_wealth_ must _pass through the narrow neck of Money_. And the _Money_
must pass through the _still narrower neck of Gold_. And the controller
of the Gold, under our present system, controls the world. There is more
wealth than there is money; there is more money than there is gold;
money exists at the pleasure of gold; wealth moves at the pleasure of
money. Whoever sits at the neck of money, opening or closing as he will,
controls the movement of the world’s wealth. And the world’s prosperity
depends on the movement of that wealth. When wealth stands still and
does not pass from hand to hand, the world’s circulation has stopped;
the world becomes economically sick.
The scarcity of cash in hand has led to Credit. Credit is a form of
barter. It is a form of dealing by which many transactions are carried
on, only the final one being cleared in money. It is a device which has
its dangers, in spite of the efforts of apologists to exploit its
advantages. But one thing the system of Credit indubitably does—it
allows the money masters to hang on to the _Cash_. When the world is
caught, _it is caught with paper_, not with Cash. The Cash is always in
the hands of those who extol the advantage of the Credit System. Who
holds money holds power, and will hold it, until real barter or _real
money_ comes in fashion again.
In 1919–1920, according to one of the best monetary authorities in the
United States, the total shrinkage in values of the products of our
fields, mines, factories, mills and forests represented a sum greater
than the total gold supply of the world. It runs as high as the total
amount of Liberty Bonds outstanding.
People say, “Well, the prices were too high.” Certainly they were too
high, but who and what made them too high? It was the generosity with
which money was supplied by the private Federal Reserve System. There
was plenty of money. People say, “Well, the shrinkage is only in paper
values; the real value of the product is still there.” Certainly, but
when you live under a system in which “real” value and “money” value are
so intimately intertwined that it affects your bread and butter, the
tenure of your farm, and the steadiness of your job, it is pretty hard
to separate the two. Moreover, when your prosperity was due to the
readiness of a group of men to let out money, and your adversity is due
to the unwillingness of the same group, and your own welfare and your
country’s welfare is thus see-sawed up and down without any reference to
natural law but solely upon determinations taken in committee rooms, you
naturally inquire, “Who is doing this? Where is all the money gone? Who
is holding it? Here is the wealth of the country; here is the need of
the country; where is the money to transfer the wealth to the need?
Every condition remains as it was, except money.”
We have a Federal Reserve System which still is benefiting by the
assistance of its perfector and director, Paul M. Warburg. And what is
the condition in the United States?
Some of the biggest industrial institutions in the country now in the
hands of creditors’ committees.
Farmers being sold out by the hundreds, their horses bringing about $3
each.
Cotton and wool enough to clothe the nation, spoiling in the hands of
the men who raised it and cannot dispose of it.
Every line of business, railroading, newspaper publishing,
store-keeping, manufacturing, agriculture, building, in depression. Why?
For lack of money.
Where is the money? This is the country that is supposed to be the
financial center of the world—_where is the money?_
It is in New York. The Federal Reserve System, which Mr. Warburg desired
to head up in one central bank, has just about turned out that way. _The
money is in New York._ Here is the charge made to the governor of the
Federal Reserve Board by a responsible public official who knows:
While there is a scarcity of money for the producing sections of the
West and Northwest, the South and Southwest, “we find that individual
banks in New York City are borrowing from the Reserve System, in a
number of cases, more than $100,000,000 each; and sometimes as much as
$145,000,000 is loaned there to a single bank—_twice as much_ as some of
the Reserve Banks have been lending recently to _all_ the member banks
in their districts.”
One bank in New York borrowed $134,000,000, _or $20,000,000 more_ than
the Federal Reserve Bank of Kansas City was advancing to 1,091 member
banks in that Reserve District which covers the states of Kansas,
Nebraska, Colorado, Wyoming, and parts of Missouri, Oklahoma and New
Mexico.
At the same time, another New York bank was borrowing from the Federal
Reserve Bank about $40,000,000, which was _more than the aggregate loans
which the Federal Reserve Bank of Minneapolis was lending to its 1,000
member banks in the_ great states of Minnesota, North and South Dakota,
Montana and part of Wisconsin.
Another New York bank borrowed from the Federal Reserve Bank a sum which
was _greater by $30,000,000 than the Federal Reserve Bank at Dallas was
lending to all the banks in Texas, Louisiana and Oklahoma_.
Still another New York bank got a loan which _equaled the total loans
allowed by the Federal Reserve Bank of St. Louis to the 569 member
banks_ of that very important district, which includes the whole state
of Arkansas, parts of Illinois, Indiana, Kentucky, Tennessee and
Mississippi, and the larger part of Missouri.
Take the Fifth Federal Reserve District, served by the Federal Reserve
Bank at Richmond, Virginia: one New York bank was able to borrow from
the New York Reserve Bank _more_ than the Richmond Reserve Bank would
lend to all its member banks in Maryland, Virginia, North and South
Carolina and the larger part of West Virginia.
That is the situation. The twelve regional banks, which were supposed to
make money serve all parts of the country equally, have apparently been
“overcome in an administrative way” to such an extent that the New York
Federal Reserve Bank is to all intents and purposes the Central Bank of
the United States, and serves the speculative part of the country with
millions, while the productive part of the country is permitted to wilt
with paltry thousands.
When it can occur that four New York banks can borrow from the New York
Federal Reserve Bank as much money as the banks of 21 states were able
to borrow from the five Federal Reserve Banks of St. Louis, Kansas City,
Minneapolis, Dallas and Richmond—there would seem to be need of
explanation somewhere.
Where did this money loaned in New York come from? It came from those
parts of the country where money was scarcest. In May, 1920, the word
went out over telephones—“The tie-up will come on the 15th.” And it
came. Credit was stopped. Payment was pressed. A stream of money,
literally squeezed out of the producing sections of the country, began
to roll toward New York. Otherwise those giant loans just recorded would
have been impossible. It was pressure, Federal Reserve pressure,
politely known as deflation, and that is the way it worked. The banks of
the West were squeezed dry that the banks of New York might overflow.
“_The money was withdrawn from legitimate business in various parts of
the country to be loaned at fancy rates in Wall Street_,” says the
official referred to above.
The speculative banks, it has been discovered, were able to borrow money
at six per cent, which money they loaned at as high as 20, 25 and 30 per
cent.
Federal Reserve deflation created a scarcity which speculative banks
utilized. The Federal Reserve policy took the money out; New York banks
borrowed the money thus taken out, and loaned it at tremendous
rates—rates which people paid to stave off the ruin caused by the
moneyless condition which the ill-measured deflation process brought on.
And all this time the Federal Reserve System was in the best financial
condition of its whole career. In December, 1920, it had 45 per cent of
its reserves, which was a higher reserve than it had in December, 1919.
But at this writing (July, 1921) the reserve has reached 60 per cent.
The money is in New York. Go out through the agricultural states, and
you will not find it. Go into the districts of silent factories and you
will not find it. It is in New York. The Warburg Federal Reserve has
deflated the country. A System that was intended to equalize the ups and
downs of financial weather has been used “in an administrative” way to
deplete the country of money.
The Federal Reserve Idea was doubtless right; if it had not been, it
could not have been established. But it has been manipulated. It has not
been a “federal” reserve; it has been a private reserve. It has been
operated in the interest of bankers and not of everyone in general.
Capable of being used to carry the country gradually back to a natural
flow of business and to a natural level of prices, it was used to
bludgeon business at a critical time and to bludgeon it in such a way
that money-lenders profited when producers suffered.
If that is the fact, there is no American banker but will say that the
method was wrong; economically wrong, logically wrong, commercially
wrong, if not criminally wrong.
Today the Federal Reserve boasts of its own reserve as if that were a
sign of national economic health. With the country struggling to live,
the Federal Reserve ought to be low, not high. The height which the
reserve has reached is a measure of the depth of the country’s
depression.
If the Federal Reserve would let out a part of that flood of money—a
high financial authority suggests that less than 10 per cent would do
it—it would be like an infusion of blood into the nation’s veins.
Kuhn, Loeb & Company, the Speyers and the other Jewish money-lenders
have money for Mexico, Norway, Germany, and all sorts of commercial
companies being organized to do business overseas, and it is American
money. The Warburg Federal Reserve System has been badly misused, badly
manipulated, and the country is suffering from it.
Still, the people know not what to do. Money is still a mystery. Banking
is still sacrosanct. What would be perfectly apparent if done in
ordinary business intercourse with a $5 bill, is exceedingly complicated
when the sum is five millions and the parties are (1) country banks, (2)
Federal Reserve banks and (3) Wall Street speculative institutions. Yet
they are only Tom, Dick and Harry with a $5 bill, after all.
“The matter is somewhat affected by the gags that are placed on many men
competent to criticize. High officials are more or less tied up, by
campaign contributions in which all financial concerns have an interest.
Legislative officials are, too many of them, indebted to these same
interests. A schedule of the private debts of some of the men who have
aspired to the Presidency in the last eight years would be very
illuminating—almost as illuminating as a schedule of the names of Jews
at whose homes they stayed while on journeys through the country. Men
who are thus tied up with the present financial system cannot say what
in their minds they know.
It is all illustrated in the testimony of T. Cushing Daniel before a
committee of Congress. It shows to what an extent the power of this
private corporation called the central bank can reach:
“When going through the Bank of England I presented a letter which I
had from Secretary Hay, and the official of the bank was very
polite. He took me through the bank and when we got back to the
reception room I asked him if he would allow me to put a few leading
questions to him. He said he would, and I asked him if he would give
me a statement of the Bank of England. ‘We do not issue statements.’
‘Does not the House of Parliament sometimes call on you for some
statement as to the condition of the bank?’ ‘No, sir; they do not
call on us.’ ... ‘How is it that some of these revolutionists,
so-called, do not get up in the House of Commons and raise the devil
to know something about what is going on down here? That would be
the condition in our country.’ ‘_Oh, most of them are large
borrowers from the bank, and we have no difficulty with them._’
(laughter.)”
——
Issue of July 16, 1921.
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TRANSCRIBER’S NOTES
● Typos fixed; non-standard spelling and dialect retained.
● Enclosed italics font in _underscores_.