The Federal Reserve System: The creature of a triumphant international banking establishment
Bob Adelmann | The New American
October 27, 1986
In the summer of 1775, debate raged in the Colonies between loyalty to the Crown and Independence. Patrick Henry expressed the position best that full and complete information, even though unpleasant, was the necessary basis for a proper decision:
It is natural to man to indulge in the illusions of hope. We are apt to shut our eyes against a painful truth, and listen to the song of that siren, till she transforms us into beasts. Is this the part of wise men, engaged in a great and arduous struggle for liberty? Are we disposed to be of the number of those who, having eyes, see not, and having ears, hear not, the things which so nearly concern their temporal salvation. For my part, whatever anguish of spirit it may cost, I am willing to know the whole truth; to know the worst and provide for it.
This is an appropriate introduction to a subject that impinges directly on the lives of every citizen, but about which there is enormous misinformation: the history of the Federal Reserve System. Without knowing "the whole truth" then, we will most certainly not "know the worst," and we will consequently be unable "to provide for it."
The Fed began as a small group of men determined to take complete monetary and, ultimately, political control of all nations of the earth -- quietly, secretly, and, in many cases, in direct violation of the most sacred and lawful agreements set up by those autonomous nations. By definition, the actions of these men constituted a conspiracy. (The Random House unabridged dictionary defines the word Conspiracy as "An evil, unlawful, treacherous, or surreptitious plan formulated in secret by two or more persons.")
Carroll Quigley, while professor of history at the Foreign Service School of Georgetown University, shed a great deal of light on the Master Conspiracy in 1966 with his Tragedy and Hope: A History of the World in Our Time, in which he wrote:
I know of the operations of this network [the Council on Foreign Relations] because I have studied it for twenty years and was permitted for two years, in the early 1960's, to examine its papers and secret records. I have no aversion to it or to most of its aims and have, for much of my life, been close to it and to many of its instruments .... In general, my chief difference of opinion is that it wishes to remain unknown.
And what are these "aims"?
[N]othing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert by secret meetings and conferences. The apex of the system was to be ... a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank ... sought to dominate its government by its ability to control treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.
The history of the Federal Reserve System illustrates the initial failures and ultimate success of the International Bankers to bring a central bank to the United States.
The First Bank of England
In 1694, William Paterson created the First Bank of England. As a private corporation, it was designed to purchase government debt from the Crown and to resell it to private investors. In exchange, Paterson's bank would issue currency to the Crown, which it would use to fund its deficits. In the prospectus written to entice investors to purchase shares of this private company, Paterson wrote: "The Bank hath benefit of interest on money which it hath created out of nothing." Within two years, the Bank had created far more currency than it could redeem in gold coin; during the resulting "run" on the bank, the Crown allowed Paterson to suspend payments of gold. This incident underscores the power and influence that Paterson and others had over the financial affairs of the English government. If banking were treated as just another business, then Paterson would have been accused, correctly, of fraud; he would have been brought to trial to answer for his misdeeds and punished. But banking most certainly has not been considered "just another business," and this "suspension of specie payments" was granted by the English government in order to keep the Bank afloat.
In France, the story was similar. France's central bank, the Bank of France, was founded in 1800. According to Quigley:
At that date, financial power was in the hands of about ten or fifteen private banking houses whose founders, in most cases, had come from Switzerland in the second half of the eighteenth century. These bankers, all Protestant, were deeply involved in the agitations leading up to the French Revolution. When the revolutionary violence got out of hand, they were the chief forces behind the rise of Napoleon, whom they regarded as the restorer of order. As a reward for this support, Napoleon in 1800 gave these bankers a monopoly over French financial life by giving them control of the new Bank of France.
One of the primary causes of the French Revolution in 1789 was the destruction of the French currency, the assignat, by the French central bank. In his Fiat Money Inflation in France, historian Andrew Dickson White explains what happened:
It [the destruction of the currency] came by seeking a remedy for a comparatively small evil [a small deficit by the French government] in an evil infinitely more dangerous. To cure a disease temporary in its character, a corrosive poison was administered, which ate out the vitals of French prosperity.
It progressed according to a law in social physics which we may call the "law of accelerating issue and depreciation." It was comparatively easy to refrain from the first issue [of fiat or unredeemable currency]; it was exceedingly difficult to refrain from the second; to refrain from the third and those following was practically impossible.
It brought, as we have seen, commerce and manufactures, the mercantile interest, the agricultural interest, to ruin. It brought on these the same destruction which would come to a Hollander opening the dikes of the sea to irrigate his garden in a dry summer.
It ended in the complete financial, moral and political prostration of France.
The Rothschilds
No discussion of currency manipulation and destruction would be complete without mention of the Rothschild family. Meyer Amschel Rothschild, born in 1743, founded a dynasty of such power and influence, with the assistance of the Master Conspiracy, that many believe that his family, and the cooperating international bankers around him, are the Conspiracy. The Rothschild influence, as we shall see, was enormous; nevertheless, it is a disservice to history to overstate that influence, as some authors have done:
"Let me issue and control a nation's money and I care not who writes the laws," Rothschild is reputed to have said.
"[The Rothschilds] conquered the world more thoroughly, more cunningly, and much more lastingly than all the Caesars before or all the Hitlers after them," writes Frederic Morton in The Rothschilds, A Family Portrait.
Meyer A. Rothschild had five sons, who set up offices in Frankfurt, Vienna, London, Naples, and Paris. They lent huge sums of money to the governments of Germany, Austria, England, Italy, and France. Again, Quigley makes dear the difference between this international banking family and ordinary bankers:
(1) they were cosmopolitan and international; (2) they were close to governments and were particularly concerned with questions of government debts, including foreign government debts; (3) their interests were almost exclusively in bonds...; (5) they were almost equally devoted to secrecy and the secret use of financial influence in political life.
Selling Out Napoleon
An incident that occurred at the time of the Battle of Waterloo in June of 1815 illustrates the "cosmopolitan and international" nature of the Rothschild banking family: Napoleon, a creature of the international bankers, turned against them in the last years of his rule. He said:
When a government is dependent for money upon bankers, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes .... Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.
The British Duke of Wellington was raising an army in the Pyrenees mountains (between Spain and France) to lead against Napoleon, and he needed a tremendous amount of gold (some 800,000 pounds) to accomplish his task. James Rothschild, who was a citizen of Napoleon's France at the time, arranged the transfer of this gold to Wellington, making an enormous profit on the transaction while sealing the fate of Napoleon. In his own words, James Rothschild said:
The East India Company had 800,000 pounds worth of gold to sell. I went to the sale and bought it all. I knew the Duke of Wellington must have it [for his army]. The government [of England] sent for me and said they must have the gold. I sold the gold to them, but they [the English government] didn't know how to get it to the Duke in Portugal. I undertook all that and sent it through France. It was the best business I have ever done. (Emphasis added)
But the story does not end there. Brother Nathan Rothschild, a citizen of England at this time, learned about Wellington's victory before anyone else, primarily because of the Rothschild's courier network. On the 20th of June, Nathan went to the London bond market where, with a dejected demeanor, he began selling English bonds. The rumor that Wellington had been defeated spread through the market, and bond prices fell precipitously. At the same time, Nathan's own agents were quietly buying up those heavily discounted bonds. By the end of the day, Nathan had acquired almost the entire issue of government bonds at a small fraction of their real worth.
The origins of central banking in the United States are chronicled by economics professor Murray Rothbard in his authoritative book, The Mystery Of Banking. In 1781, according to Rothbard, one Robert Morris, an individual with enormous personal wealth and a member of Congress,
had assumed virtually total economic and financial power during the Revolutionary War. As a war contractor, Morris siphoned off millions from the public treasury into contracts to his own mercantile and shipping firm and to those of his associates. Morris was also leader of the powerful Nationalist forces in the embattled new country whose aim was to reimpose in the new United States a system of mercantilism and big government similar to that in Great Britain, against which the colonists had rebelled .... Part of the Morris scheme was to organize and head a central bank .... The new privately owned Bank of North America was deliberately modeled after the [Rothschild-controlled] Bank of England.
The Charter for the bank was quickly granted, along with the monopoly to issue paper money. As is the case with all central banks, the paper money was used by the government to fund its deficits. And Morris' private bank obtained the interest on the bonds that it received from the government in exchange for the paper money that it issued. The bank, then, just as in the case of William Paterson, owner of the First Bank of England, had the "benefit of interest on money which it hath created out of nothing." By 1783 the Bank of North America had failed, because of a "run" by panicked depositors trying to redeem their paper currency for gold.
Following the scrapping of the Articles of Confederation and the creation of the Constitution, Alexander Hamilton (a disciple of Morris), while serving as Secretary of the Treasury, helped to establish the First Bank of the United States. Again, just like the ill-fated Bank of North America, it was privately held and was granted a monopoly on the creation of irredeemable paper money. Again, just as in the previous instances, prices from 1791 to 1796 rose 72 percent in response to the flood of new paper money that was issued by the bank.
Free Enterprise Banking?
In 1811, the charter for the Bank of the United States was up for renewal for another 20 years. It failed by one vote in both the House of Representatives and the Senate, despite strong support for the Bank by wealthy merchants, various Chambers of Commerce, and many of the State banks. Thus began the period of "free" banking, as popular liberal historians like to call it.
Apologists for central banking have argued that "free" banking, or "free enterprise" banking (banking allowed to operate as simply another service industry in a free enterprise environment), will lead to a number of distortions that will be harmful to consumers. One of the charges leveled by these apologists is that "free" banking will lead to huge inflation, as privately-held banks will automatically (due to greed, primarily) expand their currencies far beyond their ability to redeem with their gold reserves. Thus, "panics" will result, and consumers will be left with worthless paper. History has shown, however, that these alleged evils are precisely those perpetrated by "central" or "monopoly" banking.
Monopoly banking continued to be a problem, despite the failure of the charter of the First Bank of the United States to be renewed. The War of 1812, largely opposed by privately-held banks in the Northeastern states, provided an opportunity to punish banks in the Middle Atlantic, Southern, and Western states for their pro-war stance. The federal government sold bonds to fund the war primarily to these latter banks. The currencies that were exchanged for these bonds were then used by the government to purchase war materiél, primarily in the Northeast. The Northeastern banks then attempted to redeem the gold from the pro-war banks in the West, causing them enormous liquidity problems.
These largely contrived liquidity problems resulted in more government interference -- namely, another "suspension of specie payments" in 1814, which had the natural effect of encouraging expansion of currencies beyond reserves. This is hardly a case of free enterprise at work.
In 1816, a Second Bank of the United States was chartered, the money supply was expanded enormously, and prices rose again. Then, in 1818, a major contraction took place, instead of the now-traditional suspension of gold payment, causing a recession. This is the first carefully recorded "boom and bust" cycle caused by a central bank in the United States. Unfortunately, by 1819 the pressures on the reserves had grown so much that a "suspension" was allowed once again. Again, the Rothschilds were heavily involved, as Gustavus Myers points out in his History of the Great American Fortunes:
Under the surface, the Rothschilds long had a powerful influence in dictating American financial laws. The law records show that they were the power in the old Bank of the United States [the Second Bank of the United States, abolished by Andrew Jackson].
Andrew Jackson was President from 1828 through 1836. As President, he had a view of the financial and banking establishment that few individuals ever obtain. According to George Roche's The Bewildered Society, Jackson didn't like what he saw:
[Andrew Jackson and] the Jacksonians were squarely in the American tradition of insisting upon free competition and a minimum of interference, whether public or private, with the independence and opportunity of the individual. Jackson himself was a westerner whose primary appeal to a rising middle class was equality before the law and resistance to unwarranted centralization, whether in economics or politics.
Claude G. Bowers observes in The Party Battles of the Jackson Period:
Jackson was not far wrong in the conclusion that a moneyed institution possessing the power to precipitate panics to influence government action, was dangerous to the peace, prosperity, and the liberty of the people.
Naturally, when the charter for renewal of the Bank came up during his Presidency, Jackson made an issue out of it in his bid for re-election in 1832. (In fact, one of his campaign slogans that year was: "Bank and no Jackson, or no bank and Jackson"). The famous veto message he sent to Congress, in which he called the central bank unconstitutional, included the following remarks:
It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes .... In the full enjoyment of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally entitled to protection by law; but when the laws undertake to add to these natural and just advantages, artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humbler members of society -- the farmers, mechanics, and laborers -- who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their Government .... In the act before me there seems to be a wide and unnecessary departure from ... just principles.
In that same message, President Jackson revealed the fact that only a relatively few, very well-to-do individuals owned stock in the bank and that $8 million worth of that stock was actually owned by foreigners:
Is there no danger to our liberty and independence in a bank that, in its nature, has so little to bind it to our country? ... [Is there not] cause to tremble for the purity of our elections in peace and for the independence of our country in war?
Although the bank's charter ran through 1836, Jackson ordered the considerable deposits of the federal government removed from the central bank and transferred to various state banks around the country in 1833. Nicholas Biddle, head of the bank, was determined to undermine Jackson's position. He ordered a sharp reduction in loans throughout the banking system. Naturally, this caused a sharp contraction in business activity, and precipitated a recession, exactly as Biddle planned. Robert V. Remini, a careful historian of the period, explained the process:
Western branches of the Bank of the United States were ordered to purchase bills of exchange payable solely in eastern cities. This would apply an economic squeeze that could shatter western growth and expansion .... Biddle understood what he was about. He knew what he needed to achieve to save his bank. If he brought enough pressure and agony to the money market, only then could he force the President to restore the deposits .... His curtailment of loans came with such suddenness and severity that it pitched the country into an economic panic reminiscent of the breakdown of 1819. He wanted to bring about a depression -- and the deeper the better.
Nicholas Biddle was doing what was best for the Bank of the United States, a privately-owned central bank, controlled by the International Banking establishment, that was in danger of being destroyed. Biddle himself said "Nothing but the evidence of suffering ... will produce any effect in Congress .... My own course is decided. All other banks and all the merchants may break, but the Bank of the United States shall not break."
If the treachery of the International Bankers had not been clear to President Jackson before, it most certainly was now. Jackson said:
The bold effort the present bank had made to control the government, the distress it had wantonly produced ... are but premonitions of the fate that awaits the American people should they be deluded into a perpetuation of this institution or the establishment of another like it. [Emphasis added]
Then, bluntly expressing his distaste for the International Bankers determined to keep control of their central bank at any cost to the American people, Jackson exclaimed: "You are a den of vipers. I intend to rout you out, and by the Eternal God I will rout you out. If the people only understood the rank injustice of our money and banking system, there would be a revolution before morning!"
That there was an assassination attempt on President Jackson early in 1835 is not surprising. Jackson lived, however, to the end of his second term, and saw the end of the International Banker-controlled Bank of the United States. There was to be no central bank in the United States until the middle of Abraham Lincoln's term in 1863.
In that interim, however, there continued to be monetary upheavals and difficulties. Despite the relative freedom from the influence of the International Bankers, greater than at any time since the founding of the Republic, there were nevertheless three "suspensions of specie payments" (1837, 1839, and 1857). This was because of the fractional reserve system that was still in place, and because of government's unwillingness to enforce laws against fraud and counterfeiting against the owners of private banks. Without that enforcement, bankers were encouraged to inflate their own currencies beyond their ability to redeem, and then to hide behind the cloak of respectability provided by government.
Although the Civil War officially began with the bombardment of Fort Sumter in April of 1861, the groundwork for a war between the North and the South had been laid much earlier. In 1837, during the financial panic and suspension of that year, a Rothschild representative named August Belmont entered the United States. With the substantial resources of his employer backing him, Belmont began purchasing large quantities of government bonds. According to Stephen Birmingham's Our Crowd, the Rothschild agent's success led him to the White House, where he became the "financial advisor to the President of the United States."
In 1854, the Knights of the Golden Circle was founded by George W. L. Bickley, who later declared that "he had created the fateful war of 1861 with an organization that had engineered and spread secession." In 1857, according to the January 1976 Bulletin of the Committee to Restore the Constitution, a "pivotal meeting took place in London .... It was at this meeting that the International Banking Syndicate decided that (in America) the North was to be pitted against the South under the old principle of 'divide and conquer.' This amazing agreement was corroborated by MacKenzie in his historical research entitled The Nineteenth Century."
Additional confirmation of this remarkable effort by the International Bankers to create a new central bank through the use of war, with the Bankers financing both sides, comes from the First Chancellor of Germany, Otto von Bismarck. In 1876 he said:
The division of the United States into federations of equal force was decided long before the Civil War by the high financial powers of Europe. These bankers were afraid that the United States, if they remained in one block and as one nation, would attain economic and financial independence which would upset their financial domination over the world. The voice of the Rothschilds prevailed. They saw tremendous booty if they could substitute two feeble democracies, indebted to the financiers, for the vigorous Republic which was practically self-providing. Therefore, they started their emissaries in order to exploit the question of slavery and, thus, to dig an abyss between the two parts of the Republic ... Lincoln's personality surprised them. His being a candidate had not troubled them; they thought to easily dupe a woodcutter. But Lincoln read their plots and understood that the South was not the worst foe, but the financiers. [Emphasis ours]
Although the South chose to finance the war by directly printing paper currency not redeemable in gold coin, the North essentially created a central bank through the National Banking Act of 1863. This was confirmed by a confidential communiqué that was sent from the Rothschild investment house in England to an associate banking firm in New York:
The few who understand the system [created by the National Banking Act] will either be so interested in its profits or so dependent on its favors that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending ... will bear its burdens without complaint.
After the act was passed, Lincoln said:
The money power preys upon the nation in times of peace and conspires against it in times of adversity. It is more despotic than monarchy, more insolent than autocracy, more selfish than bureaucracy. I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. Corporations have been enthroned, an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until the wealth is aggregated in a few hands and the republic is destroyed.
The rest is history. The Union was preserved at great cost, Lincoln was assassinated by John Wilkes Booth (who was a member of the Knights of the Golden Circle), and the South was humiliated.
A Brief Respite
In 1875, with passage of the Specie Redemption Act, all Greenbacks that had been printed to pay for the war were redeemed at face amount in gold. From that time until the early 20th Century, the economy virtually exploded. It was the closest the U.S. has ever come to a true laissez-faire capitalist system.
Despite their best efforts, the International Bankers did not have a central bank under their control in the United States during this interval. Thus, as economic activity increased, and the number of private banks outside the orbit of the Rothschilds and other International Banking firms continued to grow, they determined to create panics artificially and to encourage public displeasure over the banking system, thereby building the pressure for a central bank.
Both the panics of 1893 and 1907 were deliberately staged, primarily by the efforts of J.P. Morgan, an agent for the English Rothschilds. In fact, Historian Frederick Lewis Allen reviewed this plot in an article published in Life magazine in April 1949, "Did Morgan Precipitate
Oakleigh Thorne, the president of that particular trust company, testified later before a congressional committee that his bank had been subjected to only moderate withdrawals ... that he had not applied for help, and that it was the [Morgan] "sore point" statement alone that had caused the run on his bank. From this testimony, plus the disciplinary measures taken by the Clearing House against the Heinze, Morse and Thomas banks, plus other fragments of supposedly pertinent evidence, certain chroniclers have arrived at the ingenious conclusion that the Morgan interests took advantage of the unsettled conditions during the Autumn of 1907 to precipitate the panic, guiding it shrewdly as it progressed so that it would kill off rival banks and consolidate the preeminence of the banks within the Morgan orbit.
Whether or not those "certain chroniclers" were correct, the point was made. Allen concludes: "The lesson of the Panic of 1907 was clear, though not for some six years was it destined to be embodied in legislation: the United States gravely needed a central banking system...."
In 1908 Congress established the National Monetary Commission and named a number of representatives of the International Banking establishment to it. They included Paul Warburg, Senator Nelson Aldrich (maternal grandfather to the Rockefeller brothers), and "Colonel" Edward M. House. After two years of touring Europe at taxpayers' expense, the members of the committee held a secret meeting in Jekyll Island, Georgia, at the Jekyll Island Hunt Club (owned by J.P. Morgan). One of the attendees, Frank Vanderlip, President of Kuhn-Loeb's National City Bank of New York, wrote in 1935 about this meeting:
Despite my views about the value to society of greater publicity for the affairs of corporations, there was an occasion, near the close of 1910, when I was as secretive -- indeed as furtive -- as any conspirator. I do not feel it is any exaggeration to speak of our secret expedition to Jekyll Island as the occasion of the actual conception of what eventually became the Federal Reserve System .... Discovery, we knew, simply must not happen, or else all our time and effort would be wasted.
When the recommendations from the National Monetary Commission were presented to Congress as the Aldrich Bill, it was defeated in 1911. Part of the reason was the guarantee of a Presidential veto by President William Howard Taft. In light of that intransigence, the Bankers went to work on the 1912 Presidential Election. In America's 60 Families, Ferninand Lundberg describes what happened:
As soon as [Theodore] Roosevelt signified that he would again challenge Taft [on the ticket of the Progressive "Bull Moose" Party] the President's defeat was inevitable. Throughout the three-cornered fight [Taft-Roosevelt-Woodrow Wilson (who supported the Aldrich Bill)] Roosevelt had [Morgan agents] Munsey and Perkins constantly at his heels, supplying money, going over his speeches, bringing people from Wall Street in to help, and, in general, carrying the entire burden of the campaign against Taft .... Perkins and J.P. Morgan and Company were the substance of the Progressive Party; everything else was trimming .... In short, most of Roosevelt's campaign was supplied by the two Morgan hatchet men who were seeking Taft's scalp.
Wilson was elected President with 45 percent of the popular vote. The Aldrich Bill was re-submitted as the Glass Act (named for Senator Carter Glass, a strong critic of the bill!) and voted into law on December 22, 1913. With the establishment of the central banking system known as the Federal Reserve, the International Banking establishment had triumphed.