The Federal Reserve Act
"Our financial system is a false one and a huge burden on the people
. . . This Act establishes the most gigantic trust on
--Congressman Charles Augustus Lindbergh, Sr.
The speeches of Senator LaFollette and Congressman Lindbergh became
rallying points of opposition to the Aldrich Plan in 1912. They also
aroused popular feeling against the Money Trust. Congressman
Lindbergh said, on December 15, 1911,
"The government prosecutes
other trusts, but supports the money trust. I have been waiting
patiently for several years for an opportunity to expose the false
money standard, and to show that the greatest of all favoritism is
that extended by the government to the money trust."
Senator LaFollette publicly charged that a money trust of fifty men
controlled the United States. George F. Baker, partner of J.P.
Morgan, on being queried by reporters as to the truth of the charge,
replied that it was absolutely in error. He said that he knew from
personal knowledge that not more than eight men ran this country.
The Nation Magazine replied editorially to Senator LaFollette that
"If there is a Money Trust, it will not be practical to establish
that it exercises its influence either for good or for bad."
Senator LaFollette remarks in his memoirs that his speech against
the Money Trust later cost him the Presidency of the United States,
just as Woodrow Wilson’s early support of the Aldrich Plan had
brought him into consideration for that office.
Congress finally made a gesture to appease popular feeling by
appointing a committee to investigate the control of money and
credit in the United States. This was the Pujo Committee , a
subcommittee of the House Banking and Currency Committee, which
conducted the famous "Money Trust" hearings in 1912, under the
leadership of Congressman Arsene Pujo of Louisiana, who was regarded
as a spokesman for the oil interests. These hearings were
deliberately dragged on for five months, and resulted in
six-thousand pages of printed testimony in four volumes.
month, the bankers made the train trip from New York to Washington,
testified before the Committee and returned to New York. The
hearings were extremely dull, and no startling information turned up
at these sessions. The bankers solemnly admitted that they
were indeed bankers, insisted that they always operated in the
public interest, and claimed that they were animated only by the
highest ideals of public service, like the Congressmen before whom
they were testifying.
The paradoxical nature of the Pujo Money Trust Hearings may better
be understood if we examine the man who single-handedly carried on
these hearings, Samuel Untermyer. He was one of the principal
contributors to Woodrow Wilson’s Presidential campaign fund, and was
one of the wealthiest corporation lawyers in New York. He states in
his autobiography in "Who’s Who" of 1926 that he once received a
$775,000 fee for a single legal transaction, the successful merger
of the Utah Copper Company and the Boston Consolidated and Nevada
Company, a firm with a market value of one hundred million dollars.
He refused to ask either Senator LaFollette or Congressman Lindbergh
to testify in the investigation which they alone had forced Congress
to hold. As Special Counsel for the Pujo Committee, Untermyer ran
the hearings as a one-man operation. The Congressional members,
including its chairman, Congressman Arsene Pujo, seemed to have been
struck dumb from the commencement of the hearings to their
conclusion. One of these silent servants of the public was
Congressman James Byrnes, of South Carolina, representing Bernard
Baruch’s home district, who later achieved fame as "Baruch’s man",
and was placed by Baruch in charge of the Office of War Mobilization
during the Second World War.
Although he was a specialist in such matters, Untermyer did not ask
any of the bankers about the system of interlocking directorates
through which they controlled industry.
He did not go into
international gold movements, which were known as a factor in money
panics, or the international relationships between American bankers
and European bankers. The international banking houses of Eugene
Meyer, Lazard Freres, J. & W. Seligman, Ladenburg Thalmann,
Brothers, M. M. Warburg, and the Rothschild Brothers did not arouse
Samuel Untermyer’s curiosity, although it was well known in the New
York financial world that all of these family banking houses either
had branches or controlled subsidiary houses in Wall Street.
When Jacob Schiff appeared before the Pujo Committee, Mr. Untermyer’s
adroit questioning allowed Mr. Schiff to talk for many minutes
without revealing any information about the operations of the
banking house of Kuhn Loeb Company, of which he was senior partner,
and which Senator Robert L. Owen had identified as the
representative of the European Rothschilds in the United States.
The aging J.P. Morgan, who had only a few more months to live,
appeared before the Committee to justify his decades of
international financial deals. He stated for Mr. Untermyer’s
edification that "Money is a commodity." This was a
favorite ploy of the money creators, as they wished to make the
public believe that the creation of money was a natural occurrence akin to the growing of a field of corn, although it was
actually a bounty conferred upon the bankers by governments over
which they had gained control.
J.P. Morgan also told the Pujo Committee that, in making a loan, he
seriously considered only one factor, a man’s character; even the
man’s ability to repay the loan, or his collateral, were of little
importance. This astonishing observation startled even the blasé
members of the Committee.
The farce of the Pujo Committee ended without a single well-known
opponent of the money creators being allowed to appear or testify.
As far as Samuel Untermyer was concerned, Senator LaFollette and
Congressman Charles Augustus Lindbergh had never existed.
Nevertheless, these Congressmen had managed to convince the people
of the United States that the New York bankers did have a monopoly
on the nation’s money and credit.
At the close of the hearings, the
bankers and their subsidized newspapers claimed that the only way to
break this monopoly was to enact the banking and currency
legislation now being proposed to Congress, a bill which would be
passed a year later as the Federal Reserve Act. The press seriously
demanded that the New York banking monopoly be broken by turning
over the administration of the new banking system to the most
knowledgeable banker of them all, Paul Warburg.
The Presidential campaign of 1912 records one of the more
interesting political upsets in American history. The incumbent,
William Howard Taft, was a popular president, and the Republicans,
in a period of general prosperity, were firmly in control of the
government through a Republican majority in both houses. The
Democratic challenger, Woodrow Wilson, Governor of New Jersey, had
no national recognition, and was a stiff, austere man who excited
little public support.
Both parties included a monetary reform bill
in their platforms: The Republicans were committed to the Aldrich
Plan, which had been denounced as a Wall Street plan, and the
Democrats had the Federal Reserve Act. Neither party bothered to
inform the public that the bills were almost identical except for
the names. In retrospect, it seems obvious that the money creators
decided to dump Taft and go with Wilson.
How do we know this?
seemed certain of reelection, and Wilson would return to obscurity.
Suddenly, Theodore Roosevelt "threw his hat into the ring." He
announced that he was running as a third party candidate, the "Bull
Moose". His candidacy would have been ludicrous had it not been for
the fact that he was exceptionally well-financed.
Moreover, he was
given unlimited press coverage, more than Taft and Wilson combined.
As a Republican ex-president, it was obvious that Roosevelt would
cut deeply into Taft’s vote. This proved the case, and Wilson won
the election. To this day, no one can say what Theodore Roosevelt’s
program was, or why he would sabotage his own party. Since the
bankers were financing all three candidates, they would win regardless of the outcome. Later Congressional
testimony showed that in the firm of Kuhn Loeb Company, Felix
Warburg was supporting Taft, Paul Warburg and Jacob Schiff were
supporting Wilson, and Otto Kahn was supporting Roosevelt.
result was that a Democratic Congress and a Democratic President
were elected in 1912 to get the central bank legislation passed. It
seems probable that the identification of the Aldrich Plan as a Wall
Street operation predicted that it would have a difficult passage
through Congress, as the Democrats would solidly oppose it, whereas
a successful Democratic candidate, supported by a Democratic
Congress, would be able to pass the central bank plan. Taft was
thrown overboard because the bankers doubted he could deliver on the
Aldrich Plan, and Roosevelt was the instrument of his demise.
final electoral vote in 1912 was Wilson - 409; Roosevelt - 167; and
Taft - 15.
To further confuse the American people and blind them to the real
purpose of the proposed Federal Reserve Act, the architects of the
Aldrich Plan, powerful Nelson Aldrich, although no longer a senator,
and Frank Vanderlip, president of the National City Bank, set up a
hue and cry against the bill. They gave interviews whenever they
could find an audience denouncing the proposed Federal Reserve Act
as inimical to banking and to good government. The bugaboo of
inflation was raised because of the Act’s provisions for printing
Federal Reserve notes.
The Nation, on October 23, 1913, pointed out,
"Mr. Aldrich himself raised a hue and cry over the issue of
government "fiat money", that is, money issued without gold or
bullion back of it, although a bill to do precisely that had been
passed in 1908 with his own name as author, and he knew besides,
that the ‘government’ had nothing to do with it, that the Federal
Reserve Board would have full charge of the issuing of such moneys."
Frank Vanderlip’s claims were so bizarre that Senator Robert L.
Owen, chairman of the newly formed Senate Banking and Currency
Committee, which had been formed on March 18, 1913, accused him of
openly carrying on a campaign of misrepresentation about the bill.
The interests of the public, so Carter Glass claimed in a speech on
September 10, 1913 to Congress, would be protected by an advisory
council of bankers.
"There can be nothing sinister about its
transactions. Meeting with it at least four times a year will be a
bankers’ advisory council representing every regional reserve
district in the system. How could we have exercised greater caution
in safeguarding the public interests?"
Glass claimed that the proposed Federal Advisory Council would force
the Federal Reserve Board of Governors to act in the best interest
of the people.
Senator Root raised the problem of inflation, claiming that under
the Federal Reserve Act, note circulation would always expand
indefinitely, causing great inflation. However, the later history of
the Federal Reserve
System showed that it not only caused inflation, but that the issue
of notes could also be restricted, causing deflation, as occurred
from 1929 to 1939.
One of the critics of the proposed "decentralized" system was a
lawyer from Cleveland, Ohio, Alfred Crozier. Crozier was called to
testify for the Senate Committee because he had written a
provocative book in 1912, U.S. Money vs. Corporation Currency.* He
attacked the Aldrich-Vreeland Act of 1908 as a Wall Street
instrument, and he pointed out that when our government had to issue
money based on privately owned securities, we were no longer a free
* Crozier’s book exposed the financiers plan to substitute
"corporation currency" for the lawful money of the U.S. as
guaranteed by Article I, Sec. 8 Para. 5, of the Constitution.
Crozier testified before the Senate Committee that,
prohibit the granting or calling in
of loans for the purpose of influencing quotation prices of
securities and the contracting of loans
or increasing interest rates in concert by the banks to influence
public opinion or the action of
any legislative body. Within recent months, William McAdoo,
Secretary of the Treasury of the
United States was reported in the open press as charging
specifically that there was a conspiracy
among certain of the large banking interests to put a contraction
upon the currency and to raise
interest rates for the sake of making the public force Congress into
passing currency legislation
desired by those interests.
The so-called administration currency
bill grants just what Wall Street
and the big banks for twenty-five years have been striving for, that
is, PRIVATE INSTEAD OF
PUBLIC CONTROL OF CURRENCY.
It does this as completely as the
Aldrich Bill. Both
measures rob the government and the people of all effective control
over the public’s money, and
vest in the banks exclusively the dangerous power to make money
among the people scarce or
plenty. The Aldrich Bill puts this power in one central bank. The
Administration Bill puts it in
twelve regional central banks, all owned exclusively by the
identical private interests that would
have owned and operated the Aldrich Bank.
President Garfield shortly
before his assassination
declared that whoever controls the supply of currency would control
the business and activities of
the people. Thomas Jefferson warned us a hundred years ago that a
private central bank issuing
the public currency was a greater menace to the liberties of the
people than a standing army."
It is interesting to note how many assassinations of Presidents of
the United States follow their concern with the issuing of public
currency; Lincoln with his Greenback, non-interest-bearing notes,
and Garfield, making a pronouncement on currency problems just
before he was assassinated.
We now begin to understand why such a lengthy campaign of planned
deception was necessary, from the secret conference at Jekyll Island
to the identical "reform" plans proposed by the Democratic and
Republican parties under different names. The bankers could not
wrest control of the issuance of money from the citizens of the
United States, to whom it had been designated through its Congress
by the Constitution, until the Congress granted them their monopoly
for a central bank.
Therefore, much of the influence exerted to get
the Federal Reserve Act passed was done behind the scenes,
principally by two shadowy, non-elected persons: The German
immigrant, Paul Warburg, and Colonel Edward Mandell House of Texas.
Paul Warburg made an appearance before the House Banking and
Currency Committee in 1913, in which he briefly stated his
"I am a member of the banking house of
Company. I came over to this country in 1902, having been born and
educated in the banking business in Hamburg, Germany, and studied
banking in London and Paris, and have gone all around the world. In
the Panic of 1907, the first suggestion I made was ‘Let us get a
national clearing house.’ The Aldrich Plan contains some things
which are simply fundamental rules of banking. Your aim in this plan
(the Owen-Glass bill) must be the same -- centralizing of reserves,
mobilizing commercial credit, and getting an elastic note issue."
Warburg’s phrase, "mobilization of credit" was an important one,
because the First World War was due to begin shortly, and the first
task of the Federal Reserve System would be to finance the World
The European nations were already bankrupt, because they had
maintained large standing armies for almost fifty years, a situation
created by their own central banks, and therefore they could not
finance a war. A central bank always imposes a tremendous burden on
the nation for "rearmament" and "defense", in order to create
inextinguishable debt, simultaneously creating a military
dictatorship and enslaving the people to pay the "interest" on the
debt which the bankers have artificially created.
In the Senate debate on the Federal Reserve Act, Senator Stone said
on December 12, 1913,
"The great banks for years have sought to have and control agents in
the Treasury to serve their
purposes. Let me quote from this World article, ‘Just as soon as Mr.
McAdoo came to
Washington, a woman whom the National City Bank had installed in the
Treasury Department to
get advance information on the condition of banks, and other matters
of interest to the big Wall
Street group, was removed. Immediately the Secretary and the
Assistant Secretary, John Skelton
Williams, were criticized severely by the agents of the Wall Street
"I myself have known more than one occasion when bankers refused
credit to men who opposed
their political views and purposes. When Senator Aldrich and others
were going around the
country exploiting this scheme, the big banks of New York and
Chicago were engaged in
raising a munificent fund to bolster up the Aldrich propaganda. I
have been told by bankers of
my own state that contributions to this exploitation fund had been
demanded of them and that
they had contributed because they were afraid of being blacklisted
or boycotted. There are
bankers of this country who are enemies of the public welfare. In
the past, a few great banks have
followed policies and projects that have paralyzed the industrial
energies of the country to
perpetuate their tremendous power over the financial and business
industries of America."
Carter Glass states in his autobiography that he was summoned by
Woodrow Wilson to the White House, and that Wilson told him he
intended to make the reserve notes obligations of the United States.
"I was for an instant speechless. I remonstrated. There
is not any government obligation here, Mr. President. Wilson said he
had had to compromise on this point in order to save the bill."
The term "compromise" on this point came directly from
Col. Elisha Ely Garrison, in Roosevelt,* Wilson and the Federal
Reserve Law wrote,
"In 1911, Lawrence Abbot, Mr. Roosevelt’s private officer at ‘The
Outlook’ handed me a copy of
the so-called Aldrich Plan for currency reform. I said, I could not
believe that Mr. Warburg was
the author. This plan is nothing more than the Aldrich-Vreeland
legislation which provided for
currency issue against securities. Warburg knows that as well as I
do. I am going to see him at
once and ask him about it. All right, the truth. Yes, I wrote it, he
said. Why? I asked. It was a
compromise, answered Warburg."13
* Theodore Roosevelt
13 Elisha Ely Garrison, Roosevelt, Wilson and the Federal Reserve
Law, Christopher Publications, Boston, 1931
Garrison says that Warburg wrote him on February 8, 1912.
"I have no doubt that at the end of a thorough discussion, either
you will see it my way or I will
see it yours--but I hope you will see it mine."
This was another famous Warburg saying when he secretly lobbied
Congressmen to support his interest, the veiled threat that they
should "see it his way". Those who did not found large sums
contributed to their opponents at the next elections, and usually
went down in defeat.
Col. Garrison, an agent of Brown Brothers bankers, later
Brothers Harriman, had entree everywhere in the financial community.
He writes of Col. House, "Col. House agreed entirely with the early
writing of Mr. Warburg." Page 337, he quotes Col. House:
"I am also suggesting that the Central Board be increased from four
members to five and their
terms lengthened from eight to ten years. This would give stability
and would take away the
power of a President to change the personnel of the board during a
single term of office."
House’s phrase, "take away the power of a President" is significant,
because later Presidents found themselves helpless to change the
direction of the government because they did not have the power to
change the composition of the Federal Reserve Board to attain a
majority on it during that President’s term of office. Garrison also
wrote in this book,
"Paul Warburg is the man who got the Federal Reserve Act together
after the Aldrich Plan
aroused such nationwide resentment and opposition. The mastermind of
both plans was
Alfred Rothschild of London."
Colonel Edward Mandell House * was referred to by
Rabbi Stephen Wise
in his autobiography, Challenging Years as "the unofficial Secretary
of State". House noted that he and Wilson knew that in passing the
Federal Reserve Act, they had created an instrument more powerful
than the Supreme Court. The Federal Reserve Board of Governors
actually comprised a Supreme Court of Finance, and there was no
appeal from any of their rulings.
In 1911, prior to Wilson’s taking office as President, House had
returned to his home in Texas and completed a book called
Philip Dru -
Administrator. Ostensibly a novel, it was actually a detailed plan
for the future government of the United States, "which would
establish Socialism as dreamed by Karl Marx", according to
This "novel" predicted the enactment of the graduated income tax,
excess profits tax, unemployment insurance, social security, and a
flexible currency system. In short, it was the blueprint which was
later followed by the Woodrow Wilson and Franklin D. Roosevelt
administrations. It was published "anonymously" by
B. W. Huebsch of
New York, and widely circulated among government officials, who were
left in no doubt as to its authorship. George Sylvester Viereck **,
who knew House for years, later wrote an account of the Wilson-House
relationship, The Strangest Friendship in History.14
* See House note in "Biographies"
** See Viereck note in "Biographies"
14 George Sylvester Viereck, The Strangest Friendship in History,
Woodrow Wilson and Col. House, Liveright, New York, 1932
Westbrook Pegler, the Hearst columnist from 1932 to 1956, heard of
the Philip Dru book and called Viereck to ask if he had a copy.
Viereck sent Pegler his copy of the book, and Pegler wrote a column
about it, stating:
"One of the institutions outlined in
Philip Dru is the Federal
Reserve System. The Schiffs, the Warburgs, the Kahns, the
Rockefellers and Morgans put their faith in
House. The Schiff,
Warburg, Rockefeller and Morgan interests were personally
represented in the mysterious
conference at Jekyll Island. Frankfurter landed on the Harvard law
faculty, thanks to a financial
contribution to Harvard by Felix Warburg and Paul
Warburg, and so we got Alger and Donald Hiss, Lee Pressman,
Dexter White and many
other protégés of Little Weenie."
House’s openly Socialistic views were forthrightly expressed in
Philip Dru -
Administrator; on pages 57-58, House wrote:
"In a direct and forceful manner, he pointed out that our
civilization was fundamentally wrong,
inasmuch, among other things, as it restricted efficiency; that if
society were properly organized,
there would be none who were not sufficiently clothed and fed. The
result, that the laws, habits
and ethical training in vogue were alike responsible for the
inequalities in opportunity and the
consequent wide difference between the few and the many; that the
results of such conditions was
to render inefficient a large part of the population, the percentage
differing in each country in the ratio that education and
enlightenment and unselfish laws bore to ignorance, bigotry and
In his book, House (Dru) envisions himself becoming a dictator and
forcing on the people his radical views, page 148:
the fact that Dru dominated the situation and that a master mind had
at last risen in the Republic."
He now assumes the title of General.
"General Dru announced his purpose of assuming the powers of a
dictator . . . they were assured that he was free from any personal
ambition . . . he proclaimed himself ‘Administrator of the
* The present writer was with Viereck in his suite at the Hotel
Belleclaire when Pegler called and asked for the book. Viereck sent
it over by his secretary. He grinned and said Pegler seemed very
excited. "He ought to get a good column out of that," Viereck told
me. Indeed Pegler did get a good column out of it. Unfortunately for
him, he had gone too far in mentioning the Warburgs. As long as he
confined his attacks to La Grand Bouche (Eleanor Roosevelt), and her
spouse, he had been permitted to continue, but now that he had
exposed the Warburg connection with the Communist spy ring in
Washington, his column was immediately dropped by the big city
dailies, and Pegler’s long run was over.
15 Col. Edward M. House,
Philip Dru -
Administrator, B. W. Heubsch,
New York, 1912.
** This quotation from Philip Dru, Administrator, written by Col.
House in 1912, is included here to show his totalitarian Marxist
philosophy. House was to become for 8 years with Wilson, the
President’s closest advisor. Later he continued his influence in the
Franklin D. Roosevelt administration. From his home in Magnolia,
Mass., House advised FDR through frequent trips of Felix Frankfurter
to the White House. Frankfurter was later appointed to the Supreme
Court by F.D.R.
This pensive dreamer who imagined himself a dictator actually
managed to place himself in the position of the confidential advisor
to the President of the United States, and then to have many of his
desires enacted into law!
On page 227, he lists some of the laws he
wishes to enact as dictator. Among them are an old age pension law,
laborers insurance compensation, cooperative markets, a federal
reserve banking system, cooperative loans, national employment
bureaus, and other "social legislation", some of which was enacted
during Wilson’s administration, and others during the Franklin D.
Roosevelt’s administration. The latter was actually a continuation
of the Wilson Administration,
with many of the same personnel, and with House guiding the
administration from behind the scenes.
Like most of the behind-the-scenes operators in this book, Col.
Edward Mandell House had the obligatory "London connection".
Originally a Dutch family, "Huis", his ancestors had lived in
England for three hundred years, after which his father settled in
Texas, where he made a fortune in blockade-running during the Civil
War, shipping cotton and other contraband to his British
connections, including the Rothschilds, and bringing back supplies
for the beleaguered Texans.
The senior House, not trusting the
volatile Texas situation, prudently deposited all his profits from
his blockade-running in gold with Baring banking house in London *.
At the close of the Civil War, he was one of the wealthiest men in
Texas. He named his son "Mandell" after one of his merchant
According to Arthur Howden Smith, when House’s father
died in 1880, his estate was distributed among his sons as follows:
Thomas William got the banking business;
John, the sugar plantation;
and Edward M. the cotton plantations, which brought him an income of
$20,000 a year.16
At the age of twelve, the young Edward Mandell House had brain
fever, and was later further crippled by sunstroke.
He was a
semi-invalid, and his ailments gave him an odd Oriental appearance.
He never entered any profession, but used his father’s money to
become the kingmaker of Texas politics, successively electing five
governors from 1893 to 1911. In 1911 he began to support Wilson for
president, and threw the crucial Texas delegation to him which
ensured his nomination. House met Wilson for the first time at the
Hotel Gotham, May 31, 1912.
In The Strangest Friendship In History, Woodrow Wilson and Col.
House, by George Sylvester Viereck, Viereck writes:
"What," I asked House, "cemented your friendship?" "The identity of
our temperaments and our
public policies," answered House. "What was your purpose and his?"
"To translate into
legislation certain liberal and progressive ideas." 17
Dope, Inc., identifies Barings as follows: "Baring Brothers, the
premier merchant bank of the opium trade from 1783 to the present
day, also maintained close contact with the Boston families . . .
The group’s leading banker became, at the close of the 19th century,
the House of Morgan--which also took its cut in Eastern opium
traffic . . . Morgan’s Far Eastern operations were the officially
conducted British opium traffic . . . Morgan’s case deserves special
scrutiny from American police and regulatory agencies, for the
intimate associations of Morgan Guaranty Trust with the identified
leadership of the British dope banks."
16 Arthur Howden Smith, The Real Col. House, Doran Company, New
17 George Sylvester Viereck, The Strangest Friendship in History,
Woodrow Wilson and Col. House, Liveright, New York, 1932
House told Viereck that when he went to Wilson at the White
House, he handed him $35,000. This was exceeded only by the $50,000
which Bernard Baruch had given Wilson.
The successful enactment of House’s programs did not escape the
notice of other Wilson associates. In Vol. 1, page 157 of The
Intimate Papers of Col. House, House notes,
"Cabinet members like
Mr. Lane and Mr. Bryan commented upon the influence of
Dru with the
President. ‘All that the book has said should be,’ wrote Lane,
‘comes about. The President comes to ‘Philip Dru’ in the end.’"18
House recorded some of his efforts on behalf of the Federal Reserve
Act in The Intimate Papers of Col. House,
"December 19, 1912. I talked with Paul Warburg over the phone
concerning currency reform. I
told of my trip to Washington and what I had done there to get it in
working order. I told him
that the Senate and the Congressmen seemed anxious to do what he
desired, and that President-elect Wilson thought straight concerning the issue."19
18 Col. Edward Mandell House, The Intimate Papers of Col. House,
edited by Charles Seymour, Houghton Mifflin Co., 1926-28, Vol. 1, p.
19 Ibid. Vol. 1, p. 163
Thus we have Warburg’s agent in Washington, Col. House, assuring him
that the Senate and Congressmen will do what he desires, and that
the President-elect "thought straight concerning the issue." In this
context, representative government seems to have ceased to exist.
House continues in his "Papers":
"March 13, 1913. Warburg and I had an intimate discussion concerning
March 27, 1913. Mr. J.P. Morgan, Jr. and
Mr. Denny of his firm came
promptly at five.
McAdoo came about ten minutes afterward. Morgan had a currency plan
already printed. I suggested he have it typewritten, so it would not
seem too prearranged, and send it to Wilson and myself today.
July 23, 1913. I tried to show Mayor Quincy (of Boston) the folly of
the Eastern bankers taking
an antagonistic attitude towards the Currency Bill. I explained to
Major Henry Higginson * with what care the bill had been framed. Just
before he arrived, I had finished a review by Professor Sprague of
Harvard of Paul Warburg’s criticism of the Glass-Owen Bill, and will
transmit it to Washington tomorrow. Every banker known to Warburg,
who knows the subject practically, has been called up about the
making of the bill.
October 13, 1913. Paul Warburg was my first caller today. He came to
discuss the currency measure. There are many features of the
Owen-Glass Bill that he does not approve. I promised to put him in
touch with McAdoo and Senator Owen so that he might discuss it with
November 17, 1913. Paul Warburg telephoned about his trip to
Washington. Later, he and Mr. Jacob Schiff came over for a few
Warburg did most of the talking. He had a new suggestion in regard
to grouping the regular reserve banks so as to get the units welded
together and in easier touch with the Federal Reserve Board."
* The most prominent banker in Boston.
George Sylvester Viereck in
The Strangest Friendship in History,
Woodrow Wilson and Col. House wrote:
"The Schiffs, the Warburgs, the
Kahns, the Rockefellers, the Morgans put their faith in House. When
the Federal Reserve legislation at last assumed definite shape,
House was the intermediary between the White House and the
On page 45, Viereck notes, "Col. House looks upon the reform of the
monetary system as the crowning internal achievement of the Wilson
20 George Sylvester Viereck, The Strangest Friendship In History,
Woodrow Wilson and Col. House, Liveright, New York, 1932
The Glass Bill (the House version of the final Federal Reserve Act)
had passed the House on September 18, 1913 by 287 to 85. On December
19, 1913, the Senate passed their version by a vote of 54-34. More
than forty important differences in the House and Senate versions
remained to be settled, and the opponents of the bill in both houses
of Congress were led to believe that many weeks would yet elapse
before the Conference bill would be ready for consideration.
Congressmen prepared to leave Washington for the annual Christmas
recess, assured that the Conference bill would not be brought up
until the following year. Now the money creators prepared and
executed the most brilliant stroke of their plan. In a single day,
they ironed out all forty of the disputed passages in the bill and
quickly brought it to a vote. On Monday, December 22, 1913, the bill
was passed by the House 282-60 and the Senate 43-23.
On December 21, 1913, The New York Times commented editorially on
"New York will be on a firmer basis of financial growth,
and we shall soon see her the money centre of the world."
The New York Times reported on the front page, Monday, December 22,
1913 in headlines:
MONEY BILL MAY BE LAW TODAY--CONFEREES HAD
ADJUSTED NEARLY ALL DIFFERENCES AT 1:30 THIS MORNING--NO DEPOSIT
GUARANTEES--SENATE YIELDS ON THIS POINT BUT PUTS THROUGH MANY OTHER
"With almost unprecedented speed, the conference to adjust
the House and Senate differences on the Currency Bill practically
completed its labours early this morning. On Saturday the Conferees
did little more than dispose of the preliminaries, leaving forty
essential differences to be thrashed out Sunday. . . . No other
legislation of importance will be taken up in either House of
Congress this week. Members of both houses are already preparing to
"Unprecedented speed", says The New York Times. One sees the fine
hand of Paul Warburg in this final strategy. Some of the bill’s most
vocal critics had already left Washington. It was a long-standing
political courtesy that important legislation would not be acted
upon during the week before Christmas, but this tradition was rudely
shattered in order to perpetrate the Federal Reserve Act on the
The Times buried a brief quote from Congressman Lindbergh that "the
bill would establish the most gigantic trust on earth," and quoted
Representative Guernsey of Maine, a Republican on the House Banking
and Currency Committee, that "This is an inflation bill, the only
question being the extent of the inflation."
Congressman Lindbergh said on that historic day, to the House:
"This Act establishes 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.
The trusts will soon realize
that they have gone too far even for their own good. The people must
make a declaration of
independence to relieve themselves from the Monetary Power. This
they will be able to do by
taking control of Congress. Wall Streeters could not cheat us if you
Senators and Representatives
did not make a humbug of Congress... If we had a people’s
Congress, there would be stability.
The greatest crime of Congress is its
currency system. The worst
legislative crime of the ages is
perpetrated by this banking bill. The caucus and the party bosses
have again operated and
prevented the people from getting the benefit of their own
The December 23, 1913 New York Times editorially commented, in
contrast to Congressman Lindbergh’s criticism of the bill,
Banking and Currency Bill became better and sounder every time it
was sent from one end of the Capitol to the other. Congress worked
under public supervision in making the bill."
By "public supervision", The Times apparently meant Paul Warburg,
who for several days had maintained a small office in the Capitol
building, where he directed the successful pre-Christmas campaign to
pass the bill, and where Senators and Congressmen came hourly at his
bidding to carry out his strategy.
The "unprecedented speed" with which the Federal Reserve Act had
been passed by Congress during what became known as "the Christmas
massacre" had one unforeseen aspect. Woodrow Wilson was taken
unaware, as he, like many others, had been assured the bill would
not come up for a vote until after Christmas.
Now he refused to sign
it, because he objected to the provisions for the selection of Class
B. Directors. William L. White relates in his biography of Bernard
Baruch that Baruch, a principal contributor to Wilson’s campaign
fund, was stunned when he was informed that Wilson refused to sign
the bill. He hurried
to the White House and assured Wilson that this was a minor matter,
which could be fixed up later through "administrative processes".
The important thing was to get the Federal Reserve Act signed into
law at once. With this reassurance, Wilson signed the Federal
Reserve Act on December 23, 1913. History proved that on that day,
the Constitution ceased to be the governing covenant of the American
people, and our liberties were handed over to a small group of
The December 24, 1913 New York Times carried a front page headline
"WILSON SIGNS THE CURRENCY BILL!" Below it, also in capital letters,
were two further headlines, "PROSPERITY TO BE FREE" and "WILL HELP
EVERY CLASS". Who could object to any law which provided benefits to
everyone? The Times described the festive atmosphere while Wilson’s
family and government officials watched him sign the bill. "The
Christmas spirit pervaded the gathering," exulted The Times.
In his biography of Carter Glass, Rixey Smith states that those
present at the signing of the bill included Vice President Marshall,
Secretary Bryan, Carter Glass, Senator Owen, Secretary McAdoo,
Speaker Champ Clark, and other Treasury officials. None of the real
writers of the bill, the draftees of Jekyll Island, were present.
They had prudently absented themselves from the scene of their
victory. Rixey Smith also wrote, "It was as though Christmas had
come two days early."
On December 24, 1913, Jacob Schiff wrote to
"My dear Col. House. I want to say a word to you for the silent, but
no doubt effective work you
have done in the interest of currency legislation and to
congratulate you that the measure
has finally been enacted into law. I am with good wishes, faithfully
yours, JACOB SCHIFF."
Representative Moore of Kansas, in commenting on the passage of the
Act, said to the House of Representatives:
"The President of the United States now becomes the absolute
dictator of all the finances of the
country. He appoints a controlling board of seven men, all of whom
belong to his political party,
even though it is a minority. The Secretary of the Treasury is to
rule supreme whenever there is
a difference of opinion between himself and the Federal Reserve
Board. AND, only one member
of the Board is to pass out of office while the President is in
The ten year terms of office of the members of the Board were
lengthened by the Banking Act of 1935 to fourteen years, which meant
that these directors of the nation’s finances, although not elected
by the people, held office longer than three presidents.
While Col. House, Jacob Schiff and Paul Warburg basked in the glow
of a job well done, the other actors in this drama were subject to
later afterthoughts. Woodrow Wilson wrote in 1916, National Economy
and the Banking System, Sen. Doc. No. 3, No. 223, 76th Congress, 1st
"Our system of credit is concentrated (in the
System). The growth of the nation, therefore, and all our
activities, are in the hands of a few men."
When he was asked by Clarence W. Barron whether he approved of the
bill as it was finally passed. Warburg remarked, "Well, it hasn’t
got quite everything we want, but the lack can be adjusted later by
Woodrow Wilson and Carter Glass are given credit for the Act by most
contemporary historians, but of all those concerned, Wilson had
least to do with Congressional action on the bill. George Creel, a
veteran Washington correspondent, wrote in Harper’s Weekly, June 26,
"As far as the Democratic Party was concerned,
Woodrow Wilson was
without influence, save for
the patronage he possessed. It was Bryan who whipped Congress into
line on the tariff bill, on
the Panama Canal tolls repeal, and on the currency bill."
later wrote, "That is the one
thing in my public career that I regret--my work to secure the
enactment of the Federal Reserve
On December 25, 1913, The Nation pointed out that "The New York
Stock Market began to rise steadily upon news that the Senate was
ready to pass the Federal Reserve Act."
This belies the claim that the Federal Reserve Act was a monetary
reform bill. The New York Stock Exchange is generally considered an
accurate barometer of the true meaning of any financial legislation
passed in Washington. Senator Aldrich also decided that he no longer
had misgivings about the Federal Reserve Act.
In a magazine which he
owned, and which he called The Independent, he wrote in July, 1914:
"Before the passage of this Act, the New York bankers could only
dominate the reserves of New York. Now we are able to dominate the
bank reserves of the entire country."
H.W. Loucks denounced the Federal Reserve Act in
The Great Conspiracy of the House of Morgan,
"In the Federal Reserve Law, they have wrested from the people and
secured for themselves the constitutional power to issue money and regulate the value thereof."
On page 31, Loucks writes,
"The House of Morgan is now in supreme control of our industry,
commerce and political affairs.
They are in complete control of the policy making of the Democratic,
Republican and Progressive
parties. The present extraordinary propaganda for ‘preparedness’ is
planned more for home
coercion than for defense against foreign aggression." 22
22 H.W. Loucks, The Great Conspiracy of the House of Morgan,
Privately printed, 1916
The signing of the Federal Reserve Act by Woodrow Wilson represented
the culmination of years of collusion with his intimate friend, Col.
House, and Paul Warburg. One of the men with whom House became
acquainted in the Wilson Administration was Franklin D.
Roosevelt, Assistant Secretary of Navy.
As soon as he obtained the
Democratic nomination for President, in 1932, Franklin D. Roosevelt
made a "pilgrimage" to Col. House’s home at Magnolia, Mass.
Roosevelt, after the Republican hiatus of the 1920s, filled in the
goals of Philip Dru, Administrator, 23 which
Wilson had not been able
to carry out. The late Roosevelt achievements included the enactment
of the social security program, excess profits tax, and the
expansion of the graduated income tax to 90% of earned income.
House’s biographer, Charles Seymour, wrote:
"He was wearied by the
details of party politics
and appointments. Even the share he had taken in constructive
domestic legislation (the
Federal Reserve Act, tariff revision, and the Income Tax amendment)
did not satisfy him. From
the beginning of 1914 he gave more and more of his time to what he
regarded as the highest
form of politics and that for which he was particularly
suited--international affairs." 24
In 1938, shortly before he died, House told Charles Seymour,
the last fifteen years I have been close to the center of things,
although few people suspect it. No important foreigner has come to
the United States without talking to me. I was close to the movement
that nominated Roosevelt. He has given me a free hand in advising
him. All the Ambassadors have reported to me frequently."
A comparative print of the Federal Reserve Act of 1913 as passed by
the House of Representatives and amended by the Senate shows the
following striking change:
The Senate struck out, "To suspend the officials of Federal Reserve
banks for cause, stated in writing with opportunity of hearing,
require the removal of said official for incompetence, dereliction
of duty, fraud or deceit, such removal to be subject to approval by
the President of the United States."
This was changed by the Senate
to read "To suspend or remove any officer or director of any Federal
Reserve Bank, the cause of such removal to be forthwith communicated
in writing by the Federal Reserve Board to the removed officer or
director and to said bank."
This completely altered the conditions
under which an officer or director might be removed. We no longer
know what the conditions for removal are, or the cause. Apparently
incompetence, dereliction of duty, fraud or
deceit do not matter to
the Federal Reserve Board. Also, the removed officer does not have
the opportunity of appeal to the President. In answer to written
inquiry, the Assistant Secretary of the Federal Reserve Board
replied that only one officer has been removed "for cause" in the
thirty-six years, the name and details of this matter being a
"private concern" between the individual, the Reserve Bank
concerned, and the Federal Reserve Board.
23 E.M. House,
Philip Dru -
Administrator, B. W. Heubsch, N.Y., 1912
24 Col. E.M. House, The Intimate Papers of Col. House, 4 v.
1926-1928, Houghton Mifflin Co.
The Federal Reserve System began its operations in 1914 with the
activity of the Organization Committee, appointed by Woodrow Wilson,
and composed of Secretary of the Treasury William McAdoo, who was
his son-in-law, Secretary of Agriculture Houston and Comptroller of
the Currency John Skelton Williams.
On January 6, 1914. J.P. Morgan met with the Organizing Committee in
New York. He informed them that there should not be more than seven
regional districts in the new system.
This committee was to select the locations of the "decentralized"
They were empowered to select from eight to twelve
reserve banks, although J.P. Morgan had testified he thought that
not more than four should be selected. Much politicking went into
the selection of these sites, as the twelve cities thus favored
would become enormously important as centers of finance.
of course, was a foregone conclusion. Richmond was the next
selection, as a payoff to Carter Glass and Woodrow Wilson, the two
Virginians who had been given political credit for the Federal
Reserve Act. The other selections of the Committee were Boston,
Philadelphia, Cleveland, Chicago, St. Louis, Atlanta, Dallas,
Minneapolis, Kansas City, and San Francisco. All of these cities
later developed important "financial districts" as the result of
These local battles, however, paled in view of the complete
dominance of the Federal Reserve bank of New York in the system.
Ferdinand Lundberg pointed out, in America’s Sixty Families, that,
"In practice, the Federal Reserve Bank of New York became the
fountainhead of the system of twelve regional banks, for New York
was the money market of the nation. The other eleven banks were so
many expensive mausoleums erected to salve the local pride and quell
the Jacksonian fears of the hinterland. Benjamin Strong, president
of the Bankers Trust (J.P. Morgan) was selected as the first
Governor of the New York Federal Reserve Bank. Adept in high
finance, Strong for many years manipulated the country’s monetary
system at the discretion of directors representing the leading New
Under Strong, the Reserve System was brought into
interlocking relations with the Bank of England and the
France. Benjamin Strong held his position as Governor of the Federal
Reserve Bank of New York until his sudden death in 1928, during a
Congressional investigation of the secret meetings between Reserve
heads of European central banks which brought on the Great
Depression of 1929-31." 25
Strong had married the daughter of the President of Bankers Trust,
which brought him into the line of succession in the dynastic
intrigues which play such an important role in the world of high
finance. He also had been a member of the original Jekyll Island
group, the First Name Club, and was thus qualified for the highest
position in the Federal Reserve System, as the Governor of the
Federal Reserve Bank of New York which dominated the entire system.
Paul Warburg also is mentioned in J. Laurence Laughlin’s definitive
volume, The Federal Reserve Act, Its Origins and Purposes,
"Mr. Paul Warburg of Kuhn, Loeb Company offered in March, 1910 a
fairly well thought out
plan to be known as the United Reserve Bank of the United States.
This was published in The
New York Times of March 24, 1910. The group interested in the
purposes of the National
Monetary Commission met secretly at Jekyll Island for about two
weeks in December, 1910, and
concentrated on the preparation of a bill to be presented to
Congress by the National Monetary
The men who were present at Jekyll Island were Senator
Aldrich, H. P. Davison of
J.P. Morgan Company, Paul Warburg of Kuhn, Loeb Company, Frank Vanderlip of the National
City Bank, and Charles D. Norton of the First National Bank. No
doubt the ablest banking mind
in the group was that of Mr. Warburg, who had had a European banking
Aldrich had no special training in banking." 26
25 Ferdinand Lundberg, America’s Sixty Families, 1937
26 J. Laurence Laughlin, The Federal Reserve Act, It’s Origins and
A mention of Paul Warburg, written by Harold Kelloch, and titled,
"Warburg the Revolutionist" appeared in the Century Magazine, May,
1915. Kelloch writes:
"He imposed his ideas on a nation of a hundred million people . . .
Without Mr. Warburg there
would have been no Federal Reserve Act. The banking house of Warburg
and Warburg in
Hamburg has always been strictly a family business. None but a
Warburg has been eligible for it,
but all Warburgs have been born into it.
In 1895 he married the
daughter of the late Solomon
Loeb of Kuhn Loeb Company. He became a member of Kuhn Loeb Company
in 1902. Mr.
Warburg’s salary from his private business has been approximately a
half million a year. Mr.
Warburg’s motives had been purely those of patriotic
The true purposes of the Federal Reserve Act soon began to
disillusion many who had at first believed in its claims. W. H.
Allen wrote in Moody’s Magazine, 1916,
"The purpose of the Federal Reserve Act was to prevent concentration
of money in the New York
banks by making it profitable for country bankers to use their funds
at home, but the
movement of currency shows
that the New York banks gained from the interior in every month
except December, 1915, since
the Act went into effect. The stabilization of rates has taken place
in New York alone. In other
parts, high rates continue.
The Act, which was to deprive Wall
Street of its funds for speculation,
has really given the bulls and the bears such a supply as they have
never had before. The truth is
that far from having clogged the channel to Wall Street, as Mr.
Glass so confidently boasted, it
actually widened the old channels and opened up two new ones. The
first of these leads directly
to Washington and gives Wall Street a string on all the surplus cash
in the United States
Besides, in the power to issue bank-note currency, it
furnishes an inexhaustible supply
of credit money; the second channel leads to the great central banks
of Europe, whereby, through
the sale of acceptances, virtually guaranteed by the United States
Government, Wall Street is
granted immunity from foreign demands for gold which have
precipitated every great crisis in
For many years, there has been considerable mystery about who
actually owns the stock of the Federal Reserve Banks. Congressman
Wright Patman, leading critic of the System, tried to find out who
the stockholders were.
The stock in the original twelve regional
Federal Reserve Banks was purchased by national banks in those
twelve regions. Because the Federal Reserve Bank of New York
set the interest rates and direct open market operations, thus
controlling the daily supply and price of money throughout the
United States, it is the stockholders of that bank who are the real
directors of the entire system. For the first time, it can be
who those stockholders are.
This writer has the original
organization certificates of the twelve Federal Reserve Banks,
giving the ownership of shares by the national banks in each
district. The Federal Reserve Bank of New York issued 203,053
shares, and, as filed with the Comptroller of the Currency May 19,
1914, the large New York City banks took more than half of the
The Rockefeller Kuhn, Loeb-controlled National
City Bank took the largest number of shares of any bank, 30,000
shares. J.P. Morgan’s First National Bank took 15,000 shares. When
these two banks merged in 1955, they owned in one block almost one
fourth of the shares in the Federal Reserve Bank of New York,
controlled the entire system, and thus they could name Paul Volcker
or anyone else they chose to be Chairman of the Federal Reserve
Board of Governors. Chase National Bank took 6,000 shares.
The Marine Nation Bank of Buffalo, later known as Marine Midland,
6,000 shares. This bank was owned by the Schoellkopf family, which
controlled Niagara Power Company and other large interests.
Bank of Commerce of New York City took 21,000 shares. The
shareholders of these banks which own the stock of the Federal
Reserve Bank of New York are the people who have controlled our
political and economic destinies since 1914.
They are the,
These interests have merged and consolidated in recent
years, so that the control is much more concentrated. National Bank
of Commerce is now Morgan Guaranty Trust Company.
has merged with Kuhn, Loeb Company, First National Bank has merged
with the National City Bank, and in the other eleven Federal Reserve
Districts, these same shareholders indirectly own or control shares
in those banks, with the other shares owned by the leading families
in those areas who own or control the principal industries in these
families set up regional councils, on orders
from New York, of such groups as the
Council on Foreign Relations,
The Trilateral Commission, and other instruments of control devised
by their masters. They finance and control political developments in
their area, name candidates, and are seldom successfully opposed in
* See charts V through IX
With the setting up of the twelve "financial districts" through the
Federal Reserve Banks, the traditional division of the United States
into the forty-eight states was overthrown, and we entered the era
of "regionalism", or twelve regions which had no relation to the
traditional state boundaries.
These developments following the passing of the Federal Reserve Act
proved every one of the allegations Thomas Jefferson had made
against a central bank in 1791:
that the subscribers to the Federal
Reserve Bank stock had formed a corporation, whose stock could be
and was held by aliens
that this stock would be transmitted to a
certain line of successors
that it would be placed beyond
forfeiture and escheat
that they would receive a monopoly of
banking, which was against the laws of monopoly
that they now
had the power to make laws, paramount to the laws of the states
state legislature can countermand any of the laws laid down by the
Federal Reserve Board of Governors for the benefit of their private
stockholders. This board issues laws as to what the interest rate
shall be, what the quantity of money shall be and what the price of
money shall be. All of these powers abrogate the powers of the state
legislatures and their responsibility to the citizens of those
The New York Times stated that the Federal Reserve Banks would be
ready for business on August 1, 1914, but they actually began
operations on November 16, 1914. At that time, their total assets
were listed at $143,000,000, from the sale of shares in the Federal
Reserve Banks to stockholders of the national banks which subscribed
The actual part of this $143,000,000 which was paid in for these
shares remains shrouded in mystery. Some historians believe that the
shareholders only paid about half of the amount in cash; others
that they paid in no cash at all, but merely sent in checks which
they drew on the national banks which they owned. This seems most
likely, that from the very outset, the Federal Reserve operations
were "paper issued against paper", that bookkeeping entries
comprised the only values which changed hands.
The men whom President Woodrow Wilson chose to make up the first
Federal Reserve Board of Governors were men drawn from the banking
group. He had been nominated for the Presidency by the Democratic
Party, which had claimed to represent the "common man" against the
"vested interests". According to Wilson himself, he was allowed to
choose only one man for the Federal Reserve Board. The others were
chosen by the New York bankers. Wilson’s choice was Thomas D. Jones,
a trustee of Princeton and director of International Harvester and
The other members were,
Adolph C. Miller,
economist from Rockefeller’s University of Chicago and Morgan’s
Harvard University, and also serving as Assistant Secretary of the
Charles S. Hamlin, who had served previously as an
Assistant Secretary to the Treasury for eight years
F.A. Delano, a Roosevelt
relative, and railroad operator who took over a number of
railroads for Kuhn, Loeb Company
W.P.G. Harding, President of
the First National Bank of Atlanta
Paul Warburg of Kuhn, Loeb
According to The Intimate Papers of Col. House, Warburg was
"The President accepted (House’s) suggestion of
Paul Warburg of New York because of his interest and experience in
currency problems under both Republican and Democratic
Like Warburg, Delano had also been born outside
the continental limits of the United States, although he was an
American citizen. Delano’s father, Warren Delano, according to
Dr. Josephson and other authorities, was active in Hong Kong in the
Chinese opium trade, and Frederick Delano was born in Hong Kong in
The Money Power of Europe, Paul Emden writes that
reached their outstanding eminence during the last twenty years of
the past century, simultaneously with the growth of Kuhn, Loeb
Company in New York, with whom they stood in a personal union and
family relationship. Paul Warburg with magnificent success carried
through in 1913 the reorganization of the American banking system,
at which he had with Senator Aldrich been working since 1911, and
thus most thoroughly consolidated the currency and finances of the
United States." 28
27 Charles Seymour, The Intimate Papers of Col. House, 4 v.
1926-1928, Houghton Mifflin Co.
28 Paul Emden, The Money Power of Europe in the 19th and 20th
Century, S. Low, Marston Co., London, 1937
The New York Times * had noted on May 6, 1914 that
Paul Warburg had
"retired" from Kuhn, Loeb Company in order to serve on the
Reserve Board, although he had not resigned his directorships of,
American Surety Company
Baltimore and Ohio Railroad
Railways of Mexico
but would continue to serve on these boards of
"Who’s Who" listed him as holding these directorships and
Chemical Company (branch of
Agfa Ansco Corporation
Westinghouse Acceptance Company
Company of Amsterdam
chairman of the Board of International
numerous other banks, railways and
"Kuhn Loeb & Co. with Warburg have four votes or the
majority of the Federal Reserve Board."
* The New York Times April 30, 1914, reported that the 12 districts
had subscriptions of $74,740,800 and that the subscribing banks
would pay one-half of this sum in six months.
29 Clarence W. Barron, More They Told Barron, Arno Press, New York
Times, 1973, June 12, 1914. p. 204
Despite his retirement from Kuhn, Loeb Company in May of 1914 to
serve on the Federal Reserve Board of Governors, Warburg was asked
to appear before a Senate Subcommittee in June of 1914 and answer
some questions about his behind-the-scenes role in getting the
Federal Reserve Act through Congress. This might have meant some
questions about the secret conference in Jekyll Island, and
refused to appear.
On July 7, 1914 he wrote a letter to G.M.
Hitchcock, Chairman of the Senate Banking and Currency Committee,
stating that it might impair his usefulness on the Board if he were
required to answer any questions, and that he would therefore
withdraw his name. It seemed that Warburg was prepared to bluff the
Senate Committee into confirming him without any questions asked.
July 10, 1914, The New York Times defended Warburg on the editorial
page and denounced the "Senatorial Inquisition". Since Warburg had
not yet been asked any questions, the term "Inquisition" seemed
remarkably inappropriate, nor was there any real danger that the
Senators were preparing to use instruments of torture on Mr.
Warburg. The imbroglio was resolved when the Senate Committee, in
abject surrender, agreed that Mr. Warburg would be given a list of
questions in advance of his appearance so that he could go over
them, and that he could be excused from answering any questions
which might tend to impair his service on the Board of Governors.
The Nation reported on July 23, 1914 that
"Mr. Warburg finally had a
conference with Senator O’Gorman and agreed to meet the members of
the Senate Subcommittee informally, with a view to coming to an
understanding, and to giving them any reasonable information they
might desire. The opinion in Washington is that Mr. Warburg’s
confirmation is assured."
was correct. Mr. Warburg was confirmed, the way having been smoothed
by his "fixer", Senator O’Gorman of New York, more familiarly known
as "the Senator from Wall Street". Senator Robert L. Owen had
previously charged that Warburg was the American representative of
the Rothschild family, but questioning him about this would indeed
have smacked of the mediaeval "Inquisition", and his fellow Senators
were too civilized to indulge in such barbarity *.
* Warburg was confirmed August 8, 1914, 38-11, and principally
opposed by Sen. Bristow of Kansas, who was denounced by The New York
Times as a "radical Republican", and whose excellent library of rare
books on banking were acquired by the present writer in 1983 for
research on this work.
During the Senate Hearings on Paul Warburg before the Senate Banking
and Currency Committee, August 1, 1914, Senator Bristow asked,
many of these partners (of Kuhn, Loeb Company) are American
WARBURG: "They are all American citizens except
He is a British subject."
BRISTOW: "He was at one time a candidate
for Parliament, was he not?"
WARBURG: "There was talk about it, it
had been suggested and he had it in his mind."
Paul Warburg also stated to the Committee, "I went to England, where
I stayed for two years, first in the banking and discount firm of
Samuel Montague & Company. After that I went to France, where I
stayed in a French bank."
CHAIRMAN: "What French bank was that?"
WARBURG: "It is the Russian
bank for foreign trade which has an agency in Paris."
BRISTOW: "I understand you to say that you were a Republican, but
when Mr. Theodore Roosevelt came around, you then became a
sympathizer with Mr. Wilson and supported him?"
BRISTOW: "While your brother (Felix Warburg) was supporting
Thus three partners of Kuhn, Loeb Company were
supporting three different candidates for President of the United
States. Paul Warburg was supporting Wilson, Felix Warburg was
supporting Taft, and Otto Kahn was supporting Theodore Roosevelt.
Paul Warburg explained this curious situation by telling the
Committee that they had no influence over each other’s political
beliefs, "as finance and politics don’t mix."
Questions about Warburg’s appointment vanished in a hue and cry with
Wilson’s sole appointment to the Board of Governors, Thomas B.
Jones. Reporters had discovered that Jones, at the time of his
appointment, was under indictment by the Attorney General of the
United States. Wilson leaped to the defense of his choice, telling
reporters that "The majority of the men connected with what we have
come to call ‘big business’ are honest, incorruptible and
Despite Wilson’s protestations, the Senate Banking and
Currency Committee scheduled
hearings on the fitness of Thomas D. Jones to be a member of the
Board of Governors. Wilson then wrote a letter to Senator Robert L.
Owen, Chairman of that Committee:
June 18, 1914
Dear Senator Owen:
Mr. Jones has always stood for the rights of the people against the
rights of privilege. His connection with the Harvester Company was a
public service, not a private interest. He is the one man of the
number who was in a peculiar sense my personal choice.
Woodrow Wilson said,
"There is no reason to believe that the
unfavorable report represents the attitude of the Senate itself."
After several weeks, Thomas D. Jones withdrew his name, and the
country had to do without his services.
The other members of the first Board of Governors were Secretary of
the Treasury, William McAdoo, Wilson’s son-in-law, and President of
the Hudson-Manhattan Railroad, a Kuhn, Loeb Company controlled
enterprise, and Comptroller of the Currency John Skelton Williams.
When the Federal Reserve Banks were opened for business on
16, 1914, Paul Warburg said,
"This date may be considered as the
Fourth of July in the economic history of the United States."