"The Money Trust" Part 3. Chapter 9 from "Our Country, Then and Now"

"Creation of the Federal Reserve" -- Part 1

Serialization of selections from my book Our Country, Then and Now continues with the cooperation of my publisher, Clarity Press. Today we have the third installment of Chapter 9, “The Money Trust”: “The Creation of the Federal Reserve” — Part 1

The previous chapter, “Rule Britannia,” explained the 500-year rise of Great Britain, its ascent to world dominance by the 19th century, and its late-19th-century rivalry with the rising power of Germany. This lengthy process culminated in the decision by diamond/gold magnate Cecil Rhodes and his henchman Lord Nathaniel Rothschild to use the wealth of South Africa to create a “secret society” to “recover the United States of America for the British Empire.”

Next to come would be Britain’s project of launching a century of world wars, with US help, in order to annihilate Germany, then Russia, as the last standing opponents to British global hegemony. Capturing of the US as accessory to the crime would be accomplished by financial means; namely by using the US Money Trust, headed by J.P. Morgan and the Rockefellers, to create the Federal Reserve. This would allow US banks, in league with the overarching power of the Bank of England, to supply Britain with the immense monetary sums needed to launch and carry out World War I, soon to be called “The Great War.”

The Federal Reserve has been called the “Creature from Jekyll Island.” Let’s find out why.

Creation of the Federal Reserve — Part 1

The US saw two major power struggles during the late 19^th and early 20^th centuries. One was between the heads of the big corporations and the most powerful bankers. The other was between those same bankers and the federal government.

The bankers took over industry by forming trusts. These were financial holding companies that controlled the key corporations, such as the Steel Trust, the Railroad Trust, the Standard Oil trust, the Tobacco Trust, the Sugar Trust, and, most importantly, the Money Trust.

By 1904, forty percent of the capital invested in US manufacturing was controlled by trusts. It was also a period of growth in union membership, which reached over two million members by 1904. Indeed, it was only through joining unions that workers had a chance at gaining any benefit from the rampant industrial growth which the trusts controlled.

President Theodore Roosevelt built his reputation as a “progressive” through his “trust-busting” initiatives based on the Sherman Anti-Trust Act of 1890, and aided by rulings from the Interstate Commerce Commission, established in 1887. Roosevelt’s activism was considered a marked departure from the period of minimal governmental intervention by the post-Civil War presidents through McKinley..

The trust that President Theodore Roosevelt failed to break up was the Money Trust. According to Nomi Prins, writing in All the President’s Bankers, there were actually two Money Trusts, sometimes but not always competing with each other. One was the Rockefeller family trust, consisting of John D. and his brother William Rockefeller, James Stillman of the National City Bank of New York, E.H. Harriman, director of the Union Pacific Railroad, and the aforementioned Jacob Schiff, head of the Wall Street firm of Kuhn, Loeb & Company.

The other Money Trust, the “inner group,” as it was called, was J.P. Morgan’s, which included Great Northern Railway CEO James Hill and George Baker, Sr., head of the First National Bank that later became part of Citigroup. James Stillman also belonged to Morgan’s trust, along with that of Rockefeller. Stillman was able to straddle the two sets of interests.[i]

The Money Trusts were the progenitors of what economists today call the “FIRE” economy—finance, insurance, and real estate; or simply the “Money Power.” The rise of the Money Trusts indicated a major shift of emphasis from earning money through industrial development to the making of money for its own sake. This was accomplished by the familiar method of fractional reserve banking based on usurious rates of compound interest.

The most successful application of the Sherman Anti-Trust Act was the breaking up of the Rockefellers’ Standard Oil Company in 1911. But this breakup did little to slow the money-making activities of the Rockefeller family, who had already leveraged their profits from petroleum to diversify into a number of other business lines, including railroads, chemicals, mining, insurance, utilities, medicine, and banking. It was the National City Bank which came to be most strongly associated with the Rockefeller fortune. This bank would someday become Citigroup. Later the Rockefellers also gained control of the Chase National Bank.

The Rockefellers were able to parlay their wealth into political influence by a union cemented by marriage, with Abigail, the daughter of US Senator Nelson Aldrich (1841-1915) of Rhode Island, to the only son of John D. Rockefeller—John D. Rockefeller, Jr.

Aldrich was descended from 17^th century Massachusetts immigrants and had himself married into wealth. After brief service in the Union army during the Civil War, he became a partner in a wholesale grocery firm before entering politics. A Republican, he won election to the Rhode Island legislature, then the US House of Representatives, then the Senate. By the 1890s, Nelson Aldrich was one of the key senatorial power brokers through his position on the Senate Finance Committee, where he promoted a strong tariff policy to protect US manufacturing interests. But most notably, Nelson Aldrich became the de facto founder of the Federal Reserve.

It must be asked: is it possible to educate the public on who is really pulling the levers from behind the scenes by means of the press? While what Theodore Roosevelt called the “muckrakers” appeared on the scene to inform people of corporate and financial abuses during the progressive era, early on, the financiers promoted their power-seeking by purchasing the big US newspapers and magazines, including, most notably, top-tier publications like The New York Times. Control of the press and later of all other forms of mass media was becoming an obsession with the controlling elite that has continued to this day.[ii]

By now, financial power had begun to shift away from Great Britain toward the US, where J.P. Morgan played a central role. In the 1890s, the Bank of England approached Morgan for a bailout of London’s Barings bank, which was crashing due to bad investments in Argentinian bonds.[iii] This followed Morgan’s aid to Great Britain in the selling of government bonds to American investors in order to fight the Boer War and the assistance provided by Morgan and the Rothschilds to President Grover Cleveland by selling him gold to cover a US Treasury shortfall. This action was repeated by Morgan, aided by James Stillman, in buying foreign gold to cover a shortfall for the McKinley administration.

American investment capital, aided by the government, was also reaching out to control Latin American companies through what was then called “Dollar Diplomacy,” as well as to China for the construction of the Hankow-Canton Railroad, to Sweden and Germany, and for railroad loans to Russia.

In 1903 and 1907 financial panics erupted when corporate stocks crashed, banks called in their loans, and workers were thrown out of their jobs. With the money supply drying up, local bank clearinghouses began issuing their own emergency currency. It was now the Republican Party and its newspaper outlets that were most aggressive in criticizing big finance and in calling out the politicians who spoke for it.

The Panic of 1907 began with a run on banks heavily invested in copper. As had happened in the past, Wall Street’s speculative lending was vastly overextended. The US Treasury offered banks low-interest-rate bonds and imported gold from London. The US balance of trade shot up with favorable crop yields, and the panic stopped after a few weeks before too much damage was done. But for both bankers and politicians, “The panic of 1907 was the last straw.”[iv] A European banker accustomed to working with central banks in Britain and France declared the US “a great financial nuisance.”

It was at this moment that Senator Nelson Aldrich stepped in. Aldrich walked a fine line as a Republican politician at a time when the reputation of the nation’s banks was in the gutter. He could not create the appearance of favoring the banks with an institutional bailout, yet he was firmly in the camp of the financiers through inclination, temperament, and his family’s marriage alliance with the Rockefellers. As chairman of the Senate Finance Committee, he was free to act, especially since it was the waning days of the Roosevelt Administration, and Roosevelt’s designated presidential successor William Howard Taft, himself a patrician, was firmly on-board.

Aldrich’s first accomplishment was the Aldrich-Vreeland bill of May 1908, authorizing the formation of a National Currency Association, allowing national banks to make loans based on emergency currency, setting a minuscule interest rate of one percent to the government for its deposits, and creating a Monetary Commission of nine senators and nine congressmen “to make a comprehensive study of the necessary and desirable changes in the money and banking system.”[v]

[The reason the federal government made deposits into the banks was that, going back to the days of Alexander Hamilton, Treasury bonds, with multiples of their value being lent by banks to their customers, was the basis of circulating currency.]

Aldrich and his banker friends, with Morgan always at the center of the scheming, now went to work behind the scenes. Their objective was to create an institution—a central bank—that would give bankers a backup when they ran out of gold or cash in financial emergencies and that would also offer an umbrella under which a unified currency could operate on equal footing with the British pound, French franc, or German deutschmark.

Aldrich and others traveled to Britain and Europe to study national banks in their native environments. The German banker Paul Warburg had emigrated to New York in 1902 to work for Kuhn, Loeb & Company and now took the lead in drafting a secret plan that would allow the central bank to exercise “a method of creating currency in downturns.”[vi] Aldrich’s goal was to make the US and New York the leading financial center in the world. The British, for their own reasons, would go along with it.

Aldrich, Morgan, Stillman, and Rockefeller put together a plan for a group selected by them to meet at an exclusive club at the offshore resort on Jekyll Island in Georgia. The series of meetings took place from November 20-30, 1910. Present were Aldrich, assistant treasury secretary A. Piatt Andrew, bankers Henry Davison and Arthur Shelton, president of the Rockefellers’ National City Bank Frank Vanderlip, and transplanted German banker Paul Warburg, a rising star with New York’s Kuhn, Loeb, and with powerful Rothschild connections.

The product of their meeting was the plan for the Federal Reserve System, which they initially called the Federal Reserve Association. The word “bank” was not included. Benjamin Strong, future Federal Reserve governor, and Frank Vanderlip wrote the final report. It circulated within Congress and was reported in the press as the Aldrich Plan. President Taft enthusiastically supported it.

But the real mastermind behind the Aldrich Plan, though not revealed until publication in 1931 of a book by Elisha Ely Garrison entitled Roosevelt, Wilson and the Federal Reserve, was Baron Alfred Rothschild of London.[vii] At the time, all of the big US banks, including Morgan’s, maintained close relationships with the House of Rothschild, principally through the Rothschild control of international money markets through its setting of the price of gold. Each day, the world price of gold was set in the London office of N.M. Rothschild and Company.[viii]

But a battle lay ahead. Why, critics asked, should the banks have access to readily created currency furnished by the government to step in and save them, in instances most likely caused by the banks’ own speculative forays in pursuit of greater profits? Wouldn’t that just be a monumental invitation to abuse?

Minnesota Congressman Charles A. Lindbergh, Sr., father of the future aviator, had introduced a resolution to investigate the money trusts and their role in the passage of the Aldrich-Vreeland Act which had led to the Aldrich Plan. Lindbergh’s resolution resulted in hearings before Louisiana Democrat Arsène Pujo, chairman of the House Banking and Currency Committee. Even J.P. Morgan himself would be called before Pujo’s committee which, unsurprisingly, pro-finance organs like The New York Times, derided. But the writing was on the wall. The Aldrich Plan might not make it through Congress.

To be continued as “Creation of the Federal Reserve — Part 2”.

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[i] Nomi Prins, All the President’s Bankers: The Hidden Alliances that Drive American Power, Nation Books, 2014, p.52.

[ii] In 1915 the J.P. Morgan interests bought control of the top twenty-five US newspapers. Editors were hand-picked. The focus was news favorable to big finance along with pro-British war propaganda. See Ed Whitney, The Controllers: Secret Rulers of the World, American Free Press (2015), p.54. Media consolidation and control by big finance continues to this day, particularly after President Bill Clinton signed the Telecommunications Act of 1966.

[iii] Prins, p.5.

[iv] Studenski and Kroos, p.254.

[v] Ibid, p.255.

[vi] Prins, p.20.

[vii] Eustace Mullins, Secrets of the Federal Reserve, privately printed, 1952, p.41.

[viii] Ibid, p.83. The question arises as to why Senator Aldrich thought the Federal Reserve would shift world financial power toward the US when he was involving European bankers in writing the legislation. Briefly, his plan did not work. The US did not gain world financial dominance until World War II. This was why the Bank of England was able to engineer the Great Depression in 1929.