Let me issue and control a nation’s money and I care not who writes the laws.—Rothschild
The American people are suckers for the word “reform.” You just put that into any corrupt piece of legislation, call it “reform” and people say “Oh, I’m all for ‘reform,’” and so they vote for it or accept it.”—G. Edward Griffin
The real truth of the matter is, as you and I know, that a financial element in the larger centers has owned the Government ever since the days of Andrew Jackson…—FDR
Of all people, FDR should know.
https://mises.org/mises-wire/bankers-fed-origins-and-world-war-i
Though there had been steady steps toward centralization of the monetary and financial system in the United States—especially since banking and the federal government were connected by the National Banking System during and after the Civil War (ca. 1863-1913)—the financial-banking elite, especially in New York, still had several complaints prior to the creation of the Fed.
New York Banks, Wall Street, and “Monopoly”
The movement toward central banking, the Federal Reserve System, in America was a keystone of the Progressive movement. Like all other regulations and reforms of the Progressive era—as perfectly encapsulated by G. Edward Griffin’s quote above—the movement toward the Fed was ironically presented publicly as fighting banking “monopoly,” “stabilizing” the system, curbing inflationism, and disciplining banks and financial elites. In fact, it would involve the establishing of a monopoly in the name of fighting monopoly. Consequently, this would furnish government a handy tool for greater inflationism and would allow the banks in the system to engage in unsound monetary practices with the promise of government bailouts. Remarks Rothbard in A History of Money and Banking,
Fortunately for the cartelists, a solution to this vexing problem lay at hand. Monopoly could be put over in the name of opposition to monopoly! In that way, using the rhetoric beloved by Americans, the form of the political economy could be maintained, while the content could be totally reversed.
Banker Complaints
Prior to the establishment of the Federal Reserve, however, the movement toward centralization of the monetary and financial system was incomplete from the bankers’ perspective. The financial interests were still missing a few key factors and still observed major “flaws.” In summary, their main complaint was “inelasticity,” that is, banks within the national banking system were not able to expand money and credit to the extent that they wanted. These financial elites disliked the lack of complete centralization provided through the halfway step of the National Banking System, the lack of cartelization, competitive pressures from non-national banks, and the threat to New York banks’ financial supremacy. Regarding the New York financial interests, Ron Paul and Lehrman, in their Case for Gold (1982), avow,
…the large banks, particularly on Wall Street, saw financial control slipping away from them. The state banks and other non-national banks began to grow instead and outstrip the nationals.
Similarly, Gabriel Kolko in The Triumph of Conservatism (1977), argues,
The crucial fact of the financial structure at the beginning of this century was the relative decrease in New York’s financial significance and the rise of many alternate sources of substantial financial power.
For example, throughout the 1870s and 1880s, most of the banks were national banks, with financial standards determined by Washington, but by 1896, non-national banks—state banks, savings banks, and private banks—made up 61 percent of the total number of banks, providing competitive pressure. By 1913, 71 percent of banks were non-national banks, again putting competitive pressure on Wall Street banks. This was unacceptable to the national banks, especially the New York financial-banking elite. Kolko writes that, “This diffusion and decentralization in the banking structure seriously undercut New York’s financial supremacy.” Regarding the fundamental changes brought about by Federal Reserve System, Kolko further explains,
The economy by 1910 had moved well beyond the control of any city, any group of men, or any alliance then existing in the economy. The control of modern capitalism was to become a matter for the combined resources of the national state, a political rather than an economic matter.
The Panic of 1907, in which major banks were allowed by the government to suspend specie payments and continue operations—being legally released from contractual obligations—led to calls for “reform,” naively agitating for central banking. Unfortunately, these so-called “reforms” would facilitate the most powerful banks engaging in similar inflationary practices, but on a greater scale, insulated from the consequences by the government. Rothbard explains,
Very quickly after the panic, banker and business opinion consolidated on behalf of a central bank, an institution that could regulate the economy and serve as a lender of last resort to bail banks out of trouble.
The banks plus the government partnered to create these boom-bust crises through their inflationary policies through the National Banking System. Then, when the inevitable consequences of these policies were realized, banks and governments would further “reform” the system toward a central bank, legally uniting them, and protecting them from competition and consequences. Problems caused by monetary policies of the government, allied with banks, were to be solved, Americans were told, by the government creating a “bank of banks” that could regulate the entire monetary system.
Central Banking & World War I
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