Chapter Nine THE MONEY TRUST CONS CONGRESS Congressional passage of the Federal Reserve Act in December, 1913, must count as one of the more disgraceful unconstitutional perversions of political power in American history. Certainly it is hard to think of any Act that has had greater effect and illegally transferred more monopoly power to a conspiratorial clique. These are harsh words. The reader may judge if they are accurate after reading this chapter: an almost hour by hour detail of the passage of the Act and signature by President Wilson. The Act transferred control of the monetary supply of the United States from Congress to a private elite. Paper fiat currency replaced gold and silver. Wall Street financiers were able now to tap an unlimited supply of fiat money at no cost. Yet, as Senator Townsend stated: "This bill did not originate in any party platform. The people have not expressed themselves on it anywhere and at any time." 1 - 1 ' An extraordinary lobbying effort surrounded the bill just as today in the 1990s an extraordinary amount of lobbying is brought forth by any attempt to curtail or even investigate the Fed. In 1913 the Democratic Party leadership came 87 The Federal Reserve Conspiracy under strong pressure from Woodrow Wilson and New York banking lobbyists to ensure that opposition did not water down the currency bill and allow other private interests to become stockholders. Witness the complaint of Senator Gilbert Minell Hitchcock, an independent-minded gentleman from Nebraska and publisher of the Omaha World Herald. The Bill had come to the Senate from the House: Mr. HITCHCOCK: "Sacred document" as it came from the House, of which, as I have said, we were forbidden to dot an "i" or to cross a "t. " Mr. OWEN: By whom? Mr. HITCHCOCK: And which we were commanded to pass without a hearing and without much investigation. Mr. POMERENE: Mr. President, I have been around these hallowed precincts for some time, and I have not heard that anybody has forbidden anybody else to change his views or to criticize any bill that came from the House, or any bill that origi- nated here. Anyone has a right to change his view. The Senator himself has changed his view a number of times. I say that not to his discredit, but simply for the purpose of showing that he has been a free moral agent all these weeks. Mr. HITCHCOCK: Mr. President... Mr. OWEN: The Senator from Nebraska did not tell us by whom he had been ordered not to dot an "i" nor cross a "t," and I would be glad if the Senator would disclose that valuable information, unless it is confidential with the Senator. 88 _The Money Trust Cons Congress Mr. HITCHCOCK: I think I will leave that for the country to judge. I will take my chances on it. Mr. OWEN: If the Senator is content to leave that as an insinuation, it is for the Senator to do so. Mr. HITCHCOCK: I will take that liberty. (2) On September 18, 1913 the Glass Bill, the house version of the Morgan central banking bill, passed the House of Representatives by an overwhelming margin of 287 to 85. Most Congressmen had no idea what the bill was about. There were no amendments. Members voted for or against, and only the brave voted against. This Glass bill was named after Congressman Carter Glass of Virginia (1858-1946) - a banker (a director of the United Loan and Trust and the Virginia Trust Company). The Glass Bill then went to the Senate and became the Owen Bill after Senator Robert Latham Owen (1856-1947) of Oklahoma, Chairman of the Senate Finance Committee -and a banker (a major stockholder in the First National Bank of Muskogee). The Senate took exactly 4 1/2 hours to debate and adopt the Owen Bill, 43 to 25. The Republicans did not even see the conference report. This is normally read to the floor. No member of the Senate could have known of its contents and some Senators even stated on the floor of the Senate that they had no knowledge of the contents of the Owen Bill. At 6:02 p.m. on the same day the Bill was hurried through the Senate without discussion. President Woodrow Wilson signed the Federal Reserve Act of 1913 into law. A detailed review of the Senate debate indicates the Senators had no details to discuss and every criticism went unanswered. Republican Senator Bristow (1861-1944) made bitter comments on the obvious conflict of interest: 89 The Federal Reserve Conspiracy My allegation is that this bill has been drawn in the interests of the banks; that the Senator from Oklahoma, as the chairman of the committee, is largely interested in banks; that the profits which will accrue to those banks directly will add to his personal fortune; that he has voted to increase the dividends on the stock of the regional banks, which will be paid to the member banks, from 5 per cent to 6 per cent; that he has voted against permitting the public to hold the stock of these regional banks and has insisted that it shall be held by the member banks; and that he has voted against giving the Government the control of the regional banks and in favor of the banks controlling the regional banks, and it is for him to say whether he has violated the rule laid down in Jefferson's Manual. (3) The Senate debate, for what it was worth without a conference report, culminated in a test of political strength on Monday, December 15, 1913. At this vote the amendments proposed by Senator Hitchcock - the only Democrat working against the bill - were tabled by a vote of 40 to 35. Hitchcock's amendments were aimed to make the Federal Reserve System a government rather than a private monopoly, i.e., the control of the Money Trust would be placed in the Department of the Treasury. It is interesting that the Senate would overwhelmingly refuse to place control of the money supply within the Treasury and prefer to hand it over to the House of Morgan. Colonel House had done his work well. On rereading the lengthy rambling debate, the likelihood of price inflation was recognized. The argument was a common sense approach that without the discipline of limited gold and silver, the pressure of unlimited flat money would lead to price inflation. The only argument against was 90 The Money Trust Cons Congress a rather weak "sound bankers would not allow price inflation." Note that we use the term price inflation. In 1913 the term inflation always referred to "currency inflation," i.e., expansion of the note issue. In the intervening decades the meaning has changed entirely. Today when the term inflation is used it always refers to price inflation, i.e., an increase in prices. The key Senator warning of inflation (currency inflation) ahead was Senator Root, who oddly accused Bryan, the pro-silver populist, as the dominating influence behind the Federal Reserve Act (most unlikely, and a probable red herring). However, Root did warn of currency inflation and financial panic but then defended the Glass-Owen bill on the grounds that no inflation could come about "unless the sound money men who run the banks brought it about." Once again we have the Money power controlling the opposition, i.e., proclaiming arguments that can be easily countered while ensuring that the really potent criticisms do not see the light of day. Today the irrefutable link between currency inflation and price inflation is buried in a confusion of academic double-talk and algebraic manipulation. Today's academic economists are so beholden to mathematical manipulation (with the deluding plea of rigorousness) that they have entirely overlooked fundamental economic truisms. With very few exceptions (Hillsdale College, Ludwig von Mises Institute at Auburn University), academic economic departments are willing pawns of the modern money trust or the Federal Reserve System. (This author can speak first hand of the abysmal ignorance of the UCLA Economics Department in the early 1960s). The reply to Reed came from Senator Hitchcock, who pointed out that under the Bill, "the control of the currency 91 The Federal Reserve Conspiracy system of the country would have to be turned over to the bankers." Others like Senator Weeks were unconcerned on the grounds that "the United States has the most competent bank men in the world." But then, Weeks was a banker himself. The last speech on this Monday afternoon came from Congressman Mann of Illinois, the Republican floor leader who made the rather odd assertion that the U. S. was in the midst of a financial and industrial panic which demanded passage of the Federal Reserve Act. Tuesday, December 16, 1913 In Tuesday's Senate debate, Senator Root again emphasized the danger of inflation from the proposed Federal Reserve Act. Constant interruptions, according to the New York Times (December 17), suggest that supporters of the bill were publicly worried. They argued in reply that inflation was not possible if the securities issued were good government securities - to which Root replied: That is neither here nor there so far as my criticism of the bill is concerned. My objection is that the bill permits a vast inflation of our currency and that inflation can be accomplished just as readily and just as certainly by loans of the Government paper on good security as upon bad security... emphasizing the point that; no one denies that in the past from time to time great commercial nations have found themselves moving along a tide of optimism which, with the facilities of easy money has brought them to a point of most injurious and serious collapse. 92 The Money Trust Cons Congress Root reinforced his "tide of optimism" argument as follows, ...judgement becomes modified by the optimism of the hour and grows less and less effective in checking the expansion of business as the period of expansion goes on. He clinched the argument: ...instead of doing our duty as the responsible legislative branch of the Government of the United States, we are shirking that duty and throwing it upon a subordinate agency of the government. Unfortunately, Root did not push his argument to the limit, i.e., that this "subordinate agency of government" as he called it, was in effect going to be a private money monopoly of national bankers. The general response to warnings of inflation was to cite the existence of a gold reserve backing for the money supply: proposed at 33 1/3 percent. For example, Senator Williams of Mississippi claimed that the great inflation feared by Senator Root was only a "bare mathematical possibility." Why? Because, argued Senator Williams, "no President conceivably would appoint one member of the board who believed in fiat money." Eighty years later, Senator Williams to the contrary, every single member of the Federal Reserve Board and its Regional Banks is an ardent believer in fiat money and an adversary of gold! In President Wilson's era it was impossible to conceive that the role of gold could ever cease. In President Clinton's era it is impossible for policy makers to visualize that gold has any role at all. Wednesday, December 17, 1913 On Wednesday the powerful behind-the-scenes pressure for the Federal Reserve Act surfaced when the White House 93 The Federal Reserve Conspiracy announced that it expected the Senate to pass a currency bill before Saturday, that the House would accept this Senate version of the bill without changes and the bill would then go to the President for signature on Christmas eve. The flaw with this hurry-up scenario was that on Wednesday Senator Root's warnings about price inflation had some effect and a Democratic Party caucus was called, during the short dinner recess in the evening, to consider two of Root's proposals: (a) that the note issue should be limited by law and (b) that the gold reserve should be increased to 50 percent with a heavy tax on "depletions" below this level. After discussion the note limitation amendment was rejected, but the caucus did adopt a proposal to increase the gold reserve to 40 percent while requiring that a portion of regional reserve bank earnings be set aside as a gold reserve. It is interesting to note that the Democratic majority was well aware of the discipline of gold and it was not the intent of Congress in 1913 in any way to reject, or even limit this discipline. In brief, the present day attempt to demonetize gold by phasing it out of the monetary system was not only rejected by the Congress of 1913 but the dangers of any such demonetization were recognized as ominous for the welfare of the United States. Even after the caucus, criticism was to be heard from a few Senators. Senator Crawford of South Dakota didn't like the private monopoly aspects at all: ...you are simply creating a bank of big bankers, a bank to help big banks, but for which you assess the little banks to get the capital. The little banks are simply commanded to carry wood and water for the big banks. You say to the Vanderlips and the Hepburns and the Morgans and the Reynoldses, "come in with your short term paper and get the money" but you say to the Smiths and 94 The Money Trust Cons Congress the Browns and the Joneses from the small country districts, "go somewhere else with your long term farmers paper; we cannot discount it. " The intriguing aspect of the Wednesday evening is that while a majority of Congress understood more or less the idea that the system would be inflationary, they were apparently unwilling to bring themselves to vote against the bill. Thursday, December 18, 1913 By Thursday effective opposition had crumbled, and to speed passage the Senate operated under a 15-minute rule. By this device half a dozen Hitchcock amendments were disposed of and others proposed in the previous night's Democratic Party caucus given little attention. The debate records serious doubts and differences of opinion coupled with predictions that the bill would become law before Christmas and signed on Monday or Tuesday of the following week. The opposition was sidetracked. Problems were overlooked. Fundamental questions, including the possibility of inflation, were bypassed by the leadership. One senses almost an air of panic - to pass a "currency bill," at whatever cost. Consequently, although the bill was known to be defective, the New York Times for Friday, December 19 ran its reporting under the head, "Near end of tight on currency bill." The White House promptly announced that it was considering names for Governor of the Federal Reserve Board. The first name to be floated out of the White House was that of James J. Hill of the Great Northern Railroad. It was proposed by international banker James Speyer - confirming the behind- the-scenes activity of bankers. 95 The Federal Reserve Conspiracy Friday, December 19, 1913 On Friday, December 19, the Friday before Christmas when Congressional thoughts were more on Christmas trees than money trees, the Senate passed President Wilson's currency bill without further ado by an overwhelming vote of 54 to 34. Every Democrat in the Senate, plus six Republicans and one Progressive Republican, voted for the Federal Reserve system. Against the Federal Reserve were 34 Republicans. As a sop to criticism, the bill included a so-called "radical amendment," i.e. that Congressmen could not serve on Federal Reserve Boards. Bankers, not unexpectedly, were reported to be "relieved" by the passage of the bill - but not fully satisfied and still pressed for changes in committee. William A. Gaston, President of the National Shawmut Bank, spent some days in Washington in conference with members of the House and Senate Currency Committees and commented: "...The prospective conference changes will make the bill more workable for the banks.-" Edmund D. Hulbert, Vice President of Merchants Loan and Trust Company, added to this: "...on the whole it is a sound bill and will do much toward putting banking and currency on a sound footing. " (4) W. M. Habliston, Chairman of the First National Bank of Richmond, stated, "It will result in an elastic currency which will avert panics," and Oliver J. Sands, President of the American National Bank, commented that The passage of the currency measure will have a beneficial effect upon the country at large and its operation will help business. It seems to me the beginning of an era of general prosperity.... The only reported objection from bankers came from Charles McKnight, President of National Bank for Western Pennsylvania: "It will do the country no good...." 96 The Money Trust Cons Congress Saturday, December 20, 1913 After passage of the Owen bill in the Senate the measure was sent to a joint House-Senate conference to iron out the major differences between the Glass bill from the House and the Owen bill from the Senate. This conference excluded all Republican members. The conference then met for four hours on Saturday evening, December 20, at which time at least 20 (some say 40) major points of difference in the two versions were uncovered, in addition to minor disagreements in language requiring over 100 corrections. In most of these minor items the Senate yielded to the House. However, none of the 20 (40) major differences were discussed in this Saturday evening conference, and it was generally agreed that Monday passage of the joint bill was extremely unlikely. As reported by the New York Times (December 21, 1913), "The points seriously at issue embody practically all the substantial Senate amendments." In an effort to work out some of the major differences, the conferees agreed to meet all day Sunday. Further, on this Saturday the full House met and refused to accept the Senate version of the bill by a vote of 294 to 59 and then proceeded to pass amendments binding on the House conferees. By Saturday evening, December 20, 1913, the following were some of the principal major points of dispute between the House and the Senate and reflected significant, fundamental differences in the approach to a currency bill: First - the number of regional reserve banks, Second - the question of guarantee of deposits, Third - the amount of gold reserve to be required against the circulating notes, Fourth - the changes with respect to domestic acceptance in the case of domestic and foreign trade, Fifth - the changes in the reserve provisions, 97 The Federal Reserve Conspiracy_ Sixth - the right of member banks to use the notes of the Federal reserve banks for reserve purposes, Seventh - the status of the two percent Government bonds used as security for national bank notes, Eighth - the Senate's provision with respect to an increase in national bank circulation. This was the legislative position late Saturday night. Sunday, December 21, 1913 Quite what happened on this Sunday in Washington, D.C. we shall never know for sure. What we do know is that on Sunday morning the Senate-House conferees were faced with more than 20 (some say 40) fundamental differences on a critically important bill - a bill to affect the lives of every American then and in the future. Yet, the following Monday morning the New York Times (December 22) reported on the front page, "Money Bill may be law today." The Times reported that in some undisclosed way the House-Senate conferees had adjusted their differences. The "newspaper of record" put it this way: With almost unprecedented speed, the conference to adjust House and Senate differences on the currency bill practically completed its labors early this morning (Monday 22nd). On Saturday the conferees did little more than dispose of the preliminaries, leaving forty essential differences to be thrashed out Sunday. The "almost unprecedented" speed in the conference probably occurred at a most unlikely time - between 1:30 a.m. and 4 a.m. Monday, December 22. Let's look at that critical Monday in more detail. 98 The Money Trust Cons Congress Monday, December 22, 1913 At midnight Sunday, December 21, either 20 or 40 (depending on the source) major points of disagreement required resolution. At 11 p.m. Monday, 23 hours later, the House voted 298 to 60 and passed the Federal Reserve Act. During this brief 23 hours the major differences were reconciled, worded, sent to the printer, set up in type, proofread, printed, distributed, read by every member of the House, discussed, pondered, weighed, deliberated, debated -and voted upon. This miracle of speediness, never equaled before or after in the U.S. Congress, is ominously comparable to the rubber stamp lawmaking of the banana republics. Mon. Dec. 22, 1913 1:30a.m. - ■ 4:30a.m. House-Senate con ferees adjust 20 (40) major differ- ences in the two bills. 4:30 a.m Report handed to printers 12 1/2 hours from conference to printed report 7:00 a.m Proofs read 1:00 p.m. Printed copies delivered from printers 2:00 p.m Printed report on Senate desks with notification of a meeting at 4 p.m. 99 The Federal Reserve Conspiracy 4:00 p.m. Republican members of conference go to Conference room -to be told that a bill had already been concluded. 5 hours from printed final report to House vote. 6:00 p.m. Printed conference report submitted to the House by Congressman Glass - most House members go to the restaurant for dinner while the bill is read (1 1/2 hours). 7:30 p.m Debate begins with a 20 minute speech by Glass. 11:00 p.m. The House votes 298 to 60 in favor of the Federal Reserve Act. The manner in which the Federal Reserve bill was handled by the Democratic majority and specifically by banker-politician Senator Owen and banker-politician Carter Glass is reflected in a complaint on the Senate floor 100 The Money Trust Cons Congress by Senator Bristow of Kansas, the Republican leader, in which he explains why he would not sign the conference report: Mr. LA FOLLETTE: Would it disturb the Senator to inform us who did participate in this conference and whether any Senator declined to participate? Mr. BRISTOW: As to those who participated in the conference I am not advised. I was a member of the committee of conference appointed by the President of the Senate, but I had no knowledge as to the meeting of the conferees until after the report as it is before us had been made, printed, and placed upon the desks of Senators. I was then notified by the chairman of the committee that there would be a meeting of the committee of conference at 4 o'clock, two hours after this report of the committee of conference of the two Houses of Congress on the bill (H.R. 7837) to provide for the establishment of Federal reserve banks, for furnishing an elastic currency, affording means of rediscounting commercial paper, and to establish a more effective supervision of banking in the United States, and for other purposes, had been placed upon my desk. I, in company with the Senator from Minnesota (Mr. Nelson), visited the room where we were invited to appear. We found the chairman of the committee and the Democratic members of the committee of conference there, and were given to understand that they had perfected the conference report. We were then invited to express our opinion of it, but I preferred to express my opinion where it might appear in the Record, rather than in the 101 The Federal Reserve Conspiracy privacy of the committee room, and that I shall undertake to do this morning. I see this report is signed by the Democratic members of the committee. Of course, I did not sign it because I was not invited to sign it, and I should not have done so, anyway, for I did not know at the time the report was prepared what it contained, and I had no opportunity of ascertaining what it contained.^ In brief, the Republican leader did not know what was in the Act nor was he given the opportunity to find out what was in the Act. Later in debate Bristow directly accused Owen of inserting provisions for the profit of his own bank. There were major abuses of the legislative process in the passage of the Federal Reserve Act - sufficient to void the act. If we have a society that lives by rules then there is no Federal Reserve Act. Both Finance Committee Chairmen, Congressman Glass and Senator Owen, had conflict of interest with personal banking interests and stood to gain from the bill. Meetings to discuss the bill were held without knowledge of committee members. Decisions were arrived at and established without the knowledge and agreement of members. Major sections of the bill were settled without consultation and railroaded into final form. There is indisputable evidence of outside banking influence upon Congress. The Federal Reserve Act is, even from our superficial investigation, suspect legislation. Most of Congress had no idea of the contents of the final bill and certainly none had the opportunity to reflect and consult with the broad base of the electorate. A private money monopoly was granted to a few national bankers under suspect circumstances. 102 The Money Trust Cons Congress As Congressman Lindbergh stated on December 23, 1913: This Act established the most gigantic trust on earth. When the President signs this bill, the invisible government by the Monetary Power will be legalized. The people may not know it immediately but the day of reckoning is only a few years removed.... 103 The Federal Reserve Conspiracy Chart 9-2: STAGE TWO: WOODROW WILSON IN DEBT TO THE MONEY TRUST George Perkins .Cleveland Bodge $51,3t0 104 The Money Trust Cons Congress Endnotes to Chapter Nine: (1) Congressional Record: Senate, February 8, 1915. (2) op. cit. (3) op. cit. (4) New York Times, December 20, 1913. (5) Congressional Record: Senate, December 23, 1913, p. 1468. 105 The Federal Reserve Conspiracy Paul Volcker, employee of Chase Manhattan Bank and Chairman of the Federal Reserve System in the 1970s. 106 Chapter Ten: THE FEDERAL RESERVE TODAY
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