Socialized Money-Chapter III

Chapter 3: This was a good chapter in that it goes into some detail behind the structure of the Federal Reserve and the implemented monetary system of the time (1933). The reader must remember that the United States was just coming off of the bi-metallic monetary system, or gold/silver standards. "President Roosevelt's routing of the gold standard" had made way for managed bank currency. The next step by the Federal Reserve was to implement, as the author surmises, a principle of exchange. He "presupposes a condition... in which indebtedness in one form will liquidate indebtedness in another. There is anticipated, it would seem, a time—probably not so far distant—when society would be required to pay to the monopoly which controls money and credits a percentage upon every dollar of wealth exchanged, in addition to interest upon all the borrowed dollars in business and industry." How prophetic that assumption was!

He continues by explaining that central banks are really nothing more than banker's banks. They are given the color of authority by calling them "Federal," but by no means are they a public bank. By Government handing over to private banks the authority to make and regulate the national monetary system, they are, in fact, subjecting the people to a subtle form of economic slavery. The author claims, "The process of cashing in was well underway... It would be impossible to conceive a more perfect conspiracy to rob and enslave society." (I believe he was referring to government's declaration for the public to hand over it's gold.)

"The Federal Reserve," he explains, "perpetuates itself through the creation and extension of indebtedness—in the form of loans, discounts, rediscounts and government bonds, originated in and shuffled back and forth between banks. The Federal Reserve Board even has "qualified power to suspend reserve requirements." He follows with a few quotes from a person qualified to speak on this subject,  H. Parker Willis, Secretary of the Federal Reserve Board:
"...the Federal Reserve system is a commercial banking system."
"...the most important alteration... of the law was... designating the new Federal Reserve notes (the ones in your wallet) as obligations of the United States, thus making them, in the technical sense at least, a government currency."
"an association of banks, . . . vested with what would ultimately amount to a monopoly of the power of issuing notes."
H. Parker Willis goes on to explain the process known as fractional-reserve banking, or creating bank credit from debt. He closes by explaining that, "As things developed, the relationship of the government to the banks as depositor has thus practically developed into a system whereby taxes, duties and other public dues are paid in bank credit."

The author closes the chapter by saying, "A nation dominated by such a monetary system enters definitely upon... the dictatorship which those who control the flow of money and credits exercise over not only the nation's commerce and industry, but over government itself, from the humblest city hall to the capitol at Washington, D. C." I would have to agree with that statement.

CHAPTER III
The Federal Reserve's Place and Part in the
Nation's New Managed Bank
Currency System

SEEMINGLY THE IDEA cannot register that the only way to get away from a bad monetary system is to abandon it entirely. The mixing of the good with the bad in a monetary system operates very much the same as Gresham's law applied to good and bad money—the bad drives out or neutralizes the good.

Neither the switching of standards nor the varying of the metal content of the dollar may be said really to effect a fundamental change in our monetary system. In the broad sense there are only two fundamentally different monetary systems: the social and the nonsocial.

Monetary disturbance within the existing system has, however, been so unprecedented throughout the world, and particularly in the United States since March 1933, that no one can be quite sure as to what combination of monetary devices will be in effect the day after tomorrow. But there is absolute certainty that until a complete change has been effected, the monetary system of the United States will continue to be a hatchery for government bonds and a publicly-supported adjunct to the banking interests of the nation.

President Roosevelt's routing of the gold standard, while ranking as a major economic achievement in itself, must in the broader view be considered as the taking of an empty fort, from which the enemy has merely retreated to a more formidable position—that of managed bank currency.

So, considering all phases of the monetary and economic situation in the United States, quittance of the gold standard is mainly significant in that it has brought ultimate reform in these particulars measurably nearer.

It is gratifying to note, nevertheless, that what has been going on in Washington has been accomplished in the spirit of a sensible parent taking a dangerous plaything away from his little folks.

Coincidently, moreover, there have come down from the walls in the national hall of fame the enlarged and tinted pictures of the "sound-money" saints, from the Roscoe Conklings of the 1860s to the Carter Glasses of the 1930s.

A visitation, too, of which we had grown tolerantly accustomed and in whose periodic coming we were never disappointed—the classic gold-standard editorial—is missing from the press.

Probably the bulkiest monument and certainly the saddest testimonial to the nation's enthrallment to economic benightedness would be found in a massed edition of these editorials.

THE NEXT PHASE, or more correctly the completion of the present phase, of planned development in nonsocial monetary systems, both at home and abroad, will radiate from central banking. The part which our own centralized system, the Federal Reserve, will have in this development should, therefore, be more generally understood.

The banking principle of exchange, typical of privately-conducted central banking, presupposes a condition, if it be sufficiently widespread, in which indebtedness in one form will liquidate indebtedness in another. There is anticipated, it would seem, a time—probably not so far distant-when society would be required to pay to the monopoly which controls money and credits a percentage upon every dollar of wealth exchanged, in addition to interest upon all the borrowed dollars used in business and industry.

With central banking established around the world, international finance would become merely a matter of bookkeeping between the various central banks, very much as banking transactions generally, including those of the federal government, are now details of bookkeeping between banks.

THERE IS NO DISGUISING the fact that the central banks of the various nations are essentially bankers' banks. True, they take on a certain governmental character, much as a chameleon takes on the color of the object upon which it rests. But inherently the central banks are privately owned and managed—managed in the interest of the highly specialized and scientific art of moneymaking.

Therefore, when a nation turns its monetary system over to a central bank, it is placing in private hands the nation's most precious economic possession. Likewise, when central banks take over the monetary systems of the various nations, the people of the world thereby become subjected to the most subtle form of economic slavery.

EVERY STUDENT OF AFFAIRS knows from experience gained during the last half dozen years that the gold standard had a strangle hold upon the people of the United States. And while the pressure of that strangle hold has been relieved somewhat, it still is upon the necks of the people in the form of bank currency controlled by central banking.

If the gold standard had been allowed to operate to the extent of its possibilities, the wealth of the United States ultimately would have been liquidated in the interest of the beneficiaries of the system. The theory of "conversion" applicable to the paper satellites of gold would sooner or later have applied to all other forms of wealth.

It is no figure of speech to say that the wealth of the United States, from Bangor to Seattle and from Fargo to New Orleans, was goldplated and earmarked for delivery. Every character of federal, state, municipal or other public bond, and every private corporation bond, and every instrument identified with the vast credit structure of the country—all were payable in "gold of the present weight and fineness." One hundred and forty odd billion dollars of indebtedness payable in gold—with comparatively a handful of the precious metal.

The process of cashing in was well under way. Just two moves were in the play: First, concentrate wealth second, convert it into gold or tax-exempt securities payable in gold. It would be impossible to conceive a more perfect conspiracy to rob and enslave society.

The fact that three-fourths of the people the country over live from hand to mouth, and consequently are unable to accumulate wealth above the margin of subsistence, and that habitual indebtedness has become a national malady, indicates whom the gold standard was designed especially to serve. Unquestionably, it served peculiarly those who had surplus to convert into gold, and indebtedness liens upon a large part of the nation's wealth removable only with gold. Bryan spoke truth eloquently when he said men were being crucified upon a cross of gold.

The question was not alone whether it was advisable to abandon the gold standard. Rather, it was whether it was possible to do so.

Having wholly and unalterably committed ourselves to gold, we were in the situation of one who has grabbed an overpowering voltage of electricity and can neither let go nor survive the consequences of holding on.

looking the present monetary and economic setup squarely in the face, reason for felicitation on the part of the people of the United States is not apparent. Goldstandardism has merely been succeeded by an equally rapacious monetary monopoly—the bank currency system, typical of central banking organizations throughout the world, but perfected in the superbanking system of the United States known as the Federal Reserve.

As is well known, the bank currency system was grafted upon and has become a luxuriant outgrowth of the gold standard. Now it is the fruitful part of that monetary tree. As a consequence, we find the government in the position of providing a banking system to serve the bankers rather than a monetary system to serve the people.

The nation's gold which once actually circulated as money is no longer even in reserve. It has, to all intents and purposes, apparently, been demonetized, and in its place we have a "reserve" which perpetuates itself through the creation and extension of indebtedness—in the form of loans, discounts, rediscounts and government bonds, originated in and shuffled back and forth between banks. The Federal Reserve Board even has "qualified power to suspend reserve requirements."¹

it was stated earlier in this chapter that the monetary system of the nation is being turned over to the bankers. It would be well, therefore, to establish the facts before making deductions as to the monopolistic nature of the revamped monetary establishment.

H. Parker Willis, professor of banking at Columbia University, formerly secretary of the Federal Reserve Board, is undoubtedly qualified to speak of the inherent nature of the organization with which he was so intimately associated. His exact words are that "the Federal Reserve system is essentially intended as a commercial banking system."¹

In the establishment of the system it was also the intention to give effect to the so-called "elastic banknote issue of other countries."¹ While alterations were to some extent introduced into the act during its consideration by Congress, "it may broadly be said there was no change in the objects ultimately aimed at."¹

"Probably the most important alteration in the terms of the law," further comments Mr. Willis, "was that which designated the new Federal Reserve notes as obligations of the United States, thus making them, in the technical sense at least, a government currency."¹

It should be clear from the foregoing that the Federal Reserve system is, as Mr. Willis in another paragraph styles it, "an association of banks,... vested with what would ultimately amount to a monopoly of the power of issuing notes,"¹—meaning, of course, that ultimately the national banks will surrender their note-issuing power.

The Federal Reserve Board, appointed by the President of the United States, with the advice and consent of the Senate, gives the system its governmental color. The board consists of seven members, including the Secretary of the Treasury and the Comptroller of the Currency. Two of the appointive members of the board "must be of tested banking experience, one of whom shall be designated governor and the other vice-governor."¹

The board of directors of each of the twelve Federal Reserve banks consists of nine members. Three of these directors are named by the Federal Reserve Board as representatives of the government. The banks name the other six—three to represent the banks and three "who are presumed to represent in a general way the industrial, commercial, and agricultural interests of the district in which the bank is situated."¹

"An incidental consideration" in connection with the administrative duties of the Federal Reserve Board "is necessarily that of the earnings of Federal Reserve banks, and the degree in which it is necessary or desirable to enlarge those earnings through the taking on of more business." ¹

The fact that the Secretary of the Treasury presides over the board "enables him to communicate to it necessary information with reference to the policies of the department on financial and banking questions, and to receive from it advice and information concerning the work of the Reserve system."¹

Furthermore, according to Mr. Willis, the membership of the Secretary of the Treasury in the Federal Reserve Board will be of increasing significance. It is anticipated there will be "a constant working participation on the part of the Secretary of the Treasury in the affairs of the board, and, conversely, a participation on the part of the board, as a conservator of the banking resources of the country, in the operation of the Treasury Department."¹

again let Mr. Willis² testify: "In those countries where central banking exists, or where, as in the Federal Reserve system, there is a cooperative union of banks whose purpose is primarily that of mutual accommodation, . . . banks have the definite duty of relieving other banks through rediscounting."

From another authority, George William Dowrie,³ comes the statement that "in 1920, the peak year of credit expansion, collateral loans to members amounted to over 55 billions, out of the total loan and discount volume of 85 billions. Of the total of more than 55 billions, all but $150,000,000 was secured by war paper (bonds)."

The significance of these facts and figures appears when considered in conjunction with another set of facts and figures supplied by Mr. Willis,² as follows:

"... By borrowing from the Federal Reserve bank and taking credit upon the books of that institution, the member's reserve is increased and its power to extend accommodation is thereby correspondingly extended to a maximum amount equal, in the case of a country bank, to about fourteen times the amount it borrows from the Federal Reserve bank, and in the case of a Reserve city bank, or a central Reserve city bank, to about ten times and eight times respectively."

The opinion of Hartley Withers,⁴ English authority, is further enlightening:

"On paper the new system [Federal Reserve] seems to be as near perfection as can be expected from any human effort, if perfection in a banking system means infinite powers of credit expansion."

In point, again, is another statement and explanation by Mr. Willis,¹ then secretary of the Federal Reserve Board: "The essential and primary purpose of the system is that of performing what is known as the operation of rediscount. By discount is meant the transaction by which a bank accepts an obligation from a customer running for a specified period, and advances to the customer the amount of the obligation, minus the interest for the period... . When a bank possessed of such notes, and itself desiring funds, presents these notes to another bank in order to get an advance, the operation is called a rediscount."

Mr. Willis¹ in another instance epitomizes the Federal Reserve as "a joint mechanism for the extension of credit to banks."

in germ the Federal Reserve was a banking idea. More than a generation ago a so-called currency commission, dominated by bankers, met in Indianapolis, Ind., and proposed a currency based upon commercial paper. Soon afterward a bill of identical import was introduced in congress.

One of the main objects of the legislation in the establishment of the Federal Reserve, but which was not set forth either in big type or colored ink, was "the management and commercial use of the funds of the government which were then isolated in the treasury and subtreasuries in large amounts."² This is confirmed in another statement by Mr. Willis,¹ in his earlier book, in which he said: "The fact remains that the Federal Reserve Act has provided ... a means of keeping the funds of the government available for banking uses."

The Federal Reserve system having become effective, the Reserve banks thereupon "relieved" the treasury, as follows: From flotation of loans; from collection, safekeeping and disbursement of public moneys; and from supplying and replacement of bills and coin in general circulation.

"As things have developed," Mr. Willis² further explains, "the relation of the government to the banks as depositor has thus practically developed into a system whereby taxes, duties and other public dues are paid in bank credit."

The foregoing facts and figures regarding the Federal Reserve system are disquieting, to say the least. They show that—

1. The Federal Reserve is essentially a bankers' organization, conducted in the interest of its members, for profit.

2. As such bankers' organization it now enjoys, along with the national banking system (whose circulation is in process of retirement), a monopoly of the supply of money, linked inextricably with the mastership of credits, in the United States.

3. By reason of this monopoly of supply, based upon its own credit (commercial paper) and the credit it provides for the government (bonds), there is established a circle of exchange with capacity utterly to destroy economic liberty and to impose financial servitude within the sphere of its operation.

A nation dominated by such a monetary system enters definitely upon what Winthrop More Daniels,⁵ formerly professor of political economy at Princeton University, defines as commercial constitutionalism, or the dictatorship which those who control the flow of money and credits exercise over not only the nation's commerce and industry, but over government itself, from the humblest city hall to the capitol at Washington, D. C.

1The Federal Reserve, by Henry Parker Willis, Secretary of the Federal Reserve Board.
²Banking and Business, by H. Parker Willis and Geo. W. Edwards.
³American Monetary and Banking Policies, by George William Dowrie (Stanford).
⁴The Meaning of Money, by Hartley Withers.
⁵'The Elements of Public Finance, by Winthrop More Daniels (Princeton).
note—Italic appearing in the quoted text supplied by this writer.