Will the national bankers consent to a reasonable control, and uniform rates of interest for their service as public officials ?  No ;  not willingly.  Private monopoly, or the beneficiaries of special privilege, never consent to yield a point, unless it is temporary, to gain a larger stake.  The more they get, the more they want, and the more arrogant and greedy they become.  Indeed we must expect them and their subsidiaries to fight to the limit against any and every attempt, large or small, to regulate or control our medium of exchange.

This is not conjecture, or guess work ;  it is based on the general experience of the past few years and the actual experience of an honest public official during the years 1914-1915, the present Comptroller of the Currency, whose duty it is to see that the laws governing his department are enforced.  He was not interfering with legitimate business ;  just courteously calling the national bankers’ attention to complaints being made of certain violations of our banking laws, in re rates of interest being charged.  That was all.

Much of the 1915 report of the Comptroller of the Currency should be issued in pamphlet form as a public document for free distribution and given the widest possible circulation, for educational purposes.  I shall quote just enough to whet your appetite—then send to your Representative in Congress requesting a copy, and use it to inform your neighbors as to what one branch of your public servants are doing.

Many national bankers resented the request, more especially the largest ones, as impertinent and over officious meddling on the part of a subordinate and remembering how they treated and were treated by a President, Attorney General and a Comptroller of the Currency in 1907, it is not at all strange that they

    Big Bankers Object to Control 221

should, nor that they promptly marked him for the official axe.

They not only objected to any reduction in rate of interest, but to any attempt to control.  They have controlled so long that they look upon banking as a private business, with which the public have nothing to do, except borrow and pay interest.  They have enjoyed the special privilege so long that they look upon it as a vested right.  The larger the banks and the more favors they receive, the more relentless and arrogant they become.  In the “bankers’ panic of 1907” they would not let up until the national treasury had been drained to the limit, and then forced the sale of Panama Canal bonds, contrary to the intent of the law providing for their issue, and in addition forced the issue of “certificates of indebtedness.”  There was no let up in their demands until they were satiated.  They did not need the money, except for exploitation, for they had locked up in their vaults of their customers and government funds, as shown elsewhere, more than $800,000,000, which they were not using.  It was to keep their victims from getting help.

So here again in 1914-15, under the crowning achievement in financial legislation, where money and credit was to be easy, industry to be encouraged and commerce liberated, there was no change of policy on their part.  The treasury department had loaned the banks $210,000,000 of “emergency currency” to help move the crops ?  Strange as it may appear, much of that went to New York City, and instead of the big bankers using the money to help move the crops, they used it to speculate with, and were charging usurious rates of interest.  It is by such means that their banks can earn an average of 285 per cent annually on their invested capital.

The Comptroller politely called their attention to it, and suggested that they at least get down to legal rates.  It was the three big banks that resented the suggestion with greatest assurance.  On page 21 the Comptroller says :

222 They Will Not Consent    

“This bank, in replying, registered a formal protest against what its officers referred to as an attempt to force upon them a policy which they might not consider correct.  In his letter the complaining bank wrote :  ‘We judge there is a sentiment by debtors not of prime standing or with prime collateral, and we feel that they should not assume that they are entitled to the same treatment by banks when they know the way they can easily have their notes reduced to 6 per cent or can pay.’  In answer to this communication the Comptroller replied in part with unanswerable logic as follows :  ‘In each times as these through which we have been passing I consider that the weaker concerns and those who may not have been in possession of abundant resources should have been treated with special consideration and forbearance, and to levy against and exact from them excessive or unjust interest rates simply because they were under unparalleled conditions, unable to help themselves, is not defensible.  In all kindness let me remind you that the usury laws are framed more for the protection of the weak than of the strong, who can take care of themselves, and I am sure that you will agree with me that it is neither good policy nor good ethics, in times like these, to take advantage of the weakness or misfortune of s bank’s clients and customers.”

The bank in question had received $10,000,000 of so-called emergency currency from the government for the express purpose of helping those in need.  The Comptroller makes a splendid point in defining the object of usury laws, which might well be developed.

We may just as well recognize the fact that under the present system any attempt to regulate, or control the national banks will be resented, and all laws that might interfere with their plans will be ignored, or violated in the future, under the administration of a Roosevelt, a Hughes, or a Wilson, as they have been in the past, and are being now.

    Shall the People Control ? 223

The issue must be clear cut, with no fusion or compromise for a temporary political victory.

Is money a public utility ;  a medium to facilitate the exchange of labor and labor’s products ;  or a medium for private profit and oppression ?

Shall the people, or private monopoly control its issue and administration ?

The House of Morgan is now in supreme control ;  how may we best proceed to dethrone them ;  that is, which are their weakest “forts”?  Around what "salient” can we rally our greatest strength ?

For this I have offered a few suggestion for immediate political action, upon which I believe all financial reformers should be able to unite.

In the meantime each one can be developing his ideal, for a permanent solution, without antagonizing, or criticizing, adversely the suggestion, or plans of our co-workers.  Let co-operation and co-ordination be our working policy.

Is There a Sufficient Margin at Six Per Cent ?

Can the national banks afford to loan the people’s money deposited with them for safe keeping for six per cent ?

Under the old system, the margin depended on the rate of interest the banker paid on deposits, and the rate he charged his customers.

As they sometimes paid four per cent and sometimes six per cent on time deposits and loaned for from eight to ten per cent, that is, the law abiding bankers, we may assume that the average margin was four per cent.  True, under the national bank law they paid only one-half of one per cent for national bank notes, which would have left a margin of five and a half, but this was offset some by the low rate of interest on the bond security, until the enactment of the Aldrich-Vreeland law, which permitted the use of “other securities."  The free deposits were, of course, offset some by the reserves held, but a very conservative estimate would be a margin of four per cent, and the

224 They Will Not Consent    

business of banking has been the safest and most profitable of any in every village, town, or city in the whole country.  But that will soon be ancient history.  The old order is rapidly changing.  We must now discuss the new system of the future.

There will be no government or lawful money to loan.  All that is not withdrawn, or decoined, will be hoarded in the vaults of the “men who control,” principally the vaults of the House of Morgan.

The plan of Warburg, and announced in advance by Mr. Reynolds, will be followed out to the letter as provided for in the Federal Reserve banks and other laws.  They do not propose to lend money, just the credit of the banker.

Then the question for consideration is :  can the national bankers loan their credit to you, based on your own property as security, for six per cent per annum ?  The state banks need not be considered, for there will be no “place in the sun” for them.  Interest on deposits will be a novelty.  Why pay interest on deposits, when it is their credit that they propose loaning ?

It is under this new system that we must consider the margin, and for this purpose we must figure the Federal Reserve Board, the Federal Reserve banks, and the member banks as one system.

The Federal Reserve banks pay no interest on Federal Reserve notes.

There is only a nominal charge of about one-tenth of one per cent for printing, etc., no interest.  Professedly, the Federal Reserve banks are not organized for profit ;  just to serve the people.  The cost of administration, then, should be sufficient for them.  Were they organized in fact to serve the people, one per cent interest would be sufficient.

But we know that they are organized for private profit.  So we will call it two per cent ;  this would leave the member bank four per cent, or as large a margin as they legally had in the past.  But, how long will it be before the member banks catch on, that if

    Bank Deposits are Bank Credits 225

the Reserve banks are loaning their credit, instead of Reserve bank notes, that they too will accommodate only such customers as will be satisfied with credit instead of cash.  Then the six per cent would be all velvet, except the expense of administration.

December 31st, 1915, there had been issued Federal Reserve notes to the amount of $188,817,000, of which they had on hand $21,910,000.  There was held by the member banks $11,139,395, which would leave in circulation $155,768,605.

At same date the national banks had out in loans and discounts $7,357,732,000.

We have Mr. Reynolds’ testimony that in 1911 95 per cent of their then loans were credit and not money ;  so it would follow that 95 per cent of their bank deposits was an extension of credit on the bank books ;  and not a cash deposit.  This very important fact wants to be kept in mind, for the greatest confidence game in the history of the world is now being palmed off on our people.

What rate of interest does the bank pay for the use of that credit ?

Nothing whatever ;  THEY USE YOUR CREDIT, and charge you for a transfer, or exchange, of their credit for yours, just what they think your necessities will compel you to pay.  A very liberal estimate of the actual expense involved would be one per cent.  That would include the risk involved, leaving a margin of five per cent, or a larger margin than in the old system of loaning customers’ deposits.

When the member banks catch on, as they soon will, they will rediscount very little with the Federal Reserve banks, and when they do, they will have to be satisfied with a ledger credit, instead of Reserve bank notes.

Of course they will claim that the margin is too small, and they will threaten to surrender their charters, just as they did in 1913 ;  a mere bluff.  But if they should, we can console ourselves with the thought

226 They Will Not Consent    

that bankers are not born bankers, nor is their business entailed ;  they just develop from ordinary business men and farmers.

Recognizing, and insisting, on the fact that money is a public utility, and its administration a public service, we are not planning for immense private profits, just a fair and reasonable compensation for services performed.

In addition to the enactment of the state law, limiting the rate of interest to six per cent, we should have a state law similar to that recommended by the Comptroller of the Currency for the enforcement of our state usury laws.  The rate of interest to be charged should be definitely fixed by law, both federal and state.  This regulating by commissions is as great a farce as having our tariff laws dictated by the protected manufacturers, or our railroad rates fixed by pro-railroad commissioners, or our banking laws by a board of bankers.

It is useless to waste time and effort amending the laws, unless they can be enforced.

If the system is superior to our government, and our laws, let us openly confess it, and stop the farce of popular elections.


What was the intent of the Federal Reserve Act ?

Senator Aldrich said that it was to prevent "putting the currency issue and the entire banking industry of the country into the hands of the government.”

Mr. Reynolds said that it was to change our whole financial system from government money to bank credit, that we did not need money to transact our business, just bank credit and a check book.

Senator Owen said that it was to be a bank for banks, a bankers’ bank.

The Federal Reserve Board says that it was intended as a public trust, to be administered for the common welfare—for the good of all.

Mr. Rich says that it was to enable the commercial bankers to better and more efficiently serve the needs of agriculture, commerce and industry.

Mr. Warburg says that it was to enable the United States to become the great creditor nation of the world ;  the WORLD’S BANKER.

President Wilson said that it was to furnish the machinery for free and elastic and uncontrolled credits put at the disposal of the merchants and manufacturers of this country.

Theodore Wold said that contrary to the general belief the most important feature of the new law is elasticity of credit, NOT ELASTICITY OF CURRENCY.  The demand therefore was for a measure which would in emergencies increase the lending power of the banks.

Senator Aldrich was the only man who frankly told the truth, and was promptly deposed as the leader, and his great ambition to have his name go down in history as the author of this great financial reform was denied him.  If the truth were told I think it would be found that he died of a broken heart ;  but it was always thus with private monopoly.

228 The Federal Reserve Act    

The Senator thought the fight could be made in the open (see pages 108-109);  they preferred to follow the usual course of deception and misrepresentation.

The only limit being that of endurance, by the producers of the nation.

I will quote briefly from the first annual report of the Federal Reserve Board, as to what the system purports to be.

It had been my intention to give considerable space to the Federal Reserve law in closing, but space in this book will not permit doing justice to the subject, so I will content myself at this time with briefly touching on a few of the more important points, and leave the fuller development for a special study of the system, if I find there is a demand for such a work.

A Public Trust—For the Good of All.

First Annual Report, p. 17, we find a very significant paragraph :

"It should never be lost to sight that the Reserve banks are invested with much of the quality of a public trust.  They were created because of the existence of certain common needs and interests, and they should be administered for the common welfare—for the good of all.  The more complete adoption of the credit mechanism and facilities of the country to the needs of industry, commerce and agriculture, with all their seasonal fluctuations and contingencies—should be the

    A Splendid Conception, But— 229

constant aim of a Reserve bank’s management.  To provide and maintain a fluid condition of credit, such as will make of the Reserve banks at all times and under all conditions institutions of accommodation in the larger and public sense of the term is the first responsibility of a Reserve bank.”

Page 18 :  “There will be times when the great weight of their influence and resources should be exerted to secure a freer extension of credit and an easing of rates in order that the borrowing community shall be able to obtain accommodation at the lowest rates warranted by existing conditions and be adequately protected against exorbitant rates of interest.”

The foregoing is a splendid conception of what the functions and duties of a public service board should be and worthy of the pen of Thomas Jefferson.  It is signed by the whole Board :  W.G. McAdoo, J.S. Williams, C.S. Hamlin, F.A. Delano, P.M. Warburg, W.P.G. Harding and A.C. Miller.

In the selection of a Board to direct the controlling public utility in the nation as affecting “the needs of industry, commerce and agriculture—with all their seasonal fluctuations and contingencies,” that would have inspired confidence in the ranks of “industry, commerce and agriculture,” the Board should have been composed of men who were noted for having made a special study of these “certain common needs and interests,” and devoted their lives, or a reasonable part of them, to “the common welfare—for the good of all.”

Now read that list of names over carefully once more, and see if there is a single name on that list that you ever heard of in connection with the promotion of "the common welfare—for the good of all,” prior to their appointment on that Federal Reserve Board, to organize, administer and control our medium of exchange, the life blood of agriculture, industry and commerce.

230 The Federal Reserve Act    

I have been a close reader of current events during the past thirty years, and especially interested along those lines, and I have no recollection of ever having seen the name of even one of those distinguished men in connection with any movement, remotely related to “the common welfare—for the good of all.”

There are two men on the Board, placed there in direct opposition to the wishes of the men who control the Board, viz.:  the Secretary of the Treasury and Comptroller of the Currency, who were placed on the Board by Congress to give a semblance to the idea of government control, by having representatives of the government on the Board.

It was around this feature the closing fight in Congress was waged, the public overlooking the fact that the money monopoly controlled the government, and that the appointment of members of a cabinet whose chief was under obligations for his election to this same money monopoly.  See Myron T. Herrick’s tribute to the President and ex-President, p 198.

The Federal Reserve law was not permitted to pass Congress until the representatives of the system were satisfied that they would have absolute control of the Board and the system.

That this was clearly foreseen and intended by the House of Morgan and understood by the National Bankers’ Association, I quote from their Vice President and lobby representative in Congress, in his “Aldrich Currency Plan Interpreted,” published in 1911, p. 15, in commenting on Section 12 of the proposed Aldrich plan.  Mr. Reynolds said :

“The consensus of opinion of bankers is that this clause should be modified so as to give the directors power to appoint and to remove for cause the Governor of the Reserve Association of America and his two deputies.  There is good reason why this should be done, since it is fair to assume that the forty-five directors would be in a better position to pick out a competent man for that very important position than

    A Bank for Bankers Only 231

would be the President of the United States.  Besides this, it must be remembered that the Reserve Association of America, although acting as fiscal agent of the United States government, is not a government bank in the sense that the great central banks of Europe are.  It is primarily a bank of banks, and for that reason the banks rather than the government officers should have it to say who the executive officers should be.”

Senator Owen, chairman of the committee, in introducing the bill, said in part (Cong. Rec., p. 6766):  “All of these considerations urge that the Federal Reserve banks should be banks for banks, bankers’ banks ;  and not a public bank competing with the banks for business.”

Paul M. Warburg, the author of the system, said December 25th, 1913:  “The enactment of this legislation will inaugurate a new era in the history of banking in the United States.  While it is regretted that some important suggestions made by the business community could not have been adopted, the fundamental thought for the victory of which some of us have worked for so many years have won out.  From now on, we shall witness the gradual elimination of the bond-secured currency, of scattered reserves, of immobilized commercialized paper and of pyramiding of all call loans on the stock exchange.”

In an address before a meeting of the Governors of the Federal Reserve banks at Minneapolis, October 22nd, 1915, Mr. Warburg said in part, and this may be considered as the official opinion of the Federal Reserve Board :  “There is no such thing as the interest of a Federal Reserve bank as against the interest of member banks.  As yet I fear this is not sufficiently understood.  The Federal Reserve bank is the members’ bank ;  it is your bank, your fire engine, constructed for your greater protection.  You have paid for it, and you are operating it.  We are to be considered your fire marshals.”

232 The Federal Reserve Act    

There is nothing in that to indicate that it is a public service institution, but the very reverse.

Their official organ, "Monetary Reform,” stated emphatically that the Federal Reserve law would not pass Congress, until made satisfactory to the National Bankers’ Association, and Paul M. Warburg after it was enacted, said to an investigating committee that it was satisfactory to them, with a few exceptions, which the Federal Reserve Board had the authority to supply.

The Federal Reserve Board was organized and is controlled absolutely by an organization whose whole aim in business is to exploit the industries of the nation for their own private gain.

The two exceptions on the Board of seven members are the two “ex-officio” members, the Secretary of the Treasury, and the Comptroller of the Currency.

I have given these two men credit, where they deserved it, and especially John Skelton Williams, who has tried so hard to protect the people “against exorbitant rates of interest.”  Also noted the fact that for doing so the Federal Reserve banks through their counsel have unanimously started a movement to abolish the office of Comptroller of the Currency, and thus get rid of the one member who has shown any sympathy “for the common welfare—for the good of all,” which causes us to consider that it must have been John Skelton Williams who wrote the report under the impression that the Federal Reserve Bank system was intended for public service.

He knows, and the public knows better now.

President Wilson, in signing the Act, said in part (See January, 1914, Commoner) :  “Then there came upon the heels of it [the tariff bill] this bill which furnishes the machinery for free and elastic and uncontrolled credits put at the disposal of the merchants and manufacturers of this country for the first time in fifty years.”

    The Discount Policy 233

If the President was sincere, and I will concede that he was, was ever a responsible public official so grossly deceived by his advisers ?

How does the Federal Reserve Board administer this “public trust”?

Their first thought in every movement as public servants, administering a public trust, should be :  will it be for “the common welfare”?  “For the good of all” ?

How is it with the Federal Reserve Board in practice ?

There can be no better test than that of service.  And in service, no better test than the policy governing discounts.

There should be no distinction as between individuals, classes, business, or industries.

The Discount Policy.

The security being equally good, the discount rate should be the same for all paper, except perhaps the one consideration of expense of handling ;  the expense of handling long time paper being less than that of short time paper.

Circular No. 13 of the Federal Reserve Board issued November 10th, 1914, will be found on page 182 of first annual report.  It is too lengthy to quote in full, so I will just give the substance, necessary for this topic.  “Commercial paper.  The Federal Reserve Board, under section 13 of the Federal Reserve Act, has the right to determine or define the character of paper eligible for discount.”

The requirements are so drastic and rigid as to make the security absolute.  Indeed they read as though prepared with the view of discouraging discounts, which I know through a banker friend who tried to discount paper to have been the case.

Page 10, first annual report :  “The act gives power to each Federal Reserve bank :  to establish from time to time, subject to review and determination of

234 The Federal Reserve Act    

the Federal Reserve Board, rates of discount to be charged by the Federal Reserve banks for each class of paper, which shall be fixed with a view of accommodating commerce and business.”

The Board asked the views of each of the Federal Reserve banks as to what they thought the rate should be.

They did not ask the representatives of agriculture, industry and commerce, as to their view of “accommodation,” or what the rate should be for “free and elastic and uncontrolled credit.”

Now just keep in mind the following facts.

The Federal Reserve banks did not have to pay any tax, or interest, for the Federal Reserve notes ;  just the bare cost of printing and issue.

“Upon tabulation of these results it was found that they did not vary greatly, the rates ranging from 5 to 7 per cent for 90 day paper.  A study of the existing state of affairs satisfied the Board that at the start and until the banks could get a firm footing it should act with prudence and conservatism, and it was consequently voted to fix the rates of discount at from five and a half to six and a half per cent.”

If the member banks were as considerate (?) in their commission “to accommodate commerce and business,” what would the rate be ?

The Federal Reserve bank took no risk ;  the member banks did.

Let me repeat President Wilson as quoted :  “Free and elastic and uncontrolled credits put at the disposal of the merchants and manufacturers.”  Had the Board no thought of, or mercy for, the President ?

They certainly did not have for the merchants and manufacturers.

Their policy was one of discouragement ;  not encouragement.

“Uncontrolled credits”?  Rigid control of credits to force higher interest rates is the controlling policy of the Board.

    Discrimination in Interest Rates 235

Congress had fixed the rates of interest that might be charged for the use of national bank notes, but there was no such provision in the Federal Reserve Act.  That power was conferred on the public service (?) Board.

Rates According to Maturity.

To the layman, it would seem that the longer time the paper had to run, the lower the rate of interest.  The banker will give you as an excuse for a higher rate of interest on a week, or ten day loan, that the clerical work is just as great for a ten day loan as for 90 days, and that is reasonable.

The Federal Reserve banks will give a lower rate for nine ten day loans than for one 90 day loan, or for eighteen ten day loans than for one six months loan, and this policy is approved of by the Federal Reserve Board.  For proof of which see Exhibit A.  1915 report.

I quote those for the West and South :

Maturing within ten days, 3 per cent.

Within 30 days, from 4 per cent to 4½ per cent.

30 to 60 days, 4 per cent to 4½ per cent.

60 to 90 days, 4½ to 5 per cent.

Agricultural and live stock paper over 90 days, 5½ to 6 per cent.

Commodity paper maturing within 30 days, 3½ per cent.

After 30 days but within 60 days, 4 per cent.

After 60 days but before 90 days, 4½ per cent.

After 90 days, 5 per cent.

Acceptances, 2 to 4 per cent.

What Are Acceptances ?

Page 3 of report :  “The development of the bankers’ acceptance, by means of which American institutions are beginning to occupy a leading place in the financing of the world’s international trade, has gone steadily forward.  The total amount of such accept-

236 The Federal Reserve Act    

ances outstanding at the close of the year 1915 is estimated at fully $100,000,000—an auspicious beginning in this branch of business and one of significant importance,” etc.  Page 5 :  “At the close of 1915 the lowest rates made by the Federal Reserve banks for any class of paper were those on bankers’ acceptances, approved by the Board at from 2 to 4 per cent, but running in actual practice only a little above lower limit thus stated.”

Well Worth Comparing.

Page 4 :  “The direct discount of reserve banks for member banks has at no time been much in excess of $30,000,000, notwithstanding that practically every type of commercial paper available for discount at Federal Reserve banks has been defined and described.”

Better read those two paragraphs again to catch the full significance of them.

To encourage foreign trade, the Federal Reserve banks, on approval of the Federal Reserve Board, discounts acceptances, at a fraction over 2 per cent, and in less than four months they have thus loaned over $100,000,000, almost entirely by the New York banks.

To encourage home commerce and industry, they charge nearly 5 per cent and at no time during the fourteen months operation have they loaned “much in excess of $30,000,000.”

Then the next paragraph, page 5, begins thus :  “DISCOUNT POLICY.  The Board has endeavored the past year to develop a consistent discount policy, graduating its rates according to the maturity and character of paper discounted or purchased in the open market.”

You may think that the policy is not consistent, and you would be right as to the principle, but it is consistent with the plan of the House of Morgan, whose vision, now that they have complete control of the United States, expands to the wider world control.

    Our International Coin 237

And as is the case with the protected manufacturers, reaching out for foreign trade, they will sell cheaper abroad than at home ;  so the men who control, propose loaning abroad cheaper than at home, and it is their fixed policy to prevent a reduction of interest rates in the United States, as I will prove later.

Commodity Rates.

The term “commodity rates” refers to the special rate provided to aid in marketing the cotton crop, and might have been used for other staple, stored agricultural products.  On page 7 of report we find :

Non-Perishable Farm Products Excellent Security.

“The committee entertained the view that warehouse receipts for cotton, grain and other staple, non-perishable agricultural products of a readily marketable character, form an excellent base for bank loans, particularly as under the terms of the Federal Reserve Act and the regulations of the Board, notes thus secured are eligible for discount by Federal Reserve banks.”

Better Than Government Bonds.

A leading Chicago banker testified before a Congressional committee that they considered wheat in store better security than government bonds.  Then why not have the very best discount rate ?

Again, to slightly paraphrase Lloyd George, “Wheat and cotton is our international coin.”

Security Being Equal, Why Not Uniform Discount Rates ?

The security being absolutely good, or they would not discount at all, and the regulations governing eligible paper guarantee that, “For the common welfare—for the good of all,” every business and industry should be treated exactly alike, and the preference

238 The Federal Reserve Act    

always given to American citizens.  America first, in the use of American money, or credit.

In practice, we have this public trust administering this public utility, loaning at 2 per cent on acceptances to encourage foreign trade.

At three per cent to accommodate the brokers of New York and Boston and the grain speculators of the North and West.

Agricultural paper, on “the best security in the world,” at five to six per cent on six months’ paper.

On page 29 we find :  Discount rates for agricultural and live stock paper, over 90 days 5 per cent, as against under 90 day paper 4 per cent, a discrimination of 25 per cent.

That was not what the people were promised in the Federal Reserve Act.

I maintain that, as usual, it was a gross misrepresentation of the intent of the promoters.

The extreme reverse of the altruistic picture painted.

The “public trust” became a private monopoly of the most pronounced and far-reaching power.  “Common needs and interests” were sacrificed to the insatiate greed of a few men.

Instead of being “administered for the common welfare—for the good of all,” it is being administered as the House of Morgan directs to control and exploit every industry in the nation, and actually reaching out for world control, at the expense of American industry.

Now, for the proof.

The Revolution—A Change From Government Money to Bank Credit.

On page 65 I quoted from Mr. Reynolds’ 1911 campaign speeches.

It will not be necessary to quote him further.

The gold settlement fund was another device to accumulate and to hoard gold.

    A Cruelly Vicious Conception 239

Theodore Wold, President of the Scandinavian National Bank, Governor of Ninth Federal Reserve Bank, said :

“Contrary to the general belief the most important feature of the new law is elasticity of credit, not elasticity of currency.

“Under modern development of business the use of currency has given place in all but rural districts to the use of checks on bank deposits.”

The object of the conspirators was three fold.

First :  To secure a monopoly of money and credit, that they might charge for its use all that labor would, or could, stand.

Second :  That the dollar loaned should constantly increase in value during the period of the loan.

Third :  To loan their credit, and take obligations payable in a money out of circulation, hoarded in their own vaults and for which they could exact such a premium as the victim could stand, or forfeit the security.

It was a cruelly vicious conception.

The very worst in the world’s history.

If the completion is permitted, it will cause more misery and suffering than the present world’s greatest war.

There were a good many factors to be taken care of, but Mr. Warburg had made a special study of the problem for many years, and with almost cruel, Jewish-German efficiency, had worked out the problem to the entire satisfaction of the elder Morgan, and by the aid of the shrewd political manager and lobbyist, Reynolds, the car has rolled along, with scarce a hitch.

When the story is written in full, it will be as marvelous as any dream of fiction.

First :  They must get the government out of the banking business.

240 The Federal Reserve Act    

There are two things with which I have become very familiar, since coming to the Territory of Dakota, viz :

“Take the government out of the banking business,” and

“Keep the farmers out of the grain business."

I have shown how they not only got the government out of the banking business, but how, through a judicial hint from ex-President Taft, the government could delegate its constitutional powers to issue money to the Federal Reserve banks, without amending the constitution.

They now have complete control of the issue of money.

They do not want to loan money, not even though it be furnished by the government free of interest.  This was proven in 1915.

A change of government might upset their plans.  It could not have been by chance ;  it must have been by design, that of the eleven kinds of money issued by the government, there was only one kind, a full legal tender for all debts, public and private.

All the rest had one or more exception clauses.  And they have practically annulled that kind by substituting certificates that are not lawful money.  (See page 202.)

Emergency Currency to Aid the Farmers.

In 1923 and 1914 the Secretary of the Treasury, in his efforts to induce the national bankers to aid the farmers, offered to deposit large sums of gold free of interest, and did so deposit, urging the bankers to loan to the farmers at a reasonable rate of interest They took the money, but did not lower the rate of interest.  This was repeated in 1914 with like results.

In 1915 he made another effort stating (page 3, annual report):  “We have, at last, a system of elastic credits responsive to the demands of legitimate busi-

    Illustrated in Cotton Prices 241

ness, assuring an ample supply of credits at reasonable rates of interest.

“As the operation of the Federal Reserve Act becomes more and more extended and felt throughout the country the value of this useful piece of legislation will be more and more realized, and more and more appreciated.”

Warned by the bankers’ failure to respond in previous years, he stipulated that to get this free gold deposits, the Federal Reserve banks must loan to the member banks for 3 per cent, provided that the member bank loaned on the stored, non-perishable agricultural products at not more than six per cent.  This both the member and Reserve banks at first refused to do, but after strong pressure, three of the Southern Federal Reserve banks agreed to rediscount such commodity paper for three per cent, and a few of the member banks loaned on stored cotton at 6 per cent.

Although the movement was not general, or the [an entire line missing] large, considering the amount of the crop, the effect was just what we predicted it would be in the advocacy of our sub-treasury bill twenty-five years ago ;  and, for proof I quote very briefly from the annual report of the Secretary, page 5:  “I am led to believe that the government’s action had a happy effect upon the situation ;  that it contributed to the immediate restoration of confidence, prevented demoralization, and was a potential factor in the steady rise in the value of cotton, from between 8 to 9 cents a pound at which it was then selling, to between 11 and 12 cents a pound, at which it is now selling.”

The Federal Reserve Board reports, page 8 :  "Within 60 days, prices advanced from 8 cents to 12 cents per pound.  There was a steady movement of the staple to primary markets, the price of cotton seed advanced to a figure that added from $20 to $25 a bale to the farmers’ income, and comparatively little cotton had to be carried by banks for producers.”

242 The Federal Reserve Act    

Estimating the bale at 500 pounds, there was an increase in the price of cotton of 4 cents per pound, equal to $20, and an increase in the price of cotton seed of $20 to $25,—$40 to $45, or a little more than doubling the price, within 60 days.

Secretary McAdoo gives the Federal Reserve law the credit for this real progressive step in the handling of staple farm products, but neither the system nor the banks are entitled to one iota of credit.  The whole credit is due to the Secretary of the Treasury.

The Federal Reserve banks and the member banks were loth to move in the matter.  They had refused to move the previous two years.  They disliked that precedent of six per cent, no commission money.

But there was a potent factor behind the Secretary, in a goodly number of loyal member of both branches of Congress, backed by a strong organization of farmers.

This proposition was not limited to the South, as some of our partisan politicians have intimated, indeed it would seem to be their chief stock in trade.  I quote a paragraph from page 7 :  "These regulations do not apply to cotton alone, but cover as well all non-perishable, staple commodities in all parts of the country, and like all credit facilities are available to producers in all parts of the country.”

It required an active campaign to induce the Southern bankers to permit the government to dictate the rate of interest to be charged.

W.P.G. Harding, a member of the Federal Reserve Board, was sent South to urge the banks to accept the proffered help of the government on the terms offered, viz.:  the free use of gold to the system, if they would consent to handle it on a six per cent margin.

At Birmingham, Ala., August 25th, before the Alabama Merchants’ Association, he “urged Southern bankers to make concessions to finance the crop.  Present conditions fully justify the low rates, and South-

    Why Not Control, In Fact 243

ern bankers should be willing to forego temporary profits for the sake of security and solidity in the future.”

In this connection it should be remembered that the Federal Reserve Act (paragraph (d), section 14) gives the Federal Reserve Board the absolute power to fix the rate of interest the Federal Reserve banks may charge, and also the rate the member banks may charge.  The Board is supposed to represent the government.  It is appointed by the president for that purpose.

The Secretary of the Treasury is the financial arm of the Preesident’s Cabinet, and is supposed to represent the government directly.

If the government controls, why did it not control ?  Why plead ?

The Federal Reserve Board had started out with a discount rate for the West and South for ninety day agricultural paper of six and one-half per cent (see Exhibit M).  Why did not the President insist on the Federal Reserve Board fixing what he and his Secretary thought a “reasonable rate”?

Instead Mr. Harding is sent to the South to plead with the merchants to use their influence on the bankers, and the press reports said that :  “President Wilson, in a letter read by Mr. Harding, expressed confidence that banks in the agricultural regions, the South particularly, would content themselves with not exceeding two per cent above the rate they themselves pay on money for meeting the cotton problem, and said the cotton producers should exact what they have a right to expect from the banks.”  And “the cotton producers” did so exact.

The result of the campaign in the South was that two of the Federal Reserve banks lowered their commodity rate to member banks for rediscounting cotton paper to three per cent, and a few member banks loanded on this cotton paper for six per cent, and the price

244 The Federal Reserve Act    

of the cotton crop was doubled (cotton and cotton seed).

If a reduction from normal rates to six per cent had such a beneficial effect not only on the farmers of the South, but on the whole legitimate business of the South, what would it have been if the rate had been lowered to “two per cent above the rate” the bankers paid for the use of that money ?  Two per cent for member banks and two per cent for the Federal Reserve banks, would make 4 per cent.

Or even if the bankers had loaned out to the cotton growers the full amount deposited by the Secretary for that purpose, which was $15,000,000 in gold.

On this they could have issued and loaned $37,500,000 of Federal Reserve bank notes ;  instead, up to the first week in November (page 8), the total loans had only reached $3,548,293, or less than one-fourth of the money deposited, or one-tenth of what they might have loaned.

The foregoing is a complete refutation of the Secretary of Agriculture, who said officially, “There seems to be no emergency which requires or justifies government assistance to the farmers directly through the use of the government’s cash or credit.”

The President should introduce his Secretary of Agriculture to his Secretary of the Treasury.

And President Wilson should be congratulated on his remarkable conversion from “The farmers, of course, ask and should be given no special privilege, such as extending to them the credit of the government itself.”

Confronted with the uprising of his loyal supporters in the South, the President is willing to loan the government’s good gold money, taxed from the people, to the bankers free of interest, to aid the farmers to hold, or move, their crop, and publicly pleads with the bankers to be reasonable (?), and be satisfied, at least temporarily, with a joint commission of six per cent.  An extra two per cent.

    An Encouraging Lesson 245

The Federal Reserve banks, which were not organized for profit (?) and governed by a Federal Reserve Board of the President’s own choosing, so that the government would control, in the interest of the people, were obdurate, and insisted on regular rates, but there was a political emergency on, and they finally compromised, the Federal Reserve banks to receive a commission of three per cent, and the member banks three per cent.  The government nothing.

However, the lesson is a most encouraging one.

When the farmers organize, and insist in earnest on a reasonable proposition, the politicians will come to time.

The experiment of 1915 for the South, where tried, was a pronounced success.  Why not make it permanent ?  Why not make it apply to the whole nation ?  Why not to every industry having non-perishable products of labor in store ?

Why not make the rate 2 per cent, which President Wilson said was sufficient ?

Why pay the bankers that unnecessary 4 per cent tax, for their own private profit ?

How Was It in the North and West ?

Ignorant, or unfair, “practical politicians” in the North and West are trying to make political capital out of the success of the Southern cotton and tobacco experiment, as though it was only a sectional movement, in the interest of one political party.  I have heard the charge made by one Republican Congressman, that it was purely sectional in the interests of the Southern farmer, and he clinched it by the old wornout appeal to sectional hatred that we could get nothing for the Northern farmers because “the South is in the saddle.”  This was repeated again this year by another Republican Congressman, whose only excuse for failure to secure satisfactory rural credit legislation was “you know the South is in the saddle.”  I have already shown why the South succeeded.

246 The Federal Reserve Act    

I will now show why the North and West failed.

The Minneapolis Federal Reserve bank refused to accept the terms until the wheat was out of the farmers’ hands, and the farmer lost 60 cents per bushel. Republican candidates for Congress sneer, and say, “the South is in the saddle,” and we can do nothing.  When the farmers of the North and West protest as earnestly as did those of the South they will be treated the same.

What better proof do we need that the law of supply and demand applies to money the same as to any other commodities ?

The present Secretary of the Treasury, after warding off a threatened “bankers’ panic,” doubtless engineered as usual to influence financial legislation (the Federal Reserve Act) in the early summer of 1913, by offering $50,000,000 new national bank note currency (see page 1, 1913 report).  The House of Morgan did not want an increase in the volume of currency.

What they wanted to make sure of was a change from money to bank credit by the enactment of the Federal Reserve Act, and the panic was to influence Congress.

The Secretary having blocked them in the Spring panic, they began planning for a Fall panic.  For proof of which I quote from the same report, page 2 :

“Toward the latter part of July symptoms of uneasiness began to reappear.  There was much talk about the difficulty of moving the fall crops and the annual apprehension on this score began to stalk about the country with more than usual vigor.

“It is characteristic of our imperfect and unsatisfactory banking system that the very prosperity of the country becomes, at times, a menace, because of the apprehended inability of the banks to meet the seasonal demand for the large amounts of money required to move a bounteous harvest.”

“To relieve this strain the Secretary determined to deposit from $25,000,000 to $50,000,000 of government

    A Well Played Game 247

funds in the national banks in those parts of the country where the necessity for funds to move the crops existed.”

The game was well played.

“Our unsatisfactory banking system” was well exploited.

Three sectional groups of national bankers were called to meet in Washington, representing all of the country, except the Eastern portion which was all right for the Federal Reserve bill, and did not need any extra money to move their crops.

As a result of those conferences (see page 3) allotments were made as follows :

South and Southwest, $22,550,000.

Middle and Northwest, $19,000,000.

Pacific Coast and Rocky Mountain, $4,950,000.

Total, $46,500,000.

“In the discussions at Washington, the representatives of the banks were urged to pass the government funds on to their country correspondents upon reasonable terms.”

That was very considerate on the part of the unsophisticated Secretary.  He forgot to fix the rate of interest, or take a bond for performance, and neither rate of interest nor terms to the farmers were modified.

The national bankers were the sole financial beneficiaries.

However, the allotment was non-partisan and non-sectional.

The same was true for the year 1914.

Again there was a need for more money to move the crops in 1915, as there always will be, until we provide a scientific monetary system, that will automatically respond to demand for use, and again an offer of assistance was made on the same terms to each and every district.

Only three Reserve banks applied for deposits, viz.:  Richmond, Atlanta, and Dallas, and each received $5,000,000.

248 The Federal Reserve Act    

In reply to the Secretary’s letter of inquiry of September 9th, the Minneapolis Reserve bank stated, in part, as follows :  “At this time the Northwest is amply supplied with funds, and rates are very low.  This bank has ample resources to meet the current demands upon it and still provide a very considerable reserve against any emergency that may arise before the crop has reached its markets.”

The Kansas City Reserve bank answered as follows :  “Our district has been full of money, so to speak, and, while the demand is increasing now, I do not think it will reach the point where we will be unable to handle it with our own resources.”

The St. Louis Reserve bank answered, in part :  “At the present time this bank has in its possession all of the funds that there seems any possibility of it needing adequately to care for district No. 8.”

Very Cheap Politics.

It is very cheap politics, then, for Republican congressmen from the North and West, to excuse themselves for not even trying to redeem their platform promises to the agricultural interests, by the unstatesmanlike, untruthful pretest that “there was no use trying, because the South was in the saddle.”

First :  Unstatesmanlike ;  because their duty was to try, regardless of the obstacles in the way.

Instead, with unparalleled unanimity, they voted for all the Democratic financial measures, especially for the Federal Reserve bill, and the Rural Credits fake.

Second :  Untruthful ;  because the South is no more in the saddle now, than was the Northwest and West in the saddle during the two preceding administrations.

The East is more firmly in the saddle now than ever before, by the united efforts of the Republican and Democratic parties during the past three years.

    Proven in 1915 249

Had our Representatives from the Northwest and West been as faithful to their constituents as were the majority from the South to their constituents, I firmly believe that our farmers would have benefited as much in the sale of their grain as were the Southern farmers in the sale of their cotton.

The principles of the sub-treasury bill upon which the organized farmers of the West and South were united twenty-five years ago, was proven thoroughly sound and beneficial in 1915, in so far as they were applied.

If the farmers of the nation will organize as earnestly, and work as sincerely, as have the farmers of the South, we will make the experiment permanent, and complete it, so that it will apply to all of the non-perishable products of labor, as well as of the farm.