Lord Montagu Norman
The collaboration between Benjamin Strong and Lord Montagu Norman is
one of the greatest secrets of the twentieth century. Benjamin
Strong married the daughter of the president of Bankers Trust in New
York, and subsequently succeeded to its presidency.
in Tragedy and Hope says:
"Strong became Governor of the Federal
Reserve Bank of New York as the joint nominee of Morgan and of Kuhn,
Loeb Company in 1914." 87
Lord Montagu Norman is the only man in history who had both his
maternal grandfather and his paternal grandfather serve as Governors
of the Bank of England. His father was with Brown, Shipley Company,
the London Branch of Brown Brothers (now Brown Brothers Harriman).
Montagu Norman (1871-1950) came to New York to work for Brown
Brothers in 1894, where he was befriended by the Delano family, and
by James Markoe, of Brown Brothers. He returned to England, and in
1907 was named to the Court of the Bank of England.
In 1912, he had
a nervous breakdown, and went to Switzerland to be treated by Jung,
as was fashionable among the powerful group which he represented.*
87 Carroll Quigley, Tragedy and Hope, Macmillan, New York, p. 326
* When people of this class are stricken by guilt feelings while
plotting world wars and economic depressions which will bring
misery, suffering and death to millions of the world’s inhabitants,
they sometimes have qualms. These qualms are jeered at by their
peers as "a failure of nerve". After a bout with their
psychiatrists, they return to their work with renewed gusto, with no
further digressions of pity for "the little people" who are to be
Lord Montagu Norman was Governor of the Bank of England from 1916 to
1944. During this period, he participated in the central bank
conferences which set up the Crash of 1929 and a worldwide
depression. In The Politics of Money by Brian Johnson, he writes,
"Strong and Norman, intimate friends, spent their holidays together
at Bar Harbour and in the South of France."
Johnson says, "Norman
therefore became Strong’s alter ego. . . . " Strong’s easy money
policies on the New York money market from 1925-28 were the
fulfillment of his agreement with Norman to keep New York interest
rates below those of London. For the sake of international
cooperation, Strong withheld the steadying hand of high interest
rates from New York until it was too late. Easy money in New
York had encouraged the surging American boom of the late 1920s,
with its fantastic heights of speculation."
88 Brian Johnson, The Politics of Money, McGraw Hill, New
York, 1970, p. 63
Benjamin Strong died suddenly in 1928. The New York Times obituary,
Oct. 17, 1928, describes the conference between the directors of the
three great central banks in Europe in July, 1927,
"Mr. Norman, Bank
of England, Strong of the New York Federal Reserve Bank, and Dr. Hjalmar Schacht of the
Reichsbank, their meeting referred to at the
time as a meeting of ‘the world’s most exclusive club’. No public
reports were ever made of the foreign conferences, which were wholly
informal, but which covered many important questions of gold
movements, the stability of world trade, and world economy."
The meetings at which the future of the world’s economy are decided
are always reported as being "wholly informal", off the record, no
reports made to the public, and on the rare occasions when outraged
Congressmen summon these mystery figures to testify about their
activities they merely trace the outline of steps taken, and develop
no information about what was really said or decided.
At the Senate Hearings on the Federal Reserve System in 1931, H.
Parker Willis, one of the authors and First Secretary of the Federal
Reserve Board from 1914 until 1920, pointedly asked Governor George
Harrison, Strong’s successor as Governor of the Federal Reserve Bank
of New York:
"What is the relationship between the Federal Reserve Bank of New
York and the money
committee of the Stock Exchange?"
"There is no relationship," Governor Harrison replied.
"There is no assistance or cooperation in fixing the rate in any
way?", asked Willis.
"No," said Governor Harrison, "although on various occasions they
advise us of the state of the
money situation, and what they think the rate ought to be." This was
an absolute contradiction of
his statement that "There is no relationship".
The Federal Reserve
Bank of New York which set
the discount rate for the other Reserve Banks, actually maintained a
close liaison with the money committee of the Stock Exchange.
The House Stabilization Hearings of 1928 proved conclusively that
the Governors of the Federal Reserve System had been holding
conferences with heads of the big European central banks.
the Congressmen known the details of the plot which was to culminate
in the Great Depression of 1929-31, there would have been nothing
they could have done to stop it. The international bankers who
controlled gold movements could inflict their will on any country,
and the United States was as helpless as any other.
Notes from these House Hearings follow:
MR. BEEDY: "I notice on your chart that the lines which produce the
most violent fluctuations are found under ‘Money Rates in New York.’
As the rates of money rise and fall in the big cities the loans that
are made on investments seem to take advantage of them, at present,
a quite violent change, while industry in general does not seem to
avail itself of these violent changes, and that line is fairly even,
there being no great rises or declines.
GOVERNOR ADOLPH MILLER: This was all more or less in the interests
of the international situation. They sold gold credits in New York
for sterling balances in London.
REPRESENTATIVE STRONG: (No relation to Benjamin): Has the Federal
Reserve Board the power to attract gold to this country?
E.A. GOLDENWEISER, research director for the Board: The Federal
Reserve Board could attract gold to this country by making money
GOVERNOR ADOLPH MILLER: I think we are very close to the point where
any further solicitude on our part for the monetary concerns of
Europe can be altered. The Federal Reserve Board last summer, 1927,
set out by a policy of open market purchases, followed in course by
reduction on the discount rate at the Reserve Banks, to ease the
credit situation and to cheapen the cost of money. The official
reasons for that departure in credit policy were that it would help
to stabilize international exchange and stimulate the exportation of
CHAIRMAN MCFADDEN: Will you tell us briefly how that matter was
brought to the Federal Reserve Board and what were the influences
that went into the final determination?
GOVERNOR ADOLPH MILLER: You are asking a question impossible for me
CHAIRMAN MCFADDEN: Perhaps I can clarify it--where did the
suggestion come from that caused this decision of the change of
rates last summer?
GOVERNOR ADOLPH MILLER: The three largest central banks in Europe
had sent representatives to this country. There were the Governor of
the Bank of England, Mr. Hjalmar Schacht, and Professor Rist, Deputy
Governor of the Bank of France. These gentlemen were in conference
with officials of the Federal Reserve Bank of New York. After a week
or two, they appeared in Washington for the better part of a day.
They came down the evening of one day and were the guests of the
Governors of the Federal Reserve Board the following day, and left
that afternoon for New York.
CHAIRMAN MCFADDEN: Were the members of the Board present at this
GOVERNOR ADOLPH MILLER: Oh, yes, it was given by the Governors of
the Board for the purpose of bringing all of us together.
CHAIRMAN MCFADDEN: Was it a social affair, or were matters of
GOVERNOR MILLER: I would say it was mainly a social affair.
Personally, I had a long conversation with Dr. Schacht alone before
the luncheon, and also one of considerable length with Professor Rist. After the luncheon I began a conversation with
which was joined in by Governor Strong of New York.
CHAIRMAN MCFADDEN: Was that a formal meeting of the Board?
GOVERNOR ADOLPH MILLER: No.
CHAIRMAN MCFADDEN: It was just an informal discussion of the matters
they had been discussing in New York?
GOVERNOR MILLER: I assume so. It was mainly a social occasion. What
I said was mainly in the nature of generalities. The heads of these
central banks also spoke in generalities.
MR. KING: What did they want?
GOVERNOR MILLER: They were very candid in answers to questions. I
wanted to have a talk with Mr. Norman, and we both stayed behind
after luncheon, and were joined by the other foreign representatives
and the officials of the New York Reserve Bank. These gentlemen were
all pretty concerned with the way the gold standard was working.
They were therefore desirous of seeing an easy money market in New
York and lower rates, which would deter gold from moving from Europe
to this country. That would be very much in the interest of the
international money situation which then existed.
MR. BEEDY: Was there some understanding arrived at between the
representatives of these foreign banks and the Federal Reserve Board
or the New York Federal Reserve Bank?
GOVERNOR MILLER: Yes.
MR. BEEDY: It was not reported formally?
GOVERNOR MILLER: No. Later, there came a meeting of the Open-Market
Policy Committee, the investment policy committee of the Federal
Reserve System, by which and to which certain recommendations were
made. My recollection is that about eighty million dollars worth of
securities were purchased in August consistent with this plan.
CHAIRMAN MCFADDEN: Was there any conference between the members of
the Open Market Committee and those bankers from abroad?
GOVERNOR MILLER: They may have met them as individuals, but not as a
MR. KING: How does the Open-Market Committee get its ideas?
GOVERNOR MILLER: They sit around and talk about it. I do not know
whose idea this was. It was distinctly a time in which there was a
cooperative spirit at work.
CHAIRMAN MCFADDEN: You have outlined here negotiations of very great
GOVERNOR MILLER: I should rather say conversations.
CHAIRMAN MCFADDEN: Something of a very definite character took
GOVERNOR MILLER: Yes.
CHAIRMAN MCFADDEN: A change of policy on the part of our whole
financial system which has resulted in one of the most unusual
situations that has ever confronted this country financially (the
stock market speculation boom of 1927-1929). It seems to me that a
matter of that importance should have been made a matter of record
GOVERNOR MILLER: I agree with you.
REPRESENTATIVE STRONG: Would it not have been a good thing if there
had been a direction that those powers given to the Federal Reserve
System should be used for the continued stabilization of the
purchasing power of the American dollar rather than be influenced by
the interests of Europe?
GOVERNOR MILLER: I take exception to that term "influence". Besides,
there is no such thing as stabilizing the American dollar without
stabilizing every other gold currency. They are tied together by the
gold standard. Other eminent men who come here are very adroit in
knowing how to approach the folk who make up the personnel of the
Federal Reserve Board.
MR. STEAGALL: The visit of these foreign bankers resulted in money
being cheaper in New York?
GOVERNOR MILLER: Yes, exactly.
CHAIRMAN MCFADDEN: I would like to put in the record all who
attended that luncheon in Washington.
GOVERNOR MILLER: In addition to the names I have given you, there
was also present one of the younger men from the Bank of France. I
think all members of the Federal Reserve Board were there. Under
Secretary of the Treasury Ogden Mills was there, and the Assistant
Secretary of the Treasury, Mr. Schuneman, also, two or three men
from the State Department and Mr. Warren of the Foreign Department
of the Federal Reserve Bank of New York. Oh yes, Governor Strong was
CHAIRMAN MCFADDEN: This conference, of course, with all of these
foreign bankers did not just happen. The prominent bankers from
Germany, France, and England came here at whose suggestion?
GOVERNOR MILLER: A situation had been created that was distinctly
embarrassing to London by reason of the impending withdrawal of a
certain amount of gold which had been recovered by France and that
had originally been shipped and deposited in the Bank of England by
the French Government as a war credit. There was getting to be some
tension of mind in Europe because France was beginning to put her
house in order for a return to the gold standard. This situation was
one which called for some moderating influence.
MR. KING: Who was the moving spirit who got those people together?
GOVERNOR MILLER: That is a detail with which I am not familiar.
REPRESENTATIVE STRONG: Would it not be fair to say that the fellows
who wanted the gold were the ones who instigated the meeting?
GOVERNOR MILLER: They came over here.
REPRESENTATIVE STRONG: The fact is that they came over here, they
had a meeting, they banqueted, they talked, they got the Federal
Reserve Board to lower the discount rate, and to make the purchases
in the open market, and they got the gold.
MR. STEAGALL: Is it true that action stabilized the European
currencies and upset ours?
GOVERNOR MILLER: Yes, that was what it was intended to do.
CHAIRMAN MCFADDEN: Let me call your attention to the recent
conference in Paris at which Mr. Goldenweiser, director of research
for the Federal Reserve Board, and Dr. Burgess, assistant Federal
Reserve Agent of the Federal Reserve Bank of New York, were in
consultation with the representatives of the other central banks.
Who called the conference?
GOVERNOR MILLER: My recollection is that it was called by the Bank
GOVERNOR YOUNG: No, it was the League of Nations who called them
The secret meeting between the Governors of the Federal Reserve
Board and the heads of the European central banks was not called to
stabilize anything. It was held to discuss the best way of getting
the gold held in the United States by the System back to Europe to
force the nations of that continent back on the gold standard.
League of Nations had not yet succeeded in doing that, the objective
for which that body was set up in the first place, because the
Senate of the United States
had refused to let Woodrow Wilson betray us to an international
monetary authority. It took the Second World War and Franklin D.
Roosevelt to do that. Meanwhile, Europe had to have our gold and the
Federal Reserve System gave it to them, five hundred million dollars
The movement of that gold out of the United States caused the
deflation of the stock boom, the end of the business prosperity of
the 1920s and the Great Depression of 1929-31, the worst calamity
which has ever befallen this nation. It is entirely logical to say
that the American people suffered that depression as a punishment
for not joining the League of Nations.
The bankers knew what would
happen when that five hundred million dollars worth of gold was sent
to Europe. They wanted the Depression because it put the business
and finance of the United States in their hands.
The Hearings continue:
MR. BEEDY: "Mr. Ebersole of the Treasury Department concluded his
remarks at the dinner we attended last night by saying that the
Federal Reserve System did not want stabilization and the American
businessman did not want it. They want these fluctuations in prices,
not only in securities but in commodities, in trade generally,
because those who are now in control are making their profits out of
that very instability. If control of these people does not come in a
legitimate way, there may be an attempt to produce it by general
upheavals such as have characterized society in days gone by.
Revolutions have been promoted by dissatisfaction with existing
conditions, the control being in the hands of the few, and the many
paying the bills.
CHAIRMAN MCFADDEN: I have here a letter from a member of the Federal
Reserve Board who was summoned to appear here. I would like to have
it put in the record. It is from Governor Cunningham:
Dear Mr. Chairman:
For the past several weeks I have been confined to my home on
account of illness and am
now preparing to spend a few weeks away from Washington for the
purpose of hastening onvalescence.
Edward H. Cunningham
This is in answer to an invitation extended him to appear before our
Committee. I also have a letter from George Harrison, Deputy
Governor of the Federal Reserve Bank of New York.
My dear Mr. Congressman:
Governor Strong sailed for Europe last week. He had not been at all
well since the first of the
year, and, while he did appear before your Committee last March, it
was only shortly after that
that he suffered a very severe attack of shingles, which has sorely
racked his nerves.
George L. Harrison, May 19, 1928
I also desire to place in the record a statement in the New York
Journal of Commerce, dated May 22, 1928, from Washington:
‘It is stated in well-informed circles here that the chief topic
being taken up by Governor Strong
of the Federal Reserve Bank of New York on his present visit to
Paris is the arrangement of
stabilization credits for France, Rumania, and Yugoslavia. A second
vital question Mr. Strong
will take up is the amount of gold France is to draw from this
Further questioning by Chairman McFadden about the strange illness
of Benjamin Strong brought forth the following testimony from
Governor Charles S. Hamlin of the Federal Reserve Board on May 23rd,
"All I know is that Governor Strong has been very ill, and he has
gone over to Europe primarily,
I understand, as a matter of health. Of course, he knows well the
various offices of the European
central banks and undoubtedly will call on them."
Governor Benjamin Strong died a few weeks after his return from
Europe, without appearing before the Committee.
The purpose of these hearings before the House Committee on Banking
and Currency in 1928 was to investigate the necessity for passing
the Strong bill, presented by Representative Strong (no relation to
Benjamin, the international banker), which would have provided that
the Federal Reserve System be empowered to act to stabilize the
purchasing power of the dollar.
This had been one of the promises
made by Carter Glass and Woodrow Wilson when they presented the
Federal Reserve Act before Congress in 1912, and such a provision
had actually been put in the Act by Senator Robert L. Owen, but
Carter Glass’ House Committee on Banking and Currency had struck it
out. The traders and speculators did not want the dollar to become
stable, because they would no longer be able to make a profit. The
citizens of this country had been led to gamble on the stock market
in the 1920s because the traders had created a nationwide condition
The Strong Bill of 1928 was defeated in Congress.
The financial situation in the United States during the 1920s was
characterized by an inflation of speculative values only. It was a
trader-made situation. Prices of commodities remained low, despite
the over-pricing of securities on the exchange.
The purchasers did not expect their securities to pay dividends. The
idea was to hold them awhile and sell them at a profit. It had to
stop somewhere, as Paul Warburg remarked in March, 1929. Wall Street
did not let it stop until the people had put their savings into
these over-priced securities. We had the spectacle of the President
of the United States, Calvin Coolidge, acting as a shill for the
stock market operators when he recommended to the American people
that they continue buying on the
market, in 1927.
There had been uneasiness about the inflated
condition of the market, and the bankers showed their power by
getting the President of the United States, the Secretary of the
Treasury, and the Chairman of the Board of Governors of the Federal
Reserve System to issue statements that brokers’ loans were not too
high, and that the condition of the stock market was sound.
Irving Fisher warned us in 1927 that the burden of stabilizing
prices all over the world would soon fall on the United States. One
of the results of the Second World War was the establishment of an
International Monetary Fund to do just that.
Professor Gustav Cassel
remarked in the same year that:
"The downward movement of prices has not been a spontaneous result
of forces beyond our
control. It is the result of a policy deliberately framed to bring
down prices and give a higher
value to the monetary unit."
The Democratic Party, after passing the Federal Reserve Act and
leading us into the First World War, assumed the role of an
opposition party during the 1920s. They were on the outside of the
political fence, and were supported during those lean years by
liberal handouts from Bernard Baruch, according to his biography.
How far outside of it they were and how little chance they had in
1928, is shown by a plank in the official Democratic Party platform
adopted at Houston on June 28, 1928:
"The administration of the Federal Reserve System for the advantage
of the stock-market
speculators should cease. It must be administered for the benefit of
merchants, manufacturers, and others engaged in constructive
This idealism insured defeat for its protagonist,
Al Smith, who was
nominated by Franklin D. Roosevelt. The campaign against Al Smith
also was marked by appeals to religious intolerance, because he was
a Catholic. The bankers stirred up anti-Catholic sentiment all over
the country to achieve the election of their World War I protégé,
Instead of being used to promote the financial stability of the
country, as had been promised by Woodrow Wilson when the Act was
passed, financial instability has been steadily promoted by the
Federal Reserve Board. An official memorandum issued by the Board on
March 13, 1939, stated that:
"The Board of Governors of the Federal Reserve System opposes any
bill which proposes a stable
Politically, the Federal Reserve Board was used to advance the
election of the bankers’ candidates during the 1920s. The "Literary
Digest" on August 4, 1928, said, on the occasion of the Federal
Reserve Board raising the rate to five percent in a Presidential
"This reverses the politically desirable cheap money policy of 1927,
and gives smooth conditions
on the stock market. It was attacked by the Peoples’ Lobby of
Washington, D.C. which said that
‘This increase at a time when farmers needed cheap money to finance
the harvesting of their
crops was a direct blow at the farmers, who had begun to get back on
their feet after the
Agricultural Depression of 1920-21.
"The New York World" said on that occasion:
"Criticism of Federal Reserve Board policy by many investors is not
based on its attempt to
deflate the stock market, but on the charge that the Board itself,
by last year’s policy, is
completely responsible for such stock market inflation as exists."
A damning survey of the Federal Reserve System’s first fifteen years
appears in the "North American Review" of May, 1929, by H. Parker
Willis, professional economist who was one of the authors of the Act
and First Secretary of the Board from 1914 until 1920.
"My first talk with President-elect
Wilson was in 1912. Our
conversation related entirely to
banking reform. I asked whether he felt confident we could secure
the administration of a
suitable law and how we should get it applied and enforced. He
answered: ‘We must rely on
American business idealism.’ He sought for something which could be
trusted to afford
opportunity to American Idealism. It did serve to finance the World
War and to revise American
banking practices. The element of idealism that the President
prescribed and believed we could
get on the principle of noblesse oblige from American bankers and
businessmen was not there.
Since the inauguration of the Federal Reserve Act we have suffered
one of the most serious
financial depressions and revolutions ever known in our history,
that of 1920-21. We have seen
our agriculture pass through a long period of suffering and even of
revolution, during which one
million farmers left their farms, due to difficulties with the price
of land and the odd status of
We have suffered the most extensive era of bank
failures ever known in this
country. Forty-five hundred banks have closed their doors since the
Reserve System began
functioning. In some Western towns there have been times when all
banks in that community
failed, and given banks have failed over and over again. There has
been little difference in
liability to failure between members and non-members of the Federal
"Wilson’s choice of the first members of the Federal Reserve Board
was not especially happy.
They represented a composite group chosen for the express purpose of
placating this, that, or the
other big interest. It was not strange that appointees used their
places to pay debts. When the
Board was considering a resolution to the effect that future members
of the reserve system should
be appointed solely on merit, because of the demonstrated
incompetence of some of their number.
Comptroller John Skelton Williams moved to strike out the word
‘solely’ and in this he was
sustained by the Board. The inclusion of certain elements (Warburg,
Strauss, etc.) in the Board gave an opportunity for catering to
special interests that was to prove
disastrous later on.
"President Wilson erred, as he often erred, in supposing that the
holding of an important office
would transform an incumbent and revivify his patriotism. The
Reserve Board reached the low
ebb of the Wilson period with the appointment of a member who was
chosen for his ability to get
delegates for a Democratic candidate for the Presidency. However,
this level was not the dregs
reached under President Harding. He appointed an old crony,
Crissinger, as Governor of the
Board, and named several other super-serviceable politicians to
other places. Before his death he
had done his utmost to debauch the whole undertaking. The System has
gone steadily downhill
"Reserve Banks had hardly assumed their first form when it became
apparent that local bankers
had sought to use them as a means of taking care of ‘favorite sons’,
that is, persons who had by
common consent become a kind of general charge upon the banking
community, or inefficient
of various kinds. When reserve directors were to be chosen, the
country bankers often refused to
vote, or, when they voted, cast their ballots as directed by city
correspondents. In these
circumstances popular or democratic control of reserve banks was out
of the question.
efficiency might have been secured if honest men, recognizing their
public duty, had assumed
power. If such men existed, they did not get on the Federal Reserve
Board. In one reserve bank
today the chief management is in the hands of a man who never did a
day’s actual banking in his
life, while in another reserve institution both Governor and
Chairman are the former heads of now defunct banks. They naturally
have a high failure record in their district. In a majority of
districts the standard of performance as judged by good banking
standards is disgracefully low among reserve executive officials.
The policy of the Federal Reserve Bank of Philadelphia is known in
the System as the ‘Friends and Relatives Banks.’
"It was while making war profits in considerable amounts that
someone conceived the idea of
using the profits to provide themselves with phenomenally costly
buildings. Today the Reserve
Banks must keep a full billion dollars of their money constantly at
work merely to pay their own
expenses in normal times.
"The best illustration of what the System has done and not done is
offered by the experience
which the country was having with speculation, in May, 1929. Three
years prior to that, the
present bull market was just getting under way. In the autumn of
1926 a group of bankers, among
them one of world famous name, were sitting at a table in a
Washington hotel. One of them
raised the question whether the low discount rates of the System
were not likely to encourage
"‘Yes’, replied the famous banker, ‘they will, but that cannot be
helped. It is the price we must
pay for helping Europe.’
"It may well be questioned whether the encouragement of speculation
by the Board has been the
price paid for helping Europe or whether
it is the price paid to induce a certain class of financiers to help
Europe, but in either case
European conditions should not have had anything to do with the
Board’s discount policy. The
fact of the matter is that the Federal Reserve Banks do not come
into contact with the community.
"The ‘small man’ from Maine to Texas has gradually been led to
invest his savings in the stock
market, with the result that the rising tide of speculation,
transacted at a higher and higher rate
of speed, has swept over the legitimate business of the country.
"In March, 1928, Roy A. Young, Governor of the Board, was called
before a Senate committee.
‘Do you think the brokers’ loans are too high?", he was asked.
"‘I am not prepared to say whether brokers’ loans are too high or
too low,’ he replied, ‘but I am
sure they are safely and conservatively made.’
"Secretary of the Treasury Mellon in a formal statement assured the
country that they were not
too high, and Coolidge, using material supplied him by the Federal
Reserve Board, made a plain
statement to the country that they were not too high. The Federal
Reserve Board, charged with the duty of protecting the interests of
the average man, thus did its utmost to assure the average man that
he should feel no alarm about his savings. Yet the Federal Reserve
Board issued on February 2, 1929, a letter addressed to the Reserve
Bank Directors cautioning them against grave danger of further
"What could be expected from a group of men such as composed the
Board, a set of men who
were solely interested in standing from under when there was any
danger of friction, displaying a
bovine and canine appetite for credit and praise, while eager only
to ‘stand in’ with the ‘big men’
whom they know as the masters of American finance and banking?"
H. Parker Willis omitted any reference to
Lord Montague Norman and
the machinations of the Bank of England which were about to
in the Crash of 1929 and the Great Depression.
CHAPTER TWELVE -
The Great Depression
R.G. Hawtrey, the English economist, said, in the March, 1926
American Economic Review:
"When external investment outstrips the supply of general savings
the investment market must
carry the excess with money borrowed from the banks. A remedy is
control of credit by a rise in
The Federal Reserve Board applied this control of credit, but not in
1926, nor as a remedial measure. It was not applied until 1929, and
then the rate was raised as a punitive measure, to freeze out
everybody but the big trusts.
Professor Cassel, in the Quarterly Journal of Economics, August
1928, wrote that:
"The fact that a central bank fails to raise its bank rate in
accordance with the actual situation of
the capital market very much increases the strength of the cyclical
movement of trade, with all its
pernicious effects on social economy. A rational regulation of the
bank rate lies in our hands, and
may be accomplished only if we perceive its importance and decide to
go in for such a policy.
With a bank rate regulated on these lines the conditions for the
development of trade cycles
would be radically altered, and indeed, our familiar trade cycles
would be a thing of the past."
This is the most authoritative premise yet made relating that our
business depressions are artificially precipitated. The occurrence
of the Panic of 1907, the Agricultural Depression of 1920, and the
Great Depression of 1929, all three in good crop years and in
periods of national prosperity, suggests that premise is not
guesswork. Lord Maynard Keynes pointed out that most theories of the
business cycle failed to relate their analysis adequately to the
money mechanism. Any survey or study of a depression which failed to
list such factors as gold movements and pressures on foreign
exchange would be worthless, yet American economists have always
dodged this issue.
The League of Nations had achieved its goal of getting the nations
of Europe back on the gold standard by 1928, but three-fourths of
the world’s gold was in France and the United States. The problem
was how to get that gold to countries which needed it as a basis for
money and credit. The answer was action by the Federal Reserve
Following the secret meeting of the Federal Reserve Board and the
heads of the foreign central banks in 1927, the Federal Reserve
Banks in a few months doubled their holdings of Government
securities and acceptances, which resulted in the exportation of
five hundred million dollars in gold in that year. The System’s
market activities forced the rates of call money down on the Stock
Exchange, and forced gold out of the country. Foreigners also took
this opportunity to purchase heavily in Government securities
because of the low call money rate.
"The agreement between the
Bank of England and the Washington
Federal Reserve authorities
many months ago was that we would force the export of 725 million of
gold by reducing the bank
rates here, thus helping the stabilization of France and Europe and
putting France on a gold
(April 20, 1928)
89 Clarence W. Barron, They Told Barron, Harpers, New York, 1930, p.
On February 6, 1929, Mr. Montagu Norman, Governor of the Bank of
England, came to Washington and had a conference with Andrew Mellon,
Secretary of the Treasury. Immediately after that mysterious visit,
the Federal Reserve Board abruptly changed its policy and pursued a
high discount rate policy, abandoning the cheap money policy which
it had inaugurated in 1927 after Mr. Norman’s other visit. The stock
market crash and the deflation of the American people’s financial
structure was scheduled to take place in March. To get the ball
rolling, Paul Warburg gave the official warning to the traders to
get out of the market. In his annual report to the stockholders of
his International Acceptance Bank, in March, 1929, Mr. Warburg said:
"If the orgies of unrestrained speculation are permitted to spread,
the ultimate collapse is certain
not only to affect the speculators themselves, but to bring about a
general depression involving
the entire country."
During three years of "unrestrained speculation", Mr. Warburg had
not seen fit to make any remarks about the condition of the Stock
Exchange. A friendly organ, The New York Times, not only gave the
report two columns on its editorial page, but editorially commented
on the wisdom and profundity of Mr. Warburg’s observations. Mr.
Warburg’s concern was genuine, for the stock market bubble had gone
much farther than it had been intended to go, and the bankers feared
the consequences if the people realized what was going on. When this
report in The New York Times started a sudden wave of selling on the
Exchange, the bankers grew panicky, and it was decided to ease the
market somewhat. Accordingly, Warburg’s National City Bank rushed
twenty-five million dollars in cash to the call money market, and
postponed the day of the crash.
The revelation of the Federal Reserve Board’s final decision to
trigger the Crash of 1929 appears, amazingly enough, in The New York
Times. On April 20, 1929, the Times headlined,
Meeting in Washington.
Resolutions were adopted by the council and
transmitted to the board, but their purpose was closely guarded. An
atmosphere of deep mystery was thrown about the proceedings both by
the board and the council. Every effort was made to guard the
proceedings of this extraordinary session. Evasive replies were
given to newspaper correspondents."
Only the innermost council of "The London Connection" knew that it
had been decided at this "mystery meeting" to bring down the curtain
on the greatest speculative boom in American history. Those in the
know began to sell off all speculative stocks and put their money in
government bonds. Those who were not privy to this secret
information, and they included some of the wealthiest men in
America, continued to hold their speculative stocks and lost
everything they had.
In FDR, My Exploited Father-in-Law, Col. Curtis B. Dall, who was a
broker on Wall Street at that time, writes of the Crash,
it was the calculated ‘shearing’ of the public by the World
Money-Powers, triggered by the planned sudden shortage of the supply
of call money in the New York money market." 90
90 Col. Curtis B. Dall, F.D.R., My Exploited Father-in-Law, Liberty
Lobby, Wash., D.C. 1970
Federal Reserve System had raised the call rate to twenty percent.
Unable to meet this rate, the speculators’ only alternative was to
jump out of windows.
The New York Federal Reserve Bank rate, which dictated the national
interest rate, went to six percent on November 1, 1929. After the
investors had been bankrupted, it dropped to one and one-half
percent on May 8, 1931. Congressman Wright Patman in "A Primer On
Money", says that the money supply decreased by eight billion
dollars from 1929 to 1933, causing 11,630 banks of the total of
26,401 in the United States to go bankrupt and close their doors.
The Federal Reserve Board had already warned the stockholders of the
Federal Reserve Banks to get out of the Market, on February 6, 1929,
but it had not bothered to say anything to the rest of the people.
Nobody knew what was going on except the Wall Street bankers who
were running the show. Gold movements were completely unreliable.
The Quarterly Journal of Economics noted that:
"The question has been raised, not only in this country, but in
countries, as to whether customs statistics record with accuracy the
precious metals, and, when investigation has been made, confidence
figures has been weakened rather than strengthened. Any movement
France and England, for instance, should be recorded in each
country, but such
comparison shows an average yearly discrepancy of fifty million
francs for France
and eighty-five million francs for England. These enormous
discrepancies are not
The Right Honorable Reginald McKenna stated that:
"Study of the relations between changes in gold stock and movement
in price levels shows what
should be very obvious, but is by no means recognized, that the gold
standard is in no sense
automatic in operation. The gold standard can be, and is, usefully
managed and controlled for the
benefit of a small group of international traders."
In August 1929, the Federal Reserve Board raised the rate to six
percent. The Bank of England in the next month raised its rate from
five and one-half percent to six and one-half percent. Dr. Friday in
the September, 1929, issue of Review of Reviews, could find no
reason for the Board’s action:
"The Federal Reserve statement for August 7, 1929, shows that signs
of inadequacy for autumn
requirements do not exist. Gold resources are considerably more than
the previous year, and gold
continues to move in, to the financial embarrassment of Germany and
England. The reasons for
the Board’s action must be sought elsewhere. The public has been
given only the hint that ‘This
problem has presented difficulties because of certain peculiar
conditions’. Every reason which Governor Young advanced for lowering the bank rate last year exists
now. Increasing the rate
means that not only is there danger of drawing gold from abroad, but
imports of the yellow metal
have been in progress for the last four months. To do anything to
accentuate this is to take the
responsibility for bringing on a world-wide credit deflation."
Thus we find that not only was the Federal Reserve System
responsible for the First World War, which it made possible by
enabling the United States to finance the Allies, but its policies
brought on the world-wide depression of 1929-31. Governor Adolph C.
Miller stated at the Senate Investigation of the Federal Reserve
Board in 1931 that:
"If we had had no Federal Reserve System, I do not think we would
have had as bad a speculative
situation as we had, to begin with."
Carter Glass replied,
"You have made it clear that the Federal
Reserve Board provided a terrific credit expansion by these open
Emmanuel Goldenweiser said,
"In 1928-29 the Federal Board was
engaged in an attempt to restrain the rapid increase in security
loans and in stock market speculation. The continuity of this policy
of restraint, however, was interrupted by reduction in bill rates in
the autumn of 1928 and the summer of 1929."
Both J.P. Morgan and Kuhn, Loeb Co. had "preferred lists" of men to
whom they sent advance announcements of profitable stocks. The men
on these preferred lists were allowed to purchase these stocks at
cost, that is, anywhere from 2 to 15 points a share less than they
were sold to the public. The men on these lists were
powerful city politicians
Committeemen of the Republican and Democratic Parties
The men on these lists were notified of the
coming crash, and sold all but so-called gilt-edged stocks, General
Motors, Dupont, etc. The prices on these stocks also sank to record
lows, but they came up soon afterwards. How the big bankers operated
1929 is revealed by a Newsweek story on May 30, 1936, when a
Roosevelt appointee, Ralph W. Morrison, resigned from the Federal
"The consensus of opinion is that the Federal Reserve Board has lost
an able man. He sold his
Texas utilities stock to Insull for ten million dollars, and in 1929
called a meeting and ordered
his banks to close out all security loans by September 1. As a
result, they rode through the
depression with flying colors."
Predictably enough, all of the big bankers rode through the
depression "with flying colors." The people who suffered were the
workers and farmers who had invested their money in get-rich stocks,
after the President of the United States, Calvin Coolidge, and the
Secretary of the Treasury, Andrew Mellon, had persuaded them to do
There had been some warnings of the approaching crash in England,
which American newspapers never saw. The London Statist on May 25,
"The banking authorities in the United States apparently want a
business panic to curb
The London Economist on May 11, 1929, said:
"The events of the past year have seen the beginnings of a new
technique, which, if maintained
and developed, may succeed in ‘rationing the speculator without
injuring the trader.’"
Governor Charles S. Hamlin quoted this statement at the Senate
hearings in 1931 and said, in corroboration of it:
"That was the feeling of certain members of the Board, to remove
Federal Reserve credit from the
speculator without injuring the trader."
Governor Hamlin did not bother to point out that the "speculators"
he was out to break were the school-teachers and small town
merchants who had put their savings into the stock market, or that
the "traders" he was trying to protect were the big Wall Street
operators, Bernard Baruch and Paul Warburg.
When the Federal Reserve Bank of New York raised its rate to six
percent on August 9, 1929, market conditions began which culminated
in tremendous selling orders from October 24 into November, which
wiped out a hundred and sixty billion dollars worth of security
values. That was a hundred and sixty billions which the American
citizens had one month and did not have the next. Some idea of the
calamity may be had if we remember that our enormous outlay of money
and goods in the Second World War amounted to not much more than two
hundred billions of dollars, and a great deal of that remained as
negotiable securities in the national debt. The stock market crash
is the greatest misfortune which the United States has ever
The Academy of Political Science of Columbia University in its
annual meeting in January, 1930, held a post-mortem on the Crash of
1929. Vice-President Paul Warburg was to have presided, and Director
Mills was to have played an important part in the discussion.
However, these two gentlemen did not show up. Professor Oliver M.W.
Sprague of Harvard University remarked of the crash:
"We have here a beautiful laboratory case of the stock market’s
dropping apparently from its own
It was pointed out that there was no exhaustion of credit, as in
1893, nor any currency famine, as in the Panic of 1907, when
clearing-house certificates were resorted to, nor a collapse of
commodity prices, as in 1920. What then, had caused the crash? The
people had purchased stocks at high prices and expected the prices
to continue to rise. The prices had to come down, and they did. It
was obvious to the economists and bankers gathered over their brandy
and cigars at the Hotel Astor that the people were at fault.
Certainly the people had made a mistake in buying over-priced
securities, but they had been talked into it by every leading
citizen from the President of the United States on down. Every
magazine of national circulation, every big newspaper, and every
prominent banker, economist, and politician, had joined in the big
confidence game of urging people to buy those over-priced
securities. When the Federal Reserve Bank of New York raised its
rate to six percent, in August 1929, people began to get out of the
market, and it turned into a panic which drove the prices of
securities down far below their natural levels. As in previous
panics, this enabled both Wall Street and foreign operators in the
know to pick up "blue-chip" and gilt-edged" securities for a
fraction of their real value.
The Crash of 1929 also saw the formation of giant holding companies
which picked up these cheap bonds and securities, such as the Marine
Midland Corporation, the Lehman Corporation, and the
Corporation. In 1929 J.P. Morgan Company organized the giant food
trust, Standard Brands. There was an unequaled opportunity for trust
operators to enlarge and consolidate their holdings.
Emmanuel Goldenweiser, director of research for the Federal Reserve
System, said, in 1947:
"It is clear in retrospect that the Board should have ignored the
speculative expansion and
allowed it to collapse of its own weight."
This admission of error eighteen years after the event was small
comfort to the people who lost their savings in the Crash.
The Wall Street Crash of 1929 was the beginning of a world-wide
credit deflation which lasted through 1932, and from which the
Western democracies did not recover until they began to rearm for
the Second World War. During this depression, the trust operators
achieved further control by their backing of three international
swindlers, The Van Sweringen brothers, Samuel Insull, and
Kreuger. These men pyramided billions of dollars worth of securities
to fantastic heights. The bankers who promoted
them and floated their stock issue could have stopped them at any
time, by calling loans of less than a million dollars, but they let
these men go on until they had incorporated many industrial and
financial properties into holding companies, which the banks then
took over for nothing. Insull piled up public utility holdings
throughout the Middle West, which the banks got for a fraction of
their worth. Ivar Kreuger was backed by Lee Higginson Company,
supposedly one of the nation’s most reputable banking houses. The
Saturday Evening Post called him "more than a financial titan", and
the English review Fortnightly said, in an article written December
1931, under the title,
"A Chapter in Constructive Finance":
as a financial irrigator that Kreuger has become of such vital
importance to Europe." *
* NOTE: Ivar Kreuger, we may recall, was occasionally the personal
guest of his old friend, President Herbert Hoover, at the White
House. Hoover seems to have maintained a cordial relationship with
many of the most prominent swindlers of the twentieth century,
including his partner, Emile Francqui. The receivership of the
billion dollar Kreuger Fraud was handled by Samuel Untermeyer,
former counsel for Pujo Committee hearings.
"Financial irrigator" we may remember, was the title bestowed upon
Jacob Schiff by Newsweek Magazine, when it described how
bought up American railroads with Rothschild’s money.
The New Republic remarked on January 25th, 1933, when it commented
on the fact that Lee Higginson Company had handled Kreuger and Toll
Securities on the American market:
"Three-quarters of a billion dollars was made away with. Who was
able to dictate to the French
police to keep secret the news of this extremely important suicide
for some hours, during which
somebody sold Kreuger securities in large amounts, thus getting out
of the market before the
The Federal Reserve Board could have checked the enormous credit
expansion of Insull and Kreuger by investigating the security on
which their loans were being made, but the Governors never made any
examination of the activities of these men.
The modern bank with the credit facilities it affords, gives an
opportunity which had not previously existed for such operators as
Kreuger to make an appearance of abundant capital by the aid of
borrowed capital. This enables the speculator to buy securities with
securities. The only limit to the amount he can corner is the amount
to which the banks will back him, and, if a speculator is being
promoted by a reputable banking house, as Kreuger was promoted by
Lee Higginson Company, the only way he could be stopped would be by
an investigation of his actual financial resources, which in Kreuger’s case would have proved to be nil.
The leader of the American people during the Crash of 1929 and the
subsequent depression was Herbert Hoover. After the first break of
market (the five billion dollars in security values which
disappeared on October 24, 1929) President Hoover said:
"The fundamental business of the country, that is, production and
distribution of commodities, is
on a sound and prosperous basis."
His Secretary of the Treasury, Andrew Mellon, stated on December 25,
"The Government’s business is in sound condition."
His own business, the Aluminum Company of America, apparently was
not doing so well, for he had reduced the wages of all employees by
The New York Times reported on April 7, 1931,
Governor of the Bank of England, conferred with the Federal Reserve
Board here today. Mellon, Meyer, and George L. Harrison, Governor of
the Federal Reserve Bank of New York, were present."
The London Connection had sent Norman over this time
to ensure that
the Great Depression was proceeding according to schedule.
Congressman Louis McFadden had complained, as reported in The New
York Times, July 4, 1930,
"Commodity prices are being reduced to
1913 levels. Wages are being reduced by the labor surplus of four
million unemployed. The Morgan control of the Federal Reserve System
is exercised through control of the Federal Reserve Bank of New
York, the mediocre representation and acquiescence of the Federal
Reserve Board in Washington."
As the depression deepened, the
trust’s lock on the American economy strengthened, but no finger was
pointed at the parties who were controlling the system.