a man belonging to a species now soon to be extinct and to be found
by our children in Webster’s dictionary only, the ‘bartender.’ A man
of this profession, in pre-historic times, was abandoning his
position and was turning over his cash-register to his successor.
‘Please show me how it works,’ said the newcomer. ‘_I will show you
how it works_,’ said the other, ‘_but I won’t show you how to work
it_.’”
The politics of Mr. Warburg and the firm of Kuhn, Loeb & Company formed
part of the inquiry, and Mr. Warburg made some interesting revelations,
which illustrate the oft-repeated statement that it is part of Jewish
policy—perhaps of large financial firms generally—to attach themselves
to both parties so that certain interests may be the winners regardless
of which party is defeated.
Senator Pomerene—“What are your politics?”
Senator Nelson—“No; we have not raised that before this committee.”
Senator Reed—“It has not been raised here, but I should like to
know.”
Senator Pomerene—“It has been raised before the Senate.”
Senator Reed—“I will say why I should like to know.”
Senator Pomerene—“Well, I have no objection to saying what was in my
own mind.”
The Chairman—“I will say that I do not know what Mr. Warburg’s
politics are.”
Senator Pomerene—“Well, I did not.”
Senator Shafroth—“I do not know and I do not care to know.”
Senator Pomerene—“I heard the statement made that the entire board
was Democratic, and I had understood that Mr. Warburg was a
Republican, or had been, in his affiliations.”
Mr. Warburg—“Well, so I was; and my sympathies were entirely, in the
early campaign, for Mr. Taft against Mr. Roosevelt in the first
fight. When later on Mr. Roosevelt became President Wilson’s
opponent my sympathies went with Mr. Wilson....”
Senator Reed—“Well, you would count yourself a Republican, generally
speaking?”
Mr. Warburg—“I would.”
Senator Bristow—“It has been variously reported in the newspapers
that you and your partners directly and indirectly contributed very
largely to Mr. Wilson’s campaign funds.”
Mr. Warburg—“Well, my partners—there is a very peculiar
condition—no; I do not think any one of them contributed largely at
all; there may have been moderate contributions. My brother, for
instance, contributed to Mr. Taft’s campaign.”
Senator Bristow—“Just what would you consider a moderate
contribution to a presidential campaign?”
Mr. Warburg—“Well, that depends who the man is who contributes; but
I think anything below $10,000 or $5,000 would not be an extravagant
contribution, so far as that should be—”
(Examination resumed another day.)
Senator Bristow—“Now, Mr. Warburg, when we closed Saturday some
Senator asked you in regard to political contributions, and I
understood you to say that you contributed to Mr. Wilson’s
campaign.”
Mr. Warburg—“No; my letter says that I offered to contribute; but it
was too late. I came back to this country only a few days before the
campaign closed.”
Senator Bristow—“So that you did not make any contribution?”
Mr. Warburg—“I did not make any contribution; no.”
Senator Bristow—“Did any members of your firm make contributions to
Mr. Wilson’s campaign?”
Mr. Warburg—“I think that is a matter of record. Mr. Schiff
contributed. I would not otherwise discuss the contributions of my
partners, if it was not a matter of record. I think Mr. Schiff was
the only one who contributed in our firm.”
Senator Bristow—“And you stated that your brother had contributed to
Mr. Taft’s campaign, as I understand it?”
Mr. Warburg—“I did. But again, I do not want to go into a discussion
of my partners’ affairs, and I shall stick to that pretty strictly,
or we will never get through.”
Senator Bristow—“I understood you also to say that no members of
your firm contributed to Mr. Roosevelt’s campaign.”
Mr. Warburg—“I did not say that.”
Senator Bristow—“Oh! Did any members of the firm do that?”
Mr. Warburg—“My answer would please you probably; but I shall not
answer that, but will repeat that I will not discuss my partners’
affairs.”
Senator Bristow—“Yes. I understood you to say Saturday that you were
a Republican, but when Mr. Roosevelt became a candidate, _you then
became a sympathizer with Mr. Wilson and supported him_?”
Mr. Warburg—“_Yes._”
Senator Bristow—“_While your brother was supporting Mr. Taft?_”
Mr. Warburg—“_Yes._”
Senator Bristow—“_And I was interested to know whether any member of
your firm supported Mr. Roosevelt._”
Mr. Warburg—“_It is a matter of record that there are._”
Senator Bristow—“_That there are some of them who did?_”
Mr. Warburg—“_Oh, yes._”
Senator Bristow—“Will you please indicate—or do you care to
indicate—what members of your firm supported Mr. Roosevelt in that
campaign?”
Mr. Warburg—“No, sir; I shall have to go on the principle that I
cannot disclose the business of a member of my firm.”
The result was this: that in a three-cornered fight between three
candidates, Roosevelt, Taft and Wilson, the men who constituted the firm
of Kuhn, Loeb & Company, chief Jewish financial institution of the
United States, distributed their support among all three. Schiff for
Wilson; Felix Warburg for Taft; and an unknown for Roosevelt—was that
unknown Mr. Kahn? In any case, Wilson won, and the above examination
relates to a member of the firm of Kuhn, Loeb & Company receiving an
important appointment which gave him large power over the finances of
the United States.
The point of not discussing the affairs of Kuhn, Loeb & Company was
frequently made by Mr. Warburg.
“I cannot discuss the affairs of the firm nor my partners, nor be asked
to criticize acts of my partners, either to approve them or in any other
way. I would like to say that before we come to the point where I would
feel that I should not answer any question,” said Mr. Warburg.
The principle of this objection was conceded by the Senate Committee,
but that it ought to serve as a blanket injunction against a number of
pertinent inquiries was doubted.
Senator Bristow—“But you are a partner in this firm, and have you
not had something to do with its operations and its management?”
Mr. Warburg—“Yes.”
Senator Bristow—“Does that not go to show your general views and
practices as a financier and as a citizen and as a business man?”
Mr. Warburg—“Yes; but you have got to take them individually.... I
cannot permit my firm to be drawn into this discussion.”
Senator Bristow—“But how can you divest yourself from your firm when
you have been one of the managers of the firm?”
Mr. Warburg—“I shall divest myself of the firm.”
Senator Bristow—“If the firm has done something that I might think
was improper—to illustrate, being called upon to say whether or not
I approve your nomination to this responsible position—have I not a
right to know what your attitude was in regard to that transaction
which your firm performed?”
Mr. Warburg—“Well, inasmuch as my answer there might be a criticism
of my firm, I would beg to be excused, and I would leave it to the
committee to draw its own conclusions....”
In examining Mr. Warburg about the handling of $100,000,000 Southern
Pacific securities, the same difficulty was experienced; Mr. Warburg
objected, “but we are getting here again into the transactions of my
firm!”
To which Senator Bristow retorted—“Ah! but when you participated in the
profits of the transaction, is it not a part of your business life?”
Mr. Warburg—“Certainly it is a part of my business life, and there
is no reason why I should not be proud of it. But as a matter of
principle I think we should not get into a discussion of the
business of my firm.”
Senator Bristow—“I am discussing your business.”
Mr. Warburg—“No, you are discussing the firm’s business.”
Senator Bristow—“Did you get any of the profits that came from the
handling of this $100,000,000?”
Mr. Warburg—“You may take it that whatever my firm did I got my
profits—my share in the profits.”
Senator Bristow—“Your share in the profits. Now, without being
specific, I take it for granted that this was quite material; that
that was quite a material interest in size; that is, that you are
one of the important members of the firm.”
Mr. Warburg—“I am one of the important members of the firm.”
Senator Bristow—“Yes, I think the testimony and the report here show
that you are the third important member—or the second, which is
it?—of the firm.”
Mr. Warburg—“We are not numbered.”
Senator Bristow—“You are not; all right.”
Mr. Warburg—“There is Mr. Jacob H. Schiff who is the senior.”
Senator Bristow—“Yes.”
Mr. Warburg—“And the others rank very much alike.”
Senator Bristow—“Yes. We may take it for granted, then, that
whatever profits accrued to your firm in the handling of this
business here since you became a member of it, you participated in
the profits as one of the partners?”
Mr. Warburg—“Yes, sir.”
Senator Bristow—“Yes. So I will assume then, of course, that you
participated in the marketing of $113,000,000 of Union Pacific, and
so on.”
The responsibilities of a member of the Federal Reserve Board,
especially such a member as Paul M. Warburg would be (for it was
recognized that because of his purpose and connections he would become a
dominating factor), were very great, especially at the time when the
appointment was being considered. They are as important now, of course,
but in a different way; it is not now a question of military safety.
This thought was evidently in the mind of the senators, as the following
shows:
Senator Hitchcock—“Mr. Warburg, _one of the important functions of the
board is to guard the gold supply of the country_, and it has been
thought that _it is very important to have men on the board who had at
heart only the interests of the United States_, and had no foreign
interests or alliances. You have said that you proposed to divest
yourself altogether of your banking connections in Germany. Have you any
other interests in Europe?”
“No, not to speak of,” said Mr. Warburg. “I may have very unimportant
things, like everybody has; but I could dispose of those; it would not
amount to anything.”
Senator Hitchcock—“Nothing in the line of banking?”
Mr. Warburg—“No.”
A few moments later the chairman, Senator Owen, said—(the date was
August 1, 1914)—“We are on the eve of a great European war, and the
organization of this board is of great national importance.”
At this time, Mr. Warburg was a member of the Hamburg firm. He testified
(p. 7)—“I am going to leave my Hamburg firm, though the law does not
require me to do so.”
A part of the German firm of his father and brothers, a part of the
American firm to which he and his brother were related by marital as
well as financial ties, Mr. Warburg repeatedly said he would break off
all business relationships so that he, like Caesar’s wife (to quote
himself), should be above suspicion.
——
Issue of June 25, 1921.
LIX.
Jewish Idea of Central Bank for America
According to his own statements and the facts, Paul M. Warburg set out
to reform the monetary system of the United States, and did so. He had
the success which comes to few men, of coming an alien to the United
States, connecting himself with the principal Jewish financial firm
here, and immediately floating certain banking ideas which have been
pushed and manipulated and variously adapted until they have eventuated
in what is known as the Federal Reserve System.
When Professor Seligman wrote in the Proceedings of the Academy of
Political Science that “the Federal Reserve Act will be associated in
history with the name of Paul M. Warburg,” a Jewish banker from Germany,
he wrote the truth. But whether that association will be such as to
bring the measure of renown which Professor Seligman implies, the future
will reveal.
What the people of the United States do not understand and never have
understood is that while the Federal Reserve _Act_ was governmental, the
whole Federal Reserve _System_ is private. It is an officially created
private banking system.
Examine the first thousand persons you meet on the street, and 999 will
tell you that the Federal Reserve System is a device whereby the United
States Government went into the banking business for the benefit of the
people. They have an idea that, like the Post Office and the Custom
House, a Federal Reserve Bank is a part of the Government’s official
machinery.
It is natural to feel that this mistaken view has been encouraged by
most of the men who are competent to write for the public on this
question. Take up the standard encyclopedias, and while you will find no
misstatements of fact in them, you will find no direct statement that
the Federal Reserve System is a private banking system; the impression
carried away by the lay reader is that it is a part of the Government.
The Federal Reserve System is a system of private banks, the creation of
a banking aristocracy within an already existing autocracy, whereby a
great proportion of banking independence was lost, and whereby it was
made possible for speculative financiers to centralize great sums of
money for their own purposes, beneficial or not.
That this System was useful in the artificial conditions created by
war—useful, that is, for a Government that cannot manage its own
business and finances and, like a prodigal son, is always wanting money,
and wanting it when it wants it—it has proved, either by reason of its
inherent faults or by mishandling, its inadequacy to the problems of
peace. It has sadly failed of its promise, and is now under serious
question.
Mr. Warburg’s scheme succeeded just in time to take care of war
conditions, he was placed on the Federal Reserve Board in order to
manage his system in practice, and though he was full of ideas then as
to how banking could be assisted, he is disappointingly silent now as to
how the people can be relieved.
However, this is not a discussion of the Federal Reserve System. General
condemnation of it would be stupid. But it is bound to come up for
discussion one day, and the discussion will become much freer when
people understand that it is a system of privately owned banks, to which
have been delegated certain extraordinary privileges, and that it has
created a class system within the banking world which constitutes a new
order.
Mr. Warburg, it will be remembered, wanted only one central bank. But,
because of political considerations, as Professor Seligman tells us,
twelve were decided upon. An examination of Mr. Warburg’s printed
discussions of the subject shows that he at one time considered four,
then eight. Eventually, twelve were established. The reason was that one
central bank, which naturally would be set up in New York, would give a
suspicious country the impression that it was only a new scheme to keep
the nation’s money flowing to New York. As shown by Professor Seligman,
quoted in the last number, Mr. Warburg was not averse to granting
anything that would allay popular suspicion without vitiating the real
plan.
So, while admitting to the Senators who examined him as to his fitness
for membership on the Federal Reserve Board—the Board which fixed the
policies of the banks of the Federal Reserve System and told them what
to do—that he did not like the 12 district banks idea, he said that his
objections to it could “be overcome in an administrative way.” That is,
the 12 banks could be so handled that the effect would be the same as if
there were only one central bank, presumably at New York.
And that is about the way it has resulted, and that will be found to be
one of the reasons for the present situation of the country.
There is no lack of money in New York today. Motion picture ventures are
being financed into the millions. A big grain selling pool, nursed into
existence and counseled by Bernard M. Baruch, has no hesitancy whatever
in planning for a $100,000,000 corporation. Loew, the Jewish theatrical
man, had no difficulty in opening 20 new theaters this year—
_But_ go into the agricultural states, where the real wealth of the
country is in the ground and in the granaries, and you cannot find money
for the farmer.
It is a situation which none can deny and which few can explain, because
the explanation is not to be found along natural lines. Natural
conditions are always easiest to explain. Unnatural conditions wear an
air of mystery. Here is the United States, the richest country in the
world, containing at the present hour the greatest bulk of wealth to be
found anywhere on earth—real, ready, available, usable wealth; and yet
it is tied up tight, and cannot move in its legitimate channels, because
of manipulation which is going on as regards money.
Money is the last mystery for the popular mind to penetrate, and when it
succeeds in getting “on the inside” it will discover that the mystery is
not in money at all, but in its manipulation, the things which are done
“in an administrative way.”
The United States has never had a President who gave evidence of
understanding this matter at all. Our Presidents have always had to take
their views from financiers. Money is the most public quantity in the
country; it is the most federalized and governmentalized thing in the
country; and yet, in the present situation, the United States Government
has hardly anything to do with it, except to use various means to get
it, just as the people have to get it, from those who control it.
The Money Question, properly solved, is the end of the Jewish Question
and every other question of a mundane nature.
Mr. Warburg is of the opinion that different rates of interest ought to
obtain in different parts of the country. That they have always obtained
in different parts of the same state we have always known, but the
reason for it has not been discovered. The city grocer can get money
from his bank at a lower rate than the farmer in the next county can get
it from his bank. Why the agricultural rate of interest has been higher
than any other (when money is obtainable; it is not obtainable now) is a
question to which no literary nor oratorical financier has ever publicly
addressed himself. It is like the fact of the private business nature of
the Federal Reserve System—very important, but no authority thinks it
worth while to state. The agricultural rate of interest is of great
importance, but to discuss it would involve first an admission, and that
apparently is not desirable.
In comparing the present Federal Reserve Law with the proposed Aldrich
Bill, Mr. Warburg said:
Mr. Warburg—“... I think that this present law has the advantage of
dealing with the entire country and giving them different rates of
discount, whereas, as Senator Aldrich’s bill was drawn, it would
have been very difficult to do that, as it provided for one uniform
rate for the whole country, which I thought was rather a mistake.”
Senator Bristow—“That is, you can charge a higher rate of interest
in one section of the country under the present law, than you charge
in another section, while under the Aldrich plan it would have been
a uniform rate.”
Mr. Warburg—“That is correct.”
That is a point worth clearing up. If Mr. Warburg, having educated the
bankers, will now turn his attention to the people, and make it clear
why one class in the country can get money for business that is not
productive of real wealth, while another class engaged in the production
of real wealth is treated as outside the interest of banking altogether;
if he can make it clear also why money is sold to one class or one
section of the country at one price, while to another class and in
another section it is sold at a different price, he will be adding to
the people’s grasp of these matters.
This suggestion is seriously intended. Mr. Warburg has the style, the
pedagogical patience, the grasp of the subject which would make him an
admirable public teacher of these matters.
What he has already done was planned from the point of view of the
interest of the professional financier. It is readily granted that Mr.
Warburg desired to organize American finances into a more pliable
system. Doubtless in some respects he has wrought important
improvements. But he had always the banking house in mind, and he dealt
with paper. Now, if taking up a position outside those special
interests, he would address himself to the wider interests of the
people—not assuming that those interests always run through a banking
house—he would do still more than he has yet done to justify his feeling
that he really had a mission in coming to this country.
Mr. Warburg is not at all shocked by the idea that the Federal Reserve
System is really a new kind of private banking control, because in his
European experience he saw that all the central banks were private
affairs.
In his essay on “American and European Banking Methods and Bank
Legislation Compared,” Mr. Warburg says: (the italics are ours)
“It may also be interesting to note that, _contrary to a widespread
idea, the central banks of Europe are, as a rule, not owned by the
governments_. As a matter of fact, neither the English, French, nor
German Government owns any stock in the central bank of its country.
_The Bank of England is run entirely as a private corporation_, the
stockholders electing the board of directors, who rotate in holding the
presidency. In France the government appoints the governor and some of
the directors. In Germany the government appoints the president and a
supervisory board of five members, while the stockholders elect the
board of directors.”
And again, in his discussion of the Owen-Glass Bill, Mr. Warburg says:
“The Monetary Commission’s plan proceeded on the theory of the Bank of
England, _which leaves the management entirely in the hands of business
men without giving the government any part in the management or
control_. The strong argument in favor of this theory is that central
banking, like any other banking, is based on ‘sound credit,’ that the
judging of credits is a matter of business which should be left in the
hands of business men, _and that the government should be kept out of
business_.... The Owen-Glass Bill proceeds, in this respect, more on the
lines of the Banque de France and the German Reichsbank, the presidents
and boards of which are to a certain extent appointed by the government.
_These central banks, while legally private corporations_, are
semi-governmental organs inasmuch as _they are permitted to issue the
notes of the nation_—particularly where there are elastic note issues,
as in almost all countries except England—and inasmuch as _they are the
custodians of practically the entire metallic reserves of the country
and the keepers of the government funds_. Moreover in questions of
national policy _the government must rely on the willing and loyal
co-operation of these central organs_.”
That is a very illuminating passage. It will be well worth the reader’s
time, especially the reader who has always been puzzled by financial
matters, to turn over in his mind the facts here given by a great Jewish
financial expert about the central bank idea. Observe the phrases:
(a) “without giving the government any part in the management or
control.”
(b) “these central banks, while legally private corporations ... are
permitted to issue the notes of the nation.”
(c) “they are custodians of practically the entire metallic reserves of
the nation and the keepers of the government funds.”
(d) “in questions of national policy, the government must rely on the
willing and loyal co-operation of these central organs.”
It is not now a question whether these things are right or wrong; it is
merely a question of understanding that they constitute the fact.
It is specially notable that in paragraph (d) it is a fair deduction
that in questions of national policy, the government will simply have to
depend not only on the patriotism but also to an extent on the
permission and counsel of the financial organizations. That is a fair
interpretation: questions of national policy are, by this method,
rendered dependent upon the financial corporations.
Let that point be clear, quite regardless of the question whether or not
this is the way national policies should be determined.
Mr. Warburg said that he believed in a certain amount of government
control—but not too much. He said: “In strengthening the government
control, the Owen-Glass Bill therefore moved in the right direction; but
it went too far and fell into the other and even more dangerous
extreme.”