The Naked Capitalist Page 3

  Similar Financial Dynasties Developed in the United States

  “This period, 1884-1933, was the period of financial capitalism in which investment bankers moving into commercial banking and insurance on one side and into railroading and heavy industry on the other were able to mobilize enormous wealth and wield enormous economic, political and social power. Popularly known as ‘Society,’ or the ‘400’ they lived a life of dazzling splendor. Sailing the ocean in great private yachts or traveling on land by private trains, they moved in a ceremonious round between their spectacular estates and town houses in Palm Beach, Long Island, the Berkshires, Newport, and Bar Harbor, assembling from their fortress-like New York residences to attend the Metropolitan Opera under the critical eye of Mrs. Astor; or gathering for business meetings of the highest strategic level in the awesome presence of J.P. Morgan himself.

  J.P. Morgan with celebrated midget, Lya Graf, during Senate hearings, 1933.

  “The structure of financial controls created by the tycoons of ‘Big Banking’ and ‘Big Business’ in the period 1880-1933 was of extraordinary complexity, one business fief being built on another, both being allied with semi-independent associates, the whole rearing upward into two pinnacles of economic and financial power, of which one, centered in New York, was headed by J.P. Morgan and Company, and the other, in Ohio, was headed by the Rockefeller family. When these two cooperated, as they generally did, they could influence the economic life of the country to a large degree and could almost control its political life, at least on the Federal level.”9

  Monopolistic Financial Structure of the American Dynasties

  “In the United States the number of billion-dollar corporations rose from one in 1909 (United States Steel, controlled by Morgan) to fifteen in 1930. The share of all corporation assets held by the 200 largest corporations rose from 32 percent in 1909 to 49 percent in 1930 and reached 57 percent in 1939. By 1930 these 200 largest corporations held 49.2 percent of the assets of all 40,000 corporations in the country ($81 billion out of $165 billion).... In fact, in 1930, one corporation (American Telephone and Telegraph, controlled by Morgan) had greater assets than the total wealth in twenty-one states of the Union.

  “The influence of these business leaders was so great that the Morgan and Rockefeller groups acting together, or even Morgan acting alone, could have wrecked the economic system of the country....”10

  Chapter Footnotes

  << 1. Quigley, Tragedy And Hope, p. 51.

  << 2. Quigley, Tragedy And Hope, pp. 51-52.

  << 3. Quigley, Tragedy And Hope, p. 52.

  << 4. Quigley, Tragedy And Hope, pp. 52-53.

  << 5. Quigley, Tragedy And Hope, p. 53.

  << 6. Quigley, Tragedy And Hope, pp. 48-49, emphasis added.

  << 7. Quigley, Tragedy And Hope, p. 325, emphasis added.

  << 8. Quigley, Tragedy And Hope, pp. 499-500, emphasis added.

  << 9. Quigley, Tragedy And Hope, pp. 71-72.

  << 10. Quigley, Tragedy And Hope, p. 72.

  Chapter Three

  American Banking Families Decide to Organize a Federal Reserve System

  By the beginning of the Twentieth Century, the American economy had become so dynamic that the major banking dynasties found it increasingly difficult to maintain a tight control. Even the control they had so carefully kept secret was being challenged as a major political issue in national elections.

  As we have previously noted, the dynastic “banker families” in England had established their monopoly control over finance by setting up the Bank of England as a privately controlled institution which had the appearance of an official government institution. Similar centers of financial control had been set up in France, Germany, Italy and Switzerland. Many of these European banking families had intermarried or bought their way into the American banking dynasties so it was inevitable that eventually the same device for centralized control would be set up in the United States as that which had worked so well in various European countries. The formula called for a scheme which would look like the government was taking over when in reality, the control would be solidified in the same secret group which had always held it. As Dr. Gabriel Kolko pointed out: “Ironically, contrary to the consensus of historians, it was not the existence of monopoly that caused the federal government to intervene in the economy, but the lack of it.... In the long run, key business leaders realized they had no vested interest in a chaotic [uncontrolled] industry and economy in which not only their profits but their very existence might be challenged.”1

  Who Were These “Key Business Leaders?”

  Dr. Quigley has identified them in Tragedy And Hope, and Serano S. Pratt supports the Quigley position in his book entitled, The Work of Wall Street:

  “When we speak in Wall Street of the ‘private bankers,’ we refer to a handful of great banking houses whose operations are on an international scale and which in the United States represent the same power that the Rothschilds have so long possessed in Europe. These houses may, like J.P. Morgan & Co., and Brown Bros. & Co., be closely allied by partnership ties to other powerful firms in other cities; and represent here the great firms and institutions of Europe, just as August Belmont & Co. have long represented the Rothschilds.”2

  By the turn of the century, the Rockefellers had also joined the dynastic banking families. John D. Rockefeller had purchased the Chase Bank and his brother William bought the National City Bank of New York. The Rockefeller Chase Bank was later merged with the Warburg’s Manhattan Bank to form Chase-Manhattan, the most powerful financial combine in the world today.

  The scheme to set up a privately-controlled Federal Reserve System was supported by all of these dynastic banking families.

  The First Attempt Fails

  To appreciate some of Dr. Quigley’s comments in Tragedy And Hope, we should summarize the origin and history of the Federal Reserve System.

  Stephen Birmingham in his book, Our Crowd,3 says the person who played the most significant part in getting Federal Reserve adopted was Paul Warburg. He had come to the United States with his brother, Felix Warburg, from Germany in 1902. They left their brother Max in Frankfurt to run the family bank. In due time Paul married Nina Loeb of Kuhn, Loeb and Company, while Felix married Jacob Schiff’s daughter, Frieda Schiff. Both brothers became Kuhn-Loeb partners and Paul was awarded a yearly salary of $500,000 to go up and down the country preparing the climate for a central banking system in the United States.

  Working with Warburg was J.P. Morgan’s leading Washington representative, Senator Nelson Aldrich, whose daughter Abby was married to John D. Rockefeller, Jr. (Nelson Rockefeller, governor of New York, is named after his maternal grandfather.)

  Senator Aldrich and Paul Warburg set up an extremely secretive meeting with representatives of the leading banking dynasties to prepare the first draft for the Federal Reserve System. They met on Jekyl Island, Georgia. Rockefeller’s agent, Frank Vanderlip admitted many years later:

  “Despite my views about the value to society of greater publicity for the affairs of corporations, there was an occasion, near the close of 1910, when I was as secretive—indeed as furtive—as any conspirator.... I do not feel it is any exaggeration to speak of our secret expedition to Jekyl Island as the occasion of the actual conception of what eventually became the Federal Reserve System.”4

  The secret meeting on Jekyl Island included Henry P. Davison of J.P. Morgan & Company; Frank A. Vanderlip, President of the Rockefeller-owned National City Bank; A. Piatt Andrew, Assistant Secretary of the Treasury; Benjamin Strong of Morgan’s Bankers Trust Company, and, of course, Paul Warburg.

  This was right at the time when the idea of creating a Federal central bank “free of Wall Street or any monopolistic interest“ was being promoted by the Banking Law Journal and a number of national political personalities. Therefore, the object of the conference on Jekyl Island was to set up a central bank which had the appearance of meeting this demand while actually thwarting it. Pau
l Warburg went to the conference with a plan copied after the private central banks in England and Europe. Professor Kolko writes: “The plan which emerged from the conference was very much like Warburg’s in principle, and Warburg claimed. authorship for it even though Vanderlip actually drafted the final plan.”5

  But the plan failed. It was introduced into the Senate as the Aldrich Bill. The name of Aldrich was so closely linked to Morgan and Wall Street, and the resentment against these influences was so strong, that the bill was readily defeated. The group of master planners backed away to devise a new tactic.

  The Federal Reserve System Finally Becomes a Reality

  It was decided that the Republican Party was too closely connected with Wall Street and the only hope of getting a central bank adopted would be to get the Democrats in power and have a new bill introduced which would be promoted into popular acceptance by claiming that it was a measure designed to strip Wall Street of its power. The Wall Street cadre thereupon set forth to achieve this in the presidential election of 1912.

  At first this looked virtually impossible, because President William Howard Taft (a Republican who had opposed the Aldrich Bill) was very popular and seemed a sure-fire bet for re-election. The picture changed when the former President Teddy Roosevelt (also a Republican but opposed to Taft) decided to run on the Progressive Party ticket against Taft. The Democrats then nominated Woodrow Wilson, making it a three-way race. Suddenly the central bank promoters saw the opportunity they needed.

  Two Morgan agents, Frank Munsey and George Perkins moved in behind Teddy Roosevelt with money and manpower from Wall Street. As Ferdinand Lundberg states:

  “As soon as Roosevelt signified that he would again challenge Taft, the President’s defeat was inevitable. Throughout the three cornered fight Roosevelt had Munsey and Perkins constantly at his heels, supplying money, going over his speeches, bringing people from Wall Street in to help, and, in general, carrying the entire burden of the campaign against Taft....

  “Perkins and J.P. Morgan and Company were the substance of the Progressive Party; everything else was trimming.... In short, most of Roosevelt’s campaign fund was supplied by the two Morgan hatchet men who were seeking Taft’s scalp.”6

  Meanwhile, Wall Street was ALSO backing Wilson. Clear back in 1906, George Harvey, president of the Morgan-controlled Harper’s Weekly, had suggested Wilson for President. Then the Rockefellers took up the fund-raising for Wilson together with other Wall Street backers of the Democratic Party. Ferdinand Lundberg says:

  “The financial genius behind Woodrow Wilson was Cleveland H. Dodge of the [Rockefeller] National City Bank.... Sitting with Dodge as co-directors of the National City Bank at the time were the younger Rockefeller, J. Ogden Armour, and James Stillman. In short, except for George F. Baker, everyone whom the Pujo Committee (in Congress) had termed rulers of the ‘Money Trust’ was in this bank.”7

  Bernard Baruch chatting with President Eisenhower.

  Additional supporters of Wilson who belonged to the dynastic banking families included Jacob Schiff, Bernard Baruch, Henry Morgenthau, Thomas Fortune Ryan, and the publisher of the New York Times, Adolph Ochs.8

  Even Morgan’s men who managed Teddy Roosevelt’s campaign had money behind Wilson. The idea was to give Roosevelt enough support to divide Taft’s Republican vote and give Wilson enough support to beat them both. This strategy worked, and Wilson was elected. Even before the election, however, the promoters of the central bank set up a front organization to create a public climate which would be favorable to the Federal Reserve idea. Professor Kolko says:

  “During the spring of 1911 the backers of the plan moved to create the ‘National Citizens League for the Promotion of a Sound Banking System’ to accomplish the task. Warburg and the other New York bankers behind the Aldrich plan arranged to have the league centered in Chicago....”9

  President Wilson, Mrs. Wilson and “Colonel” Edward M. House

  Because of the Rockefeller influence over the University of Chicago, this new front organization was headed by J. Lawrence Laughlin of that institution with his former student and close confidante, H. Parker Willis, writing the necessary legislation. It was simply the Aldrich Bill in a new dress. To see that the newly elected President would have the right advisors, Wilson’s financial backers surrounded him with their own agents. The most important of these was “Colonel” Edward Mandell House, the British-educated son of a financier who represented certain British financial interests in the Southern States. House gradually emerged as the virtual president during the Wilson administration. Two of his pet projects, the central bank and the graduated income tax, were both successfully adopted through the amazing capacity of House to pull wires behind the scenes. It is now known that House was the author of the book, Philip Dru: Administrator, which described how Dru worked to establish “Socialism as dreamed by Karl Marx.”

  Professor Charles Seymour who edited The Intimate Papers of Colonel House, assures us that House was the “unseen guardian angel” of the Federal Reserve Act. There was constant contact between House and Paul Warburg. The biographer for House assures us further that “The Schiffs, the Warburgs, the Kahns, the Rockefellers, and the Morgans had faith in House....”

  To prevent opponents of Wall Street from identifying the Federal Reserve Act with the international bankers, a smoke-screen of opposition was fulminated. In his autobiography, William McAdoo, Wilson’s Secretary of the Treasury and son-in-law, wrote:

  “Bankers fought the Federal Reserve legislation—and every provision of the Federal Reserve Act—with the tireless energy of men fighting a forest fire. They said it was populistic, socialistic, half-baked, destructive, infantile, badly conceived and unworkable.”10

  However, McAdoo talked with these heated opponents of President Wilson’s Federal Reserve project and decided there might be something phoney about the smoke-screen of opposition. “These interviews with bankers led me to an interesting conclusion. I perceived gradually, through all the haze and smoke of controversy, that the banking world was not really as much opposed to the bill as it pretended to be....”11

  Thus the stage was set. It was December 22, 1913, that the Federal Reserve Act passed the House of Representatives by a vote of 298 to 60 and the Senate passed it by a majority of 43 to 25.

  But Who Controls the Federal Reserve System?

  The operation of the Federal Reserve System is one of the most interesting and mysterious combines in the country. Since it was founded in 1913 it has successfully resisted every attempt to conduct an audit of its affairs. The system consists of 12 “National Banks” but the only one of any significance is the one in New York. The New York bank has always been managed by someone completely congenial to the interests of the international bankers. It is important to realize that the Federal Reserve System is not a bona fide Government agency. Technically the stock is owned by the 12 National Banks which receive a dividend of six percent each year. Any profits from the System are supposed to be turned over to the U.S. Treasury.

  In fact, the President appoints the seven members of the Federal Reserve Board for fourteen-year terms, but in spite of all this window dressing the Federal Reserve Board is completely independent in its decisions. President Johnson admitted this when the Federal Reserve defied him during his administration and when David Kennedy, the Nixon Secretary of the treasury, was asked about the credit-tightening policies of the Federal Reserve, he replied: “It’s not my job to approve or disapprove. It is the action of the Federal Reserve.”12

  The mammoth and secret operations of the Federal Reserve are therefore proceeding along the lines which Dr. Quigley says the international bankers were determined to achieve. They intended to use the financial power of Britain and the United States to force all the major countries to operate “through central banks free from all political control, with all questions of international finance to be settled by agreements by such central banks without interference from governments.”13

/>   The motivation for such a scheme can be better appreciated when it is realized that loaning money to governments can be a very lucrative business, especially loans to the United States Government. The U.S. presently owes more money (most of it to the international banking institutions) than all the money owed by the rest of the nations in the world combined. The U.S. national debt is presently 372 billion dollars. Every year American tax payers are required to contribute 20 billion dollars to pay the interest on this indebtedness. It is the third largest item in the Federal budget. It can be readily seen why those who are appointed to the key positions in the U.S. Federal Reserve System (where loans are negotiated and interest rates fixed) occupy possibly the most critically influential spot in the entire world.

  Dr. Quigley says the true dimensions of the whole scheme are better appreciated when it is realized that the far-reaching aim of the dynastic bankers was:

  “... nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. Each central bank, in the hands of men like Montague Norman of the Bank of England, Benjamin Strong of the New York Federal Reserve Bank, Charles Rist of the Bank of France, and Hjalmer Schacht of the Reichs bank, sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.”14