The Money Power

How finance capitalists enslave the world
-- by: Frank Anstey, 1921, source: Australian Nationalist Archive
MHP hypertext version for non-profit educational use only

2.  American Money Power

J.P. Morgan, the Panic of 1907 and the Federal Reserve

National Notes

"The Money Power preys upon the Nation in times of peace and conspires against it in the hour of its calamity. It is more despotic than Monarchy, more insolent than Aristocracy, more selfish than Bureaucracy. It accumulates by conscious fraud more money than it can use. It denounces as public enemies all who question its methods or throw a light upon its crimes. It can only be overthrown by the awakened conscience of the Nation."

William Jennings Bryan, New York Reception, 1906.

To understand the operations of the "Money Power" in the United States is to understand it the wide world over. In the U.S. it is bold, brutal, barefaced. In other countries it is cloaked, polished, hypocritical, but everywhere an oligarchy of financiers working to the same despotic end.

Describing the workings of the System as it existed in the United States twenty years back, W. J. Bryan said in the U.S. House of Representatives:

"A bank invests 100,000 dollars in 2 per cent, bonds. It deposits the bonds in the Treasury and receives 90,000 dollars in bank notes. This is a return of so much of the capital expended for the purchase of bonds, so that the bank is only out 10,000 dollars. On that sum the bank receives 2,000 dollars interest. If a private citizen buys a bond he can only draw interest. If a bank holds the bonds it can not only draw interest upon it, but draw 90 per cent of its value in national notes."

In that year (1900) the Yankee banking corporations lobbied through Congress an amendment of the National Note Act, and got an increase of notes from 90 to 100 per cent.

In 1902 the banking corporations secured a further amendment of the National Note Act. By this amendment the banks could secure national guaranteed notes not only on a deposit of Federal bonds, but upon deposits of municipal bonds, railway stocks, bonds of Steel, Beef, Standard Oil, and other "approved" securities of specified corporations.

Between 1902 and 1907 the banking corporations deposited such securities and drew notes to the extent of $250,000,000 dollars.

Armed with these and other resources, the men controlling the great trusts and the principal banks of America organised a scheme of complete dominance over the industrial and financial life of the American Nation. They waged a war of extermination against every competitor.

Against this policy President Roosevelt set his face. He prosecuted and secured against Standard Oil verdicts that loaded the Trust with penalties to the extent of $29,000,000 dollars.

The Panic of 1907

At once the Standard Oil banks (under Rockefeller), the Steel Trust banks (under Morgan) and the Beef Trust banks (under Armour) entered into an offensive alliance. This Triple Alliance dominated the financial world of America. It had a majority on the Clearing House Association of all the big cities.

The New York Clearing House Association commenced proceedings. It commanded every independent bank to come to heel and take orders. Those who refused were expelled from the Clearing House (October 20, 1907) on the ground that such banks were no longer worthy of public confidence. Such action destroyed confidence in the blackballed banks, and caused a bank run. Charles Barney, of the Knickerbocker Bank, and Howard Maxwell, of the Brooklyn, committed suicide; all others capitulated.

Within three days (from October 20 to 23, 1907), every bank in the United States had been brought to heel, taught obedience and mobilised for action. The representatives of banks expelled on the 20th, having duly made submission, were re-admitted to membership. Every bank received its orders, its ammunition and the hour of action.

Next day (Oct. 24, 1907), the strike of the Bank Trust against the nation commenced. Every bank, from the Atlantic to the Pacific, refused to pay out gold; refused to pay anything but a paper currency of its own creation -- a currency with which every bank throughout the United States had been previously stocked -- the incontestable proof of preparedness.

The paper notes of the American Money Trust were designated "Clearing House Certificates." They were of all denominations down to two dollars. Every bank at the preconcerted signal paid out in this currency. With it wages were paid and business conducted throughout the United States.

On October 25 (1907) Pierpont Morgan declared on behalf of the Banking Association of America that:

"We will continue to trade in a paper currency, and pay no more gold, until we get from President Roosevelt the necessary guarantee against adverse legislation. The people can take paper money or leave it -- they will get nothing else. The mills, mines, and other industries controlled by ourselves or allied interests will slacken down or close until we get effective guarantees against anti-trust prosecutions."

This was the ultimatum of the Money Trust to the subject nation.

Speaking in the United States Senate, Senator James Mills said: --

"This reckless and remorseless brutality comes from men who speak our language; who were born under the same skies and nurtured in the principles of a common faith. It comes from the cold, phlegmatic heart of avarice -- avarice that seeks to paralyse labor and increase the burden of the nation's debt -- avarice that refuses to be satisfied without the suffocation and strangulation of all the labor in the land."

Stand and Deliver!

The banks held the country by the throat. If any depositor moved legal process, the great magnates could carry him from court to court for years. If the Government enforced the law of cash redemption, the Banking Trust threatened to close its doors. Only a revolutionary seizure, that Congress was not prepared to enforce, or the press to endorse, could defeat the conspiracy of the Financial Thuggery.

Throughout the United States the newspapers of the Bank Trusts set out to prove that paper money issued by private bankers was as good as gold, or better. The President of the Bank of California said:

"These 'Clearing House Notes' are based on a deposit of the highest class 'A' security. Currency that represents good security is good currency. The laboring man is working for a living. These notes are available for him, if married, in the payment of household bills, rent, etc.; and, if single, for such enjoyments as he may seek. He gets value for his labor -- what more can he ask? He can get no more with gold money than he can with this paper."

The banks refused to pay gold, but they enforced payment in gold. To refuse to find it was to have bank facilities withheld and be ruined. By this process every ounce of gold was bound to find its way to the bank vaults and stop there. Mercantile houses and producers were unable to meet their obligations. Immense quantities of goods were hurriedly shipped to Europe in order to secure gold.

When the banks went on strike it was not a period of falling trade or industrial depression.

"The Economist," of December 21, 1907, said: "There never had been such prosperity in the history of America."

The "Contemporary Review" (January, 1908), said: "It was a time of exceptional prosperity."

Never were the gold reserves of the banks so large as when they refused to pay out.

Lord Welby, of the British Treasury ("Contemporary," January, 1908), said: "The stock of gold in the United States is enormous."

In this last fact is the answer to those who assert that a paper currency will drive gold out of a country. "The Economist" (November 9, 1907), pointed out that, while the private banks in the United States inflated their note issues in ten years by £67,000,000, the stock of gold increased £175,000,000. The international balances had been favorable to the United States, and gold flowed in to settle those balances, irrespective of the internal currency.

The inflowing gold was cornered by the Money Trust, and its emission to the general community was barred.

The inability of the mercantile community to meet the gold claims of the Bank Trust, or to secure credit, brought about widespread industrial collapse. More and more mines, mills and factories fell into the hands of the Trust at depreciated values. Hordes of men were out of work. The United States Attorney-General denounced the conspirators as "Pirates, whose operations are worse than those of the notorious Tweed gang."

In these circumstances there went up from all sides, even from the Anti-Trust journals, demands and appeals, urging President Roosevelt to "come to terms."

Conqueror Morgan

The London "Standard" (December 7, 1907) reported what followed. It said:

"Mr. Pierpont Morgan is in virtual control. He has made it too 'strenuous' even for Mr. Roosevelt. Mr. Roosevelt sent an invitation to Mr. Morgan to come to White House and discuss the situation. Mr. Morgan consented to go only when Mr. Roosevelt sent him a personal letter promising a different attitude towards financial interests in the future."

The President capitulated, forwarded his apology, and made the desired promises. Morgan met Roosevelt on November 16, 1907. The agreement was:

• 1st. That Roosevelt drop his Anti-Trust campaign.
• 2nd. That no effort be made to collect the Standard Oil fines.
• 3rd. That no further action be taken against Trusts or Combines controlled by Morgan, Rockefeller and Armour.
• 4th. That portion of the Sherman Anti-Trust Act be suspended.
• 5th. That gold previously paid into the Federal Treasury for bonds be left on deposit in the private banks.

The terms were accepted. The New York "Herald," in its issue of November 25, 1907, said: "Roosevelt has received his lesson. We shall hear no more of his attacks on the Trusts."

The London "Daily News" (December 6) said:

"The Trust magnates hardly seem to have moved a finger, vet they have made their power felt throughout the civilised world. They have made no sacrifice, but, on the contrary, will emerge wealthier men than before. They have brought the most powerful Government in the world to its knees; they have forced it to suspend certain laws, and made it promise to interfere with them no more."

In the Morgan-Roosevelt compact, Morgan agreed, on behalf of the banks, "to withdraw Clearing House Notes" and resume "full and free payment of cash."

The Morganites refused to keep their part of the agreement, and on February 3rd, 1908, the cables announced that Roosevelt had issued against the Banking Trust "the most impassioned document ever issued from White House." To this Pierpont Morgan replied that "The banks will take their own time to resume specie payments, and will continue to use their own notes so long as it suits their convenience."

His only promise, said Morgan, "was that the banks would not tie up commercial houses with a demand for gold."

In short, Morgan was master, and continued to issue paper currency in defiance of the law. To buttress his power, Senator Aldrich, of Rhode Island, introduced and carried through a bill to legalise the hitherto illegal operations of the trustified banks.

In May, 1908, under the guidance of Senator Aldrich, an Emergency Currency Act was pushed through Congress, and under that Act the Government was instructed to issue to the banks when required Government guaranteed notes to the extent of $500,000,000 dollars, upon a deposit of public bonds or upon a deposit of "private bonds, trade bills, or other securities."

So, long before the war, a Capitalist Government, acting on the advice of bankers, was instructed to issue note currency based, not upon gold, but upon bonds, bills, and other securities.

The Monetary Commission (1908)

During the six years, 1910 to 1916, the Yankee banking corporations, under the triple mastery of Morgan, Armour and Rockefeller, organised and perfected an additional scheme of robbery and domination. It replaced the old Clearing House Certificate swindle, and rested securely on the legal sanction of the speaking-tubes of the Trust in politics.

The preliminary to the new move was the organisation of the Monetary Commission, under the chairmanship of Senator Nelson Aldrich.

While this commission was sitting, Woodrow Wilson, then (1911) prospective candidate for the Presidency, chanced to say in New York: "The greatest monopoly is the Money Monopoly. The financiers are more powerful than the nominal rulers."

The New York Times asked Wilson what he meant by "Money Monopoly." The following morning (June 17, 1911), the New York "World" came out and said:

"The day the 'Times' asked Governor Wilson what he meant by the 'money monopoly,' the newspapers announced that Mr. Morgan's Bankers' Trust Company had bought from the Equitable Life Assurance Society its holdings in the Mercantile Trust Company, and that by this transfer the aggregate assets of the banks dominated by J. P. Morgan and Co. exceeded $1,000,000,000 dollars. This $1,000,000,000 dollars is not Mr. Morgan's money, but it is in the hands of the Morgan interests, which say who can borrow it and who cannot borrow it.

"When Mr. Morgan took over the Equitable from Thos. P. Ryan, he paid more than 2,500,000 dollars for stock that can legitimately earn only 3514 dollars a year; but what he really bought was control over the Equitable's 400,000,000 dollars of assets and 80,000,000 dollars of surplus."

This control of banks and insurances by a few men constitutes the Money Trust. It is here in Australia as in America.

Morgan testified before the Pujo Committee that there was no such thing as a Money Trust; that he did not control anything; that he had no wish to control anything. Yet the committee, reported that, by his control of banks, insurance and other companies, he controlled not less than 25,000 million dollars, could say where it should flow and from where it should be diverted.

The Nelson Aldrich Monetary Commission presented its report [in 1912], based upon an investigation of the banking and currency systems of all countries. It epitomised the most recent innovations in banking, and the most advanced policy in currency. [E1]

It directed attention to the statement of the Japanese Minister of Finance, that "in point of the perfectness of organisation the National Bank of Belgium stands highest." It directed attention to the special discount system; to the fact that notes were issued, not upon gold, but upon all classes of securities, and to the statement of the governor of the National Bank of Belgium, that "the necessary limits of currency are the requirements for transactions and the movement of business."

Upon the information contained in these reports, with additions born of their own experience and interests, the Money Kings proceeded to reorganise (in their own interests) the currency and banking system of the United States.

Maurice Patron, in his report to the Commission on the Bank of France, had said: "It is difficult to understand how, in certain countries, an undertaking of such universal interest should be left to private enterprise."

But the Money Kings were determined that the system should be in their hands, extending their security, power and profit. Increased facilities to the trading public were merely incidental.

The New "Federal Reserve" System (1913)

Everything being ready, the new system was given a legal existence by the Federal Reserve Act of 1913.

The Act creates an overlordship of five Financial Magnates, with the Secretary of the Treasury and the Comptroller of the Currency as ex officio members.

The banks of the U.S. are grouped into 12 regions, and in each region there is one great "Central Bank." Each "Central" is authorised to issue to all member banks a paper currency known as "Reserve Notes."

This currency is not issued against gold. It is issued to member banks (not the general public) upon securities of every description, upon "drafts and bills arising out of commercial transactions"; in short, upon the securities previously deposited with the banks by the public as security for loans.

The currency is not even limited to note issues. The Federal Reserve Banks may issue to member banks unlimited credit and cheque currency upon general securities without reference to a gold base. Alexander Noyes, writing in the "Yale Review," said:

"The Federal Reserve Banks furnish credit to member banks on securities previously deposited with member banks by the borrowing public. The currency, whether furnished by the member banks to the public, or by the Federal Reserve Bank to member banks, is in the form of cheques. Note issues are only a fraction of the total currency issued by Reserve Banks. Cheques and notes are the circulating representative of deposited security."

Against the fractional note issue -- not against the mass of cheque currency -- the "Reserve" Banks are supposed to hold 40 per cent, of gold, but this is conditioned by the provision that "lawful money" may be regarded as "gold in reserve." "Lawful money" consists of silver dollars, silver certificates, the 20 dollar notes known as gold certificates, and the United States notes popularly known as "greenbacks." The applicant for redemption can exchange one sort of paper for another, or get a load of silver, but he cannot get gold.

The 1915 report of the United States Treasury, entitled "Paper Currency and Loans," says: "Silver dollars are legal tender to any amount...silver dollars are not redeemable." Page 36 of the same report says of "greenbacks" (i.e., United States Notes), "the law of non-redemption has not been repealed". The "green backs" are still "lawful tender", legal money for all persons and purposes.

The responsibility for the ultimate redemption of the various note issues of the United States is not upon the private corporations, but upon the American Government. For the vast territory between the Atlantic and Pacific the only place for the redemption of the "Reserve Notes" and other paper issues is at one spot -- the Treasury, Washington -- and even there redemption in gold is conditioned by the proviso "if available." If not available, redemption is met by other forms of "lawful money": "greenback" paper, silver metal, etc.

In June, 1914, the "National Bank Notes" (private), "Federal Reserve Notes" (private), "United States Notes" (public "greenbacks"), "Silver Certificates," and "Gold Certificates" in circulation totalled 2,752,000,000 dollars (page 48 of the 1915 United State Treasury Report).

On August 1st, 1914, the U.S. Government brought into operation the Emergency Currency Act of 1908 and on August 4th Congress passed through both Houses an amendment raising the issue from 500 to 1000 million dollars. This was in addition to and apart from the note issues of the Centrals, just as the British Government's note issue of August, 1914, of £100,000,000, was apart from and in addition to the issues of the Bank of England.

In both countries they were issues to banks only.

In both countries the banks could take all the bonds, deeds, liens, receipts, bills, and other securities lodged by the public as cover for loans, and upon those pledges get legal tender currency with which to trade and make further loans. But in neither country were those facilities available to the average citizen -- they were for bankers and brokers only.

In the United States the "emergency" legal tender notes were issued to the banks on the basis of 90 per cent, on bonds, 75 per cent, on warehouse receipts for cotton or tobacco, 75 per cent, on commercial bills and 66 per cent, on deeds.

Thus in the United States there is the cheque currency of the individual bank redeemable by the "Reserve Note" of the "Central," redeemable in its turn by the emergency legal tender note of the Government. Under this last Act even the pretence of redeeming in gold at Washington entirely disappeared.

On the 30th September, 1919 -- in addition to silver certificates, gold certificates, United States notes, National Bank notes, emergency notes -- there were "Federal Reserve notes in actual circulation" 2,655,000,000 dollars.

Thus the Yankee Trust magnates, not only during the war, but prior to the war, developed a paper currency by Capitalists, for Capitalists, buttressed by the Capitalist State. [E2]

Thus a Government that functions in the interests of the great banking corporations, is an instrument of great monetary value to the capitalists who own and control that Government.