyer, Jr. now resigned from the Board to spend more of his time 
lending the two billion dollar capital of the Reconstruction Finance 
Corporation, and determining the value of collateral by his own methods. 

The Banking Act of 1935, which greatly increased Roosevelt's power over the 
nation's finances, was an integral part of the legislation by which he 
proposed to extend his reign in the United States. It was not opposed by the 
people as was the National Recovery Act, because it was not so naked an 
infringement of their liberties. It was, however, an important measure. First 



180 
of all, it extended the terms of office of the Federal Reserve Board of Governors 
to fourteen years, or, three and a half times the length of a Presidential term. 
This meant that a President assuming office who might be hostile to the 
Board could not appoint a majority to it who would be favorable to him. 
Thus, a monetary policy inaugurated before a President came into the White 
House would go on regardless of his wishes. 

The Banking Act of 1935 also repealed the clause of the Glass-Steagall 
Banking Act of 1933, which had provided that a banking house could not be 
on the Stock Exchange and also be involved in investment banking. This 
clause was a good one, since it prevented a banking house from lending 
money to a corporation which it owned. Still it is to be remembered that this 
clause covered up some other provisions in that Act, such as the creation of 
the Federal Deposit Insurance Corporation, providing insurance money to 
the amount of 150 million dollars, to 

guarantee fifteen billion dollars worth of deposits. This increased the power 

of the big bankers over small banks and gave them another excuse to 

investigate them. The Banking Act of 1933 also legislated that all earnings of 

the Federal Reserve Banks must by law go to the banks themselves. At last 

the provision in the Act that the Government share in the profits was gotten 

rid of. It had never been observed, and the increase in the assets of the 
Federal Reserve Banks from 143 million dollars in 1913 to 45 billion dollars 
in 1949 went entirely to the private stockholders of the banks. Thus, the one 
constructive provision of the Banking Act of 1933 was repealed in 1935, and 

also the Federal Reserve Banks were now permitted to loan directly to 

industry, competing with the member banks, who could not hope to match 

their capacity in arranging large loans. 

When the provision that banks could not be involved in investment banking 
and operate on the Stock Exchange was repealed in 1935, Carter Glass, 
originator of that provision, was asked by reporters: 

"Does that mean that J.P. Morgan can go back into investment banking?" 

"Well, why not?" replied Senator Glass. "There has been an outcry all over 
the country that the banks will not make loans. Now the Morgans can go 
back to underwriting." 

Because that provision was unfavorable to them, the bankers had simply 
clamped down on making loans until it was repealed. 

Newsweek of March 14, 1936, noted that: 

"The Federal Reserve Board fired nine chairmen of Reserve Banks, 
explaining that 'it intended 



181 
to make the chairmanships of the Reserve Banks largely a part-time job on an 
honorary basis.'" 

This was another instance of the centralization of control in the Federal 
Reserve System. The regional district system had never been an important 
factor in the administration of monetary policy, and the Board was not 
cutting down on its officials outside of Washington. The Chairman of the 
Senate Committee on Banking and Currency had asked, during the Gold 
Reserve Hearings of 1934: 

"Is it not true, Governor Young, that the Secretary of the Treasury for the 
past twelve years has 

dominated the policy of the Federal Reserve Banks and the Federal Reserve 
Board with respect to 

the purchase of United States bonds?" 

Governor Young had denied this, but it had already been brought out that 
on both of his hurried trips to this country in 1927 and 1929 to dictate 
Federal Reserve policy, Governor Montagu Norman of the Bank of England 
had gone directly to Andrew Mellon, Secretary of the Treasury, to get him to 
purchase Government securities on the open market and start the movement 
of gold out of this country back to Europe. 

The Gold Reserve Hearings had also brought in other people who had more 

than a passing interest in the operations of the Federal Reserve System. 

James Paul Warburg, just back from the London Economic Conference with 

Professor O.M.W. Sprague and Henry L. Stimson, came in to declare that he 

thought we ought to modernize the gold standard. Frank Vanderlip 

suggested that we do away with the Federal Reserve Board and set up a 

Federal Monetary Authority. This would have made no difference to the New 

York bankers, who would have selected the personnel anyway. And Senator 

Robert L. Owen, longtime critic of the system, made the following statement: 

"The people did not know the Federal Reserve Banks were organized for 
profit-making. They 

were intended to stabilize the credit and currency supply of the country. 
That end has not been 

accomplished. Indeed, there has been the most remarkable variation in the 
purchasing power of 

money since the System went into effect. The Federal Reserve men are 
chosen by the big banks, 

through discreet little campaigns, and they naturally follow the ideals which 
are portrayed to 



182 
them as the soundest from a financial point of view." 

Benjamin Anderson, economist for the Chase National Bank of New York, 
said: 

"At the moment, 1934, we have 900 million dollars excess reserves. In 1924, 
with increased 

reserves of 300 million, you got some three or four billion in bank expansion 
of credit very 

quickly. That extra money was put out by the Federal Reserve Banks in 1924 
through buying 

government securities and was the cause of the rapid expansion of bank 
credit. The banks 

continued to get excess reserves because more gold came in, and because, 
whenever there was a 

slackening, the Federal Reserve people would put out some more. They held 
back a bit in 1926. 

Things firmed up a bit that year. And then in 1927 they put out less than 300 
million additional 

reserves, set the wild stock market going, and that led us right into the smash 
of 1929." 

Dr. Anderson also stated that: 

"The money of the Federal Reserve Banks is money they created. When they 
buy Government 

securities they create reserves. They pay for the Government securities by 
giving checks on 

themselves, and those checks come to the commercial banks and are by them 
deposited in the 

Federal Reserve Banks, and then money exists which did not exist before." 

SENATOR BULKLEY: It does not increase the circulating medium at all? 

ANDERSON: No. 

This is an explanation of the manner in which the Federal Reserve Banks 
increased their assets from 143 million dollars to 45 billion dollars in thirty- 
five years. They did not produce anything, they were non-productive 



183 
enterprises, and yet they had this enormous profit, merely by creating money, 95 
percent of it in the form of credit, which did not add 

to the circulating medium. It was not distributed among the people in the 

form of wages, nor did it increase the buying power of the farmers and 

workers. It was credit-money created by bankers for the use and profit of 

bankers, who increased their wealth by more than forty billion dollars in a 

few years because they had obtained control of the Government's credit in 

1913 by passing the Federal Reserve Act. 

Marriner Eccles also had much to say about the creation of money. He 
considered himself an economist, and had been brought into the Government 
service by Stuart Chase and Rexford Guy Tugwell, two of Roosevelt's early 
brain-trusters. Eccles was the only one of the Roosevelt crowd who stayed in 
office throughout his administration. 

Before the House Banking and Currency Committee on June 24, 1941, 
Governor Eccles said: 

"Money is created out of the right to issue credit-money." 

Turning over the Government's credit to private bankers in 1913 gave them 
unlimited opportunities to create money. The Federal Reserve System could 
also destroy money in large quantities through open market operations. 
Eccles said, at the Silver Hearings of 1939: 

"When you sell bonds on the open market, you extinguish reserves." 

Extinguishing reserves means wiping out a basis for money and credit issue, 
or, tightening up on money and credit, a condition which is usually even 
more favorable to bankers than the creation of money. Calling in or 
destroying money gives the banker immediate and unlimited control of the 
financial situation, since he is the only one with money and the only one with 
the power to issue money in a time of money shortage. The money panics of 
1873, 1893, 1920-21, and 1929-31, were characterized by a drawing in of the 
circulating medium. In economical terms, this does not sound like such a 
terrible thing, but when it means that people do not have money to pay their 
rent or buy food, and when it means that an employer has to lay off three- 
fourths of his help because he cannot borrow the money to pay them, the 
enormous guilt of the bankers and the long record of suffering and misery 
for which they are responsible would suggest that no punishment might be 
too severe for their crimes against their fellowmen. 

On September 30, 1940, Governor Eccles said: 

"If there were no debts in our money system, there would be no money." 



184 
This is an accurate statement about our money system. Instead of money being 
created by the production of the people, the annual increase in goods and 
services, it is created by the bankers out of the debts of the people. Because it 
is inadequate, it is subject to great fluctuations and is basically unstable. 
These fluctuations are also a source of great profit. For that reason, the 
Federal Reserve Board has consistently opposed any 

legislation which attempts to stabilize the monetary system. Its position has 

been set forth definitively in Chairman Eccles' letter to Senator Wagner on 

March 9, 1939, and the Memorandum issued by the Board on March 13, 

1939. 

Chairman Eccles wrote that: 

". . . you are advised that the Board of Governors of the Federal Reserve 
System does not favor 

the enactment of Senate Bill No. 31, a bill to amend the Federal Reserve Act, 
or any other 

legislation of this general character." 

The Memorandum of the Board stated, in its "Memorandum on Proposals to 
maintain prices at fixed levels": 

"The Board of Governors opposes any bill which proposes a stable price 
level, on the grounds 

that prices do not depend primarily on the price or cost of money; that the 
Board's control over 

money cannot be made complete; and that steady average prices, even if 
obtainable by official 

action, would not insure lasting prosperity." 

Yet William McChesney Martin, the Chairman of the Board of Governors in 
1952, said before the Subcommittee on Debt Control, the Patman Committee, 
on March 10, 1952 that "One of the fundamental purposes of the Federal 
Reserve Act is to protect the value of the dollar." 

Senator Flanders questioned him: "Is that specifically stated in the original 
legislation setting up the Federal Reserve System?" 

"No," replied Mr. Martin, "but it is inherent in the entire legislative history 
and in the surrounding circumstances." 



185 
Senator Robert L. Owen has told us how it was taken out of the original 
legislation against his will, and that the Board of Governors has opposed 
such legislation. Apparently Mr. Martin does not know this. 

Steady average prices, indeed, are impossible so long as we have the 
speculators on the stock exchange driving prices up and down in order to 
reap profits for themselves. Despite Governor Eccles' insistence that steady 
average prices would not insure lasting prosperity, they could do much to 
bring about this condition. A man on a yearly wage of $2,500 is not more 
prosperous if the price of bread increases five cents a loaf during the year. 

In 1935, Eccles said before the House Committee on Banking and Currency: 

"The Government controls the gold reserve, that is, the power to issue money 
and credit, thus 

largely regulating the price structure." 

This is an almost direct contradiction of Eccles' statement in 1939 that prices 
do not depend, primarily, on the price or cost of money. 

In 1935, Governor Eccles stated before the House Committee: 

"The Federal Reserve Board has the power of open market operations. 
Open-market 

operations are the most important single instrument of 

control over the volume and cost of credit in this country. When I say 
"credit" in this connection, 

I mean money, because by far the largest part of money in use by the people 
of this country is in 

the form of bank credit or bank deposits. When the Federal Reserve Banks 
buy bills or securities 

in the open market, they increase the volume of the people's money and 
lower its cost; and when 

they sell in the open market they decrease the volume of money and increase 
its cost. Authority 

over these operations, which affect the welfare of the whole people, must be 
invested in a body 

representing the national interest." 

Governor Eccles testimony exposes the heart of the money machine which 
Paul Warburg revealed to his incredulous fellow bankers at Jekyll Island in 



186 
1910. Most Americans comment that they cannot understand how the Federal 
Reserve System operates. It remains beyond understanding, not because it is 
complex, but because it is so simple. If a confidence man comes up to you and 
offers to demonstrate his marvelous money machine, you watch while he puts 
in a blank piece of paper, and cranks out a $100 bill. That is the Federal 
Reserve System. You then offer to buy this marvelous money machine, but 
you cannot. It is owned by the private stockholders of the Federal Reserve 
Banks, whose identities can be traced partially, but not completely, to "the 
London Connection." 

At the House Banking and Currency Committee Hearings on June 6, 1960, 
Congressman Wright Patman, Chairman, questioned Carl E. Allen, 
President of the Federal Reserve Bank of Chicago, (p. 4). PATMAN: "Now 
Mr. Allen, when the Federal Reserve Open Market Committee buys a million 
dollar bond you create the money on the credit of the Nation to pay for that 
bond, don't you? ALLEN: That is correct. PATMAN: And the credit of the 
Nation is represented by Federal Reserve Notes in that case, isn't it? If the 
banks want the actual money, you give Federal Reserve notes in payment, 
don't you? ALLEN: That could be done, but nobody wants the Federal 
Reserve notes. PATMAN: Nobody wants them, because the banks would 
rather have the credit as reserves." 

This is the most incredible part of the Federal Reserve operation and one 
which is difficult for anyone to understand. How can any American citizen 
grasp the concept that there are people in this country who have the power to 
make an entry in a ledger that the government of the United States now owes 
them one billion dollars, and to collect the principal and interest on this 
"loan"? 

Congressman Wright Patman tells us in "The Primer of Money", p. 38 of 
going into a Federal Reserve Bank and asking to see their bonds on which 
the American people are paying interest. After being shown the bonds, he 
asked to see their cash, but they only had some ledgers and blank checks. 
Patman says, 

"The cash, in truth, does not exist and has never existed. What we call 'cash 
reserves' are simply 

bookkeeping credits entered upon ledgers 

of the Federal Reserve Banks. The credits are created by the Federal Reserve 

Banks and then 

passed along through the banking system." 

Peter L. Bernstein, in A Primer On Money, Banking and Gold says: 



187 
"The trick in the Federal Reserve notes is that the Federal reserve banks lose no 
cash when they 

pay out this currency to the member banks. Federal Reserve notes are not 
redeemable in anything 

except what the Government calls 'legal tender'—that is, money that a 
creditor must be willing to 

accept from a debtor in payment of sums owed him. But since all Federal 
Reserve notes are 

themselves declared by law to be legal money, they are really redeemable 
only in themselves . . . 

they are an irredeemable obligation issued by the Federal Reserve Banks. "91 

As Congressman Patman puts it, 

"The dollar represents a one dollar debt to the Federal Reserve System. The 
Federal Reserve Banks create money out of thin air to buy Government 
bonds from the United States Treasury, lending money into circulation at 
interest, by bookkeeping entries of checkbook credit to the United States 
Treasury. The Treasury writes up an interest bearing bond for one billion 
dollars. The Federal Reserve gives the Treasury a one billion dollar credit for 
the bond, and has created out of nothing a one billion dollar debt which the 
American people are obligated to pay with interest." (Money Facts, House 
Banking and Currency Committee, 1964, p. 9) 

Patman continues, 

"Where does the Federal Reserve system get the money with which to create 
Bank Reserves? 

Answer. It doesn't get the money, it creates it. When the Federal Reserve 
writes a check, it is 

creating money. The Federal Reserve is a total moneymaking machine. It can 
issue money or 

checks." 

In 1951, the Federal Reserve Bank of New York published a pamphlet, "A 
Day's Work at the Federal Reserve Bank of New York." On page 22, we find 
that: 

"There is still another and more important element of public interest in the 
operation of banks 



1! 

besides the safekeeping of money; banks can 'create' money. One of the most 
important factors to 

remember in this connection is that the supply of money affects the general 
level of prices—the 

cost of living. The Cost of Living Index and money supply are parallel." 

The decisions of the Federal Reserve Board, or rather, the decisions which 
they are told to make by "parties unknown", affect the daily lives of every 
American by the effect of these decisions on prices. Raising the interest rate, 
or causing money to became "dearer" acts to limit the amount of money 
available in the market, as does the raising of reserve 



91 Peter L. Bernstein, A Primer On Money, Banking and Gold, Vintage 
Books, New York, 1965, p. 104 

requirements by the Federal Reserve System. Selling bonds by the Open 

Market Committee also extinguishes and lowers the money supply. Buying 

government securities on the open market "creates" more money, as does 

lowering the interest rate and making money "cheaper". It is axiomatic that 

an increase in the money supply brings prosperity, and that a decrease in the 

money supply brings on a depression. Dramatic increases in the money 

which outstrip the supply of goods brings on inflation, "too much money 

chasing too few goods". A more esoteric aspect of the monetary system is 

"velocity of circulation", which sounds much more technical than it is. This 

is the speed at which money changes hands; if it is gold buried in the 

peasant's garden, that is a slow velocity of circulation, caused by a lack of 

confidence in the economy or the nation. Very rapid velocity of circulation, 

such as the stock market boom of the late 1920s, means quick turnover, 

spending and investment of money, and its stems from confidence, or 

overconfidence, in the economy. With a high velocity of circulation, a smaller 

money supply circulates among as many people and goods as a larger money 

supply would circulate with a slower velocity of circulation. We mention this 

because the velocity of circulation, or confidence in the economy, also is 

greatly affected by the Federal Reserve actions. Milton Friedman comments 

in Newsweek, May 2, 1983, "The Federal Reserve's major function is to 

determine the money supply. It has the power to increase or decrease the 

money supply at any rate it chooses." 

This is an enormous power, because increasing the money supply can cause 
the re-election of an administration, while decreasing it can cause an 
administration to be defeated. Friedman goes on to criticize the Federal 
Reserve, "How is it that an institution which has so poor a record of 
performance nevertheless has so high a public reputation and even 
commands a considerable measure of credibility for its forecasts?" 



189 
All open market transactions, which affect the money supply, are conducted for a 
single System account by the Federal Reserve Bank of New York on the 
behalf of all the Federal Reserve Banks, and supervised by an officer of the 
Federal Reserve Bank of New York The conferences at which decisions are 
made to buy or sell securities by the Open Market Committee remain closed 
to the public, and the deliberations also remain a mystery. On May 8, 1928, 
The New York Times reported that Adolph C. Miller, Governor of the 
Federal Reserve Board, testifying before the House Banking and Currency 
Committee, stated that open market purchases and rediscount rates were 
established through "conversations". At that time, the purchases on the open 
market amounted to seventy or eighty million dollars a day, and would be 
ten times that today. These are vast sums to be manipulated on the basis of 
mere "conversations", but that is as much information as we can obtain. 

Because of these mysterious transactions which affect the life, liberty and 

happiness of every American citizen, there have been numerous proposals 

such as Senate Document No. 23, presented by Mr. Logan on January 24, 

1939, that "The Government should create, issue and circulate all the 

currency and credit needed to satisfy the spending power of the Government 

and the buying power of the consumers. The privilege of creating and issuing 

money is not only the supreme prerogative of Government, but it is the 

Government's greatest creative opportunity." 

On March 21, 1960, Congressman Wright Patman used a simple illustration 
in the Congressional Record of how banks "create money". 

"If I deposit $100 with my bank and the reserve requirements imposed by 
the Federal Reserve 

Bank are 20% then the bank can make a loan to John Doe of up to $80. 
Where does the $80 

come from? It does not come out of my deposit of $100; on the 
contrary, the bank simply credits John Doe's account with $80. 
The bank can acquire Government obligations by the same 
procedure, by simply creating deposits to the credit of the 
government. Money creating is a power of the commercial 
banks . . . Since 1917 the Federal Reserve has given the private 
banks forty-six billion dollars of reserves." 

How this is done is best revealed by Governor Eccles at Hearings before the 
House Committee on Banking and Currency on June 24, 1941: 

ECCLES: "The banking system as a whole creates and extinguishes the 
deposits as they make 



190 
loans and investments, whether they buy Government Bonds or whether 
they buy utility bonds or whether they make Farmer's loans. 

MR. PATMAN: I am thoroughly in accord with what you say, Governor, but 
the fact remains 

that they created the money, did they not? 

ECCLES: Well, the banks create money when they make loans and 
investments." 

On September 30, 1941, before the same Committee, Governor Eccles was 
asked by Representative Patman: 

"How did you get the money to buy those two billion dollars worth of 
Government securities in 

1933? 

ECCLES: We created it. 

MR. PATMAN: Out of what? 

ECCLES: Out of the right to issue credit money. 

MR. PATMAN: And there is nothing behind it, is there, except our 
Government's credit? 

ECCLES: That is what our money system is. If there were no debts in our 
money system, there 

wouldn't be any money." 

On June 17, 1942, Governor Eccles was interrogated by Mr. Dewey. 

ECCLES: "I mean the Federal Reserve, when it carries out an open market 
operation, that is, if it 

purchases Government securities in the 

open market, it puts new money into the hands of the banks which creates 

idle deposits. 

DEWEY: There are no excess reserves to use for this purpose? 

ECCLES: Whenever the Federal Reserve System buys Government 
securities in the open market, 

or buys them direct from the Treasury, either one, that is what it does. 



191 
DEWEY: What are you going to use to buy them with? You are going to create 
credit? 

ECCLES: That is all we have ever done. That is the way the Federal Reserve 
System operates. 

The Federal Reserve System creates money. It is a bank of issue." 

At the House Hearing of 1947, Mr. Kolburn asked Mr. Eccles: 

"What do you mean by monetization of the public debt? 

ECCLES: I mean the bank creating money by the purchase of Government 
securities. All 

is created by debt—either private or public debt. 

FLETCHER: Chairman Eccles, when do you think there is a possibility of 
returning to a free and 

open market, instead of this pegged and artificially controlled financial 
market we now have? 

ECCLES: Never. Not in your lifetime or mine." 

Congressman Jerry Voorhis is quoted in U.S. News, August 31, 1959, as 
questioning Secretary of Treasury Anderson, "Do you mean that Banks, in 
buying Government securities, do not lend out their customers' deposits? 
That they create the money they use to buy the securities? ANDERSON: 
That is correct. Banks are different from other lending institutions. When a 
savings association, an insurance company, or a credit union makes a loan, it 
lends the very dollar that its customers have previously paid in. But when a 
bank makes a loan, it simply adds to the borrower's deposit account in the 
bank by the amount of the loan. The money is not taken from anyone. It is 
new money, recreated by the bank, for the use of the borrower." 

Strangely enough, there has never been a court trial on the legality or 
Constitutionality of the Federal Reserve Act. Although it is on much the 
same shaky grounds as the National Recovery Act, or NRA, which was 
challenged in Schechter Poultry v. United States of America, 29 U.S. 495, 55 
US 837.842 (1935), the NRA was ruled unconstitutional by the Supreme 
Court on the grounds that "Congress may not abdicate or transfer to others 
its legitimate functions. Congress cannot Constitutionally delegate its 
legislative authority to trade or industrial associations or groups so as to 
empower them to make laws." 

Article 1, Sec. 8 of the Constitution provides that "The Congress shall have 
power to borrow money on the credit of the United States . . . and to coin 



192 
Money, regulate the value thereof, and of foreign Coin, and fix the Standard of 
Weights and Measures." According to the NRA deci- 
sion, Congress cannot delegate this power to the Federal Reserve System, nor 
can it delegate its legislative authority to the Federal Reserve System to allow 
the System to fix the rate of bank reserves, the rediscount rate, or the volume 

of money. All of these are "legislated" by the Federal Reserve Board, 
meeting in legislative sessions to determine these matters and to issue "laws" 

or regulations fixing them. 

The Second World War gave the big bankers who owned the Federal 
Reserve System a chance to unload on the country billions of dollars printed 
early in 1930, in the biggest counterfeiting operation in history, all legalized 
by Roosevelt's government, of course. Henry Hazlitt writes in the January 4, 
1943 issue of Newsweek Magazine: 

"The money that began to appear in circulation a week ago, December 21, 
1942, was really 

printing press money in the fullest sense of the term, that is, 
money which has no collateral of any kind behind it. The 
Federal Reserve statement that 'The Board of Governors, after 
consultation with the Treasury Department, has authorized 
Federal Reserve Banks to utilize at this time the existing stocks 
of currency printed in the early thirties, known as 'Federal 
Reserve Banknotes'. We repeat, these notes have absolutely no 
collateral of any kind behind them." 

Governor Eccles also testified to some other interesting matters of the 
Federal Reserve and war finance at the Senate Hearings on the Office of 
Price Administration in 1944: 

"The currency in circulation was increased from seven billion dollars in four 
years to twenty-one 

and a half billion. We are losing some considerable amounts of gold during 
the war period. As 

our exports have gone out, largely on a lend-lease basis, we have taken 
imports on which we have 

given dollar balances. These countries are now drawing off these dollar 
balances in the form of 

gold. 

MR. SMITH: Governor Eccles, what is the objective that the foreign 
governments are after in 



193 
this projected program whereby we would contribute gold to an international 
fund? 

GOVERNOR ECCLES: I would like to discuss OPA, and leave the 
stabilization fund for a time 

when I am prepared to go into it. 

MR. SMITH: Just a minute. I feel that this fund is very pertinent to what we 
are talking about 

today. 

MR. FORD: I believe that the stabilization fund is entirely off the @OPA 
and consequently we 

ought to stick to the business at hand." 

The Congressmen never did get to discuss the Stabilization Fund, another 
setup whereby we would give the impoverished countries of Europe back the 
gold which had been sent over here. In 1945, Henry Hazlitt, commenting in 
Newsweek of January 22, on Roosevelt's annual budget message to Congress, 
quoted Roosevelt as saying: 

"I shall later recommend legislation reducing the present high gold reserve 
requirements of the 

Federal Reserve Banks." 

Hazlitt pointed out that the reserve requirement was not high, it was just 

what it had been for the past thirty years. Roosevelt's purpose was to free 

more gold from the Federal Reserve System and make it available for the 

Stabilization Fund, later called the International Monetary Fund, part of the 

World Bank for Reconstruction and Development, the equivalent of the 

League Finance Committee which would have swallowed the financial 

sovereignty of the United States if the Senate had let us join it. 



194 

CHAPTER FOURTEEN 

Congressional Expose