CHAPTER TWENTY-TWO:
The Nature of the Federal Reserve System
The Establishment of a Central Bank in America
Franklin Roosevelt is reported to have said, "In politics, nothing happens by accident. If it happens, you can bet it was planned that way." In the preceding chapter, we have seen what happened during the banking emergency of the early 1930s; we will now take a look at how and why it happened. To do this, we will need to first go back in time to the late 1700s.
As discussed in Chapter One, the Federalist faction present at the Philadelphia Convention was led by Alexander Hamilton, who advocated not only a strong, centralized government, but also a large public debt. In fact, he suggested that "a national debt, if it is not excessive, will be to us a national blessing," and that "it will be a powerful cement to our nation."(1) It was also Hamilton's opinion that "no society could succeed which did not unite the interest and credit of rich individuals with those of the state."(2) Necessary to the contracting of this debt was a central banking system of which Hamilton was the chief proponent.
In stark contrast to the Hamiltonian economic school was the Jeffersonian, which was wholly opposed to a central bank and an extended, multi-generational debt. In the words of Thomas Jefferson, who was Secretary of State under the Washington Administration:
It is a wise ruler never to borrow a dollar without laying a tax at the same instant for paying the interest and the principal within a given term.... The earth belongs to the living, not the dead.... We may consider each generation as a distinct nation, with a right to... bind themselves, but not the succeeding generations....
The modern theory of the perpetuation of debt has drenched the earth with blood, and crushed its inhabitants under burdens ever accumulating.... We shall consider ourselves unauthorized to saddle posterity with our debts, and morally bound to pay them ourselves.(3)
Jefferson pointed out that Congress had not been delegated the authority by the Constitution to create a central bank, and that the ability to establish a bank was therefore reserved by the States under the Tenth Amendment. He insisted that the de-centralization of public credit was as essential to the well-being of the Union as was the de-centralization of political power. He also said, "A private central bank issuing the public currency is a greater threat to the liberties of the people than a standing army."(4) Jefferson perceived Article I, Section 8, Clause 2 of the Constitution to be pregnant with grave danger for the country and therefore advocated a constitutional amendment "taking from the federal government their power of borrowing."(5)
By 1791, the Hamiltonian school had prevailed against the Jeffersonian school and the Bank of the United States, designed by Hamilton himself, was granted a twenty-year charter by Congress. The Bank had a monopoly in the issuance of notes, which could be used to pay taxes and duties to the Government. The Bank's charter required that these notes be redeemable in gold or silver (specie), but at the same time, it was not required to back 100 percent of its notes with specie — a fractional reserve loophole which would eventually lead to an inflation of the currency. The cause and nature of inflation will be explained in greater detail later in this chapter.
The Bank charter also provided that 80 percent of its capital would be held by private investors, with the Government contributing only 20 percent. However, this latter investment could be immediately loaned back to the Government at six percent interest. Furthermore, as noted by John Kenneth Galbraith, "Foreigners could own shares but not vote them."(6) This seemingly innocent provision opened the door to complete foreign ownership over time of the institution through which the Government was to receive a large portion of its revenue. According to Gustavus Myers, "Under the surface, the Rothschilds have long had a powerful influence in dictating American financial laws. The law records show that they were powers in the old Bank of the United States."(7) The Rothschild family would play a major role in a key event in American history seventy years later.
The Bank, of course, proved to be a disaster, just as Jefferson had predicted. With the creation of millions of unbacked notes, prices rose over 70 percent in just five years. Public dissatisfaction with the Bank rose steadily and when its charter was up for renewal in 1811, the measure was defeated by only one vote in each House of Congress. On 24 January 1811, the first Bank of the United States closed its doors and banking in America passed back exclusively into the hands of the several States. However, with the financial chaos caused by the second war with Great Britain of 1812, it was not long before a second central bank was proposed. In 1816, a twenty-year charter was granted by Congress to the Second Bank of the United States, which was nearly identical to the first. As with the first, a substantial amount of the stock in this second bank was provided by foreign investors — in the beginning, a full one-third.(8) Immediately, the money supply was expanded over $27 million in unbacked paper currency and prices again began to rise to dizzying heights:
Starting in July 1818, the government and the BUS began to see what dire straits they were in; the enormous inflation of money and credit, aggravated by the massive fraud, had put the BUS in danger of going under and illegally failing to maintain specie payments. Over the next year, the BUS began a series of enormous contractions, forced curtailment of loans, contractions of credit in the south and west.... The contraction of money and credit swiftly brought to the United States its first widespread economic and financial depression. The first nationwide "boom-bust" cycle had arrived in the United States....
The result of this contraction was a rash of defaults, bankruptcies of business and manufacturers, and a liquidation of unsound investments during the boom.(9)
Andrew Jackson's Opposition to the Bank
The most formidable foe with whom the Second Bank of the United States had to contend was Andrew Jackson, who was elected President in 1828 on a strong anti-central bank Democratic platform. When Congress attempted to pass a bill granting the Bank an early renewal of its charter on 4 July 1832, Jackson promptly vetoed the bill with these words: "It is not our own citizens only who are to receive the bounty of our Government. More than eight millions of the stock of this bank are held by foreigners. By this act the American Republic proposes virtually to make them a present of some millions of dollars.... It appears that more than a fourth part of the stock is held by foreigners and the residue is held by a few hundred of our own citizens, chiefly of the richest class."(10) Foreign ownership meant foreign intrigue and interference in American affairs, said Jackson:
Is there no danger to our liberty and independence in a bank that in its nature has so little to bind it to our country?... [Is there no] cause to tremble for the purity of our elections in peace and for the independence of our country in war?... The course which would be pursued by a bank almost wholly owned by the subjects of a foreign power, and managed by those whose interests, if not affections, would run in the same direction there can be no doubt.... Controlling our currency, receiving our public monies, and holding thousands of our citizens in dependence, it would be more formidable and dangerous than a naval and military power of the enemy.(11)
Jackson also argued, as did Jefferson before him, that the centralization of credit led directly to the centralization of political power, which was contrary to both the spirit and letter of the Constitution.
When Jackson was re-elected in 1832, four years remained to the Bank's charter. However, Jackson declared full-scale war against it by ordering the removal of most of the Government's deposits from the Bank and their diffusion throughout various State banks. The Government's expenses were then paid from the remaining deposits until they too were depleted. "You are a den of vipers," Jackson accused the Bank's supporters. "I intend to rout you out and by the Eternal God I will rout you out."(12) It was not long before Jackson had paid off the debt incurred by the War of 1812, and for the first time in its history — unfortunately also the last time — the federal Government was nearly debt-free(13) with a surplus in the Treasury of over $37 million, which was to be distributed back to the States in four quarterly payments beginning on 1 January 1837.(14) Not surprisingly, Jackson was the victim of an assassination attempt on the steps of the Capitol on 30 January 1835. Richard Lawrence, the would-be assassin whose two pistols both misfired, admitted privately to friends years later that he had been hired and promised protection by certain unnamed European persons.(15)
The Bank's charter expired in 1836 and was not renewed. Thus, the old Jeffersonian school finally defeated the Hamiltonian, and the central banking system in the United States was committed to the grave, where it remained until it was resurrected a quarter of a century later by the Lincoln Administration.
Salmon Chase's Scheme to Finance the War
As mentioned before, the U.S. Treasury was officially bankrupt when war erupted between the North and South in 1861. In addition, the year prior to the outbreak of the war saw the expenses of the federal Government at $67 million. In only twelve months, this figure had risen to $475 million, and by the end of the war, to $1.3 billion. It was estimated that the war was costing the Government an astronomical $2 million a day and by its end, the annual deficit had risen to $2.6 billion. Having no central bank with the ability to print currency, Abraham Lincoln had nowhere to turn to finance his crusade against Southern secession. Lincoln authorized his Secretary of the Treasury to borrow money from private financiers at rates as high as 19 percent per year, but as these sources grew more and more costly, Lincoln finally turned to the printing of fiat currency himself — United States Bank Notes — to make up the shortfall. His rationale was as follows:
Government, possessing power to create and issue currency and credit as money and enjoying the right to withdraw currency and credit from circulation by taxation and otherwise, need not and should not borrow capital at interest as a means of financing government work and public enterprise. The government should create, issue, and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers. The privilege of creating and issuing money is not only the supreme prerogative of government, but it is the government's greatest creative opportunity.(16)
Lincoln's assertions were clearly contradicted by the plain wording of Article 1, Section 8, Clause 4 of the Constitution, but as with other constitutional prohibitions, he saw this one as optional in times of "national emergency." Initially, $150 million worth of these "greenbacks" were issued, but by the end of the war, over $430 million were in circulation. Unlike those of the First and Second Banks of the United States which had to be borrowed by the Government before they were considered to be money, Lincoln's notes were declared "legal tender for all debts, public and private" by the Act of Congress of 25 February 1862. This Act was amended on the eleventh of June of that same year, adding the phrase "except duties on imports and interest on the public debt, which from that time forward should be paid in coin." While it was a "Federal offense" punishable by imprisonment for private citizens to refuse to accept payment in greenbacks, the Government itself collected revenue from the people in gold. That same year, the Bureau of Internal Revenue was also created to collect a new income tax, which was also payable in gold. Later, the Credit Strengthening Act was passed by the Fortieth Congress and signed into law by President Ulysses S. Grant on 18 March 1869. This law required all Government obligations to banking institutions to be paid in gold, while its obligations to private individuals were to be paid in currency. Thus can be seen a subtle scheme to confiscate the gold from the Northern people which pre-dated a similar scheme instituted by Roosevelt seven decades later.
There were those individuals, however, who were not pleased with Lincoln's issuance of greenbacks. A memorandum entitled The Hazard Circular, which was distributed throughout the business world of New England in 1862, stated the complaint as follows:
Slavery is likely to be abolished by the war power and chattel slavery destroyed. This I and my European friends are in favor of; for slavery is but the owning of labor and carries with it the care of the laborer, while the European plan, led on by England, is capital control of labor by controlling wages. This can be done by controlling the money. The great debt that capitalists will see to it is made out of the war must be used as a means to control the volume of money. To accomplish this the bonds must be used as a banking basis. We are now waiting for the Secretary of the Treasury to make this recommendation to Congress. It will not do to allow the greenback, as it is called, to circulate as money any length of time, as we cannot control that. But we can control the bonds and through them the bank issues.(17)
In Chapter Eleven, the plan proposed by a New England financier to replenish the depleted Treasury was briefly discussed. After some coaxing from Lincoln, Secretary of the Treasury Salmon P. Chase took this proposal to Congress and the National Banking Act was thereafter passed into law on 25 February 1863. Basically, the Government would issue Coupon Treasury Notes, which drew 7.5 percent semi-annual interest payments, and were convertible after three years into six percent 5-20 and 10-40 gold-bearing bonds. These bonds were funded by pledging the property and future labor of the American people as security, and thus were admitted to be "a first mortgage on the property of the country." In addition, they were exempted from taxation.
In tandem with the issuance of bonds, the de-centralized banks of the several States in the North were consolidated into a national system and were given the ability to issue bank notes, backed 90 percent with these bonds with only a 10 percent specie reserve requirement. Thus, the banks were offered the opportunity to collect double interest — first, on the purchased bonds and second, on the issued currency. As would be expected, there was a mad scramble to purchase the Government's bonds and there was the appearance of sudden prosperity in the North. In reality, this prosperity was a thin covering of a massive public debt which could never be paid off "because to do so meant there would be no bonds to back the national bank notes. To pay off the debt was to destroy the money supply."(18) The Hamiltonian school of economics had once again triumphed over the Jeffersonian, and being embroiled in a full-scale sectional war, the people were in no position to complain.
Just as was the case with both incarnations of the Bank of the United States, one of the principal investors in this new banking system was the Rothschild family of Europe. The following letter was sent from the Rothschild investment house located in London to a banking firm in New York City:
Rothschild Brothers, Bankers,
London, June 25th, 1863
Messrs. Ikleheimer, Morton, and Vandergould,
No. 3 Wall St.,
New York, U.S.A.
Dear Sir:
A Mr. John Sherman has written us from a town in Ohio, U.S.A., as to the profits that may be made in the National Banking business under a recent act of your Congress, a copy of which act accompanied his letter. Apparently this act has been drawn upon the plan formulated here last summer by the British Bankers Association and by the Association recommended to our American friends as one that if enacted into law, would prove highly profitable to the banking fraternity throughout the world.
Mr. Sherman declares that there has never been such an opportunity for capitalists to accumulate money, as that presented by this act, and that the old plan of State Banks is so unpopular, that the new scheme will, by contrast, be most favorably regarded, notwithstanding the fact that it gives the National Banks an almost absolute control of the National finance. "The few who can understand the system," he says, "Will either be so interested in its profits, or so dependent of its favors that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantages that capital derives from the system, will bear its burdens without complaint and perhaps without even suspecting that the system is inimical to their interest."
Please advise fully as to this matter and also state whether or not you will be of assistance to us, if we conclude to establish a National Bank in the City of New York. If you are acquainted with Mr. Sherman we will be glad to know something of him. If we avail ourselves of the information he furnished, we will, of course, make due compensation.
Awaiting your reply, we are
Your respectful servants,
Rothschild Brothers.(19)
The John Sherman mentioned in this letter was a Republican Senator from Ohio who was largely responsible for pushing Chase's national bank scheme and the later Fourteenth Amendment through the Senate. It was Sherman's belief that America should "nationalize as much as possible" and that "all private interests, all local interests, all banking interests, the interests of individuals, everything, should be subordinate now to the interest of the Government."(20) He was also the brother of the infamous Northern General, William Tecumseh Sherman, who literally blazed a wide trail through Georgia and the two Carolinas, thus destroying their economies and forcing them into massive debt and dependence upon the new national system.
According to a statement attributed to German Chancellor Otto von Bismark, the Rothschilds were also responsible, at least to some degree, for orchestrating the events which brought about the sectional war in the first place:
The division of the United States into federations of equal force was decided long before the Civil War by the high financial powers of Europe. These bankers were afraid that the United States, if they remained in one block and as one nation, would attain economic and financial independence, which would upset their financial domination over Europe and the world. Of course, in the "inner circle" of finance, the voice of the Rothschilds prevailed. They saw an opportunity for prodigious booty if they could substitute two feeble democracies, burdened with debt to the financiers... in place of a vigorous Republic sufficient unto herself. Therefore, they sent their emissaries into the field to exploit the question of slavery and to drive a wedge between the two parts of the Union.... The rupture between the North and the South became inevitable; the masters of European finance employed all their forces to bring it about and to turn it to their advantage.(21)
After installing the national banking system and firmly grafting the economy onto a perpetual, multi-generational public debt, Chase resigned from his position as Secretary of the Treasury and was, not long afterward, appointed by Lincoln to the Supreme Court, filling the position just vacated by the death of Chief Justice Roger B. Taney. This appointment was an ingenious strategic move on Lincoln's part; having designed the national banking system, Chase was now in a position to place upon it the judicial stamp of approval. He would later draft the Fourteenth Amendment, the fifth and last section of which placed the unconstitutionally contracted war debt, and hence, the new banking system erected upon it, beyond the scope of judicial review. This latter section was no doubt added to prevent the public repudiation called for by leading Democrats, such as Henry Clay Dean:
...[T]here is no fact in the history of this war debt more startling than this: that the great body of these bankers and bondholders were, at the beginning of the war, but poor men; many of them helpless bankrupts, and many of the pretended loans were mere collusions between bankers and government officers, entered into for the purpose of creating money for the one and power for the other, at the expense of the people, who would be required to raise standing armies from their children to support this power and contribute taxes from their labor to maintain the funding system.
This has always been the case in the history of paper money inflations; that the pretended benefactors of government have been simply swindlers, who have imposed upon the people their worthless promises to pay in lieu of specie as the pretext for their robbery.
This is true, with scarcely an exception, in every country, that the government is never assisted by paper in any war. Those who issue it amass fortunes by the issue. To this one our country has not been an exception.
In the history of insolvent estates, bankrupts, merchants, contested debts and repudiated obligations, which make up the assets of the last six years, it must not startle mankind that the honest people have thrown off the yoke rudely placed upon them by reckless and unscrupulous tyrants.(22)
The Federal Reserve System and How It Works
The nation operated under Chase's banking system for over fifty years, the only substantial change being the removal in June of 1874 of the 10 percent specie reserve requirement. Then, with the passage of the Federal Reserve Act of 23 December 1913, the alleged power of the U.S. Government to issue paper currency was delegated to a privately owned banking cartel — the Federal Reserve. It is a common misconception, generated no doubt by its name, that the Federal Reserve is part of the U.S. Government. However, as the Ninth District Court was forced to admit as recently as 1982, "...[W]e conclude that the [Federal] Reserve Banks are not federal instrumentalities... but are independent, privately owned and locally controlled corporations."(23) According to a 1964 report prepared by the House Subcommittee on Domestic Finance, "the Federal Reserve is 'independent' in its policy-making. The Federal Reserve neither requires nor seeks the approval of any branch of Government for its policies. The System itself decides what ends its policies are aimed at and then takes whatever action it sees fit to reach those ends."(24) Furthermore, William P.G. Harding, a former Senator from Ohio and later Governor of the Federal Reserve Board, admitted in testimony during a Senate hearing in 1921, "The Federal Reserve Bank is an institution owned by the stockholding member banks. From a legal standpoint these banks are private corporations, organized under a special act of Congress, namely, the Federal Reserve Act. They are not in the strict sense of the word Government banks. The Government has not a dollar's worth of stock in it."(25) Instead, the owners of the Federal Reserve were, and are, the heirs to the bondholders and financiers of Lincoln's war against the South, whose right to collect payment from the United States Government and its citizens "shall not be questioned" under the alleged Fourteenth Amendment.
The Federal Reserve System (hereafter "the Fed") is made up of twelve regional banks, each presided over by a governor. Though it has the appearance of a diversified system, the New York Fed acts as the decision-making center and the other eleven banks are "so many expensive mausoleums erected to salve the local pride and quell the Jacksonian fears of the hinterland."(26) In other words, it is a central bank concealed by a thin disguise of de-centralization. In addition, while the Fed pays taxes on its real estate, its other financial assets are exempted from Federal and State taxes.(27)
Section 16 of the original Federal Reserve Act of 1913 provided for the issuance of Federal Reserve Notes, but it did not make them "legal tender"; they were fully redeemable in either gold or "lawful money." That was all changed when the Gold Reserve Act of 1934 amended Section 16 to render Federal Reserve Notes (hereafter "FRNs") redeemable in "lawful money" only: "Federal Reserve notes are legal tender under 31 USC 5103, and are therefore 'lawful money'.... Federal Reserve notes have become practically the only form of paper currency in circulation. Consequently, if a holder of Federal Reserve notes presents them for redemption in lawful money at the Treasury or at a Federal Reserve Bank, he is most likely to receive in exchange lawful money in the form of other Federal Reserve notes."(28)
The atrocious scam of the Fed system is seen clearly in how the "money" supply is made to expand and contract at the will of this private corporation. This expansion and contraction is known as inflation and deflation. When the Fed decides to inject more FRNs into circulation, it contacts the U.S. Government's Bureau of Engraving and Printing and orders the bills at a cost of less than two cents each, regardless of the denomination.(29) In reality, however, there is actually no cost to the Fed at all, for the printing job is merely paid for with a check behind which there are absolutely no funds on deposit anywhere. This was openly admitted by the Fed itself in the publication Putting It Simply: "When you or I write a check there must be sufficient funds in our account to cover that check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money."(30) What is a crime for the average citizen to do, the Fed does on a routine basis and even boasts about it.
The Fed then uses the newly printed FRNs — which cost it nothing — to purchase securities (bonds, or T-bills) from the U.S. Treasury Department. These securities are interest-bearing debt instruments which themselves are unbacked by anything but the Government's promise-to-pay and its ability to make good on that promise by future taxation. The FRNs which are thus put into circulation are evidences of this debt which the citizens of the United States now owe to the Fed. In other words, the  U.S. Government prints paper money, but cannot use it until it borrows it, with interest, from a non-governmental, privately-owned banking cartel. However, it needs to be noted that FRNs only make up about 25 percent of the circulating funds in the United States. The bulk of the money supply is created by individual bank loans and by the writing of checks. How this works is also very simple: the individual banks in the system are required by the Federal Reserve to hold as little as ten percent of their deposits in reserve. That means that if someone deposits 100.00 into their local bank, that deposit, though now a liability because the bank must pay out the full 100.00 to the depositor on demand, is also simultaneously transformed into an asset of 90.00 which the bank may then loan out at interest. Every loan eventually itself becomes a bank deposit, which creates even more assets which the bank may again loan out at interest. These loans obviously cannot be made from the same funds which were deposited, because those funds are still owed to the depositors. Thus, every deposit merely serves as the basis for the creation of 90 percent more in "checkbook money." In other words, the banks not only have the ability to create money out of absolutely nothing, but they then are privileged to collect interest from those whose "credit history" qualifies them to borrow this imaginary money. Furthermore, as the process plays itself out, the money supply will be inflated many times the amount of the original loan, thereby driving the prices for goods and services up as well.
When the Fed decides to contract the money supply, as it did in the years just prior to the Great Depression, one of the ways it does this is simply by redeeming its T-bills or selling them on the open market. Another way is to curtail the availability of credit by raising interest rates for bank loans in the private sector, thereby reducing the amount of checkbook money in circulation. The people are caught in a hopeless "catch twenty-two" between a high level of debt and a "sound" economy, or a low level of debt and a crippling recession. Using either its power of inflation or deflation, the Fed, at absolutely no cost to itself, has become the financial master over approximately 300 million indentured servants.(31) It should be obvious that since neither the Government nor the vast majority of the people have any money of their own which was not directly created by the printing and borrowing of FRNs, or indirectly created through a bank loan, it is entirely impossible to pay off the national debt, much less to even pay on the principle. In fact, every cent which is collected from the people through taxation is applied to the interest alone. Not only that, but every cent which the people pay the Fed was itself borrowed from a bank within the Fed system — with additional interest.
Federal Reserve Notes Are Monetized Debt
Most people today believe that Federal Reserve Notes are money and that they may be used to purchase goods or services, and to pay debts. However, we have just seen that FRNs are evidences of a debt owed to the Fed by the U.S. Government. By definition, money "does not embrace notes... [or] evidences of debt...."(32) Moreover, although FRNs are "in the likeness of noninterest bearing promissory notes payable [in money — i.e. dollars of gold or silver] to the bearer on demand," they are in reality nothing more than "direct obligations of the United States."(33) It is logically impossible to pay a debt with a debt, which is what actually is believed to have transpired when a FRN is used as if it were money in the modern financial world. According to Joint Resolution 192, also known as the Abrogation of the Gold Clause of 5 June 1933, "any obligation which purports to give the obligee a right to require payment in gold or a particular kind of coin or currency, or in an amount in money of the United States measured thereby, is declared to be against public policy." In other words, it is "public policy" that debts not be paid, but only discharged. The distinction between a "debt discharged" and a "debt paid" was explained in Stanek v. White: "When discharged the debt still exists though divested of its character as a legal obligation during the operation of the discharge. Something of the original vitality of the debt continues to exist which may be transferred, even though the transferee takes it subject to its disability incident to the discharge. The fact that it carries something which may be a consideration for a new promise to pay, so as to make an otherwise worthless promise a legal obligation, makes it subject of transfer by assignment."(34) Thus, when someone "discharges" their debt today with Federal Reserve Notes — or with a check or some other instrument denominated in FRNs — the debt still exists and is merely passed down the line to the next person, and ultimately to the following generation. It is therefore no more legally or mathematically possible to actually pay one's personal debts than it is to pay the national debt. In fact, if all debts — personal, corporate, and national — were extinguished, there would no longer be any "money" in circulation. The cliche "passing the buck" takes on a sinister meaning when this tangled web of deception is understood. In the words of Robert Hemphill, former Credit Manager of the Federal Reserve Bank of Atlanta:
If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash, or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless situation is almost incredible — but there it is.(35)
Furthermore, if there is really no limit to the amount of FRNs which the Government can print and then borrow from the Fed, one might justifiably wonder why it even needs to tax its citizens at all. The fact is, there is no such need on the Government's part. In 1946, Beardsley Ruml, then Chairman of the Federal Reserve Bank of New York, wrote an article entitled, "Taxes For Revenue Are Obsolete," in which he argued that "given control of a central banking system and an inconvertible currency, a sovereign national government is finally free of money worries and needs no longer levy taxes for the purpose of providing itself with revenue. All taxation, therefore, should be regarded from the point of view of social and economic consequences."(36) The "social consequences" are that continued taxation of the people has the effect of giving credibility to a system of fiat money which likely would not exist if its creation out of thin air were obvious to all. The fact that the fiat money can both be spent and must be surrendered to the Government in taxes, perpetuates the illusion that the Government is collecting something of value from its citizens without which it could not continue to operate. Periodic "shut downs" of the Government due to a "lack of money," are also useful tools to maintain this illusion.
Ruml went on to explain the "economic consequences" of taxation: "The dollars the government spends become purchasing power in the hands of the people who have received them. The dollars the government takes by taxes cannot be spent by the people, and therefore, these dollars can no longer be used to acquire the things which are available for sale. Taxation is, therefore, an instrument of the first importance in the administration of any fiscal and monetary policy."(37) Thus, the collection of taxes acts as a safety valve to relieve some of the pressure of an inflating currency and to keep prices rising at only a moderate rate rather than sky-rocketing out of control and causing a panic.
Does the Fed Cause War and Depressions?
Such is the tyrannical system which has been imposed on the American people by their supposed representatives in Congress. While the Federal Reserve System can be abolished by the same body of men who gave it life in 1913, it is not considered "in the public interest" to do so and every politician either goes to Washington, D.C. with this already fully understood, or quickly learns it after his arrival. Coming full circle back to the views of Alexander Hamilton, Lawrence C. Murdoch, Jr. of the Federal Reserve Bank of Philadelphia declared, "A large and growing number of analysts... now regard the national debt as something useful if not an actual blessing... and that the national debt need not be reduced at all."(38) Of course, the debt is "an actual blessing" only to the elite few who reap the bountiful harvest therefrom, but it certainly is a curse to those who suffer under the burden of perpetual debt and increasing taxation.
Not surprisingly, the Courts have refused to rule the Fed system unconstitutional. Whereas the Constitution prohibits the Government from emitting "bills of credit," it does permit the Government to "borrow money on the credit of the United States." Since FRNs do not technically become "money" until they are borrowed, it is reasoned that the letter of the Constitution is not technically violated by this arrangement. This was the same argument used to justify the issuance of bank notes by the first Bank of the United States back in 1791. Indeed, no other nation in the world has resorted to such chicanery in order to foist a central bank on its citizens. However, there is another and much darker side to the Federal Reserve which needs to be mentioned before we close this chapter — its instigation of economic depressions and war. According to John C. Redpath: "It has been the immemorial policy of the Money Power to foment wars among the nations; to edge on the conflict until both parties pass under the impending bankruptcy; to buy up the prodigious debt of both with a pail full of gold; to raise the debt to par; to invent patriotic proclamations for preserving the National Honor; and finally to hire the presses and pulpits of two generations to glorify a crime."(39)
The Fed opened its doors on 16 November 1914. On that date, Europe had already been embroiled in war for three months, but the American people had refused to finance the U.S. Government's involvement by purchasing its savings bonds. "Keep the Boys Home" was a popular political slogan at that time. However, since the Government now had another lending source other than its citizens, it is not surprising that in April of 1917, only one month after his second inauguration as the President who "kept us out of war," Woodrow Wilson sent a message to Congress requesting the involvement of the United States in World War I. Congress responded by declaring war on the sixteenth of April and the War Loan Act was passed scarcely a week later which extended $1 billion in credit to the Allied powers. During this time, nearly all of the Government's gold reserves were relocated to the vaults of the Federal Reserve. Lester Chandler explained what role the Fed played in the nation's war-time economy: "The Federal Reserve System became an integral part of the war financing machinery. The System's overriding objective, both as a creator of money and as fiscal agent, was to insure that the Treasury would be supplied with all the money it needed, and on terms fixed by Congress and the Treasury.... A grateful nation now hailed it as a major contributor to the winning of the war, an efficient fiscal agent for the Treasury, a great source of currency and reserve funds, and a permanent and indispensable part of the banking system."(40)
During World War I, on 6 October 1917, Congress also passed the Trading With the Enemy Act, which would provide a convenient foundation for the massive power grab still to come. According to Alan Greenspan, former Chairman of the New York Federal Reserve, the Great Depression was caused when, in 1929, "the excessive credit which the Fed pumped into the economy spilled over into the stock market — triggering a fantastic speculative boon.... As a result, the American economy collapsed."(41) Public confidence in the system also collapsed, resulting in massive runs on the banks by panicked depositors. Of course, there was not enough gold in the vaults to cover all the inflated currency which the Fed had been putting into circulation and the scam was in danger of discovery. In an effort to preserve the system, the Federal Reserve Board of New York sent the following recommendation, written by Eugene Meyers, to President Herbert Hoover on the last day of his term:
WHEREAS, In the opinion of the Board of Directors of the Federal Reserve Bank of New York, the continued and increasing withdrawal of currency and gold from the banks of the country has now created a national emergency, and
WHEREAS, It is understood the adequate remedial measures cannot be enacted before tomorrow morning,
NOW, THEREFORE, BE IT RESOLVED, That in this emergency the Federal Reserve Board is hereby requested to urge the President of the United States to declare a bank holiday Saturday, March 4, and Monday, March 6, in order to afford opportunity to governmental authorities and banks themselves to take such measures as may be necessary to protect the interests of the people and promptly to provide adequate banking and credit facilities for all parts of the country.
Proposed Executive Order
WHEREAS the nation's banking institutions are being subjected to heavy withdrawals of currency for hoarding; and
WHEREAS there is increasing speculative activity in foreign exchanges; and
WHEREAS these conditions have created a national emergency in which it is in the best interest of all bank depositors that a period of respite be provided with a view to preventing further hoarding of coin, bullion or currency or speculation in foreign exchange, and permitting the application of appropriate measures for dealing with the emergency in order to protect the interests of all the people; and
WHEREAS it is provided in Section 5 (b) of the Act of October 6, 1917, as amended, that "The President may investigate, regulate, or prohibit, under such rules and regulations as he may prescribe, by means of licenses or otherwise, any transactions in foreign exchange and the export, hoarding, melting, or earmarking of gold or silver coin or bullion or currency * * *"; and
WHEREAS it is provided in Section 16 of the said Act that "Whoever shall willfully violate any of the provisions of this Act or of any license, rule, or regulation issued thereunder, and whoever shall willfully violate, neglect, or refuse to comply with any order of the President issued in compliance with the provisions of this Act shall, upon conviction, be fined not more than $10,000, or, if a natural person, imprisoned for not more than ten years, or both * * *"
If these words sound familiar, they should; right down to the deceptive rewording of Section 5 of the Trading With the Enemy Act, they are the very words of Roosevelt's proclamation of 4 March 1933, in which he declared a national banking emergency and prohibited the private ownership of gold. Hoover, who was no friend of the Fed, refused to issue this executive order based on the 1917 Act after his legal advisors pointed out that the "war powers were apparently terminated" at the close of World War I, and that "there was danger that action under such doubtful authority would create a mass of legal conflicts in the country and would incur the refusal of the banks to comply."(42) In his letter of response to Meyers, Hoover wrote, "...I am at a loss to understand why such a communication should have been sent to me in the last few hours of this Administration, which I believe the Board must now admit was neither justified nor necessary." His confusion stemmed largely from the fact that President-elect Roosevelt had told him the previous night that "he did not wish such a proclamation issued." Immediately upon taking office, however, Roosevelt reversed his position and issued the proposed executive order in spite of its "doubtful authority." Consequently, by bailing out the Fed and covering up its misdeeds, Roosevelt instituted what was clearly a new deal for the bankers but a raw deal for the American people. As we will see in the next few chapters, we have lived under this banker-contrived national emergency ever since.
On 10 June 1932, Louis T. McFadden, Chairman of the House Banking and Currency Committee, stated:
Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve banks. The Federal Reserve Board, a Government board, has cheated the Government of the United States and the people of the United States out of enough money to pay the national debt. The depredations and iniquities of the Federal Reserve Board and the Federal Reserve banks acting together have cost this country enough money to pay the national debt several times over. This evil institution has impoverished and ruined the people of the United States; has bankrupted itself, and has practically bankrupted our Government. It has done this through the defects of the law under which it operates, through the maladministration of that law by the Federal Reserve Board, and through the corrupt practices of the moneyed vultures who control it.
Some people think the Federal Reserve banks are United States Government institutions. They are not Government institutions. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory are those who would cut a man's throat to get a dollar out of his pocket; there are those who send money into States to buy votes to control our legislation; and there are those who maintain an international propaganda for the purpose of deceiving us and wheedling us into the granting of new concessions which will permit them to cover up their past misdeeds and set again in motion their gigantic train of crime.(43)
The following year, McFadden went on to say:
Every effort has been made by the Federal Reserve to conceal its powers but the truth is — the Federal Reserve has usurped the government. It controls everything here and it controls all our foreign relations. It makes and breaks governments at will.
[The Depression] was not accidental. It was a carefully contrived occurrence.... The international bankers sought to bring about a condition of despair here so they could emerge the rulers of us all....
I charge them... with having brought repudiation of the national currency of the United States in order that the gold value of said currency might be given to private interests... with having arbitrarily and unlawfully raised and lowered the rates on money... increased and diminished the volume of currency in circulation for the benefit of private interests... with having brought about the decline in prices on the New York Stock Exchange... with the crime of having treasonably conspired and acted against the peace and security of the United States, and with having treasonably conspired to destroy constitutional government.(44)
McFadden, of course, need not have expended so much effort defending a Constitution and Government which had perished seventy-two years previous to his speech at the hands of the "party of Lincoln" — the Republicans. The twin tyrants of massive public debt and inflationary currency were already seated upon their imperial thrones and dissent in the chambers of Congress would not be tolerated. Representative McFadden was assassinated by poisoning not long afterward.
Endnotes
1. Alexander Hamilton, letter to Robert Morris, 30 April 1781; quoted by John H. Makin, The Global Debt Crisis: America's Growing Involvement (New York: Basic Books, 1984), page 246.
2. Hamilton, quoted by Arthur M. Schlesinger, Jr., The Age of Jackson (New York: Mentor Books, 1945), pages 6-7; Wilfred E. Binkley, American Political Parties (New York: Alfred A. Knopf, 1943), page 40.
3. Thomas Jefferson, in Andrew Lipscomb and Albert Ellery Bergh (editors), The Writings of Thomas Jefferson (Washington, D.C.: Jefferson Memorial Association, 1903), Volume XIII, pages 269, 270, 272, 358.
4. Jefferson, in Paul Leicester Ford (editor), The Writings of Thomas Jefferson (New York: G.P. Putnam and Sons, 1899), Volume X, page 31.
5. Jefferson, letter to John Taylor, 26 November 1798; in Lipscomb and Bergh, Writings of Thomas Jefferson, Volume X, page 64.
6. John Kenneth Galbraith, Money: Whence It Came, Where It Went (Boston: Houghton Mifflin Company, 1975), page 72.
7. Gustavus Myers, History of the Great American Fortunes (New York: Random House, 1936), page 556.
8. Herman E. Krooss (editor), Documentary History of Banking and Currency in the United States (New York: Chelsea House, 1983), Volume III, page 25.
9. Murry N. Rothbard, The Mystery of Banking (New York: Richardson and Snyder, 1983), pages 204-205.
10. Andrew Jackson, veto of the Bank of the United States bill, 10 July 1832; in Richardson, Messages and Papers of the Presidents, Volume II, page 577.
11. Jackson, in Richardson, op. cit., page 581.
12. Jackson, quoted by Herman J. Viola, Andrew Jackson (New York: Chelsea House, 1986), page 86.
13. The total national debt in 1835 was $351,289 and $291,089 the following year (McHenry, Cotton Trade, page 174).
14. The fourth installment of this sum was never distributed due to the financial panic of 1837, which sent the federal Government spiraling back into debt. By the end of the year, the national debt had risen to $1.8 million, to $4.8 million the following year, and nearly $12 million the next. With the exception of the years 1840 and 1841, the national debt would never again be less than $15 million, and by the outbreak of the war between the States in 1861, it had skyrocketed to over $334 million (McHenry, op. cit., pages 174, 183).
15. Robert J. Donovan, The Assassins (New York: Harper and Brothers, 1952), page 83.
16. Lincoln, quoted by Robert L. Owen, National Economy and the Banking System (Washington, D.C.: U.S. Government Printing Office, 1939), page 91.
17. The Hazard Circular, quoted by Charles A. Lindburgh, Banking and Currency and the Money Trust (Washington, D.C.: National Capital Press, 1913), page 102.
18. Galbraith, Money: Whence It Came, page 90.
19. Rothschild Brothers to Messrs. Ikleheimer, Morton, and Vandergould, 25 June 1863; quoted by Owen, National Economy, pages 99-100.
20. John Sherman, quoted by Heather Cox Richardson, The Greatest Nation on the Earth: Republican Economic Policies During the Civil War (Cambridge, Massachusetts: Harvard University Press, 1997), page 87.
21. Otto von Bismark, quoted in La Vielle France (17-24 March 1921), Number 216, pages 13-16; cited by G. Edward Griffin, The Creature From Jekyll Island (Westlake Village, California: American Media, 1998), page 374.
22. Dean, Crimes of the Civil War, pages 267-268.
23. Lewis v. U.S. (1982), 680 F.2d 1239.
24. U.S. House of Representatives, Money Facts (Washington, D.C.: House Banking and Currency Committee; Eighty-Eighth Congress, Second Session, 1964), Chapter One.
25. William P.G. Harding, quoted by Eustace Mullins, Secrets of the Federal Reserve (Staunton, Virginia: Bankers Research Institute, 1984), page 157. Harding's term as Governor of the Board was cut short in 1923 when he mysteriously died from what many suspected was poisoning. His wife refused to allow an autopsy.
26. Ferdinand Lundberg, America's Sixty Families (New York: Vanguard Press, 1937), page 122.
27. Title 12, United States Code, Section 531.
28. Russell L. Munk, Assistant General Counsel (International Affairs), Department of the Treasury, statement issued 26 October 1989.
29. House of Representatives, Money Facts, Chapter Three.
30. Putting It Simply (Boston: Federal Reserve Bank of Boston), page 17.
31. United States Population Clock Projection: www.census.gov/cgi-bin/popclock.
32. Black's Law Dictionary (Sixth Edition), page 1005.
33. Op. cit., page 613.
34. Stanek v. White (1927), 172 Minn. 390, 215 N.W. 784.
35. Robert Hemphill, "Foreword" in Irving Fisher, 100% Money (New York: Adelphi Company, 1936), page xxii.
36. Beardsley Ruml, "Taxes For Revenue Are Obsolete," American Affairs, January 1946, page 35.
37. Ruml, op. cit., page 36.
38. Lawrence C. Murdoch, Jr., The National Debt (Philadelphia, Pennsylvania: Federal Reserve Bank of Philadelphia, 1970), pages 2, 11.
39. John C. Redpath, quoted by George R. Kirkpatrick, War — What For? (West Lafayette, Ohio: self-published, 1910), page 66.
40. Lester V. Chandler, Benjamin Strong, Central Banker (Washington, D.C.: Brookings Institution, 1958), pages 101-102.
41. Alan Greenspan, essay: Gold and Economic Freedom," in Ayn Rand (editor), Capitalism: The Unknown Ideal (New York: Signet Books, 1967), pages 99-100.
42. Herbert Hoover, The Memoirs of Herbert Hoover, 1929-1941: The Great Depression (New York: Macmillan Company, 1952), page 205.
43. Louis T. McFadden, Congressional Record — House, 10 June 1932, pages 12595-12596.
44. McFadden, op. cit., 9 March 1933.
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