Gertrude Coogan
Money Creators

Chapter I.
Why ?

When Lincoln wanted to issue constitutional money, he was violently opposed by the “Bullion Brokers,” as the international bankers were called in those days.  Lincoln was, perhaps, the greatest exponent of honesty and of the Constitution that this country has had since Washington.  He persisted in demanding honest money, until he was silenced.

---[If Miss Coogan had ever bothered to familiarize herself with the story of Honest Abe Lincoln and the Greenbacks, she wouldn't have made such discrediting statement. Mr. Lincoln very much hated the Constitution; he and his crew turned the Union of sovereign States into an empire under the control of a centralized government. The money of the Constitution, as Miss Coogan knows, is coin, made of gold, silver, or copper; and the Greenbacks were notes promising to pay coin.
As for the below quote which Ms. Coogan imagines to be from Lincoln:  unfortunately for the regurgitators, so far no one was able to produce the original of this alleged letter to Thomas Elkins.
The bonded debt established by Lincoln's crew has not been paid off since !]

Abraham Lincoln, by the following quotation, proved that he understood the private control of money :

“As a result of the war, corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until wealth is aggregated in the hands of a few and the Republic is destroyed.  I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of the war.”

President Garfield publicly stated that the hand that controls the money supply, rules the nation.  What hand sent Guiteau ?

---[Lack of knowledge, again; Mr. Garfield has always been a spokesman for gold and bond interests.]

An honest, constitutional money system is the one thing that international money magicians will not stand for.  Woe to the scientific man who attempts to teach the people common sense in money systems, as envisioned by the founders of the Nation.  Benjamin Franklin, in his autobiography, stated that the refusal of George III to allow the colonies to continue to operate an honest colonial money system, which permitted freedom of the ordinary man from the clutches of manipulators, was probably the prime cause of the American Revolution.  Franklin was perhaps the wisest man this continent has ever produced;  he was a great thinker and statesman.

You are invited to consider what we have in America.  Have you consented to be “tricked” out of your heritage, your children’s and your grandchildren’s ?  You are asked to decide whether both you and your descendants wish to live in peace and prosperity, secure under the kind of money system visualized by the Founders of this Nation, and their faithful disciple, Abraham Lincoln;  or in slavery, starvation and chaos.

We now witness :

America in a financial cramp — and no relief in sight !

What a spectacle !

The world’s greatest nation (richest in raw materials) laid low and writhing in an agony of monetary starvation.  Factories idle, while abundant raw mate rials are at hand but unused, and workmen starving while they linger about the gates hoping for them to be thrown open;  farmers hard at work growing their crops in sufficient abundance, but unable to find buyers at decent “prices” — that mysterious index of prosperity.

Business men able and willing to put their brains and factories to work on what is needed by the people at large, yet restrained from so doing because there is a lack of purchasing power upon which all commercial activity depends.

Clouds of “mystery” everywhere, and on every mountain top a prophet of gloom and doom in cap and gown.

We now hear :

Tirades against the Constitution and assertions that it is an antiquated failure by those who have never tried to give even a hint of how matters can really be improved within the framework of that document which is effectually fitted to human nature.

“Humanists,” “Liberals,” “Socialists,” “Internationalists” and “Communists” (but not Bolshevists strangely enough) crying for Economic Justice for the oppressed, the weak, the able and disabled, the widows and orphans, and meaning every word of their Jeremiads.

Speakers crying out against Capitalism, without a thought as to what happens to Christian people and institutions under Bolshevism — the secret inevitable of the “reforms” these same speakers are demanding at the expense of the God-given right of every rational human being to own property and enjoy the fruits of his own labors.

We never hear the following truths :

Capitalism is that system of political economy which recognizes the right of individuals to own, use and control private property.  The right to own private property conforms to the basic laws of human nature—the reward to the individual for effort and attainment.  Equality of opportunity is part of our fundamental code.  However, individuals differ;  some desire and will assume responsibilities, others decline them.  Since natural endowments differ, and individuals differ in their desire to work, the rights of individuals to obtain possessions and distinctions are God-given and inherent in human nature.

Capitalism includes the right of a working man to own his cottage;  his right to his instruments of production;  his automobile, etc., as well as the employer to own the factory which employs him in turning out products which civilization needs.  This is the point which the internationalists are not making clear.

Capitalism is not a means of exploiting the masses for the benefit of the few.  In America, as in other countries, in recent years, particularly since the World War, the masses have been thoroughly exploited, and that exploitation was made possible and executed only because class legislation and dishonest and maliciously controlled private money creation and cancellation powers—fraudulently granted—became the weapons through which the few, most of whom were internationalists, accomplished the exploiting.


That that exploitation has been accomplished — great wealth and power having become concentrated in the hands of a very few—discussions and cartoons are being widely circulated attempting to teach that Capitalism itself is a system of government which keeps a few very rich and all the rest very poor.  This is being done to make the people of the United States believe that Capitalism should be abandoned.

It is a very sinister element that is trying to tell us that Capitalism is wrong.  The bolder are stating that we have outgrown Capitalism;  the more dishonest are claiming that science and invention have necessitated discarding Capitalism and adopting a Socialistic form of government.  Those who are responsible for such misstatements would have the United States abandon Capitalism in order to further entrench the wealth and power of these internationalists.

We hear Capitalism has failed !  No, the right and pride of ownership of private property has not failed and will never cease while man is man.

The error lies not in Capitalism but in our having permitted it to be abused, and allowing a small minority, through malicious operation of the monetary system, to destroy the economic security and peace of all others.

Capitalism has now, because of the suffering of the masses, become a target at which the demagogues are aiming the very arrows fashioned by their own masters—those masters are the internationalists, the manipulators of unconstitutional and dishonest money powers.  The masters of the demagogues are the real enemies of patriotic Americans.

Under three unjust super-commandments the World is ruled by the International Money Masters :

Thou shalt not make honest the money system.”

Thou shalt not follow the money mandates of the Constitution of the United States.

Thou shalt not examine the money subject except under our direction.”

And even the prominent spiritual leaders obey their dictates !

And patriotic organizations formed ostensibly to “defend and uphold” the Constitution are strangely, but it seems intentionally, silent on the most flagrant violation of the Constitution—the delegation to private individuals of the most important national prerogative — “the power to coin money and regulate the value thereof.”

That violation is the principal cause of our overwhelming depression and Socialistic onrush.  Without Economic Liberty there can be no lasting political liberty, or religious liberty.  All forms of liberty depend upon Economic Liberty.

But are the International Money Creators the Bolshevists’ supporters and sympathizers ?

Are the international money masters and their domestic pawns the holders of money-creating privileges, contrary to the plain words of the Constitution ?  Are they the real generators, financiers, controllers, and profiteers of Communism, Socialism, Bolshevism and social disorder of all kinds ?

Let the reader decide from the evidence, to which the keys are given herein, and confirmed by many other American volumes.

Let the reader also decide as to the remedy.  Thinking in terms of “how?” and “why?” on the part of every American, and the exercise of the political sense demonstrated by his predecessors (the founders and builders of this Nation) are the only means of salvation for America, as well as for the rest of the World.

It makes no difference to which Political Party your Congressman belongs.  He is your servant.  He must do what his constituents demand.  Our enemies operate only while we American people remain uninformed.  Inform yourself and your fellow men.

“Truth is Simple”;  “Knowledge is Power.”  The question is :  Is our knowledge of truth or of falsehood ?  If the former, it imposes the duty of dissemination;  if the latter, that of exposure and rectification.  The possession of a modicum of knowledge also imposes another obligation, viz.:  that of aggregation;  and still another :  to properly use the power thus acquired;  for, while knowledge is power it is a power for evil as for good, according to the use made of it by its possessor.

John Adams wrote to Thomas Jefferson in 1787:  “All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit and circulation.”

Our Constitution, repeatedly analyzed by eminent students of political science, has been pronounced the key to the science of government.  Shall we destroy a government of laws based upon reason and supinely accept the only alternative—a government based upon force, violence, intimidation, and the negation of man’s right to use his God-given reason ?  Our Constitution, as written, recognized the basic fundamentals of human nature.

“Human law is law only in virtue of its accordance with right reason; and thus it is manifest that it flows from the eternal law.  And in so far as it deviates from right reason it is called unjust law :  in such case it is not law at all, but rather a species of violence.”

—St. Thomas of Aquinas, Summa Theologiae, Qxciii, Art, iii.

Our economic and social chaos will be increased as we depart further from the rule of reason upon which this country’s laws were based.  Our economic and social chaos can be eliminated only by restoring an honest money system and, through that step, open the way for a return to the scientific principles of government upon which human progress must be based.

Shall we be driven back to the primitive life of barter for exchange of goods and services, or shall we push aside the human obstacles and set up an honest, simple money system adequate for making all of our exchanges of goods and services readily, and with universal convenience and permanent prosperity ?


Chapter ii
The Setting for the “Mystery”


(Article I, Section 8, Part 5—Constitution of the United States)


“Congress shall have power to coin money, and regulate the value thereof.” This well-defined authority contains the hope of preserving from destruction our entire civilization.  Fortunately, for Americans and for the entire world, the founders of this country, the authors of the Constitution of the United States, knew well the supreme importance of a scientific and honest money system.  Farsighted and intelligent, they took the enormous precaution of placing the power to coin money and regulate its value, with Congress alone.  That power is the greatest power inherent in any people who constitute a civilized nation, because with money we make our exchanges of goods and services.

The founders of this nation, being learned men, knew well the effects of allowing money creation to be made a privilege and function of private individuals.  The phrase “to regulate the value thereof” gives power to control the purchasing power of all money in the nation.  Wide and sudden gyrations in the purchasing power of money have been the direct cause of more human misfortune and suffering than any other single force in the experience of civilized peoples.  To entrust that power to private individuals gives them controls which can actually jeopardize the welfare of every individual in a nation.

The subject of money has been presented in all countries as a mystery beyond the wit of all save a few “supermen” to understand.  “High finance” has been considered magic, controlled by forces unintelligible to the real producers of wealth — those who plan and labor to produce the things which people and nations need to sustain life.

Industrialists and agriculturists have been duped and the working classes have been made slaves, not because they are incapable of producing all things necessary for every family to live well; that is, to have houses, food, clothing and opportunities for culture and recreation, but simply because they did not understand the nature and operation of the money system of the United States.  Had it been honestly explained, they would never have allowed its practices to continue.  A money system, if based upon correct and honest principles, is very simple.  Those who succeeded in inducing Congress to grant unconstitutional money powers have spent many millions in political racketeering and subsidizing the teaching of false economic and monetary principles.  The possessors of these unconstitutional privileges, in reality, govern the United States.  This was well demonstrated in President Hoover’s administration.  He privately admitted that he knew the monetary policies in force should be changed.  When asked why, as President of the United States, he did nothing to effect this change, he answered that those in charge of the Federal Reserve policies would not allow him to act, or even make his knowledge known to the public.

Truth is Simple

Only falsehoods and false principles need be discussed in mysterious terms.  Any citizen of ordinary mentality can readily understand the money system of this country.  In studying it he will observe that there are two important phases:  (1) he will see how it works in the distribution of goods, domestically produced and consumed;  (2) he will see how our money system connects with the money systems of other countries.  Because the United States is a 95%, self-contained country, the all important object should be to operate the system to provide domestic purchasing power.  Since 1920, that object has been disastrously sacrificed.

A correct understanding of the nature and operation of our money system will bring a concerted demand from all real patriots for correction of the present unconstitutional, unscientific and dishonest money-creating privilege serving a few private individuals.  Some individuals have used those unconstitutional powers to destroy the economic and social fabric of our could-be great America for their own selfish advantages.

Not content with possessing these vast, dishonestly acquired privileges, which have concentrated the nation’s wealth in their hands, they have proceeded to use the power of this wealth to rob loyal Americans also of their personal liberties, and reduce them to slaves in the category of mere animals.  Socialism and Communism, as preached and practiced in the world today, and recognized by most Americans as false doctrines, have already to a considerable degree been saddled and bridled upon this people.  Originated and fostered by foreign beneficiaries of our institutions, these false doctrines have been used to betray America, and, under the guise of “reform” and high-sounding humanitarian appeals to laborers of all classes, are now being used to weld the chains of tyranny and oppression around the limbs, and place shackles on the brains of all save the Elect few;  in fact, to induce Americans to assist in forging their own fetters.

For the past twenty years a handful of selfish vested international interests have controlled our money system, and with it the power to manipulate our entire economic life.  If that control is not taken away from them, there is only one answer—the United States Government will be destroyed, millions of lives will be lost, years of starvation, chaos and sorrow will follow—the French and Russian Revolutions will be duplicated in America.  Those international interests who seek complete world control will have their own possessions in real property and in gold.  When other people’s properties pass into the hands of the internationally-controlled Government, under the guise of Socialism and Communism, they will, in reality, pass into their hands; because the Government will be in their hands, as in Russia.

A revolution for America is in the World Plan of the Internationalists.  It can be averted only if every loyal American will rise to the occasion and help, by such means as he is blessed with, be it knowledge, wise counsel, information, and personal services or money for spreading facts, warnings and encouragement,—and, I repeat, help those individuals who now endeavor to preserve, not only America, but all nations from a return of the Dark Ages, which followed the fall of the Roman Republic;—and will surely follow the fall of our own.  The same financiers who brought terror, starvation and murder to Russia are at work in America.

In order to destroy intangible claims on wealth, such as insurance policies and bonds of all kinds, they can execute a complete destruction of currency through a vicious inflation.  A vicious inflation results from printing and putting into circulation unlimited amounts of currency, and continuing that process until the currency is outstanding in such enormous volume that it actually has no value.  In the early stages of a vicious currency inflation, only the extremely shrewd can detect the process.  Excess money dilutes the purchasing power of all the money in circulation.  As soon as vicious currency inflation is recognized by the masses, they hasten to turn all money into actual physical property.  When that stage is reached the entire money structure of the nation is quickly destroyed.  It was done after the issue of assignats during the French Revolution;  it was repeated after the Russian Revolution.  To brave and informed people “Only that is inevitable which has already happened.”


Chapter iii
The Origin of the Practices


Fundamentally, only the Government of a nation should create money.  It should be created by the imprint of a National Government, and paid into circulation in the first instance as government expenditures.  As people’s ability to produce the necessities and luxuries of life increases, in other words, as the people learn how to use tools and machinery instead of hand labor, they are capable of producing more crops, minerals, houses, clothing, etc., etc.  As more of these things are being produced, more money is necessary in order that distribution can take place among the people constituting a nation.  Were the money system of a nation in the hands of conscientious men, they would carefully observe the growth of actual production, and as it increases, they would enlarge the supply of money, and put it into circulation in payment for some governmental operation.  When issued to pay for necessary government buildings or to pay the legitimate and reasonable costs of carrying out the government’s real purpose—to protect the person and property of private individuals—all governmental costs do not have to be met by taxation.  But additional money can only be issued as physical production increases.  Otherwise, the purchasing power of all money outstanding would be diluted.

If money were placed in circulation out of proportion to the physical goods actually produced, it would cause prices to rise, that is, the purchasing power of money would be less.  The object of an honestly operated money system is not to do that.  The object is to keep a flow of money adequate to permit distribution to take place among all producers of the nation.  That kind of money system is both scientific and honest.

Before the advent of private money-creating power, if any private individual created money and caused the imprint of a government to be put upon it, he was guilty of counterfeiting.  What he was doing was really stealing from all of the other people in the nation, because as he counterfeited money and put it into circulation, he was not only obtaining purchasing power for himself, but he was diluting the purchasing power of all holders of money in the nation.  In other words, he was increasing the flow of money without any regard to the actual physical goods existing within a nation.  His increasing the volume of money raised prices for all other people in the nation which, of course, meant that the money belonging to all other people would have less purchasing power.  When caught, he was punished very severely by the National Government, for counterfeiting is a very serious offense.  It is theft from every person having any purchasing power (money).

Any increase or decrease in the flow of money should be the function of the people acting through their duly elected representatives, Congress, and it should affect all producers of wealth in exactly the same manner.

A Beginning in Monetary Chicanery

In earlier periods of human existence, trade was conducted with various media of exchange;  cows (pecca, hence the word pecuniary), sheep, gems, salt (mined in Italy and carried over the via salaria, the salt road;  hence the word salary), skins, shells, and the wampum or beaded shells of the American Indian, as well as gold and silver.

Eventually, as population grew and trade increased, money became scarce.  Then a group of money lenders conceived the idea of using gold and silver as a basis for the issue of paper money; whereupon they proceeded to obtain legal monopolies of issue in the various countries, which carried with it the power of manipulation and economic control.

Of course, well informed people know that money itself is not wealth.  Money is simply a medium used as a reckoner or counter of wealth.  Wealth classifies into two distinct types and functions :  (1) Consumer goods, or perishable goods which are consumed or destroyed in actually motivating life;  e.g., food, clothing, etc.;  (2) Capital goods, or producer goods, which do not motivate life itself, but are instruments used in the production of consumer goods;  e.g., a factory, a freight car, a machine, etc.  These deteriorate and grow obsolete, but are not consumed by living beings directly.

Those who conceived the idea of using gold and silver as bases for money issue were able to “sell” that idea to their fellow citizens.  There was really nothing the matter with using gold and silver tokens for money, so long as the nation using them was capable of obtaining enough of these metals to increase the flow of money whenever it became necessary due to the people’s increasing ability to produce physical goods.

When people accepted the idea of using gold and silver tokens as the counters used in reckoning the actual physical wealth exchanged, they sought to have those precious metals kept in safe places.  A farseeing individual among them realized that if he would build a strong room, people would hire him to store their precious metals.  He thereupon went into business and was paid a fee for storing precious metals until the owners needed them to make whatever purchases they desired.  Those who turned over precious metals to the owner of the strong room obtained receipts for their deposits.

The people soon found that it was inconvenient to go to the strong room keeper when they wanted precious metals and, since everybody was assured that precious metal was safe in the strong room, it soon became a common practice to simply turn over the receipts for the precious metals in exchange for goods.  It was more convenient to pass a piece of paper which gave evidence that the precious metal existed, than it was to go and get the heavy metal to make the exchange.  The new owner of the receipt did not take it to the strong room keeper because he felt that when he wanted to pass it on he could simply turn over the piece of paper.  These pieces of paper were, in reality, the strong room keeper’s promises-to-pay precious metals upon demand.

This was the original public error.  The public error lay not in trusting the private banker with their real money, but in carelessly allowing the private banker to issue his slips of paper in substitution and later in multiplicate for real money.  This placed his private seal on a parity with the seal of the Government on its lawful money.  This was the step by which eventually the money seal of the private banker actually took precedence over the money seal of the Government itself.

The strong room keeper was in touch with others in the same business throughout his nation.  We may be sure that no measures were overlooked by which the laws of nations would be made to legalize practices which were rooted in secretly established precedents rather than on honest and sound principles.

Whenever any modern Government has attempted to establish a common sense, honest, simple money system, such attempts have always been defeated by law makers who inserted trick clauses in the legislation.

It was a fatal mistake to turn over the money metal to private custodians in return for private receipts, and allow them to secretly issue multiplicate receipts, which then became money—the medium of exchange.

That was only one-half of the mistake;  the other part lay in the stupidity of the nation in legalizing this fraudulent practice, as has our Congress.


The keeper of the strong room was a clever and observant man.  He soon noticed that the people were exchanging his promises-to-pay the precious metals with one another.  He learned this upon noticing that some of those who brought these receipts to his strong room were not the ones to whom he had originally issued them, but he was perfectly willing, if people desired, that business be done in that way.

The second observation he made had very far-reaching effects.  He noticed that only a small percentage of the people presented receipts for their precious metals on any given day.  In other words, he noticed that about 90% of his total stock of gold remained in his vaults entirely undisturbed, and that only about 10% of the stored metal was necessary to take care of disbursements and receipts in the course of business.

A temptation entered his mind! Since approximately only 10% of the owners of metal ever wanted it at once, why not issue more receipts than metal actually existed in the vaults? He knew the principle was dishonest, but the temptation was great.

After thinking the matter over carefully, and finally succumbing to the temptation, he decided to begin in a small way issuing receipts for more metal than he held in the vaults.  In other words, he would increase his promises-to-pay metal beyond the amount of metal that actually existed, and collect interest on this fictitious money.  This was the original fraud, which exists even today, and is the root of all our economic ills.  Let the bankers defend the practice as they will, the fact remains that when they loan their “credit” at interest they are simply creating private money, which they can recall and destroy at will to the distress and impoverishment of the borrower, who periodically finds himself forced through artificial scarcity of “credit” money to pay back real property for the “credit” dollars borrowed.

He quietly looked around for some business man who might need more money to conduct his business.  The business man he sought was a good hard-working honest man.  When approached with the idea that the keeper of the strong room would lend him money at interest, he thought that the promise-to-pay which the strong room keeper was offering to lend him, was a receipt for precious metal which actually belonged to the strong room keeper himself.  He had no thought that it was simply a fictitious claim created by the stroke of the pen of the strong room keeper and that the gold to which it was a claim did not exist.

When the strong room keeper issued these promises-to-pay metal which did not exist, he secured from each borrower a mortgage—on his home or business—as security for the return of an equivalent amount of metal receipts.  This of course, was dishonest because he was demanding real security for his promises to-pay fictitious gold;  more than existed in his vaults.  He simply had created that promise by a stroke of the pen.  Furthermore, he gave no security to the actual owners of the metal in his vaults when he began to issue more promises-to-pay than metal existed.

After a while the strong room keeper grew still bolder and less principled.  The business man to whom he loaned a receipt for fictitious precious metal agreed to pay interest for the use of that money and agreed to return a receipt for metal on a given date.  The strong room keeper then found that his income was increasing.  He was not only getting a fee for safe-guarding metal but he was getting interest on receipts for metal which did not exist.  However, the business man was totally unaware that he was a party to a dishonest practice.

Business went along well and the strong room keeper sought other business men to whom he agreed to lend receipts for precious metal.  With the increasing of these receipts for precious metal, loaned at interest, prices began to rise and people began to notice an acceleration in the rate of business, due to the increasing supply of money which allowed more men to work and produce by supplying the medium for making their exchanges.  Business men found their profits increasing and sought to expand their businesses.  Other men hearing of the loans which the strong room keeper had made, applied for loans themselves, because they saw in a rising price structure, a chance to earn more profits.

> The strong room keeper was actually causing inflation (bankers’ money inflation), that is, he was increasing the amount of money in circulation at a faster rate than physical goods were being increased.  This was inflation, of which the people of the community were entirely unaware.


While the strong room keeper was increasing his promises-to-pay at a rate faster than the community was able to produce goods, prices were rising sharply.  Rising prices are always caused by increasing the money flow faster than the actual physical volume of goods is increased.  If the two are increased in the same proportion, production and distribution of increasing amounts of goods can take place without sharp price rises.  While this sharp price rise was taking place, business activity was at high levels.  There not only was no unemployment in the community, there was an actual shortage of labor.  The community was happy.  The members of every family who wanted to work were employed and had the purchasing power to buy the shoes, clothes, food, furniture, houses, etc., which were being produced.

The teachers in all of the schools had noted that the children were doing very good work.  They came to school well fed and clothed and they radiated the happiness that prevailed in their homes.  The charitable organizations in the community found their services unnecessary.  Crime almost disappeared.  The people wanted to work;  there existed the raw materials and machinery with which to work, and there was a sufficient supply of money which made it possible for them to exchange their products for those of other workers.

There was not too much money in the community, but it had been issued too quickly and had caused sharp price rises.  Had it been increased only as production was increased, those unhealthy price rises could not have taken place, but there was not too much money.

There was, however, one very dangerous aspect in the situation.  Ninety percent of the money which was in circulation had been created dishonestly by the strong room keeper.  It consisted of his promises-to-pay precious metal which he did not have.  He had issued them as loans and he alone had complete control over them.

The people did not realize that he had issued receipts for non-existent precious metal, and they were unaware that the strong room keeper had power to take away their opportunity to earn a livelihood and, hence, their happiness.  We observed before that the strong room keeper in issuing these promises-to-pay, had taken mortgages on homes, farms and factories.  He now held mortgages on a substantial part of the people’s physical properties.

The strong room keeper realized that he must not expand beyond ten times the amount of metal he had in his vaults, for his experience had taught him that even in a rising price structure, it would be very dangerous to issue promises-to-pay in a greater ratio than ten to one.

He needed real money (precious metal) equivalent to about 10% of his promises-to-pay in order to keep up his deception, for about 10% of the transactions over his counter were in real money !  Today the practice is accepted as “sound” because it is ancient and has been unwittingly legalized;  it is so accepted only because of plausible arguments propagated by those who profit thereby.

Once those promises-to-pay fictitious metal had been spent by clients who borrowed from him, the new holders had exactly the same claim on the gold in his vaults as did those first individuals who had actually brought gold to his vaults.  If something should happen to disturb the “confidence” of the people (every one knows “confidence” is the essence of this kind of banking, even today), he might be confronted very quickly with demands for more gold than he had in his vaults.

As soon as the strong room keeper stopped lending additional promises-to-pay, he noticed that prices ceased to rise.  He began to wonder if some of the later borrowers might not have difficulty in selling their products, due to the fact that the volume of money was now stationary.  He decided to curtail somewhat.  He also saw an opportunity to take an undue advantage of all the people in the community.

Remember, he held mortgages on a number of their businesses and homes.  His borrowers had given him these mortgages in good faith, believing that he had loaned them receipts for actual precious metal;  never understanding that he was building up a collapsible money structure.  They had no idea that they had borrowed and were paying interest on receipts for fictitious metal, and that the strong room keeper by merely calling in these receipts for non-existent metal could cause a serious collapse in prices and values.

The strong room keeper decided to act.  He there, upon summoned the owner of one of the local factories before his loan period expired.  He called him to his office and after a few very courteous inquiries, he told him that he felt the “business situation” warranted that some of his loans should be recalled.  He very carefully explained to the factory owner that he, as the strong room keeper, was really the guardian of all business in the community and that he was bound to see that the business men keep their operations within reasonable limits.

The factory owner was very much surprised.  He knew that he had given ample security for the loan, for he had given a mortgage on his factory, worth many times the amount of the loan.  He also knew that his business was in good condition for he was showing very satisfactory profits, and he had no accumulation of inventories.  He began to tell this to the strong room keeper.  The strong room keeper grew very serious.  After all, he told the factory owner, the strong room keeper’s first obligation was to the entire community.  He could observe what was going on in all businesses much better than any individual business man; that, after all, business men were human beings and were readily carried away by enthusiasm, ambition, and even greed.  Therefore, the responsibility fell naturally and directly upon his shoulders to keep the business men in line.  He further told the factory owner that the most essential thing in any business is to keep one’s standing with the strong room owner and that in the name of “sound” lending, it would be necessary for him to curtail at this time.

Of course, he felt very sorry, but he just had to guard the “best interests” of the community.  After all, he must be guided by the “laws of economics” alone.  He could not be carried away by his desire to see full employment maintained for all of the people, or the community’s desire to produce and distribute enough food, clothing and shelter for every family to have a reasonable share, as was possible because of the availability of raw materials and their ability and desire to work.


The factory owner had no alternative.  He left the strong room keeper’s office glum and discouraged.  Why was it necessary to call his loan;  to cancel out what he was using for money ?  He knew that there were no inventories piling up in any of the businesses in the community.  He knew that labor was giving an honest day’s work for an honest day’s pay.  He could not understand why the harbinger of disaster had to descend upon his business.  He felt resentful that the strong room keeper had said business men were greedy.  He had worked very hard to build up his business and was not in any manner dissatisfied with any of the people who were working for him.  If he were forced to realize cash to pay that loan, he would have to curtail his operations.  That meant he would have to offer some of his goods for sale at much lower prices, and that he would have to discharge some of his employees.  The thought of having to tell them saddened him.  Why, when the community was getting along so well, did it have to be disturbed by a “business depression”?  The community had demonstrated its ability to produce food, clothing and shelter for all of the people—why did the money man now have to start disturbing that situation ?

He thought the matter over very carefully that night but could see no way out, excepting to cancel his orders for more raw material, and sell some of his goods at lower prices for quick raising of cash.  The next day he notified his customers that they would have to pay him immediately.  Each of them, of course, had to face the same situation that the factory owner faced.  Each one in turn had to write to his customers and request the payment of accounts.  Once set in motion the force was cumulative.  Due to the sudden forced offering of goods, prices began to drop severely in all businesses.  Alas !  Soon working men began to get slips in their Saturday night envelopes telling them that work had to stop.

Meanwhile, prices continued to drop.  The strong room keeper called in other borrowers.  Some he ruthlessly told to pay their loans.  Others he told he would have to raise the interest rates on their loans.  Money was now “scarce” and in order to continue accommodating them, it would be necessary to increase the rate from 4% to 8%.  They saw that prices had already fallen and knew they would have to sacrifice their inventories in order to obtain cash, so they agreed to pay the 8%.  Collecting 8% meant that the strong room keeper could still, after squeezing his loans by 50%, enjoy the same income he was receiving when all of his promises-to-pay were outstanding.

He kept up the process of calling loans, forcing business men to sell their inventories and discharge their employees, until prices had dropped to the point where some of the business men were not able to sell their inventories and realize sufficient money to meet their loans.  These business men he called in and in a very sympathetic tone of voice explained to them that they were simply victims of “economic laws” and that “economic laws” could not be violated.  The strong room keeper had “to safeguard the money of the community.”  Though he disliked to act, it would be necessary for him to foreclose.  He thereupon took over their businesses.  Of course, he shed a few tears and told the business men he really felt very sorry that such a situation arose, but that his first duty was to safeguard the money of the community and that the “laws” of economics simply could not be violated by mankind.

This meant foreclosures.  The business men had borrowed the banker’s loans of imaginary or “confidence” money, secretly manufactured, actually sheer counterfeit;  and now because the volume had been contracted must repay the “loans” with real wealth.  The business men thus had to turn over to the strong room keeper the results of many years of hard work.  They had built their factories and stores over a period of years; they now had to turn them over to the keeper of the strong room and begin all over again, or try to find employment working for some one else.  This process went on until the strong room owner had called in one-half of his promises-to-pay, and cancelled one-half of the money in the community.  By simply “destroying” one-half of the fictitious money he had created he enriched himself by foreclosing on real wealth pledged against the loan of his fictitious money.  Business men had pledged their real wealth (factories and properties) to obtain a loan of money which had nothing behind it except the money man’s purely imaginary “credit”—on which they had paid interest.


The community had changed from a happy prosperous one to a scene of discouragement, disillusionment and poverty.  Many working men had been discharged;  many business men had lost their businesses and their homes; many farmers had lost their farms.  The school children were no longer well fed and clothed.  The demands for charity were overwhelming.  Dissatisfaction and crime in the community became a serious problem.

The principal Christian clergyman in the town was a kindly, sympathetic gentleman.  He wisely suggested that a committee be appointed to discuss the plight of their community, and see if there was not some solution to the serious mysterious trouble.

That suggestion was an excellent one.  Therefore, two clergymen, two business men, the Mayor and one of the aldermen were asked to meet with the strong room keeper to discuss the town’s problems.  The business men were open, frank individuals and when asked for their opinions they said they believed the problem was a monetary one; that there simply was not as much money in the community as there had been before the trouble started.  They pointed out that the same farms, factories, men and women were there and that, as they saw it, the one thing lacking was a sufficient amount of money in circulation to carry on production and distribution to effect the exchange of goods between various classes of producers and workers in the community.  One of the clergymen spoke and said that he did not claim to understand the intricate “laws of economics,” but that he was inclined to believe that the business men were right in their opinions.

However, the Mayor spoke.  He said he knew “the people themselves were to blame” for the condition they were in.  After all, they had been getting along very well and some of them had grown careless.  “Why, some of the working men were even buying new furniture for their homes, and some working men’s families had gone so far as to have their children taking music lessons.”  Of course, he realized that the town had made a great mistake when it had exceeded the bounds of good judgment by building a recreation park for the children.  He admitted that the city officials themselves had been carried away, and that they regretted ever having proposed building a recreation park, for now they realized that the people were unable to pay for it because of the business depression.  His thought was that it was too bad that the “laws of economics” were so rigid, but that human beings would simply have to obey them, and obeying them meant drastic economy on the part of everybody—and starvation for some of the less fortunate people—in the community.

The strong room keeper smiled at the Mayor and approved of his statements.  Here was one man who understood “economic laws.”  Of course, this Mayor did not understand how the strong room had been operated.

The strong room keeper, having heard from the other gentlemen, it was now his turn to speak.  He cleared his throat and in a very sad voice told the committee that he “regretted more than any one in the community” that the “laws of economics” were so rigid and did place such burdens on mankind, particularly upon the weaker members of the community.  It made him very sad to see undernourished and poorly clad children, and old and emaciated people without the wherewithal to live in peace, but man did not make the “laws of economics” and he, as a guardian of the community’s money could do no other than recognize those bitter laws.  There was simply no solution to the problem except economy.  He pointed out that he knew there was an “over supply” of food, clothing, houses, etc., and at the same time many people in the community were in destitution and want, from living in enforced and illogical idleness.  But the community would have to face its problem courageously and they would simply have to economize more until all the debts foolishly contracted had been wiped out; that is, until the people either paid what they owed, or surrendered their property.  That was the only “sound” solution.  He knew that the people wanted a “sound solution.”  They certainly had no desire to violate the “laws of economics.”

He blamed the business men for contracting debts “foolishly,” but carefully glossed over his own origination of the loans, his own earlier approach to those same business men with offers of his “surplus” funds for their business purposes.

The business men were disgusted but they saw it would be folly to incur the wrath of the strong room keeper for, after all, if they did, and things ever did change, they personally would be unable to borrow from the strong room keeper and, hence, would be unable to partake of any future business opportunities.  They simply had to accept what common sense told them were false conclusions regarding the “laws of economics.”

The strong room keeper suggested that a resolution be drawn up stating that the consensus of opinion was that the community had been extravagant;  business men had grown greedy (that is, all but the smug lender of counterfeit money);  working men had become careless and shiftless, and that now they were only paying the price of their folly.  There was no solution to the problem except “rigid economy.”  They admitted there was a vast store of unsalable clothes, food and houses in the community and regretted the unfortunate plight of the hungry and destitute, but the community would have to be led by courageous men, and courageous men could only recommend economy.  Economy meant that they would all have to “tighten their belts” and buy less and, of course, all would have to hold the unfortunate members of the community in “sympathy”;  they would have to arrange some method of gathering up a pittance from the more fortunate people in order to prevent actual starvation.

One of the clergymen suggested that every one in the community give a certain percentage of his income into a fund to take care of the destitute.  That suggestion did not meet with the approval of the Mayor or the strong room keeper.  “It would be unwise to make any mandatory points in the resolution.”  It should simply be suggested that everybody do what he could and leave it to his own generosity to contribute.  That suggestion was especially in concurrence with the strong room keeper’s ideas.


Chapter IV
A Foreign Snare


While the depression was in its blackest phases — property was being foreclosed and more people were daily suffering increasingly from want — the strong room keeper received a very carefully written letter from a distant large city.  It stated that the strong room keeper in that city had something of great importance to discuss with him.  It was in connection with the “welfare” of his community.  The large city strong room keeper had noted that a serious business depression prevailed in that section of the country.  His own section had also suffered from a depression but it had not been so severe as the one in the community discussed.  The strong room keeper was, of course, interested in anything that was for the “welfare” of his own community, because he was vitally interested in “service.”  He accepted the invitation.

When he reached the large city office on the appointed day, he there met the strong room keepers of several other communities.  This must be an important meeting, he thought to himself, and felt flattered that he had been included in the invitation.  The large city strong room keeper invited them all to a very sumptuous luncheon.  After they had enjoyed plenty of good food and had lighted cigars, he arose to address the group.  In a very grave voice he told these men from the smaller communities that he had observed that some of them had quite serious depressions in their districts, but that he supposed each of them knew how to guard himself, and that personally they were now in a better condition than ever before.  They probably now owned a great deal of property which had been foreclosed, and that as soon as conditions began to right themselves they all would be in a position to sell those properties they had taken over and thus reap a big profit.

He congratulated them all for their business judgment and acumen and stated that he had a suggestion to make which he felt would be profitable to all present.  The strong room keeper felt flattered, in the course of the speech, for he noticed that the large city strong room keeper began to address them as “Bankers.”  After all, he was a banker, and he was operating in his community on exactly the same principles as was the largest bank in the biggest city.

The large city banker told them he had recently been visited by a banker from London.  The London banker had pointed out to him great advantages which would accrue to all bankers in this country, both large city and community, if all would “cooperate.”  Since all community bankers placed the “welfare” of their communities foremost in their consideration, he felt in conscience bound to call them for a discussion of the proposals of the London bankers.  Of course, London typified all that was “learned and dignified” in money matters.  The fact that the country in which these community bankers did business was practically selfcontained was not to be considered.  After all, mankind’s highest interest could be furthered only by recognition of that type of “brotherhood” so admirably espoused in internationalism.

The large city banker mentioned his great admiration for the financial acumen of the London banker and felt constrained to accept the plan proposed as infallible for the promotion of world “prosperity” and “good will.”  Since it was difficult to improve upon the London banker’s use of technical terms, the plan could best be presented if the letter prepared by the London banker were read :

“The Community Bankers of America,
“Honorable Gentlemen :

“Realizing the grave responsibilities you carry as the guardians of all industry, and knowing your supreme aim to increase the security of all industry, I feel constrained to recommend most urgently for your wise consideration, a plan for genuine world cooperation.

“I have noted that you have recently had a down swing in the business cycle and I perceive this would be a very propitious time to weld together ties for our mutual benefit.  I have suggested to an honorable fellow banker in your leading city that he become the agent for the Bank of England.  He is agreeable to the plan and awaits only the concurrence of your infallible decision.

“I have noted that the people in your local communities have, through wisely handled publicity, become convinced that your country is producing too much wheat and other agricultural products.  I also note you have demanded payment of about one-half of your promises-to-pay and made very heavy foreclosures.  I judge you are about ready to make your plans to begin another upward swing of the trade cycle (credit cycle).

“You must now be in a position where you can soon begin to reissue your promises-to-pay.  As this is done, of course, with the rise in raw material prices and real estate values, you and your intimate friends will be able to reap handsome profits through the sale of some of the properties you now hold.  I am sure your banks (strong rooms) are in good order and business men will be anxious to cooperate and work doubly hard to rebuild their businesses.

“They have shown that they love work, and you have demonstrated a praiseworthy willingness to allow them to indulge themselves in their peculiar fondness for productive activity — for a consideration to you.  Only your willingness to lend your credit has made it possible for your people to make their exchanges.  Their confidence in you (your ‘credit’) has actually been their money !  To their interest payments they really should add grateful blessings to you for the vital ‘service’ rendered by their confidence in you.

“I further note that your country could well undertake some capital expansion.  More railroads and steel plants could be built, more farm machinery factories should be added;  in the merchandising field I believe you are ready for some mail order houses.

“I have therefore suggested to your worthy leader that some highly regarded British bankers place some of their promises-to-pay (loans) on a long term basis for your country.  A New York banker will act as our agent.

“You realize that if large amounts of long term promises-to-pay are placed for your country, it will be necessary to send both interest and principal payments to London in the form of raw materials, particularly wheat, cotton and pork products.  An opportunity to export some of your ‘surplus’ food supplies will most assuredly be a ‘blessing’ to your good people at this time.

“In order to insure smooth working plans and full cooperation for mutual benefit, it will be necessary that you place a part of your promises-to-pay on the books of your worthy large city banker.  These promises-to-pay must constitute a reasonable part of your entire loans and it will be necessary that you follow very carefully all the suggestions made from time to time.  You understand that world trade requires constant ‘cooperation.’

“We will, in addition to placing large long term promises-to-pay for your country for its development, also assist your country by placing some short term credits with your reliable and worthy leading bankers.

“We will be very happy to have your country ship us quantities of wheat, cotton and pork products.  Your country will then have the inestimable benefits of the great Liverpool and Manchester markets.  It will be much better for America to have its agricultural price levels for both domestic consumption and export determined entirely in England.  England is so experienced and astute.  Her markets are so much more reliable than your own ever could be.  The great commodity markets in England have been very wisely built, and men throughout the world look with awe at their movements.

“The commodity exchanges in your own country will act as mirrors for the great English markets.  They will be efficient branches.

“If, from time to time, we find it necessary to withdraw substantial amounts of our short term promisesto-pay from New York, it will, of course, be essential that you cooperate to the extent of calling in your promises-to-pay simultaneously.  If we are to carry the responsibility of determining world markets in all raw materials, we will have to have complete cooperation in all of the great countries.  When the ‘requirements of business’ necessitate our withdrawing large amounts of short term promises-to-pay, it will also be necessary for you to take drastic steps to curtail your loans whenever notified by our agent in your great New York City.

“I shall await your judicious decision.  May I wish your great country progress under its worthy Bankers.

Cordially yours,

One Community Banker was too Shrewd —
He Spoke Almost too Plainly in this Intimate Group

The community bankers stared at each other.  The large city banker saw that the letter had not impressed as he desired.  He thereupon hastened to amplify by pointing out that cooperation with the London bankers would give each community banker a much greater diversification on his promises-to-pay.  Instead of all of the promises-to-pay being outstanding in the local community, the small banker would be able to place some of his promises-to-pay in New York.  In fact, it would even be possible for him to send promises-to-pay to New York simultaneously with his withdrawing them in his local community.  In other words, he could create more local business depressions, thereby getting title to more properties, and while they were in progress not be without earning income on as many promises-to-pay as he dared issue.

Then, too, it would be better not to have all of the promises-to-pay in the local community, for there would be much less danger of some local situation dis turbing the “confidence” of the people.  Even one local situation might cause many people to demand more metal for their promises-to-pay than he actually held, and thus expose his fundamental self-created insolvency.  If a substantial part of his promises-to-pay were not in the local community, that danger would be diminished.

After he had gone on with the discussion, a banker from one of the local communities decided to ask some questions.  Why wouldn’t he, as a small community banker, be jeopardizing himself when he allowed the large city banker, and in turn the London banker, to decide when he had to curtail the volume of his promises-to-pay ?  He said that he had found his own judgment as to when to curtail very good, and he believed he would be better satisfied to continue operating his strong room in a manner agreeable to himself.  He had found that there was no actual overproduction of anything in his community, for when his promises-to-pay were at the maximum levels commensurate with “reasonable safety,” the people were able to purchase and consume everything they produced.

He also boldly reminded the group that this country is 95% self-contained.  To sacrifice agricultural prices to London control could, if London saw fit to do so, destroy the purchasing power of a large part of the population.  If control of the situation were taken out of his hands and placed in the hands of the banker at New York, it might create some very difficult situations.  Then, too, he said, if we allow the price levels of all of the raw materials which we produce to be determined in London, London might not adjust those prices high enough to cover the cost of production of most of our farmers.  He pointed out that not all farmers had equal costs, and in order for the majority to cover cost of production and have a reasonable profit, it would be necessary to take into serious consideration the varying costs in different parts of the country.  He knew what the costs were in his own district and he knew when the price levels were adequate to cover the cost of production and leave a profit.  He knew of other districts where actual costs were less than in his own district.  He wisely distrusted “average” figures.  He, therefore, hesitated very much to place the power to control the price levels of raw materials in London, because London might set a price on basic raw materials which would be high enough for some districts of the United States, but not high enough for most of them.

He pointed out that if the promises-to-pay were adequately expanded in all districts and kept that way, excepting when “depressions” were judicious, there would be no surplus problem.  Even under a curtailed volume of promises-to-pay (the result of having intentionally called in loans), he felt that not more than 25% of the wheat could be exported under such conditions.  Why should he allow London, which might possibly take 25% of the wheat, to determine the price levels for the 75% which would always be consumed in his own country ?  He therefore felt that, in his case, it would be much wiser to keep his operations confined to his own district.  After all, he might issue some long term promises-to-pay and build some steel plants.  He knew of no raw materials which could not be bought in his own country.  Of course, it might take longer to develop his district, but if it were done in that way, the country would be under the control of its own bankers.

The large city banker hastened to put him right :  “You understand that agriculture is a ‘mode of living’ only.  It is really not a business, and when we are looking at the long term ‘welfare’ of the country, we should not take into consideration too seriously whether the farmers in any particular districts are able to sell their products at prices adequate to cover their costs and leave a reasonable profit.  Raw material prices must always be sacrificed to the promotion of great industry.”  With a laugh he continued :

“After all, farmers are an illiterate class, and if they are given reasonable profits over too long a period, they might grow shiftless.  It’s better to keep them in their place and we can do that by controlling their price levels.  You understand if price levels of raw materials are kept down, we can then also keep down wages for city laborers.  Wages constitute an important cost of production of all manufactured goods and if they are kept low, much better profits will be available to us—the eventual owners of businesses.  Laborers also have a tendency to grow lazy and shiftless if they are allowed too much freedom.  We can very readily control wage levels, in fact, they can be controlled in all of the industrial countries of the world, by our cooperation with London bankers.  You see, London bankers will be placing loans in many other countries.

“As soon as prices of labor begin to rise, due to the fact that a particular country has enjoyed an upward swing in the cycle, it will be very simple for London bankers to keep labor also in its place by suddenly curtailing long term loans in that country.  As the operations of that country are curtailed through the withdrawal of long term promises-to-pay, long term promises-to-pay can be placed in other countries which have had less of an upward swing in the business cycle.  This constant recurrence of cycles in all of the countries, under the control of London, will tend to make laborers see that it is hopeless for them to expect to enjoy constant purchasing power and they will be satisfied to accept their inevitable periods of unemployment and ‘leisure’ whenever we find it necessary to curtail and bring about the downward phase of the business cycle.”

But another question arose in the community banker’s mind.  He courageously asked :  “If our price levels are determined at London, and we curtail our promises-to-pay whenever ordered to do so by the New York bankers, I presume the London bankers will simultaneously withdraw gold from New York and return it to London.  Am I right in that conclusion ?”

The city banker responded :  “Yes, you are right in that conclusion.  It will be necessary for you to curtail and as you curtail we will have to allow London bankers, if they so desire, to withdraw metal from this country.  You understand that London is the great gold market of the world.  London sets the price of gold and, of course, the currency of our country will be transferred into the currencies of London on a certain gold ratio.  For instance, it is proposed that an ounce of gold in New York 0.9 fine will be worth $20.67.  When wheat or other raw materials are sold in Liverpool, it will be an easy matter to convert the proceeds in terms of gold into United States dollars.  To make transfers of gold from London to New York unnecessary, London bankers will take ample precaution to place sufficient long term promises-to-pay for America in London to force sufficiently large interest payments to offset the value of the raw materials exported to London.  If London is to control, gold must always move to London, for gold is the alleged basis of the promises-to-pay.  Gold moving out of London would force a collapse of the London money structure.”

Still another question arose and the community banker spoke :  “Suppose that London should at some time decide to change the number of units of currency for which an ounce of gold could be exchanged.  If an ounce of gold could be exchanged for 20.67 dollars in New York, but London increased the number of shillings for which an ounce of gold could be exchanged, a serious disadvantage would arise for the American exporter.  With an ounce of gold exchangeable for 20.67 dollars, or approximately 85 shillings in terms of London units of currency, what could prevent London from raising the number of shillings exchangeable for an ounce of gold to 100 or 125, or even 150 ?  The number of shillings exchangeable for an ounce of gold is an arbitrary figure which London gold brokers could alter at their pleasure.

“Or what if London bankers decide to change the number of units of currency exchangeable for an ounce of gold in all of the colonial possessions of Great Britain ?  In that case, if the American farmer ships raw materials to Great Britain, in transferring his London credits into dollars, he will get fewer units of his own currency than the exporters of other countries will receive units of their currencies.  Hence, wouldn’t the American farmer be actually getting less units of currency with which he could pay his interest, taxes and overhead, and have fewer dollars left to buy industrial products ?”

The community banker realized that the great Liverpool market was the center for the agricultural exports from all of the colonies, and it would be possible for the London bankers to change the currency price of gold in the colonies and, hence, give an unfair advantage to the agricultural products from the colonies.

The large city banker smiled at this apparent lack of faith in the integrity of the London bankers.  At the same time, he was disturbed that any of the community bankers could reason out the proposition so clearly.  Many of the community bankers were shaking their heads in apparent confusion as to just what was the point of the question raised by the apprehensive community banker.

The large city banker, with a magnanimous gesture, stated that after all, community bankers should realize that London was the “center of integrity” and that they should be honored to be invited to cooperate in the great world plan;  that when such an occasion as the community banker was attempting to discuss arose, it would be time enough to worry over that problem.  After all, “integrity” was the essence of banking operations and he felt that a simple community banker had no right to question the integrity of the London bankers.

The community banker saw that it was hopeless.  He realized that he would not be able to stand out alone.  He saw very clearly that the proposition was acceptable to most of the community bankers, mystified though they were.  He therefore knew that if he refused to cooperate, he would soon become an outcast and take the chance of having the New York City banker establish someone else in his community who would, over a reasonable time, be able to take his business away from him.

He therefore wisely decided to abide by what he realized would be the vote of the majority, and although he knew the proposition was contrary to his better judgment and would be a serious disadvantage to his community and his country, he was politic enough to realize that it was time to keep those conclusions to himself.

He thereupon rose to tell the great city banker that he agreed and that, after all, London was the center of “integrity” and that his country could well adopt the plans proposed.  He felt that world cooperation would be a means of controlling farmers and laborers, which would be an advantage.


Chapter V
The “Federal Reserve” Snare

Another Snare is Created,
This Time for the Successor to the Community Banker

Many years passed.  The successor to the community banker many times regretted that his predecessor had agreed to allow himself to be controlled by London bankers but, now that his nation was dependent upon the Liverpool wheat and Manchester cotton markets and London bankers had placed large volumes of their promises-to-pay for United States in London there was nothing he could do personally but cooperate.  Many times he felt that the London bankers were ruthless in curtailing the promises-to-pay at times when it jeopardized most seriously the businesses of farmers and industrialists in his country.  However, if he raised his voice, he would simply find himself declared a public enemy by the many newspapers which the London and New York bankers now seemed able to control.

The sub-rosa, dishonest principles originated by the strong room keeper are related to call to the attention of the reader, the actual origin of our unsound and crooked private money creation practices.  In the United States we did not actually have the stage of the strong room keeper in our banking system.

The Constitution of the United States was ratified long after the development of private money creation had gone beyond the rudimentary stage of the strong room keeper.  The Constitution of the United States was intentionally written to prevent the strong room keeper’s thievery becoming the essence of the money system of the United States.

In 1791, after the death of Benjamin Franklin, Alexander Hamilton through connivery, succeeded in getting banking laws passed which were in violation of the Constitution of the United States.  These laws re-introduced the private money creation system in this country.  They re-inaugurated in toto the dishonest practices instituted by the strong room keeper.  The story of how Alexander Hamilton accomplished this dishonest legislation, and the facts regarding his own viewpoint, are told in a later chapter of this book.

The great panics of 1873, 1884, 1893, 1903 and 1907 had been serious handicaps in the development of America, but each time the great industry and thrift of the American people inspired them again to go ahead even though manipulators had repeatedly caused them to lose their properties through intentional well timed curtailment of the supply of money, the supply of their private promises-to-pay.

In 1913 the American Community banker was summoned to a very important meeting in New York.  Community bankers from all over the United States were there.  Each man was pledged to secrecy, for the discussions at this meeting were of a highly confidential nature and “intelligible only to bankers.”  The Chairman of the meeting arose in a very affable manner to address the group :

“Gentlemen :  I have the great honor of presenting to you today facts and details regarding the accomplishment of one of the greatest blessings ever be, stowed upon ‘our’ country.  You realize that ‘we’ have never had a completely unified banking system.  There have been units which have attained great strength and as they grew stronger rendered increasing ‘service’ to our country.  But there have been other lesser units which have remained really local in nature.  They have gone along and taken care of the needs of their own communities or districts, but they have never been a vital part of a real international system of banking.

“We all know that real progress is based upon ‘international cooperation.’  England has done us the great honor of assisting in the development of our country and she now asks us to establish a banking system which will more closely parallel her own system, also the system dominated in France by the privately owned Bank of France, and in Germany by the privately owned Reichsbank.  These great banking systems fit with the majestic privately owned banking system of England.  America must pattern hers after the learned banking accomplishments of Europe.

“Our great country also should have a system which will make our currency very ‘elastic.’  It is proposed that ‘we’ establish twelve great Central Banks in twelve important districts of the United States.  Each of these twelve banks will, of course, be ‘independent,’ but the lesser eleven will be expected to cooperate with the great Central Bank at New York City.

“Our country has reached the stage where, in order to move forward, we must equip ‘ourselves’ to finance foreign trade.  ‘We’ look with envy upon England who sends her goods over the seven seas.  ‘We Americans,’ if we are to gain world dignity, must prepare to imitate England in our humble way.  Under ‘our’ present banking arrangements, it is very difficult to finance foreign loans and trade.  Some large banks have done financing of that kind, but they wish to offer similar opportunities to the banks in all parts of the country.

“Supposing one of our great South American neighbors desired to purchase some steel rails.  Their railroads are backward and they must be developed.  She could not place orders for steel in the United States unless our banking structure was equipped to handle the financing.  If South America is to buy steel rails or any machinery in ‘our’ country, we must be equipped to finance long term loans (promises-to-pay) to South American countries.  Of course, you understand South America would not order steel rails in our country if the prices here were higher than they were in England, but with a banking system such as we propose, we can take good care to keep our costs of manufacturing steel rails or other machinery in line with those of England.

“We all understand that if export trade is to be carried on, domestic purchasing power must always be curtailed because if domestic purchasing power is adequate to absorb the products of manufacture, the public can really see no need in seeking export markets.  Some of our shrewd business men will say :  ‘Why should we seek foreign markets ?  Our own country is practically self-contained;  is able to absorb the output of our factories, so why should we not be wise enough to allow our own people to buy, use and enjoy our own products ?  Why should we be interested in sending our products to foreign countries and receiving from them merely promises-to-pay us at some future date ?  Wouldn’t it be much better if we would lend our own promises-to-pay to people in our own country, that our products be used in our own country ?’

“But, ah, gentlemen, if we are shrewd, we can prevent our business men from seeing those points.  If, when we are anxious to make international loans, we take good care to call in enough of our domestic promises-to-pay to collapse domestic purchasing power, our manufacturers will be only too glad to seek foreign markets, for they will believe that there is no chance to sell their entire volume of output in this country.  When they are faced with an output capacity which is greater than the domestic purchasing power will absorb, they will readily fall into the scheme we plan.  They will be very anxious to seek foreign markets.

“You understand, though, that in order for them to be able to obtain foreign markets, our wage levels have to be adjusted to the price levels of every other industrial country; that means that our domestic purchasing power has to be stifled, otherwise, our wage levels will be higher than those of other industrial countries which have a scarcity of natural resources and less modern machinery.

“We all realize that America is endowed with magnificent natural resources, also that our problem, if we bankers are to control the situation and make business men desirous of seeking foreign markets, is to control wage scales and keep them low enough so that domestic purchasing power will never be adequate to absorb the output of our factories.  We can control domestic purchasing power simply by contracting and expanding the domestic monetary structure (loans) at our discretion.  That exportable surplus which will determine the domestic price levels as long as Liverpool controls the world’s markets will give us complete control over the domestic price and wage levels, and will make all business men subject entirely to our views.

“This proposed banking system will be known as the ‘Federal Reserve System.’  It will make it possible for us to create much wider gyrations in the price structure.  Hence, we will be able to have bigger and better business cycles.  The minimum reserves required will be much smaller than under our present banking laws and you will, therefore, be able to issue a great many more promises-to-pay.  When it is time to call in these promises-to-pay and curtail the purchasing power of the people, you will be able to reap a rich harvest in real wealth by means of foreclosures.  Then too, it will be much easier to charge higher rates of interest on your promises-to-pay because we can raise rates throughout the whole country simultaneously.  That will prevent business men from raising protests against high rates, because they will have noted that the bankers in other districts have raised their rates similarly.  Uniformity of rates, when they are high, is really very essential to harmony.

“Of course, this system will be ‘Federal’ in name only.  The private bankers will own it.  Originally we will promise to share with the government the heavy profits on our monetary franchise which the government will thus place in our hands; but later on, when profits are ready for distribution, doubtless ways can be found to avoid too generous a sharing of the proceeds derived from our management.

“Under the proposed system you community bankers in the smaller cities will be required to keep only 13% ‘reserve’ against your demand deposits (promises-to-pay) and 3% against your time deposits.  You see, this will give you greater leeway.  In reality, for every dollar of real money deposited as a demand deposit, you can expand 7 plus times, and for every dollar deposited as a time deposit, you can expand 33 times.  This will provide immense possibilities for the creation of broad business cycles.

“You will keep your reserves in the Central Bank of your district.  The Central Bank of your district will be required to keep a 35% gold reserve against your deposits (‘reserves’).  This will mean that since only 35% gold reserve against deposits (your reserves at Central Bank) is necessary, $1.00 of gold in the vaults of the Central Federal Reserve Bank will support a maximum of $30.00 in your private promises-to-pay, which the people have been taught to regard as money.”

The large-city banker demonstrated further how a community bank could multiply its loans (promisesto-pay), and illustrated, arithmetically, figures presented in the preceding paragraph.

$100,000 Demand Deposits
....... 0.13 Required Reserve
$13,000 Reserve Required
$50,000 Time Deposits
...... 0.03 Required Reserve
$ 1,500 Reserve Required
$13,000 plus $1,500 equals $14,500.

“The Community bank must have on the books of one of the twelve Central Banks a deposit of $14,500.  Against this deposit (reserve) the Central Bank must have a 35% gold reserve;  35% of $14,500 equals $5,075.  Therefore, $5,075 in gold will support $150,000 deposits (loans) in the community bank.  In other words, $1.00 in gold will support $30.00 in promises-to-pay of the community bank, for $150,000 is approximately 30 times $5,075.

“This Federal Reserve System will enable us to use Government bonds (tax payers’ promises-to-pay given to private bankers in exchange for private bank ers’ unsecured promises-to-pay) as a part of our reserves in a much more efficient way than we have ever done before.  We will be able to carry on what are known as ‘open market operations.’  That simply means expanding or contracting the volume of the community bank reserves on the books of the Central Bank, by taking Government bonds in or out of community banks.

“For instance, if a community bank desired to increase its own promises-to-pay it could, by simply selling one of its Government bonds to the Central Bank, increase, its reserves on the books of the Central Bank.  A $1,000 bond sold by the community bank to the Central Bank will create a deposit of $1,000 on the books of the Central Bank.  That deposit of $1,000 on the books of the Central Bank will be sufficient reserve to support $7,000 in demand deposits, or $33,000 in time deposits.  It will be a very simple thing to expand and contract the volume of promisesto-pay by the Central Bank purchasing Government bonds from the community banks, or selling Government bonds to the community banks.  Visualize your earnings under this great European system !!

“Another great weapon will be the rediscount rate.  You understand that if one of you community bankers wishes to sell to the Central Bank one of your promises-to-pay, which is secured by the obligation of one of your local business men, you may do so.  The Central Bank will, in reality, simply take that piece of paper (a business man’s promise-to-pay which has previously been given by him in exchange for the banker’s promise-to-pay) and advance you the proceeds on it, the ‘cash’ of course being deposited to your reserve account on the books of the Central Bank.  What the Central Bank will really do is credit to you the amount that the piece of paper calls for, less the unearned interest.  The rate charged for that unexpired time is what will be known as the rediscount rate.  That rediscount rate will have a tremendous influence because it will, in reality, determine the going rate of interest on all commercial and Government loans.

“By raising it very quickly, say from 3% to 6%, or even to 8% or 9% if we wish to create a real crisis, we can bring about sudden changes in the vol ume of reserves.  For example :  if the Government bonds in your portfolio are carrying a 3% coupon rate and we raise the rediscount rate to 8%, then it would no longer be possible for the Government to finance at less than 6%.  If the new Government bonds carry a rate of 6%, no one would be willing to buy the 3% bonds excepting at a discount.  Therefore, the 3% bonds would automatically drop in price.  For example :  a bond due in ten years, at the rate of 3%, while the new bonds due in ten years were 6%, the 3% bonds would drop in price to approximately 80.  If the bonds in the portfolio of the community bank dropped to 80 its ‘reserves’ would be impaired and it would have to sell some of the bonds or call some of the loans of the business men, in order to increase its reserves at the Central Bank.  You can readily see that the rediscount rate is a powerful weapon.  Business men will never have the wit to understand that by arbitrarily raising the rediscount rate, we will be able to control the value of Government bonds.  The value of Government bonds will, in turn, control the size of the bank reserves and these, in turn, will control the volume of promises-to-pay (privately issued money) which all community banks will be able to have outstanding.

“The volume of bankers’ promises-to-pay outstanding, of course, plus the actual currency, constitutes the volume of actual purchasing power (money) of the nation.  Rapidly curtailing it causes collapses in the price structure.  This forces business men into tight places.  It forces them, in order to raise cash, to sell their inventories at a loss;  carried far enough, it forces them to sacrifice their assets in foreclosure.

“You see, the Federal Reserve System will really give us a great weapon to force business crises, and enable us to scoop up businesses and farms whenever we so desire.  In that way, we can eventually control practically all of the wealth of the country and business men can be kept in their places just as are farmers and laborers.  Of course, the public will be told that the object of the new system is to act as a ‘stabilizer’,” laughed the internationalist.

One community banker gathered sufficient courage to ask a few questions :  “Will it not be dangerous to place in the hands of a small group of men such absolute power over the lives of every one in the United States ?  Might they not be tempted to use it to their selfish advantage ?  We individual community bankers, of which there are thousands, are known by our customers intimately, and I do not believe we would have the courage or ruthlessness to go as far in collapsing our own communities as would the great Central Bankers.  After all, the Central Bankers never have to face the customers, and they are not in direct touch with the suffering incurred by collapsing the money structure.  They sit off in a distant city and are entirely unreachable by the local business men.  Even though I realize that primarily we would make a great deal less money by not having a great Central Banking System, I would be better satisfied to go along controlling the affairs within my own community.”

The banker, trained in European ways, presiding at the meeting smiled benignly at the community banker and politely told him that :  “After all, you must realize that these great Central Bankers would always keep the welfare of the country foremost in their minds.  Money is no object to them, and they will only be interested in controlling price structures to the extent of controlling greedy business men.  You know, business men are a greedy lot and unless they are controlled by altruistic bankers, they will always let their ambition and their desire to get on in the world overcome their better judgment.  The Central Bankers will be the handmaids of industry.

“Business men dream and plan of great institutions and go so far, at times, as to want their employees to partake in a substantial way in their accomplishments.  When they are going along, they grow generous and raise the wages of their employees.  Some of them even give part ownership of their plants to employees.  Of course, such practices will never do if we are to have great international cooperation, because high wages and employee-plant ownership always create high domestic purchasing power and we cannot have high domestic purchasing power and real cooperation for humanity’s best interests.

“Then too, well-paid and well-fed employees can never be whipped into accepting even altruistic bankers’ domination.  American bankers cannot afford to have laboring men more independent and free than the laboring men of England, France or Germany where for generations we have taught them their places.  If this were allowed to go on, America would soon tend to lead all countries.  That would not do, for England is the natural leader of mankind.  Our country would soon have a great immigrant problem because men and women who saw how their efforts would be rewarded in America, would seek to come to America to establish their homes.

“Gentlemen !  I must not talk further.  I have already told you of the great benefits you, as individuals, and our country as a whole, will derive from our mutual cooperation under the Federal Reserve System.  I am sure that all of you will return to your homes and begin telling your customers of the wonderful system we are about to install in America.  Tell them that it is modeled after the Bank of England, the Bank of France and the Reichsbank, and that with it, they will be able to enjoy great foreign markets, and that the length and intensity of business depressions can be better controlled.

“Be sure to see that your newspapers carry very favorable stories regarding the proposed Federal Reserve System, and as soon as practicable, see that the text books used in your communities extol the glories of the Federal Reserve System.  Young America must be taught ‘modern’ banking.”