CHAPTER NINE - The Agricultural Depression

When Paul Warburg resigned from the Federal Reserve Board of Governors in 1918, his place was taken by Albert Strauss, partner in the international banking house of J & W Seligman. This banking house had large interests in Cuba and South America, and played a prominent part in financing the many revolutions in those countries. Its most notorious publicity came during the Senate Finance Committee’s investigation in 1933, when it was brought out that J & W Seligman had given a $415,000 bribe to Juan Leguia, son of the President of Peru, in order to get that nation to accept a loan.

A partial list of Albert Strauss’ directorships, according to "Who’s Who", shows that he was:

  • Chairman of the Board of the Cuba Cane Sugar Corporation

  • director:

    • Brooklyn Manhattan Transit Co.

    • Coney Island Brooklyn RR

    • New York Rapid Transit

    • Pierce-Arrow

    • Cuba Tobacco Corporation

    • Eastern Cuba Sugar Corporation

Governor Delano resigned in August, 1918, to be commissioned a Colonel in the Army. The war ended on November 11, 1918.

William McAdoo was replaced in 1918 by Carter Glass as Secretary of the Treasury. Both Strauss and Glass were present during the secret meeting of the Federal Reserve Board on May 18, 1920, when the Agricultural Depression of 1920-21 was made possible.

One of the main lies about the Federal Reserve Act when it was being ballyhooed in 1913 was its promise to take care of the farmer. Actually, it has never taken care of anybody but a few big bankers. Prof. O.M.W. Sprague, Harvard economist, writing in the Quarterly Journal of Economics of February, 1914, said:

"The primary purpose of the Federal Reserve Act is to make sure that there will always be an available supply of money and credit in this country to meet unusual banking requirements."

There is nothing in that wording to help the farmer.

The First World War had introduced into this country a general prosperity, as revealed by the stocks of heavy industry on the New York Exchange in 1917-1918, by the increase in the amount of money circulated, and by the enormous bank clearings during the whole of 1918. It was the assigned duty of the Federal Reserve System to get back the vast amount of money and credit which had escaped their control during this time of prosperity. This was done by the Agricultural Depression of 1920-21.

The operations of the Federal Reserve Open Market Committee in 1917-18, while Paul Warburg was still Chairman, show a tremendous increase in purchases of bankers’ and trade acceptances. There was also a great increase in the purchase of United States Government securities, under the leadership of the able Eugene Meyer, Jr. A large part of the stock market speculation in 1919, at the end of the War when the market was very unsettled, was financed with funds borrowed from Federal Reserve Banks with Government securities as collateral. Thus the Federal Reserve System set up the Depression, first by causing inflation, and then raising the discount rate and making money dear.

In 1914, Federal Reserve Bank rates had dropped from six percent to four percent, had gone to a further low of three percent in 1916, and had stayed at that level until 1920. The reason for the low interest rate was the necessity for floating the billion dollar Liberty Loans. At the beginning of each Liberty Loan Drive, the Federal Reserve Board put a hundred million dollars into the New York money market through its open market operations, in order to provide a cash impetus for the drive. The most important role of the Liberty Bonds was to soak up the increase in circulation of the medium of exchange (integer of account) brought about by the large amount of currency and credit put out during the war. Laborers were paid high wages, and farmers received the highest prices for their produce they had ever known. These two groups accumulated millions of dollars in cash which they did not put into Liberty Bonds. That money was effectively out of the hands of the Wall Street group which controlled the money and credit of the United States. They wanted it back, and that is why we had the Agricultural Depression of 1920-21.

Much of the money was deposited in small country banks in the Middle West and West which had refused to have any part of the Federal Reserve System, the farmers and ranchers of those regions seeing no good reason why they should give a group of international financiers control of their money. The main job of the Federal Reserve System was to break these small country banks and get back the money which had been paid out to the farmers during the war, in effect, ruin them, and this it proceeded to do.

First of all, a Federal Farm Loan Board was set up which encouraged the farmers to invest their accrued money in land on long term loans, which the farmers were eager to do. Then inflation was allowed to take its course in this country and in Europe in 1919 and 1920. The purpose of the inflation in Europe was to cancel out a large portion of the war debts owed by the Allies to the American people, and its purpose in this country was to draw in the excess moneys which had been distributed to the working people in the form of higher wages and bonuses for production. As prices went higher and higher, the money which the workers had accumulated became worth less and less, inflicting upon them an unfair drain, while the propertied classes were enriched by the inflation because of the enormous increase in the value of land and manufactured goods. The workers were thus effectively impoverished, but the farmers, who were as a class more thrifty, and who were more self-sufficient, had to be handled more harshly.

G.W. Norris, in "Collier’s Magazine" of March 20, 1920, said:

"Rumor has it that two members of the Federal Reserve Board had a plain talk with some New York bankers and financiers in December, 1919. Immediately afterwards, there was a notable decline in transactions on the stock market and a cessation of company promotions. It is understood that action in the same general direction has already been taken in other sections of the country, as evidence of the abuse of the Federal Reserve System to promote speculation in land and commodities appeared."

Senator Robert L. Owen, Chairman of the Senate Banking and Currency Committee, testified at the Senate Silver Hearings in 1939 that:

"In the early part of 1920, the farmers were exceedingly prosperous. They were paying off the mortgages and buying a lot of new land, at the instance of the Government--had borrowed money to do it--and then they were bankrupted by a sudden contraction of credit and currency which took place in 1920. What took place in 1920 was just the reverse of what should have been taking place. Instead of liquidating the excess of credits created by the war through a period of years, the Federal Reserve Board met in a meeting which was not disclosed to the public. They met on the 18th of May, 1920, and it was a secret meeting. They spent all day conferring; the minutes made sixty printed pages, and they appear in Senate Document 310 of February 19, 1923. The Class A Directors, the Federal Reserve Advisory Council, were present, but the Class B Directors, who represented business, commerce, and agriculture, were not present. The Class C Directors, representing the people of the United States, were not present and were not invited to be present.

Only the big bankers were there, and their work of that day resulted in a contraction of credit which had the effect the next year of reducing the national income fifteen billion dollars, throwing millions of people out of employment, and reducing the value of lands and ranches by twenty billion dollars."

Carter Glass, member of the Board in 1920 as Secretary of the Treasury, wrote in his autobiography, Adventure in Constructive Finance published in 1928:

"Reporters were not present, of course, as they should not have been and as they never are at any bank board meeting in the world." 85

85 Carter Glass, Adventure in Constructive Finance, Doubleday, N.Y. 1928

It was Carter Glass (image left) who had complained that, if a suggested amendment by Senator LaFollette were passed, on the Federal Reserve Act of 1913, to the effect that no member of the Federal Reserve Board should be an official or director or stockholder of any bank, trust company, or insurance company, we would end up by having mechanics and farm laborers on the Board. Certainly mechanics and farm laborers could have caused no more damage to the country than did Glass, Strauss, and Warburg at the secret meeting of the Federal Reserve Board.

Senator Brookhart of Iowa testified that at that secret meeting Paul Warburg, also President of the Federal Advisory Council, had a resolution passed to send a committee of five to the Interstate Commerce Commission and ask for an increase in railroad rates. As head of Kuhn, Loeb Co. which owned most of the railway mileage in the United States, he was already missing the huge profits which the United States Government had paid during the war, and he wanted to inflict new price raises on the American people.

Senator Brookhart also testified that:

"I went into Myron T. Herrick’s office in Paris, and told him that I came there to study cooperative banking. He said to me, ‘as you go over the countries of Europe, you will find that the United States is the only civilized country in the world that by law is prohibiting its people from organizing a cooperative system.’ I went up to New York and talked to about two hundred people. After talking cooperation and standing around waiting for my train -- I did not specifically mention cooperative banking, it was cooperation in general -- a man called me off to one side and said,

‘I think Paul Warburg is the greatest financier we have ever produced. He believes a lot more of your cooperative ideas than you think he does, and if you want to consult anybody about the business of cooperation, he is the man to consult, because he believes in you, and you can rely on him.’

A few minutes later I was steered up against Mr. Warburg himself, and he said to me,

‘You are absolutely right about this cooperative idea. I want to let you know that the big bankers are with you. I want to let you know that now, so that you will not start anything on cooperative banking and turn them against you.’

I said,

‘Mr. Warburg, I have already prepared and tomorrow I am going to offer an amendment to the Lant Bill authorizing the establishment of cooperative national banks.’

That was the intermediate credit act which was then pending to authorize the establishment of cooperative national banks. That was the extent of my conversation with Mr. Warburg, and we have not had any since."

Mr. Wingo testified that in April, May, June and July of 1920, the manufacturers and merchants were allowed a very large increase in credits. This was to tide them through the contraction of credit which was intended to ruin the American farmers, who, during this period, were denied all credit.

At the Senate Hearings in 1923, Eugene Meyer, Jr. put his finger on a primary reason for the Federal Reserve Board’s action in raising the interest rate to 7% on agricultural and livestock paper:

"I believe," he said, "that a great deal of trouble would have been avoided if a larger number of the eligible non-member banks had been members of the Federal Reserve System."

Meyer was correct in pointing this out. The purpose of the Board’s action was to break those state and joint land stock banks which had steadfastly refused to surrender their freedom to the banker’s dictatorship set up by the System. Kemmerer in the ABC of the Federal Reserve System had written in 1919 that:

"The tendency will be toward unification and simplicity which will be brought about by the state institutions, in increasing numbers, becoming stockholders and depositors in the reserve banks."

However, the state banks had not responded.

The Senate Hearings of 1923 investigating the causes of the Agricultural Depression of 1920-21 had been demanded by the American people. The complete record of the secret meeting of the Federal Reserve Board on May 18, 1920 had been printed in the "Manufacturers’ Record" of Baltimore, Maryland, a magazine devoted to the interests of small Southern manufacturers.

Benjamin Strong, Governor of the Federal Reserve Bank of New York, and close friend of Montagu Norman, the Governor of the Bank of England, claimed at these Hearings:

"The Federal Reserve System has done more for the farmer than he has yet begun to realize."

Emmanuel Goldenweiser, Director of Research for the Board of Governors, claimed that the discount rate was raised purely as an anti-inflationary measure, but he failed to explain why it was a raise aimed solely at farmers and workers, while at the same time the System protected the manufacturers and merchants by assuring them increased credits.

The final statement on the Federal Reserve Board’s causing the Agricultural Depression of 1920-21 was made by William Jennings Bryan. In "Hearst’s Magazine" of November, 1923, he wrote:

"The Federal Reserve Bank that should have been the farmer’s greatest protection has become his greatest foe. The deflation of the farmer was a crime deliberately committed."

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CHAPTER TEN - The Money Creators

The editorial page of The New York Times, January 18, 1920, carried an interesting comment on the Federal Reserve System. The unidentified writer, perhaps Paul Warburg, stated,

"The Federal Reserve is a fount of credit, not of capital."

This is one of the most revealing statements ever made about the Federal Reserve System. It says that the Federal Reserve System will never add anything to our capital structure, or to the formation of capital, because it is organized to produce credit, to create money for credit money and speculations, instead of providing capital funds for the improvement of commerce and industry. Simply stated, capitalization would mean the providing of notes backed by a precious metal or other commodity. Reserve notes are unbacked paper loaned at interest.

On July 25, 1921, Senator Owen stated on the editorial page of The New York Times,

"The Federal Reserve Board is the most gigantic financial power in all the world. Instead of using this great power as the Federal Reserve Act intended that it should, the board....delegated this power to the banks, threw the weight of its influence toward the support of the policy of German inflation."

The senator whose name was on the Act saw that it was not performing as promised.

After the Agricultural Depression of 1920-21, the Federal Reserve Board of Governors settled down to eight years of providing rapid credit expansion of the New York bankers, a policy which culminated in the Great Depression of 1929-31 and helped paralyze the economic structure of the world. Paul Warburg had resigned in May, 1918, after the monetary system of the United States had been changed from a bond-secured currency to a currency based upon commercial paper and the shares of the Federal Reserve Banks. Warburg returned to his five hundred thousand dollar a year job with Kuhn, Loeb Company, but he continued to determine the policy of the Federal Reserve System, as President of the Federal Advisory Council and as Chairman of the Executive Committee of the American Acceptance Council.

From 1921 to 1929, Paul Warburg organized three of the greatest trusts in the United States, the International Acceptance Bank, largest acceptance bank in the world, Agfa Ansco Film Corporation, with headquarters in Belgium, and I.G. Farben Corporation whose American branch Warburg set up as I.G. Chemical Corporation. The Westinghouse Corporation is also one of his creations.

In the early 1920s, the Federal Reserve System played the decisive role in the re-entry of Russia into the international finance structure. Winthrop and Stimson continued to be the correspondents between Russian and American bankers, and Henry L. Stimson handled the negotiations concluding in our recognition of the Soviet after Roosevelt’s election in 1932. This was an anti-climax, because we had long before resumed exchange relations with Russian financiers.

The Federal Reserve System began purchasing Russian gold in 1920, and Russian currency was accepted on the Exchanges. According to Colonel Ely Garrison, in his autobiography, and according to the United States Naval Secret Service Report on Paul Warburg, the Russian Revolution had been financed by the Rothschilds and Warburgs, with a member of the Warburg family carrying the actual funds used by Lenin and Trotsky in Stockholm in 1918.

An article in the English monthly "Fortnightly", July, 1922, says:

"During the past year, practically every single capitalistic institution has been restored. This is true of the State Bank, private banking, the Stock Exchange, the right to possess money to unlimited amount, the right of inheritance, the bill of exchange system, and other institutions and practices involved in the conduct of private industry and trade. A great part of the former nationalized industries are now found in semi-independent trusts."

The organization of powerful trusts in Russia under the guise of Communism made possible the receipt of large amounts of financial and technical help from the United States. The Russian aristocracy had been wiped out because it was too inefficient to manage a modern industrial state. The international financiers provided funds for Lenin and Trotsky to overthrow the Czarist regime and keep Russia in the First World War. Peter Drucker (image left), spokesman for the oligarchy in America, declared in an article in the Saturday Evening Post in 1948, that:

"RUSSIA IS THE IDEAL OF THE MANAGED ECONOMY TOWARDS WHICH WE ARE MOVING."

In Russia, the issuance of sufficient currency to handle the needs of their economy occurred only after a government had been put in power which had absolute control of the people. During the 1920s, Russia issued large quantities of so-called "inflation money", a managed currency. The same "Fortnightly" article (of July, 1922) observed that:

"As economic pressure produced the ‘astronomical dimensions system’ of currency; it can never destroy it. Taken alone, the system is self-contained, logically perfected, even intelligent. And it can perish only through the collapse or destruction of the political edifice which it decorates."

"Fortnightly" also remarked, in 1929, that:

"Since 1921, the daily life of the Soviet citizen is no different from that of the American citizen, and the Soviet system of government is more economical."

Admiral Kolchak (image right), leader of the White Russian armies, was supported by the international bankers, who sent British and American troops to Siberia in order to have a pretext for printing Kolchak rubles. At one time in 1920, the bankers were manipulating on the London Exchange the old Czarist rubles, Kerensky rubles and Kolchak rubles, the values of all three fluctuating according to the movements of the Allied troops aiding Kolchak. Kolchak also was in possession of considerable amounts of gold which had been seized by his armies. After his defeat, a trainload of this gold disappeared in Siberia. At the Senate Hearings in 1921 on the Federal Reserve System, it was brought out that the System had been receiving this gold. Congressman Dunbar questioned Governor W.P.G. Harding of the Federal Reserve Board as follows:

DUNBAR: "In other words, Russia is sending a great deal of gold to the European countries, which in turn send it to us?"

HARDING: "This is done to pay for the stuff bought in this country and to create dollar exchange."

DUNBAR: "At the same time, that gold came from Russia through Europe?"

HARDING: "Some of it is thought to be Kolchak gold, coming through Siberia, but it is none of the Federal Reserve Banks’ business. The Secretary of the Treasury has issued instructions to the assay office not to take any gold which does not bear the mint mark of a friendly nation."

Just what Governor Harding meant by "a friendly nation" is not clear. In 1921, we were not at war with any country, but Congress was already beginning to question the international gold dealings of the Federal Reserve System. Governor Harding could very well shrug his shoulders and say that it was none of the Federal Reserve Banks’ business where the gold came from. Gold knows no nationality or race. The United States by law had ceased to be interested in where its gold came from in 1906, when Secretary of the Treasury Shaw made arrangements with several of the larger New York banks (ones in which he had interests) to purchase gold with advances of cash from the United States Treasury, which would then purchase the gold from these banks. The Treasury could claim that it did not know where its gold came from since their office only registers the bank from which it made the purchase. Since 1906, the Treasury has not known from which of the international gold merchants it was buying its gold.

The international gold dealings of the Federal Reserve System, and its active support in helping the League of Nations to force all the nations of Europe and South America back on the gold standard for the benefit of international gold merchants like Eugene Meyer, Jr. and Albert Strauss, is best demonstrated by a classic incident, the sterling credit of 1925.

J.E. Darling wrote, in the English periodical, "Spectator", on January 10, 1925 that:

"Obviously, it is of the first importance to the United States to induce England to resume the gold standard as early as possible. An American controlled Gold Standard, which must inevitably result in the United States becoming the world’s supreme financial power, makes England a tributary and satellite, and New York the world’s financial centre."

Mr. Darling fails to point out that the American people have as little to do with this as the British people, and that resumption of the gold standard by Britain would benefit only that small group of international gold merchants who own the world’s gold. No wonder that "Banker’s Magazine" gleefully remarked in July, 1925 that:

"The outstanding event of the past half year in the banking world was the restoration of the gold standard."

The First World War changed the status of the United States from that of a debtor nation to the position of the world’s greatest creditor nation, a title formerly occupied by England. Since debt is money, according to the Governor Marriner Eccles of the Federal Reserve Board, this also made us the richest nation of the world. The war also caused the removal of the headquarters of the world’s acceptance market from London to New York, and Paul Warburg became the most powerful trade acceptance banker in the world. The mainstay of the international financiers, however, remained the same. The gold standard was still the basis of foreign exchange, and the small group of internationals who owned the gold controlled the monetary system of the Western nations.

Professor Gustav Cassel wrote in 1928:

"The American dollar, not the gold standard, is the world’s monetary standard. The American Federal Reserve Board has the power to determine the purchasing power of the dollar by making changes in the rate of discount, and thus controls the monetary standard of the world."

If this were true, the members of the Federal Reserve Board would be the most powerful financiers in the world. Occasionally their membership includes such influential men as Paul Warburg or Eugene Meyer, Jr., but usually they are a rubber-stamp committee for the Federal Advisory Council and the London bankers.

In May, 1925, the British Parliament passed the Gold Standard Act, putting Great Britain back on the gold standard. The Federal Reserve System’s major role in this event came out on March 16, 1926, when George Seay, Governor of the Federal Reserve Bank of Richmond, testified before the House Banking and Currency Committee that:

"A verbal understanding confirmed by correspondence, extended Great Britain a two hundred million dollar gold loan or credit. All negotiations were conducted between Benjamin Strong, Governor of the Federal Reserve Bank of New York and Mr. Montagu Norman, Governor of the Bank of England. The purpose of this loan was to help England get back on the gold standard, and the loan was to be met by investment of Federal Reserve funds in bills of exchange and foreign securities."

The Federal Reserve Bulletin of June, 1925, stated that:

"Under its arrangement with the Bank of England the Federal Reserve Bank of New York undertakes to sell gold on credit to the Bank of England from time to time during the next two years, but not to exceed $200,000,000 outstanding at any one time."

A two hundred million dollar gold credit had been arranged by a verbal understanding between the international bankers, Benjamin Strong and Montagu Norman. It was apparent by this time that the Federal Reserve System had other interests at heart than the financial needs of American business and industry. Great Britain’s return to the gold standard was further facilitated by an additional gold loan of a hundred million dollars from J.P. Morgan Company. Winston Churchill, British Chancellor of the Exchequer, complained later that the cost to the British government of this loan was $1,125,000 the first year, this sum representing the profit to J.P. Morgan Company in that time.

The matter of changing the discount rate, for instance, has never been satisfactorily explained. Inquiry at the Federal Reserve Board in Washington elicited the reply that "the condition of the money market is the prime consideration behind changes in the rate." Since the money market is in New York, it takes no imagination to deduce that New York bankers may be interested in changes of the rate and often attempt to influence it.

Norman Lombard, in the periodical "World’s Work" writes that:

"In their consideration and disposal of proposed changes of policy, the Federal Reserve Board should follow the procedure and ethics observed by our court of law. Suggestions that there should be a change of rate or that the Reserve Banks should buy or sell securities may come from anyone and with no formality or written argument. The suggestion may be made to a Governor or Director of the Federal Reserve System over the telephone or at his club over the luncheon table, or it may be made in the course of a casual call on a member of the Federal Reserve Board. The interests of the one proposing the change need not be revealed, and his name and any suggestions he makes are usually kept secret. If it concerns the matter of open market operations, the public has no inkling of the decision until the regular weekly statement appears, showing changes in the holdings of the Federal Reserve Banks. Meanwhile, there is no public discussion, there is no statement of the reasons for the decision, or of the names of those opposing or favoring it."

The chances of the average citizen meeting a Governor of the Federal Reserve System at his club are also slight.

The House Hearings on Stabilization of the Purchasing Power of the Dollar in 1928 proved conclusively that the Federal Reserve Board worked in close cooperation with the heads of European central banks, and that the Depression of 1929-31 was planned at a secret luncheon of the Federal Reserve Board and those heads of European central banks in 1927. The Board has never been made responsible to the public for its decisions or actions. The constitutional checks and balances seem not to operate in finance.

The true allegiance of the members of the Federal Reserve Board has always been to the central bankers. The three features of the central bank, its ownership by private stockholders who receive rent and profit for their use of the nation’s credit, absolute control of the nation’s financial resources, and mobilization of the nation’s credit to finance foreigners, all were demonstrated by the Federal Reserve System during the first fifteen years of its operations.

Further demonstration of the international purposes of the Federal Reserve Act of 1913 is provided by the "Edge Amendment" of December 24, 1919, which authorizes the organization of corporations expressly for,

"engaging in international foreign banking and other international or foreign financial operations, including the dealing in gold or bullion, and the holding of stock in foreign corporations."

In commenting on this amendment, E.W. Kemmerer, economist from Princeton University, remarked that:

"The federal reserve system is proving to be a great influence in the internationalizing of American trade and American finance."

The fact that this internationalizing of American trade and American finance has been a direct cause for involving us in two world wars does not disturb Mr. Kemmerer. There is plenty of evidence to show how Paul Warburg used the Federal Reserve System as the instrument for getting trade acceptance adopted on a wide scale by American businessmen.

The use of trade acceptances, (which are the currency of international trade) by bankers and corporations in the United States prior to 1915 was practically unknown. The rise of the Federal Reserve System exactly parallels the increase in the use of acceptances in this country, nor is this a coincidence. The men who wanted the Federal Reserve System were the men who set up acceptance banks and profited by the use of acceptances.

As early as 1910, the National Monetary Commission began to issue pamphlets and other propaganda urging bankers and businessmen in this country to adopt trade acceptances in their transactions. For three years the Commission carried on this campaign, and the Aldrich Plan included a broad provision authorizing the introduction and use of bankers’ acceptances into the American system of commercial paper.

The Federal Reserve Act of 1913 as passed by Congress did not specifically authorize the use of acceptances, but the Federal Reserve Board in 1915 and 1916 defined "trade acceptance", further defined by Regulation A Series of 1920, and further defined by Series 1924. One of the first official acts of the Board of Governors in 1914 was to grant acceptances a preferentially low rate of discount at Federal Reserve Banks. Since acceptances were not being used in this country at that time, no explanation of business exigency could be advanced for this action. It was apparent that someone in power on the Board of Governors wanted the adoptance of acceptances.

The National Bank Act of 1864, which was the determining financial authority of the United States until November, 1914, did not permit banks to lend their credit. Consequently, the power of banks to create money was greatly limited. We did not have a bank of issue, that is, a central bank, which could create money. To get a central bank, the bankers caused money panic after money panic on the business people of the United States, by shipping gold out of the country, creating a money shortage, and then importing it back. After we got our central bank, the Federal Reserve System, there was no longer any need for a money panic, because the banks could create money. However, the panic as an instrument of power over the business and financial community was used again on two important occasions, in 1920, causing the Agricultural Depression, because state banks and trust companies had refused to join the Federal Reserve System, and in 1929, causing the Great Depression, which centralized nearly all power in this country in the hands of a few great trusts.

A trade acceptance is a draft drawn by the seller of goods on the purchaser, and accepted by the purchaser, with a time of expiration stamped upon it. The use of trade acceptances in the wholesale market supplies short-term, assured credit to carry goods in process of production, storage, transit, and marketing. It facilitates domestic and foreign commerce. Seemingly, then, the bankers who wished to replace the open-book account system with the trade acceptance system were progressive men who wished to help American import-export trade. Much propaganda was issued to that effect, but this was not really the story.

The open-book system, heretofore used entirely by American business people, allowed a discount for cash. The acceptance system discourages the use of cash, by allowing a discount for credit. The open-book system also allowed much easier terms of payment, with liberal extensions on the debt. The acceptance does not allow this, since it is a short-term credit with the time-date stamped upon it. It is out of the seller’s hands, and in the hands of a bank, usually an acceptance bank, which does not allow any extension of time. Thus, the adoption of acceptances by American businessmen during the 1920’s greatly facilitated the domination and swallowing up of small business into huge trusts, which accelerated the crash of 1929.

Trade acceptances had been used to some extent in the United States before the Civil War. During that war, exigencies of trade had destroyed the acceptance as a credit medium, and it had not come back into favor in this country, our people preferring the simplicity and generosity of the open-book system. Open-book accounts are a single-name commercial paper, bearing only the name of the debtor. Acceptances are two-name paper, bearing the name of the debtor and the creditor. Thus they became commodities to be bought and sold by banks. To the creditor, under the open-book system, the debt is a liability. To the acceptance bank holding an acceptance, the debt is an asset. The men who set up acceptance banks in this country, under the leadership of Paul Warburg, secured control of the billions of dollars of credit existing as open accounts on the books of American businessmen.

Governor Marriner Eccles of the Federal Reserve Board stated before the House Banking and Currency Committee that:

"Debt is the basis for the creation of money."

Large holders of trade acceptances got the use of billions of dollars worth of credit-money, besides the rate of interest charged upon the acceptance itself. It is obvious why Paul Warburg should have devoted so much time, money, and energy to getting acceptances adopted by this country’s banking machinery.

On September 4, 1914, the National City Bank accepted the first time-draft drawn on a national bank under provisions of the Federal Reserve Act of 1913. This was the beginning of the end of the open-book account system as an important factor in wholesale trade. Beverly Harris, vice-president of the National City Bank of New York, issued a pamphlet in 1915 stating that:

"Merchants using the open account system are usurping the functions of bankers."

In The New York Times on June 14, 1920, Paul Warburg, Chairman of the American Acceptance Council, said:

"Unless the Federal Reserve Board puts itself heart and soul behind the untrammeled development of acceptances as a prime investment for banks of the Federal Reserve Banks the future safe and sound development of the system will be jeopardized."

This was a statement of the purpose of Warburg and his bunch who wanted "monetary reform" in this country. They were out to get control of all credit in the United States, and they got it, by means of the Federal Reserve System, the acceptance system, and the lack of concern by the citizens.

The First World War was a boon to the introduction of trade acceptances, and the volume jumped to four hundred million dollars in 1917, growing through the 1920s to more than a billion dollars a year, which culminated in a high peak just before the Great Depression of 1929-31. The Federal Reserve Bank of New York’s charts show that its use of acceptances reached a peak in November, 1929, the month of the stock market crash, and declined sharply thereafter. The acceptance people by then had gotten what they wanted, which was control of American business and industry. "Fortune Magazine" in February of 1950 pointed out that:

"Volume of acceptances declined from $1,732 million in 1929 to $209 million in 1940, because of the concentration of acceptance banking in a few hands, and the Treasury’s low-interest policy, which made direct loans cheaper than acceptance. There has been a slight upturn since the war, but it is often cheaper for large companies to finance imports from their own coffers."

In other words, the "large companies" more accurately, the great trusts, now have control of credit and have not needed acceptances. Besides the barrage of propaganda issued by the Federal Reserve System itself, the National Association of Credit Men, the American Bankers’ Association, and other fraternal organizations of the New York bankers devoted much time and money to distributing acceptance propaganda. Even their flood of lectures and pamphlets proved insufficient, and in 1919 Paul Warburg organized the American Acceptance Council, which was devoted entirely to acceptance propaganda.

The first convention held by this association at Detroit, Michigan, on June 9, 1919, coincided with the annual convention of the National Association of Credit Men, held there on that date, so that "interested observers might with facility participate in the lectures and meetings of both groups," according to a pamphlet issued by the American Acceptance Council.

Paul Warburg was elected President of this organization, and later became chairman of the Executive Committee of the American Acceptance Council, a position which he held until his death in 1932. The Council published lists of corporations using trade acceptances, all of them businesses in which Kuhn, Loeb Co. or its affiliates held control. Lectures given before the Council or by members of the Council were attractively bound and distributed free by the National City Bank of New York to the country’s businessmen.

Louis T. McFadden, Chairman of the House Banking and Currency Committee, charged in 1922 that the American Acceptance Council was exercising undue influence on the Federal Reserve Board and called for a Congressional investigation, but Congress was not interested.

At the second annual convention of the American Acceptance Council, held in New York on December 2, 1920, President Paul Warburg stated:

"It is a great satisfaction to report that during the year under review it was possible for the American Acceptance Council to further develop and strengthen its relations with the Federal Reserve Board."

During the 1920s Paul Warburg, who had resigned from the Federal Reserve Board after holding a position as Governor for a year in wartime, continued to exercise direct personal influence on the Federal Reserve Board by meeting with the Board as President of the Federal Advisory Council and as President of the American Acceptance Council. He was, from its organization in 1920 until his death in 1932, Chairman of the Board of the International Acceptance Bank of New York, the largest acceptance bank in the world. His brother, Felix M. Warburg, also a partner in Kuhn, Loeb Co., was director of the International Acceptance Bank and Paul’s son, James Paul Warburg, was Vice-President. Paul Warburg was also a director on other important acceptance banks in this country, such as Westinghouse Acceptance Bank, which were organized in the United States immediately after the World War, when the headquarters of the international acceptance market was moved from London to New York, and Paul Warburg became the most powerful acceptance banker in the world.

Paul Warburg became an even more legendary figure by his memorialization as "Daddy Warbucks" in the comic strip, "Little Orphan Annie" (left image). The strip celebrated a homeless waif and her dog who are adopted by "the richest man in the world", Daddy Warbucks, a takeoff on "Warburg", who has almost magical powers and can accomplish anything by the power of his limitless wealth. Those in the know snickered when "Annie", the musical comedy version of this story, had a highly successful run of several years on Broadway, because the vast majority of the audience had no idea that this was merely another Warburg operation.

It was the transference of the acceptance market from England to this country which gave rise to Thomas Lamont’s ecstatic speech before the Academy of Political Science in 1917 that:

"The dollar, not the pound, is now the basis for international exchange."

Americans were proud to hear that, but they did not realize at what a price. Visible proof of the undue influence of the American Acceptance Council on the Federal Reserve Board, about which Congressman McFadden complained, is the chart showing the rate-pattern of the Federal Reserve Bank of New York during the 1920s. The Bank’s official discount rate follows exactly for nine years the ninety-day bankers’ acceptance rate, and the Federal Reserve Bank of New York sets the discount rate for the rest of the Reserve Banks.

Throughout the 1920s the Board of Governors retained two of its first members, C.S. Hamlin and Adolph C. Miller. These men found themselves careers as arbiters of the nation’s monetary policy. Hamlin was on the Board from 1914 until 1936, when he was appointed Special Counsel to the Board, while Miller served from 1914 until 1931. These two men were allowed to stay on the Board so many years because they were both eminently respectable men who gave the Board a certain prestige in the eyes of the public. During these years one important banker after another came on the Board, served for awhile, and went on to better things. Neither Miller nor Hamlin ever objected to anything that the New York bankers wanted. They changed the discount rate and they performed open market operation with Government securities whenever Wall Street wanted them to. Behind them was the figure of Paul Warburg, who exercised a continuous and dominant influence as President of the Federal Advisory Council, on which he had such men of common interests with himself as Winthrop Aldrich and J.P. Morgan. Warburg was never too occupied with his duties of organizing the big international trusts to supervise the nation’s financial structures. His influence from 1902, when he arrived in this country as immigrant from Germany, until 1932, the year of his death, was dependent on his European alliance with the banking cartel. Warburg’s son, James Paul Warburg, continued to exercise such influence, being appointed Franklin D. Roosevelt’s Director of the Budget when that great man assumed office in 1933, and setting up the Office of War Information, our official propaganda agency during the Second World War.

In The Fight for Financial Supremacy, Paul Einzig, editorial writer for the London Economist, wrote that:

"Almost immediately after World War I a close cooperation was established between the Bank of England and the Federal Reserve authorities, and more especially with the Federal Reserve Bank of New York.* This cooperation was largely due to the cordial relations existing between Mr. Montagu Norman of the Bank of England and Mr. Benjamin Strong, Governor of the Federal Reserve Bank of New York until 1928. On several occasions the discount rate policy of the Federal Reserve Bank of New York was guided by a desire to help the Bank of England. There has been close cooperation in the fixing of discount rates between London and New York." 86

* William Boyce Thompson (Wall Street operator) commented to Clarence Barron, Nov. 27, 1920, "Why should the Federal Reserve Bank have private wires all over the country and talk daily by cable with the Bank of England?" p. 327 "They Told Barron".

86 Paul Einzig, The Fight For Financial Supremacy, Macmillan, 1931

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